**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-KSB/A**





**ANNUAL
      REPORT UNDER SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the year ended December 31, 2005**





**Commission
      File Number** **0-50918**





**AIRBEE
      WIRELESS, INC.**


(Exact
      name of registrant as specified in charter)





**DELAWARE**
            **46-0500345**(State
                or other jurisdiction ofincorporation
                or organization)
            (I.R.S.
                EmployerIdentification
                No.)




**9400
                  Key West Avenue, Rockville,
                  MD**
              **20850-3322**(Address
                  of principal executive
                  offices)
              (Zip
                  Code)




**(301)
      517-1860**


(Registrant’s
      telephone number, including area code)





Securities
      registered under Section 12(b) of the Exchange Act:





None.





Securities
      registered under Section 12(g) of the Exchange Act:





Common
      Stock, $0.00004 par value





Check
      whether issuer is not required to file reports pursuant to Section 13 or 15(d)
      of the Exchange Act. o





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports), and (2) has been subject
      to such filing requirements for the past 90 days. Yes x No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. x





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes oNo
x




Airbee’s
      revenue for its most recent fiscal year ended December 31, 2005 was
      $13,015.





As
      of
      July 24, 2006, the aggregate market value of the shares of common stock held
      by
      non-affiliates (based on the closing price of $0.20 for the common stock as
      quoted on that date) was approximately $6,872,055.





As
      of
      December 31, 2005, the Company had 53,637,709 shares
      of
      its common stock, $0.00004 par value per share,
      outstanding.







**TABLE
      OF CONTENTS**





**ITEM
                NUMBER AND CAPTION**
            
            **PAGE****PART
                I**Item
                1.
            
            Description
                of Business
            
            3Item
                2.
            
            Description
                of Property
            
            11Item
                3.
            
            Legal
                Proceedings
            
            11Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            11**PART
                II**Item
                5.
            
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            11Item
                6.
            
            Management’s
                Discussion and Analysis or Plan of Operation
            
            17Item
                7.
            
            Financial
                Statements
            
            26Item
                8.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            64Item
                8A.
            
            Controls
                and Procedures
            
            64Item
                8B.
            
            Other
                Information
            
            64**PART
                III**Item
                9.
            
            Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange Act
            
            65Item
                10.
            
            Executive
                Compensation
            
            67Item
                11.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            73Item
                12.
            
            Certain
                Relationships and Related Transactions
            
            75Item
                13.
            
            Exhibits
            
            75Item
                14.
            
            Principal
                Accountant Fees and Services
            
            77


ii




**FORWARD
      LOOKING STATEMENTS**




*This
      Annual Report and Form 10-KSB, including the “Management’s Discussion and
      Analysis of Financial Condition and Results of Operations,” contains
      forward-looking statements regarding future events. These statements are based
      on current expectations, estimates, forecasts, and projections about the
      industries in which we operate and the beliefs and assumptions of our
      management. Words such as “expects,” “anticipates,” “targets,” “goals,”
“projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,”
“may,” variations of such words, and similar expressions are intended to
      identify such forward-looking statements. In addition, any statements that
      refer
      to projections of our future financial performance, our anticipated growth
      and
      trends in our businesses, and other characterizations of future events or
      circumstances are forward-looking statements. Readers are cautioned that these
      forward-looking statements are only predictions and are subject to risks,
      uncertainties, and assumptions that are difficult to predict. Therefore, actual
      results may differ materially and adversely from those expressed in any
      forward-looking statements. We undertake no obligation to revise or update
      any
      forward-looking statements for any reason.*





**PART
      I**





**ITEM
      1.**  **BUSINESS**





**DESCRIPTION
      OF BUSINESS**




**Overview**




Airbee
      Wireless, Inc. is a developer of intelligent connectivity software for wireless
      voice and data communications designed to comply with the ZigBee global standard
      as well as non-ZigBee wireless mesh networks. Our software, when embedded on
      microchips or in various devices containing such microchips, will enable
      consumer and business devices to wirelessly connect to each other over distances
      of less than 100 meters. We license our software, which has been designed and
      engineered to comply with the recently released ZigBee standard for short-range,
      low-energy consumption, voice and data wireless communications to manufacturers
      of microprocessors and OEM manufacturers, thereby enabling them to develop
      an
      increasing number of wireless communications applications using Airbee’s
      software, including consumer electronics, medical equipment, sensor and metering
      equipment, and industrial automation equipment. To date, we have negotiated
      software licenses with six licensees with revenues to be determined by the
      licensees’ product commercialization. We have had negligible revenues from these
      licensees during the reporting period and do not expect to begin realizing
      revenues from these agreements until the end of the first quarter of 2006.
      Our
      customers’ commercialization of their product development will generate revenues
      from royalty payments to us, typically on a quarterly measurement
      basis.





We
      were
      organized under the laws of the state of Delaware in August 2002 to develop
      a
      portfolio of embedded wireless connectivity software. In October 2002, we
      acquired Connexus Technologies (Pte.) Ltd. and its wholly-owned
      subsidiary, Connexus Technologies (India) Pvt. Ltd., with the
      intention of securing complementary wireless technology to enhance our operating
      schema. We acquired Connexus because it was developing wireless technologies
      that were complementary to the software technologies that we were developing.
      Our embedded software could be developed at a faster rate via this acquisition
      because of its compatible technologies with the additional benefits of lower
      product cost and shorter time to market. Connexus Technologies (Pte.) Ltd.
      was
      incorporated in Singapore under The Companies Act on July 8, 2000 as a limited
      liability company. Connexus Technologies (India) Pvt. Ltd. was incorporated
      in
      India as a wholly-owned subsidiary of Connexus Technologies (Pte.) Ltd. on
      June
      14, 2001. Subsequent to this acquisition, Connexus Technologies (Pte.) Ltd.
      changed its name to Airbee Wireless Pte. Ltd. and Connexus Technologies (India)
      Pte. Ltd. changed its name to Airbee Wireless (India) Pvt. Ltd. In
      March 2004, we became a member of the ZigBee Alliance, an international
      industry group formed to facilitate the development of a global standard for
      the
      wireless data and voice communications industry. As indicated on the ZigBee
      Alliance website, the ZigBee Alliance has defined a standard for reliable,
      short-range, cost-effective, low-power wireless applications. The standard
      is
      described on the ZigBee Alliance website at www.ZigBee.com. The ZigBee standard
      current release of version 1.0 was formally released to the wireless industry
      on
      December 14, 2004. It specifies a short-range, low-power, secure wireless
      data and voice transmission baseline. Release version 1.1 is pending which
      will
      require further development of our products to respond to changes in the
      standard. With over 200 member companies, the ZigBee standard based on the
      IEEE
      802.15.4 standard for remote monitoring and control applications released by
      the
      Institute of Electrical and Electronic Engineers in May 2003 is emerging as
      a wireless standard for a host of industrial controls, telemetry, and
      in-building and home automation networking needs.




3





In
      May
      2005 we acquired a wholly owned interest in Identity, Inc., a Delaware
      corporation from an unrelated third party, Daniel R. Nelson. By mutual
      agreement, this acquisition was rescinded in August 2005.





We
      sell
      our software products through licensing agreements which call for licensing
      fees
      and royalty payments based on our customers’ shipments of their products with
      our software embedded thereon. The agreements typically run for a period of
      one
      year with the terms renegotiable upon renewal. The licensing fees typically
      run
      between $50,000 and $100,000 depending on the balance of the terms negotiated
      with royalty fees between $0.25 and $1.00 depending on quantity over time period
      and configuration of the software. In some cases, we sell the software directly
      to our customer’s client, bypassing our direct customer as far as money flow is
      concerned.





Our
      business operations are directed from the corporate offices in Rockville,
      Maryland where the CEO, President, Finance and Business Development activities
      are located. We operate marketing and sales from the San Diego, California
      area
      where the bulk of the wireless technology companies are located and where the
      ZigBee Alliance is headquartered. The engineering and development activities
      are
      conducted in our Chennai, India center which take direction from the Business
      Development and Marketing staff in the US. Direct interface with the client
      is
      managed by the marketing staff with engineering participation and technical
      issue follow-up as required. Prospective customers are identified by our
      participation in trade shows and technical events, referrals, inquiries and
      cold
      calls. We deliver the software products via the Internet through a delivery
      and
      support system which has been tailored for our use. Training and problem
      resolution is also handled via this system and supported by the development
      center in India.





We
      have
      completed the development of seven of our software
      products: (1) ZigBee Network Software (ZNS); (2) ZigBee
      Network Management Solutions (ZNMS); (3) ZigBee Development
      Kit (ZDK), (4) ZigBee Applications Profile (ZAPP); (5) ZNS(Lite) for small
      size networks, (6) ZNMS(Lite) for small size networks management; and (7)
      ZAgent, imbedded into the ZNS product to interface to the ZNMS Management
      System. These products are available for evaluation and prospective customers
      are currently testing and evaluating this software at no cost to our company.
      We
      completed the ZigBee product certification testing by an independent testing
      facility authorized by the ZigBee Alliance for the ZNS Software Stack in
      November 2005. (The ZNS product is the only one of the products listed above
      that requires certification.)





**The
      Market**




To
      date
      the ZigBee standard has had no significant penetration into the commercial
      market. The current market for wireless communication is dominated by two major
      technologies: (1) Bluetooth and (2) the IEEE 802.11b
      standard (more commonly known as “WiFi”). Both technologies are used in a
      limited application space and operate in a much higher data rate than the ZigBee
      standard. As such, we believe that we will not compete for the same application
      users as either Bluetooth or WiFi.





Bluetooth
      standard product applications are built on the originally conceived Bluetooth
      standard microprocessor, which is expensive comparatively and generally less
      reliable with the necessity of recharging the batteries with only a few hours
      of
      operation available between recharges. Alternatively, Airbee software is highly
      customizable and is platform agnostic—meaning it can be ported to run on most
      microprocessors and operating systems. Moreover, users of products with Airbee
      software embedded inside can also, we believe, achieve benefits in other areas.
      Example product applications include sensor-based systems, personal digital
      appliances (PDAs), home networking, automated meter reading, agriculture
      and healthcare. The ZigBee website provides several comparisons between the
      Bluetooth and our technologies which support our assertion as to the reduced
      cost of the ZigBee solution to the end user. The battery power consumption,
      battery life, microprocessor cost and range of operation all are factors in
      the
      cost comparison. It is important to note that the ZigBee technology is dependent
      on the software which is the “glue” which ties the elements or components
      together. The critical performance features are for the software to “manage” the
      hardware platform on which it resides to control power consumption, range of
      operation, message routing the the network, etc., all of which is required
      to be
      met in the certification process.





Our
      current market focus is on the microprocessor and radio chip manufacturers,
      module manufacturers, and application solution providers. We have had success
      to
      date on negotiating agreements with several of the significant chip and module
      manufacturers and have initiated a project with a systems solutions provider.
      We
      anticipate that in the next six to nine months, we will have agreements with
      almost all of the largest chip producers in the US and Europe.




4





The
      chart
      below depicts the comparison of the various technologies mentioned in this
      report. The frequency band in which the Airbee products operate is at the lower
      left and is in the lower data rate space (the 802.15.4 space). Future
      efforts and products fall into the other two yellow oval spectrums.









**Products**




As
      stated
      above, we have completed the development of seven of our software
      products: (1) ZigBee Network Software (ZNS); (2) ZigBee
      Network Management Solutions (ZNMS); (3) ZigBee Development
      Kit (ZDK), (4) ZigBee Applications Profile (ZAPP); (5) ZNS(Lite) for small
      size networks, (6) ZNMS(Lite) for small size networks management; and (7)
      ZAgent, imbedded into the ZNS product to interface with the ZNMS Management
      System.





We
      have
      developed the software with a focus on short-range wireless communications
      and
      platform technologies such as hand-held devices or devices which are integrated
      into applications such as building automation, automated meter reading,
      instrumentation schemes, and similar uses.





The
      table
      below identifies our current software portfolio. The completed Airbee
      proprietary peer-to-peer, star and mesh topologies are being marketed to
      customers not requiring ZigBee-compliant protocols. “ZigBee compliant protocols”
refer to standards in procedure or software. “ZigBee-compliant products” refer
      to commercially ready for sale products which have been tested and certified
      as
      compliant with the ZigBee specifications. “ZigBee-ready” refers to commercially
      ready for sale products which have been designed and produced to the ZigBee
      specifications but have not been test certified as ZigBee-compliant. There
      could
      be no difference in a product between the two designations but it is known
      only
      after certification. There may be minor changes in a certified product upon
      completion of the certification testing.





Our
      ZigBee-compliant software is projected to be available for sale and use soon
      after customer evaluation or beta testing is concluded and all customer comments
      and issues have been implemented. We expect this will occur in early 2006.
      The
      sale of our products is not necessarily dependent on certification by an
      independent third party. Our other products are software supplements to ZigBee
      compliant products and as such do not require certification and are labeled
      as
      ZigBee-compliant. The products may be sold separately or together as a group.
      This will depend on the customer and its requirements for its marketplace.




5





The
      following is a chart showing the status of the Airbee Proprietary and ZigBee
      compliant protocols:





**Name/Protocol**
            
            **Airbee
                Proprietary**
            
            **ZigBee
                Ready**
            
            **ZigBee-Compliant**Peer-to-Peer
            
            Completed
            
            Completed
            
            Testing
                CompletedStar
            
            Completed
            
            Completed
            
            Testing
                CompletedMesh
            
            Completed
            
            Completed
            
            Testing
                CompletedMobile
                Mesh
            
            Deferred
            
            Deferred
            
            Deferred





We
      have
      deferred the Mobil Mesh development until we see a market need, thereby
      conserving our technical and financial resources.





The
      peer-to-peer, star, mesh and mobile mesh protocols function in the following
      manner:




**Peer
      to Peer Topology**




The
      peer-to-peer topology facilitates mutual communication between any two Airbee
      enabled devices. Any device that has some data to be transmitted to the peer
      initially joins and gets synchronized with that peer. It’s like setting two
      clocks at the same time. Once the authentication is complete, data fragments
      are
      exchanged between the two peers. Each data fragment is validated after receiving
      from the peer device before further processing to reduce the data error rate.
      Airbee software in a peer-to-peer configuration operates in power save mode.
      The
      device is fully awake during communication with a peer and will be in sleep
      mode
      once the communication is over. It’s like a personal computer going into sleep
      mode. The device will have low power consumption due to this power save feature.





**Peer-to-Peer**









**Star
      Topology**




The
      star
      topology is much like the peer to peer connection discussed above with multiple
      peer to peer wireless connections. It is a network topology in which all the
      nodes are connected to a master node or station. The master node serves as
      the
“manager” of the network and is used for simple network
      configurations.





**Star
      Topology**










6




**Mesh
      and Mobile Mesh Topology**




Mesh
      networks are multi hop networks in which devices assist each other in
      transmitting and receiving the data through the network. Mesh networks do not
      need a controlling device to control links; instead each device acts as a
      controller or master.










Our
      Airbee mesh network in Airbee has a patent pending algorithm for connecting
      multiple devices. Each node will maintain a *Route
      table* to
      reach
      the other nodes with a number of hops. Routes between two mobile nodes in a
      mesh
      network may consist of hops through other host nodes in the network. Host
      mobility [mobile mesh] can cause unpredictable change in the route. An
      alternative route is chosen when a current route fails.





*Route
      table,* programmed
      into the node, ** allows
      the nodes to calculate the shortest path using the fewest number of hops.
      Acknowledgement time needs to be calculated dynamically based on the hops.





**Route
      table**





**S
                .No**
            
            **Route
                table of ‘I’**1.
            
            LK,
                LM2.
            
            LL,
                LM3.
            
            LJ,
                LK,
                LM





All
      Airbee mesh network devices are provided with the static route table that is
      prefixed during the commissioning of the devices.





**Shortest
      Route**




Consider
      the above routing table; source has three routes to reach the destination.
      Routes 1 and 2 have one intermediate node to reach destination and route 3
      has
      two intermediate nodes to reach the destination. Source can choose either route
      1 or route 2; now the source node can compare the hop time and choose route
      1.





**Alternative
      Route**




As
      soon
      as the source node decides to send the data packet through route 1, it uses
      L K as a
      relay and transmits the packet. If L K goes
      out
      of the network, the source will wait for an acknowledgment timeout and look
      for
      another route to reach the destination node. If a node drops out of the network,
      even temporarily, the nodes will seek and establish an alternate
      route.





**Data
      Exchange**




When
      a
      source node needs to send the data to the destination node, it can look for
      the
      shortest path and send the data using the relay node. To accomplish this, the
      source node needs to wait for availability of relay node’s medium and then
      transmit the packet. When the relay node receives the packet it looks into
      the
      route table and finds the shortest route and transmits the packet. The relay
      node will not acknowledge the packet since the destination node will perform
      the
      acknowledgement. The routing table is key to the efficient operation of the
      network and can be dynamically and remotely changed as the need
      arises.




7





**Technology**




Critical
      to the success of new devices in these areas is their ability to interoperate
      or
“talk to each other” based on industry-adopted standards. Our software is
      designed and developed to be compliant with Zigbee/802.15.4 WPAN standards.
      The
      technology on which we are focused is called “ ***spread
      spectrum*** ,”
a
      form
      of Code Division Multiplexed Access (CDMA).





Our
      ZigBee-compliant software operates in the unlicensed radio frequency bands
      worldwide, including 2.4GHz (Global), 915Mhz (Americas) and
      868Mhz (Europe). Raw data throughput rates of 250kbs can be achieved at
      2.4GHz (16 channels), 40kbs at 915Mhz (10 channels) and 20kbs at
      868Mhz (1 channel). Transmission distance ranges from 10 meters to 1.6
      kilometers, depending on power output of the radio transceiver and environmental
      characteristics such as the weather. While battery life is ultimately a function
      of battery capacity and application usage (which is under software control),
      the
      ZigBee protocol was designed to support very long life battery applications.
      Since our software products are designed to the ZigBee specification and all
      other vendors’ products are designed to the same specification, and since we
      have successfully completed the certification testing, we expect that products
      which use our software will meet the expected ZigBee battery life called for
      in
      the specifications. In some cases battery life is expected to last up to 10
      years before replacement. It should be noted again that the software controls
      the network node and as such will dictate and control battery longevity. Based
      upon information contained in the ZigBee Alliance website, users can expect
      a
      multi-year battery life when using standard batteries in a typical monitoring
      application.





**Current
      Applications**




To
      date,
      we have operated and demonstrated our products on the microprocessors or radios
      from the following manufacturers: Freescale, Texas Instruments, Chipcon, Atmel,
      SupaRule, Zilog, Infineon, ZMD, Radiocrafts, Compel, Jennic, SoftBaugh and
      any
      8051 processor. They are all semiconductor platforms on which our ZNS software
      stack operates. These customers are all testing and evaluating our software
      for
      use in their products and customer applications. Some of the hardware platforms
      have been demonstrated to interoperate with each other with our software
      embedded therein.





**Additional
      Software Products**




We
      have a
      series of additional software products which augment and extend the features
      of
      the core software embedded products.. These products fall outside of ZigBee
      specifications and do not require ZigBee compliance. Each software product
      has
      been announced and literature distributed at trade shows and conferences. All
      of
      the products have been demonstrated at trade shows. They are licensed separately
      and are designed to work together as a system.





We
      have
      successfully demonstrated the platform agnostic assertion on five separate
      hardware platforms and have done so at the WiCon American Conference, the ZigBee
      open house in Seoul, Korea and at a ZigBee open house in San Francisco.





**Airbee-ZNMS
      -ZigBee Network Management System**




Airbee-ZNMSTM
      network management software is a centralized service and network management
      system that delivers management and control of ZigBee mesh networks and
      proprietary mesh sensor networks. The system manages ZigBee networks, non-ZigBee
      networks and interconnecting ZigBee and Internet
      Protocols (IP) networks. Airbee-ZNMSTM software provides a complete
      management solution, enabling clients to easily integrate and interoperate
      with
      ZigBee enabled devices. It provides the foundation needed to meet our customers’
needs for rapid deployment of new services, while streamlining their ability
      to
      provide and monitor key network resources in deploying large networks with
      tens-of-thousands of nodes.





Airbee-ZNMSTM
      can be set-up and integrated to automatically discover and map existing IP
      and
      wireless devices that support various protocols and languages. Airbee-ZNMSTM
displays this information, intermingled with other device information from
      the
      ZigBee network, to those individuals who are responsible for the efficient
      operation of their network.





8




**Airbee-ZAgent**




Airbee-ZAgent
      is designed as an open software standard that can be embedded in any third-party
      ZigBee enabled device (as well as our own ZNS stack) for seamless management
      from an Airbee-ZNMS platform. Airbee-ZAgent collects, stores and transmits
      management data to our ZNMS. Airbee-ZAgent collects monitoring and asset
      information to enable the configuration, provisioning, monitoring and
      troubleshooting of ZigBee devices in a ZigBee network (i.e. ZAgent is
      embedded into Airbee ZNS stack).





**Airbee-ZStack**




This
      software enables ZigBee module providers, OEMs, integrators and microprocessor
      manufacturers to integrate proven non-Airbee ZigBee software with built-in
      Airbee-ZAgent software ready for management of their modules. This allows our
      ZNMS management system to be used by other ZigBee compliant software solutions.
      Airbee-ZStack is a software suite that is designed to be portable across
      microcontrollers, radios and real-time operating systems. Airbee-ZStack can
      be
      ported to any microcontroller, ZigBee radio and real-time OS environment.





**Airbee-ZAPP**




This
      software is built on the ZNS ZigBee stack and is a Serial Port Profile and
      I/O
      Mapping (SPPIO) application. It presents a set of versatile and powerful
      features to help application engineers quickly and economically deploy it in
      a
      wide range of applications. It eliminates the need for special or expensive
      software tools or programming ability to create any applications solution.
      Device configuration and network formation is easily done using a set of simple
      commands.





**Airbee-ZStudio**




This
      software enables application developers to develop new applications and extend
      existing back-end applications to a large variety of mobile computing devices
      with faster time to market and lower cost than custom coding and point
      solutions. Customers can take advantage of Airbee-Studio’s visual programming
      environment to empower developers to focus on transactional applications. This
      product is not yet available but has been announced. It is expected to be
      released in late 2007 as the expected adoption of ZigBee technology applications
      ramps up. The market opportunity will dictate the timing of the
      release.





**Competition**




Figure
      8
      Wireless, a subsidiary of Chipcon A.S., a Norwegian semiconductor company
      (recently acquired by Texas Instruments) that designs, produces and markets
      high-performance standard radio frequency integrated
      circuits (RF-ICs) for use in a variety of wireless applications,
      currently provides embedded software for wireless sensors and control networks
      based on the ZigBee standard. Its principal product is the Z-stack. Figure
      8’s
      target markets include home automation, building automation, industrial
      automation, consumer electronics (including, but not limited to, wireless
      remote controls and gaming consoles), and asset management. Figure 8 is
      considered our most serious competitor but is no longer an independent software
      company. To our knowledge, Airbee is the only freestanding software-only company
      in this ZigBee space and the only company to have a ZigBee certified
      software-only stack.





There
      are
      tangential competitors that are mostly hardware-based, but also offer software
      solutions that are either proprietary or licensed from companies such as Airbee.
      Several silicon and module manufacturers have built their own software stack,
      unique to their hardware solution. We expect other competitors to emerge if
      the
      Airbee technology becomes well understood and accepted by solutions providers
      and users in various application areas. As the ZigBee software market is in
      the
      early stages of development and/or deployment, we expect the competitive field
      to broaden markedly. It typically takes up to three to four years for a new
      standard to become widely accepted and commercialized.





Both
      Bluetooth and WiFi are established data communication standards, they operate
      at
      higher data rates and their current applications are much different from those
      envisioned by the ZigBee standard. The embedded wireless communication software
      industry is characterized by rapid change, new and complex technology and
      intense competition. We expect the intensity of competition to increase in
      the
      future. Increased competitiveness may result in reductions in the price of
      our
      products, services, lower-than-expected gross margins or loss of market share,
      any of which would harm our business.




9





Additionally,
      we may yet compete with independent software vendors who have yet to enter
      the
      market space we are in. Some of the companies that develop embedded systems
      in-house and some of these independent software vendors, such as Microsoft
      Corporation, have significantly greater financial, technical, marketing, sales
      and other resources and significantly greater name recognition than we do.





Demands
      for rapid change and the increasing complexity of the technology in our industry
      intensify the competition we face. Our competitors may consolidate or establish
      strategic alliances to expand product offerings and resources or address new
      market segments. These factors favor larger competitors that have the financial
      and technical resources to develop new technologies or to respond more quickly
      with new product offerings or product enhancements.





We
      believe that the primary competitive factors in our product space today is
      the
      single hardware platform on which other vendors’ software solutions operate as
      compared with our multiplatform capability and whether a prospective customer
      considers itself a software or hardware manufacturer.





**Business
      Strategy Evolution**




Technological
      feasibility for the Airbee UltraLite TM (forerunner
      to our media access control (MAC) software) was established on
      November 20, 2002, with completion of the detailed product
      design (V1.0). Working models for the Airbee UltraLite TM proprietary 900 MHz and the UltraLite TM 2.4GHz
      were delivered on March 7, 2003 and April 3, 2003, respectively. Our
      ZigBee standard MAC software built on the IEEE 802.15.4 standard was released
      for evaluation at the end of October 2004. We demonstrated the MAC
      performance at trade shows in October 2004. The Network and Security layers
      of
      the ZigBee certified stack were completed and demonstrated for customers in
      April of 2005 with certification achieved in November 2005. Our first
      significant license agreement was signed in April 2005. Copies of our material
      license agreements signed during 2005 are attached to this report as an
      exhibit.





Our
      internal quality assurance effort is vested with our quality assurance manager,
      who operates separately from the development team. Data is collected and
      documented by the test team and fed back to the developers for fixes as
      necessary. We also rely upon the quality assurance programs and internal
      monitoring of quality control of our customers. However, since the software
      is
      embedded at the customer location and the application software is written by
      the
      customer to its customer requirements, the proper application of our software
      will be the responsibility and under the control of our customers.





We
      have
      recently formed a new business unit whose mission is to take development
      contracts for clients using our software products as a platform on which an
      application is to run. We believe this will facilitate the use of our products
      and allow quicker time to market.





**Intellectual
      Property**




Our
      success and ability to compete is dependent in large part upon our unique
      technology. As of this date we have filed one patent and there are no other
      patents or copyrights pending at this time. Plans exist for several more patents
      dealing with the various protocols and features of the software system. We
      believe that our success is more dependent upon our technical expertise than
      our
      proprietary rights. We will rely upon a combination of patent, copyright,
      trademark and trade secret laws and contractual restrictions to protect our
      proprietary technology. As a result of the likelihood of competition from other
      companies, protecting the Company’s intellectual property is essential. It may
      be possible for a third party to copy or otherwise obtain and use our products
      or technology without authorization or develop similar technology independently.
      Our first filed patent is entitled **“** System
      and Method for Data Transmission” (application number 60/502,346).





**Governmental
      Approvals**




We
      do not
      believe that there is a need for any specific governmental approval for any
      of
      our software products. Our radio frequency integrated circuit software product
      is sold to OEM customers who will embed the software into their own products.
      They may be required to adhere to certain Federal Communications Commission
      section requirements because their devices/products contain a radio transmitter.
      We believe that the OEM customers will obtain any required licensing as
      applicable in any particular country.





10




**Employees**




As
      of
      February 28, 2006, we employed 35 full-time employees, of which 10 are executive
      or administrative (5 based in India) and 25 are technical (all based in India).
      From time to time, we utilize various contractors. We have no collective
      bargaining agreements with our employees.





**ITEM
      2.**  **PROPERTY**




Our
      principal executive offices are located in approximately 624 square feet of
      office space at 9400 Key West Avenue, Rockville, MD 20850. The term of the
      lease
      is month-to-month at $2,730 per month.




We
      lease
      approximately 6,658 square feet of office space at 92 Dr. Natesan Road,
      Mylapore, Chennai 600004, Tamil Nadu, India. The leases expire at various dates
      through 2008. The total rental expense under leases was $28,899 in 2005 and
      $12,523 in 2004 and expected to be $39,354 in 2006.




We
      have
      no plans to renovate any of our current facilities and believe that our current
      facilities are sufficient to maintain our current and anticipated
      operations.




**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




In
      an
      action commenced in Denver, Colorado, on July 13, 2004, we received a
      summons to appear on July 29, 2004 in County Court, Denver County or file
      an answer to the summons by that date. The complaint alleges that we used a
      telephone facsimile machine, computer or other device to send unsolicited
      advertisements to the facsimile machine of Buddy Brown without having obtained
      prior express permission to do so and sought damages up to a maximum of $15,000.
      The case was dismissed by the court on February 17, 2005. Plaintiff
      appealed and on March 10, 2006, the appeal was dismissed.





