**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-KSB**





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


**SECURITIES
      EXCHANGE ACT OF 1934**





**For
      the year ended December 31, 2007**





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





**AIRBEE
      WIRELESS, INC.**


(Exact
      name of registrant as specified in charter)





**DELAWARE**
            
            **46-0500345**(State
                or other jurisdiction of
            
            (I.R.S.
                Employerincorporation
                or organization)
            
            Identification
                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. o




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, 2007 was
      $123,243.





As
      of
      March 28, 2008, the aggregate market value of the shares of common stock held
      by
      non-affiliates (based on the closing price of $0.036 for the common stock as
      quoted on that date) was approximately $2,802,906.





As
      of
      March 28, 2008, the Company had 99,224,782 shares
      of
      its common stock, $0.00004 par value per share, outstanding.





Transitional
      Small Business Disclosure Format: Yes oNo
x







**TABLE
      OF CONTENTS**





**ITEM
                NUMBER AND CAPTION**
            
            **PAGE****PART
                I**Item
                1.
            Description
                of Business
            
            3Item
                2.
            Description
                of Property
            
            11Item
                3.
            Legal
                Proceedings
            
            12Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            
            12**PART
                II**Item
                5.
            Market
                for Common Equity, Related Stockholder Matters and Small Business
                Issuer
                Purchases of Equity Securities
            
            12Item
                6.
            Management’s
                Discussion and Analysis or Plan of Operation
            
            20Item
                7.
            Financial
                Statements
            
            30Item
                8.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            88Item
                8A.
            Controls
                and Procedures
            
            88Item
                8B.
            Other
                Information
            
            90**PART
                III**Item
                9.
            Directors,
                Executive Officers, Promoters, Control Persons and Corporate Governance;
                Compliance with Section 16(a) of the Exchange Act
            
            90Item
                10.
            Executive
                Compensation
            
            93Item
                11.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            95Item
                12.
            Certain
                Relationships, Related Transactions, and Director
                Independence
            
            98Item
                13.
            Exhibits
            
            98Item
                14.
            Principal
                Accountant Fees and Services
            
            100


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” within the meaning of the Private Securities
      Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and
      Section 21E of the Securities Exchange Act of 1934. 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,” ”will,” “would,” “strategy,” “will likely result,” 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 seven licensees with revenues to be determined by the
      licensees’ product commercialization. We have had negligible revenues from these
      licensees during the reporting period. We expected to begin realizing revenues
      from these agreements about mid 2007. However, the ZigBee Alliance announced
      another more robust version of the ZigBee standard called ZigBee PRO which
      delayed the commercialization of the technology for the better part of a year.
      We now expect commercialization of the technology by mid 2008. We are dependent
      on our customers’ commercialization of their product development which will
      generate revenues from licensing and/or 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
      scheme. We acquired Connexus because it was developing wireless technologies
      that were complementary to the software technologies that we were developing.
      We
      believed that 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 first release of version 1.0 was formally released to the
      wireless industry on December 14, 2004. A second release has updated the
      standard known as version 1.1 or ZigBee 2006. It specifies a short-range,
      low-power, secure wireless data and voice transmission baseline. The version
      1.1
      required further development of our products to respond to changes in the
      standard. We have developed our products to meet the ZigBee PRO standard
      released in September 2007. We completed the ZigBee product certification
      testing by an independent testing facility authorized by the ZigBee Alliance
      for
      the ZNS Software Stack in November 2006 and the current PRO version was
      certified in January 2008. With over 250 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





The
      following excerpts from a presentation given by Bob Heile, Chairman, ZigBee
      Alliance, on February 28, 2008, may be helpful in understanding ZigBee and
      our
      product line.





**What
      is ZigBee?**





ZigBee
      is
      a high level communication protocol using small, low power digital radios based
      on the IEEE 802.15.4 standard for wireless networks and targeted at RF
      applications that require a low data rate, long battery life and secure
      networking. The [ZigBee] Alliance activities include specification creation,
      certification and compliance programs for the specification and branding, market
      development and user education. Membership includes entities from all corners
      of
      the world.





**ZigBee
      Target Markets**





Target
      Markets include building automation, personal healthcare, industrial control
      systems, energy management, telecom services, consumer electronics, computer
      peripherals and home automation and control. Some examples are: Access control,
      fitness monitoring, asset management, meter reading, information services,
      universal remotes, keyboard/mouse and lighting control.





**ZigBee
      Value Proposition**





Today,
      more than 250 companies around the world are supporting and developing standard
      protocol solutions for pending products and services which meet key market
      needs. Some key advances are that no new wires are needed to implement, is
      easy
      to install and maintain, is reliable, secure, scalable to thousands of nodes,
      long battery life and low cost to implement. Solutions come from multiple
      vendors throughout the value chain – silicon > platforms > modules >
tools > products. Airbee fits in the platforms and tools
      categories.





**ZigBee
      Adoption/Solution**





There
      is
      a growing acceptance across a broad range of markets and applications,
      principally in home automation and control, building automation and in energy
      management and efficiency. ZigBee is based on an open standard, for radio and
      protocol and configured in mesh networking. The platform structure is as shown
      in the table below.





Application/Profiles
            
            ZigBee
                or OEMApplication
                Framework
            ¦
            ¦Network/Security
                Layer
            ¦
            ¦ZigBeeMedia
                Access Control Layer
            ¦IEEE
            ¦AlliancePhysical
                Layer
            ¦802.15.4
            ¦Platform





**ZigBee
      Application Profile Examples**





*Smart
      Energy Profile* - serves
      the energy industry by enabling


·
            load
                control


·
            data
                presentation of grid status and
                cost


·
            customer
                communication


4


·
            energy
                management and metering services


·
            the
                smart grid


with
      a
      worldwide open and interoperable standard.





*Building
      Automation Hotel Example –* serves
      the hotel business through energy management


·
            centralized
                HVAC control ensures empty rooms are not
                cooled


·
            battery
                operated thermostats, occupancy detectors, humidistats placed for
                convenience


·
            multi-hop
                mesh network installation fast and
                easy


·
            projected
                40% energy savings





*In-Home
      Patient Monitoring –* ZigBee
      applications assure that patients can receive better care at reduced cost with
      more freedom and comfort


·
            patients
                can remain in their home


·
            monitor
                vital statistics and send via internet or mobile
                handset


·
            doctors
                can adjust medication levels


·
            monitor
                elderly family member


·
            sense
                movement or usage patterns in the
                home


·
            turn
                lights on when they get out of bed


·
            notify
                when anomalies occur


·
            wireless
                panic buttons for falls or other
                problems





We
      sell
      our software products through licensing agreements which call for licensing
      fees
      and/or royalty payments based on our customers’ shipments of their products with
      our software embedded. The agreements typically run for a period of one to
      three
      years with the terms renegotiable upon renewal. The licensing fees typically
      run
      up to $100,000 per agreement depending on the balance of the terms negotiated
      with royalty fees running up to $0.25 per unit shipped 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
      corporate offices are located in Rockville, Maryland. We have also established
      an office in San Diego, California for our marketing and sales operations.
      The
      west coast is 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. Training and problem
      resolution is handled via the Internet through a delivery and support system
      which has been tailored for our use and supported by the development center
      in
      India.





We
      have
      completed the development of our software products for all versions of the
      ZigBee PRO standard including the tools necessary to incorporate the software
      into the customer’s products. We also consider ourselves as a full service
      provider which entails enabling training, tools, maintenance and support of
      the
      products to the customer. These products are available for evaluation and
      prospective customers are currently testing and evaluating this software at
      no
      cost to our company.





**The
      Market**




To
      date
      the market for low power wireless RF mesh networks such as ZigBee is moving
      from
      the development stage to the initial commercial launch phase. Several OEMs
      are
      now announcing products using this technology that will be introduced into
      the
      commercial marketplace. We anticipate that the market will begin to experience
      robust commercialization mid 2008.





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. 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 through the network, etc., all of which is required to be met
      in
      the certification process.


5


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 completed a few small projects with systems solutions
      providers. We are working on development of agreements with several additional
      chip producers in the US and Europe.





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.




Airbee Wireless, Inc.****




**Products**




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
      completed Airbee proprietary peer-to-peer, star and mesh topologies are also
      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 available for commercial sale today and we are
      testing our products with several customers. 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 not 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.





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


6




**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**


Airbee Wireless, Inc.




**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**


Airbee Wireless, Inc.




**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.




Airbee Wireless, Inc.





Our
      Airbee mesh network solution 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.


7





*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





The
      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.





**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) and is dependent on the hardware platform on which the
      software resides. 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.


8





**Current
      Applications**




To
      date,
      we have operated and demonstrated our products on the microprocessors or radios
      from multiple semiconductor manufacturers and therefore claim that our software
      implementation is hardware agnostic. They are all semiconductor platforms on
      which our ZNS software stack operates. These customers have validated our
      software for use in their products and customer applications. As part of the
      certification testing procedures, some of the hardware platforms have been
      demonstrated to interoperate with each other with our software embedded therein.
      As an example, we successfully demonstrated a 40 node network in which multiple
      end item devices were shown to interoperate on three difference hardware
      platforms. Several additional demonstrations have been developed to show
      potential uses of the technology.





**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 or planned to be demonstrated at trade shows. They are
      licensed separately and are designed to work together as a system.





We
      have
      previously demonstrated the platform agnostic assertion on five separate
      hardware platforms and have done so at industry conferences and ZigBee Open
      Houses. In 2008, we expect to attend several trade shows and conferences to
      demonstrate our products and technology development
      accomplishments.





**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.





**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.


9





**Airbee-Z** **APP**




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. Its release to the
      marketplace will depend on our assessment of the market demand and will be
      decided 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
      (acquired mid-2006 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
      (TI) is considered our most serious competitor and had been designated as a
      golden unit for the most current version of the ZigBee standard. Ember is also
      a
      competitor in the ZigBee space and has a product called Embernet which has
      been
      fielded in certain application areas. Ember sells hardware solutions with a
      custom software suite and which has also been certified and designated a golden
      unit. 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.





Although
      Bluetooth and WiFi are established data communication standards, we do not
      compete in their space. 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.





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.


10





**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. The 2006 version
      of
      the ZigBee standard was certified in January of 2007 and the PRO version was
      certified in January 2008. Our first significant license agreement was signed
      in
      April 2005. Copies of our material license agreements have been attached as
      exhibits to prior filings.





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
      formed
      a new business unit in late 2005 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. We have completed three such projects since 2005 to
      the
      end of the reporting period on December 31, 2007.





**Intellectual
      Property**




Our
      success and ability to compete is dependent in large part upon our unique
      technology. To date we have filed one patent and the software has not been
      formally copyrighted but carries common law copyrights. 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.





**Employees**




As
      of
      January 31, 2008, we employed 43 full-time employees, of which seven are
      executive or administrative (four based in India) and 36 are technical (all
      based in India). From time to time, we utilize various contractors.





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




Our
      principal executive offices are located in approximately 468 square feet of
      office space at 9400 Key West Avenue, Rockville, MD 20850. The term of the
      lease
      is month-to-month at $1,687 per month.


11


We
      lease
      approximately 6,000 square feet of office space at No. 1A, Nungambakkam High
      Road, Nungambakkam, Chennai 600034, Tamil Nadu, India. The lease expires on
      June
      30, 2009. The total rental expense was $63,629 in 2007 and $57,424 in 2006
      and
      expected to be $74,400 in 2008.




We
      may
      acquire limited space in the San Diego area for three or four executive and
      sales staff in mid 2008. 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 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
      July 1, 2007 the parties reached a mediated settlement by which we agreed to
      pay
      plaintiff $500,000 by August 14, 2007 or consent to entry of judgment against
      us
      of $700,000 if we failed to make payment on time. After several extensions
      of
      time to pay, plaintiff entered the consent judgment for $700,000 on September
      26, 2007 and has commenced post-judgment enforcement activities. See Note 10
      to
      the Financial Statements in Item 7 for a more detailed description of this
      litigation.





From
      time
      to time, the Company is party to business disputes arising in the normal course
      of its business operations. The Company does not believe that any other action,
      standing alone, or in the aggregate, is currently material to the Company’s
      operations or financial condition.





**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 currently quoted on the OTC Bulletin Board under the symbol
      “ABEW.” On December 31, 2007, the closing sale price of our common stock was
      $0.05; on March 19, 2008 it was $0.03.





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****2006**January –
                March
            
            $
            0.45
            
            $
            0.21April
                –  June
            
            $
            0.34
            
            $
            0.1558July
                – September
            
            $
            0.24
            
            $
            0.1361October
                –  December
            
            $
            0.20
            
            $
            0.13**2007**January
                –  March
            
            $
            0.42
            
            $
            0.135April
                –  June
            
            $
            0.30
            
            $
            0.15July
                –  September
            
            $
            0.21
            
            $
            0.08October
                –  December
            
            $
            0.13
            
            $
            0.05


12





As
      of
      December 31, 2007, there are currently 116,253,248 shares of our common stock
      outstanding. 33,331,509 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 116,253,248 shares currently outstanding,
      21,365,660 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
      (reduced to six months effective February 15, 2008) 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 (reduced to one year effective
      February 15, 2008), is entitled to sell the shares under Rule 144 without regard
      to any of the volume limitations described above.




**Stockholders**




As
      of
      March 28, 2008, the Company has 1,409 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 our outstanding options and warrants
      authorized for issuance under our compensation plans as of December 31, 2007.




**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
            
            
            1,728,000
            
            $
            0.2995
            
            
            16,145,000Equity
                compensation plans not approved by security holders
            
            
            -
            
            
            -
            
            
            -Total
            
            
            1,728,000
            
            $
            0.2995
            
            
            16,145,000




**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 4,000,000 shares
      of
      common stock for the plan. The plan has essentially the same parameters as
      the
      employee stock option plan and terminates on May 31, 2013. As of December 31,
      2007, 400,000 options were granted under this plan.




**Related
      Stockholder Matters**





The
      following stock transactions occurred in 2007:


13


On
      January 1, 2007, the Company issued 100,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company. The warrants have
      a
      strike price of $0.40 and expire on January 1, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      January 11, 2007, the Company issued 236,859 restricted shares to an executive
      officer in partial payment of accrued salary valued at $40,266 at the time
      of
      issuance. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The executive officer received information concerning the Company
      and
      had the ability to ask questions about the Company.





On
      January 11, 2007, the Company issued 73,529 restricted shares and 9,310 warrants
      with a strike price of $0.40 to an accredited investor in return for his
      assistance in raising capital and providing short-term loans to the Company.
      The
      warrants expire on January 12, 2009. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $12,500
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





On
      January 19, 2007, the Company issued 446,109 restricted shares of stock to
      an
      accredited investor to settle a note payable totaling $60,225. The securities
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      January 29, 2007, the Company issued 30,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company. The warrants have
      a
      strike price of $0.40 and expire on January 29, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      January 31, 2007, the Company issued 200,000 restricted shares of stock to
      Newbridge Securities, Inc. for services worth $60,000 at the time of issuance.
      The securities were issued pursuant to the exemption from registration provided
      by Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.





On
      February 1, 2007, the Company issued 841,176 restricted shares to Montgomery
      Equity Partners, Ltd for the cashless exercise of 1,500,000 warrants. This
      transaction created 658,824 shares of treasury stock. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      February 5, 2007, the Company issued 36,697 restricted shares to an accredited
      investor in return for his assistance in raising capital and providing
      short-term loans to the Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $7,000
      at
      the time of issuance. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the
      Company.


14





On
      February 28, 2007, the Company issued 9,808 restricted shares to The Ardell
      Group for public relations services worth $2,550 at the time of issuance. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.





On
      March
      4, 2007, the Company issued 200,000 warrants to an accredited investor in
      connection with his loan to the Company of $56,573. The warrants had a strike
      price of $0.4753 and expire on March 4, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      March
      22, 2007, the Company issued 199,368 restricted shares to an accredited investor
      in return for his assistance in raising capital and providing short-term loans
      to the Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $58,230
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





Throughout
      the quarter ended March 31, 2007, the Company issued 357,951 restricted shares
      of common stock to five accredited investors for cash totaling $70,000. In
      addition, the Company issued 143,180 warrants to these investors at strike
      prices ranging between $0.42 and $0.65 per share. The warrants will expire
      at
      varying dates from July 2, 2008 through August 18, 2008. The securities were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      April
      30, 2007, the Company issued 17,885 restricted shares to The Ardell Group for
      public relations services worth $4,650 at the time of issuance. The securities
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      May
      11, 2007, the Company issued 50,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $11,500
      at
      the time of issuance.


