LIQUIDITY AND BASIS OF PRESENTATION	3 Months Ended
Jul. 31, 2011
Notes to Financial Statements
LIQUIDITY AND BASIS OF PRESENTATION	NOTE 1 - LIQUIDITY AND BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At July 31, 2011, the Company had cash and cash equivalents of $4,063,322 and working capital of $15,160,556, which consisted of current assets of $41,628,054 and current liabilities of $26,467,498. For the three months ended July 31, 2011, the Company provided or generated operating cash flow of approximately $1.0 million compared to using approximately $69,000 of operating cash flow in the preceding three months ended April 30, 2011, and using $1.4 million of operating cash flow for the three months ended July 31, 2010. The Company expects to meet its cash requirements through a combination of existing cash balances, internally generated cash from operations, expense management and future operating income and existing or future credit facilities. As described in Note 4, “Debt”, for the first quarter ended July 31, 2011, the Company was in compliance with the financial covenants under the Loan Agreement compared to each of the fiscal quarters in fiscal 2011 when the Company was in default of the financial covenants under the Loan Agreement due to the operating losses incurred during the previous fiscal year. In the first quarter of fiscal 2011, the Company obtained a waiver for this non-compliance from Bank of America, N.A. (BOA). On December 22, 2010, the Company executed the terms of a forbearance agreement with BOA (the Forbearance Agreement). On March 28, 2011, but effective February 28, 2011, the Company entered into a first amendment (the Forbearance Amendment) of the Forbearance Agreement. Under the terms of the Forbearance Amendment, BOA agreed not to exercise its rights or remedies against the Company as a result of these events of default until the earlier of (a) September 30, 2011 or (b) an event of termination under the Forbearance Agreement. On June 28, 2011, the Company received a letter dated June 27, 2011 from counsel of BOA pursuant to which BOA alleged that certain events of default considered to be events of termination under the Forbearance Agreement have occurred under the Loan Agreement (including the Forbearance Agreement), including failures to (i) provide a compliance certificate pursuant to section 8.2(f) of the Loan Agreement, (ii) maintain EBITDA on a quarterly basis of not less than $425,000 for the quarter ending April 30, 2011 pursuant to section 8.3 of the Loan Agreement, (iii) maintain, on a consolidated basis, a Funded Debt to Tangible Net Worth Ratio of not more than 1.00 to 1.00 as of April 30, 2011 pursuant to section 8.4 of the Loan Agreement, (iv) maintain, on a consolidated basis, an Interest Coverage Ratio, on a quarterly (and not a rolling four-quarter) basis, of at least 3.00 to 1.00 for the quarter ending April 30, 2011 pursuant to section 8.5 of the Loan Agreement, (v) maintain, on a consolidated basis, a Funded Debt to EBITDA Ratio on a quarterly basis of not more than 21.00 to 1.00 for the quarter ending April 30, 2011 pursuant to section 8.25 of the Loan Agreement, and (vi) maintain, on a consolidated basis, a Basic Fixed Charge Ratio of not less than 1.20 to 1.00 as of the April 30, 2011 quarter end pursuant to section 2(d)(iii) of the Forbearance Amendment. The Company is currently negotiating and expects to complete the terms of another forbearance amendment with BOA. Under the expected terms of the new forbearance amendment, the maturity of the Loan Agreement will be November 30, 2011. Upon execution of the new forbearance amendment, availability under the credit facility will be limited to a lesser of (a) $3,800,000 or (b) 60% of eligible accounts receivable plus 30% of eligible inventory. Subsequent to October 21, 2011, availability under the credit facility will be limited to a lesser of (a) $3,500,000 or (b) 60% of eligible accounts receivable plus 30% of eligible inventory to November 30, 2011. Borrowings on the line of credit will bear interest at BOA’s prime rate (currently 3.25%) plus three hundred basis points at October 1, 2011, BOA’s prime rate plus four hundred basis points at November 1, 2011, and BOA’s prime rate plus five hundred basis points, if the outstanding balance is not paid at maturity. In connection with the new forbearance amendment the Company expects to pay a fee of $50,000 plus related legal and documentation fees, and an additional fee of $75,000 will be paid only if the credit line is not paid at maturity. As further described in Note 9, “Subsequent Event”, on September 1, 2011, the Company completed the sale of its St. Louis and Sarasota operations centers to Multiband Corporation (Multiband) for $2,000,000 in cash. The $2,000,000 in cash proceeds was paid to BOA to reduce the outstanding borrowings under the Loan Agreement to $3,560,977 as of September 13, 2011. Although BOA has not demanded payment on the amounts outstanding, the Company is seeking alternative debt financing and has conducted discussions with other senior lenders to replace the Loan Agreement. The Company may not be successful in obtaining alternative debt financing or additional financing sources may not be available on acceptable terms. If the Loan Agreement is called and the Company was unable to obtain alternative debt financing, the Company would need to use its existing cash and cash equivalents. Finally, as described in Note 6, “Shareholders’ Equity”, the Company has filed a shelf registration statement on Form S-3. Sales of the Company’s common stock may be offered in amounts and at prices and terms that the Company would determine at the time of the offering. The issuance of additional stock is considered to be another alternative to generate additional funds for corporate purposes. The Company may not be successful in issuing additional common stock on acceptable terms or at all. The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for quarterly reports on Form 10-Q of Article 10 of Regulation S-X and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended April 30, 2011 included in the Company’s Annual Report on Form 10-K. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of the management, considered necessary for a fair presentation of condensed consolidated financial position, results of operations and cash flows for the interim periods. Operating results for the three month period ended July 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2012. The amounts for the April 30, 2011 balance sheet have been extracted from the audited consolidated financial statements included in Form 10-K for the year ended April 30, 2011. The accompanying unaudited condensed consolidated financial statements include the accounts of WPCS International Incorporated (WPCS) and its wholly and majority-owned subsidiaries, as follows, collectively referred to as “we”, “us” or the "Company". Domestic operations include WPCS Incorporated, WPCS International – Suisun City, Inc. (Suisun City Operations), WPCS International - St. Louis, Inc. (St. Louis Operations), WPCS International – Lakewood, Inc. (Lakewood Operations), WPCS International – Hartford, Inc. (Hartford Operations), WPCS International – Sarasota, Inc. (Sarasota Operations), WPCS International – Trenton, Inc. (Trenton Operations), WPCS International – Seattle, Inc. (Seattle Operations), and WPCS International – Portland, Inc. (Portland Operations). International operations include WPCS Asia Limited, Taian AGS Pipeline Construction Co. Ltd. (China Operations), and WPCS Australia Pty Ltd., WPCS International – Brisbane, Pty Ltd., WPCS International – Brendale, Pty Ltd., and The Pride Group (QLD) Pty Ltd. (Pride), (collectively the Australia Operations). The Company provides design-build engineering services that focus on the implementation requirements of communications infrastructure. The Company provides its engineering capabilities including wireless communication, specialty construction and electrical power to the public services, healthcare, energy and corporate enterprise markets worldwide.