In
      an
      action commenced in Union County, New Jersey, on July 31, 2005, we received
      a summons to appear in the Superior Court of New Jersey, Union County or file
      an
      answer to the summons. The complaint alleges that we used a telephone facsimile
      machine, computer or other device to send unsolicited advertisements to the
      facsimile machines of approximately 30 plaintiffs without having obtained prior
      express permission to do so, and sought damages up to a maximum of $65,000
      plus
      costs and attorneys fees. We served our answer denying liability and asserting
      numerous defenses and affirmative defenses. The case is currently being settled
      for $5,500 in exchange for full releases by the plaintiffs.





In
      an
      action commenced in the District Court of Maryland for Montgomery County in
      October 2005, our former chief financial officer sued us for non-payment of
      wages, interest, statutory damages and attorney’s fees. We filed an answer to
      the complaint generally denying liability and asserting seven counterclaims
      against plaintiff including breach of fiduciary duty and duty of loyalty. On
      January 6, 2006, plaintiff amended his complaint to assert causes of action
      against our CEO, COO and outside director (Mal Gurian). The individual
      defendants have filed a motion to dismiss, which is presently pending. See
      Note
      9 to the Financial Statements in Item 7 for a more detailed description of
      this
      litigation.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**




No
      matters were submitted during the fourth quarter of the fiscal year covered
      by
      this report to a vote of security holders.




**PART
      II**




**ITEM
      5.**  **MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER
      PURCHASE OF EQUITY SECURITIES**




Our
      common stock is quoted on the Pink Sheets Over-the-Counter securities market
      under the symbol “ABEW.” On December 30, 2005, the closing sale price of our
      common stock was $0.31.




11





The
      following table sets forth the high and low bid prices for the common stock
      for
      each calendar quarter since our stock began trading on January 28, 2004, as
      reported by the National Quotation Bureau, and represent interdealer quotations,
      without retail markup, markdown or commission and may not be reflective of
      actual transactions.




**High**
            
            **Low****2004**January
                2004 - March 2004
            
            $
            1.00
            
            $
            0.20April
                2004 - June 2004
            
            $
            0.62
            
            $
            0.30July
                2004 - September 2004
            
            $
            0.34
            
            $
            0.20October
                2004 - December 2004
            
            $
            0.30
            
            $
            0.17**2005**January
                2005 - March 2005
            
            $
            0.50
            
            $
            0.24April
                2005 - June 2005
            
            $
            1.27
            
            $
            0.52July
                2005 - September 2005
            
            $
            0.84
            
            $
            0.37October
                2005 - December 2005
            
            $
            0.57
            
            $
            0.13





As
      of
      April 11, 2006, there are currently 61,447,153 shares of our common stock
      outstanding. 15,953,131 of our outstanding shares of common stock are
      free-trading. The remaining shares of our common stock are defined as restricted
      stock under the Securities Act. Of the 61,447,153 shares currently outstanding,
      29,891,244 shares are owned by our affiliates, as that term is defined under
      the
      Securities Act. Absent registration under the Securities Act, the sale of our
      remaining outstanding shares is subject to Rule 144. Under Rule 144, if certain
      conditions are satisfied, a person (including any of our affiliates) who has
      beneficially owned restricted shares of common stock for at least one year
      is
      entitled to sell within any three month period a number of shares up to the
      greater of 1% of the total number of outstanding shares of common stock, or
      if
      the common stock is quoted on NASDAQ, the average weekly trading volume during
      the four calendar weeks preceding the sale. A person who has not been an
      affiliate of ours for at least three months immediately preceding the sale,
      and
      who has beneficially owned the shares of common stock for at least two years,
      is
      entitled to sell the shares under Rule 144 without regard to any of the volume
      limitations described above.




**Stockholders**




As
      of
      December 31, 2005, we believe there were approximately 1,050 holders of record
      of our common stock.




**Dividends**




We
      have
      never declared or paid cash dividends on our common stock. We currently intend
      to retain all available funds and any future earnings to fund the development
      and growth of our business and do not anticipate declaring or paying any cash
      dividends on our common stock in the foreseeable future.




**Equity
      Compensation Plan Information**




The
      table
      below provides information relating to all of our outstanding options and
      warrants, including options authorized for issuance under our compensation
      plans
      as of December 31, 2005.




**Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **Weighted-average
                exercise price of outstanding options, warrants and
                rights**
            
            **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a)****(a)**
            
            **(b)**
            
            **(c)**Equity
                compensation plans approved by security holders
            
            
            48,132,735
            
            $
            0.2251
            
            
            22,385,000Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            0
            
            
            0Total
            
            
            48,132,735
            
            
            
            
            
            22,385,000






12




**Employee
      Stock Option Plan**




Effective
      August 18, 2002, our board of directors and a majority of our shareholders
      approved the Airbee 2002 Stock Option Plan. The plan has 75,000,000 shares
      authorized for issuance. On May 1, 2003, we adopted the Airbee Wireless, Inc.
      2003 Outside Directors Stock Option Plan. We have designated 12,500,000 shares
      of common stock for the plan. As of December 31, 2005, 150,000 options were
      granted under this plan. The plan has essentially the same parameters as the
      employee stock option plan and terminates on May 31, 2013.




**Related
      Stockholder Matters**





The
      following stock transactions occurred in 2005:




Effective
      January 1, 2005, the Company issued options to purchase 150,000 shares of
      common stock to an individual in conjunction with his appointment to the board
      of directors. The options vest over one year in equal quarterly installments.
      The options are exercisable at $0.22 per share for a period of five years from
      the date of issuance. The options were issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act. The options contain
      the appropriate legends restricting their transferability absent registration
      or
      applicable exemption. The director received information concerning our company
      and had the ability to ask questions concerning our company.





On
      January 13, 2005, the Company issued 400,000 shares of common stock to an
      organization in return for business and financial consulting services, which
      included assisting us with strategic planning, marketing and financial
      positioning strategies. The shares were issued for services valued at $120,000
      at the time of issuance. The shares were issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act. The shares issued
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The organization received information
      concerning our company and had the ability to ask questions concerning our
      company.





On
      February 10, 2005, the Company issued to an organization 375,000 shares of
      common stock for services valued at $260,000 at the time of issuance. The shares
      were issued to the organization in return for providing investor relations
      and
      public relations services. The shares were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act. The shares issued
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The organization received information
      concerning our company and had the ability to ask questions concerning our
      company.





In
      March 2005, the Company issued 982,143 restricted shares of common stock to
      five accredited investors for $350,000. In addition, the Company issued 125,000
      warrants to these investors at a strike price of $0.48 per share and 71,429
      warrants at $0.36. These investors were deemed accredited as defined under
      Regulation D. The shares were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act. The shares issued contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The investors received information concerning our company
      and had the ability to ask questions concerning our company.




13





Effective
      March 1, 2005, the Company issued options to purchase 1,000,000 shares of
      common stock to an officer of the Company in conjunction with his employment
      agreement with the Company. The options are exercisable at $0.32 per share
      for a
      period of five years from the date of issuance. The options were issued pursuant
      to the exemption from registration provided by Section 4(2) of the Securities
      Act. The options contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The officer
      received information concerning our company and had the ability to ask questions
      concerning our company.





In
      April
      2005 an organization received 592,000 shares of common stock as a one-time
      commitment under a now-rescinded Standby Equity Distribution Agreement (defined
      in Item 6 herein) for issuance costs valued at $740,000. The organization also
      received warrants to purchase another 200,000 shares of common stock exercisable
      at $0.001 per share for a period of two years from the date of issuance. These
      warrants were valued at $139,815 using the Black-Scholes option-pricing model.
      The shares were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act. The shares issued contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The organization received information concerning our company and
      had
      the ability to ask questions concerning our company.





In
      April,
      2005, the Company issued to an organization 8,000 shares of common stock as
      a
      placement agent fee under a placement agent agreement relating to the
      now-rescinded Standby Equity Distribution Agreement for services valued at
      $10,000. The shares were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act. The shares issued contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning our
      company and had the ability to ask questions concerning our
      company.





On
      May 2,
      2005, the Company entered into an agreement and plan of merger by and among
      Identity, Inc., a Delaware corporation and Daniel R. Nelson, Airbee and Airbee
      Automotive Group, Inc., a wholly owned subsidiary of Airbee, whereby the
      Company’s wholly owned subsidiary merged with and into Identity, Inc. Pursuant
      to the Merger Agreement, the surviving entity became a wholly owned subsidiary.
      The Company issued 7,692,808 shares of restricted common stock to Daniel R.
      Nelson, the sole shareholder of Identity, Inc. The shares issued to Mr. Nelson
      are valued at $5,000,000, which is based upon the 30-day average closing price
      of our common stock through April 25, 2005. The shares were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act.
      The shares issued contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The shareholder
      received information concerning our company and had the ability to ask questions
      concerning our company. By mutual agreement the Merger Agreement was rescinded
      in August 2005. The shares have been retroactively canceled and are reflected
      in
      these financial statements.





On
      May 9,
      2005, the Company issued 2,854 shares and on June 1, 2005, the Company issued
      2,643 shares for legal services rendered which had a total cash value of $3,078.
      The shares were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act. The shares issued contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The organization received information concerning our company and
      had
      the ability to ask questions concerning our company.





On
      May 9,
      2005, the Company issued 21,104 shares to one of its employees as compensation
      valued at $13,000 at the time of issuance. The shares were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act.
      The shares contain the appropriate legends restricting their transferability
      absent registration or applicable exemption. The employee received information
      concerning our company and had the ability to ask questions concerning our
      company.





On
      May
      16, 2005, the Company issued an option to purchase 1,500,000 shares to an
      executive officer of the Company exercisable at $0.82 per share and in
      conjunction with his employment agreement with the Company. The option is
      exercisable until May 16, 2010. The options were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act.
      The
      options contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The officer received information
      concerning our company and had the ability to ask questions concerning our
      company.





On
      June
      1, 2005, the Company issued 1,750,000 restricted shares to a former director
      of
      the Company, for the exercise of two warrants for cash of $12,000. The shares
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act. The shares issued contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The warrant holder received information concerning our company and had the
      ability to ask questions concerning our company.




14





On
      June
      20, 2005, the Company issued 26,667 shares and 5,333 warrants exercisable for
      a
      three-year period at $0.82 per share in a private placement for $20,000 cash.
      The investor was deemed accredited as defined under Regulation D. The shares
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act. The shares issued contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The investor received information concerning our company and had the ability
      to
      ask questions concerning our company.





On
      July
      12, 2005, the Company issued 26,506 shares and 5,301 warrants exercisable for
      a
      three-year period at $0.85 per share in a private placement for $22,000 cash.
      The investor was deemed accredited as defined under Regulation D. The shares
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act. The shares issued contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The investor received information concerning our company and had the ability
      to
      ask questions concerning our company.





Effective
      August 1, 2005, the Company issued options to purchase 250,000 shares of
      common stock to an employee in conjunction with her employment agreement with
      the Company. The options are exercisable at $0.85 per share for a period of
      five
      years from the date of issuance. The options were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act.
      The
      options contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The employee received information
      concerning our company and had the ability to ask questions concerning our
      company. The employee left the company as of December 31, 2005 and the options
      were cancelled without being exercised.





On
      August
      16, 2005, the Company issued to an organization 125,000 shares of common stock
      for services valued at $68,750 at the time of issuance. The shares were issued
      to the organization in return for providing investor relations and public
      relations services. The shares were issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act. The shares issued
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The organization received information
      concerning our company and had the ability to ask questions concerning our
      company.





On
      August
      31, 2005, the Company issued 1,476 shares and on September 30, 2005, the Company
      issued 916 shares for legal services rendered which had a total cash value
      of
      $1,794. The shares were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act. The shares issued contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning our
      company and had the ability to ask questions concerning our
      company.





Throughout
      the quarter ended September 30, 2005, the Company issued 263,848 shares to
      nine
      accredited investors for $145,000. In addition, the Company issued 245,576
      warrants to these investors at a strike prices ranging between $0.76 and $0.98
      per share. The investors were deemed accredited as defined under Regulation
      D.
      The shares were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act. The shares issued contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The investors received information concerning our company and had
      the
      ability to ask questions concerning our company.





Throughout
      the quarter ended December 31, 2005, the Company issued 1,337,038 shares to
      11
      accredited investors for $336,830. In addition, the Company issued 1,609,765
      warrants to these investors at strike prices ranging between $0.21 and $0.80
      per
      share. In connection with the December 29, 2005 Montgomery Equity Partners
      convertible debenture (see Note 5) the Company issued 2,000,000 warrants
      exercisable over three years as follows: 1,000,000 warrants at a strike price
      of
      the lesser of 80% of the average closing bid price for the 10 trading days
      preceding exercise or $0.20 per share; 500,000 warrants at a strike price of
      the
      lesser of 80% of the average closing bid price for the 10 trading days preceding
      exercise or $0.30 per share; and 500,000 warrants at a strike price of $0.001.
      The investors were deemed accredited as defined under Regulation D. The shares
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act. The shares issued contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The investors received information concerning our company and had the ability
      to
      ask questions concerning our company.




15




Throughout
      the quarter ended December 31, 2005, the Company issued 4,576 shares for legal
      services rendered which had a total cash value of $1,784. The shares were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act. The shares issued contain the appropriate legends restricting
      their transferability absent registration or applicable exemption. The
      organization received information concerning our company and had the ability
      to
      ask questions concerning our company.




On
      November 4, 2005, the Company issued 16,667 shares to one of its employees
      as
      compensation valued at $6,500 at the time of issuance. The shares were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act. The shares contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The employee
      received information concerning our company and had the ability to ask questions
      concerning our company.




Throughout
      the quarter ended December 31, 2005, the Company issued 225,000 shares to two
      organizations providing financial and investment banking services valued at
      $107,000 at the time of issuance. The shares were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act.
      The
      shares issued contain the appropriate legends restricting their transferability
      absent registration or applicable exemption. The organizations received
      information concerning our company and had the ability to ask questions
      concerning our company.




On
      October 17, 2005, the Company issued 50,000 restricted shares for the exercise
      of a warrant for cash of $10,000. The shares were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act.
      The
      shares issued contain the appropriate legends restricting their transferability
      absent registration or applicable exemption. The warrant holder received
      information concerning our company and had the ability to ask questions
      concerning our company.




Effective
      November 2, 2005, the Company issued options to purchase 250,000 shares of
      common stock to an employee of the Company. The options are exercisable at
      $0.39
      per share for a period of five years from the date of issuance. The options
      were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act. The options contain the appropriate legends restricting
      their transferability absent registration or applicable exemption. The employee
      received information concerning our company and had the ability to ask questions
      concerning our company.





On
      November 15, 2005, the Company issued 5,502,135 shares of stock from the
      exercise of stock options from one of its officers. The exercise price was
      $0.00004. On September 19, 2005, the Company also issued 1,454,268 shares of
      stock from the exercise of stock options from one of its former officers. This
      was a cashless exchange. In this exchange, 291,683 shares were returned to
      the
      Company and are included in its treasury and reflected as treasury stock on
      the
      consolidated balance sheet. The options were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act. The options
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The officers received information
      concerning our company and had the ability to ask questions concerning our
      company.




On
      December 30, 2005, the Company received a subscription for 250,000 shares of
      stock from an accredited investor for $77,500. In addition, the Company issued
      250,000 warrants to this investor at a strike price of $0.56 per share. The
      subscription was paid on January 4, 2006. The shares were issued pursuant to
      the
      exemption from registration provided by Section 4(2) of the Securities Act.
      The
      shares issued contain the appropriate legends restricting their transferability
      absent registration or applicable exemption. The organization received
      information concerning our company and had the ability to ask questions
      concerning our company.




On
      December 29, 2005, in connection with the Convertible Debenture with Montgomery
      Equity Partners, Ltd. (“Montgomery”) executed that day, the Company placed
      13,586,956 shares of common stock with the escrow agent appointed by the Company
      and Montgomery to hold the pledged shares pursuant to the Securities Purchase
      Agreement and Escrow Agreement of even date. The escrow agent, who is
      Montgomery’s general cournsel, a partner of Montgomery’s general partner and
      Montgomery’s attorney for this transaction, is not entitled to exercise any
      voting rights in connection with these shares and may not sell or otherwise
      transfer title to them until such time as they are converted or returned to
      the
      Company. Absent any such event causing conversion of these pledged shares,
      no
      beneficial ownership exists and while these shares are issued they are not
      considered to be outstanding and are not counted in common stock outstanding
      reported in this Form 10-KSB and the financial statements contained
      therein.




16





**ITEM
      6.**  **MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**




**Executive
      Summary**





·
            Airbee
                Wireless, Inc. continues as a development stage company concentrating
                on
                software development. During 2005 we signed six licensing agreements
                and
                one application development agreement with foreign and domestic customers
                such as Radiocrafts (Norway), Texas Instruments (USA) and Infineon
                (Germany). Our ZNS Software stack was certified ZigBee-compliant
                through
                an independent testing laboratory during the fourth quarter of
                2005.





·
            We
                had a $3,782,259 net loss before provision for income taxes in 2005
                and
                our cumulative loss since August 9, 2002 (Inception) is $6,596,625.
                Liquidity and capital resources issues continue to constrain growth
                but
                given signs of an emerging marketplace for our software and our track
                record of raising capital, we believe we will be able to obtain sufficient
                funds to continue operations until we can generate revenue from our
                license agreements. We raised almost $1.1 million in 2005 from the
                sale of
                stock to accredited investors and through the exercise of
                warrants.





·
            Risk
                factors include -


·
            Royalties
                from the license agreements are dependent on our customers’ ability to
                create demand and market acceptance for their
                product.


·
            Our
                international operations involve inherent risks that include currency
                controls and fluctuations, tariff and import regulations, and regulatory
                requirements that may limit our or our customers’ ability to manufacture,
                assemble and test, design, develop or sell products in particular
                countries.





·
            Fifteen
                percent of our operating loss in 2005 is attributable to bad debt
                expense
                associated with the write-off of money advanced to merger partner
                Identity, Inc. before the merger was rescinded in August 2005. The
                Company
                is pursuing all available options to recover these
                funds.





·
            We
                have created a new business unit in the fourth quarter of 2005 to
                take on
                development contracts using our software products as a base and creating
                for our customers the application solution. The first such contract
                will
                complete early in 2006. This need is satisfied for the customer in
                that he
                will not need any special imbedded software tools or technical capability
                once the specification is developed and agreed
                to.





**Overview**





Airbee
      Wireless, Inc. (hereinafter called “Airbee” or “Company”) finished 2005 as it
      began - as a developer of intelligent connectivity software for wireless voice
      and data communication designed to comply with the ZigBee global standard.
      See
      Item 1, above, for descriptions of our business, our marketplace and our
      products. Foremost among our achievements in 2005 was completion of the ZigBee
      product certification from an independent testing laboratory for our ZNS
      Software Stack in November.





We
      continued the buildup of our technical resources in our R&D center and at
      year end we had more than 30 software engineers working on our several
      development projects. We also hired two key personnel resources during the
      year
      with the addition of a Vice President for Marketing and Sales and with a Chief
      Executive Officer of our development center in India.





**Results
      of Operations**





***Year
      Ended December 31, 2005 Compared to the Year Ended December 31, 2004***




During
      2005 we had minimal operating revenues of $13,015, resulting in a net loss
      applicable to common shares of $3,782,259, or $0.08 net loss per share, compared
      to a net loss of $1,136,743 or $0.03 net loss per share for 2004. Cumulative
      net
      loss since inception totaled $6,596,625.




17




Our
      net
      revenue for the year ended December 31, 2005 was insignificant at $13,015 as
      compared to $0 for the year ended December 31, 2004. During 2005, the Company
      signed license agreements with Radiocrafts, Texas Instruments, SoftBaugh,
      Jennic, Compel JSC and Wireless People. These license agreements may generate
      revenue during the second quarter of 2006 but depend upon sales of the
      licensees’ products containing our software. We also signed an application
      development agreement with Infineon during 2005 and one with SensiTool in 2006.
      These agreements require us to embed our software in the customer’s application
      for a fixed fee, generally paid in stages as benchmarks are met.




Operating
      expenses for the year ended December 31, 2005 were $3,498,814 as compared to
      $1,142,472 for the year ended December 31, 2004, an increase of 206% or
      $2,356,342. This increase, as further explained below, is principally due to
      increases in compensation and professional fees, bad debt, research and
      development, and selling, general and administrative expenses. Operating
      expenses increased as the Company developed and implemented its business plan
      and its reporting obligations with the SEC.




Our
      overall increase in absolute dollars of compensation and professional expenses
      for the year ended December 31, 2005 compared to the year ended December 31,
      2004 was $1,480,361. The increase was primarily due to increased professional
      services costs of $790,729 of legal fees related to our financing from
      Montgomery Equity Partners Ltd. and Cornell Capital Partners LP, $139,815 in
      one-time commitment fees associated the warrants issued to Cornell Capital
      Partners LP, legal defense costs for suits against the company, and legal and
      accounting fees in connection with our SEC reporting. Salaries rose due to
      the
      addition of sales personnel in the U.S. ($160,000) and a CEO, administrative
      staff, and programming staff in India ($391,000) in accordance with the
      Company’s plan to improve the administrative function in India and to bring
      previously out-sourced software development work back in-house. We believe
      that
      general and administrative expenses will not increase significantly in the
      short-term. However, we do expect an increase in absolute dollars in the
      long-term, as we continue to invest in staff and infrastructure in the areas
      of
      information systems and sales and marketing.




Our
      overall selling and marketing expenses consist primarily of marketing related
      expenses, compensation related expenses, sales commissions, facility costs
      and
      travel costs. Expenses, particularly certain marketing and compensation-related
      expenses, may vary going forward, depending in part on the level of revenue
      and
      profits.




Bad
      debt
      expense reflects cash advances totaling $536,495 made to Airbee Automotive
      Group, Inc., d/b/a Identity, Inc. under the now-rescinded Merger Agreement.
      We
      recovered $15,079 through intra-company transfers before the Merger Agreement
      was rescinded. Even though the merger has been rescinded, we believe we are
      owed
      the money and that it should be returned. In accordance with generally accepted
      accounting principles we have elected to expense this amount as a bad debt
      in
      the current period and will recognize future recoveries in the periods received.
      Nothing in this paragraph is intended in any way to waive any right, title
      or
      interest we have to the monies advanced, all of which are expressly
      reserved.




The
      decrease in absolute dollars of research and development expense for the year
      ended December 31, 2005 compared to the year ended December 31, 2004 was
      $270,789. With the demonstration of technological feasibility in April 2005,
      we
      were permitted to capitalize research and development costs and amortize them
      going forward. Our intangible assets (primarily capitalized R&D) increased
      by $523,277, net of amortization, from December 31, 2004 to December 31, 2005
      to
      $689,252 as we increased our overall expenditures in research and development
      programs to ensure that our products continue to meet our customer demands.




Depreciation
      and amortization expense for the year ended December 31, 2005 increased
      $109,184. Most of this increase is from the amortization of $75,000 in loan
      financing costs in this period plus another $22,650 for amortization of
      intellectual property. Interest expense for the year ended December 31, 2005
      increased $247,268, principally due to charges related to settlement agreement
      of the $750,000 loan from Montgomery Equity Partners. The interest expense
      attributable to Notes Payable to Related Parties was $57,234 in 2005 as compared
      to $84,918 in 2004.




18




**Liquidity
      and Capital Resources**





Since
      inception, we have principally funded our operations from private placements
      of
      securities and management and shareholder loans and contributions of $2,938,808.
      As of December 31, 2005 and 2004, we have $2,086,766 and $1,273,431 outstanding
      under notes and accrued payroll, including $65,529 and $192,469 in accrued
      interest. During 2005, we received an aggregate of $1,078,715 from accredited
      investors in consideration of 2,886,202 shares of our common stock and 2,081,154
      common stock purchase warrants. Also during 2005, we received $22,000 from
      the
      exercise of common stock purchase warrants for 1,800,000 shares. Proceeds were
      used to pay down current payables. We will require approximately $5 million
      to
      continue operations for the next 12 months. Most of the funding will be
      allocated principally for sales, marketing and working capital. It is not
      anticipated that any lack of funding will impact upon the existing license
      and
      development agreements with our customers since our software development has
      been completed for three of our products.





We
      have
      incurred an accumulated deficit at December 31, 2005 of $6,596,625 compared
      to
      $2,814,366 at December 31, 2004. We had negative working capital at December
      31,
      2005 of $5,138,739 compared to negative working capital of $1,459,481 at
      December 31, 2004. Our ability to continue as a going concern is dependent
      upon
      our obtaining adequate capital to fund losses until we become
      profitable.





We
      entered into a note payable dated August 31, 2002, principal amount of $50,000
      payable on or before August 31, 2005. We entered into this note in connection
      with the 2002 acquisition of Connexus Technologies (Pte.) Ltd. While
      nominally non-interest bearing, the amount to be repaid varied with each
      anniversary date of the note. If paid prior to August 31, 2003, only
      $50,000 was due. If the note was paid between September 1, 2003 and
      August 31, 2004 the total payment due was $100,000. If paid between
      September 1, 2004 and August 31, 2005, total payment due was $150,000.
      During the fourth quarter of 2005, we restructured the note with the lender
      to
      provide for interest from the date of the note until paid at 12% per annum.
      At
      December 31, 2005, principal and accrued interest on this note totaled $73,085,
      which was converted to common stock with the consent of the note holder in
      January 2006.





On
      April
      20, 2005, we entered into a Standby Equity Distribution Agreement (“SEDA”) with
      Cornell Capital Partners, LP (“Cornell”). Pursuant to the SEDA, Cornell was to
      purchase shares of our common stock for a total purchase price of up to $20
      million. Cornell’s obligation to purchase shares of our common stock under the
      SEDA was subject to certain conditions, including that we obtain an effective
      registration statement for shares of our common stock sold under the SEDA.
      Cornell and Airbee subsequently determined that it was in the best interest
      of
      both parties to terminate the SEDA. On October 19, 2005 we entered into a
      Termination Agreement with Cornell to terminate SEDA and all agreements related
      thereto. No shares of stock were issued pursuant to the SEDA.





On
      April
      20, 2005, the Company executed a promissory note in the amount of $750,000
      in
      favor of Montgomery Equity Partners, Ltd. (“Montgomery”). (According to David
      Gonzales, the Managing Partner and General Counsel of Cornell Capital, Cornell
      and Montgomery are limited partnerships of the same general partner, Yorkville
      Advisors, Inc. Mark Angelo, the portfolio manager of Cornell is the co-portfolio
      manager of Montgomery. Cornell and Montgomery share the same back office,
      administrative and support staff. The two entities do not share offices but
      all
      documents and materials are housed in the office of the general partner.)
      Pursuant to the terms of the promissory note, Montgomery disbursed the entire
      $750,000 to the Company on the date the note was executed and an additional
      $250,000 was to be disbursed after the Company’s common stock commenced trading
      on the Over-the-Counter Bulletin Board. The promissory note had a one-year
      term
      and accrued interest monthly at 24% per annum. The Company defaulted under
      the
      terms of the promissory note and reached a settlement with Montgomery where
      principal, accrued unpaid interest and other fees and expenses - a total of
      $937,500 - would be paid through the liquidation of 9.4 million shares of
      Company stock that was pledged as security by an affiliate as part of the
      initial loan agreement. As of December 31, 2005, Montgomery has sold 700,940
      of
      the pledged shares. The net proceeds from these sales totaled $229,789 at an
      average net per-share price of $0.32783. The outstanding balance due Montgomery
      was reduced to $707,711. The Company anticipates that the continuing sales
      of
      the pledged shares by Montgomery may exert downward pressure on the share price
      of our stock during the period Montgomery liquidates these shares.