15


On
      May
      11, 2007, the Company issued 100,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $23,000
      at
      the time of issuance.





On
      May
      11, 2007, the Company issued 20,000 warrants to purchase our common stock
      exercisable at $0.50 to an accredited investor in connection with his $20,000
      loan. The warrants expire November 10, 2008. The securities were issued pursuant
      to the exemption from registration provided by Section 4(2) of the Securities
      Act and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      May
      11, 2007, the Company issued 100,000 warrants to purchase our common stock
      exercisable at $0.50 to two accredited investors in connection with their
      $20,000 loan. The warrants expire November 10, 2008. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      May
      14, 2007, the Company issued 33,334,000 restricted shares to Mercatus &
Partners Limited (“Mercatus”), a United Kingdom private limited company,
      pursuant to a Restricted Equity Purchase Agreement (“REPA”) providing for a
      delayed purchase transaction. The REPA was a Regulation S transaction. The
      amount the Company receives will be determined at closing in accordance with
      the
      formula established in the REPA, less a 45% discount to market price and less
      a
      total of $60,000 in structuring, due diligence and administrative fees. The
      securities were issued pursuant to the exemption from registration provided
      by
      Regulation S of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company. The Company exercised its option to cancel
      the REPA on January 2, 2008 and recalled the stock.





On
      May
      31, 2007, the Company issued 2,087 restricted shares to The Ardell Group for
      public relations services worth $480 at the time of issuance. The securities
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      June
      1, 2007, the Company issued 25,000 warrants to purchase our common stock
      exercisable at $0.50 to two accredited investors in connection with their
      $25,000 loan. The warrants expire May 31, 2008. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      June
      1, 2007, the Company issued 10,000 warrants to purchase our common stock
      exercisable at $0.50 to an accredited investor in connection with his $10,000
      loan. The warrants expire May 31, 2008. The securities were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      June
      1, 2007, the Company issued 25,000 warrants to purchase our common stock
      exercisable at $0.50 to an accredited investor in connection with his $25,000
      loan. The warrants expire May 31, 2008. The securities were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.


16


On
      June
      25, 2007, the Company issued 38,462 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $7,692
      at
      the time of issuance.





On
      June
      25, 2007, the Company issued 20,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $4,000
      at
      the time of issuance.





On
      July
      10, 2007, the Company issued 2,000,000 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $500,000 when incurred. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      July
      17, 2007, the Company issued 495,833 restricted shares to Montgomery Equity
      Partners, Ltd. for the cashless exercise of 500,000 warrants. This transaction
      created 4,167 shares of treasury stock. The securities were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The organization received information
      concerning the Company and had the ability to ask questions about the
      Company.





On
      July
      30, 2007, the Company issued 450,000 restricted shares to City VAC for public
      relations services worth $65,250 at the time of issuance. The securities were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      August
      10, 2007, the Company issued 2,884,615 restricted shares to Montgomery Equity
      Partners, Ltd. for the conversion of $300,000 of the $500,000 secured
      convertible debentures due December 29, 2007. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      August
      29, 2007, the Company issued 800,000 warrants to purchase our common stock
      exercisable at $0.13 to an accredited investor in lieu of interest for his
      $60,000 loan. The warrants expire August 29, 2010. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      September 5, 2007, the Company issued 100,000 warrants to purchase our common
      stock exercisable at $0.12 to two accredited investors in connection with their
      $250,000 loan. The warrants expire September 5, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.


17





On
      September 19, 2007, the Company issued 1,000,000 warrants to purchase our common
      stock exercisable at $0.20 to Pan American Relations in connection with
      shareholder and public relations services. The warrants expire June 19, 2009.
      The securities were issued pursuant to the exemption from registration provided
      by Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company. By action of the board of directors
      on January 17, 2008, the underlying contract and warrants were
      cancelled





On
      September 20, 2007, the Company issued 111,703 restricted shares to a former
      officer in reimbursement for expenses worth $6,702; this included a 50% premium
      for the restricted shares. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The individual received information concerning the Company
      and had the ability to ask questions about the Company.





Throughout
      the quarter ended September 30, 2007, the Company issued 1,068,627 restricted
      shares of common stock to two accredited investors (one of which is an affiliate
      of the Company) for cash totaling $140,000. In addition, the Company issued
      568,627 warrants to these investors at strike prices ranging between $0.37
      and
      $0.42 per share. The warrants will expire at varying dates from January 8,
      2009
      through March 9, 2009. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investors received information concerning
      the Company and had the ability to ask questions about the Company.





On
      October 5, 2007, the Company issued 2,000,000 warrants to purchase our common
      stock exercisable at $0.12 to Golden Gate Investors, Inc. in connection with
      their $350,000 convertible debenture of even date. The warrants expire October
      4, 2010. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The accredited investors received information concerning the Company
      and had the ability to ask questions about the Company.





On
      October 29, 2007, the Company issued 394,464 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $70,000 when incurred. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      October 30, 2007, the Company issued 875,000 restricted shares to Leach Travell
      Britt PC to reward the law firm for its legal work to date and to compensate
      the
      firm for continuing to represent the Company as it worked through its financing
      to pay past due legal fees. The shares were valued at $70,000 when issued.
      The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.





On
      October 31, 2007, the Company issued 4,019,221 restricted shares to an affiliate
      to replace the shares pledged as security to Montgomery Equity Partners Ltd.
      in
      connection with a note payable incurred in May 2005. After the Company’s default
      on the note and subsequent settlement, Montgomery sold the pledged shares and
      applied the net proceeds to reduce the debt. Montgomery completed the settlement
      in September 2007. The securities were issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption.





On
      October 31, 2007, the Company issued 1,250,000 restricted shares to Montgomery
      Equity Partners, Ltd. for the conversion of $80,000 of the $500,000 secured
      convertible debentures due December 29, 2007. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      November 6, 2007, the Company issued 50,000 shares of our common stock to each
      of two accredited investors as an inducement for the renewal of their $287,500
      loan. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The accredited investor received information concerning the Company
      and had the ability to ask questions about the Company.


18





On
      November 6, 2007, the Company issued 50,000 warrants to purchase our common
      stock exercisable at $0.12 to each of two accredited investors as an inducement
      for the renewal of their $287,500 loan. The warrants expire November 5, 2009.
      The securities were issued pursuant to the exemption from registration provided
      by Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company.





On
      November 26, 2007, the Company issued 400,000 shares of our common stock to
      an
      accredited investor as an inducement for his $112,000 loan to the Company.
      The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investor received information concerning the Company and had
      the
      ability to ask questions about the Company.





On
      November 28, 2007, the Company issued 2,832,504 restricted shares of stock
      to an
      accredited investor to settle notes payable totaling $135,564 plus accrued
      interest of $6,061. The securities were issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





On
      November 28, 2007, the Company issued 186,667 restricted shares to an accredited
      investor in return for his assistance in raising capital and obtaining
      short-term loans to the Company. The investor provided the Company with comments
      regarding the financial structure of the Company as such issues related to
      the
      Company’s equity securities and made limited introductions of the Company to
      potential accredited investors. His services were isolated services which were
      not solicited by the Company. The investor did not negotiate for the sale of
      any
      the Company's securities; discuss details of the nature of the securities sold
      or whether recommendations were made concerning the sale of the securities;
      engage in due diligence activities; provide advice relating to the valuation
      of
      or the financial advisability of any investments in the Company; or handle
      any
      funds or securities on behalf of the Company. The value of these services was
      $11,200 at the time of issuance.





On
      November 28, 2007, the Company issued 400,000 shares of our common stock,
      400,000 warrants to purchase our common stock exercisable at $0.05 expiring
      November 28, 2010, and 300,000 warrants to purchase our common stock exercisable
      at $0.12 expiring November 28, 2010 to an accredited investor as an inducement
      for his $44,500 loan to the Company. The securities were issued pursuant to
      the
      exemption from registration provided by Section 4(2) of the Securities Act
      and
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      November 30, 2007, the Company issued 276,534 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $20,000 when incurred. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      December 17, 2007, the Company issued 5,000 restricted shares to an accredited
      investor in return for his assistance in raising capital and obtaining
      short-term loans to the Company. The investor provided the Company with comments
      regarding the financial structure of the Company as such issues related to
      the
      Company’s equity securities and made limited introductions of the Company to
      potential accredited investors. His services were isolated services which were
      not solicited by the Company. The investor did not negotiate for the sale of
      any
      the Company's securities; discuss details of the nature of the securities sold
      or whether recommendations were made concerning the sale of the securities;
      engage in due diligence activities; provide advice relating to the valuation
      of
      or the financial advisability of any investments in the Company; or handle
      any
      funds or securities on behalf of the Company. The value of these services was
      $350 at the time of issuance.





On
      December 17, 2007, the Company issued 50,000 shares of our common stock to
      an
      accredited investor as consideration for his $30,000 loan to the Company. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investor received information concerning the Company and had
      the
      ability to ask questions about the Company.


19





On
      December 31, 2007, the Company issued 174,867 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $10,000 when incurred. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.




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




**Executive
      Summary**





·
            During
                2007, we signed application development agreements with Medtronic
                Minimed
                and Fuel Automation India Pvt Ltd. Our license agreements with foreign
                and
                domestic customers such as Radiocrafts (Norway), Texas Instruments
                (USA)
                and Infineon (Germany) remain in effect. Our ZNS Software stack version
                1.0 was certified ZigBee-compliant through an independent testing
                laboratory during the fourth quarter of 2005 and version 1.1 was
                certified
                in January 2007. In addition, our latest ZNS Software stack compliant
                with
                the ZigBee PRO standard was certified in January 2008. It is designated
                as
                one of ZigBee’s “Golden Units”. This means that the product will be used
                to set the standard by which other vendor’s products will be
                measured.





·
            We
                had a $5,766,516 net loss before provision for income taxes in 2007
                and
                our cumulative loss since August 9, 2002 (Inception) is $17,159,157.
                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 $210,000 in 2007 from the sale of stock
                to
                accredited investors.





·
            Risk
                factors include –


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


o
            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.





**Overview**





The
      Company continued its progress 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. We were one of the first to attain ZigBee product
      certification from an independent testing laboratory for our ZNS Software Stack
      in November 2005. The next standard released by the ZigBee Alliance, known
      as
      ZigBee 2006 or version 1.1, was not backward compatible and much of 2006 was
      spent redesigning the software product to meet the revised standard and be
      recertified, which we received in January 2007. The current standard – ZigBee
      Pro – was released in September of 2007. We submitted our software for
      certification testing in December 2007 and were formally certified in January
      2008. Our software was one of three company’s products to receive “Golden Unit”
status from the ZigBee Alliance; the other two companies are Ember and Texas
      Instruments. Together, these products will be the standard against which all
      other developers’ software will be tested.





We
      continued the buildup of our technical resources in our R&D center and at
      year end we had more than 36 software engineers working on our development
      projects.


20


**Results
      of Operations**





***Year
      Ended December 31, 2007 Compared to the Year Ended December 31, 2006***




During
      2007 we had minimal operating revenues of $123,243, resulting in a net loss
      applicable to common shares of $5,766,516, or $0.06 net loss per share, compared
      to operating revenues of $128,602 resulting in a net loss of $4,796,016 or
      $0.07
      net loss per share for 2006. Cumulative net loss since inception totaled
      $17,159,157.




Our
      net
      revenue for the year ended December 31, 2007 was $123,243 as compared to
      $128,602 for the year ended December 31, 2006. During 2007, all previous license
      agreements were extended or upgraded and remain in effect. These license
      agreements may generate revenue during the second quarter of 2008 but depend
      upon sales of the licensees’ products containing our software. We completed work
      on application development agreements with Medtronic Medimune and Fuel
      Automation and were paid in accordance with each contract. We also began work
      on
      a $200,000 contract with NXP in the fourth quarter. 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, 2007 were $5,277,786 as compared to
      $5,258,718 for the year ended December 31, 2006, an increase of 0.4% or $19,018.
      As further explained below, increases in compensation and professional fees,
      selling, general and administrative expenses, and depreciation and amortization
      were offset by nearly identical decreases in stock option compensation expense
      and research and development.




Our
      overall increase in absolute dollars of compensation and professional expenses
      for the year ended December 31, 2007 compared to the year ended December 31,
      2006 was $1,527,419. The increase was due to increased payroll expense of
      $328,050 related to our increased staff in India, increased professional fees
      of
      $90,224 and an increase of $1,109,145 in professional fees - financing expense.
      We believe that compensation and professional expenses will increase in the
      short-term as the Company seeks additional financing and fills management
      positions. We also anticipate increases 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.




The
      decrease in absolute dollars of research and development expense for the year
      ended December 31, 2007 compared to the year ended December 31, 2006 was
      $183,212. We wrote off $173,294 of previously capitalized R&D expenses in
      December 2006 because the ZigBee 2006 standard caused part of our capitalized
      R&D to become obsolete. This one-time event greatly increased our R&D
      expense in 2006; if this expense is removed from the calculation, R&D
      expense decreases only $9,918 from 2006 to 2007. Our intangible assets
      (primarily capitalized R&D) decreased by $164,983, net of amortization, from
      $433,896 at December 31, 2006 to $268,913 at December 31, 2007. With the
      demonstration of technological feasibility and the certification of our ZNS
      software stack to the ZigBee PRO version standard in January 2008, we will
      resume the capitalization of our research and development costs as we increase
      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, 2007 increased $141,024
        to $234,832 from $93,808 for the year ended December 31, 2006. Depreciation
        accounted for $20,667 of this increase due to the fact we have been acquiring
        capital equipment in India over the past two years to support our development
        efforts there. Amortization costs related to our capitalized R&D rose by
        $101,088 in 2007 from 2006 because we began amortizing in the fourth quarter
        of
        2006. The remaining component of the increase is a $19,269 increase in
        amortization of leasehold improvements in India. Depreciation expense for
        the
        years ended December 31, 2007 and 2006 was $69,848 and $31,419, respectively.
        Amortization expense in 2007 consisted of $30,200 for intellectual property
        and
        another $134,784 for amortization of capitalized R&D. In 2006, amortization
        expense consisted of $30,200 for intellectual property and $33,696 for
        capitalized R&D. Interest expense for the year ended December 31, 2007
        increased $839,167, principally due to bridge loan extensions, interest and
        penalties, increases in the amount of notes payable, amortization of debt
        discount to interest and the assessment of $126,000 in liquidated damages
        arising from our default under the Golden Gate Investors convertible debenture.
        The interest expense attributable to Notes Payable to Related Parties was
        $28,184 in 2007 as compared to $34,021 in 2006.




**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 $5,612,428.
      As of December 31, 2007 and 2006, we have $1,527,795 and $889,074 outstanding
      under related party notes and accrued payroll, including $288,784 and $70,615
      in
      accrued interest. During 2007, we received an aggregate of $210,000 from
      accredited investors in consideration of 1,426,578 shares of our common stock
      and 711,804 common stock purchase warrants. Also during 2007, we received
      $819,720 in loans from shareholders and other lenders and $500,000 from two
      convertible debentures. Proceeds were used to pay down current payables and
      salaries of our development staff in India. 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.


21





We
      have
      incurred an accumulated deficit at December 31, 2007 of $17,159,157 compared
      to
      $11,392,641 at December 31, 2006. We had negative working capital at December
      31, 2007 of $6,698,979 compared to negative working capital of $4,310,812 at
      December 31, 2006. 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”). (We have been advised
      that 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 OTC 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. Montgomery completed the settlement agreement in
      September 2007, selling 4,019,221 of the pledged shares.





On
      December 29, 2005, we entered into a Securities Purchase Agreement with
      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 was not funded until April 9, 2007.
      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 April 9, 2007, 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 February 2007. 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.


