DISCONTINUED OPERATIONS

3 Months Ended

Jul. 31, 2015

Discontinued Operations

DISCONTINUED OPERATIONS

NOTE 5 - DISCONTINUED OPERATIONS

The Company previously disclosed the details regarding the sales of Pride, BTX, and substantially all the assets of its Seattle operations in its Form 10-K filed for the year ended April 30, 2015.

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 and the balance of the purchase price was paid at the August 14, 2015 closing of the Transaction (see Note 8 - Subsequent Events).

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 $656,000 and $969,000 as July 31, 2015 and April 30, 2015, respectively. The revenue results from the China Operations are included in discontinued operations for the quarters ended July 31, 2015 and 2014.

Since the Transaction closed on August 14, 2015, the Company has determined that the activity of the China Operations should be classified as discontinued operations for the quarters ended July 31, 2015 and 2014. In addition, during the year ended April 30, 2015, the Company had completed the sales of Pride, BTX, and substantially all of the assets of the Seattle Operations. As a result, the Company has reported the financial activity of Pride, BTX and Seattle as discontinued operations for the quarter ended July 31, 2014. The following is a summary of the operating results for the discontinued operations as follows:

	For the three months ended
	July 31,
	2015		2014
Revenue	$	839,969	$	3,976,501
Costs and expenses:
Cost of revenue		546,296		2,843,586
Selling, general and administrative expenses		111,324		1,018,449
Depreciation and amortization		80,971		476,246
		738,591		4,338,281
Operating income (loss) from discontinued operations		101,378		(361,780)
Interest expense		49,234		66,919
Income (loss) from discontinued operations before income tax provision		52,144		(428,699)
Income tax provision		10,883		9,415
Income (loss) from discontinued operations, net of tax		41,261		(438,114)
Gain from disposal		-		798,896
Total income from discontinued operations	$	41,261	$	360,782

The following table summarizes assets and liabilities held for sale for the Seattle and China Operations as of July 31, 2015 and April 30, 2015:

	July 31,  2015		April 30,  2015
Assets
Current assets:
Accounts receivable, net of allowance	$	4,475,826	$	4,264,451
Prepaid expenses and other current assets		162,780		34,800
Deferred contract cost		399,353		267,000
Total current assets held for sale		5,037,959		4,566,251
Property and equipment, net		964,211		963,119
Other assets		14,000		14,000
Total other assets held for sale		978,211		977,119
Total assets held for sale	$	6,016,170	$	5,543,370
Liabilities
Accounts payable and accrued expenses	$	1,422,226	$	1,700,943
Due to related party		3,291,862		785,684
Short term bank loan		3,221,400		3,224,180
Total current liabilities held for sale		7,935,488		5,710,807
Total liabilities held for sale	$	7,935,488	$	5,710,807

Short-Term Bank Loan

As of July 31, 2015 and April 30, 2015, the China Operations had a short-term bank loan of $3,221,000 and $3,224,000, 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 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. Subsequent to July 31, 2015 this loan was repaid with funds received from a related party (see below).

Due Related Party

As of July 31, 2015 and April 30, 2015, the China Operations had outstanding payables, representing interest accrued on working capital loans and cash provided for the purpose of retiring the short term bank loan in the amounts of $3,292,000 and $786,000, respectively, due on demand to a related party, TGG. This loan is not guaranteed by WPCS. Interest expense for the quarters ended July 31, 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 $212,000 and $706,000 for the quarters ended July 31, 2015 and 2014, respectively. The China Operations accounts receivable due from TGG and subsidiaries was $0 and $0 as of July 31, 2015 and April 30, 2015, respectively.

Noncontrolling Interest

The Company presents the 40% noncontrolling 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 noncontrolling interests associated with the China Operations are presented separately in the Company’s financial statements.

Noncontrolling interest for the three months ended July 31, 2015 consists of the following:

	July 31, 2015
Balance at April 30, 2015	$	560,915
Net income attributable to noncontrolling interest		16,505
Other comprehensive loss attributable to noncontrolling interest		(431)
Balance at July 31, 2015	$	576,989