NOTE 11 - DISCONTINUED OPERATIONS

Seattle Operations

On September 30, 2014 the Company sold substantially all of the assets of the Seattle Operations to EC Company, an Oregon-based electrical contracting company for an all-cash purchase price of $1,969,000. For the year ended April 30, 2015, the Company recorded a loss of approximately $375,000 on the disposition of the Seattle Operations and at April 30, 2015 has classified $14,000 of assets held for sale on its consolidated balance sheet.

Australia (The Pride Group)

On July 31, 2014 , the Company completed the sale of Pride to Turquino Equity LLC, a limited liability company (“Turquino”), whose managing member is Andrew Hidalgo (“Hidalgo”), former Chairman and Chief Executive Officer of the Company. The closing of the sale was pursuant to the Securities Purchase Agreement, dated September 19, 2013, by and between WPCS Australia Pty Ltd (“WPCS Australia”), a wholly-owned subsidiary of the Company, and Turquino. At the closing, the Purchase Price was settled by applying the net after tax severance balance due Hidalgo under his separation agreement, dated July 24, 2013 by and between Hidalgo and the Company as payment towards the Purchase Price. The Company recorded a gain on the sale of approximately $799,000.

BTX Trader

On December 17, 2013, the Company entered into various agreements, which were expected to add a new line of business and reporting segment to the Company’s existing operations. The Company acquired software technology in the emerging Bitcoin industry of a cross-exchange trading technology platform that provided access to ninety percent of publicly available Bitcoin liquidity (the “BTX Software”).

BTX was formed in the state of Delaware on December 4, 2013. In connection with the formation of BTX, certain investors who previously purchased Notes contributed an aggregate of (i) $439,408 of Notes, along with all rights under the related securities purchase agreement, security and pledge agreement and registration rights agreement (other than the Exchange Cap Allocation and Authorized Share Allocation, as such terms are defined in the Notes) (such $439,408 of Contributed Notes) and (ii) $1,185,000 in cash, as their initial capital contributions to BTX. On December 17, 2013, BTX purchased the BTX Software and related intellectual property rights from Divya Thakur (“Thakur”) and Ilya Subkhankulov (“Subkhankulov”) in consideration for (i) the assignment of the Contributed Notes and (ii) assumption of a secured promissory note in the principal amount of $500,000, which accrued interest at a rate of 3.32% (the “BTX Note”). Pursuant to a Security Agreement BTX’s obligations under the BTX Note were secured by the assets of BTX .

On November 26, 2014, the Company and BTX entered into and closed upon a Securities Purchase Agreement (the “BTX Agreement”) with Thakur and Subkhankulov, pursuant to which the Company sold BTX to the Purchasers. The Purchasers were officers of BTX and Thakur was a director of the Company.

Pursuant to the BTX Agreement, in exchange for acquiring 100% of the common equity units of BTX, the Purchasers: (i) returned to the Company the senior secured convertible notes issued to the Purchasers by the Company in the aggregate principal amount of approximately $439,000; (ii) forfeited all outstanding stock options previously granted to the Purchasers under the Company’s incentive stock plan; cancelled the $500,000 secured note issued by BTX to the Purchasers; and (iv) agreed to terminate their employment agreements with the Company. Further, in connection with the Agreement, Thakur resigned from the board of directors of the Company.

In addition to the $939,000 of liabilities listed above the purchasers exchanged approximately $924,000 in make-whole interest amounts on convertible secured debt and approximately $99,000 in other liabilities for approximately $1,847,000 in capitalized software, $59,000 in cash and $36,000 in miscellaneous assets. The Company therefore recognized a gain on the sale of BTX of approximately $20,000. The Company no longer intends to operate in this industry.

China Operations

On June 3, 2015, the Company entered into an Interest Purchase Agreement (the “Purchase Agreement”) with Halcyon Coast Investment (Canada) Ltd. (“HCI”) to sell its 60% joint venture and profit interest in Tai’an AGS Pipeline Construction Co. Ltd., a contractual joint venture established in accordance with the laws of the People’s Republic of China (“TAGS”) in an all-cash transaction, for a price of $1,500,000 (the “Transaction”). The transfer shall be effected pursuant to a Joint Venture Interest Transfer Agreement, which the Company and HCI executed simultaneously with the Purchase Agreement (the “Transfer Agreement”). HCI paid a deposit of $150,000 to the Company upon the signing of the Purchase Agreement, which is refundable in the event the Transaction fails to close by September 30, 2015. The balance of the purchase price is due at the closing of the Transaction.

The closing of the Transaction is subject to the approval of the Tai’an Bureau of Commerce and Industry , which it expects to receive prior to September 30,2015 as it has already received the approval of the Tai’an Bureau of Foreign Affairs. The Company has determined that, as a result of this transaction, that the activity of the China Operation has been classified as discontinued operations for the years ended April 30, 2015 and 2014.