22


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 were
      extended. The Company had until September 29, 2006 to file the registration
      statement which had to be declared effective no later than December 29, 2006.
      However, because the second tranche of the convertible debenture has not been
      funded, the convertible debenture was deemed an incomplete offering. As a result
      the Company, with Montgomery’s consent, withdrew the registration statement in
      December 2006, with the intention of re-filing the registration statement once
      the offering was complete. A condition precedent was satisfied on January 30,
      2007, when the Company’s shares were approved for trading quotation on the OTC
      Bulletin Board. On April 5, 2007, the Company and Montgomery executed an Amended
      and Restated Secured Convertible Debenture, which reduced the amount of the
      December 29, 2005 Secured Convertible Debenture to $350,000 from $500,000.
      The
      remaining terms and conditions are unchanged. The Company and Montgomery
      executed a new secured convertible debenture, due December 29, 2007, in the
      amount of $150,000 with interest at the rate of 15% per annum payable monthly
      which funds the balance of the Stock Purchase Agreement dated December 29,
      2005.
      The conversion price provisions are identical to those contained in the December
      29, 2005 Secured Convertible Debenture as are all other material terms and
      conditions. The parties executed Amendment No. 3 to the Investor Registration
      Rights Agreement by which it was agreed the Company would prepare and file
      a
      Form SB-2 covering at a minimum the conversion shares to be issued upon
      conversion and the 2 million warrants issued in connection with the December
      29,
      2005 Secured Convertible Debenture no later than April 30, 2007 and would use
      its best efforts to have said Form SB-2 declared effective by July 30, 2007.
      All
      other terms and conditions of the Investor Registration Rights Agreement, as
      amended, are unchanged and remain in full force and effect. No new or additional
      shares were reserved or escrowed in this transaction. The Company filed the
      registration statement on May 8, 2007 but it was never declared effective and
      was withdrawn with the consent of the debenture holders on February 25, 2008.


23


On
      February 1, 2007, Montgomery exercised 1.5 million warrants of the 2 million
      warrants it obtained pursuant to the Securities Purchase Agreement in a cashless
      exercise and received 841,176 shares of common stock. On July 17, 2007, it
      exercised the remaining 500,000 warrants in a cashless exercise and received
      495,833 shares of common stock. On August 10, 2007, Montgomery converted
      $300,000 of the outstanding debentures at the conversion price of $0.1040 per
      share and received 2,884,615 shares. On October 31, 2007, Montgomery converted
      another $80,000 of the outstanding debentures at $0.0640 per share and received
      1,250,000 shares. These conversions left a balance of $120,000 due on the
      debentures on December 29, 2007 which the Company was unable to
      pay.





On
      October 5, 2007, the Company executed a securities purchase agreement with
      Golden Gate Investors Inc. (“Golden Gate”) by which the Company agreed to
      purchase an 8.75% convertible note due October 4, 2008 in the amount of $350,000
      which was disbursed to the Company on October 9, 2007. Interest was payable
      monthly. The note was convertible at the lesser of $0.25 or 65% of the average
      of the five lowest volume weighted average of the Company’s common stock for the
      twenty trading days prior to the conversion date. Pursuant to the Securities
      Purchase Agreement, an affiliate of the Company executed a stock pledge
      agreement by which he pledged 10 million shares to induce Golden Gate to make
      the loan. The note and securities purchase agreement contained a default clause
      triggered if the Company’s common stock price closed at $0.05 per share or lower
      during the term of the loan. An event of default occurred on November 29, 2007
      when the Company’s share price closed at $0.05. Golden Gate issued a notice of
      default and demanded payment of the note. When the Company was unable to pay
      the
      note within five days of Golden Gate’s demand, the interest rate increased to
      18% per annum and liquidated damages of $126,000 were incurred. Golden Gate
      immediately seized the pledged shares and began selling them, applying the
      proceeds first to the liquidated damages and thereafter to all amounts due
      and
      owing under the note. As of December 31, 2007, Golden Gate had sold 1,725,200
      of
      the pledged shares and received net proceeds of $116,808.





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, 2007 and 2006, respectively, was $1,925 and $59,298. At
      December 31, 2007 and 2006, respectively, we had total stockholders’
deficit of $6,069,352 and $3,623,353.





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 and other competitive factors) and (b) our ability
      to control expenses.





With
      regard to our current liabilities at December 31, 2007, $133,580 is payable
      to related party note holders and employees who have deferred repayment as
      well
      as interest. Trade payables and accrued expenses at December 31, 2007 of
      approximately $1,089,970 are outstanding and will be paid as they come due
      or as
      payment may be extended or the amount compromised by agreement of the parties.
      One vendor, MindTree Consulting Pvt. Ltd. (“MindTree”), accounted for 30% 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 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 software code, with any
      revenue the Company realized from the software code during the co-ownership
      period to be split 50-50 with MindTree. If full payment was made on or before
      April 30, 2006, full ownership of the Intellectual Property reverted to the
      Company.


24


Through
      December 31, 2007, the Company has paid MindTree $275,000 pursuant to this
      agreement. The Company is behind in making the scheduled payments but MindTree
      has not yet issued any notice of default. MindTree recently agreed to extend
      the
      payment deadline to May 31, 2008.




With
      regard to our liabilities at December 31, 2006, $818,459 payable to related
      note holders and employees who deferred repayment as well as interest. At
      December 31, 2006, we had approximately $850,429 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 2008 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 and will increase as we add more staff in India to fulfill the
      licensing and development contracts we anticipate signing. This amount includes
      costs of our SEC reporting obligations, which were approximately $150,000 for
      the year ending December 31, 2007. Cost of SEC reporting obligations includes
      all filing costs and professional fees. We do not consider the expense of SEC
      reporting to be material.





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).




When
      the
      ZigBee Alliance released version 1.0 of its international standard for wireless
      voice and data communications on December 14, 2004, the Company signed a
      one-year (renewable and renewed annually) licensing and teaming agreement with
      Radiocrafts AS in April 2005 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 multi-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 signed a nine month development license with Infineon
      Technologies, a German company, to migrate our ZigBee software to the Infineon
      product. The license was valued at $35,000 payable on completion of validation
      testing. Infineon deferred the effort to a later time period. We also signed
      Software License Agreements with Jennic in November 2005 but it has not
      initiated the effort to forward the hardware platform to us for us to port
      our
      software. We signed agreements with Compel JSC and Wireless People in December
      2005 neither of whom have been aggressive in coming forward with their plans.
      We
      therefore have not expended the effort to port our software to either of these
      platforms. 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 their 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 have completed the technical effort
      to
      incorporate the ZigBee specification level 1.1 (certified in January of 2007)
      into our product(s) and which will allow a broader application customer base
      to
      which our product(s) can be marketed. The ZigBee PRO version of the standard
      has
      now also been released and available for sale with the completion of the
      certification testing and golden unit designation in January of
      2008.


25


Now
      that
      we have been certified on the ZigBee PRO standard and are one of three “golden
      units” against which all other ZigBee software will be tested, we believe that
      in 2008 several of our customers will begin commercializing development products
      containing the Airbee embedded software.




**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.





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.


26


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.





**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;


27


·
            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;




·
            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.




**The
      Company’s excessive liabilities may make it difficult to continue operations if
      it unable to pay its debts as they become due. It may also have a negative
      impact on our ability to raise needed capital since potential investors will
      want new investment reserved for working capital and not applied to pre-existing
      liabilities.**




Of
      primary concern is the impact judgment creditors may have on our operations.
      While all or substantially all of the Company’s assets are pledged as security
      for debts which pre-date any judgment entered against the Company to date,
      the
      ability of any judgment creditor to hinder our operations must be acknowledged.
      Management’s time devoted to vendor lawsuits and judgment enforcement
      proceedings is time not spent growing the Company. These distractions also
      impede our ability to raise additional capital as no new investor providing
      working capital for growth would allow all or substantially all of his
      investment to be used to pay past liabilities.




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.


28


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, 2007, we did not have any off-balance sheet arrangements, as
      defined in Item 303(c)(2) of SEC Regulation S-B.





**Contractual
      Obligations**





The
      table
      below lists our known contractual obligations at December 31, 2007.





We
      have
      no long-term debt obligations as of December 31, 2007. Our current debt
      obligations consist of $78,720 in notes payable to our CEO from our Indian
      subsidiary plus interest at 11.25% and 12.0% per annum (guaranteed by the
      Company), $120,000 remaining from a $500,000 convertible debenture due December
      29, 2007 plus interest payable monthly at 15% per annum, and $369,330 remaining
      from a $350,000 defaulted convertible promissory note.





Our
      purchase obligations are limited to employment contracts with company executives
      and senior staff. These five written contracts are for one to three years in
      duration and expire at various dates between May 4, 2008 and December 31,
      2008.





The
      operating leases reported here are limited to the lease for office space in
      Chennai, India for our India subsidiary. We have signed a three-year lease
      for
      6,000 sq. ft. of office space expiring on June 30, 2009. We are in the second
      year of a three year lease. The current rent is approximately $5,471 per month
      with a 10% increase in the third year of the lease.





Payments
                due by periodContractual
                Obligations
            
            Total
            
            Less
                than 1 year
            
            1
                -
                3 years
            
            3
                -
                5 years
            
            More
                than 5
              yearsPurchase
                Obligations (employment contracts) *
            
            $
            674,167
            
            
            641,667
            
            
            32,500
            
            
            -
            
            
            -Current
                Debt Obligations
            
            $
            568,050
            
            
            568,050
            
            
            -
            
            
            -
            
            
            -Operating
                Lease Obligations **
            
            $
            106,042
            
            
            69,590
            
            
            36,452
            
            
            -
            
            
            -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.


**
            Lease
                of office space in Chennai, India expiring June 30, 2009. The lease
                at our
                Rockville, MD office is month-to-month and therefore not included.
                Our
                Rockville office rent is $1,887 per month




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.


29





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


**Table
      of Contents**





REPORT
                OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
            31CONSOLIDATED
                BALANCE SHEETS
            32CONSOLIDATED
                STATEMENTS OF OPERATIONS
            33CONSOLIDATED
                STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
            34CONSOLIDATED
                STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME
            35CONSOLIDATED
                STATEMENTS OF CASH FLOWS
            36NOTES
                TO CONSOLIDATED FINANCIAL STATEMENTS
            38


30








**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.
      (the “Company”) as of December 31, 2007 and 2006, and the related consolidated
      statements of operations, changes in stockholders’ deficit, accumulated other
      comprehensive income and cash flows for each of the years in the two-year period
      ended December 31, 2007. 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. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. An audit also includes
      examining, on a test basis, evidence supporting the amounts and disclosures
      in
      the financial statements, 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. as
      of
      December 31, 2007 and 2006, and the results of its operations, and cash flows
      for each of the years in the two-year period ended December 31, 2007 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 11 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 11. The consolidated financial
      statements do not include any adjustments that might result from the outcome
      of
      these uncertainties.





*/s/
      BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.*


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


Marlton,
      New Jersey





April
      7,
      2008


31


**AIRBEE
      WIRELESS, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**DECEMBER
      31, 2007 AND 2006**





**2007**
            
            **2006****ASSETS**Current
                Assets:Cash
                and cash equivalents
            
            $
            1,925
            
            $
            59,298Accounts
                receivable, net
            
            
            89,960
            
            
            -Prepaid
                expenses and other current assets
            
            
            4,589
            
            
            24,493Total
                Current Assets
            
            
            96,474
            
            
            83,791Fixed
                assets, net of depreciation
            
            
            212,793
            
            
            183,869Intangible
                assets
            
            
            268,913
            
            
            433,896Deferred
                financing costs
            
            
            79,265
            
            
            15,459Other
                assets
            
            
            68,656
            
            
            54,235416,834
            
            
            503,590**TOTAL
                ASSETS**
            
            $
            726,101
            
            $
            771,250**LIABILITIES
                AND STOCKHOLDERS' DEFICIT****LIABILITIES**Current
                Liabilities:Notes
                payable - related party
            
            $
            133,580
            
            $
            100,130Notes
                payable - other
            
            
            2,024,952
            
            
            849,649Montgomery
                settlement liability
            
            
            -
            
            
            276,298Golden
                Gate debenture liability
            
            
            364,892
            
            
            -Litigation
                settlement liability
            
            
            718,411
            
            
            -Liability
                for stock to be issued
            
            
            10,000
            
            
            -Fair
                value of derivatives
            
            
            458,167
            
            
            639,806Convertible
                debentures, net of discount of $0 and $175,000
            
            
            120,000
            
            
            175,000Warrants
                liability
            
            
            62,229
            
            
            646,183Accounts
                payable and accrued expenses
            
            
            2,903,222
            
            
            1,707,537Total
                Current Liabilities
            
            
            6,795,453
            
            
            4,394,603**Total
                Liabilities**
            
            
            6,795,453
            
            
            4,394,603**COMMITMENTS
                AND CONTINGENCIES**
            
            
            -
            
            
            -**STOCKHOLDERS'
                DEFICIT**Common
                stock, $.00004 Par Value; 200,000,000 shares authorized; 132,055,795
                and
                94,169,418 shares issued; 14,142,511 and 14,142,511 shares held in
                escrow;
                and 116,253,248 and 79,029,862 shares outstanding
            
            
            4,650
            
            
            3,161Additional
                paid-in capital
            
            
            15,625,500
            
            
            7,990,579Unearned
                compensation
            
            
            (6,660
            )
            
            (22,554
            )Accumulated
                other comprehensive income
            
            
            63,938
            
            
            933Prepaid
                consulting
            
            
            (83,333
            )
            
            -Shares
                issued for deferred financing, net of $3,450,069 discount
            
            
            (4,216,751
            )
            
            -Accumulated
                deficit
            
            
            (17,159,157
            )
            
            (11,392,641
            )(5,771,813
            )
            
            (3,420,522
            )Less:
                treasury stock, 1,660,036 and 997,045 shares at cost
            
            
            (297,539
            )
            
            (202,831
            )**Total
                Stockholders' Deficit**
            
            
            (6,069,352
            )
            
            (3,623,353
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' DEFICIT**
            
            $
            726,101
            
            $
            771,250





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


32


**AIRBEE
      WIRELESS, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**





**2007**
            
            **2006****OPERATING
                REVENUES**Sales
            
            $
            123,243
            
            $
            128,602**COST
                OF SALES**
            
            
            -
            
            
            1,092**GROSS
                PROFIT**
            
            
            123,243
            
            
            127,510**OPERATING
                EXPENSES**Compensation
                and professional fees
            
            
            3,711,292
            
            
            2,183,873Stock
                option compensation expense
            
            
            29,431
            
            
            2,184,098Research
                and development
            
            
            66,030
            
            
            249,242Selling,
                general and administrative expenses
            
            
            1,236,201
            
            
            547,697Depreciation
                and amortization
            
            
            234,832
            
            
            93,808**Total
                Operating Expenses**
            
            
            5,277,786
            
            
            5,258,718**LOSS
                BEFORE OTHER INCOME (EXPENSE)**
            
            
            (5,154,543
            )
            
            (5,131,208
            )**OTHER
                INCOME (EXPENSE)**Gain
                on derivatives/warrants
            
            
            799,182
            
            
            927,188Other
                income
            
            
            20,127
            
            
            119Interest
                expense
            
            
            (1,431,282
            )
            
            (592,115
            )**Total
                Other Income (Expense)**
            
            
            (611,973
            )
            
            335,192**LOSS
                BEFORE PROVISION FOR INCOME TAXES**
            
            
            (5,766,516
            )
            
            (4,796,016
            )**Provision
                for Income Taxes**
            
            
            -
            
            
            -**NET
                LOSS APPLICABLE TO COMMON SHARES**
            
            $
            (5,766,516
            )
            $
            (4,796,016
            )**NET
                LOSS PER BASIC AND DILUTED SHARES**
            
            $
            (0.06
            )
            $
            (0.07
            )**WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES OUTSTANDING**
            
            
            97,745,127
            
            
            69,911,684





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


33


**AIRBEE
      WIRELESS, INC.**


**CONSOLIDATED
      STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**





AccumulatedOther
            
            
            
            
            
            
            
            
            
            StockCommon
                Stock
            
            Additional
            
            Comprehensive
            
            Unearned
            
            Accumulated
            
            Deferred
            
            Treasury
            
            Subscription
            
            PrepaidDescription
            
            Shares
            
            Amount
            
            Paid-In
                Capital
            
            Income
            
            Compensation
            
            Deficit
            
            Financing
            
            Stock
            
            Receivable
            
            Consulting
            
            TotalBalance,
                December 31, 2005
            
            
            54,634,754
            
            $
            2,185
            
            $
            2,598,736
            
            $
            734
            
            $
            (38,522
            )
            $
            (6,596,625
            )
            $
            -
            
            $
            (202,831
            )
            $
            (127,500
            )
            
            -
            
            $
            (4,363,823
            )Issuance
                of common stock for cash
            
            
            3,925,902
            
            
            157
            
            
            704,910
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            127,500
            
            
            
            
            
            832,567Shares
                issued for services
            
            
            300,000
            
            
            12
            
            
            58,988
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            59,000Shares
                issued for compensation
            
            
            301,837
            
            
            12
            
            
            73,738
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            73,750Shares
                issued for professional fees - financing
            
            
            2,464,849
            
            
            99
            
            
            450,501
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            450,600Shares
                of common stock issued in exercise of options
            
            
            10,000,000
            
            
            400
            
            
            -
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            400Repayment
                of Montgomery note payable, accrued interest & interest
                expense
            