On
      December 29, 2005, we entered into a Securities Purchase Agreement with
      Montgomery Equity Partners Ltd. (“Montgomery”) pursuant to which we issued
      Montgomery a secured convertible debenture in the principle amount of $500,000,
      of which $350,000 was funded on December 29, 2005. The remaining $150,000 has
      not yet been funded as of March 10, 2006. The secured convertible debenture
      is
      convertible, in whole or in part, at any time and from time to time before
      maturity at the option of the holder at the lesser of (a) eighty percent (80%)
      of the lowest closing bid price of the common stock for the ten (10) trading
      days immediately preceding the closing date (the “Fixed Price”) or (b) eighty
      percent (80%) of the lowest closing bid price of common stock for ten (10)
      trading days immediately preceding the conversion date (the “Floating Price”).
      The secured convertible debenture has a term of two (2) years, piggy-back
      registration rights and accrues interest monthly at the rate of fifteen percent
      (15%) per year. The secured convertible debenture contains a right of redemption
      allowing the Company to redeem all or part of the amounts outstanding provided
      the closing bid price of the Company’s stock is less than the Fixed Price when
      the Redemption Notice is given. The Company is required to pay a 10% redemption
      premium equal to 10% of the principal amount plus accrued interest. As of July
      21, 2006, the closing bid price of the Company’s stock has never been less than
      the Fixed Price so the Company has been unable to exercise this right of
      redemption. The Company is required to make monthly interest payments to
      Montgomery equal to one and one quarter percent (1.25%) of the outstanding
      balance of the secured convertible debenture. The Company is current with its
      interest payments to Montgomery through July 2006. The Company also paid
      commitment fee of 10% of the amount funded ($35,000) and a structuring fee
      of
      $10,000 to Yorkville Advisors Management, LLC, an affiliate of Montgomery.
      These
      fees were paid from the initial disbursement on December 29, 2005.




19





In
      connection with the Secured Convertible Debenture, the Company also executed
      a
      Security Agreement (as did the Company’s India subsidiary) and a Pledge and
      Escrow Agreement. Three affiliates of the Company also executed the Insider
      Pledge and Escrow Agreement. Under the Pledge and Escrow Agreement, the Company
      pledged 13,586,956 shares of its common stock and has transferred such shares
      to
      the Escrow Agent, who is the general counsel for Montgomery as well as a partner
      of Montgomery’s general partner. Under the Insider Pledge and Escrow Agreement,
      three affiliates of the Company pledged 1,732,500 shares of their common stock
      of the Company and transferred such shares to the same Escrow Agent. The
      Security Agreements give Montgomery a security interest in all goods; all
      inventory; all contract rights and general intangibles; all documents, warehouse
      receipts, instruments and chattel paper; all accounts and other receivables;
      all
      the Company’s rights under all present and future authorizations, permits,
      licenses and franchises issued or granted in connection with the operations
      of
      any of its facilities; and all products and proceeds from the foregoing
      property. The Security Agreements contain negative covenants which prohibit
      the
      Company (without Montgomery’s written consent) from making or incurring a lien
      or encumbrance against any of its property; amending its articles of
      incorporation, by-laws, becoming party to a merger or acquisition, purchasing
      the assets of another person, entity or firm, selling Company assets, or
      creating subsidiaries; materially changing the management of the Company; paying
      dividends; or changing its general business or business location. The net effect
      of these security interests and restrictions may be to limit the Company’s
      ability to raise additional capital without first informing and seeking the
      consent of Montgomery, which has a right of first refusal for any capital raise
      or other financing plan the Company may make with any third party.





In
      connection with the Securities Purchase Agreement we issued Montgomery three
      warrants to purchase a total of 2,000,000 shares of our common stock. The
      warrants are exercisable for a period of three years. The exercise price for
      the
      first warrant for 1,000,000 shares is the lesser of 80% of the lowest closing
      bid price for the five trading days immediately preceding the exercise date
      or
      $0.20 per share. The exercise price for the second warrant for 500,000 shares
      is
      the lesser of 80% of the lowest closing bid price for the five trading days
      immediately preceding the exercise date or $0.30 per share. The exercise price
      for the third warrant for 500,000 shares is $0.001 per share. The warrants
      provide for a cashless exercise and adjustment of their exercise price and
      number of shares upon the occurrence of certain events. In connection with
      this
      transaction, the Company executed an Investor Registration Rights Agreement
      by
      which it agreed to file a registration statement with the SEC for at least
      the
      pledged shares held by the escrow agent and the 2 million warrants. The
      registration statement was to be filed within 30 days of the execution of the
      convertible debenture and declared effective within 90 days of filing. Failure
      to file or be declared effective within the agreed timeframe subjected the
      Company to liquidated damages equal to two percent (2%) of the liquidated value
      of the convertible debenture for each thirty (30) day period after the scheduled
      filing or effective date deadline. By written agreement, these deadlines have
      been extended. The Company has until August 31, 2006 to file the registration
      statement which must be declared effective no later than November 30,
      2006.





Our
      principle sources of liquidity have been private placements of our securities
      and loans from management and shareholders. There will continue to be an
      operating cash flow deficit from the licensing of embedded software in the
      near
      term.





Cash
      at
      December 31, 2005 and, 2004, respectively, was $27,854 and $87,362. At
      December 31, 2005 and 2004, respectively, we had total stockholders’
deficit of $3,656,112 and $1,281,466.





Our
      capital requirements depend on numerous factors including our research and
      development expenditures, expenses related to selling, general and
      administrative operations and working capital to support business growth. We
      anticipate that our operating and capital expenditures will constitute a
      material use of our cash resources. As a result, our net cash flows will depend
      heavily on (a) the level of our future sales (which depend, to a
      large extent, on general economic conditions affecting us and our customers,
      as
      well as the timing of our products’ sales cycles (especially for the newly
      introduced ZigBee global standard) and other competitive
      factors) and (b) our ability to control expenses.




20





With
      regard to our current liabilities at December 31, 2005, $2,086,766 is
      payable to related note holders and employees who have deferred repayment as
      well as interest. Except for the note of an employee who left the Company in
      August 2005, such amounts are due on December 31, 2005, but were converted
      to
      equity in January 2006. The departed employee’s notes, now totaling $111,667
      plus accrued interest, are part of litigation between the parties. Trade
      payables at December 31, 2005 of approximately $717,708 are outstanding and
      will
      be paid as they come due or as payment may be extended by agreement of the
      parties. One vendor, MindTree Consulting Pvt. Ltd. (“MindTree”), accounted for
      51% of the Company’s accounts payable. MindTree provided services to the Company
      under a Time and Materials Contract dated March 30, 2005 (the T&M
      Contract”). On a monthly basis, MindTree invoiced the Company for work it
      performed. Payment terms were net 30 days. The Company was unable to pay the
      invoices as they became due and, by informal agreement, extended the repayment
      terms monthly. On December 15, 2005, the Company entered into a written
      agreement with MindTree by which it agreed to pay MindTree $200,000 on or before
      December 23, 2005 and $100,000 per month on the last business day of each
      succeeding month until the outstanding indebtedness of approximately $580,000
      was fully paid. The Company’s performance was secured by the software code (the
“Intellectual Property”) MindTree developed under the T&M Contract. If the
      Company defaulted in making any payment when due and such default was not cured
      within five business days after receipt of a notice of default, MindTree would
      be entitled to co-own the Intellectual Property, with any revenue the Company
      realized from the Intellectual Property during the co-ownership period to be
      split 50-50 with MindTree. If full payment is made on or before April 30, 2006,
      full ownership of the Intellectual Property reverts to the Company.




To
      date,
      the Company has paid MindTree $200,000 pursuant to this agreement. As of July
      26, 2006, the Company is behind in making the scheduled payments. MindTree
      has
      not yet issued any notice of default. By written agreement, the payment deadline
      has been extended to October 31, 2006.




With
      regard to our liabilities at December 31, 2004, $1,056,611 was payable to
      related note holders and employees who deferred repayment as well as interest.
      At December 31, 2004, we had approximately $390,000 of outstanding trade
      payables that will be paid as they come due or as payment may be extended by
      agreement of the parties.





We
      believe that revenues will begin during the second quarter of 2006 from our
      licensing and other agreements. However, we shall be dependent upon financing
      to
      accelerate our marketing activities and continue product enhancement. We
      anticipate monthly expenses of approximately $165,000 to $185,000 over the
      next
      several months. This amount includes costs of our SEC reporting obligations,
      which were approximately $190,000 for the year ending December 31, 2005. Cost
      of
      SEC reporting obligations includes all filing costs and professional fees.
      We do
      not consider the expense of SEC reporting to be material.





During
      2005, we received an aggregate of $1,078,830 from accredited investors in
      consideration of 2,886,202 shares of our common stock and 2,177,725 common
      stock
      purchase warrants. We also received $22,000 from the exercise of 1,800,000
      common stock purchase warrants issued in previous years. The proceeds were
      used
      to pay down current payables.





The
      Company’s current financing and related security agreements contain numerous
      covenants that restrict our ability to raise needed funds. It is possible that
      needed funds may not be available, in which case the Company may be forced
      to
      temporarily suspend operations. Our existing financing contains a right of
      first
      refusal for our lender. Numerous discussions with investment bankers throughout
      the country lead us to conclude that additional financing will be available.
      If
      circumstances require, the Company will renegotiate employment contracts with
      management to defer (but not eliminate) its obligations under these contracts.
      It will also consider overhead reductions at its headquarters and at its India
      subsidiary. This would be as a last resort as (a) the Company is leanly staffed
      at the administrative level and (b) staff cuts in India would adversely impact
      our ability to complete product development, deliver product and provide
      support.





To
      date,
      our financial results typically reflect a development stage company. We have
      signed several licensing and joint development agreements with prospective
      clients and have successfully embedded our software onto seven different
      hardware platforms (Freescale, Atmel, Texas Instruments, Chipcon, SupaRule,
      Radiocrafts and WinEdge & Wireless’ 8051 microprocessor).




21




With
      the
      ZigBee Alliance releasing version 1.0 of its international standard for wireless
      voice and data communications on December 14, 2004, the Company signed a
      three-year licensing and teaming agreement with Radiocrafts AS in April to
      provide ZigBee-ready solutions. Radiocrafts is a leading RF module design and
      manufacturing company based in Norway. In July 2005 the Company entered in
      to a
      three-year licensing agreement with Texas Instruments and in August 2005 the
      Company entered into a licensing agreement with SoftBaugh, Inc. for a one-year
      term with a renewal negotiated on an annual basis. We also have signed a nine
      month development license with Infineon Technologies, a German company, to
      migrate our ZigBee software to the Infineon product. The license is valued
      at
      $35,000 payable on completion of validation testing. We have also signed
      Software License Agreements with Jennic in November 2005 and with Compel JSC
      and
      Wireless People in December 2005. In January 2006, we signed a development
      license agreement with SensiTool, Inc. valued at $80,000. We also have
      negotiated a Manufacturer’s Representative Agreement with Acetronics which has
      exclusive marketing rights to our products in Korea. The Company has several
      other agreements in process with international companies pending completion
      of
      evaluation and testing for suitability. The Company also completed its ZigBee
      software product compliance testing with an independent testing agency
      authorized by the ZigBee Alliance to perform such testing in November 2005.
      We
      are now beginning the technical effort to incorporate the ZigBee specification
      level 1.1 into our product(s) and which will allow a broader application
      customer base to which our product(s) can be marketed.




Licensee
            
            Software
                License Agreement Date
            
            Development
                License Agreement Date
            
            Country
            
            ValueRadiocrafts
                AS
            
            
            April-05
            
            
            
            
            
            Norway
            
            
            TBDTexas
                Instruments
            
            
            July-05
            
            
            
            
            
            USA
            
            
            TBDSoftBaugh,
                Inc.
            
            
            August-05
            
            
            
            
            
            USA
            
            
            TBDInfineon
            
            
            
            
            
            October-05
            
            
            Germany
            
            $
            35,000Jennic
            
            
            November-05
            
            
            
            
            
            United
                Kingdom
            
            
            TBDCompel
                JSC
            
            
            December-05
            
            
            
            
            
            Russia
            
            
            TBDWireless
                People
            
            
            December-05
            
            
            
            
            
            Malaysia
            
            
            TBDSensiTool,
                Inc.
            
            
            
            
            
            January-06
            
            
            USA
            
            $
            80,000




We
      believe that 2006 will see an adoption of this ZigBee technology with several
      of
      our customers commercializing development products containing the Airbee
      embedded software. We forecast that if our customers meet their development
      plans, we may see revenues of approximately $1.9 million from our license
      agreements in 2006. It is expected that the development license agreements
      will
      precede a Software License Agreement with such customers. Optimistically, the
      Company could generate significantly greater revenues depending on additional
      financing which could accelerate our marketing efforts as well as quicken the
      expected market adoption of the ZigBee technology. Such revenues could be
      derived in the following manner:




·
            ZigBee-compliant
                ZMS
                stack$1.5
                to $2.0 million




·
            Application
                development$1.0
                million




·
            Custom
                development contracts$1.0
                million




·
            ZNMS
                network management software$0.5
                million




·
            Software
                tools$0.5
                million




**Critical
      Accounting Estimates**




***General***




Management’s
      discussion and analysis of our financial condition and results of operations
      is
      based upon our Consolidated Financial Statements, which were prepared in
      accordance with accounting principles generally accepted in the United States,
      or GAAP. GAAP requires us to make estimates and assumptions that affect the
      reported amounts of assets, liabilities, revenues and expenses, as well as
      the
      disclosure of contingent assets and liabilities. Note 2, “ *Summary
      of Significant Accounting Policies* ”
of
      Notes to the Consolidated Financial Statements describes our significant
      accounting policies which are reviewed by us on a regular basis and which are
      also reviewed by senior management with our Board of Directors.




22





An
      accounting policy is deemed by us to be critical if it requires an accounting
      estimate to be made based on assumptions about matters that are highly uncertain
      at the time the estimate is made, and if different estimates that reasonably
      could have been used, or changes in the accounting estimates that are reasonably
      likely to occur periodically, could materially impact the financial statements.
      The policy and estimate that we believe is most critical to an understanding
      of
      our financial results and condition and that requires a higher degree of
      judgment and complexity is revenue recognition.




***Revenue
      Recognition***




We
      account for the time-based licensing of software in accordance with the American
      Institute of Certified Public Accountants Statement of
      Position (SOP) 97-2, “Software Revenue Recognition.” We recognize
      revenue when (i) persuasive evidence of an arrangement
      exists; (ii) delivery has occurred or services have been
      rendered; (iii) the sales price is fixed or determinable;
      and (iv) the ability to collect is reasonably assured. For software
      arrangements with multiple elements, revenue is recognized dependent upon
      whether vendor-specific objective evidence (VSOE) of fair value exists
      for each of the elements. When VSOE does not exist for all the elements of
      a
      software arrangement and the only undelivered element is post-contract customer
      support (PCS), the entire licensing fee is recognized ratably over the
      contract period.





Revenue
      attributable to undelivered elements, including technical support, is based
      on
      the sales price of those elements, and is recognized ratably on a straight-line
      basis over the term of the time-based license. Post-contract customer support
      revenue is recognized ratably over the contract period. Shipping charges billed
      to customers are included in revenue and the related shipping costs are included
      in cost of sales.





Time-based
      product licensing fees are collected in advance. Revenues from licenses are
      recognized on a prorated-basis over the life of the license. Airbee’s customary
      practice is to have non-cancelable time-based licenses and a customer purchase
      order prior to recognizing revenue.





Enterprise
      license model arrangements require the delivery of unspecified future updates
      and upgrades within the same product family during the time-based license.
      Accordingly, Airbee will recognize fees from its enterprise license model
      agreements ratably over the term of the license agreement.





Time-based
      royalties are charged on a unit basis. Royalties are not fixed dollar amounts,
      but are instead a percentage of the customer’s finished product and the
      percentage varies on a tiered basis with the number of units shipped by
      customer.





Revenue
      attributed to undelivered elements is based on the sales price rather than
      on
      the renewal rate because of (i) the newness of the ZigBee standard for
      this short-range wireless technology, (ii) the newness of the
      Company’s product introductions into the marketplace for a range of applications
      being developed by its customers, and (iii) the lack of historical
      data for potentially defective software, which may be a function of the
      application into which it is installed, a reasonable reserve for returns cannot
      yet be established. In accordance with SFAS No. 48 “Revenue Recognition When
      Right of Return Exists,” in the absence of historical data, the Company is
      unable to make a reasonable and reliable estimate of product returns at this
      time.





We
      expect
      to enter into maintenance contracts with its customers. Maintenance fees are
      not
      a fixed dollar amount, but rather a percentage fee based upon the value of
      the
      license and/or royalties billed/received. Maintenance contracts are paid for
      and
      collected at the beginning of the contract period. We provide bug
      fixes (under warranty obligations) free-of-charge that are necessary
      to maintain compliance with published specifications, it accounts for the
      estimated costs to provide bug fixes in accordance with SFAS No. 5
“Accounting for Contingencies.”





Revenue
      from products licensed to original equipment manufacturers (OEM’s) is
      based on the time-based licensing agreement with an OEM and recognized when
      the
      OEM ships licensed products to its customers.




23





**Factors
      That May Affect Future Results**




*Our
      business faces significant risks. The risks described below may not be the
      only
      risks we face. Additional risks that we do not yet know of or that we currently
      think are immaterial may also impair our business operations. If any of the
      events or circumstances described in the following risks actually occurs, our
      business, financial condition or results of operations could suffer, and the
      trading price of our common stock could decline.*




Our
      future results of operations and the other forward-looking statements contained
      in this filing, including this MD&A, involve a number of risks and
      uncertainties—in particular, the statements regarding our goals and strategies,
      new product introductions, plans to cultivate new businesses, future economic
      conditions, revenue, pricing, gross margin and costs, capital spending,
      depreciation and amortization, research and development expenses and the tax
      rate. In addition to the various important factors discussed above, a number
      of
      other factors could cause actual results to differ materially from our
      expectations.




**Because
      a significant portion of our revenue will be derived from software licenses,
      we
      are dependent upon the ability of our customers to develop and penetrate new
      markets successfully.**




Our
      software license revenues depend not only upon our ability to successfully
      negotiate license agreements with our customers but also upon our customers’
ability to commercialize their products using our embedded software. We cannot
      control our customers’ product development or commercialization or predict their
      success. Demand for our products, which impacts our revenue and gross margin
      percentage, is affected by business and economic conditions, as well as
      communications industry trends, and the development and timing of introduction
      of compelling software applications and operating systems that take advantage
      of
      the features of our products. Demand for our products is also affected by
      changes in customer order patterns, such as changes in the levels of inventory
      maintained by our customers and the timing of customer purchases. Airbee
      operates in a highly competitive industry (i.e., embedded communications
      software), and our revenue and gross profits could be affected by factors such
      as competing software technologies and standards, pricing pressures, actions
      taken by our competitors and other competitive factors, as well as market
      acceptance of our new ZigBee-compliant products in specific market segments.
      Future revenue is also dependent on continuing technological advancement,
      including the timing of new product introductions, sustaining and growing new
      businesses, and integrating and operating any acquired businesses. Results
      could
      also be affected by adverse effects associated with product defects and
      deviations from published specifications, and by litigation or regulatory
      matters involving intellectual property or other issues.




**Numerous
      factors may cause out total revenues and operating results to fluctuate
      significantly from period to period. These fluctuations increase the difficulty
      of financial planning and forecasting and may result in decreases in our
      available cash and declines in the market price of our
      stock.**




A
      number
      of factors, many of which are outside our control, may cause or contribute
      to
      significant fluctuations in our total revenues and operating results. These
      fluctuations make financial planning and forecasting more difficult and may
      result in unanticipated decreases in our available cash, which could negatively
      impact our operations and increase the volatility of our stock price. Factors
      that may cause or contribute to fluctuations in our operating results and
      revenues include:




·
            Acceptance
                by our customers of our Airbee embedded software platforms and/or
                the slow
                acceptance by the market of the ZigBee global standard for short-range
                wireless voice and data
                communications;




·
            The
                number and timing of orders we receive, including disproportionately
                higher receipt and shipment of orders in the last month of a
                quarter;




·
            Changes
                in the length of our products sales cycles, which increases as our
                customers’ purchase decisions become more strategic and are made at higher
                management levels;




·
            The
                success of our customers’ products from which we derive our production
                license revenue;




·
            The
                mix of our revenues between sales of products and lower-margin sales
                of
                services;




24




·
            Our
                ability to control our operating expenses and fully realize the impact
                of
                the restructuring plans we have
                implemented;




·
            Our
                ability to continue to develop, introduce and ship competitive new
                products and product enhancements
                quickly;




·
            Possible
                deferrals of orders by customers in anticipation of new product
                introductions;




·
            Announcements,
                product introductions and price reductions by
                competitors;




·
            The
                impact of, and our ability to react to, natural disasters and/or
                terrorist
                actions;




·
            Changes
                in business cycles that affect the markets in which we sell our products
                and services;




·
            Economic,
                political and other conditions in the United States and
                internationally;




·
            Foreign
                currency exchange rates; and




·
            The
                impact of any stock-based compensation charges arising from the issuance
                of stock options, stock appreciation rights or any other stock-based
                awards.




One
      or
      more of the foregoing factors may cause our operating expenses to be
      disproportionately high or may cause our net revenue and operating results
      to
      fluctuate significantly. Results from prior periods are thus not necessarily
      indicative of the results of future periods.




We
      operate internationally, with sales, marketing and research and development
      activities. We are, therefore, subject to risks and factors associated with
      doing business outside the U.S. International operations involve inherent risks
      that include currency controls and fluctuations, tariff and import regulations,
      and regulatory requirements that may limit our or our customers’ ability to
      manufacture, assemble and test, design, develop or sell products in particular
      countries. If terrorist activity, armed conflict, civil or military unrest,
      or
      political instability occurs in the U.S., or other locations, such events may
      disrupt our customers’ manufacturing, assembly and test, logistics, security and
      communications, and could also result in reduced demand for our products.
      Business continuity could also be affected if labor issues disrupt our
      transportation arrangements or those of our customers or suppliers. In addition,
      we may rely on a single or limited number of suppliers, or upon suppliers in
      a
      single country. On an international basis, we regularly review our key
      infrastructure, systems, services and suppliers, both internally and externally,
      to seek to identify potentially significant vulnerabilities as well as areas
      of
      potential business impact if a disruptive event were to occur. Once identified,
      we assess the risks, and as we consider it to be appropriate, we initiate
      actions intended to mitigate the risks and their potential impact. There can,
      however, be no assurance that we have identified all significant risks or that
      we can mitigate all identified risks with reasonable effort.




We
      are
      continuing to assemble the personnel and financial resources required to achieve
      the objectives of our business plan. Future revenue, costs and profits are
      all
      influenced by a number of factors, including those discussed above, all of
      which
      are inherently difficult to forecast.




**Off-Balance
      Sheet Arrangements**





As
      of
      December 31, 2005, we did not have any off-balance sheet arrangements, as
      defined in Item 303(a)(4)(ii) of SEC Regulation S-K.





**Contractual
      Obligations**





The
      table
      below lists our known contractual obligations at December 31, 2005.





Our
      long-term debt obligations consist of a $50,000 note payable (converted to
      stock
      in January 2006 with the consent of the note holder), a $39,492 note payable
      to
      our CEO from our India subsidiary plus interest at 11.25% per annum (guaranteed
      by the Company), and $350,000 of a $500,000 convertible debenture ($150,000
      not
      funded as of April 11, 2006), plus interest payable monthly at 15% per
      annum.




25





Our
      purchase obligations are limited to employment contracts with company executives
      and senior staff. These seven written contracts are for one to three years
      in
      duration and expire at various dates between December 31, 2006 and May 15,
      2008.





The
      operating leases reported here are limited to three leases for office space
      in
      Chennai, India for our India subsidiary. Each lease is for three years with
      expiration dates from April 30, 2008 through July 31, 2008. We expect to renew
      these leases as they expire or find similar space at comparable
      rates.





We
      have
      no capital lease obligations as defined in FASB Statement of Accounting
      Standards No. 13, “Accounting for Leases” nor do we have any other long-term
      liabilities reflected on the balance sheet under generally accepted accounting
      principles in the United States.





Payments
                due by periodContractual
                Obligations
            
            Total
            
            Less
                than 1year
            
            1
                -
                3 years
            
            3
                -
                5 years
            
            More
                than 5 yearsPurchase
                Obligations (employment contracts) *
            
            $
            1,682,917
            
            
            1,060,000
            
            
            622,917
            
            
            -
            
            
            -Long-Term
                Debt Obligations **
            
            $
            439,492
            
            
            89,492
            
            
            350,000
            
            
            -
            
            
            -Operating
                Lease Obligations ***
            
            $
            82,070
            
            
            41,200
            
            
            40,870
            
            
            -
            
            
            -Capital
                Lease Obligations
            
            $
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                Long-Term Liabilities Reflected on Balance Sheet under GAAP
            
            $
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -


*
              Employment
                  contracts with senior executives ranging in length from 1 year
                  to 3 years,
                  expiring on various dates from December 31, 2006 through May 15,
                  2008.
 **
              $50,000
                  of payment due less than one year was converted to common stock
                  with
                  consent of the note holder in January
                  2006.
 ***
              Leases
                  of office space in Chennai, India expiring at various times through
                  July
                  2008. The lease at our Rockville, MD office is month-to-month and
                  therefore not included. Our Rockville rent is $2,730 per month




26





**ITEM
      7.**  **FINANCIAL
      STATEMENTS**




**Table
      of Contents**


REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
              
              
              28CONSOLIDATED
                  BALANCE SHEETS
              
              
              29CONSOLIDATED
                  STATEMENTS OF OPERATIONS
              
              
              30CONSOLIDATED
                  STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
              
              
              31CONSOLIDATED
                  STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
              
              
              32CONSOLIDATED
                  STATEMENTS OF CASH FLOWS
              
              
              33NOTES
                  TO CONSOLIDATED FINANCIAL STATEMENTS
              
              
              35





27


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





Board
      of
      Directors and Stockholders


Airbee
      Wireless, Inc.


9400
      Key
      West Avenue


Rockville,
      MD 20850-3322





We
      have
      audited the accompanying consolidated balance sheets of Airbee Wireless, Inc.,
      a
      development stage company (the “Company”) as of December 31, 2005 and 2004, and
      the related consolidated statements of operations, changes in stockholders’
deficit, accumulated other comprehensive income and cash flows for the years
      then ended and the period August 9, 2002 (inception) through December 31, 2005,
      with cumulative totals since the Company’s inception, for the statements of
      operations, changes in stockholders’ deficit, accumulated other comprehensive
      income and cash flows. These consolidated financial statements are the
      responsibility of management. Our responsibility is to express an opinion on
      these consolidated financial statements based on our audits.





We
      conducted our audits in accordance with standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. An audit includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements. An audit also includes assessing the accounting
      principles used and significant estimates made by management, as well as
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of Airbee Wireless, Inc.,
      a
      development stage company as of December 31, 2005 and 2004, and the results
      of
      its operations, and cash flows for the years then ended, and the cumulative
      totals since the Company’s inception, in conformity with accounting principles
      generally accepted in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As discussed in Note 10 to the
      consolidated financial statements, the Company has sustained operating losses
      and capital deficits that raise substantial doubt about its ability to continue
      as a going concern. Management’s operating and financing plans in regards to
      these matters are also discussed in Note 10. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      these uncertainties.





As
      discussed in Note 11 to the financial statements, the accompanying
      financial statements have been restated.





Bagell,
      Josephs, Levine & Company, L.L.C.





Gibbsboro,
      New Jersey


April
      11,
      2006 (September 19, 2006 as to the effects of the restatement discussed in
      Note 11)


28




**AIRBEE
        WIRELESS, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        BALANCE SHEETS**
 **December
        31, 2005 and 2004**


**Restated**
            
            **Restated****2005**
            
            **2004****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            27,854
            
            $
            87,362Accounts
                receivable
            
            
            10,000
            
            
            -Prepaid
                expenses and other current assets
            
            
            45,666
            
            
            25,559Total
                Current Assets
            
            
            83,520
            
            
            112,921Fixed
                assets, net of depreciation
            
            
            66,527
            
            
            51,362Intangible
                assets
            
            
            689,252
            
            
            165,975Deferred
                financing costs
            
            
            30,915
            
            
            -Other
                assets
            
            
            27,714
            
            
            1,605747,881
            
            
            167,580**TOTAL
                ASSETS**
            
            $
            897,928
            
            $
            331,863**LIABILITIES
                AND STOCKHOLDERS' (DEFICIT)****LIABILITIES**Current
                Liabilities:Notes
                payable - related party
            
            $
            1,216,738
            
            $
            1,056,611Notes
                payable - other
            
            
            150,000
            
            
            50,000Montgomery
                settlement liability
            
            
            707,711
            
            
            -Fair
                value of derivatives
            
            
            1,039,046
            
            
            -Warrants
                liability
            
            
            520,851
            
            
            -Liability
                for stock to be issued
            
            
            -
            
            
            76,000Accounts
                payable and accrued expenses
            
            
            1,587,913
            
            
            389,791Total
                Current Liabilities
            
            
            5,222,259
            
            
            1,572,402Long-term
                Liabilities:Convertible
                debentures, net of discount of $350,000 and $0
            
            
            -
            
            
            -Due
                officer
            
            
            39,492
            
            
            40,927Total
                Long-term Liabilities
            
            
            39,492
            
            
            40,927**Total
                Liabilities**
            
            
            5,261,751
            
            
            1,613,329**COMMITMENTS
                AND CONTINGENCIES**
            
            
            -
            
            
            -**STOCKHOLDERS'
                DEFICIT**Common
                stock, $.00004 Par Value; 200,000,000 shares authorized54,634,754
                and 41,216,913 shares issued, 53,637,709 and 40,512,551
                outstanding
            
            
            2,185
            
            
            1,648Additional
                paid-in capital
            
            
            2,598,736
            
            
            1,623,852Unearned
                compensation
            
            
            (38,522
            )
            
            (41,241
            )Accumulated
                other comprehensive income
            
            
            734
            
            
            730Accumulated
                deficit
            
            
            (6,596,625
            )
            
            (2,814,366
            )(4,033,492
            )
            
            (1,229,377
            )Less:
                stock subscription receivable
            
            
            (127,500
            )
            
            -Less:
                treasury stock, 997,045 and 704,362 shares at cost
            
            
            (202,831
            )
            
            (52,089
            )**Total
                Stockholders' Deficit**
            
            
            (4,363,823
            )
            
            (1,281,466
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIT**
            
            $
            897,928
            
            $
            331,863




The
      accompanying notes are an integral part of these consolidated financial
      statements.