LIQUIDITY AND BASIS OF PRESENTATION

3 Months Ended

Jul. 31, 2011

NOTE 1 - LIQUIDITY AND BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At July 31, 2011, the Company had cash and cash equivalents of $4,063,322 and working capital of $15,160,556, which consisted of current assets of $41,628,054 and current liabilities of $26,467,498. For the three months ended July 31, 2011, the Company provided or generated operating cash flow of approximately $1.0 million compared to using approximately $69,000 of operating cash flow in the preceding three months ended April 30, 2011, and using $1.4 million of operating cash flow for the three months ended July 31, 2010. The Company expects to meet its cash requirements through a combination of existing cash balances, internally generated cash from operations, expense management and future operating income and existing or future credit facilities.

As described in Note 4, “Debt”, for the first quarter ended July 31, 2011, the Company was in compliance with the financial covenants under the Loan Agreement compared to each of the fiscal quarters in fiscal 2011 when the Company was in default of the financial covenants under the Loan Agreement due to the operating losses incurred during the previous fiscal year. In the first quarter of fiscal 2011, the Company obtained a waiver for this non-compliance from Bank of America, N.A. (BOA). On December 22, 2010, the Company executed the terms of a forbearance agreement with BOA (the Forbearance Agreement). On March 28, 2011, but effective February 28, 2011, the Company entered into a first amendment (the Forbearance Amendment) of the Forbearance Agreement. Under the terms of the Forbearance Amendment, BOA agreed not to exercise its rights or remedies against the Company as a result of these events of default until the earlier of (a) September 30, 2011 or (b) an event of termination under the Forbearance Agreement.

On June 28, 2011, the Company received a letter dated June 27, 2011 from counsel of BOA pursuant to which BOA alleged that certain events of default considered to be events of termination under the Forbearance Agreement have occurred under the Loan Agreement (including the Forbearance Agreement), including failures to (i) provide a compliance certificate pursuant to section 8.2(f) of the Loan Agreement, (ii) maintain EBITDA on a quarterly basis of not less than $425,000 for the quarter ending April 30, 2011 pursuant to section 8.3 of the Loan Agreement, (iii) maintain, on a consolidated basis, a Funded Debt to Tangible Net Worth Ratio of not more than 1.00 to 1.00 as of April 30, 2011 pursuant to section 8.4 of the Loan Agreement, (iv) maintain, on a consolidated basis, an Interest Coverage Ratio, on a quarterly (and not a rolling four-quarter) basis, of at least 3.00 to 1.00 for the quarter ending April 30, 2011 pursuant to section 8.5 of the Loan Agreement, (v) maintain, on a consolidated basis, a Funded Debt to EBITDA Ratio on a quarterly basis of not more than 21.00 to 1.00 for the quarter ending April 30, 2011 pursuant to section 8.25 of the Loan Agreement, and (vi) maintain, on a consolidated basis, a Basic Fixed Charge Ratio of not less than 1.20 to 1.00 as of the April 30, 2011 quarter end pursuant to section 2(d)(iii) of the Forbearance Amendment.