            
            -
            
            
            -
            
            
            431,413
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            431,413Repayment
                of note payable, accrued interest & interest expense Related
                Parties
            
            
            4,283,090
            
            
            171
            
            
            1,056,645
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,056,816Conversion
                of Silkroute N/P and interest to stock
            
            
            182,714
            
            
            7
            
            
            73,078
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            73,085Conversion
                of Sommerfeld N/P, accrued expense & Reimbursement
                Owed
            
            
            291,706
            
            
            12
            
            
            131,256
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            131,268Conversion
                of Accrued Salaries and Accrued Interest Payable to stock
            
            
            2,472,596
            
            
            99
            
            
            609,993
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            610,092Conversion
                of Shareholder Note Payable to stock
            
            
            172,414
            
            
            7
            
            
            39,993
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            40,000Amortization
                of unearned compensation
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            15,968
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,968Options
                issued under FASB 123R
            
            
            -
            
            
            -
            
            
            2,184,098
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,184,098Reclassification
                of outstanding warrants to liability due to potential shortage of
                authorized shares
            
            
            -
            
            
            -
            
            
            (422,770
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (422,770
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            199
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            199Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,796,016
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,796,016
            )Balance,
                December 31, 2006
            
            
            79,029,862
            
            $
            3,161
            
            $
            7,990,579
            
            $
            933
            
            $
            (22,554
            )
            $
            (11,392,641
            )
            $
            -
            
            $
            (202,831
            )
            $
            -
            
            $
            -
            
            $
            (3,623,353
            )--Issuance
                of common stock for cash
            
            
            1,426,578
            
            
            57
            
            
            209,943
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            210,000Shares
                issued for services
            
            
            4,423,145
            
            
            178
            
            
            808,378
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            808,556Shares
                issued for professional fees - financing
            
            
            3,277,114
            
            
            132
            
            
            678,842
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            678,974Mercatus
                Deferred Financing
            
            
            33,334,000
            
            
            1,333
            
            
            7,665,487
            
            
            
            
            
            
            
            
            
            
            
            (7,666,820
            )
            
            
            
            
            
            
            
            
            
            
            -Debt
                discount on Mercatus Deferred Financing
            
            
            
            
            
            
            
            
            (3,450,069
            )
            
            
            
            
            
            
            
            
            
            
            3,450,069
            
            
            
            
            
            
            
            
            
            
            
            -Initial
                valuation of conversion feature of Montgomery Convert Debent
                #2
            
            
            -
            
            
            -
            
            
            (39,586
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (39,586
            )Repayment
                of Montgomery note payable, accrued interest & interest
                expense
            
            
            -
            
            
            -
            
            
            276,298
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            276,298Repayment
                of Golden Gate Debenture, Liquidated Damages & accrued
                interest
            
            
            -
            
            
            -
            
            
            116,808
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            116,808Conversion
                of Sommerfeld N/P, accrued expense & reimbursement owed overturned by
                court order
            
            
            (291,706
            )
            
            (12
            )
            
            (131,256
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (131,268
            )Shares
                of common stock issued in cashless exercise of Montgomery
                warrants
            
            
            1,337,009
            
            
            53
            
            
            94,655
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (94,708
            )
            
            
            
            
            
            
            
            -Conversion
                of Accrued Salaries, Expenses and Interest Payable to
                stock
            
            
            348,562
            
            
            14
            
            
            50,305
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            50,319Conversion
                of Shareholder Notes Payable to stock
            
            
            3,278,613
            
            
            131
            
            
            201,718
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            201,849Shares
                issued to replace founder's pledged shares sold by
                Montgomery
            
            
            4,019,221
            
            
            161
            
            
            (161
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -Stock
                issued on partial conversion of Montgomery convertible
                debenture
            
            
            4,134,615
            
            
            165
            
            
            1,206,758
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,206,923Stock
                Option Shares returned due to recap by founders
            
            
            (18,063,765
            )
            
            (723
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (723
            )Fair
                value of Notes Payable conversion feature
            
            
            -
            
            
            -
            
            
            (86,996
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (86,996
            )Amortization
                of unearned compensation
            
            
            -
            
            
            -
            
            
            
            
            
            
            
            
            15,894
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            15,894Options
                issued under FASB 123R
            
            
            -
            
            
            -
            
            
            29,431
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,431FASB
                123R options forfeited
            
            
            -
            
            
            -
            
            
            (1,062
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,062
            )Reclassification
                of outstanding warrants to liability due to potential shortage of
                authorized shares
            
            
            -
            
            
            -
            
            
            (243,984
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (243,984
            )Cornell
                warrants expired unexercised
            
            
            -
            
            
            -
            
            
            139,815
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            139,815Debt
                discount on Montgomery third warrant written off upon
                exercise
            
            
            -
            
            
            -
            
            
            109,597
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            109,597Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            63,005
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            63,005Prepaid
                consulting less amortization of financing fees
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (83,333
            )
            
            (83,333
            )Net
                loss for the year
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,766,516
            )
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,766,516
            )Balance,
                December 31, 2007
            
            
            116,253,248
            
            $
            4,650
            
            $
            15,625,500
            
            $
            63,938
            
            $
            (6,660
            )
            $
            (17,159,157
            )
            $
            (4,216,751
            )
            $
            (297,539
            )
            $
            -
            
            $
            (83,333
            )
            $
            (6,069,352
            )





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


34


**AIRBEE
      WIRELESS, INC.**


**CONSOLIDATED
      STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**





Balance,
                December 31, 2005
            
            $
            734Gain
                on foreign currency translations
            
            
            199Balance,
                December 31, 2006
            
            
            933Balance,
                December 31, 2006
            
            
            933Gain
                on foreign currency translations
            
            
            63,005Balance,
                December 31, 2007
            
            $
            63,938





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


35


**AIRBEE
      WIRELESS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**





**2007**
            
            **2006****CASH
                FLOWS FROM OPERATING ACTIVITIES**Net
                loss
            
            $
            (5,766,516
            )
            $
            (4,796,016
            )Adjustments
                to reconcile net loss to net cash used in operating
                activitiesDepreciation
                and amortization
            
            
            234,832
            
            
            95,315Common
                stock issued for services
            
            
            1,487,528
            
            
            509,600Common
                stock issued for compensation
            
            
            -
            
            
            73,750Gain
                on valuation of derivatives
            
            
            (799,182
            )
            
            (927,188
            )Amortization
                of derivative discounts
            
            
            272,487
            
            
            175,000Stock
                option compensation expense 123R
            
            
            29,431
            
            
            2,184,098Exercised
                stock options returned by shareholders
            
            
            (723
            )
            
            -Amortization
                of financing fees
            
            
            22,665
            
            
            15,456Gain
                on foreign currency translations
            
            
            63,005
            
            
            199Amortization
                of unearned compensation
            
            
            15,894
            
            
            15,968Write
                off capitalized research & development
            
            
            -
            
            
            242,351Fees
                incurred due to convertible debenture default
            
            
            131,700
            
            
            -Extension
                and late payment fees on bridge loans
            
            
            594,409
            
            
            81,649Litigation
                settlement
            
            
            356,250
            
            
            -Amortization
                of prepaid consulting
            
            
            416,667
            
            
            -Excess
                tax benefits from share-based payment arrangement
            
            
            (10,301
            )
            
            (764,434
            )**Changes
                in assets and liabilities**Decrease
                (Increase) in accounts receivable
            
            
            (89,960
            )
            
            10,000Decrease
                in prepaid expenses and other current assets
            
            
            19,904
            
            
            21,173(Increase)
                in other assets
            
            
            (14,420
            )
            
            (26,521
            )Increase
                in accounts payable, accrued expenses and other current
                liabilities
            
            
            1,444,417
            
            
            753,399Total
                adjustments
            
            
            4,174,601
            
            
            2,459,815**Net
                cash used in operating activities**
            
            
            (1,591,915
            )
            
            (2,336,201
            )**CASH
                FLOWS FROM INVESTING ACTIVITIES**Acquisition
                of intangible assets
            
            
            -
            
            
            (50,891
            )Acquisitions
                of fixed assets
            
            
            (98,772
            )
            
            (148,761
            )**Net
                cash used in investing activities**
            
            
            (98,772
            )
            
            (199,652
            )





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


36


**AIRBEE
      WIRELESS, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS, CONTINUED**


**FOR
      THE YEARS ENDED DECEMBER 31, 2007 AND 2006**





**2007**
            
            **2006****CASH
                FLOWS FROM FINANCING ACTIVITES**Proceeds
                from common stock issuances
            
            $
            210,000
            
            $
            705,065Proceeds
                from stock subscriptions receivable
            
            
            -
            
            
            127,500Proceeds
                from notes payable - other
            
            
            879,563
            
            
            658,000Proceeds
                from derivative notes payable
            
            
            -
            
            
            211,761Proceeds
                from secured convertible debenture
            
            
            500,000
            
            
            -Proceeds
                from stock option exercise
            
            
            -
            
            
            400Proceeds
                from notes payable - related party, net
            
            
            33,450
            
            
            100,137Excess
                tax benefits from share-based payment arrangement
            
            
            10,301
            
            
            764,434**Net
                cash provided by financing activities**
            
            
            1,633,314
            
            
            2,567,297**NET
                INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
            
            
            (57,373
            )
            
            31,444**CASH
                AND CASH EQUIVALENTS - BEGINNING OF YEAR**
            
            
            59,298
            
            
            27,854**CASH
                AND CASH EQUIVALENTS - END OF YEAR**
            
            $
            1,925
            
            $
            59,298**SUPPLEMENTAL
                DISCLOSURE OF CASH FLOW INFORMATION:****CASH
                PAID DURING THE YEAR FOR:**Interest
                expense
            
            $
            29,964
            
            $
            55,047Income
                taxes
            
            $
            -
            
            $
            -**SUPPLEMENTAL
                DISCLOSURE OF NONCASH ACTIVITIES:**Common
                stock issued for compensation
            
            $
            -
            
            $
            73,750Common
                stock issued for services
            
            $
            1,487,528
            
            $
            509,600Common
                stock issued for deferred financing (Mercatus), net of
                discount
            
            $
            4,216,751
            
            $
            -Stock
                options vested during period
            
            $
            28,369
            
            $
            -Reverse
                issuance of common stock; overruled by court order
            
            $
            131,268
            
            $
            -Conversion
                of Montgomery Debentures
            
            $
            380,000
            
            $
            -Warrants
                removed from liability
            
            $
            249,412
            
            $
            -Warrants
                converted to liability
            
            $
            243,984
            
            $
            422,770Conversion
                of note payable - other and accrued interest to common
                stock
            
            $
            201,850
            
            $
            40,000Use
                of pledged collateral for settlement of note payable and accrued
                interest
            
            $
            393,106
            
            $
            431,413Conversion
                of related party notes payable, accrued salaries payable and accrued
                interest to common stock
            
            $
            50,319
            
            $
            1,890,012Stock
                issued for prepaid consulting fees
            
            $
            500,000
            
            $
            -Liability
                for stock to be issued for services
            
            $
            10,000
            
            $
            -





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


37


**AIRBEE
      WIRELESS, INC.**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**DECEMBER
      31, 2007 AND 2006**





**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 (OEMs) 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 200 international member companies, the ZigBee standard,
      based on IEEE 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.





**NOTE 2 -**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**




**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 $17.16 million and $11.39 million, respectively, for the years
      ended December 31, 2007 and 2006. The Company's operations have been financed
      primarily through a combination of issued equity and debt. For the years ended
      December 31, 2007 and 2006, the Company had net losses of approximately $5.77
      million and, $4.79 million, respectively, and cash used in operations of
      approximately $1.59 million and $2.34 million.


38


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 commenced 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. The settlement agreement was completed in
      September 2007 and the unsold shares returned to the pledgee 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 after the Company’s
      common stock commenced trading on the Over-the-Counter Bulletin Board market
      and
      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. Montgomery disbursed the remaining $150,000
      on
      April 9, 2007 and during 2007 has converted $380,000 of the debentures to stock.
      After the Company was unable to pay the balance of the debentures on December
      29, 2007, the parties arranged the sale of the remaining debenture to BARTFAM
      LLC on January 30, 2008. See Note 12 - Subsequent Events. On October 4, 2007,
      the Company executed a $500,000 convertible debenture with Golden Gate
      Investors, Inc. (“Golden Gate”). Pursuant to its terms, Golden Gate disbursed
      $350,000 to the Company with the remaining $150,000 to be disbursed within
      60
      days provided the Company’s volume weighed average price of the Company’s stock
      exceeded $0.11 for five consecutive trading days. The convertible debenture
      had
      a one-year term extendable by six months at Golden Gate’s option and accrued
      interest monthly at the rate of 8.75% per year. The Company defaulted under
      the
      terms of the convertible debenture when its closing stock price fell to $0.05
      per share and Golden Gate accelerated the promissory note and proceeded to
      liquidate the pledged collateral.




**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, 2007 and 2006 respectively (“ *Airbee* ”
or
      the
“ *Company* ”).
      The
      Singapore subsidiary was closed in 2006 and its net assets transferred to the
      Company’s India subsidiary. 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.


39


**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. Of the $1,925 in cash and cash equivalents on
      December 31, 2007, the India rupee equivalent of $1,921 is
      uninsured.




**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.


40


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.




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 2006 ZigBee Pro 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. With the release of the ZigBee 2006 standard in September 2006, it
      was
      determined that 30% of the previously capitalized research & development
      costs should be written off. The Company believes that at this point in time,
      any further determination of 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 September 23, 2006; 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.


41


**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.




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.


42


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* .”




Revenue
      from products licensed to original equipment manufacturers (OEMs) 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.


43


**Deferred
      Financing Costs**


Deferred
      financing fees were incurred in connection with the convertible debenture to
      Montgomery Equity Partners, Ltd. and the warrants given to Golden Gate
      Investors, Inc. in connection with the convertible debenture (see discussion
      below in Note 5). These will be amortized over the lives of the convertible
      debenture (24 months) and the warrants (36 months). During the years ended
      December 31, 2007, and 2006 the Company recognized $22,665 and $15,456 in
      deferred financing costs, respectively.




**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, 2007 and 2006,
      respectively.




**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
      expensed 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 as incurred. The Company
      had no such cost for the years ended December 31, 2007 and 2006
      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, 2007 and 2006 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:


44




December
                31, 2007
            
            December
                31, 2006Net
                Loss
            
            $
            (5,766,516
            )
            $
            (4,796,016
            )Weighted-average
                common shares outstanding (Basic)
            
            
            97,745,127
            
            
            69,911,684Weighted-average
                common stock Equivalents:Stock
                options
            
            
            -
            
            
            -Warrants
            
            
            -
            
            
            -Weighted-average
                common shares outstanding (Diluted)
            
            
            97,745,127
            
            
            69,911,684





**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.




**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, 2007, the fair value of derivatives was
      $458,167, a decrease of $181,639 from December 31, 2006. The Company had a
      net
      gain on all derivatives of $799,182 for the year ended December 31, 2007,
      additional derivatives recorded during the year with fair values of $285,389,
      and wrote off $438,349 upon the conversion of $380,000 of the Montgomery
      debentures during the year. The Company has included these as a component of
      net
      gain on derivatives in the Other Income (Expense) section of its Consolidated
      Statements of Operations.




45


**Stock-Based
      Compensation**




Employee
      stock awards prior to periods beginning January 1, 2006 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 for periods prior to January 1, 2006. 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, 2007 and 2006
      was
      $15,894, and $15,968, 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.




Effective
      December 31, 2005, the Company adopted the provisions of Financial Accountings
      Standards Board Statement of Financial Accounting Standard (“SFAS”) No. 123(R),
“Share-Based Payments,” which establishes the accounting for employee
      stock-based awards. Under the provisions of SFAS No. 123(R), stock-based
      compensation is measured at the grant date, based on the calculated fair value
      of the award, and is recognized as an expense over the requisite employee
      service period (generally the vesting period of the grant). The Company adopted
      SFAS No. 123(R) using the modified prospective method and, as a result, periods
      prior to December 31, 2005 have not been restated. The Company recognized
      stock-based compensation awards issued under the Company’s stock option plans in
      the stock option compensation expense line item of the Consolidated Statement
      of
      Operations. Additionally, no modifications were made to outstanding stock
      options prior to the adoption of SFAS No. 123(R), and no cumulative adjustments
      were recorded in the Company’s financial statements.