29


**AIRBEE
        WIRELESS, INC.** **(A
          DEVELOPMENT STAGE COMPANY)**


**CONSOLIDATED
        STATEMENTS OF OPERATIONS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 **(WITH
        CUMULATIVE TOTALS SINCE INCEPTION)**
  **Restated****Cumulative
                  Totals****August
                  9, 2002****Restated**
              
              **Restated**
              
              **to****2005**
              
              **2004**
              
              **December
                  31, 2005****OPERATING
                  REVENUES**Sales
              
              $
              13,015
              
              $
              -
              
              $
              23,123**COST
                  OF SALES**
              
              
              -
              
              
              -
              
              
              11,040**GROSS
                  PROFIT**
              
              
              13,015
              
              
              -
              
              
              12,083**OPERATING
                  EXPENSES**Compensation
                  and professional fees
              
              
              1,986,137
              
              
              505,776
              
              
              3,128,199Research
                  and development
              
              
              232,064
              
              
              502,853
              
              
              1,516,620Selling,
                  general and administrative expenses
              
              
              630,746
              
              
              129,655
              
              
              799,025Bad
                  debt
              
              
              536,495
              
              
              -
              
              
              536,495Depreciation
                  and amortization
              
              
              113,372
              
              
              4,188
              
              
              121,718**Total
                  Operating Expenses**
              
              
              3,498,814
              
              
              1,142,472
              
              
              6,102,057**LOSS
                  BEFORE OTHER INCOME (EXPENSE)**
              
              
              (3,485,799
              )
              
              (1,142,472
              )
              
              (6,089,974
              )**OTHER
                  INCOME (EXPENSE)**Impairment
              
              
              -
              
              
              -
              
              
              (127,974
              )Other
                  Income
              
              
              -
              
              
              70,000
              
              
              70,000Interest
                  expense
              
              
              (311,539
              )
              
              (64,271
              )
              
              (463,756
              )Recovery
                  of bad debt
              
              
              15,079
              
              
              -
              
              
              15,079**Total
                  Other Income (Expense)**
              
              
              (296,460
              )
              
              5,729
              
              
              (506,651
              )**NET
                  LOSS BEFORE PROVISION FOR INCOME TAXES**
              
              
              (3,782,259
              )
              
              (1,136,743
              )
              
              (6,596,625
              )**Provision
                  for Income Taxes**
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS APPLICABLE TO COMMON SHARES**
              
              $
              (3,782,259
              )
              $
              (1,136,743
              )
              $
              (6,596,625
              )**NET
                  LOSS PER BASIC AND DILUTED SHARES**
              
              $
              (0.08
              )
              $
              (0.03
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON****SHARES
                  OUTSTANDING**
              
              
              45,421,470
              
              
              37,860,222
  The
        accompanying notes are an integral part of these consolidated financial
        statements.




30




**AIRBEE
        WIRELESS, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT**
 **FOR
        THE PERIOD AUGUST 9, 2002 (INCEPTION) THROUGH DECEMBER 31,
        2005**
  DeficitAccumulatedAdditional
              
              Accumulated
              
              
              
              During
                  the
              
              
              
              StockCommon
                  Stock
              
              Paid-In
              
              Comprehensive
              
              Unearned
              
              Development
              
              Treasury
              
              SubscriptionDescription
              
              Shares
              
              Amount
              
              Capital
              
              Income
                  (Loss)
              
              Compensation
              
              Stage
              
              Stock
              
              Receivable
              
              TotalBalance,
                  August 9, 2002
              
              
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Issuance
                  of initial founders' shares
              
              
              21,625,000
              
              
              865
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              865Shares
                  issued for acquisition of Connexus Technologies
              
              
              4,156,405
              
              
              166
              
              
              99,834
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              100,000Issuance
                  of founders' shares to chief operating officer
              
              
              1,359,550
              
              
              54
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              54Issuance
                  of common stock for cash
              
              
              50,000
              
              
              2
              
              
              9,998
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,000Options
                  issued below fair market value
              
              
              -
              
              
              -
              
              
              82,485
              
              
              -
              
              
              (82,485
              )
              
              
              
              
              
              
              
              -
              
              
              -Prior
                  period adjustment, Note 11
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              13,748
              
              
              (32,189
              )
              
              -
              
              
              -
              
              
              (18,441
              )Net
                  loss of the period, as originally stated
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (284,857
              )
              
              -
              
              
              -
              
              
              (284,857
              )Balance,
                  December 31, 2002, as restated
              
              
              27,190,955
              
              
              1,088
              
              
              192,317
              
              
              -
              
              
              (68,737
              )
              
              (317,046
              )
              
              -
              
              
              -
              
              
              (192,378
              )Issuance
                  of common stock in private placement
              
              
              1,000,000
              
              
              40
              
              
              87,960
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              88,000Issuance
                  of common stock in conversion of note payable
              
              
              56,668
              
              
              2
              
              
              11,831
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              11,833Issuance
                  of founders' shares to chief financial officer
              
              
              125,000
              
              
              5
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              5Shares
                  issued for services
              
              
              3,617,854
              
              
              145
              
              
              411,568
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              411,713Shares
                  issued for cash
              
              
              166,960
              
              
              7
              
              
              18,993
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,000Shares
                  of common stock issued in exercise of options
              
              
              4,465,450
              
              
              179
              
              
              80,048
              
              
              -
              
              
              -
              
              
              -
              
              
              (80,227
              )
              
              -
              
              
              -Contribution
                  of capital by officer
              
              
              -
              
              
              -
              
              
              17,517
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              17,517Options
                  issued below fair market value
              
              
              -
              
              
              -
              
              
              221,400
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              221,400Prior
                  period adjustment, Note 11
              
              
              (543,908
              )
              
              (22
              )
              
              (28,116
              )
              
              -
              
              
              13,748
              
              
              (380,554
              )
              
              28,138
              
              
              -
              
              
              (366,806
              )Net
                  loss for the year, as originally stated
              
              
              -
              
              
              -
              
              
              -
              
              
              5,882
              
              
              -
              
              
              (980,023
              )
              
              -
              
              
              -
              
              
              (974,141
              )Balance,
                  December 31, 2003 as restated
              
              
              36,078,979
              
              
              1,443
              
              
              1,013,518
              
              
              5,882
              
              
              (54,989
              )
              
              (1,677,623
              )
              
              (52,089
              )
              
              -
              
              
              (763,858
              )Issuance
                  of common stock for cash
              
              
              5,030,490
              
              
              201
              
              
              581,838
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              582,039Shares
                  issued for services
              
              
              107,444
              
              
              4
              
              
              28,496
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              -
              
              
              28,500Prior
                  period adjustment, Note 11
              
              
              
              
              
              -
              
              
              
              
              
              -
              
              
              13,748
              
              
              (13,748
              )
              
              
              
              
              -
              
              
              -Net
                  loss for the year, as originally stated
              
              
              -
              
              
              -
              
              
              -
              
              
              (5,152
              )
              
              
              
              
              (1,122,995
              )
              
              -
              
              
              -
              
              
              (1,128,147
              )Balance,
                  December 31, 2004
              
              
              41,216,913
              
              
              1,648
              
              
              1,623,852
              
              
              730
              
              
              (41,241
              )
              
              (2,814,366
              )
              
              (52,089
              )
              
              -
              
              
              (1,281,466
              )Issuance
                  of common stock for cash
              
              
              2,886,202
              
              
              115
              
              
              1,078,715
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (127,500
              )
              
              951,330Shares
                  issued for services
              
              
              1,137,465
              
              
              45
              
              
              562,361
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              562,406Shares
                  issued for compensation
              
              
              37,771
              
              
              2
              
              
              19,498
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              19,500Shares
                  issued for professional fees - financing
              
              
              600,000
              
              
              24
              
              
              9,976
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              10,000Shares
                  of common stock issued in exercise of options
              
              
              6,956,403
              
              
              278
              
              
              150,684
              
              
              -
              
              
              -
              
              
              -
              
              
              (150,742
              )
              
              -
              
              
              220Shares
                  of common stock issued in exercise of warrants
              
              
              1,800,000
              
              
              72
              
              
              21,928
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              22,000Structuring
                  fees
              
              
              -
              
              
              -
              
              
              (25,000
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (25,000
              )Repayment
                  of note payable, accrued interest & interest expense
              
              
              -
              
              
              -
              
              
              229,789
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              229,789Amortization
                  of unearned compensation
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              13,819
              
              
              -
              
              
              -
              
              
              -
              
              
              13,819Options
                  issues below fair market value
              
              
              -
              
              
              -
              
              
              11,100
              
              
              -
              
              
              (11,100
              )
              
              -
              
              
              -
              
              
              -
              
              
              -Issuance
                  costs on proceeds of bifurcated warrants on convertible
                  debenture
              
              
              -
              
              
              -
              
              
              (14,085
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (14,085
              )Discount
                  on debt for free-standing fixed warrants
              
              
              -
              
              
              -
              
              
              109,597
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              109,597Fair
                  value derivative on free-standing warrants on convertible
                  debenture
              
              
              -
              
              
              -
              
              
              (138,677
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (138,677
              )Fair
                  value derivative on common stock conversion feature
              
              
              -
              
              
              -
              
              
              (659,966
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (659,966
              )Fair
                  value of outstanding warrants due to conversion feature of
                  debenture
              
              
              -
              
              
              -
              
              
              (381,036
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (381,036
              )Prior
                  period adjustment, Note 11
              
              
              -
              
              
              -
              
              
              
              
              
              -
              
              
              -
              
              
              (76,605
              )
              
              -
              
              
              -
              
              
              (76,605
              )Comprehensive
                  income
              
              
              -
              
              
              -
              
              
              -
              
              
              4
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              4Net
                  loss for the year
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (3,705,654
              )
              
              
              
              
              
              
              
              (3,705,654
              )Balance,
                  December 31, 2005
              
              
              54,634,754
              
              $
              2,185
              
              $
              2,598,736
              
              $
              734
              
              $
              (38,522
              )
              $
              (6,596,625
              )
              $
              (202,831
              )
              $
              (127,500
              )
              $
              (4,363,823
              )
  The
        accompanying notes are an integral part of these consolidated financial
        statements.


31


**AIRBEE
        WIRELESS, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
  Balance,
                  December 31, 2003
              
              $
              5,882Loss
                  on foreign currency translations
              
              
              (5,152
              )Balance,
                  December 31, 2004
              
              $
              730Balance,
                  December 31, 2004
              
              $
              730Gain
                  on foreign currency translations
              
              
              4Balance,
                  Dectember 31, 2005
              
              $
              734


The
        accompanying notes are an integral part of these consolidated financial
        statements.


32


**AIRBEE
        WIRELESS, INC.**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 **(WITH
        CUMULATIVE TOTALS SINCE INCEPTION)**


**Restated**
            
            **Restated**
            
            **August
                9, 2002 to****2005**
            
            **2004**
            
            **December
                31, 2005****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (3,782,259
            )
            $
            (1,136,743
            )
            $
            (6,596,625
            )Adjustments
                to reconcile net loss to net cash(used
                in) operating activitiesProvision
                for bad debts
            
            
            536,495
            
            
            -
            
            
            536,495Depreciation
                and amortization
            
            
            113,372
            
            
            4,188
            
            
            121,718Common
                stock issued for services
            
            
            485,329
            
            
            104,500
            
            
            1,222,941Common
                stock issued for compensation
            
            
            19,500
            
            
            -
            
            
            19,500Warrants
                issued for commitment fee
            
            
            139,815
            
            
            -
            
            
            139,815Pledged
                collateral used for settlement of interest expense
            
            
            150,000
            
            
            -
            
            
            150,000Interest
                expense converted to note payable - other
            
            
            -
            
            
            50,000
            
            
            100,000Impairment
                of goodwill
            
            
            -
            
            
            -
            
            
            127,974Gain
                (loss) on foreign currency translations
            
            
            4
            
            
            (5,152
            )
            
            734Amortization
                of unearned compensation
            
            
            13,819
            
            
            13,748
            
            
            55,063**Changes
                in assets and liabilities**(Increase)
                decrease in accounts receivable
            
            
            (10,000
            )
            
            -
            
            
            9,373(Increase)
                in prepaid expenses and other assets
            
            
            (95,107
            )
            
            (16,006
            )
            
            (119,059
            )Net
                change in net assets in acquisition of Connexus
            
            
            -
            
            
            -
            
            
            (22,865
            )(Increase)
                in other assets
            
            
            (562,604
            )
            
            (60
            )
            
            (562,664
            )Increase
                in accounts payable and accrued expenses
            
            
            1,235,622
            
            
            82,903
            
            
            1,490,906Total
                adjustments
            
            
            2,026,245
            
            
            234,121
            
            
            3,269,931**Net
                cash (used in) operating activities**
            
            
            (1,756,014
            )
            
            (902,622
            )
            
            (3,326,694
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Acquisition
                of intangible assets
            
            
            (546,009
            )
            
            (1,248
            )
            
            (711,984
            )Acquisitions
                of fixed assets
            
            
            (30,805
            )
            
            (47,335
            )
            
            (80,853
            )**Net
                cash (used in) investing activities**
            
            
            (576,814
            )
            
            (48,583
            )
            
            (792,837
            )




The
        accompanying notes are an integral part of these consolidated financial
        statements.


33


**AIRBEE
        WIRELESS, INC.**


**(A
        DEVELOPMENT STAGE COMPANY)**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS (CCONTINUED)**
 **FOR
        THE YEARS ENDED DECEMBER 31, 2005 AND 2004**
 **(WITH
          CUMULATIVE TOTALS SINCE INCEPTION)**


**Cumulative
                Totals****Restated**
            
            **Restated**
            
            **August
                9, 2002 to****2005**
            
            **2004**
            
            **December
                31, 2005****CASH
                FLOWS FROM FINANCING ACTIVITES**Proceeds
                from common stock issuances
            
            $
            945,543
            
            $
            582,039
            
            $
            1,662,070Services
                rendered converted to notes payable - related party
            
            
            -
            
            
            431,189
            
            
            1,056,611Proceeds
                from notes payable - other
            
            
            850,000
            
            
            -
            
            
            850,000Proceeds
                from convertible debenture
            
            
            350,000
            
            
            -
            
            
            350,000Proceeds
                from notes payable - related party, net
            
            
            160,127
            
            
            -
            
            
            220,127Expenditures
                for financing fees
            
            
            (30,915
            )
            
            -
            
            
            (30,915
            )Amounts
                due to officers, net
            
            
            (1,435
            )
            
            1,851
            
            
            39,492**Net
                cash provided by financing activities**
            
            
            2,273,320
            
            
            1,015,079
            
            
            4,147,385**NET
                INCREASE (DECREASE) IN****CASH
                AND CASH EQUIVALENTS**
            
            
            (59,508
            )
            
            63,874
            
            
            27,854**CASH
                AND CASH EQUIVALENTS -****BEGINNING
                OF YEAR**
            
            
            87,362
            
            
            23,488
            
            
            -**CASH
                AND CASH EQUIVALENTS - END OF YEAR**
            
            $
            27,854
            
            $
            87,362
            
            $
            27,854**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW****INFORMATION:****CASH
                PAID DURING THE YEAR FOR:**Interest
                expense
            
            $
            41,962
            
            $
            -
            
            $
            41,962Income
                taxes
            
            $
            -
            
            $
            -
            
            $
            -**SUPPLEMENTAL
                DISCLOSURE OF NONCASH****ACTIVITIES:**Common
                stock issued for compensation
            
            $
            19,500
            
            $
            -
            
            $
            19,500Common
                stock issued for services
            
            $
            485,329
            
            $
            28,500
            
            $
            1,222,941Common
                stock issued for issuance costs
            
            $
            740,000
            
            $
            -
            
            $
            740,000Exercise
                of cashless stock options
            
            $
            150,742
            
            $
            -
            
            $
            202,831Interest
                expense converted to note payable - other
            
            $
            -
            
            $
            50,000
            
            $
            100,000Conversion
                of notes payable and accrued interest to common stock
            
            $
            -
            
            $
            -
            
            $
            11,833Impairment
                of goodwill
            
            $
            -
            
            $
            -
            
            $
            127,974Common
                stock and warrants issued for derivatives
            
            $
            1,039,046
            
            $
            -
            
            $
            1,039,046Common
                stock and warrants issued for convertible debt
            
            $
            350,000
            
            $
            -
            
            $
            350,000Warrants
                issued for commitment fee
            
            $
            139,815
            
            $
            -
            
            $
            139,815Warrants
                converted to liability
            
            $
            381,036
            
            $
            -
            
            $
            381,036Unearned
                compensation on cashless options
            
            $
            -
            
            $
            -
            
            $
            82,485Use
                of pledged collateral for settlement of note payable and accrued
                interest
            
            $
            229,789
            
            $
            -
            
            $
            229,789Common
                stock issued for subscription receivable
            
            $
            127,500
            
            $
            -
            
            $
            127,500


The
      accompanying notes are an integral part of these consolidated financial
      statements.


34




**AIRBEE
        WIRELESS, INC.**
 **NOTES
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 **DECEMBER
        31, 2005 AND 2004**
 
 **NOTE
        1 -**  **ORGANIZATION
        AND BASIS OF PRESENTATION**
  Airbee
        Wireless, Inc. (“ *Airbee* ”
or
        the
“ *Company* ”),
        was
        incorporated in Delaware in 2002 to develop and supply cutting edge intelligent
        software that is generally embedded into microprocessors thereby allowing
        manufacturers (OEM’s) of various products to create advanced wireless
        communications systems.
  Focusing
        on its core competencies in the design and engineering of advanced, embedded
        short-range wireless data and voice communications software, the Company
        believes that it is positioned to play a pivotal role in the convergence
        of
        various wireless communications applications through software embedded on
        silicon and in niche service applications for its software.
  In
        March
        2004, Airbee became a member of The ZigBee Alliance which has defined a global
        standard for reliable, cost-effective, low-power, low data rate, wireless
        applications. With over 130 international member companies, the ZigBee standard,
        based on IEE 802.15.4 standard, is emerging as a dominant wireless standard
        for
        a host of industrial controls, telemetry, and in-building and home automation
        networking needs.
  Airbee’s
        portfolio of products is generally connected over the rapidly emerging Wireless
        Personal Area Network (WPAN) or the Wireless Local Area Network (WLAN)
        technology space. Critical to the success of new products in these areas
        is the
        ability to interoperate or “talk to each other” based on industry-adopted
        standards. Airbee’s products are designed and engineered to be compliant with
        ZigBee/802.15.4 WPAN standards (approved by IEEE on August 7, 2003). Airbee’s
        patent-pending software technology, in conjunction with an Airbee enabled
        wireless network, allows a computer to work with a printer or PDA, a headset
        accessory to work with a mobile phone, a utility meter to be read remotely,
        or a
        manufacturing line to be wirelessly controlled and monitored as examples.
        Airbee
        leverages the widespread market awareness created by Bluetooth but offers
        similar products at less than half the cost, three times the operating range
        and
        better reliability per the ZigBee specifications.
  As
        stated
        in Note 11, the Company had amended its previously issued consolidated financial
        statements for the year ended December 31, 2003 and period from August 9,
        2002
        (inception) through December 31, 2002 on its report dated May 20, 2004. The
        Company had amended these consolidated financial statements to recognize
        an
        additional $366,806 and $18,441 in compensation and interest expense for
        the
        year ended December 31, 2003 and the period August 9, 2002 (inception) through
        December 31, 2002. In addition, certain issuances of common stock have been
        restated due to valuation adjustments, the recording of unearned compensation
        due to the issuance of options below the fair market value (including
        amortization of unearned compensation of $13,748 in 2003 and 2002, respectively)
        and 2002 common share information has been restated to retroactively account
        for
        the stock split that occurred in September 2003. These transactions resulted
        in
        an increase in net loss applicable to common shares of $380,554 and $32,189
        for
        the year ended December 31, 2003 and the period August 9, 2002 (inception)
        through December 31, 2002 to a net loss of $1,360,577 and $317,046 as restated,
        and an increase in the deficits accumulated during the development stage
        to
        $1,677,623 and $317,046, respectively. The December 31, 2004 financial
        statements have been restated for the amortization of unearned compensation
        for
        the year ended December 31, 2004 by $13,748 and this has increased the loss
        for
        the year then ended to $1,136,743 as restated, and the accumulated deficit
        during the development stage to $2,814,366.
  35
  As
        further stated in Note 11, the Company amended its previously issued
        consolidated financial statements for the year ended December 31, 2005 on
        its
        report dated July 26, 2006. The Company amended these consolidated financial
        statements to recognize an additional $61,455 in research and development
        costs
        that was improperly capitalized in 2005. In addition, $520,851 was reclassified
        from Additional Paid-in Capital to Warrants Liability as a result of the
        secured
        convertible debenture executed by the Company on December 29, 2005. Finally,
        an
        additional $15,150 in amortization expense was recognized as the result in
        the
        change in accounting estimate reducing the amortization period of the Company’s
        intellectual property from sixteen years (the life of a patent) to five years
        (the estimated life of software). These changes have increased the loss for
        the
        year ended December 31, 2005 to $3,782,259 as restated and the accumulated
        deficit during the development stage to $6,596,625.
  **NOTE
        2 -** **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES**
  **Development
        Stage Company**
  The
        Company is considered to be in the development stage as defined in Statement
        of
        Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by
        Development Stage Enterprises.” The Company has devoted substantially all of its
        efforts to business planning, patent applications, research and development,
        recruiting management and technical staff, acquiring operating assets and
        raising capital. With the release of the ZigBee / IEEE 802.15.4 standard
        on
        December 14, 2004, the Company is anticipating that sales will be generated
        in
        the first quarter of fiscal 2006, at which time the Company will emerge from
        the
        development stage.
  **Liquidity**
  The
        consolidated financial statements have been presented on the basis that the
        Company is a going concern, which contemplates, among other things, the
        realization of assets, continued success in accessing supplemental external
        financing, and the satisfaction of liabilities in the normal course of business.
        The Company has incurred losses since its inception, and has accumulated
        deficits of approximately $6.52 million and $2.81 million as of December
        31,
        2005 and 2004, respectively. The Company's operations have been financed
        primarily through a combination of issued equity and debt. For the years
        ended
        December 31, 2005 and 2004, the Company had net losses of approximately $3.71
        million and $1.14 million, respectively, and cash used in operations of
        approximately $1.69 million and $0.90 million.
  36
  The
        Company regularly evaluates its working capital needs and existing burn rate
        to
        make appropriate adjustments to operating expenses. On April 26, 2005, the
        Company executed a promissory note in the amount of $750,000 in favor of
        Montgomery Equity Partners, Ltd (“Montgomery”). Pursuant to the terms of the
        promissory note, Montgomery disbursed the entire $750,000 to the Company
        upon
        the date the note was executed and an additional $250,000 was to be disbursed
        to
        the Company after the Company’s common stock commences trading on the
        Over-the-Counter Bulletin Board market. The promissory note was secured by
        all
        of the assets of the Company plus shares of stock of an affiliate of the
        Company. It had a one-year term and accrued interest monthly at 24% per year.
        The Company had difficulty adhering to the payment schedule of the note and
        entered into a settlement agreement with Montgomery to satisfy the note with
        the
        liquidation of the pledged shares. On December 29, 2005, the Company executed
        a
        $500,000 convertible debenture with Montgomery Equity Partners, Ltd. Pursuant
        to
        its terms, Montgomery disbursed $350,000 to the Company with the remaining
        $150,000 to be disbursed two days before the Company files a Form SB-2 with
        the
        U.S. Securities and Exchange Commission. The convertible debenture has a
        two-year term and accrues monthly interest at 15% per year.
  **Principles
        of Consolidation**
  The
        consolidated financial statements include the accounts of Airbee Wireless,
        Inc.
        and its wholly owned subsidiaries Airbee Wireless (Pte.) Ltd., located in
        Singapore, and Airbee Wireless (India) Pvt. Ltd., located in India, for the
        years ended December 31, 2005 and 2004 respectively (“ *Airbee* ”
or
        the
“ *Company* ”).
        All
        significant inter-company accounts and transactions have been eliminated
        in
        consolidation. Accounts denominated in non-U.S. currencies have been re-measured
        using the U.S. Dollar as the functional currency.
  **Use
        of Estimates**
  The
        preparation of the consolidated financial statements in conformity with
        accounting principles generally accepted in the United States of America
        requires management to make estimates and assumptions that affect the reported
        amounts of assets and liabilities and disclosures of contingent assets and
        liabilities at the date of the consolidated financial statements and the
        reported amounts of revenues and expenses during the reporting period. Actual
        results could differ from those estimates.
  **Cash
        and Cash Equivalents**
  The
        Company considers all highly liquid debt instruments and other short-term
        investments with an initial maturity of three months or less to be cash
        equivalents.
  The
        Company maintains cash and cash equivalent balances at financial institutions
        in
        the United States of America, Singapore and India. The financial institution
        in
        the United States of America is insured by the Federal Deposit Insurance
        Corporation up to $100,000.
  37
  **Fixed
        Assets**
  Fixed
        assets are stated at cost. Depreciation is computed using the straight-line
        method over the estimated useful lives of the assets; two to four years for
        machinery and equipment and four to forty years for buildings. Reviews are
        regularly performed to determine whether facts and circumstances exist that
        indicate carrying amount of assets may not be recoverable or the useful life
        is
        shorter than originally estimated. The Company assesses the recoverability
        of
        its fixed assets by comparing the projected undiscounted net cash flows
        associated with the related asset or group of assets over their remaining
        lives
        against their respective carrying amounts. Impairment, if any, is based on
        the
        excess of the carrying amount over the fair value of those assets. If assets
        are
        determined to be recoverable, but the useful lives are shorter than originally
        estimated, the net book value of the assets is depreciated over the newly
        determined remaining useful lives. When fixed assets are retired or otherwise
        disposed of, the cost and related accumulated depreciation are removed from
        the
        accounts and the resulting gain or loss is included in operations.
  **Intangible
        Assets**
  Intellectual
        property assets represent technology and are amortized over the periods of
        benefit, ranging from two to five years, generally on a straight-line
        basis.
  Identified
        intangible assets are regularly reviewed to determine whether facts and
        circumstances exist which indicate that the useful life is shorter than
        originally estimated or the carrying amount of assets may not be recoverable.
        The Company assesses the recoverability of its identifiable intangible assets
        by
        comparing the projected discounted net cash flows associated with the related
        asset or group of assets over their remaining lives against their respective
        carrying amounts. Impairment, if any, is based on the excess of the carrying
        amount over the fair value of those assets.
  **Intellectual
        Property**
  Costs
        incurred in creating products are charged to expense when incurred as research
        and development until technological feasibility is established upon completion
        of a working model. Thereafter, all software production costs are capitalized
        and subsequently reported at the lower of unamortized cost or net realizable
        value. Capitalized costs are amortized based on current and future revenue
        for
        each product with an annual minimum equal to the straight-line amortization
        over
        the remaining estimated economic life of the product.
  In
        accordance with SFAS No. 2, “ *Accounting
        for Research and Development Costs* ”,
        SFAS
        No. 68, “ *Research
        and Development Arrangements* ”,
        and
        SFAS No. 86, “ *Accounting
        for the Costs of Computer Software to be Sold, Leased, or Otherwise
        Marketed* ”,
        technological feasibility for the Airbee UltraLite TM was
        established on November 20, 2002 with completion of the detailed program
        design.
        Several working models were delivered at various points through July of
        2003.
  38
  Trademarks
        and patents are regularly reviewed to determine whether the facts and
        circumstances exist to indicate that the useful life is shorter than originally
        estimated or the carrying amount of the assets may not be recoverable. The
        Company assesses the recoverability of its trademarks and patents by comparing
        the projected discounted net cash flows associated with the related asset,
        over
        their remaining lives, in comparison to their respective carrying amounts.
        Impairment, if any, is based on the excess of the carrying amount over the
        fair
        value of those assets.
  Intangible
        assets pertain to the Company’s intellectual property, more specifically
        software code for both IEEE 802.15.4 and the ZigBee standard version 1.0
        and to
        the upcoming ZigBee standard version 1.1.
  The
        software serves as the core code (i.e., one of the key building blocks) for
        current and future products that must comply with these international standards.
        Hence, core software based upon the global standards of IEEE and ZigBee to
        enable the rest of our software to function has an undefined, but not
        necessarily infinite, useful life. Management, with the assistance of its
        technical staff, has determined that this specific intellectual property
        should
        be amortized beginning in the second quarter of 2005 in accordance with SFAS
        No.
        86. The status of that intellectual property is reviewed for impairment annually
        or more frequently if events and circumstances indicate that the asset may
        be
        impaired. The Company believes that at this point in time, impairment is
        impractical because (a) the IEEE 802.15 global standard was only finalized
        in
        October 2003; (b) the ZigBee global standard was only finalized on December
        14,
        2004; and (c) the Company’s software written in conformity with both global
        standards is vital to making the rest of its software function and therefore
        be
        in compliance with these global standards.
  **Revenue
        and Cost Recognition**
  The
        Company currently recognizes revenues from four primary sources: (1) time-based
        product license fees, (2) time-based license royalties, (3) product revenues
        for
        software development tools and kits, and (4) software development
        services.
  Licensing
        revenues (e.g., Airbee-ZNS TM ,
        Airbee-ZMAC TM ,
        and
        Airbee-ZNMS TM )
        consist
        of revenues from licensing under the enterprise licensing model, of Airbee
        platforms, which include a combination of products and services, and items
        such
        as development tools, an operating system, various protocols and interfaces
        and
        maintenance and support services, such as installation and training, which
        are
        licensed over a limited period of time, typically 12-36 months. Service revenues
        are derived from fees for professional services, which include design and
        development fees, software maintenance contracts, and customer training and
        consulting.
  The
        Company accounts for the time-based licensing of software in accordance with
        the
        American Institute of Certified Public Accountants Statement of Position
        (SOP)
        97-2, “ *Software
        Revenue Recognition* .”
The
        Company recognizes revenue when (i) persuasive evidence of an arrangement
        exists; (ii) delivery has occurred or services have been rendered; (iii)
        the
        sales price is fixed or determinable; and (iv) the ability to collect is
        reasonably assured. For software arrangements with multiple elements, revenue
        is
        recognized dependent upon whether vendor-specific objective evidence (VSOE)
        of
        fair value exists for each of the elements. When VSOE does not exist for
        all the
        elements of a software arrangement and the only undelivered element is
        post-contract customer support (PCS), the entire licensing fee is recognized
        ratably over the contract period.
  39
  Revenue
        attributable to undelivered elements, including technical support, is based
        on
        the sales price of those elements, and is recognized ratably on a straight-line
        basis over the term of the time-based license. Post-contract customer support
        revenue is recognized ratably over the contract period. Shipping charges
        billed
        to customers are included in revenue and the related shipping costs are included
        in cost of sales.
  Time-based
        product licensing fees are collected in advance. Revenues from licenses are
        recognized on a prorated-basis over the life of the license. Airbee’s customary
        practice is to have non-cancelable time-based licenses and a customer purchase
        order prior to recognizing revenue.
  Enterprise
        license model arrangements require the delivery of unspecified future updates
        and upgrades within the same product family during the time-based license.
        Accordingly, Airbee will recognize fees from its enterprise license model
        agreements ratably over the term of the license agreement.
  Time-based
        royalties are charged on a unit basis. Royalties are not fixed dollar amounts,
        but are instead a percentage of the customer’s finished product and the
        percentage varies on a tiered basis with the time-based number of units shipped
        by customer.
  Revenue
        attributed to undelivered elements is based on the sales price rather than
        on
        the renewal rate for the following reasons:
  Because
        of (i) the newness of the ZigBee standard for this short-range wireless
        technology, (ii) the newness of the Company’s product introductions into the
        marketplace for a range of applications being developed by its customers,
        and
        (iii) the lack of historical data for potentially defective software, which
        may
        be a function of the application into which it is installed, a reasonable
        reserve for returns cannot yet be established. In accordance with SFAS No.
        48
“ *Revenue
        Recognition When Right of Return Exists* ,”
in
        the
        absence of historical data, the Company is unable to make a reasonable and
        reliable estimate of product returns at this time.
  The
        Company expects to enter into software maintenance contracts with its customers.
        Maintenance fees are not a fixed dollar amount, but rather a percentage fee
        based upon the value of the license and/or royalties billed/received.
        Maintenance contracts are paid for and collected at the beginning of the
        contract period. I f
        the
        Company provides bug fixes (under warranty obligations) free-of-charge that
        are
        necessary to maintain compliance with published specifications, it accounts
        for
        the estimated costs to provide bug fixes in accordance with SFAS No. 5
“ *Accounting
        for Contingencies* .”
  40
  Revenue
        from products licensed to original equipment manufacturers (OEM’s) is based on
        the time-based licensing agreement with an OEM and recognized when the OEM
        ships
        licensed products to its customers.
  The
        Company assesses probability of collection based on a number of factors,
        including its past transaction history with the customer and the
        creditworthiness of the customer. New customers are subject to a credit review
        process that evaluates the customers’ financial position and ultimately its
        ability to pay according to the original terms of the arrangement. Based
        on this
        review process, if it is determined from the outset of an arrangement that
        collection of the resulting receivable is not probable, revenue is then
        recognized on a cash-collected basis.
  Cost
        of
        revenue includes direct costs to produce and distribute products and direct
        costs to provide product support and training.
  **Prepaid
        Financing Costs**
  Prepaid
        financing costs of $75,000 were incurred in connection with the note payable
        to
        Montgomery Equity Partners, Ltd. (see discussion below in Note 5) and were
        originally amortized over the life of the note payable (12 months). As a
        result
        of the settlement agreement, the balance of the prepaid costs was written
        off
        and $75,000 has been included in amortization expense.
  **Deferred
        Financing Costs**
  Deferred
        financing fees were incurred in connection with the convertible debenture
        to
        Montgomery Equity Partners, Ltd. (see discussion below in Note 5). These
        will be
        amortized over the life of the convertible debenture (24 months). Since the
        convertible debenture did not close until December 29, 2005, no costs have
        been
        included in amortization expense for 2005.
  **Research
        and Development**
  Research
        and development costs are related primarily to the Company developing its
        intellectual property. Research and development costs were expensed as incurred
        prior to the Company’s demonstration of technical feasibility of its media
        access control (“MAC”) layer in November 2004 and of its Network and Security
        layers in April 2005. Research and development costs (which include costs
        of
        coding and testing) incurred to produce a product master have been capitalized
        in accordance with Statement No. 86, “ *Accounting
        for the Costs of Computer Software to be Sold, Leased, or Otherwise
        Marketed* ”
issued
        by the Financial Accounting Standards Board.
  **Income
        Taxes**
  Income
        tax benefit is computed on the pretax loss based on current tax law. Deferred
        income taxes are recognized for the tax consequences in future years of
        differences between the tax basis of assets and liabilities and its financial
        reporting amounts at each year-end based on enacted tax laws and statutory
        tax
        rates. No benefit is reflected for the years ended December 31, 2005 and
        2004,
        respectively.
  41
  **Start-up
        Costs**
  In
        accordance with the American Institute of Certified Public Accountants Statement
        of Position 98-5, “Reporting on the Costs of Start-up Activities,” the Company
        expenses all costs incurred in connection with the start-up and organization
        of
        the Company.
  **Advertising**
  The
        Company’s policy is to expense the costs of advertising and marketing as
        incurred. The Company had no such cost for the years ended December 31, 2005
        and
        2004 respectively.
  **Earnings
        (Loss) Per Share of Common Stock**
  Historical
        net income (loss) per common share is computed using the weighted average
        number
        of common shares outstanding. Diluted earnings per share (EPS) includes
        additional dilution from common stock equivalents, such as stock issuable
        pursuant to the exercise of stock options and warrants. Common stock equivalents
        were not included in the computation of diluted earnings per share at December
        31, 2005 and 2004 when the Company reported a loss because to do so would
        be
        anti-dilutive for periods presented. The Company has incurred losses since
        inception as a result of funding its research and development, including
        the
        development of its intellectual property portfolio which is key to its core
        products.
  The
        following is a reconciliation of the computation for basic and diluted
        EPS:
  December
                  31, 2005
              