The Company records the revenue and profit from short-term contracts from its China Operations under the completed contract method, whereas income is recognized only when a contract is completed or substantially completed. Accordingly, during the period of performance, billings and deferred contract costs are accumulated on the consolidated balance sheets as deferred contract costs and deferred revenue. The Company’s accounting policy is based on the short-term nature of the work performed. Deferred contract costs include equipment lease deposits to the third party vendors of approximately $969,000 and $748,000 as April 30, 2015 and April 30, 2014 respectively. The revenue results from the China Operations are included in discontinued operations for the years ended April 30, 2015 and 2014.

Below is a summary of the operating results for the discontinued operations is as follows:

	For the years ended
	April 30,
	2015		2014

REVENUE	$	8,773,567	$	22,211,963

COSTS AND EXPENSES:
Cost of revenue		6,078,094		15,909,636
Selling, general and administrative expenses		2,963,330		4,903,350
Depreciation and amortization		1,144,056		1,092,527
Impairment loss on capitalized software		827,449		-
		11,012,929		21,905,513
OPERATING (LOSS) INCOME FROM DISCONTINUED OPERATIONS		(2,239,362)		306,450

Interest expense		245,936		241,301
(Loss) income from discontinued operations before income tax provision		(2,485,298)		65,149
Income tax provision		64,815		445,665
(Loss) from discontinued operations, net of tax		(2,550,113)		(380,516)
Gain (loss) from disposal		798,896		(104,446)
Gain from disposal of BTX		19,700		-
Loss from disposal of Seattle Operations		(374,932)		-
TOTAL LOSS FROM DISCONTINUED OPERATIONS	$	(2,106,449)	$	(484,962)

There were no assets or liabilities included in the consolidated balance sheets for the Hartford and Lakewood Operations at April 30, 2015 or 2014.

The following table summarizes the assets and liabilities held for sale:

	April 30,		April 30,
	2015		2014
ASSETS
CURRENT ASSETS:
Accounts receivable, net of allowance	$	4,264,451	$	7,350,524
Costs and estimated earnings in excess of billings on uncompleted contracts		-		616,858
Prepaid expenses and other current assets		34,800		98,245
Deferred contract cost		267,000		1,166,734
Total current assets held for sale		4,566,251		9,232,361

PROPERTY AND EQUIPMENT, net		963,119		1,947,123

Capitalized software, net		-		3,207,305

OTHER ASSETS		14,000		33,646
Total other assets held for sale		977,119		5,188,074
Total assets held for sale	$	5,543,370	$	14,420,435

LIABILITIES
Current portion of loans payable	$	-	$	115,325
Accounts payable and accrued expenses		1,700,943		2,579,350
Billings in excess of costs and estimated earnings on uncompleted contracts		-		345,108
Due to related party		785,684		778,573
Short term bank loan		3,224,180		3,195,000
Secured promissory note, related parties		-		500,000
Total current liabilities held for sale		5,710,807		7,513,356
Total liabilities held for sale	$	5,710,807	$	7,513,356

Short-Term Bank Loan

As of April 30, 2015 and 2014, the China Operations had a short-term bank loan of $3,224,000 and $3,195,000, respectively, with the Bank of China (the “Short-Term Bank Loan”) with an interest rate of 7.38% due quarterly. The original August 1, 2014 maturity date of the Short-Term Bank Loan was recently extended to July 31, 2015. Such Short-Term Bank Loan is secured by the assets of TGG only, and not guaranteed by WPCS. This loan is classified as short-term liabilities held for sale in the Company’s financial statements.

Due Related Party

As of April 30, 2015 and 2014, the China Operations had outstanding payables, representing interest accrued on working capital loans in the amounts of $786,000 and $779,000, respectively, due on demand to a related party, TGG. This loan is not guaranteed by WPCS. Interest expense for the years ended April 30, 2015 and 2014 was immaterial. This payable is classified as short-term liabilities held for sale in the Company’s financial statements.

The China Operations earned revenue for contracting services provided to TGG (noncontrolling interest in China Operations) and subsidiaries of $1,661,213 and $274,348 for the years ended April 30, 2015 and 2014, respectively. The China Operations accounts receivable due from TGG and subsidiaries was $0 and $0 as of April 30, 2015 and 2014, respectively.

Noncontrolling Interest

The Company presents the 40% non-controlling interest associated with the China Operations as a component of equity, along with any changes in the Company’s ownership interest, and will continue as such, for as long as the Company retains its controlling interest. Upon a loss of control, retained ownership interest will be re-measured at fair value, with any gain or loss recognized in earnings. Income and losses attributable to the non-controlling interests associated with the China Operations are presented separately in the Company’s financial statements.

Noncontrolling interest for the years ended April 30, 2015 and 2014 consists of the following:

	Years Ended
	April 30,
	2015		2014
Balance, beginning of year	$	846,205	$	849,138
Net (loss) income attributable to noncontrolling interest		(284,211)		11,287
Other comprehensive loss attributable to noncontrolling interest		(1,079)		(14,220)
Balance, end of year	$	560,915	$	846,205