46


SFAS
      No.
      123(R) requires disclosure of pro-forma information for periods prior to the
      adoption. The pro-forma disclosures are based on the fair value of awards at
      the
      grant date, amortized to expense over the service period. The following table
      illustrates the effect on net income and earnings per share as if the Company
      had applied the fair value recognition provisions of SFAS No. 123, “Accounting
      for Stock-Based Compensation” for the period prior to the adoption of SFAS No.
      123(R), and the actual effect on net income and earnings per share for the
      period after the adoption of SFAS No. 123(R).




Year
                Ended12/31/07
            
            12/31/06Net
                loss, as reported
            
            
            5,766,516
            
            
            4,796,016Add:
                    Stock-based employee compensation expense included in reported
                    net income,
                    net of related tax effects
            
            
            29,431
            
            
            2,184,098Deduct:
                  Total stock-based employee compensation expense determined under
                  fair
                  value based method for all awards, net of related tax
                  effects
            
            
            (29,431
            )
            
            (2,184,098
            )Net
                income, pro forma
            
            
            5,766,516
            
            
            4,796,016Earnings
                per share:Basic,
                as reported
            
            $
            0.06
            
            $
            0.07Basic,
                pro forma
            
            $
            0.06
            
            $
            0.07Diluted,
                as reported
            
            $
            0.06
            
            $
            0.07Diluted,
                pro forma
            
            $
            0.06
            
            $
            0.07




For
      the
      purpose of the above table, the fair value of each option granted is estimated
      as of the date of grant using the Black-Scholes option-pricing model with the
      following assumptions:




Year
                Ended12/31/07
            
            12/31/06Dividend
                yield
            
            
            0.00
            %
            
            0.00
            %Expected
                volatility
            
            
            83.59
            %
            
            152.64
            %Risk-free
                interest rate
            
            
            4.00
            %
            
            4.00
            %Expected
                life in years
            
            
            3.50
                - 4.75
            
            
            3.00
                - 4.25


47


The
      following table summarizes the stock option activity for the years ended
      December 31, 2007 and 2006:




Shares
            
            Weighted
              Average
              Exercise Price
            
            Weighted
              Average
              Contractual
              Term (Years)Outstanding,
                December 31, 2005
            
            
            40,340,010
            
            
            0.20500
            
            
            3.32Options
                granted
            
            
            4,138,000
            
            
            0.28680
            
            
            4.20Options
                reinstated
            
            
            -
            
            
            -
            
            
            -Options
                exercised
            
            
            10,000,000
            
            
            0.00004
            
            
            0.62Options
                forfeited or expired
            
            
            41,000
            
            
            0.32000
            
            
            4.01Outstanding,
                December 31, 2006
            
            
            34,437,010
            
            
            0.27420
            
            
            3.04Options
                granted
            
            
            244,000
            
            
            0.21574
            
            
            4.81Options
                reinstated
            
            
            -
            
            
            -
            
            
            -Options
                exercised
            
            
            -
            
            
            -
            
            
            -Options
                forfeited or expired
            
            
            203,000
            
            
            0.21911
            
            
            4.01Options
                returned by optionees
            
            
            32,750,010
            
            
            0.27267
            
            
            1.92Outstanding,
                December 31, 2007
            
            
            1,728,000
            
            
            0.29950
            
            
            4.69Options
                exercisable, December 31, 2007
            
            
            871,000
            
            
            0.34750
            
            
            3.85




**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, 2007
      and
      2006, respectively.


48


**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 years ended
      December 31, 2007 and 2006 was $30,200. In addition, the Company impaired
      $34,986 of intellectual property for the year ended December 31, 2006.
      Amortization expense for the next five years is expected to be $30,200 in 2008,
      $2,840 in 2009, and $0 in 2010 through 2012.




The
      capitalized research and development costs pertain to the development of the
      Company’s software stack to meet the ZigBee 1.0 standard, which was superseded
      by ZigBee standard 2006 in September 2006. The ZigBee 2006 standard was not
      100%
      backwards-compatible with the ZigBee 1.0 standard. The Company determined that
      30% of its ZigBee 1.0 compatible stack was not transferable to the newer
      standard and wrote off $173,294 in the fourth quarter. In addition, the Company
      wrote-off $34,071 of other research and development costs capitalized in the
      fourth quarter. The Company began amortizing its capitalized research and
      development costs in the fourth quarter of 2006 over a three-year period, or
      $33,696 per quarter. The amount amortized for the year ended December 31, 2007
      was $134,784. Amortization expense for the next five years is expected to be
      $134,784 in 2008, $101,089 in 2009, and $0 in 2010 through 2012.




The
      main
      components of intangible assets are as follows:


49





Year
                Ended December 31, 2007Gross
              Amount
            
            Accumulated
              Amortization
            
            Net Carrying
              AmountIntellectual
                Property
            
            $
            116,090
            
            $
            83,050
            
            $
            33,040Capitalized
                Research & Development
            
            
            404,352
            
            
            168,479
            
            
            235,873Total
                Intangible Assets
            
            $
            520,442
            
            $
            251,529
            
            $
            268,913





Year
                Ended December 31, 2006Gross
              Amount
            
            Accumulated
                Amortization
            
            Net
                Carrying
              AmountIntellectual
                Property
            
            $
            116,090
            
            $
            52,850
            
            $
            63,240Capitalized
                Research & Development
            
            
            404,352
            
            
            33,696
            
            
            370,656Total
                Intangible Assets
            
            $
            520,442
            
            $
            86,546
            
            $
            433,896




**Currency
      Risk and Foreign Currency Translation**


The
      Company transacts business in currencies other than the U.S. Dollar, primarily
      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
      Statement of Financial Accounting Standards 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 implemented the revised standard in the first
      quarter of fiscal year 2006. Previously, the Company accounted 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)). FASB 123R had a material impact on its results or
      financial statements.


50


In
      February 2006, the FASB issued SFAS No. 155, “ *Accounting
      for Certain Hybrid*  *Financial
      Instruments, an amendment of FASB Statements No. 133 and 140.* ”
SFAS
      No. 155 resolves issues addressed in SFAS No. 133 Implementation Issue No.
      D1,
“ *Application
      of Statement 133 to Beneficial Interests in Securitized
      Financial*  *Assets* ,”
and
      permits fair value remeasurement for any hybrid financial instrument that
      contains an embedded derivative that otherwise would require bifurcation,
      clarifies which interest-only strips and principal-only strips are not subject
      to the requirements of SFAS No. 133, establishes a requirement to evaluate
      interests in securitized financial assets to identify interests that are
      freestanding derivatives or that are hybrid financial instruments that contain
      an embedded derivative requiring bifurcation, clarifies that concentrations
      of
      credit risk in the form of subordination are not embedded derivatives and amends
      SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity
      from holding a derivative financial instrument that pertains to a beneficial
      interest other than another derivative financial instrument. SFAS No. 155 is
      effective for all financial instruments acquired or issued after the beginning
      of the first fiscal year that begins after September 15, 2006. The adoption
      of
      SFAS No. 155 did not have a material impact on the Company’s financial position
      or results of operations.





In
      March
      2005, the FASB issued Statement of Financial Accounting Standards Interpretation
      Number 47 (“FIN 47”), “ *Accounting
      for*  *Conditional
      Asset Retirement Obligations* .”
FIN
      47
      provides clarification regarding the meaning of the term “conditional asset
      retirement obligation” as used in SFAS 143, “Accounting for Asset Retirement
      Obligations.” FIN 47 is effective for the year ended December 31, 2005. The
      implementation of this standard did not have a material impact on its financial
      position, results of operations or cash flows.





In
      March
      2006, the FASB issued SFAS No. 156, “ *Accounting
      for Servicing of Financial Assets, an amendment of FASB Statement No.
      140* .”
FAS
      No. 156 requires an entity to recognize a servicing asset or liability each
      time
      it undertakes an obligation to service a financial asset by entering into a
      servicing contract under a transfer of the servicer’s financial assets that
      meets the requirements for sale accounting, a transfer of the servicer’s
      financial assets to a qualified special-purpose entity in a guaranteed mortgage
      securitization in which the transferor retains all of the resulting securities
      and classifies them as either available-for-sale or trading securities in
      accordance with FAS No. 115, “Accounting for Certain Investments in Debt and
      Equity Securities” and an acquisition or assumption of an obligation to service
      a financial asset that does not relate to financial assets of the servicer
      or
      its consolidated affiliates. Additionally, FAS No. 156 requires all separately
      recognized servicing assets and servicing liabilities to be initially measured
      at fair value, permits an entity to choose either the use of an amortization
      or
      fair value method for subsequent measurements, permits at initial adoption
      a
      one-time reclassification of available-for-sale securities to trading securities
      by entities with recognized servicing rights and requires separate presentation
      of servicing assets and liabilities subsequently measured at fair value and
      additional disclosures for all separately recognized servicing assets and
      liabilities. FAS No. 156 is effective for transactions entered into after the
      beginning of the first fiscal year that begins after September 15, 2006. The
      adoption of FAS No. 156 did not have a material impact on the Company’s
      financial position or results of operations.


51


In
      July
      2006, the FASB issued FASB Interpretation No. 48, “ *Accounting
      for Uncertainty in Income Taxes, an interpretation of FASB Statement No.
      109* ”
(“FIN
      48”). FIN 48 prescribes a comprehensive model for the financial statement
      recognition, measurement, presentation and disclosure of income tax
      uncertainties with respect to position taken or expected to be taken in income
      tax returns. FIN 48 is effective for fiscal years beginning after December
      15,
      2006. The adoption of FIN 48 did not have a material impact on the Company’s
      financial position or results of operations.





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurements* .”
SFAS
      No. 157 clarifies the principle that fair value should be based on the
      assumption that market participants would use when pricing an asset or
      liability. Additionally, it establishes a fair value hierarchy that prioritizes
      the information used to develop those assumptions. SFAS No. 157 is effective
      for
      financial statements issued for fiscal years beginning after November 15, 2007.
      The Company does not expect the adoption of SFAS No. 157 will have a material
      impact on it financial position or results of operations.





In
      September 2006, the FASB issued SFAS No. 158, “ *Employers’
      Accounting for Defined Benefit Pension and Other Postretirement Plans, an
      amendment of FASB Statements No 87, 88, 106 and 132(R)* .”
This
      Statement improves financial reporting by requiring an employer to recognize
      the
      under funded or over funded status of a defined benefit postretirement plan
      as
      an asset or liability in its statement of financial position and to recognize
      changes in that funded status in the year in which the changes occur through
      accumulated other comprehensive income. Additionally, SFAS No. 158 requires
      employers to measure the funded status of a plan as of the date of its year-end
      statement of financial position. The new reporting requirements and related
      new
      footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending
      after December 15, 2006. The new measurement date requirement applies for fiscal
      years ending after December 15, 2008. The Company does not expect the adoption
      of SFAS No. 158 will have a material impact on its financial position or results
      of operations.





In
      February 2007, the FASB issued SFAS No. 159, *“The
      Fair Value Option for Financial Assets and Liabilities, including an amendment
      of FASB Statement No. 115”.* SFAS No.
      159 permits entities to choose, at specified election dates, to measure many
      financial instruments and certain other items at fair value that are not
      currently required to be measured at fair value. Unrealized gains and losses
      shall be reported on items for which the fair value option has been elected
      in
      earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal
      years beginning after November 15, 2007. Early adoption is permitted as of
      the
      beginning of a fiscal year that begins on or before November 15, 2007, provided
      the entity also elects to apply the provisions of SFAS No. 157 *“Fair
      Value Measurements.”* The
      Company is currently assessing the impact that SFAS 159 will have on its
      financial statements.


52


In
      December 2007, the FASB issued SFAS No. 141R, *“Business
      Combinations”* and SFAS
      No. 160, *“Non
      controlling Interests in Consolidated Financial Statements - an amendment to
      ARB
      No. 51.”* SFAS
      Nos. 141R and 160 require most identifiable assets, liabilities, non controlling
      interests, and goodwill acquired in a business combination to be recorded at
      “full fair value” and require non controlling interests (previously referred to
      as minority interests) to be reported as a component of equity, which changes
      the accounting for transactions with non controlling interest holders. Both
      statements are effective for periods beginning on or after December 15,
      2008, and early adoption is prohibited. Accordingly, SFAS No. 141R will be
      applied by the Company to business combinations occurring on or after
      January 1, 2009. SFAS No. 160 will be applied prospectively to all non
      controlling interests, including any that arose before the effective date.
      The
      adoption of SFAS No. 160 is not expected to have any impact on the
      Company’s consolidated financial position and results of
      operations.


**Reclassifications**
 
 Certain
        amounts for the year ended December 31, 2006 have been reclassified to conform
        to the presentation of the December 31, 2007 amounts. The reclassifications
        have
        no effect on net income for the year ended December 31,
        2006.


**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, 2007 and 2006:




2007
            
            2006Computer
                and office equipment
            
            $
            270,090
            
            $
            174,052Leasehold
                improvements
            
            
            59,634
            
            
            56,900Less:
                accumulated depreciation and amortization
            
            
            (116,931
            )
            
            (47,083
            )Net
                book value
            
            $
            212,793
            
            $
            183,869


53


Depreciation
      expense for the years ended December 31, 2007 and 2006 was $69,848 and $31,419,
      respectively.




**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, was repaid
      by the affiliate’s collateral in September 2007. Over the nearly two year
      period, it sold a total of 4,019,221 of the 9.4 million pledged shares and
      realized net proceeds of $937,500.




In
      September 2005, a former director loaned the Company $100,000 in return for
      an
      unsecured demand promissory note. The terms of the note provided for interest
      at
      6.5% per annum. Payment of the note was guaranteed by an affiliate of the
      Company. On September 19, 2006, the Company issued its promissory note for
      $100,000 due December 31, 2006 to replace the prior note. The terms of the
      note
      provided for interest at 10.0% per annum. The note was secured by 555,555
      pledged shares of stock which are held by an escrow agreement pursuant to a
      written escrow agreement. The parties have engaged in discussions extending
      the
      due date but have not reached agreement as of December 31, 2007 although no
      notice of default has been issued. The negotiations between the parties are
      continuing.


54


On
      July
      28, 2006, the Company executed a promissory note for $58,000 to Sharanpreet
      Singh. The promissory note was due on or before March 31, 2007 and bore interest
      at the rate of 8% per annum. The note had a conversion feature exercisable
      at
      the holder’s option. On December 31, 2006, the note had accrued interest
      totaling $1,983. The holder exercised his option to convert the note in January
      2007 and on January 17, 2007 the Company issued 446,109 shares of common stock
      in full payment of principal and accrued interest.




On
      January 12, 2007 and March 5, 2007, the Company executed promissory notes for
      $3,491 and $56,573, respectively, to Marcus Perez. The notes were due May 31,
      2007 and June 30, 2007, respectively, but have been extended with the consent
      of
      the holder to December 31, 2007. Each note bears interest at the rate of 12%
      per
      annum. On May 11, 2007 the Company executed a promissory note for $15,000 to
      Mr.
      Perez. This note is due within 72 hours of any new significant funding. It
      is
      interest-free for 30 days. If not paid within that time, the note bears interest
      at 12% per annum compounded monthly. On June 6, 2007 the Company executed a
      promissory note for $25,000 to Mr. Perez. The note bears interest at the rate
      of
      10% per annum and was due July 6, 2007. The note was repaid on June 11, 2007.
      On
      August 23, 2007 the Company executed a promissory note for $30,000 to Mr. Perez.
      The note bears no interest; the Company issued 800,000 warrants exercisable
      through August 29, 2010 at an exercise price of $0.13 in lieu of interest.
      The
      note is due within five days after the Company receives a minimum of $1 million
      funding. On September 14, 2007 the Company executed a promissory note for
      $30,000 to Mr. Perez. The note bears no interest; the Company having issued
      the
      aforementioned 800,000 warrants exercisable through August 29, 2010 at an
      exercise price of $0.13 in lieu of interest. The note is due within five days
      after the Company receives a minimum of $1 million funding. On November 28,
      2007, the foregoing notes still outstanding had accrued interest totaling
      $6,061. The holder agreed to convert the notes and on November 28, 2007 the
      Company issued 2,832,504 shares of common stock in full payment of principal
      and
      accrued interest. On December 10, 2007 the Company executed a promissory note
      for $44,500 to Mr. Perez. The note bears no interest, the Company having issued
      400,000 restricted shares of its common stock and issued 400,000 three-year
      warrants with an exercise price of $0.05 per share and 300,000 three-year
      warrants with an exercise price of $0.12 per share. The note is convertible
      at
      holder’s option; the conversion price is the five day weighted average closing
      price of the Company’s stock for the five trading days preceding conversion. The
      note is due within five business days after the Company receives any funding
      from an investment group or from generated revenue, whichever first occurs.
      The
      parties are continuing to negotiate the final settlement of this
      note.