              December
                  3`, 2004Net
                  Loss
              
              
              ($3,782,259
              )
              
              ($1,136,743
              )Weighted-average
                  common shares outstanding (Basic)
              
              
              45,421,470
              
              
              37,860,222Weighted-average
                  common stock
                Equivalents:Stock
                  options
              
              
              -
              
              
              -Warrants
              
              
              -
              
              
              -Weighted-average
                  common shares outstanding (Diluted)
              
              
              45,421,470
              
              
              37,860,222
 
 **Fair
        Value of Financial Instruments**
  The
        carrying amount reported in the consolidated balance sheet for cash and cash
        equivalents, accounts payable and accrued expenses approximates fair value
        because of the immediate or short-term maturity of these financial instruments.
        The carrying amount reported for notes payable approximates fair value because,
        in general, the interest on the underlying instruments fluctuates with market
        rates.
  42
  **Limitations**
  Fair
        value estimates are made at a specific point in time, based on relevant market
        information and information about the financial statement. These estimates
        are
        subjective in nature and involve uncertainties and matters of significant
        judgment and therefore cannot be determined with precision. Changes in
        assumptions could significantly affect the estimates.
  **Derivative
        Instruments**
  The
        Company has an outstanding convertible debt instrument that contains
        free-standing and embedded derivative features. The Company accounts for
        these
        derivatives in accordance with SFAS No. 133, *“Accounting
        for Derivative Instruments and Hedging Activities”* ,
        and
        EITF Issue No. 00-19, *“Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company's Own Stock”* .
        In
        accordance with the provisions of SFAS No. 133 and EITF Issue No. 00-19,
        the
        embedded derivatives are required to be bifurcated from the debt instrument
        and
        recorded as a liability at fair value on the consolidated balance sheet.
        Changes
        in the fair value of the derivatives are recorded at each reporting period
        and
        recorded in net gain (loss) on derivative, a separate component of the other
        income (expense). As of December 31, 2005, there was no change in the fair
        value
        of the derivatives.
  **Stock-Based
        Compensation**
  Employee
        stock awards under the Company's compensation plans are accounted for in
        accordance with Accounting Principles Board Opinion No. 25 (“APB 25”),
“ *Accounting
        for Stock Issued to Employees* ”,
        and
        related interpretations. The Company provides the disclosure requirements
        of
        SFAS No. 123, “ *Accounting
        for Stock-Based Compensation* ”
(“SFAS
        123”), and related interpretations. Stock-based awards to non-employees are
        accounted for under the provisions of SFAS 123 and the Company adopted the
        enhanced disclosure provisions of SFAS No. 148 “ *Accounting
        for Stock-Based Compensation- Transition and Disclosure* ,”
an
        amendment of SFAS No. 123.
  The
        Company measures compensation expense for its employee stock-based compensation
        using the intrinsic-value method. Under the intrinsic-value method of accounting
        for stock-based compensation, when the exercise price of options granted
        to
        employees is less than the estimated fair value of the underlying stock on
        the
        date of grant, deferred compensation is recognized and is amortized to
        compensation expense over the applicable vesting period. Amortization expense
        for the years ended December 31, 2005 and 2004 was $13,819, and $13,748,
        respectively.
  The
        Company measures compensation expense for its non-employee stock-based
        compensation under the Financial Accounting Standards Board (FASB) Emerging
        Issues Task Force (EITF) Issue No. 96-18, “ *Accounting
        for Equity Instruments that are Issued to Other Than Employees for Acquiring,
        or
        in Conjunction with Selling, Goods or Services* ”.
        The
        fair value of the option issued is used to measure the transaction, as this
        is
        more reliable than the fair value of the services received. Fair value is
        measured as the value of the Company’s common stock on the date that the
        commitment for performance by the counterparty has been reached or the
        counterparty’s performance is complete. The fair value of the equity instrument
        is charged directly to compensation expense and additional paid-in
        capital.
  43
  **Product
        Warranty**
  The
        Company’s product warranty accrual includes specific accruals for known product
        issues and an accrual for an estimate of incurred but unidentified product
        issues based on historical activity. Due to effective product testing and
        the
        short time between product shipment and the detection and correction of product
        failures, the warranty accrual based on historical activity and the related
        expense were not significant as of and for the years ended December 31, 2005
        and
        2004, respectively.
  **Goodwill
        and Other Intangible Assets**
  In
        June
        2001, the Financial Accounting Standards Board issued SFAS No. 142,
“ *Goodwill
        and Other Intangible Assets* .”
This
        statement addresses financial accounting and reporting for acquired goodwill
        and
        other intangible assets and supersedes Accounting Principles Board (“APB”)
        Opinion No. 17, “ *Intangible
        Assets* .”
It
        addresses how intangible assets that are acquired individually or with a
        group
        of other assets (but not those acquired in a business combination) should
        be
        accounted for in financial statements upon their acquisition. This statement
        also addresses how goodwill and other intangible assets should be accounted
        for
        after they have been initially recorded in the financial statements. All
        goodwill associated with the acquisition of Connexus Technologies (Pte.)
        Ltd.
        (“Connexus”) was impaired in 2002 ($127,974), since Connexus was acquired for
        its development and anticipated future development which management has
        determined to have no material fair value as of the balance sheet
        date.
  The
        identifiable intangible assets presented on the consolidated balance sheet
        represent the intellectual property that was capitalized post-technological
        feasibility. Management will continue to monitor and assess any impairment
        charges against those assets in accordance with the provisions of SFAS No.
        142
        and SFAS No. 144, “ *Accounting
        for the Impairment or Disposal of Long-Lived Assets* .”
        Beginning with the second quarter of 2005, the Company began amortizing its
        intellectual property costs over a five year period. The amortization amount
        for
        the current quarter is calculated based upon the ending balance of intellectual
        property from the preceding quarter. The amount amortized for the year ended
        December 31, 2005 was $22,650. The Company will begin amortizing its capitalized
        research and development costs once the software is available for general
        release, which is projected to be in the second or third quarter of
        2006.
  The
        main
        components of intangible assets are as follows:
  Twelve
                  Months Ended December 31, 2005Gross
                  Carrying Amount
              
              Accumulated
                  AmortizationIntellectual
                  Property
              
              $
              128,426
              
              $
              22,650Capitalized
                  Research & Development
              
              
              560,826
              
              
              -Total
                  Intangible Assets
              
              $
              689,252
              
              $
              22,650
  44
  At
        December 31, 2004, the carrying amount of the Company’s Intellectual Property
        was $165,975, of which $14,899 was reclassified and expensed in 2005. The
        Company did not begin amortizing its Intellectual Property until the second
        quarter of 2005.
  **Currency
        Risk and Foreign Currency Translation**
  The
        Company transacts business in currencies other than the U.S. Dollar, primarily
        the Singapore Dollar and the Indian Rupee. All currency transactions occur
        in
        the spot foreign exchange market and the Company does not use currency forward
        contracts, currency options, currency borrowings, interest rate swaps or
        any
        other derivative hedging strategy at this point in time.
  The
        Company has determined that based on the cash flow, sales price, sales market,
        expense, financing, and inter-company transactions and arrangements indicators
        set forth in SFAS 52, “ *Foreign
        Currency Translation* ,”
that
        the functional currency of the Company is that of the parent company and
        is US
        Dollars. The Company has reported its gain on foreign currency in its
        consolidated statements of accumulated other comprehensive income due to
        the
        fact that these translation adjustments result from the translation of all
        assets and liabilities at the current rate, while the stockholder equity
        accounts were translated by using historical and weighted-average rates.
  **Recent
        Accounting Pronouncements**
  On
        December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
        SFAS No. 123 (Revised 2004), “ *Share-Based
        Payment* ”
(“SFAS
        123R”). SFAS 123R requires that compensation cost related to share-based payment
        transactions be recognized in the financial statements. Share-based payment
        transactions within the scope of SFAS 123R include stock options, restricted
        stock plans, performance-based awards, stock appreciation rights, and employee
        share purchase plans. The provisions of SFAS 123R, as amended, are effective
        for
        small business issuers beginning as of the next fiscal year after December
        15,
        2005. Accordingly, the Company will implement the revised standard in the
        first
        quarter of fiscal year 2006. Currently, the Company accounts for its share-based
        payment transactions under the provisions of APB 25, which does not necessarily
        require the recognition of compensation cost in the financial statements
        (note
        3(e)). Management is assessing the implications of this revised standard,
        which
        may materially impact the Company’s results of operations in the first quarter
        of fiscal year 2006 and thereafter.
  In
        November 2004, the FASB issued SFAS No. 151 (SFAS 151), “ *Inventory
        Costs - an amendment of ARB No. 43, Chapter 4* ”.
        FASB
        151 clarifies the accounting for abnormal amounts of idle facility expense,
        freight, handling costs and spoilage. In addition, SFAS 151 requires companies
        to base the allocation of fixed production overhead to the costs of conversion
        on the normal capacity of production facilities. SFAS 151 is effective for
        the
        Company in 2006. The Company does not expect SFAS 151 to have a material
        impact
        on its results or financial statements.
  45
  On
        December 16, 2004, FASB issued SFAS No. 153, “ *Exchanges
        of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for
        Non-monetary Transactions* ”
("SFAS
        153"). This statement amends APB Opinion 29 to eliminate the exception for
        non-monetary exchanges of similar productive assets and replaces it with
        a
        general exception for exchanges of non-monetary assets that do not have
        commercial substance. Under SFAS 153, if a non-monetary exchange of similar
        productive assets meets a commercial-substance criterion and fair value is
        determinable, the transaction must be accounted for at fair value resulting
        in
        recognition of any gain or loss. SFAS 153 is effective for non-monetary
        transactions in fiscal periods that begin after June 15, 2005. The SFAS did
        not
        have a material impact on its financial position, results of operations or
        cash
        flows.
  **Reclassifications**
  Certain
        amounts for the year ended December 31, 2004 have been reclassified to conform
        to the presentation of the December 31, 2005 amounts. The reclassifications
        have
        no effect on net income for the years ended December 31, 2004.
 
 **NOTE
        3-** **CONCENTRATION
        OF CREDIT RISK**
  The
        Company’s trade receivables are derived from sales to original equipment
        manufacturers and manufacturers of microprocessors and transceivers. The
        Company
        endeavors to keep pace with the evolving computer and communications industries,
        and has adopted credit policies and standards intended to accommodate industry
        growth and inherent risk. Management believes that credit risks are moderated
        by
        the diversity of the Company’s end customers and geographic sales areas. The
        Company performs ongoing credit evaluations of its customers’ financial
        condition and requires collateral as deemed necessary.
  **NOTE
        4-** **FIXED
        ASSETS**
  Fixed
        assets consist of the following at December 31, 2005 and 2004:
  2005
              
              2004Computer
                  and office equipment
              
              $
              89,291
              
              $
              59,708Leasehold
                  improvements
              
              
              1,304
              
              
              -Less:
                  accumulated depreciation and amortization
              
              
              (24,068
              )
              
              (8,346
              )Net
                  book value
              
              $
              66,527
              
              $
              51,362
 
 Depreciation
        expense for the years ended December 31, 2005 and 2004 was $15,722 and $4,188,
        respectively.
  46
  **NOTE
        5-** **DEBT**
  **Notes
        Payable - Other**
  In
        August
        2002, the Company entered into a note payable, principal amount of $50,000,
        payable August 31, 2005. The Company entered into this note in connection
        with
        the 2002 acquisition of Connexus Technologies (Pte.) Ltd. The note was
        non-interest bearing if it was paid prior to August 31, 2003 and if the note
        was
        paid between September 1, 2003 and August 31, 2004 the total payment due
        was
        $100,000. If the note is paid between September 1, 2004 and August 31, 2005,
        total payment due is $150,000. Beginning in September 2005, the Company began
        discussions with the note holder regarding settlement of this note payable,
        it
        being the Company’s position that the note was usurious and therefore
        unenforceable. By December 31, 2005, the note holder had agreed in principle
        to
        accept Company stock in lieu of cash and agreed to restructure the note so
        that
        interest at 12% per annum accrued from the original date on the original
        amount.
        Accrued interest of $23,085 was added to the outstanding principal amount
        of
        $50,000 and the Company issued 182,714 shares of common stock in early January
        2006 to settle this note payable.
  On
        April
        20, 2005, the Company executed a promissory note for $750,000 to Montgomery
        Equity Partners, Ltd. Pursuant to the terms of the promissory note, Montgomery
        Equity Partners disbursed the entire $750,000 to the Company upon the date
        the
        note was executed and an additional $250,000 was to be disbursed to the Company
        after the Company’s common stock commences trading on the Over-the-Counter
        Bulletin Board. The promissory note was secured by substantially all of the
        assets of the Company and shares of stock of an affiliate of the Company.
        The
        promissory note had a one-year term and accrued interest monthly at 24% per
        year. The Company had difficulty meeting the payment schedule called for
        by the
        promissory note and by virtue of a settlement with the lender, the obligation,
        which together with interest and liquidated damages totaled $937,500, is
        being
        repaid by the affiliate’s collateral. Because the settlement with the lender
        permits it to take any action necessary to recover any deficiency should
        liquidation of the pledged shares fail to recoup the entire agreed payoff
        amount, the Company continues to recognize this liability on its balance
        sheet.
        As of December 31, 2005, the lender has sold 700,940 of the 9.4 million pledged
        shares and realized net proceeds of $229,789, leaving an outstanding balance
        of
        $707,711, which appears as Montgomery settlement liability on the balance
        sheet.
  **Convertible
        Debentures**
  On
        December 29, 2005, the Company executed a convertible debenture for $500,000
        to
        Montgomery Equity Partners, Ltd. Pursuant to the terms of the convertible
        debenture, Montgomery disbursed $350,000 upon the date the debenture was
        executed with an additional $150,000 to be disbursed two days before the
        Company
        files a Form SB-2 with the U.S. Securities and Exchange Commission. The
        debenture is convertible at the option of the holder into common shares of
        the
        Company at a price per share equal to 80% of the lowest closing value 10
        days
        prior to the closing date or 10 days prior to the conversion date. In addition,
        the Company issued 2,000,000 freestanding warrants exercisable over three
        years
        as follows: 1,000,000 warrants at a strike price of the lesser of 80% of
        the
        average closing bid price for the 5 trading days preceding exercise or $0.20
        per
        share; 500,000 warrants at a strike price of the lesser of 80% of the average
        closing bid price for the 5 trading days preceding exercise or $0.30 per
        share;
        and 500,000 warrants at a fixed strike price of $0.001.
  47
  The
        convertible debenture is secured by substantially all of the assets of the
        Company, pledged shares of stock of three affiliates of the Company, and
        13.5
        million pledged shares of stock (which are not counted as outstanding shares
        until converted pursuant to the terms of the Stock Purchase Agreement and
        Escrow
        Agreement that were part of this transaction). The pledged shares are held
        by an
        escrow agent, who is Montgomery’s general counsel, a partner of Montgomery’s
        general partner and Montgomery’s attorney of this transaction, pursuant to a
        written escrow agreement. The convertible debenture has a two-year term and
        accrues interest monthly at 15% per year. In connection with this transaction,
        the Company executed an Investor Registration Rights Agreement by which it
        agreed to file a registration statement with the SEC for at least the pledged
        shares held by the escrow agent and the 2 million warrants. The registration
        statement was to be filed within 30 days of the execution of the convertible
        debenture and declared effective within 90 days of filing. Failure to file
        or be
        declared effective within the agreed timeframe subjected the Company to
        liquidated damages equal to two percent (2%) of the liquidated value of the
        convertible debenture for each thirty (30) day period after the scheduled
        filing
        or effective date deadline.
 
 In
        accordance with SFAS 133, *“Accounting
        for Derivative Instruments and Hedging Activities”* and EITF
        00-19, *“Accounting
        for Derivative Financial Instruments Indexed to, and Potentially Settled
        in, a
        Company's Own Stock”* ,
        the
        conversion feature associated with the $500,000 convertible debenture represents
        an embedded derivative. The Company has recognized the embedded derivative
        in
        the amount of $659,966 as a liability in the accompanying consolidated balance
        sheet and has measured it at its estimated fair value. The estimated fair
        value
        of the embedded derivative has been calculated based on a Black-Scholes pricing
        model using the following assumptions:
 
 Fair
                  market value of stock
              
              $
              0.32Exercise
                  price
              
              $
              0.13Dividend
                  yield
              
              
              0.00
              %Risk
                  free interest rate
              
              
              4.00
              %Expected
                  volatility
              
              
              115
              %Expected
                  life
              
              
              2
                  Years
  Changes
        in the fair value of the embedded and freestanding warrants with a variable
        price (derivatives) are calculated at each reporting period and recorded
        in net
        gain (loss) on derivative, a separate component of other income (expense).
        As of
        December 31, 2005, there was no change in the fair value of the embedded
        and
        freestanding derivatives.
  48
  The
        allocation of the proceeds of the convertible debenture to the warrants with
        a
        fixed exercise price and the recognition of the embedded derivative resulted
        in
        discounts to the convertible debenture of $109,597 and $240,403, respectively.
        The discount on debt of $350,000 is being amortized to interest through December
        31, 2007 using the effective interest method. The unamortized discount on
        debt
        at December 31, 2005 is $350,000.
 