The Company is currently negotiating and expects to complete the terms of another forbearance amendment with BOA. Under the expected terms of the new forbearance amendment, the maturity of the Loan Agreement will be November 30, 2011. Upon execution of the new forbearance amendment, availability under the credit facility will be limited to a lesser of (a) $3,800,000 or (b) 60% of eligible accounts receivable plus 30% of eligible inventory. Subsequent to October 21, 2011, availability under the credit facility will be limited to a lesser of (a) $3,500,000 or (b) 60% of eligible accounts receivable plus 30% of eligible inventory to November 30, 2011. Borrowings on the line of credit will bear interest at BOA’s prime rate (currently 3.25%) plus three hundred basis points at October 1, 2011, BOA’s prime rate plus four hundred basis points at November 1, 2011, and BOA’s prime rate plus five hundred basis points, if the outstanding balance is not paid at maturity. In connection with the new forbearance amendment the Company expects to pay a fee of $50,000 plus related legal and documentation fees, and an additional fee of $75,000 will be paid only if the credit line is not paid at maturity.

As further described in Note 9, “Subsequent Event”, on September 1, 2011, the Company completed the sale of its St. Louis and Sarasota operations centers to Multiband Corporation (Multiband) for $2,000,000 in cash. The $2,000,000 in cash proceeds was paid to BOA to reduce the outstanding borrowings under the Loan Agreement to $3,560,977 as of September 13, 2011.

Although BOA has not demanded payment on the amounts outstanding, the Company is seeking alternative debt financing and has conducted discussions with other senior lenders to replace the Loan Agreement. The Company may not be successful in obtaining alternative debt financing or additional financing sources may not be available on acceptable terms. If the Loan Agreement is called and the Company was unable to obtain alternative debt financing, the Company would need to use its existing cash and cash equivalents.

Finally, as described in Note 6, “Shareholders’ Equity”, the Company has filed a shelf registration statement on Form S-3. Sales of the Company’s common stock may be offered in amounts and at prices and terms that the Company would determine at the time of the offering. The issuance of additional stock is considered to be another alternative to generate additional funds for corporate purposes. The Company may not be successful in issuing additional common stock on acceptable terms or at all.

The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for quarterly reports on Form 10-Q of Article 10 of Regulation S-X and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America. Accordingly, the unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the fiscal year ended April 30, 2011 included in the Company’s Annual Report on Form 10-K. The accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) which are, in the opinion of the management, considered necessary for a fair presentation of condensed consolidated financial position, results of operations and cash flows for the interim periods. Operating results for the three month period ended July 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending April 30, 2012. The amounts for the April 30, 2011 balance sheet have been extracted from the audited consolidated financial statements included in Form 10-K for the year ended April 30, 2011.

The accompanying unaudited condensed consolidated financial statements include the accounts of WPCS International Incorporated (WPCS) and its wholly and majority-owned subsidiaries, as follows, collectively referred to as “we”, “us” or the "Company". Domestic operations include WPCS Incorporated, WPCS International – Suisun City, Inc. (Suisun City Operations), WPCS International - St. Louis, Inc. (St. Louis Operations), WPCS International – Lakewood, Inc. (Lakewood Operations), WPCS International – Hartford, Inc. (Hartford Operations), WPCS International – Sarasota, Inc. (Sarasota Operations), WPCS International – Trenton, Inc. (Trenton Operations), WPCS International – Seattle, Inc. (Seattle Operations), and WPCS International – Portland, Inc. (Portland Operations). International operations include WPCS Asia Limited, Taian AGS Pipeline Construction Co. Ltd. (China Operations), and WPCS Australia Pty Ltd., WPCS International – Brisbane, Pty Ltd., WPCS International – Brendale, Pty Ltd., and The Pride Group (QLD) Pty Ltd. (Pride), (collectively the Australia Operations).

The Company provides design-build engineering services that focus on the implementation requirements of communications infrastructure. The Company provides its engineering capabilities including wireless communication, specialty construction and electrical power to the public services, healthcare, energy and corporate enterprise markets worldwide.