On
      April
      3, 2007 the Company executed a promissory note for $100,000 to Memphis Scale
      Works, Inc. The note bears interest at the rate of 12% per annum. As an
      inducement to make the loan the Company issued 200,000 restricted shares of
      its
      common stock to maker. The note was due May 2, 2007 but is still outstanding.
      The parties have engaged in discussions extending the due date but have not
      reached agreement as of December 31, 2007 although no notice of default has
      been
      issued.


55


On
      May
      11, 2007 the Company executed a promissory note for $20,000 to Larry Watkins.
      The note bore interest at the rate of 10% per annum for the first fifteen days,
      increasing to 15% per annum thereafter. As an inducement to make the loan the
      Company issued 20,000 warrants to purchase restricted shares of its common
      stock
      to maker exercisable over 18 months at an exercise price of $0.50 per share.
      The
      note was due September 30, 2007 but is still outstanding. The parties have
      engaged in discussions extending the due date but have not reached agreement
      as
      of December 31, 2007 although no notice of default has been issued.




On
      May
      11, 2007 the Company executed a promissory note for $20,000 to Robert Noone.
      The
      note bore interest at the rate of 12% per annum. As an inducement to make the
      loan the Company issued 100,000 warrants to purchase restricted shares of its
      common stock to maker exercisable over 18 months at an exercise price of $0.50
      per share. The note was due September 30, 2007 but is still outstanding. The
      parties have engaged in discussions extending the due date but have not reached
      agreement as of December 31, 2007 although no notice of default has been
      issued.




On
      May
      11, 2007 the Company executed a promissory note for $30,000 to Henry Zimmer.
      The
      note was interest-free for the first 30 days of its term and subsequently bore
      interest at the rate of 12% per annum. The note was due with 72 hours of receipt
      of any new significant financing and is still outstanding.




On
      June
      1, 2007 the Company executed a promissory note for $10,000 to Shekar
      Viswanathan. The note bore interest at the rate of 10% per annum. The note
      was
      due July 6, 2007 but is still outstanding. The parties have engaged in
      discussions extending the due date but have not reached agreement as of December
      31, 2007 although no notice of default has been issued.




On
      June
      1, 2007 the Company executed a promissory note for $25,000 to Lakshminarayana
      and Anasaya Peesapati. The note bore interest at the rate of 10% per annum.
      The
      note was due July 6, 2007. It was paid together with accrued interest of $1,240
      on November 28, 2007.




On
      June
      6, 2007 the Company executed a promissory note for $25,000 to Ramamohan Lal
      Tummala. The note bore interest at the rate of 10% per annum. The note was
      due
      July 1, 2007. It was paid together with accrued interest of $1,664 on January
      31, 2008.




On
      June
      8, 2007 the Company executed a promissory note for $275,000 to Eric Roderick
      and
      Steve Barnes and received $250,000. The note was due 60 days from date. On
      August 14, 2007, the note was extended to September 7, 2007 in consideration
      of
      another $12,500 and 50,000 warrants to purchase common stock. On September
      6,
      2007, the forgoing obligations were incorporated into a new promissory note
      for
      $287,500 due by November 5, 2007. This note bore interest at 12% per annum.
      As
      an inducement for making the loan, the Company issued 100,000 warrants to
      purchase restricted common stock exercisable over two years at a $0.12 exercise
      price. On November 6, 2007, the Company executed a promissory note replacing
      the
      September 5 th note.
      This note was for $287,500 with interest at 12% per annum from September 6,
      2007
      and was due February 5, 2008. As an inducement for making this extension, the
      Company issued 100,000 shares of its common stock to the
      lenders.


56


On
      November 26, 2007 the Company executed a promissory note for $112,000 to Jerry
      Michie. The note bears interest at the rate of 12% per annum. As an inducement
      to make the loan the Company issued 400,000 restricted shares of its common
      stock to Mr. Michie. The note is convertible at holder’s option; the conversion
      price is the five day weighted average closing price of the Company’s stock for
      the five trading days preceding conversion. The note is due 90 days after date.
      If the Company fails to repay the note within the time allotted, the Company
      will issue 1 million shares to the holder and the interest rate will increase
      to
      22% per annum from the due date until the note is repaid.




On
      December 17, 2007 the Company executed a promissory note for $30,000 to Brad
      Chisick, Trustee of the Brad Chisick Trust dated 4-26-99. The note was
      non-interest bearing and was due seven business days from date. As an inducement
      for making the loan, the Company issued 50,000 restricted shares of its common
      stock to the maker. The note was repaid on January 4, 2008.




**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.




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 ($7,000) for each thirty (30) day period after the
      scheduled filing or effective date deadline. By agreement, the filing and
      effective date deadlines were extended to April 30, 2007 and July 30, 2007,
      respectively. The Company filed the registration statement on May 8, 2007.
      It
      was never declared effective and was withdrawn with the consent of the debenture
      holders in February 2008.


57


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





On
      April
      5, 2007, the Company and Montgomery Equity Partners, Ltd. (“Montgomery”)
      executed an Amended and Restated Secured Convertible Debenture, which reduced
      the amount of the December 29, 2005 Secured Convertible Debenture to $350,000
      from $500,000. The remaining terms and conditions are unchanged. The Company
      and
      Montgomery executed a new secured convertible debenture, due December 29, 2007,
      in the amount of $150,000 with interest at the rate of 15% per annum payable
      monthly which funds the balance of the Stock Purchase Agreement dated December
      29, 2005. The conversion price provisions are identical to those contained
      in
      the December 29, 2005 Secured Convertible Debenture as are all other material
      terms and conditions. Finally, the parties executed Amendment No. 3 to the
      Investor Registration Rights Agreement by which it was agreed the Company would
      prepare and file a Form SB-2 covering at a minimum the conversion shares to
      be
      issued upon conversion and the 2 million warrants issued in connection with
      the
      December 29, 2005 Secured Convertible Debenture no later than April 30, 2007
      and
      would use its best efforts to have said Form SB-2 declared effective by July
      30,
      2007. All other terms and conditions of the Investor Registration Rights
      Agreement, as amended, are unchanged and remain in full force and effect. No
      new
      or additional shares were reserved or escrowed in this
      transaction.


58


During
      2007, Montgomery converted $380,000 of the debentures and received 4,134,615
      shares, leaving a balance due upon maturity of $120,000. The Company was unable
      to pay the outstanding debentures on December 29, 2007 and was in default under
      the terms of the debentures. After negotiations, Montgomery converted an
      additional $66,700 of the debentures on January 28, 2008, receiving 5,210,938
      shares, sold $13,300 of the debentures to BARTFAM LLC on January 30, 2008,
      retaining $40,000 for its own account. See Note 12- Subsequent Events for
      additional information on the BARTFAM transaction.





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, 2007, the fair value of the embedded derivative had decreased
      to
      $32,499 and the Company recognized a net gain on derivative for the year of
      $268,241.





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, 2007 is $0.





The
      freestanding warrants with a variable exercise price (derivatives) and fixed
      warrants issued in connection with the $500,000 convertible debenture were
      initially 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





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, 2007, the fair value of the freestanding warrants derivative had
      decreased to $0 because Montgomery exercised all the warrants during 2007 and
      the Company recognized a net gain on derivative of $171,821 for the year.


59


On
      October 5, 2007, the Company executed a convertible debenture for $500,000
      to
      Golden Gate Investors, Inc. (“Golden Gate”). Pursuant to the terms of the
      convertible debenture, Golden Gate disbursed $350,000 upon the date the
      debenture was executed with an additional $150,000 to be disbursed if the volume
      weighted average price of the Company’s stock was $0.11 or higher for five
      consecutive trading days within sixty days of the date of the original note.
      The
      debenture was convertible at the option of the holder into common shares of
      the
      Company at a price per share equal to the lesser of $0.25 per share or 65%
      of
      the average of the five lowest volume weighted average price for the twenty
      trading days preceding conversion. In addition, the Company issued 2,000,000
      freestanding warrants exercisable over three years at a fixed strike price
      of
      $0.12 per share. The warrants contained a cashless exercise
      provision.




The
      convertible debenture was secured by ten million pledged shares of stock of
      an
      affiliate of the Company. The pledged shares were held by Golden Gate under
      an
      irrevocable stock power. The convertible debenture had a one-year term
      (extendable at Golden Gate’s option for six months) and accrues interest monthly
      at 8.75% per year. In the event of default under the note, the interest rate
      increased to 18.0% per annum and liquidated damages of $126,000 were applicable
      if the Company failed to pay the accelerated note within three days of the
      notice of default. As a result of the Company’s default in November 2007,
      liquidated damages of $126,000 were assessed and the note accrues interest
      from
      the date of default at 18.0% per annum.





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 $350,000 convertible debenture represents
      an embedded derivative. The Company has recognized the embedded derivative
      in
      the amount of $158,807 as a liability in the accompanying consolidated balance
      sheet and has measured it at its estimated fair value. The Company also
      recognized a like amount as discount on the debt and will amortize it over
      the
      life of the note. 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
            
            $
            0.095Exercise
                price
            
            $
            0.07874Dividend
                yield
            
            
            0.00
            %Risk
                free interest rate
            
            
            4.00
            %Expected
                volatility
            
            
            75.13
            %Expected
                life
            
            
            1
                Year


60


**Bridge
      Loan Derivatives**


Between
      April 16, 2006 and May 5, 2006, five accredited investors accepted the Company’s
      term sheet for convertible senior secured bridge loans by providing a total
      of
      $115,000 cash to the Company. The terms of these bridge loans are: interest
      at
      12% per annum, compounded monthly; repayable in ninety (90) days but the Company
      has the option of extending for another 30 days for a fee of 8% of the amount
      provided the Company; these five accredited investors have the option to convert
      their bridge loans to restricted shares of common stock at an exercise price
      of
      the lower of the average closing bid price of the Company’s stock for the five
      trading days preceding the date of the conversion or the market price of the
      stock on the trading day preceding the conversion. The Company exercised its
      option to extend the term for an additional thirty (30) days for these five
      loans. If the bridge loans are not repaid or converted by the end of their
      terms
      plus the optional extension, the Company will pay a penalty of 10% of the dollar
      value of the amount outstanding; the Company will pay an additional 10% penalty
      for each quarter thereafter that the bridge loans remain unpaid. These five
      accredited investors also received warrants to purchase common stock at the
      ratio of 1 common share for each $2.00 loaned. All warrants have a three year
      term and an exercise price of $0.50 per share. The warrants and any shares
      converted have piggyback registration rights. The Company has not repaid the
      bridge loans and the outstanding balance including accrued interest and
      penalties is $268,546. As a result of the conversion rights associated with
      these bridge loans, the Company recorded these bridge loans as a derivative
      liability valued at $268,532. The loss on this derivative for the year was
      $14.




**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, 2007 and 2006, the Company
      has $133,580 and $100,130, respectively, outstanding under these notes, plus
      $35,604 and $21,779, respectively, in accrued interest. With the exception
      of a
      promissory note due to an officer in the amount of $40,176 that was due March
      31, 2007, the remaining notes are demand notes. 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.




**NOTE
              7-**
            **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, 2007 and 2006, deferred tax assets consist of the
      following:


61





December
                31,2007
            
            2006Deferred
                tax asset
            
            $
            6,006,000
            
            $
            3,978,000Less:
                valuation allowance
            
            
            (6,006,000
            )
            
            (3,978,000
            )Total
            
            $
            -
            
            $
            -





At
      December 31, 2007 and 2006, the Company had accumulated deficits in the
      approximate amount of $17,159,157 and $11,392,641, respectively, available
      to
      offset future taxable income through 2027. 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
              8-**
            **ACCOUNTS
                PAYABLE AND ACCRUED
                EXPENSES**




Accounts
      payable and accrued expenses at December 31, 2007 and 2006 consist of the
      following:




December
                31,2007
            
            2006Accounts
                payable
            
            $
            1,089,970
            
            $
            850,429Accrued
                salaries payable
            
            
            1,394,215
            
            
            718,329Accrued
                interest payable
            
            
            288,784
            
            
            70,615Accrued
                payroll & tax liabilities
            
            
            129,847
            
            
            67,801Deferred
                tax liability (India)
            
            
            406
            
            
            363Total
            
            $
            2,903,222
            
            $
            1,707,537




The
      Company endeavors to pay trade accounts payable as they become due but often
      is
      unable to due to cash constraints. In such cases, the Company attempts to
      negotiate new payment terms with the vendor or extends payment terms
      unilaterally. At December 31, 2007, one vendor, MindTree Consulting Pvt. Ltd.
      (“MindTree”), accounted for 30% of the Company’s accounts payable. The Company
      and MindTree entered into a repayment agreement more fully described in Note
      10.




**NOTE
              9-**
            **STOCKHOLDERS’
                EQUITY**




The
      Company has 200,000,000 shares of common stock, par value $0.00004, authorized
      at December 31, 2007.




At
      December 31, 2007, the Company has 132,055,795 common shares issued, 14,142,511
      shares held in escrow, 1,660,036 shares in treasury, and 116,253,248 shares
      outstanding.




The
      following stock transactions occurred in 2007:


62


On
      January 1, 2007, the Company issued 100,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company. The warrants have
      a
      strike price of $0.40 and expire on January 1, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      January 11, 2007, the Company issued 236,859 restricted shares to an executive
      officer in partial payment of accrued salary valued at $40,266 at the time
      of
      issuance. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The executive officer received information concerning the Company
      and
      had the ability to ask questions about the Company.





On
      January 11, 2007, the Company issued 73,529 restricted shares and 9,310 warrants
      with a strike price of $0.40 to an accredited investor in return for his
      assistance in raising capital and providing short-term loans to the Company.
      The
      warrants expire on January 12, 2009. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $12,500
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





On
      January 19, 2007, the Company issued 446,109 restricted shares of stock to
      an
      accredited investor to settle a note payable totaling $60,225. The securities
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      January 29, 2007, the Company issued 30,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company. The warrants have
      a
      strike price of $0.40 and expire on January 29, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.


63


On
      January 31, 2007, the Company issued 200,000 restricted shares of stock to
      Newbridge Securities, Inc. for services worth $60,000 at the time of issuance.
      The securities were issued pursuant to the exemption from registration provided
      by Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.





On
      February 1, 2007, the Company issued 841,176 restricted shares to Montgomery
      Equity Partners, Ltd for the cashless exercise of 1,500,000 warrants. This
      transaction created 658,824 shares of treasury stock. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      February 5, 2007, the Company issued 36,697 restricted shares to an accredited
      investor in return for his assistance in raising capital and providing
      short-term loans to the Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $7,000
      at
      the time of issuance. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





On
      February 28, 2007 the Company issued 9,808 restricted shares to The Ardell
      Group
      for public relations services worth $2,550 at the time of issuance. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.


64


On
      March
      4, 2007, the Company issued 200,000 warrants to an accredited investor in
      connection with his loan to the Company of $56,573. The warrants had a strike
      price of $0.4753 and expire on March 4, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      March
      22, 2007, the Company issued 199,368 restricted shares to an accredited investor
      in return for his assistance in raising capital and providing short-term loans
      to the Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $58,230
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





Throughout
      the quarter ended March 31, 2007, the Company issued 357,951 restricted shares
      of common stock to 5 accredited investors for cash totaling $70,000. In
      addition, the Company issued 143,180 warrants to these investors at strike
      prices ranging between $0.42 and $0.65 per share. The warrants will expire
      at
      varying dates from July 2, 2008 through August 18, 2008. The securities were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      April
      30, 2007 the Company issued 17,885 restricted shares to The Ardell Group for
      public relations services worth $4,650 at the time of issuance. The securities
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.


65


On
      May
      11, 2007 the Company issued 50,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $11,500
      at
      the time of issuance.





On
      May
      11, 2007 the Company issued 100,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $23,000
      at
      the time of issuance.





On
      May
      11, 2007 the Company issued 20,000 warrants to purchase our common stock
      exercisable at $0.50 to an accredited investor in connection with his $20,000
      loan. The warrants expire November 10, 2008. The securities were issued pursuant
      to the exemption from registration provided by Section 4(2) of the Securities
      Act and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      May
      11, 2007 the Company issued 100,000 warrants to purchase our common stock
      exercisable at $0.50 to two accredited investors in connection with their
      $20,000 loan. The warrants expire November 10, 2008. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.