 The
        freestanding warrants with a variable exercise price (derivatives) and fixed
        warrants issued in connection with the $500,000 convertible debenture have
        been
        valued at $379,080 and $109,597, respectively based on a Black-Scholes pricing
        model using the following assumptions:
 
 Fair
                  market value of stock
              
              $
              0.32Exercise
                  price
              
              $
              0.13Dividend
                  yield
              
              
              0.00
              %Risk
                  free interest rate
              
              
              4.00
              %Expected
                  volatility
              
              
              115
              %Expected
                  life
              
              
              3
                  Years
 
 **NOTE
        6-** **PROMISSORY
        NOTES - RELATED PARTY**
  The
        Company entered into promissory notes with some of its officers who have
        amounts
        outstanding with the Company. These amounts accrue interest at varying rates
        between 6.0% and 12.0% annually. As of December 31, 2005 and 2004, the Company
        has $1,216,738 and $1,056,611, respectively, outstanding under these notes,
        including $57,234 and $84,918, respectively, in accrued interest. With the
        exception of a demand promissory note due to an officer in the amount of
        $40,398, the remaining notes are due December 31, 2005. All such notes are
        therefore reflected as current liabilities on the consolidated balance sheets.
        The notes relate to services rendered or funds loaned to the Company. By
        direction of the Board of Directors all of these notes except for the demand
        promissory note were converted to equity to be issued in January 2006. See
        Note
        13 - Subsequent Events.
  **NOTE
        7-** **ACCOUNTS
        PAYABLE AND ACCRUED EXPENSES**
  Accounts
        payable and accrued expenses at December 31, 2005 and 2004 consist of the
        following:
  December
                  312005
              
              2004Accrued
                  salaries payable
              
              $
              732,917
              
              $
              -Accounts
                  payable
              
              
              717,708
              
              
              172,787Reimbursements
                  owed to officers
              
              
              71,582
              
              
              24,351Accrued
                  interest payable
              
              
              65,529
              
              
              192,469Deferred
                  tax liability (India)
              
              
              177
              
              
              184Total
              
              $
              1,587,913
              
              $
              389,791
  49
  Trade
        accounts payable are paid as they become due or as payment terms are extended
        with the consent of the vendor. At December 31, 2005, one vendor, MindTree
        Consulting Pvt. Ltd. (“MindTree”), accounted for 51% of the Company’s accounts
        payable. The Company and MindTree entered into a repayment agreement more
        fully
        described in Note 9.
  Most
        of
        the accrued salaries payable were converted to stock in early January 2006.
        See
        Note 13 - Subsequent Events.
  **NOTE
        8-** **STOCKHOLDERS’EQUITY**
  The
        Company has 200,000,000 shares of common stock authorized at
        December 31, 2005. The par value at December 31, 2005 is
        $0.00004.
  At
        December 31, 2005, the Company has 68,221,710 common shares issued, 53,637,709
        outstanding.
  The
        following stock transactions occurred in 2005:
  Effective
        January 1, 2005, the Company issued options to purchase 150,000 shares of
        common stock to an individual in conjunction with his appointment to the
        board
        of directors. The options vest over one year in equal quarterly installments.
        The options are exercisable at $0.22 per share for a period of five years
        from
        the date of issuance.
  On
        January 13, 2005, the Company issued 400,000 shares of common stock to an
        organization in return for business and financial consulting services, which
        included assisting us with strategic planning, marketing and financial
        positioning strategies. The shares were issued for services valued at $120,000
        at the time of issuance.
  On
        February 10, 2005, the Company issued to an organization 375,000 shares of
        common stock for services valued at $260,000 at the time of issuance. The
        shares
        were issued to the organization in return for providing investor relations
        and
        public relations services.
  In
        March 2005, the Company issued 982,143 restricted shares of common stock to
        five accredited investors for $350,000. In addition, the Company issued 125,000
        warrants to these investors at a strike price of $0.48 per share and 71,429
        warrants at $0.36.
  Effective
        March 1, 2005, the Company issued options to purchase 1,000,000 shares of
        common stock to an employee in conjunction with his employment agreement
        with
        the Company. The options are exercisable at $0.38 per share for a period
        of five
        years from the date of issuance.
  50
  In
        April
        2005 an organization received 592,000 shares of common stock as a one-time
        commitment under a now-rescinded Standby Equity Distribution Agreement for
        issuance costs valued at $740,000. The organization also received warrants
        to
        purchase another 200,000 shares of common stock exercisable at $0.001 per
        share
        for a period of two years from the date of issuance. These warrants were
        valued
        at $139,815 using the Black-Scholes option-pricing model.
  In
        April,
        2005, the Company issued to an organization 8,000 shares of common stock
        as a
        placement agent fee under a placement agent agreement relating to the Standby
        Equity Distribution Agreement for services valued at $10,000.
  On
        May 2,
        2005, the Company entered into an agreement and plan of merger by and among
        Identity, Inc., a Delaware corporation and Daniel R. Nelson, Airbee and Airbee
        Automotive Group, Inc., a wholly owned subsidiary of Airbee, whereby the
        Company’s wholly owned subsidiary merged with and into Identity, Inc. Pursuant
        to the Merger Agreement, the surviving entity became a wholly owned subsidiary.
        The Company issued 7,692,808 shares of restricted common stock to Daniel
        R.
        Nelson, the sole shareholder of Identity, Inc. The shares issued to Mr. Nelson
        are valued at $5,000,000, which is based upon the 30-day average closing
        price
        of our common stock through April 25, 2005. By mutual agreement the Merger
        Agreement was rescinded in August 2005. The shares have been retroactively
        canceled and are reflected in these financial statements. See Note
        9.
  On
        May 9,
        2005, the Company issued 2,854 shares and on June 1, 2005, the Company issued
        2,643 shares for legal services rendered which had a total cash value of
        $3,078.
  On
        May
        16, 2005, the Company issued an option to purchase 1,500,000 shares to an
        executive officer of the Company exercisable at $0.82 per share and in
        conjunction with his employment agreement with the Company. The option is
        exercisable until May 16, 2010.
  On
        June
        1, 2005, the Company issued 1,750,000 restricted shares to a former director
        of
        the Company, for the exercise of two warrants for $12,000 cash.
  On
        June
        20, 2005, the Company issued 26,667 shares and 5,333 warrants exercisable
        for a
        three-year period at $0.82 per share in a private placement for $20,000
        cash.
  The
        Company issued 21,104 shares to one of its employees as compensation valued
        at
        $13,000 at the time of issuance.
  On
        July
        12, 2005, the Company issued 26,506 shares and 5,301 warrants exercisable
        for a
        three-year period at $0.83 per share in a private placement for $22,000
        cash.
  51
  On
        August
        16, 2005, the Company issued to an organization 125,000 shares of common
        stock
        for services valued at $68,750 at the time of issuance. The shares were issued
        to the organization in return for providing investor relations and public
        relations services.
  On
        August
        31, 2005, the Company issued 1,476 shares and on September 30, 2005, the
        Company
        issued 916 shares for legal services rendered which had a total cash value
        of
        $1,794.
  Throughout
        the quarter ended September 30, 2005, the Company issued 263,848 shares to
        nine
        accredited investors for $145,000. In addition, the Company issued 245,576
        warrants to these investors at a strike prices ranging between $0.76 and
        $0.98
        per share.
  Throughout
        the quarter ended December 31, 2005, the Company issued 1,337,038 shares
        to 11
        accredited investors for $336,830. In addition, the Company issued 1,609,765
        warrants to these investors at strike prices ranging between $0.21 and $0.80
        per
        share. In connection with the December 29, 2005 Montgomery Equity Partners
        convertible debenture (see Note 5) the Company issued 2,000,000 warrants
        exercisable over three years as follows: 1,000,000 warrants at a strike price
        of
        the lesser of 80% of the average closing bid price for the 5 trading days
        preceding exercise or $0.20 per share; 500,000 warrants at a strike price
        of the
        lesser of 80% of the average closing bid price for the 5 trading days preceding
        exercise or $0.30 per share; and 500,000 warrants at a fixed strike price
        of
        $0.001.
  Throughout
        the quarter ended December 31, 2005, the Company issued 4,576 shares for
        legal
        services rendered which had a total cash value of $1,784.
  On
        November 4, 2005, the Company issued 16,667 shares to one of its employees
        as
        compensation valued at $6,500 at the time of issuance.
  Throughout
        the quarter ended December 31, 2005, the Company issued 225,000 shares to
        two
        organizations providing financial and investment banking services valued
        at
        $107,000 at the time of issuance.
  On
        October 17, 2005, the Company issued 50,000 restricted shares to for the
        exercise of a warrant for cash of $10,000.
  On
        November 15, 2005, the Company issued 5,502,135 shares of stock from the
        exercise of stock options from one of its officers. The exercise price was
        $0.00004. On September 19, 2005, the Company also issued 1,454,268 shares
        of
        stock from the exercise of stock options from one of its former officers.
        This
        was a cashless exchange. In this exchange, 291,683 shares were returned to
        the
        Company and are included in its treasury and reflected as treasury stock
        on the
        consolidated balance sheet.
  On
        December 30, 2005, the Company received a subscription for 250,000 shares
        of
        stock from an accredited investor for $77,500. In addition, the Company issued
        250,000 warrants to this investor at a strike price of $0.56 per share. The
        subscription was paid on January 4, 2006.
  52
  On
        December 29, 2005, in connection with the Convertible Debenture with Montgomery
        Equity Partners, Ltd. (“Montgomery”) executed that day, the Company placed
        13,586,956 shares of common stock with the escrow agent appointed by the
        Company
        and Montgomery to hold the pledged shares pursuant to the Securities Purchase
        Agreement and Escrow Agreement of even date. The escrow agent is not entitled
        to
        exercise any voting rights in connection with these shares and may not sell
        or
        otherwise transfer title to them until such time as they are converted or
        returned to the Company. Absent any such event causing conversion of these
        pledged shares, no beneficial ownership exists and while these shares are
        issued
        they are not considered to be outstanding and are not counted in common stock
        outstanding reported in this Form 10-KSB and the financial statements contained
        therein.
  The
        following stock transactions occurred in 2004:
 
 The
        Company issued 4,999,240 shares of stock valued at $0.1138 per share for
        cash in
        the amount of $568,914; 31,250 shares for $13,125 in cash and 107,444 shares
        for
        services valued at $28,500. In addition, the Company authorized the issuance
        of
        400,000 shares for services in December 2004; however, the shares were not
        issued as of December 31, 2004 and are reflected as a liability for stock
        to be
        issued. The shares were valued at $76,000.
 
 **Stock
        Option Plan and Warrants**
  In
        August
        2002 the Company’s Board of Directors established the *Airbee
        Wireless, Inc. 2002 Stock Option Plan* .
        The
        Board authorized up to 75,000,000 common shares (post-split) to be authorized
        and issued to officers, directors and employees.
  Since
        inception, the Company has granted post-split options representing 52,365,000
        shares of which 11,874,990 options have been exercised (7,249,086 exercised
        in
        2005) as cashless options resulting in 10,877,945 shares of stock. In the
        cashless exchanges, 997,045 shares of stock were recorded as treasury stock.
        All
        of these options were granted to officers, directors and key employees of
        the
        management team of the Company.
  Under
        the
        Black-Scholes option pricing model, the total value of the stock options
        granted
        in 2005 and 2004 is reflected for pro forma presentation because the Company
        follows APB 25 for the expensing of its stock options. SFAS No. 123, “Accounting
        for Stock-Based Compensation,” encourages companies to continue to use the
        intrinsic-value method for options granted to employees and disclose pro
        forma
        net loss.
  53


The
      following tables summarize the Company’s stock option plan:




Year
                Ended
              December
                31, 2005Number
                of Options
            
            Weighted-average
                exercise priceOutstanding
                - beginning of period
            
            
            46,749,096
            
            $
            0.1250Granted
                below fair value
            
            
            150,000
            
            
            0.2200Granted
                at fair value
            
            
            3,240,000
            
            
            0.6281Converted
            
            
            7,249,086
            
            
            0.0283Non-vested
                options forfeited
            
            
            2,500,000
            
            
            0.2830Outstanding
                - end of period
            
            
            40,490,010
            
            $
            0.2050Exercisable
                at end of period
            
            
            24,510,010
            
            $
            0.1508




Year
                Ended
              December
                31, 2004Number
                of Options
            
            Weighted-average
                exercise priceOutstanding
                - beginning of period
            
            
            16,749,095
            
            $
            0.01004Granted
                below fair value
            
            
            -
            
            
            -Granted
                at fair value
            
            
            30,000,000
            
            
            0.22Converted
            
            
            -
            
            
            -Non-vested
                options forfeited
            
            
            -
            
            
            -Outstanding
                - end of period
            
            
            46,749,096
            
            $
            0.1205Exercisable
                at end of period
            
            
            19,186,596
            
            $
            0.0869




For
      disclosure purposes, the fair value of each stock option is estimated on the
      date of grant using the Black-Scholes option-pricing model, which approximates
      fair value, with the following weighted-average assumptions used for stock
      options granted in 2005 (and 2004): no annual dividends, volatility of 115.39%
      (100.0% in 2004), risk-free interest rate of 4.00% (5.00% in 2004), and expected
      life of 5 years (4-6 years in 2004).




54




The
      stock
      options vest over a period of 4 to 6 years upon the granting pursuant to the
      employees respective employment agreements. The Company anticipates that the
      remaining options available are anticipated to be held until they are fully
      vested. For 2005 and 2004, the average years remaining on the options was 3.37
      and 4.08, respectively. These represent the weighted average contractual life
      of
      the options. If compensation expense for the Company’s stock-based compensation
      plans had been determined consistent with SFAS 123, the Company’s net income and
      net income per share including pro forma results would have been the amounts
      indicated below:




Year
                Ended December 31,2005
            
            2004Net
                loss:As
                reported
            
            $
            (3,782,259
            )
            $
            (1,136,743
            )Total
                stock-based employee compensationexpense
                determined under fair value basedmethod
                for all awards, net of tax effects
            
            
            (1,514,881
            )
            
            (3,704,277
            )Pro
                forma
            
            $
            (5,297,140
            )
            $
            (4,841,020
            )Net
                loss per share:As
                reportedBasic
            
            $
            (0.08
            )
            $
            (0.03
            )Diluted
            
            $
            (0.08
            )
            $
            (0.03
            )Pro
                formaBasic
            
            $
            (0.12
            )
            $
            (0.12
            )Diluted
            
            $
            (0.12
            )
            $
            (0.12
            )




The
      Company issued 2,281,154 and 18,750 warrants as of December 31, 2005 and 2004,
      respectively, exclusive of the 2,000,000 warrants issued to Montgomery on
      December 29, 2005 accounted for as derivatives (See Note 5). These warrants
      were
      issued in connection with various private placements of stock with qualified
      investors, except for 200,000 warrants issued to Cornell Capital Partners,
      LP as
      part of the one-time commitment fee in connection with the now-terminated
      Standby Equity Distribution Agreement. These Cornell warrants have been valued
      using the Black-Scholes option-pricing model, which approximates fair value.
      The
      Company has recognized an expense of $139,815. A total of 1,750,000 of warrants
      issued prior to December 31, 2003 were exercised as of December 31, 2005. The
      Company also issued 50,000 warrants in connection with a note payable to a
      non-related third party in October 2002. These warrants were exercised in
      October 2005. None of the warrants issued during 2005 has been
      exercised.




55




The
      Company has the following warrants exercisable for the purchase of its common
      stock.




Year
                Ended
              December
                31,Exercise
                Price
            
            Expiration
                Date
            
            2005
            
            2004$  
                0.20
            
            
            October
                18, 2005
            
            
            -
            
            
            50,0000.012
            
            
            August
                22, 2005
            
            
            -
            
            
            500,0000.012
            
            
            April
                22, 2006
            
            
            -
            
            
            1,250,0001.00
            
            
            August
                31, 2007
            
            
            6,250
            
            
            6,2501.75
            
            
            August
                31, 2007
            
            
            6,250
            
            
            6,2502.75
            
            
            August
                31, 2007
            
            
            6,250
            
            
            6,2500.36
            
            
            September
                7, 2006
            
            
            71,429
            
            
            -0.48
            
            
            September
                11, 2006
            
            
            25,000
            
            
            -0.48
            
            
            September
                11, 2006
            
            
            7,500
            
            
            -0.48
            
            
            September
                11, 2006
            
            
            25,000
            
            
            -0.48
            
            
            September
                11, 2006
            
            
            50,000
            
            
            -0.48
            
            
            September
                11, 2006
            
            
            17,500
            
            
            -0.83
            
            
            December
                11, 2006
            
            
            5,301
            
            
            -0.82
            
            
            December
                20, 2006
            
            
            4,568
            
            
            -0.65
            
            
            March
                1, 2007
            
            
            25,000
            
            
            -0.98
            
            
            March
                1, 2007
            
            
            13,699
            
            
            -0.65
            
            
            March
                1, 2007
            
            
            25,000
            
            
            -0.85
            
            
            March
                2, 2007
            
            
            20,000
            
            
            -0.80
            
            
            March
                2, 2007
            
            
            54,545
            
            
            -0.85
            
            
            March
                4, 2007
            
            
            16,667
            
            
            -0.80
            
            
            March
                8, 2007
            
            
            18,182
            
            
            -0.80
            
            
            March
                8, 2007
            
            
            9,091
            
            
            -0.76
            
            
            March
                28, 2007
            
            
            58,824
            
            
            -0.77
            
            
            April
                8, 2007
            
            
            19,231
            
            
            -0.77
            
            
            April
                9, 2007
            
            
            9,615
            
            
            -0.77
            
            
            April
                9, 2007
            
            
            13,462
            
            
            -0.80
            
            
            April
                10, 2007
            
            
            18,182
            
            
            -0.75
            
            
            April
                13, 2007
            
            
            40,000
            
            
            -0.70
            
            
            April
                18, 2007
            
            
            44,444
            
            
            -0.001
            
            
            April
                20, 2007
            
            
            200,000
            
            
            -0.64
            
            
            April
                27, 2007
            
            
            25,641
            
            
            -0.69
            
            
            May
                10, 2007
            
            
            22,727
            
            
            -0.60
            
            
            May
                19, 2007
            
            
            142,857
            
            
            -0.58
            
            
            May
                23, 2007
            
            
            30,303
            
            
            -0.55
            
            
            May
                30, 2007
            
            
            16,666
            
            
            -0.42
            
            
            June
                2, 2007
            
            
            60,606
            
            
            -0.82
            
            
            June
                19, 2008
            
            
            5,333
            
            
            -0.44
            
            
            June
                13, 2007
            
            
            52,632
            
            
            -0.401
            
            
            June
                19, 2007
            
            
            330,000
            
            
            -0.54
            
            
            June
                28, 2007
            
            
            17,241
            
            
            -0.54
            
            
            June
                30, 2007
            
            
            17,241
            
            
            -0.56
            
            
            June
                30, 2007
            
            
            250,000
            
            
            -0.69
            
            
            July
                5, 2007
            
            
            22,727
            
            
            -0.21
            
            
            December
                27, 2008
            
            
            476,190
            
            
            -0.20
            
            
            December
                29, 2008
            
            
            1,000,000
            
            
            -0.30
            
            
            December
                29, 2008
            
            
            500,000
            
            
            -0.001
            
            
            December
                29, 2008
            
            
            500,000
            
            
            -4,281,154
            
            
            1,818,750




As
      a
      result of the variable-share conversion feature of the December 29, 2005 secured
      convertible debenture with Montgomery (see Note 5 above), the Company is
      required to report the fair value of all outstanding warrants as a liability
      on
      its balance sheet pursuant to EITF 00-19. As of December 31, 2005, the total
      Warrants Liability is $520,851, consisting of $139,815 as the fair value of
      the
      warrants issued to Cornell Capital in April 2005, $109,597 as the fair value
      of
      the warrants issued to Montgomery in December 2005, and $271,439 as the fair
      value of all other warrants issued by the Company in effect as of the balance
      sheet date. The fair value of the warrants was determined using the
      Black-Scholes option pricing model.




56




**NOTE
      9-** **COMMITMENTS
      AND CONTINGENCIES**




**Employment
      Agreements**




The
      Company has entered into employment agreements with key members of management
      and some officers. Most of these employment agreements are for a period of
      three
      to five years. As part of the employment agreements, the Company has granted
      stock options to these individuals that vest over a three to five-year period
      of
      time. The Company, in an effort to incentivize its officers, granted additional
      options and accelerated the vesting schedules.




**Lease
      Agreements**




A
      subsidiary, Airbee Wireless (India) Pvt. Ltd., has entered into a three-year
      lease agreement for office space in Chennai, India. Monthly rent in the US
      Dollar equivalent is $4,080. The lease runs from April, 2004 to March,
      2007.




**Repayment
      Agreement**




MindTree
      Consulting Pvt. Ltd. (“MindTree”), an India corporation, provided services to
      the Company under a Time and Materials Contract dated March 30, 2005 (the
      T&M Contract”). On a monthly basis, MindTree invoiced the Company for work
      it performed. Payment terms were net 30. The Company was unable to pay the
      invoices as they became due and, by informal agreement, extended the repayment
      terms monthly. On December 15, 2005, the Company entered into a written
      agreement with MindTree by which it agreed to pay MindTree $200,000 on or before
      December 23, 2005 and $100,000 per month on the last business day of each
      succeeding month until the outstanding indebtedness of approximately $580,000
      was fully paid. The Company’s performance was secured by the software code (the
“Intellectual Property”) MindTree developed under the T&M Contract. If the
      Company defaulted in making any payment when due and such default was not cured
      within five business days after receipt of a notice of default, MindTree would
      be entitled to co-own the Intellectual Property, with any revenue the Company
      realized from the Intellectual Property during the co-ownership period to be
      split 50-50 with MindTree. If full payment is made on or before April 30, 2006,
      full ownership of the Intellectual Property reverts to the Company.




To
      date,
      the Company has paid MindTree $200,000 pursuant to this agreement. MindTree
      has
      not yet issued any notice of default. The Company expects to complete or
      substantially complete the repayment by the April 30 th deadline. MindTree has indicated that if repayment of the indebtedness is
      substantially complete it will agree to extend the agreement for another thirty
      (30) days.




**Bad
      Debt Expense**




On
      May 2,
      2005, the Company entered into the Merger Agreement by and among the Company
      and
      Identity, Inc., a Delaware corporation, Daniel R. Nelson, and Airbee Automotive
      Group, Inc. (AAG), a wholly owned subsidiary of Airbee, whereby AAG merged
      with
      and into Identity, Inc. Pursuant to the Merger Agreement, the surviving entity
      became a wholly owned subsidiary of the Company. Between May 2, 2005 and August
      25, 2005, the Company advanced $535,000 in cash to Identity and paid additional
      bills on Identity’s behalf, all of which were accounted for as intra-company
      loans and eliminated in the preparation of the consolidated financial
      statements.





57




By
      mutual
      agreement the Merger Agreement was rescinded in August 2005. The shares of
      the
      Company’s common stock that formed part of the consideration for the Merger
      Agreement have been retroactively canceled and are reflected in these financial
      statements. Subsequent to the execution of the rescission agreement, Identity
      refused to repay the advances of $535,000. The Company believes it is owed
      the
      money and that Identity has an obligation to return the monies advanced. The
      Company has retained counsel to enforce its rights and is prepared to take
      all
      actions necessary to recover the funds.





In
      accordance with generally accepted accounting principles the Company has elected
      to expense this amount as a bad debt in the current period and will recognize
      future recoveries in the periods received. By doing so, the Company does not
      waive or in any way diminish any of its rights to the funds advanced to
      Identity, all of which are expressly reserved.





**Guarantees**




In
      addition to the loans described in Note 6, above, on March 12, 2003 and
      April 30, 2003, Sundaresan Raja advanced approximately $22,200 and $17,424,
      respectfully, to Airbee Wireless (India) Pvt. Ltd. (“Airbee India”),
      the Company’s wholly-owned subsidiary in India. Airbee India has issued
      Mr. Raja a promissory note due on demand. The note accrues interest at
      11.25% per year, which is below the local Indian market rates of 14% to 16%.
      On
      June 20, 2005, Mr. Raja advanced approximately $11,100 to Airbee India, which
      has issued Mr. Raja another demand promissory note. This note accrues interest
      at 12.0% per year, which is below the local Indian market rates of 14% to 16%.
      At December 31, 2005, $50,724 was due under the notes, plus accrued interest
      of
      $14,898. The Company has guaranteed repayment of the advances.





**PFK
      Electronics and Identity, Inc. Supply Agreement**





On
      May
      19, 2005, Airbee Automotive Group, Inc. (the operating entity resulting from
      the
      merger of the Company and Identity, Inc.) entered into a supply contract with
      PFK Electronics Pty Ltd. (PFK), a South Africa corporation, for the parts
      Identity required for its business. In addition to the standard terms and
      conditions, PFK inserted contract language purporting to have the Company act
      as
      surety for its subsidiary, which the Company may or may not have signed.
      Regardless, the provisions of the August 2005 rescission of the Company’s merger
      with Identity state that “Identity will replace Airbee in relation to PFK and
      will be responsible for any sums owed that entity.” Acting on PFK’s November
      2005 request, the Company sent a Termination and Release Agreement to PFK on
      December 6, 2005 which PFK has not returned for the claimed balance of $258,000.
      The Company does not believe it has any liability to PFK in this
      matter.





58




**Litigation**





On
      October 3, 2005, Richard Sommerfeld, Jr., the Company’s former chief financial
      officer (“Sommerfeld”) filed suit against the Company. On December 9, 2005, the
      Company filed an Answer to the Complaint, Affirmative Defenses and
      Counterclaims. On January 6, 2006, Sommerfeld amended his claims by filing
      an
      Amended Complaint and at the same time joining the Company’s two inside
      directors, E. Eugene Sharer (President and Chief Operating Officer) and
      Sundaresan Raja (Chief Executive Officer), and its outside director, Mal Gurian,
      as individual defendants. On February 7, 2006, the Company denied the primary
      allegations in the amended complaint by filing its Answer to Amended Complaint,
      Affirmative Defenses and Counterclaims. The individual defendants have moved
      to
      dismiss Sommerfeld’s claims but the motion has not been set for a
      hearing.





The
      claims raised in the Amended Complaint are:




·  Breach
      of
      Contract (of employment agreement) (against the Company)


·  Wage
      Payment and Collection Act (against the Company)


·  Default
      on Promissory Note/Contract (against the Company)


·  Enforcement
      of Security Interest (against the Company)


·  Injunction
      (against the Company)


·  Breach
      of
      Contract (of stock option agreement) (against the Company)


·  Civil
      Conspiracy (against the individual defendants, jointly and
      severally)


·  Aiding
      and Abetting (against the individual defendants, jointly and
      severally)


·  Constructive
      Fraud (against the individual defendants, jointly and severally)





The
      claims raised in the Counterclaims are:




·  Declaratory
      Judgment and Injunctive Relief


·  Breach
      of
      Contract (of employment agreement)


·  Breach
      of
      Fiduciary Duties


·  Tortious
      Interference with Contractual and Economic Relations


·  Replevin
      and Injunction


·  Breach
      of
      Contract (of stock option agreement)





Sommerfeld
      contends that the Company owes him certain wages, payments pursuant to
      promissory notes and stock options. In response, the Company contends Sommerfeld
      failed to perform his job duties. Most egregiously, he failed to obtain
      financing for the Company. The Company further contends he breached his
      fiduciary duties to the Company by working for the benefit of Identity, Inc.
      (an
      entity the Company merged with and then rescinded the merger). In addition,
      Sommerfeld removed certain property belonging to the Company when he left.
      While
      some property has been returned, most has not. Finally, the Company contends
      Sommerfeld has posted inaccurate and/or incomplete information on a commercial
      online message board which may or may not include inside information and needs
      to take steps to cure the problems (if any) he created.





59




With
      respect to Sommerfeld’s claims, the Company acknowledges that Sommerfeld is owed
      unpaid wages in the amount of $66,666.60 but denies all remaining wage claims
      including disputes over treble damages and interest payments.





With
      respect to the promissory note claims, Sommerfeld has alleged he is owed
      approximately $163,400 plus interest in excess of $13,000. While the parties
      dispute the substance of the claims raised, the Company acknowledged the
      existence of certain promissory notes and advances for a total of over $131,000
      including interest. As was its option under the terms of the notes, the Company
      satisfied these promissory notes and obligations through the issuance of common
      stock. Sommerfeld has rejected the issuance of shares. The Company contends
      it
      has satisfied its obligations under the promissory notes through the issuance
      of
      shares and therefore is vigorously defending these claims.





The
      Company and Sommerfeld both have claims for breach of the stock option
      agreements based on the following. On September 19, 2005, Sommerfeld attempted
      to exercise 996,951 options at $0.04 per share plus a further 1,249,500 options
      at $0.22 per share. Sommerfeld’s exercise was made under the 2002 Stock Option
      Plan (“Option Plan”) pursuant to which he was granted options under a September
      1, 2003 Stock Option Agreement and a November 18, 2004 incentive Stock Option
      Agreement. The Company acknowledges that Sommerfeld was fully vested in the
      options granted under the September 1, 2003 Stock Option Agreement. The parties
      disagree as to how many shares had vested under the November 18, 2004 incentive
      Stock Option Agreement when Sommerfeld left the Company in August 2005.
      Sommerfeld claims 1,249,500 options had vested which the Company claims only
      750,000 had vested prior to his departure. Both sides agree no more options
      could vest after the date of Sommerfeld’s departure from the
      Company.





In
      November 2003, Sommerfeld exercised 2,003,049 options in a cashless exercise
      with the fair market value of the Company’s stock calculated at that date as
      $0.50 per share. As a result, Sommerfeld received a net of 1,842,805 shares.
      Sommerfeld contends this leaves a balance of 996,951 vested options under the
      2003 Agreement. As reflected in the Counterclaims, there is a dispute as to
      the
      way the original cashless transaction was calculated as explained below. The
      Company contends Sommerfeld needs to pay the Company additional funds or return
      the excess shares.





Specifically,
      as Chief Financial Officer of the Company, Sommerfeld was charged with knowledge
      of and was involved in certain third-party transactions whereby the stock was
      valued in an arms-length transaction on or about November 19, 2003 at $0.1138
      per share. As Sommerfeld knew or should have known (and as he subsequently
      admitted to other Company officers, consultants and auditors) when he exercised
      his options the shares should have been valued at $0.1138 per share. At the
      correct price, Sommerfeld should have received 1,298,990 shares of stock in
      this
      cashless exercise. Thus, Sommerfeld improperly received 543,815 shares of stock
      which must be returned to the Company. As set forth in its Counterclaim, the
      Company contends Sommerfeld owes it nearly $300,000 for this
      transaction.





60




Sommerfeld
      learned of the need to return the stock on July 19, 2005 but he has failed
      to do
      so. When the Company issued the remaining shares for Sommerfeld’s September 19,
      2005 cashless exercise, it deducted 543,815 shares from the total issued to
      Sommerfeld to cure the 2003 excess issuance of shares. Sommerfeld received
      396,167 shares net but has rejected the Company’s deliverance of these shares.
      These shares are included in the Company’s issued and outstanding shares in its
      financial statements.