66


On
      May
      14, 2007, the Company issued 33,334,000 restricted shares to Mercatus &
Partners Limited (“Mercatus”), a United Kingdom private limited company,
      pursuant to a Restricted Equity Purchase Agreement (“REPA”) providing for a
      delayed purchase transaction. The REPA is a Regulation S transaction. The amount
      the Company receives will be determined at closing in accordance with the
      formula established in the REPA, less a 45% discount to market price and less
      a
      total of $60,000 in structuring, due diligence and administrative fees. The
      securities were issued pursuant to the exemption from registration provided
      by
      Regulation S of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.





On
      May
      31, 2007 the Company issued 2,087 restricted shares to The Ardell Group for
      public relations services worth $480 at the time of issuance. The securities
      were issued pursuant to the exemption from registration provided by Section
      4(2)
      of the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      June
      1, 2007 the Company issued 25,000 warrants to purchase our common stock
      exercisable at $0.50 to two accredited investors in connection with their
      $25,000 loan. The warrants expire May 31, 2008. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      June
      1, 2007 the Company issued 10,000 warrants to purchase our common stock
      exercisable at $0.50 to an accredited investor in connection with his $10,000
      loan. The warrants expire May 31, 2008. The securities were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      June
      1, 2007 the Company issued 25,000 warrants to purchase our common stock
      exercisable at $0.50 to an accredited investor in connection with his $25,000
      loan. The warrants expire May 31, 2008. The securities were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.


67


On
      June
      25, 2007 the Company issued 38,462 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $7,692
      at
      the time of issuance.





On
      June
      25, 2007 the Company issued 20,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and obtaining short-term loans
      to the Company. The investor provided the Company with comments regarding the
      financial structure of the Company as such issues related to the Company’s
      equity securities and made limited introductions of the Company to potential
      accredited investors. His services were isolated services which were not
      solicited by the Company. The investor did not negotiate for the sale of any
      the
      Company's securities; discuss details of the nature of the securities sold
      or
      whether recommendations were made concerning the sale of the securities; engage
      in due diligence activities; provide advice relating to the valuation of or
      the
      financial advisability of any investments in the Company; or handle any funds
      or
      securities on behalf of the Company. The value of these services was $4,000
      at
      the time of issuance.





On
      July
      10, 2007 the Company issued 2,000,000 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $500,000 when incurred. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      July
      17, 2007, the Company issued 495,833 restricted shares to Montgomery Equity
      Partners, Ltd. for the cashless exercise of 500,000 warrants. This transaction
      created 4,167 shares of treasury stock. The securities were issued pursuant
      to
      the exemption from registration provided by Section 4(2) of the Securities
      Act
      and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The organization received information
      concerning the Company and had the ability to ask questions about the
      Company.





On
      July
      30, 2007 the Company issued 450,000 restricted shares to City VAC for public
      relations services worth $65,250 at the time of issuance. The securities were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.


68


On
      August
      10, 2007, the Company issued 2,884,615 restricted shares to Montgomery Equity
      Partners, Ltd. for the conversion of $300,000 of the $500,000 secured
      convertible debentures due December 29, 2007. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      August
      29, 2007 the Company issued 800,000 warrants to purchase our common stock
      exercisable at $0.13 to an accredited investor in lieu of interest for his
      $60,000 loan. The warrants expire August 29, 2010. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      September 5, 2007 the Company issued 100,000 warrants to purchase our common
      stock exercisable at $0.12 to two accredited investors in connection with their
      $250,000 loan. The warrants expire September 5, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      September 19, 2007 the Company issued 1,000,000 warrants to purchase our common
      stock exercisable at $0.20 to Pan American Relations in connection with
      shareholder and public relations services. The warrants expire June 19, 2009.
      The securities were issued pursuant to the exemption from registration provided
      by Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company. By action of the board of directors
      on January 17, 2008, the underlying contract and warrants were cancelled *ab*  *initio* .





On
      September 20, 2007 the Company issued 111,703 restricted shares to a former
      officer in reimbursement for expenses worth $6,702; this included a 50% premium
      for the restricted shares. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The individual received information concerning the Company
      and had the ability to ask questions about the Company.


69


Throughout
      the quarter ended September 30, 2007, the Company issued 1,068,627 restricted
      shares of common stock to two accredited investors (one of which is an affiliate
      of the Company) for cash totaling $140,000. In addition, the Company issued
      568,627 warrants to these investors at strike prices ranging between $0.37
      and
      $0.42 per share. The warrants will expire at varying dates from January 8,
      2009
      through March 9, 2009. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investors received information concerning
      the Company and had the ability to ask questions about the Company.





On
      October 5, 2007 the Company issued 2,000,000 warrants to purchase our common
      stock exercisable at $0.12 to Golden Gate Investors, Inc. in connection with
      their $350,000 convertible debenture of even date. The warrants expire October
      4, 2010. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The accredited investors received information concerning the Company
      and had the ability to ask questions about the Company.





On
      October 29, 2007 the Company issued 394,464 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $70,000 when incurred. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      October 30, 2007 the Company issued 875,000 restricted shares to Leach Travell
      Britt PC to reward the law firm for its legal work to date and to compensate
      the
      firm for continuing to represent the Company as it worked through its financing
      to pay past due legal fees. The shares were valued at $70,000 when issued.
      The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The organization received information concerning the Company and had the ability
      to ask questions about the Company.





On
      October 31, 2007, the Company issued 4,019,221 restricted shares to an affiliate
      to replace the shares he pledged as security to Montgomery Equity Partners
      Ltd.
      in connection with a note payable incurred in May 2005. After the Company’s
      default on the note and subsequent settlement, Montgomery sold the pledged
      shares and applied the net proceeds to reduce the debt. Montgomery completed
      the
      settlement in September 2007. The securities were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act
      and
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption.


70


On
      October 31, 2007, the Company issued 1,250,000 restricted shares to Montgomery
      Equity Partners, Ltd. for the conversion of $80,000 of the $500,000 secured
      convertible debentures due December 29, 2007. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The organization
      received information concerning the Company and had the ability to ask questions
      about the Company.





On
      November 6, 2007 the Company issued 50,000 shares of our common stock to each
      of
      two accredited investors as an inducement for the renewal of their $287,500
      loan. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The accredited investor received information concerning the Company
      and had the ability to ask questions about the Company.





On
      November 6, 2007 the Company issued 50,000 warrants to purchase our common
      stock
      exercisable at $0.12 to each of two accredited investors as an inducement for
      the renewal of their $287,500 loan. The warrants expire November 5, 2009. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company.





On
      November 26, 2007 the Company issued 400,000 shares of our common stock to
      an
      accredited investor as an inducement for his $112,000 loan to the Company.
      The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investor received information concerning the Company and had
      the
      ability to ask questions about the Company.





On
      November 28, 2007, the Company issued 2,832,504 restricted shares of stock
      to an
      accredited investor to settle notes payable totaling $135,564 plus accrued
      interest of $6,061. The securities were issued pursuant to the exemption from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the
      Company.


71


On
      November 28, 2007 the Company issued 186,667 restricted shares to an accredited
      investor in return for his assistance in raising capital and obtaining
      short-term loans to the Company. The investor provided the Company with comments
      regarding the financial structure of the Company as such issues related to
      the
      Company’s equity securities and made limited introductions of the Company to
      potential accredited investors. His services were isolated services which were
      not solicited by the Company. The investor did not negotiate for the sale of
      any
      the Company's securities; discuss details of the nature of the securities sold
      or whether recommendations were made concerning the sale of the securities;
      engage in due diligence activities; provide advice relating to the valuation
      of
      or the financial advisability of any investments in the Company; or handle
      any
      funds or securities on behalf of the Company. The value of these services was
      $11,200 at the time of issuance.





On
      November 28, 2007 the Company issued 400,000 shares of our common stock, 400,000
      warrants to purchase our common stock exercisable at $0.05 expiring November
      28,
      2010, and 300,000 warrants to purchase our common stock exercisable at $0.12
      expiring November 28, 2010 to an accredited investor as an inducement for his
      $44,500 loan to the Company. The securities were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act
      and
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The accredited investor received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      November 30, 2007 the Company issued 276,534 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $20,000 when incurred. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      December 17, 2007 the Company issued 5,000 restricted shares to an accredited
      investor in return for his assistance in raising capital and obtaining
      short-term loans to the Company. The investor provided the Company with comments
      regarding the financial structure of the Company as such issues related to
      the
      Company’s equity securities and made limited introductions of the Company to
      potential accredited investors. His services were isolated services which were
      not solicited by the Company. The investor did not negotiate for the sale of
      any
      the Company's securities; discuss details of the nature of the securities sold
      or whether recommendations were made concerning the sale of the securities;
      engage in due diligence activities; provide advice relating to the valuation
      of
      or the financial advisability of any investments in the Company; or handle
      any
      funds or securities on behalf of the Company. The value of these services was
      $350 at the time of issuance.





On
      December 17, 2007 the Company issued 50,000 shares of our common stock to an
      accredited investor as consideration for his $30,000 loan to the Company. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investor received information concerning the Company and had
      the
      ability to ask questions about the Company.


72


On
      December 31, 2007 the Company issued 174,867 restricted shares to Allen &
Associates LLC for corporate finance and strategic counsel services worth
      $10,000 when incurred. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





The
      following stock transactions occurred in 2006:




Effective
      January 1, 2006, the Company issued options to purchase 250,000 shares of common
      stock to an individual in conjunction with his re-appointment to the board
      of
      directors. The options vest over one year in equal quarterly installments.
      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 director received information concerning the Company
      and had the ability to ask questions about the Company.





Effective
      January 1, 2006, the Company issued options to purchase 3,000,000 shares of
      common stock to two executive officers of the Company exercisable at $0.32
      per
      share. The options are exercisable until January 1, 2011. The options vest
      over
      four years in equal installments. 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 executive
      officers received information concerning the Company and had the ability to
      ask
      questions about the Company.





Effective
      January 1, 2006, the Company issued options to purchase 215,000 shares of common
      stock to 28 employees of the Company’s India subsidiary exercisable at $0.32 per
      share. The options are exercisable until January 1, 2011. The options vest
      over
      four years in equal installments on the anniversary date. 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 employees received information concerning the Company
      and had the ability to ask questions about the Company.





On
      January 5, 2006, the Company issued 257,159 restricted shares to an executive
      officer in partial payment of accrued salary valued at $63,452 at the time
      of
      issuance. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The executive officer received information concerning the Company
      and
      had the ability to ask questions about the Company.


73


On
      January 10 and 11, 2006, the Company issued 200,000 restricted shares to two
      organizations for services valued at $79,000 at the time of issuance. The shares
      were issued to the organizations in return for providing investment banking
      services. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The organizations received information concerning the Company and
      had
      the ability to ask questions about the Company.





On
      January 11, 2006, the Company issued 271,939 restricted shares to a former
      employee in payment of promissory notes and accrued interest totaling $122,373
      at the time of issuance. The Company also issued another 19,767 restricted
      shares to the same individual in payment of $8,895 in advances made to the
      Company plus accrued interest. The securities were issued pursuant to the
      exemption from registration provided by Section 4(2) of the Securities Act
      and
      contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The executive officer received information
      concerning the Company and had the ability to ask questions about the
      Company.





On
      January 12, 2006, the Company issued 6,498,527 restricted shares to current
      officers in payment of promissory notes, accrued salaries and accrued interest
      totaling $1,603,456 at the time of issuance. The securities were issued pursuant
      to the exemption from registration provided by Section 4(2) of the Securities
      Act and contain the appropriate legends restricting their transferability absent
      registration or applicable exemption. The executive officers received
      information concerning the Company and had the ability to ask questions about
      the Company.





On
      January 12, 2006, the Company issued 182,714 restricted shares to an
      organization to settle a note payable and accrued interest totaling $73,085
      on
      the date of issuance. The securities were issued pursuant to the exemption
      from
      registration provided by Section 4(2) of the Securities Act and contain the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The organization received information concerning the
      Company and had the ability to ask questions about the Company.





On
      January 31, February 28 and March 31, 2006, the Company issued 20,000, 37,411
      and 47,619 restricted shares, respectively, to an officer for accrued
      compensation of $5,000, $10,000 and $10,000, respectively, on the dates of
      issuance. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The executive officer received information concerning the Company
      and
      had the ability to ask questions about the Company.


74


On
      March
      30, 2006, the Company issued 50,000 restricted shares to an accredited investor
      in return for his assistance in raising capital and providing short-term loans
      to the Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services and consideration for providing the short
      term loans was an aggregate of **** $11,500
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





Throughout
      the quarter ended March 31, 2006, the Company issued 352,065 restricted shares
      of common stock to 10 accredited investors for cash totaling $96,400. In
      addition, the Company issued 147,202 warrants to these investors at strike
      prices ranging between $0.24 and $0.53 per share. The warrants will expire
      at
      varying dates from July 24, 2007 through September 29, 2007. The securities
      were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      April
      30, May 31 and June 30, 2006, the Company issued 40,000, 40,000 and 40,816
      restricted shares, respectively, to an officer for accrued compensation of
      $10,000, $10,000 and $10,000, respectively, on the dates of issuance. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The executive officer received information concerning the Company and had the
      ability to ask questions about the Company.





Between
      April 16, 2006 and May 18, 2006, the Company issued 635,000 warrants with a
      strike price of $0.50 per share to six accredited investors who provided the
      bridge loans more fully described in Note 5. The warrants will expire at varying
      dates from April 16, 2009 through May 18, 2009. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.


75




On
      May
      23, 2006, the Company issued 10,000,000 restricted shares of stock from the
      exercise of stock options from one of its officers. The exercise price was
      $0.00004. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The executive officer received information concerning the Company
      and
      had the ability to ask questions about the Company.





On
      June
      5, 2006, the Company issued 172,414 restricted shares of stock to an accredited
      investor to settle a note payable totaling $40,000. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investor received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      June
      5, 2006, the Company issued 98,182 restricted shares to an accredited investor
      in return for his assistance in providing short-term loans to the Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited investors to
      provide the bridge loans more fully described in Note 5. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services was of **** $21,600
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investor received information concerning
      the Company and had the ability to ask questions about the Company.





On
      June
      22, 2006, the Company issued 250,000 restricted shares of stock to the three
      principals (each of whom is an accredited investor) of an organization for
      services valued at $47,500 at the time of issuance. The shares were issued
      in
      return for providing investment banking services. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.


76


Throughout
      the quarter ended June 30, 2006, the Company issued 301,263 restricted shares
      of
      common stock to 3 accredited investors for cash totaling $60,000. In addition,
      the Company issued 120,504 warrants to these investors at strike prices of
      $0.45
      per share. The warrants will expire at varying dates from December 7, 2007
      through December 22, 2007. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The accredited investors received information concerning
      the Company and had the ability to ask questions about the Company.





On
      September 7, 2006, the Company issued 1,000,000 restricted shares of stock
      to an
      organization for services valued at $170,000 at the time of issuance. The shares
      were issued in return for providing investor relations and public relations
      services. The securities were issued pursuant to the exemption from registration
      provided by Section 4(2) of the Securities Act and contain the appropriate
      legends restricting their transferability absent registration or applicable
      exemption. The organization received information concerning the Company and
      had
      the ability to ask questions about the Company.





Throughout
      the quarter ended September 30, 2006, the Company issued 1,077,722 restricted
      shares of common stock to 10 accredited investors for cash totaling $189,000.
      In
      addition, the Company issued 718,901 warrants to these investors at strike
      prices ranging between $0.40 and $0.49 per share. The warrants will expire
      at
      varying dates from January 7, 2008 through March 27, 2008. The securities were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





On
      October 24, 2006, the Company issued 166,667 restricted shares to an accredited
      investor in return for his assistance in obtaining short-term loans to the
      Company. The
      investor provided the Company with comments regarding the financial structure
      of
      the Company as such issues related to the Company’s equity securities and made
      limited introductions of the Company to potential accredited
      investors. His
      services were isolated services which were not solicited by the Company. The
      investor did not negotiate for the sale of any the Company's securities; discuss
      details of the nature of the securities sold or whether recommendations were
      made concerning the sale of the securities; engage in due diligence activities;
      provide advice relating to the valuation of or the financial advisability of
      any
      investments in the Company; or handle any funds or securities on behalf of
      the
      Company. The value of these services was $30,000 at the time of issuance. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investor received information concerning the Company and had
      the
      ability to ask questions about the Company.


77


On
      November 27, 2006, the Company cancelled the 1,000,000 shares issued to an
      organization on September 7, 2006 for services upon discovering the organization
      failed to disclose material information about its principal. The contract with
      said organization was cancelled *ab
      initio* .