The
      dispute related to the 2004 incentive Stock Option Agreement is in the vesting
      schedule. While both sides agree that 750,000 shares vested immediately upon
      execution of this agreement, Sommerfeld contends the next 25% of the 3,000,000
      share total grant or 750,000 shares vests ratably over the course of the year
      between the date of the grant and the first anniversary of the grant and that
      he
      is entitled to exercise options for 1,249,500 shares. The Company contends
      Sommerfeld had to be employed by the Company on the anniversary date of the
      grant before any additional options could vest so that the most he could
      exercise was 750,000 shares. The Company issued Sommerfeld 514,286 shares,
      dated
      September 19, 2005, in January 2006. Sommerfeld has rejected the Company’s
      deliverance of these shares. These shares are included in the Company’s issued
      and outstanding shares in its financial statements.





With
      respect to the claims related to comments made on Raging Bull Message Board,
      Sommerfeld is seeking injunctive relief to enjoin the Company from making any
      comments on the message board about Sommerfeld. The Company, its officers and
      directors contend that they have not made any comment about Sommerfeld on the
      message board and that Sommerfeld’s claim should fail for lack of evidence. The
      Company has also asserted its First Amendment rights strongly limit a court’s
      ability to enjoin future speech. Likewise, many of the comments at issue (e.g.,
      statements that Sommerfeld’s departure was a “good thing”) constitute opinion,
      which cannot be restricted or regulated under the law.





In
      its
      Counterclaims, the Company has raised several claims related to Sommerfeld’s
      conduct in performing his job duties, including declaratory judgment and
      injunctive relief (to declare Sommerfeld in breach to obtain disgorgement),
      breach of contract, breach of fiduciary duties, tortious interference and
      fraudulent inducement. The Company contends that Sommerfeld, while employed
      by
      the Company, was disloyal to it and breached the fiduciary duties he owed it.
      As
      a result of Sommerfeld’s actions, as set forth in the Counterclaims, the Company
      contends it was severely harmed including the loss of $521,000. Finally, the
      Company has claims related to its contention that Sommerfeld improperly removed
      property from the Company and has not returned it.





61




The
      Company is vigorously defending this lawsuit and prosecuting its counterclaims.
      At this stage of the litigation, it is not possible to predict the outcome
      of
      this case with any certainty.





**NOTE
      10-** **GOING
      CONCERN**




As
      shown
      in the accompanying consolidated financial statements, as is typical of
      companies going through early-stage development of intellectual property, and
      products and services, the Company incurred net losses for the years ended
      December 31, 2005 and 2004. There is no guarantee whether the Company will
      be
      able to generate enough revenue and/or raise capital to support current
      operations and expand sales. This raises substantial doubt about the Company’s
      ability to continue as a going concern.




Management
      believes that the Company’s capital requirements will depend on many factors
      including the success of the Company’s sales efforts. The Company has been
      successful in recent months in raising capital to fund its operating
      costs.




The
      Company has also been enhancing its business processes to account for the
      significant development that has occurred in the past year, and believes that
      with the proper bridge financing and potential permanent financing they
      anticipate, the viability of the Company remains very positive in excess of
      one
      year.




The
      consolidated financial statements do not include any adjustments relating to
      the
      recoverability or classification of recorded assets and liabilities that might
      result should the Company be unable to continue as a going concern.




**NOTE
      11-** **RESTATEMENT**




The
      December 31, 2004 financial statements have been restated for the amortization
      of unearned compensation for the year ended December 31, 2004 by $13,748 and
      this has increased the loss for the year then ended to $1,136,743 and the
      accumulated deficit during the development stage to $2,814,366.




The
      December 31, 2005 financial statements have been restated to recognize an
      additional $61,455 in research and development costs that was improperly
      capitalized in 2005. In addition, $520,851 was reclassified from Additional
      Paid-in Capital to Warrants Liability as a result of the secured convertible
      debenture executed by the Company on December 29, 2005. An additional $707,711
      was reclassified from Additional Paid-in Capital to Montgomery Settlement
      Liability to reverse the derecognition of the April 2005 Montgomery note payable
      as the Company remains liable for any deficiency if the affiliate’s pledged
      shares are insufficient to cover the payoff amount. An additional $15,150 in
      amortization expense was recognized as the result of a change in accounting
      policy reducing the amortization period of the Company’s intellectual property
      from sixteen years (the life of a patent) to five years (the estimated life
      of
      software). These changes have increased the loss for the year ended December
      31,
      2005 to $3,782,259 and the accumulated deficit during the development stage
      to
      $6,596,625.




62





**NOTE
      12-** **PROVISION
      FOR INCOME TAXES**




Deferred
      income taxes will be determined using the liability method for the temporary
      differences between the financial reporting basis and income tax basis of the
      Company’s assets and liabilities. Deferred income taxes will be measured based
      on the tax rates expected to be in effect when the temporary differences are
      included in the Company’s consolidated tax return. Deferred tax assets and
      liabilities are recognized based on anticipated future tax consequences
      attributable to differences between financial statement carrying amounts of
      assets and liabilities and their respective tax bases.




At
      December 31, 2005 and 2004, deferred tax asset consist of the following:


December
                  312005
              
              2004Deferred
                  tax asset
              
              $
              2,308,819
              
              $
              844,310Less:
                  valuation allowance
              
              
              (2,308,819
              )
              
              (844,310
              )$
              -
              
              $
              -




At
      December 31, 2005, the Company had deficits accumulated during the development
      stage in the approximate amount of $6,520,020, available to offset future
      taxable income through 2025. The Company established valuation allowances equal
      to the full amount of the deferred tax assets due to the uncertainty of the
      utilization of the operating losses in future periods.




**NOTE
      13**  **SUBSEQUENT
      EVENTS**




In
      accordance with the settlement agreement between the Company and the note holder
      and approved by the board of directors, the Company issued 182,714 restricted
      shares of its common stock to Silkroute e-Commerce Fund I Ltd. on January 13,
      2006 in full payment of a note payable dated August 31, 2002 for $50,000 and
      accrued interest at 12% per annum through December 31, 2005 totaling $23,085.





As
      approved by the board of directors and the related party note holders and
      creditors, the Company issued restricted shares of its common stock on January
      12, 2006 to convert notes payable, accrued salary payable and accrued interest
      payable. The amounts converted and shares issued appear in the table
      below.





Officer
            
            Note
                Payable
            
            Accrued
                Salary
            
            Accrued
                Interest Payable
            
            Total
            
            Number
                of Shares IssuedSundaresan
                Raja
            
            $
            464,614
            
            $
            200,000
            
            $
            7,855
            
            $
            672,469
            
            
            2,725,400E.
                Eugene Sharer
            
            
            366,095
            
            
            170,000
            
            
            6,284
            
            
            542,379
            
            
            2,198,168S.
                Krishnamurthy
            
            
            98,815
            
            
            125,000
            
            
            5,237
            
            
            229,052
            
            
            928,308David
                McCartney
            
            
            -
            
            
            60,625
            
            
            2,827
            
            
            63,452
            
            
            257,159Ram
                Satagopan
            
            
            127,291
            
            
            -
            
            
            -
            
            
            127,291
            
            
            515,890V.V.
                Sundaram
            
            
            -
            
            
            31,250
            
            
            1,014
            
            
            32,264
            
            
            130,761$
            1,056,816
            
            $
            586,875
            
            $
            23,217
            
            $
            1,666,908
            
            
            6,755,686




63




The
      Company also issued restricted shares of its common stock to its former chief
      financial officer on January 11, 2006 in payment of two outstanding promissory
      notes as permitted by the terms of the notes. The total of unpaid principal
      and
      accrued interest on the two notes was $122,373 for which the Company issued
      272,029 restricted shares of its common stock. The Company also issued stock
      to
      repay various advances made by its former chief financial officer. The total
      of
      these advances plus accrued interest totaled $8,895 for which the Company issued
      19,767 shares.





64




**ITEM
              8.**
            **CHANGES
                IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
                DISCLOSURE**




None.





**ITEM
              8A.**
            **CONTROLS
                AND PROCEDURES**




Evaluation
      of Disclosure Controls and Procedures





The
      Company’s management, with the participation of the Company’s chief executive
      officer and interim chief financial officer, evaluated the effectiveness of
      the
      Company’s disclosure controls and procedures as of the end of the period covered
      by this report. The term “disclosure controls and procedures,” as defined in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
      procedures of a company that are designed to ensure that information required
      to
      be disclosed by a company in the reports that it files or submits under the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the Securities and Exchange Commission’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      a
      company in the reports that it files or submits under the Exchange Act is
      accumulated and communicated to the company’s management, including its
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure. Management recognizes that
      any
      controls and procedures, no matter how well designed and operated, can provide
      only reasonable assurance of achieving their objectives and management
      necessarily applies its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures. Based on the evaluation of the Company’s
      disclosure controls and procedures as of the end of the period covered by this
      report, the Company’s chief executive officer and interim chief financial
      officer concluded that, as of such date, the Company’s disclosure controls and
      procedures were not effective for the reasons disclosed below.





The
      Company has identified certain internal control deficiencies that we consider
      to
      be material weaknesses. These consist of (1) inadequate communication leading
      to
      the untimely filing of a current report with the Securities and Exchange
      Commission in January 2005 and (2) certain accounting and disclosure matters.
      The accounting and disclosure deficiencies were: (1) a failure to amortize
      capitalized intellectual property costs and (2) improper accounting of unearned
      compensation arising from the issuance of stock options below market value.
      The
      accounting deficiencies are principally due to the Company’s transition from a
      private company to a public reporting company. Prior to going public the Company
      amortized capitalized intellectual property costs and accounted for unearned
      compensation arising from the issuance of stock options below market value
      contrary to the requirements of SFAS 86 and SFAS 123, respectively, as such
      accounting methods were not required by a private entity. Subsequent to going
      public, the Company’s controller recognized the necessity to account for these
      items in accordance with SFAS 86 and SFAS 123.





The
      Company’s controller identified the internal control and disclosure control
      deficiencies disclosed above during the latter part of the third quarter of
      2005. The Company attempted to remediate and eliminate previous internal control
      and disclosure deficiencies by hiring a controller in May 2005. The controller
      is a CPA and has experience in accounting and disclosure procedures for public
      companies. The Company’s India subsidiary also hired a chartered accountant
      (equivalent to US CPA) who was also a certified corporate secretary as its
      finance manager in August 2005. The controller and the subsidiary’s finance
      manager were tasked with centralizing and formalizing the purchasing decisions,
      establishing and maintaining proper procedures for payment of accounts payable
      and other liabilities, setting credit and collection policies, and tracking
      the
      fixed assets of the Company, among other duties. The Company has implemented
      an
      accounting analysis procedure that requires all transactions, including but
      not
      limited to transactions similar to the deficiencies above, be analyzed by an
      employee of the Company in accordance with SEC public reporting standards.
      Separation of duties was instituted so that the person authorizing the purchase
      of goods or services was not the person preparing or signing the check in
      payment for such goods or services.





The
      delinquent report was discovered by the Company’s interim chief financial
      officer during the second quarter of 2005. The controller and the interim chief
      financial officer are working together to keep each other appraised of items
      which may require disclosure and to see that proper level of disclosure is
      made.





65




While
      the
      Company has implemented an accounts analysis procedure and hired additional
      personnel, the abovementioned material weaknesses will not be considered
      remediated until the new internal controls operate for a sufficient period
      of
      time, are tested, and management concludes that these controls are operating
      effectively. The Company expects to complete its analysis by the end of the
      fiscal year ending December 31, 2006. Costs of the controller and finance
      manager and the practices implemented thus far are approximately $120,000 per
      year, consisting mainly of the controller’s and finance manager’s salaries and
      the public reporting costs of additional disclosure.





Changes
      in Internal Controls




The
      addition of a controller, the chartered accountant and the new policies and
      practices discussed above constitute changes in the Company’s internal control
      over financial reporting. The new policies and practices were implemented during
      the last fiscal quarter of the period covered by this report and have materially
      affected, or are reasonably likely to materially affect, the Company’s internal
      controls over financial reporting.




**ITEM
      8B.**  **OTHER
      INFORMATION**




None.




**PART
      III**




**ITEM
      9.**  **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT**




Our
      directors hold office until the next annual meeting of our shareholders and
      until their successors have been elected and qualified. Our officers are
      appointed by our directors.




Our
      directors and executive officers and their ages are as follows:





**Name**
            
            **Age**
            
            **Position**Sundaresan
                Raja
            
            43
            
            Chief
                Executive Officer, DirectorE.
                Eugene Sharer
            
            72
            
            President,
                Chief Operating Officer, Secretary, DirectorRamanujam
                Satagopan
            
            41
            
            Vice
                President & Chief Technology OfficerSrinivasan
                Krishnamurthy
            
            47
            
            Vice
                President-Business DevelopmentDavid
                L. McCartney
            
            50
            
            Vice
                President - Sales and MarketingV.V.
                Sundaram
            
            66
            
            CEO,
                Airbee Wireless (India) Pte Ltd.Mal
                Gurian
            
            79
            
            Director




The
      following is a brief description of the background of our directors and
      executive officers.




***Sundaresan
      Raja.*** Mr.
      Raja
      has served as our Director, President and Chief Executive Officer since our
      founding in 2002. From 1992 through 2000, Mr. Raja founded and served as CEO
      of
      Intelligent Systems, Inc. and Intelligent Systems (India) Pvt. Ltd., companies
      principally involved in customizing software. Intelligent Systems, Inc. filed
      for Chapter 11 bankruptcy protection in 1998, which was subsequently moved
      to
      Chapter 7. Operations of Intelligent Systems, Inc. ceased in March 2000. Mr.
      Raja had decided that the wireless industry was going to be a highly visible
      technology and spent from 2000 through early 2002 studying and researching
      the
      wireless technology marketplace. Mr. Raja has over 22 years experience in
      information technology related businesses and as an independent consultant
      to
      both private and government organizations. In this capacity, he provided
      technical resources as consultants to other technology companies and developed
      several commercial software products for the mailing and shipping industry.
      He **** has
      provided consulting services to several fortune 500 companies. He holds an
      MS
      (Management Information Systems) from The American University, an MBA from
      Johns
      Hopkins University and an MS (Mathematics) from the Madras University in
      India.




***E.
      Eugene Sharer*** .
      Mr.
      Sharer has served as our Chief Operating Officer and a Director since our
      founding in 2002. Prior to joining our company, Mr. Sharer worked for more
      than
      17 years as President and/or Chief Operating Officer of information technology
      companies, most recently as President and Vice Chairman of Complete Wellness
      Centers, Inc., a public health care company, from March 1996 to February 1999.
      From February 1999 through August 2002 he formed Sharer Associates, Inc., a
      management consulting company. Since 1999 Mr. Sharer has served as a director
      of
      Digital Dominion, a financial services technology company. From 1991 to 1995,
      he
      was president of ROW Sciences, a government contracting firm specializing in
      supporting the FDA and the Department of Health and Human Services. He was
      President of Calculon Corporation from 1985 to 1989 and Director of the ORI
      Group. Prior to that, he was executive Vice President and Director of Iverson
      Technologies, a specialized computer manufacturer from 1989 to 1991. He was
      Vice
      President of Systems Group, Computer Sciences Corporation from 1981 to 1985
      and
      served with IBM in various management positions. He has also served on the
      Executive Committee of the Technology Council of Maryland and served two terms
      on the Industrial and Professional Advisory Committee of Penn State’s Department
      of Computer Science and Engineering. He graduated from Penn State with a BS
      (Electrical Engineering) and did graduate work at Syracuse
      University.




66




***Ramanujam
      Satagopan*** .
      Mr.
      Satagopan has served as our Chief Technology Officer since September 2002.
      From
      October 2000 through September 2002, he served as Chief Executive Officer of
      Connexus Technologies (Singapore) Ptd. Ltd. and from October 2000 through
      September 2002 he also served as Managing Director of Connexus Technologies
      (India) Pvt. Ltd. The Connexus Technologies entities were acquired by our
      company in August of 2002. Prior to joining our company, Mr. Satagopan worked
      for over 14 years with companies selling telecom software products, most
      recently serving as a Technology Director of Motorola Electronics-Singapore,
      from January 1992 to September 2000. Mr. Satagopan has led product teams to
      roll-out wireless products for Motorola worldwide, including its popular
      Scriptor series of pager products and the latest low-cost “Talk-about” GSM
      cellular radios. Mr. Satagopan played a key role in evolving the ISCLAP (Indian
      Standard Code for Language Paging) paging protocol standard for the Indian
      market and in rolling out language pagers in India. Among his 8 published
      patents, one is for synchronous dynamic code generation for secure remote access
      to a computer system and another is for a method to achieve horizontal and
      vertical zoom on a display device by selective segment duplication. Mr.
      Satagopan holds a BS (Electrical Engineering) from India and an MA (Management
      of Technology) from the Graduate School of Business, National University of
      Singapore.




***V.V
      Sundaram:*** Mr.
      Sundaram has responsibility for all aspects of development and release of the
      company’s software product suite for short-range wireless voice and data
      communications. VV spent the last 10 years with Covansys Corp. as Managing
      Director and CEO of Offshore Operations, Board Member of Covansys-India,
      Covansys-Singapore and Covansys-UK with direct responsibility for an offshore
      operation. Prior to Covansys, he worked for British Petroleum in Cleveland
      for
      20 years in a variety of positions covering systems, transportation, chemicals,
      pipeline operations, production, operations analysis, strategic planning and
      M&A. He holds a B.S in Physics and Mathematics, an MS (Computer Science)
      from the University of Pittsburgh and an MBA (Finance and Operations Research)
      from Case Western University.




***David
      L. McCartney*** **** joined
      us
      on March 1, 2005 as Vice President, Marketing and Sales after having served
      as a
      consultant for several months as a marketing advisor. Mr. McCartney has many
      years experience in the wireless technology space in both corporate executive
      and marketing positions. Prior to joining Airbee Wireless, he was the founder
      and principal consultant of m2direct, Inc.; Vice President - Marketing and
      Sales
      for Wavecom, Inc.; President of e-tenna Corporation; Executive Vice President
      of
      RangeStar Wireless, Inc.; Vice President - Marketing and Sales for Bosch
      Telecom, Inc.; Director - Wireless Product Unit, Director International Business
      Development and Manager Strategic Planning for Ericsson, Inc.; and Divisional
      Marketing Director and Trading Area Manager for Motorola, Inc. Mr. McCartney
      is
      currently a columnist for Wireless Design Online and has authored some 20
      articles in trade publications. He also has authored or co-authored three
      patents in the communications and wireless technology space. He holds a Bachelor
      of Science degree in Industrial Administration from Iowa State University and
      an
      MBA from Lynchburg College and is an active member of several technical honor
      societies.





***Sriniavasan
      Krishnamurthy:*** **** Mr.
      Krishnamurthy joined us in July 2004 as Vice President for Business Development
      and Strategy. Prior to joining us, he was the co-founder and Chief Marketing
      Officer at OPTIM Systems, Inc. a leader in device monitoring and control
      applications for communication networks in the telecommunications and enterprise
      markets. OPTIM was successfully sold to a defense contractor in 2003. He boot
      strapped this venture and was instrumental in raising millions of dollars in
      venture capital. As an officer of OPTIM, he conceived, conceptualized and
      established the product and technology foundation for the business. Prior to
      launching his entrepreneurial career, Mr. Krishnamurthy held management,
      marketing, and technology development positions at CONCERT Communications (a
      wholly-owned subsidiary of British Telecommunications plc), GE/GTE Spacenet
      & Comsat Corporation. At Concert, he managed global development teams for
      network engineering of frame relay, ATM and IP services. Prior to that, he
      was a
      Product Marketing Manager at GE/GTE Spacenet where he led a team that put
      together a satellite-based data service in India. While working for Comsat
      Corp.
      as Principal-Technical Staff he designed IP networking technologies, IP routing
      algorithms and network management solutions for multimedia IP LAN/WAN networks.
      Mr. Krishnamurthy has a patent to his credit and has authored several marketing
      and technology papers in industry publications. Srini holds a MS (Computer
      and
      Information Science) from the New Jersey Institute of Technology and a MS
      (Electrical Engineering) and a BS (Physics) from Osmania University, Hyderabad,
      India.





67





***Mal
      Gurian.*** Mr.
      Gurian has served as a Director of the Company since January 1, 2005. Since
      2002, he has served as President of Mal Gurian Associates, LLC. He has
      previously served as President of Cellcom Cellular Corporation of New Jersey
      from 1989 to 1991. From 1991 through 1993 he served as Chief Executive Officer
      and Director of Universal Cellular Corporation. From 1994 through 1997 he served
      as Chairman of the Board and Chief Executive Officer of GlobalLink
      Communications, Inc. From 1995 through 2002 he served as Chairman, Chief
      Executive Officer and President of Authentix Network, Inc and SimplySay, Inc.
      Mr. Gurian has served as a corporate and strategic advisor to major corporations
      like OKI, Sony, TRW, and the Communications Division of Murata. He is President
      Emeritus of the Radio Club of America and the recipient of the club's Sarnoff
      Citation, the Special Service Award and the Fred Link Mobile Award. He is also
      the recipient of the National Association of Business and Educational Radio's
      (now PCIA) highest honor, the Chairman's Award. Mr. Gurian was previously on
      the
      Boards of Northeast Digital Network and RangeStar International. He is a 1995
      recipient of the Popov Scientific Society Medal from the St. Petersburg
      Electrotechnical University in St. Petersburg, Russia. Mr. Gurian is listed
      in
      Marquis Who's *Who
      in America* and *Who's
      Who in the World* and
      in
      May 2003, was inducted into the RCR Wireless Hall of Fame *.*




**Audit
      Committee**




The
      Company does not presently have an audit committee or an audit committee
      financial expert on its Board of Directors. The Company has not generated
      revenue from its operations nor had the financial ability to attract the
      requisite Board expertise.




**Code
      of Ethics**




The
      Company has a Code of Business Conduct and Ethics. The Code of Ethics is as
      follows:




Success
      without personal and professional integrity is essentially meaningless. At
      Airbee, we subscribe to standards of ethical behavior that exceed legal minimums
      and we shall never ask any member of the Airbee team to compromise those
      standards. We owe this to our shareholders, business partners and
      colleagues.





·
            **Integrity**-
                We do the right thing without compromise and in the highest ethical
                manner.


·
            **Honesty**-
                We are open, transparent, and truthful and avoid any conflict of
                interest.


·
            **Trust**-
                Our word is good and we adhere to our commitments.


·
            **Commitment**-
                We strive to deliver superior product performance and achieve personal
                excellence and self-improvement.


·
            **Global
                Citizenship**-
                As an international company, we comply with the applicable laws and
                regulations that govern our activities wherever we do business.


·
            **Accountability**-
                We accept the consequences of our actions, admit to our mistakes
                and
                quickly rectify them.


·
            **Responsible
                Leadership** - We manage our business responsibly in order to earn
                and maintain the confidence, respect and trust of our shareholders,
                business partners and
                colleagues.




**ITEM
      10.**  **EXECUTIVE
      COMPENSATION**




**Executive
      Compensation**




The
      following table sets forth information with respect to all compensation paid
      or
      earned for services rendered to the Company during the last fiscal year by
      our
      chief executive officer and each executive officer whose aggregate annual
      compensation exceeded $100,000 and who were executive officers of the Company
      at
      December 31, 2005 (all of the individuals named in the following table are
      collectively defined as the "Named Executive Officers").




68


**Summary
      Compensation Table**




The
      following table sets forth the annual and long-term compensation for services
      in
      all capacities for the fiscal years ended December 31, 2005, December 31, 2004,
      and December 31, 2003, paid to our most highly compensated executive officers.





**Summary
                Compensation Table****Annual
                Compensation**
            
            **Long
                Term Compensation****Awards****Name
                and Principal Position**
            
            **Year**
            
            **Salary**
            
            **Bonus**
            
            **Restricted**
              **Stock**
              **Award(s)**
            
            **Securities**
              **Underlying**
              **Options(#)**
            
            **All
                Other**
              **Compensation**Sundaresan
                Raja(1)
            
            
            2005
            
            $
            150,000
            
            $
            50,000
            
            
            —
            
            
            —
            
            
            —Chief
                Executive Officer
            
            
            2004
            
            $
            150,000
            
            $
            50,000
            
            
            —
            
            
            10,000,000
            
            
            —2003
            
            $
            150,000
            
            $
            50,000
            
            
            —
            
            
            —
            
            
            —E.
                Eugene Sharer (2)
            
            
            2005
            
            $
            120,000
            
            $
            50,000
            
            
            —
            
            
            —President
                and Chief Operating Officer
            
            
            2004
            
            $
            120,000
            
            $
            50,000
            
            
            —
            
            
            8,000,000
            
            
            —2003
            
            $
            120,000
            
            $
            50,000
            
            
            —
            
            
            —
            
            
            —Ramanujam
                Satagopan (3)
            
            
            2005
            
            $
            80,000
            
            $
            30,000
            
            
            —
            
            
            —
            
            
            —VP
                & Chief Technology Officer
            
            
            2004
            
            $
            80,000
            
            $
            30,000
            
            
            —
            
            
            3,000,000
            
            
            —2003
            
            $
            80,000
            
            $
            30,000
            
            
            —
            
            
            —
            
            
            —Richard
                P. Sommerfeld, Jr. (4)
            
            
            2005
            
            $
            66,660
            
            
            —
            
            
            —
            
            
            —
            
            
            —Chief
                Financial Officer
            
            
            2004
            
            $
            100,000
            
            $
            25,000
            
            
            —
            
            
            3,000,000
            
            
            —2003
            
            $
            100,000
            
            $
            8,333
            
            
            —
            
            
            3,000,000
            
            
            —V.
                V. Sundaram (5)
            
            
            2005
            
            $
            66,667
            
            $
            13,333
            
            
            —
            
            
            1,500,000
            
            
            —Chief
                Executive Officer Airbee India
            
            
            2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —2003
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —Srinivasan
                Krishnamurthy (6)
            
            
            2005
            
            $
            100,000
            
            $
            25,000
            
            
            —
            
            
            —
            
            
            —Vice
                President Business Dev.
            
            
            2004
            
            $
            50,000
            
            $
            12,500
            
            
            —
            
            
            6,000,000
            
            
            —2003
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —David
                McCartney (7)
            
            
            2005
            
            $
            124,999
            
            $
            16,666
            
            
            —
            
            
            1,000,000
            
            
            —Vice
                President, Marketing
            
            
            2004
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —2003
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            —




(1)
            Sundaresan
                Raja joined us in August 2002 as President and Chief Executive Officer.
                Mr. Raja is paid a base salary of $150,000 and is eligible to receive
                an
                annual bonus with a formula based on the operating results of the
                Company.
                During 2002, he was issued a stock option for 10,000,000 shares
                exercisable at $0.00004 per share. During 2004, he was issued an
                option to
                purchase 10,000,000 shares exercisable at $0.22 per
                share.




(2)
            E.
                Eugene Sharer joined us in August 2002 as Chief Operating Officer.
                Mr.
                Sharer is paid a base salary of $120,000 per year and is eligible
                to
                receive an annual bonus with a formula based on the operating results
                of
                the Company. During 2002, he was issued a stock option for 8,000,000
                shares exercisable at $0.00004 per share. During 2004, he was issued
                an
                option to purchase 8,000,000 shares exercisable at $0.22 per
                share.




69




(3)
            Ramanujam
                Satagopan joined us in September 2002 as our Chief Technology Officer.
                Mr.
                Satagopan is paid a base salary of $80,000 and is eligible to receive
                an
                annual bonus with a formula based on the operating results of the
                Company.
                During 2002, he was issued a stock option for 375,000 shares exercisable
                at $0.00004 per share. During 2004, he was issued an option to purchase
                3,000,000 shares exercisable at $0.22 per
                share.




(4)
            Richard
                P. Sommerfeld, Jr. joined us in September 2003 as Chief Financial
                Officer;
                he left in August 2005. Mr. Sommerfeld was paid a base salary of
                $100,000
                and was eligible to receive an annual bonus with a formula based
                on the
                operating results of the Company. During 2003, he was issued a stock
                option for 3,000,000 shares exercisable at $0.04 per share. During
                2004,
                he was issued an option to purchase 3,000,000 shares exercisable
                at $0.22
                per share.




(5)
            V.
                V. Sundaram joined us in May, 2005 as Chief Executive Officer Airbee
                India. Mr. Sundaram is paid a base salary of $100,000 and is eligible
                to
                receive an annual bonus with a formula based on the operating results
                of
                the Company. During 2005, he was issued a stock option for 1,500,000
                shares exercisable at $0.82 per share. On January 1, 2006, he was
                issued
                an option to purchase 1,500,000 shares exercisable at $032 per
                share.




(6)
            Srini
                Krishnamurthy joined us in July, 2004 as Vice President, Business
                Development. Mr. Krishnamurthy is paid a base salary of $100,000
                and is
                eligible to receive an annual bonus with a formula based on the operating
                results of the Company. During 2004, he was issued options to purchase
                3,000,000 shares exercisable at $0.38 per share and 3,000,000 shares
                exercisable at $0.22 per share.




(7)
            David
                McCartney joined us in March of 2005 as Vice President, Marketing
                and
                Sales. Mr. McCartney is paid a base salary of $150,000 and is eligible
                to
                receive an annual bonus with a formula based on sales/revenue results.
                During 2005, he was issued a stock option for 1,000,000 shares exercisable
                at $0.32 per share. On January 1, 2006, he was issued an option to
                purchase 1,500,000 shares exercisable at $032 per
                share.




**Compensation
      of Directors**




We
      have
      no standard arrangement pursuant to which our directors are compensated for
      services provided as a Director. Our inside directors are currently not
      compensated for their service on our board of directors. Mr. Gurian, an
      independent director, receives $2,000 per meeting. He has also been granted
      an
      option to purchase 150,000 shares of common stock at $0.22 per share and a
      second option to purchase 250,000 shares at $0.32 per share. Commencing January
      1, 2005 and January 1, 2006, the options vest over 12 months in four equal
      traunches.




**Stock
      Option Issuances During Fiscal Year 2005**




The
      table
      below provides a summary of individual grants of stock options made during
      the
      last fiscal year ended December 31, 2005 to each of the named officers included
      in the Summary Compensation Table above.




Name
            
            Number
                of Shares of Common Stock Underlying Options
            
            Percentage
                of Total Options Granted to Officers and Employees
            
            Exercise
                Price
            
            Expiration
                DateSundaresan
                Raja
            
            
            —
            
            
            —
            
            
            —
            
            
            —Ramanujam
                Satagopan
            
            
            —
            
            
            —
            
            
            —
            
            
            —E.
                Eugene Sharer
            
            
            —
            
            
            —
            
            
            —
            
            
            —Srinivasan
                Krishnamurthy
            
            
            —
            
            
            —
            
            
            —
            
            
            —V.
                V. Sundaram
            
            
            1,500,000
            
            
            60
            %
            $
            0.82
            
            
            05/16/2010David
                McCartney
            
            
            1,000,000
            
            
            40
            %
            $
            0.32
            
            
            03/01/2010




70


**Aggregated
      Option Exercises in Last Fiscal Year** **and
      Fiscal**


**Year-End
      Option Values**




The
      following table sets forth certain information concerning the number and value
      of securities underlying exercisable and unexercisable stock options as of
      the
      fiscal year ended December 31, 2005 by our executive officers listed in the
      Summary Compensation Table above.





**Name**
            
            **Number
                of Shares Acquired on Exercise**
            
            **Value
                Realized**
            
            **Number
                of Securities Underlying Unexercised Options at**
              **December 31,
                2005****(1)**
              **Exercisable/Unexercisable**
            
            **Value
                of Unexercised In-the-Money Options at December 31,
                2005****(1)**
              **Exercisable/Unexercisable**Sundaresan
                Raja
            
            
            0
            
            $
            0
            
            
            15,000,000
            
            
            /
            
            
            5,000,000
            
            $
            4,800,000
            
            /
            
            $
            1,600,000Ramanujam
                Satagopan
            
            
            0
            
            
            0
            
            
            2,312,510
            
            
            /
            
            
            1,500,000
            
            $
            740,000
            
            /
            
            $
            480,000E.
                Eugene Sharer
            
            
            5,501,457
            
            
            0
            
            
            4,000,000
            
            
            /
            
            
            4,000,000
            
            $
            1,280,000
            
            /
            
            $
            1,280,000Srinivasan
                Krishnamurthy
            
            
            0
            
            
            0
            
            
            3,000,000
            
            
            /
            
            
            3,000,000
            
            $
            960,000
            
            /
            
            $
            960,000V.V.
                Sundaram
            
            
            0
            
            
            0
            
            
            750,000
            
            
            /
            
            
            2,250,000
            
            $
            240,000
            
            /
            
            $
            720,000David
                McCartney
            
            
            0
            
            
            0
            
            
            875,000
            
            
            /
            
            
            1,625,000
            
            $
            280,000
            
            /
            
            $
            520,000







(1)
            The
                value of unexercised in-the-money options at fiscal year end is calculated
                using the last sale price of $0.32 per share as of December 30, 2005,
                the last trading day of fiscal year 2005 as reported on the Pink
                Sheets.




**Employment
      Agreements**




We
      have
      entered into employment agreements with certain of our key executives as
      follows:




**Sundaresan
      Raja** has
      served as our Director and Chief Executive Officer since our inception. Mr.
      Raja
      is paid a base salary of $150,000 per year and is eligible to receive an annual
      bonus with a formula based on our operating results. Mr. Raja is guaranteed
      a
      minimum bonus of $50,000 per annum and up to a maximum of 150% of his current
      base salary as further described below. The agreement expired on December 31,
      2005. He was granted a new employment agreement as of January 1, 2006 for a
      one
      year term which has all of the basic terms of the expired agreement except
      for
      the base salary which was changed to $175,000 per year. In addition to his
      salary, Mr. Raja is entitled to participate, to the extent he is eligible under
      the terms and conditions thereof, in any profit sharing, pension, retirement,
      hospitalization, insurance, disability, medical service or other employee
      benefit plan available to the executive officers of our company. Mr. Raja is
      also entitled to four weeks of paid personal time off in respect of each twelve
      month period during the term of his employment agreement. Mr. Raja was issued
      10,000,000 options with a $0.00004 strike price with a “cashless” exercise
      provision, which are exercisable for a 5 year term, vesting as
      follows:




2.5
      million vested immediately at effective date of employment
      agreement;


2.5
      million vested after 1 year of service;


2.5
      million vested after 2 years of service;


remaining
      2.5 million vested after 3 years of service.




On
      November 18, 2004, he was granted a second 10,000,000 share option with like
      terms at a strike price of $0.22 per share which was in excess of 115% of the
      closing bid price on that date and vests as follows:





2.5
      million shares vested immediately on the date of grant November 18,
      2004;


2.5
      million shares vested one year thereafter;


2.5
      million shares vest two years thereafter;


remaining
      2.5 million shares vest three years thereafter.





In
      the
      event that Mr. Raja is terminated without cause, all stock options above then
      earned shall immediately be vested at the time of termination. Additionally,
      in
      the event of a Change of Control of the Company, consisting of an entity, group,
      corporation, or individual acquiring over 50% of the voting shares of the
      company, or a Change of Control as defined by the Securities and Exchange
      Commission, it is understood that all earned and as of then unvested options
      shall immediately be vested.





71


During
      the period of Mr. Raja’s employment he shall not, directly or indirectly, accept
      employment or compensation from, or perform services of any nature for, any
      business enterprise other than the Airbee. He agrees that during the period
      of
      his employment and for two years (unless he is terminated without cause in
      which
      case this covenant will not apply) thereafter, he will not (a) directly or
      indirectly own, manage, operate, join, control, participate in, invest in,
      or
      otherwise be connected with, in any manner, whether as an officer, director,
      employee, partner, investor or otherwise, any business entity that is engaged
      in
      the technology industry or in any other business in which the Airbee is engaged
      as of termination, (1) in all locations in which the Airbee is doing business,
      and (2) in all locations in respect of which the Airbee is actively planning
      for
      and/or pursuing a business opportunity; (b) for himself or on behalf of any
      other person, partnership, Airbee or entity, call on any customer of the Airbee
      for the purpose of soliciting, diverting or taking away any customer from the
      Airbee (1) in all locations in which the Airbee is doing business, and (2)
      in
      all locations in respect of which the Airbee is actively planning for and/or
      pursuing a business opportunity, or (c) induce, influence or seek to induce
      or
      influence any person engaged as an employee, representative, agent, independent
      contractor or otherwise by the Airbee, to terminate his or her relationship
      with
      the Airbee. Nothing contained in his agreement shall be deemed to prohibit
      Mr.
      Raja from (x) investing his funds in securities of an issuer if the securities
      of such issuer are listed for trading on a national securities exchange or
      are
      traded in the over-the-counter market and his holdings therein represent less
      than 2% of the total number of shares or principal amount of the securities
      of
      such issuer outstanding, or (y) owning securities, regardless of amount, of
      the
      Airbee.





**E.
      Eugene Sharer** joined
      us on August 16, 2002 as Chief Operating Officer and a member of our Board
      of
      Directors. Mr. Sharer is paid a base salary of $120,000 per year and is eligible
      to receive an annual bonus with a formula based on our operating results. Mr.
      Sharer is guaranteed a minimum bonus of $50,000 per annum and up to a maximum
      of
      150% of his current base salary, as further described below. The agreement
      expired on December 1, 2005. He was granted a new employment agreement as of
      January 1, 2006 for a one year term which has all of the basic terms of the
      expired agreement except for the base salary which was changed to $150,000
      per
      year. In addition to his salary, Mr. Sharer is entitled to participate, to
      the
      extent he is eligible under the terms and conditions thereof, in any profit
      sharing, pension, retirement, hospitalization, insurance, disability, medical
      service or other employee benefit plan available to the executive officers
      of
      our company. Mr. Sharer is also entitled to four weeks of paid vacation in
      respect of each twelve month period during the term of his employment agreement.
      Mr. Sharer was issued 8,000,000 stock options with a $0.00004 strike price
      with
      a “cashless” exercise provision, which are exercisable for a 5 year term,
      vesting as follows:




2.0
      million vested immediately at effective date of employment
      agreement;


2.0
      million vested after 1 year of service;


2.0
      million vested after 2 years of service;


remaining
      2.0 million vested after 3 years of service.




Mr.
      Sharer exercised all portions of this option in November, 2005.




On
      November 18, 2004, he was granted a second 8,000,000 share option with like
      terms at a strike price of $0.22 per share which was in excess of 110% of the
      closing bid price on that date and which vests as follows:





2.0
      million shares vested immediately on the date of grant November 18,
      2004;


2.0
      million shares vested one year thereafter;


2.0
      million shares vest two years thereafter;


remaining
      2.0 million shares vest three years thereafter.




In
      the
      event that Mr. Sharer is terminated without cause, all stock options above
      then
      earned shall immediately be vested at the time of termination. Additionally,
      in
      the event of a Change of Control of the Company, consisting of an entity, group,
      corporation, or individual acquiring over 50% of the voting shares of the
      company, or a Change of Control as defined by the Securities and Exchange
      Commission, it is understood that all earned and as of then unvested options
      shall immediately be vested.




**David
      McCartney** joined
      us on March 1, 2005 as Vice President, Marketing and Sales. Mr. McCartney is
      paid a base salary of $150,000 and is eligible to receive an annual bonus with
      a
      formula based on our operating results. Mr. McCartney is guaranteed a minimum
      bonus of $25,000 per annum and up to a maximum of 150% of his current base
      salary, as further described below. The agreement expires on March 1, 2008.
      In addition to his salary, Mr. McCartney is entitled to participate, to the
      extent he is eligible under the terms and conditions thereof, in any profit
      sharing, pension, retirement, hospitalization, insurance, disability, medical
      service or other employee benefit plan available to the executive officers
      of
      our company. Mr. McCartney is also entitled to four weeks of paid personal
      time
      off in respect of each twelve month period during the term of his employment
      agreement. Mr. McCartney was issued 1,000,000 stock options with a $0.32 strike
      price with a “cashless” exercise provision, which are exercisable for a 5 year
      term, vesting as follows:




72




250,000
      vested immediately at effective date of employment agreement;


250,000
      vest after 1 year of service;


250,000
      vest after 2 years of service;


remaining
      250,000 vest after 3 years of service.




On
      January 1, 2006, he was granted a 1,500,000 share option with like terms at
      a
      strike price of $0.32 per share and which vests as follows:





375,000
      shares vested immediately on the date of grant (January 1, 2006);


375,000
      shares vest one year thereafter;


375,000
      shares vest two years thereafter;


remaining
      375,000 shares vest three years thereafter.




In
      the
      event that Mr. McCartney is terminated without cause, all stock options above
      then earned shall immediately be vested at the time of termination.
      Additionally, in the event of a Change of Control of the Company, consisting
      of
      an entity, group, corporation, or individual acquiring over 50% of the voting
      shares of the company, or a Change of Control as defined by the Securities
      and
      Exchange Commission, it is understood that all earned and as of then unvested
      options shall immediately be vested.




**V.
      V. Sundaram** joined
      us on May 16, 2005 as Chief Executive Officer, Airbee India. He serves our
      company on a full time basis. Mr. Sundaram is paid a base salary of $100,000
      and
      is eligible to receive an annual bonus with a formula based on our operating
      results. Mr. Sundaram is guaranteed a minimum bonus of $30,000 per annum and
      up
      to a maximum of 50% of his current base salary, as further described below.
      The
      agreement expires on May 15, 2008. In addition to his salary, Mr. Sundaram
      is
      entitled to participate, to the extent he is eligible under the terms and
      conditions thereof, in any profit sharing, pension, retirement, hospitalization,
      insurance, disability, medical service or other employee benefit plan available
      to the executive officers of our company. Mr. Sundaramis also entitled to four
      weeks of paid personal time off in respect of each twelve month period during
      the term of his employment agreement. Mr. Sundaram was issued 1,500,000 stock
      options with a $0.824 strike price with a “cashless” exercise provision, which
      are exercisable for a 5 year term.




On
      January 1, 2006, he was granted a 1,500,000 share option with like terms at
      a
      strike price of $0.32 per share and which vests as follows:




375,000
      shares vested immediately on the date of grant (January 1, 2006);


375,000
      shares vest one year thereafter;


375,000
      shares vest two years thereafter;


remaining
      375,000 shares vest three years thereafter.




In
      the
      event that Mr. Sundaram is terminated without cause, all stock options above
      then earned shall immediately be vested at the time of termination.
      Additionally, in the event of a Change of Control of the Company, consisting
      of
      an entity, group, corporation, or individual acquiring over 50% of the voting
      shares of the company, or a Change of Control as defined by the Securities
      and
      Exchange Commission, it is understood that all earned and as of then unvested
      options shall immediately be vested.




**Srinivasan
      Krishnamurthy** joined
      us
      on July 1, 2004 as Vice President, Business Development. He serves our company
      on a full time basis. Mr. Krishnamurthy is paid a base salary of $100,000 and
      is
      eligible to receive an annual bonus with a formula based on our operating
      results. Mr. Krishnamurthy is guaranteed a minimum bonus of $25,000 per annum
      and up to a maximum of 150% of his current base salary, as further described
      below. The agreement expires on June 30, 2007. In addition to his salary, Mr.
      Krishnamurthy is entitled to participate, to the extent he is eligible under
      the
      terms and conditions thereof, in any profit sharing, pension, retirement,
      hospitalization, insurance, disability, medical service or other employee
      benefit plan available to the executive officers of our company. Mr.
      Krishnamurthy is also entitled to four weeks of paid vacation in respect of
      each
      twelve month period during the term of his employment agreement. Mr.
      Krishnamurthy was issued 3,000,000 stock options with a $0.38 strike price
      with
      a “cashless” exercise provision, which are exercisable for a 5 year term.




73


On
      November 18, 2004, he was granted a 3,000,000 share option with like terms
      at a
      strike price of $0.22 per share and which vests as follows:




750,000
      shares vested immediately on the date of grant November 18, 2004;


750,000
      shares vested one year thereafter;


750,000
      shares vest two years thereafter;


remaining
      750,000 shares vest three years thereafter.




In
      the
      event that Mr. Krishnamurthy is terminated without cause, all stock options
      above then earned shall immediately be vested at the time of termination.
      Additionally, in the event of a Change of Control of the Company, consisting
      of
      an entity, group, corporation, or individual acquiring over 50% of the voting
      shares of the company, or a Change of Control as defined by the Securities
      and
      Exchange Commission, it is understood that all earned and as of then unvested
      options shall immediately be vested.




**Officer
      Bonuses**




As
      discussed above, under each employment agreement each officer shall also receive
      a performance bonus up to a maximum of 150% of the then current base salary
      and
      evaluated on the following three categories and weighted as indicated: (1) EBITDA
      (40%): Targets as provided in annual financial projections; (2) Revenue (30%):




Targets
      as provided in annual financial projections; and (3) Job
      Performance Objectives: Targeted 8 per year.




If
      he
      achieves over 100% of target, he then receives a proportional amount to a limit
      of 150% of then current base salary. If he achieves 100% of target, he then
      receives 100% of category bonus. If he achieves 75% of target, he then receives
      60% of category bonus. If he achieves 50% of target, he then receives 30% of
      category bonus.




There
      is
      currently no effective performance bonus schedule. Financial and performance
      projections will be made when our company receives revenues from Airbee
      products. Bonus amounts and allocations will be subject to the approval by
      the
      Board.




In
      addition, our employment agreements with our officers initially provided for
      each officer to receive additional compensation for successfully closing
      financing for our company. Such compensation was terminated on September 10,
      2004 by the consent of our officers and board of directors.




**ITEM
              11.**
            **SECURITY
                OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
                STOCKHOLDER MATTERS**





The
      following table sets forth information regarding the beneficial ownership of
      our
      common stock as of the Record Date for: (a) each person known by us to own
      beneficially more than 5% of our of common stock; (b) each of our directors;
      (c)
      each of our executive officers; and (d) all directors and executive officers
      as
      a group.




The
      percentage of beneficial ownership for the following table is based on
      62,258,149 shares of common stock outstanding. Such shares are net of 13,586,956
      non-voting shares held in escrow.




Beneficial
      ownership is determined in accordance with the rules of the Securities and
      Exchange Commission and generally includes voting or investment power with
      respect to securities. Shares of common stock subject to options that are
      currently exercisable or exercisable within 60 days of the date of this
      financial statement are deemed to be beneficially owned by the person holding
      such options for the purpose of computing the percentage of ownership of such
      person, but are not treated as outstanding for the purpose of computing the
      percentage ownership of any other person.




74


Unless
      otherwise indicated below, to our knowledge, all persons and entities listed
      below have sole voting and investment power over their shares of common stock,
      except to the extent that individuals share authority with spouses under
      applicable law. Unless otherwise indicated below, the address for the persons
      and entities listed below is 9400 Key West Avenue, Rockville, Maryland
      20850.




**Shares****Beneficially**
            
            **Percent****Name
                and Address**
            
            **Owned**
            
            **of
                Class**Sundaresan
                Raja
            
            
            28,530,937
            (1)
            
            32.39
            %E.
                Eugene Sharer
            
            
            15,136,840
            (2)
            
            17.18
            %Ramanujam
                Satagopan
            
            
            5,500,999
            (3)
            
            6.24
            %V.
                V. Sundaram
            
            
            1,287,011
            (4)
            
            1.46
            %Srinivasan
                Krishnamurthy
            
            
            3,928,308
            (5)
            
            4.46
            %David
                McCartney
            
            
            1,060,484
            (6)
            
            1.20
            %Mal
                Gurian
            
            
            212,500
            (7)
            
            *All
                Directors and Officers as a Group (7 Persons)
            
            
            55,657,079
            
            
            63.18
            %Montgomery
                Equity Partners, Ltd.
            
            
            8,208,174
            (8)
            
            9.32
            %







*  Less
      than
      1%.




(1)
            Includes
                10,000,000 shares of common stock underlying options exercisable
                at
                $0.00004 per share and 5,000,000 shares exercisable at $0.22 per
                share.




(2)
            Includes
                4,000,000 shares exercisable at $0.22 per share.




(3)
            Includes
                125,010 shares of common stock underlying options exercisable at
                $0.00004
                per share and 1,500,000 shares exercisable at $0.22 per share.




(4)
            Includes
                750,000 shares of common stock underlying options exercisable at
                $0.82 per
                share and 375,000 shares exercisable at $0.32 per
                share.




(5)
            Includes
                1,500,000 shares of common stock underlying options exercisable at
                $0.38
                per share and 1,500,000 shares exercisable at $0.22 per share.




(6)
            Includes
                875,000 shares underlying options exercisable at $0.32 per
                share.




(7)
            Includes
                150,000 shares underlying options exercisable at $0.22 per share
                and
                62,500 shares exercisable at $0.32 per
                share.




(8)
            Shares
                held as of February 15, 2006 pursuant to settlement of April 26,
                2005 note
                payable to be liquidated to repay the remaining balance of the note.
                Any
                shares remaining after full payment will be returned to the affiliate
                of
                the Company who pledged the shares as security for the promissory
                note.




75





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS**




The
      Company has received loans from several of its officers. The Company has entered
      into convertible promissory notes with some of its officers as described below.
      These amounts accrue interest at 6.0% and 9.5% annually. As of December 31,
      2005, the Company has outstanding under these notes, including accrued interest
      as described in the table below. The notes were paid off in January, 2006 by
      board action. **** They
      were
      converted into shares of our common stock at the option of our Company and
      with
      the consent of the note holder. Amounts due to officers were as follows:




Sundaresan
                Raja
            
            $
            672,469E.
                Eugene Sharer
            
            $
            542,379Ramanujam
                Satagopan
            
            $
            127,291Srinivasan
                Krishnamurthy
            
            $
            229,052David
                McCartney
            
            $
            63,452V.
                V. Sundaram
            
            $
            32,264





**ITEM
      13.**  **EXHIBITS**




(a)
            Exhibits




Exhibit
                No.
            
            Description
            
            Location3.1
            
            Certificate
                of Incorporation, dated August 9, 2002 of Registrant
            
            (1)3.2
            
            Certificate
                of Amendment (forward split)
            
            (1)3.3
            
            By-Laws
                of Registrant
            
            (1)4.1
            
            Equity
                Incentive Plan
            
            (1)4.2
            
            Form
                of Promissory Note
            
            (1)4.3
            
            Outside
                Director Stock Option Plan
            
            (2)4.4
            
            Secured
                Convertible Debenture, dated December 29, 2005, and related financing
                documents and pledge agreements
            
            (5)4.5
            
            Agreement,
                dated October 19, 2005 between Cornell Capital Partners, L.P. and
                Airbee
                Wireless, terminating the Standby Equity Distribution Agreement,
                the
                Registration Rights Agreement, and the Escrow Agreement, each dated
                April
                20, 2005.
            
            (6)4.6
            
            Amendment
                No. 1 to Investor Registration Rights Agreement between Montgomery
                Equity
                Partners, Ltd. and Airbee Wireless, Inc., dated July 14, 2006 amending
                the
                Investor Registration Rights Agreement dated December 29,
                2005.
            
            (4)4.7
            
            Amendment
                No. 2 to Investor Registration Rights Agreement between Montgomery
                Equity
                Partners, Ltd. and Airbee Wireless, Inc., dated July 14, 2006 amending
                the
                Investor Registration Rights Agreement dated December 29,
                2005.
            
            (4)4.8
            
            Amendment
                No. 1 to Pledge and Escrow Agreement between Montgomery Equity Partners,
                Ltd. and Airbee Wireless, Inc., dated July 14, 2006 amending the
                Pledge
                and Escrow Agreement dated December 29, 2005.
            
            (4)




76






4.9
            
            Amendment
                No. 1 to Insider Pledge and Escrow Agreement between Montgomery Equity
                Partners, Ltd. and Airbee Wireless, Inc., dated July 14, 2006 amending
                the
                Insider Pledge and Escrow Agreement dated December 29,
                2005.
            
            (4)4.10
            
            Amendment
                No. 1 to Security Agreement between Montgomery Equity Partners, Ltd.
                and
                Airbee Wireless (India) Pvt. Ltd., dated July 14, 2006 amending the
                Security Agreement dated December 29, 2005.
            
            (4)10.1
            
            Employment
                Agreement, dated January 1, 2006 between Sundaresan Raja and Airbee
                Wireless.
            
            (7)10.2
            
            Employment
                Agreement, dated January 1, 2006 between Eugene Sharer and Airbee
                Wireless.
            
            (7)10.3
            
            Employment
                Agreement, dated April 1, 2005 between Ramanujam Satagopan and Airbee
                Wireless.
            
            (6)10.4
            
            Employment
                Agreement, dated May 16, 2005 between V. V. Sundaram and Airbee
                Wireless.
            
            (6)10.5
            
            Lease
                Agreement
            
            (1)10.6
            
            Corrected
                Employment Agreement, dated January 1, 2006 between Sundaresan Raja
                and
                Airbee Wireless
            
            (7)10.7
            
            Corrected
                Employment Agreement, dated January 1, 2006 between Eugene Sharer
                and
                Airbee Wireless.
            
            (7)10.8
            
            Software
                License Agreement with Radiocrafts AS, dated April 25,
                2005
            
            (4)10.9
            
            Software
                License Agreement with Compel JSC, dated December 20, 2005
            
            (4)10.10
            
            Software
                License Agreement Extension with Radiocrafts AS, dated April 25,
                2006
            
            (4)10.11
            
            Software
                License Agreement with SoftBaugh, Inc., dated August 19,
                2005
            
            (4)10.12
            
            Software
                License Agreement with Texas Instruments Incorporated, dated July
                13,
                2005
            
            (4)10.13
            
            Software
                License Agreement with Zentrum Mikroeletronik Dresden AG, dated January
                14, 2006
            
            (4)14.0
            
            Code
                of Ethics
            
            (3)21.1
            
            Subsidiaries
                of Registrant
            
            (1)31.1
            
            Rule
                13a-14(a)/15d-4(a) Certification of Principal Executive
                Officer31.2
            
            Rule
                13a-14(a)/15d-4(a) Certification of Principal Financial
                Officer32.1
            
            Section
                1350 Certification of Principal Executive Officer32.2
            
            Section
                1350 Certification of Principal Financial Officer(1)
            
            Previously
                filed on Form 10SB Registration Statement.




77






(2)
            
            Filed
                on Form 8-K Current Reported filed with the SEC on March 15,
                2005.(3)
            
            Previously
                filed on Amendment No. 1 to Form 10-KSB Annual Report for year ended
                December 31, 2004.(4)
            
            Included
                herewith(5)
            
            Filed
                on Form 8-K Current Report filed with the SEC on January 5,
                2006(6)
            
            Filed
                with Form 10-KSB for December 31, 2005 filed with the SEC on April
                17,
                2006(7)
            
            Filed
                with Form 10-QSB for March 31, 2006 filed with the SEC on May 15,
                2006





**ITEM
      14.**  **PRINCIPAL
      ACCOUNTANT FEES AND SERVICES**




For
      the
      fiscal years ended December 31, 2005 and 2004, the aggregate fees billed by
      Bagell, Josephs & Company, LLC were as follows:




**2005**
            
            **2004**Audit
                Fees
            
            $
            15,000
            
            $
            17,000Audit
                Related Fees
            
            $
            26,257
            
            $
            7,500Tax
                Fees
            
            $
            3,500
            
            
            —All
                Other Fees
            
            $
            22,590
            
            
            —




*Audit
      Fees.* Consists
      of fees billed for professional services rendered for the audit of our annual
      consolidated financial statements and review of the quarterly condensed
      consolidated financial statements and services that are normally provided by
      Bagell, Josephs, Levine & Company, in connection with statutory and
      regulatory filings or engagements.




*Audit-Related
      Fees.* Consists
      of fees billed for assurance and related services that are reasonably related
      to
      the performance of the audit or review of our consolidated financial statements
      and are not reported under “Audit Fees.”




*Tax
      Fees.* Consists
      of fees billed for professional services for tax compliance, tax advice and
      tax
      planning.




*All
      Other Fees.* Consists
      of fees for products and services other than the services reported above.





78




**SIGNATURES**





Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**AIRBEE
                WIRELESS, INC.**By
            */s/* *Sundaresan
              Raja*Name:Sundaresan
                RajaTitle:Chief
                Executive OfficerDate:September
                22, 2006





In
      accordance with the requirements of Section 12 of the Securities Exchange
      Act of 1934, the Registrant has duly caused this Registration Statement to
      be
      signed on its behalf by the undersigned, thereunto duly authorized.





**SIGNATURE**
            
            **TITLE**
            
            **DATE***/s/
                Sundaresan Raja*
            
            Chief
                Executive Officer, Principal Executive
            
            September
                22, 2006Sundaresan
                Raja
            
            Officer and
              Director*/s/
                E. Eugene Sharer*
            
            President,
                Chief Operating Officer,
            
            September
                22, 2006E.
                Eugene Sharer
            
            Interim Chief
              Financial
              Officer  and Director*/s/
                V. V. Sundaram*
            
            Chief
                Executive Officer, Airbee India
            
            September
                22, 2006V.
                V. Sundaram*/s/
                Mal Gurian*
            
            Director
            
            September
                22, 2006Mal
                Gurian




79