In
      December 2006, the Company retroactively issued 75,991 restricted shares to
      an
      executive officer which should have been included in the January 12, 2006
      issuance. The shares were issued in payment of accrued salary valued at $18,750
      at the time of issuance. The securities were issued pursuant to the exemption
      from registration provided by Section 4(2) of the Securities Act and contain
      the
      appropriate legends restricting their transferability absent registration or
      applicable exemption. The executive officer received information concerning
      the
      Company and had the ability to ask questions about the Company.





On
      December 15, 2006, the Company issued 2,000,000 restricted shares to two
      accredited investors as a result of the Company’s inability to repay the bridge
      loan provided by these accredited investors before December 15, 2006. The value
      of this penalty was $320,000 at the time of issuance. The securities were issued
      pursuant to the exemption from registration provided by Section 4(2) of the
      Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.





Throughout
      the quarter ended December 31, 2006, the Company issued 2,194,852 restricted
      shares of common stock to seven accredited investors for cash totaling $348,000.
      In addition, the Company issued 2,181,155 warrants to these investors at strike
      prices ranging between $0.39 and $0.42 per share. The warrants will expire
      at
      varying dates from April 3, 2008 through December 27, 2008. The securities
      were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.




**Stock
      Option Plan and Warrants**




In
      August
      2002 the Company’s Board of Directors established the *Airbee
      Wireless, Inc. 2002 Stock Option Plan* (the
“2002 Option Plan”). The Board authorized up to 75,000,000 common shares
      (post-split) to be authorized and issued to officers and employees. In 2003
      the
      Company’s Board of Directors established the *Airbee
      Wireless, Inc. 2003 Stock Option Plan* (the
“2003 Option Plan”) authorizing up to 4,000,000 common shares (post-split) to be
      issued to outside directors.


78


Since
      inception, the Company has granted post-split options under the 2002 Option
      Plan
      representing 58,603,000 shares of which 21,874,990 options have been exercised
      (no shares exercised in 2007, 10,000,000 shares exercised in 2006, but the
      shares and underlying options were returned to the Company in 2007 in connection
      with the Mercatus REPA). Of the total shares exercised, 11,874,990 were
      exercised 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 and key employees of the
      Company.




Under
      the
      Black-Scholes option pricing model, the total value of the stock options granted
      in 2005 is reflected for pro forma presentation because the Company followed
      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. The Company implemented SFAS No. 123(R), “Accounting to Stock-Based
      Compensation” for 2006 and accordingly has expensed all subsequent options
      granted to employees using the Black-Scholes option-pricing model.




The
      following tables summarize the Company’s 2002 Option Plan:




Year Ended
              December 31, 2007Number of
              Options
            
            Weighted-
              average exercise
              priceOutstanding -
                beginning of period
            
            
            34,437,010
            
            $
            0.2742Granted
                below fair value
            
            
            -
            
            
            -Granted
                at fair value
            
            
            251,000
            
            
            0.2108Converted
            
            
            -
            
            
            -Options
                voluntarily returned to company
            
            
            32,750,010
            
            
            0.2727Non-vested
                options forfeited
            
            
            210,000
            
            
            0.2191Outstanding
                - end of period
            
            
            1,728,000
            
            $
            0.29950Exercisable
                at end of period
            
            
            871,000
            
            $
            0.34550





Year Ended
              December 31, 2006Number of
              Options
            
            Weighted-
              average exercise
              priceOutstanding - beginning
                of period
            
            
            40,340,010
            
            $
            0.2050Granted
                below fair value
            
            
            -
            
            
            -Granted
                at fair value
            
            
            4,138,000
            
            
            0.2868Converted
            
            
            10,000,000
            
            
            0.00004Non-vested
                options forfeited
            
            
            41,000
            
            
            0.3200Outstanding
                - end of period
            
            
            34,437,010
            
            $
            0.2742Exercisable
                at end of period
            
            
            23,857,510
            
            $
            0.2637


79


The
      following tables summarize the Company’s 2003 Option Plan:




Year
                Ended
              December 31, 2007Number of
              Options
            
            Weighted-
              average exercise
              priceOutstanding -
                beginning of period
            
            
            400,000
            
            $
            0.2825Granted
                below fair value
            
            
            -
            
            
            -Granted
                at fair value
            
            
            -
            
            
            -Converted
            
            
            -
            
            
            -Non-vested
                options forfeited
            
            
            -
            
            
            -Outstanding
                - end of period
            
            
            400,000
            
            $
            0.2825Exercisable
                at end of period
            
            
            400,000
            
            $
            0.2825





Year Ended
              December 31, 2006Number of
              Options
            
            Weighted-
              average exercise
              priceOutstanding
                - beginning of period
            
            
            400,000
            
            $
            0.2825Granted
                below fair value
            
            
            -
            
            
            -Granted
                at fair value
            
            
            -
            
            
            -Converted
            
            
            -
            
            
            -Non-vested
                options forfeited
            
            
            -
            
            
            -Outstanding
                - end of period
            
            
            400,000
            
            $
            0.2825Exercisable
                at end of period
            
            
            400,000
            
            $
            0.2825




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: no annual dividends, volatility of 115.39%, risk-free
      interest rate of 4.00%, and expected life of 5 years.




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 2007, the average years remaining on the options was 2.50. 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:


80




Year Ended December 31,2007
            
            2006Net
                loss:As
                reported
            
            $
            (5,661,823
            )
            $
            (4,796,016
            )Total
                stock-based employee compensation expense determined under fair value
                based method for all awards, net of tax effects
            
            
            -
            
            
            -Pro
                forma
            
            $
            (5,661,823
            )
            $
            (4,796,016
            )Net
                loss per share:As
                reportedBasic
            
            $
            (0.06
            )
            $
            (0.07
            )Diluted
            
            $
            (0.06
            )
            $
            (0.07
            )Pro
                formaBasic
            
            $
            (0.06
            )
            $
            (0.07
            )Diluted
            
            $
            (0.06
            )
            $
            (0.07
            )




The
      Company issued 5,086,117 and
      3,802,763 warrants during the years ended December 31, 2007 and 2006,
      respectively. These warrants were issued in connection with various private
      placements of stock with qualified investors. None of the warrants issued during
      2006 and 2007 have been exercised.




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


81




Year
                Ended
              December
                31,Exercise
              Price
            
            Expiration
                Date
            
            2007
            
            20060.50
            
            July
                24, 2007
            
            -
            
            60,0000.53
            
            August
                22, 2007
            
            -
            
            7,1430.51
            
            August
                21, 2007
            
            -
            
            4,0000.53
            
            August
                22, 2007
            
            -
            
            10,7140.53
            
            August
                22, 2007
            
            -
            
            10,7140.51
            
            August
                21, 2007
            
            -
            
            4,0000.51
            
            September
                28, 2007
            
            -
            
            4,6160.24
            
            September
                16, 2007
            
            -
            
            41,6670.48
            
            September
                30, 2007
            
            -
            
            4,3480.50
            
            April
                16, 2009
            
            -
            
            10,0000.50
            
            April
                18, 2009
            
            -
            
            10,0000.50
            
            April
                18, 2009
            
            -
            
            12,5000.50
            
            April
                18, 2009
            
            -
            
            12,5000.50
            
            April
                27, 2009
            
            -
            
            12,5000.50
            
            May
                18, 2009
            
            -
            
            577,5000.45
            
            December
                8, 2007
            
            -
            
            50,5050.45
            
            December
                19, 2007
            
            -
            
            20,0000.45
            
            December
                22, 2007
            
            -
            
            50,0000.49
            
            January
                7, 2008
            
            -
            
            33,3330.44
            
            February
                6, 2008
            
            -
            
            21,0530.43
            
            February
                16, 2008
            
            -
            
            44,4440.43
            
            February
                15, 2008
            
            -
            
            11,1110.43
            
            February
                16, 2008
            
            -
            
            11,1110.43
            
            February
                15, 2008
            
            -
            
            22,2220.41
            
            August
                22, 2008
            
            -
            
            40,7380.40
            
            August
                28, 2008
            
            -
            
            266,6670.43
            
            March
                20, 2008
            
            -
            
            88,8890.45
            
            September
                24, 2008
            
            -
            
            36,0000.41
            
            March
                25, 2008
            
            -
            
            10,0000.43
            
            September
                27, 2008
            
            -
            
            133,3330.42
            
            April
                3, 2008
            
            -
            
            2,3670.40
            
            April
                11, 2008
            
            -
            
            13,3330.40
            
            October
                9, 2008
            
            -
            
            781,2500.40
            
            October
                9, 2008
            
            -
            
            781,2500.40
            
            November
                20, 2008
            
            -
            
            133,3330.42
            
            May
                26, 2008
            
            -
            
            47,0590.42
            
            June
                3, 2008
            
            -
            
            4,7060.41
            
            June
                17, 2008
            
            -
            
            75,0000.39
            
            December
                20, 2008
            
            -
            
            142,8570.40
            
            December
                27, 2008
            
            -
            
            100,0000.40
            
            December
                27, 2008
            
            -
            
            100,0000.42
            
            July
                2, 2008
            
            11,764
            
            -0.42
            
            July
                16, 2008
            
            11,628
            
            -0.42
            
            July
                29, 2008
            
            11,628
            
            -0.42
            
            July
                16, 2008
            
            11,765
            
            -0.40
            
            January
                12, 2009
            
            9,310
            
            -0.42
            
            July
                29, 2008
            
            81,395
            
            -0.65
            
            August
                18, 2008
            
            15,000
            
            -0.48
            
            March
                4, 2009
            
            200,000
            
            -0.40
            
            January
                1, 2009
            
            100,000
            
            -0.40
            
            January
                1, 2009
            
            100,000
            
            -0.40
            
            January
                29, 2009
            
            30,000
            
            -0.40
            
            January
                29, 2009
            
            30,000
            
            -0.50
            
            November
                10, 2008
            
            20,000
            
            -0.50
            
            November
                10, 2008
            
            100,000
            
            -0.50
            
            May
                31, 2008
            
            25,000
            
            -0.50
            
            May
                31, 2008
            
            25,000
            
            -0.50
            
            May
                31, 2008
            
            10,000
            
            -0.50
            
            May
                31, 2008
            
            25,000
            
            -0.42
            
            January
                8, 2009
            
            235,294
            
            -0.37
            
            March
                9, 2009
            
            333,333
            
            -0.13
            
            August
                29, 2010
            
            800,000
            
            -0.12
            
            September
                5, 2009
            
            100,000
            
            -0.05
            
            November
                28, 2010
            
            400,000
            
            -0.12
            
            December
                9, 2010
            
            300,000
            
            -0.12
            
            October
                4, 2010
            
            2,000,000
            
            -0.12
            
            November
                5, 2009
            
            100,000
            
            -Total
                Warrants Issued
            
            5,086,117
            
            3,802,763Warrants
                Issued Prior to 2006
            
            -
            
            2,074,856Unexercised
                Warrants Expired in 2007
            
            -
            
            1,861,040Total
                Warrants Outstanding
            
            5,086,117
            
            4,016,579


82


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. The table below summarizes the fair
      value of all outstanding warrants as of December 31, 2007 and 2006. The fair
      value of the warrants was determined using the Black-Scholes option pricing
      model.




Year Ended December 31,2007
            
            2006Cornell
                Capital warrants issued April 2005
            
            $
            -
            
            $
            139,815Montgomery
                Equity Partners warrants issued December 2005
            
            
            -
            
            
            109,597All
                other warrants issued
            
            
            62,229
            
            
            396,771Total
                warrants liability
            
            $
            62,229
            
            $
            646,183




**NOTE
              10-**
            **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; renewals of the employment agreements for the CEO and President
      have been for one year terms. 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 $5,523. The lease runs from July 2006 through June 2009.
      The annual lease payments are $69,590 in 2008 and $36,452 in 2009.




**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
      MindTree developed under the T&M Contract for the ZigBee 1.0 standard. 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 software code, with any revenue the Company
      realized from the software code during the co-ownership period to be split
      50-50
      with MindTree. If full payment is made, full ownership of the software code
      reverts to the Company.


83


To
      date,
      the Company has paid MindTree $275,000 pursuant to this agreement. MindTree
      has
      not yet issued any notice of default. By a series of additional agreements,
      the
      payment deadline has been extended to May 31, 2008. The Company expects to
      complete or substantially complete the repayment by the May 31st deadline.
      MindTree has indicated that if repayment of the indebtedness is substantially
      complete it will agree to an additional extension of the agreement




**Guarantees**




As
      mentioned in Note 6, above, on March 12, 2003 and April 30, 2003,
      Sundaresan Raja advanced approximately $25,358 and $19,902, 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 $12,679 to Airbee India, which has issued Mr.
      Raja another demand promissory note. During 2007, Mr. Raja advanced
      approximately $32,205 to Airbee India, which again has issued Mr. Raja demand
      promissory notes. These notes accrue interest at 12.0% per year, which is below
      the local Indian market rates of 14% to 16%. At December 31, 2007, $78,720
      was
      due under the notes, plus accrued interest of $28,184. The Company has
      guaranteed repayment of the advances.





**Litigation**





On
      October 3, 2005, Richard Sommerfeld, Jr., the Company’s former chief financial
      officer (“Sommerfeld”) filed suit against the Company seeking payment of back
      salary and other monies due him plus his attorney’s fees as allowed by statute.
      After discovery proceedings were concluded, plaintiff moved for partial summary
      judgment on his wage claim and for judgment against the Company on its
      counterclaims. Plaintiff’s motion was granted. Prior to trial, the parties
      conducted a mediation mandated under court rules. On July 1, 2007, the parties
      reached a mediated settlement by which the Company agreed to pay him $500,000
      on
      or before August 14, 2007 and consented to the entry of judgment against it
      for
      $700,000 if it failed to make the required payment in time. The Company failed
      to pay by the due date and after several extensions of time to pay Sommerfeld
      entered judgment against the Company on September 26, 2007 for $700,000. He
      has
      commenced post-judgment enforcement proceedings against the Company but as
      noted
      elsewhere in these notes the Company’s assets are subject to prior senior
      security agreements.


84





**NOTE
              11-**
            **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, 2007 and 2006. 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
              12-**
            **SUBSEQUENT
                EVENTS**




**Mercatus
      REPA Terminated**





On
      January 2, 2008 the Company issued a common stock recall notice to Mercatus
      & Partners Limited (“Mercatus”) which recalled 33,334,000 shares of
      restricted stock issued to Mercatus pursuant to Section 5.15 of the Restricted
      Equity Purchase Agreement (“REPA”) executed in May 2007 because Mercatus did not
      tender the purchase price for the common stock. Mercatus was required to fund
      the REPA within 30 days of its execution after which the Company had the option
      to recall the shares. The shares were returned in February 2008.





**Chisick
      Trust Note Payable Paid**





The
      Chisick Trust Note Payable in the amount of $30,000 was paid on January 4,
      2008.


**Barnes
        and Roderick Note Payable Converted**
  The
        Barnes and Roderick Note Payable dated November 5. 2007 was
        converted  pursuant
        to its terms on January 18, 2008. Each holder received 4,747,298
        shares  of
        restricted stock upon the conversion.


**Partial
      Sale of Montgomery Secured Convertible Debenture**





On
      January 30, 2008 the Company entered into an agreement with BARTFAM, a
      California Limited Partnership (“Buyer”) and YA Global Investment, L.P.,
      formerly known as Montgomery Equity Partners, L.P. (“Seller”), wherein the
      Seller agreed to sell a portion of the debenture held by Seller to Buyer for
      a
      purchase price of $98,843 (the “Purchase Price”). Along with the Purchase Price,
      delivery of the debenture being sold, and delivery of the pledged shares held
      by
      Seller, the Seller filed a UCC-3 financing statement assigning the Seller’s
      security interest in the Company’s assets to the Buyer.


85





**BARTFAM
      Debenture and Warrant Purchase Agreement**





On
      February 6, 2008, Airbee Wireless, Inc. (the “Company”) entered into a Debenture
      and Warrant Purchase Agreement (the “Purchase Agreement”), effective as of
      January 30, 2008, with certain investors including BARTFAM, a California limited
      partnership and certain other affiliated persons named therein (the
“Investors”), whereby the Company agreed to sell and issue, and the Investors
      agreed to purchase, certain secured convertible debentures (the “Debentures”)
      and warrants to purchase common stock of the Company (the “Warrants”). The
      Purchase Agreement contemplates the issuance of Debentures and Warrants in
      three
      tranches. The first tranche of the working capital loan pursuant to the Purchase
      Agreement closed on February 6, 2008, at which the Company issued Debentures
      to
      the Investors in the principal amount of $500,000, and Warrants to purchase
      an
      aggregate of 13,333,500 shares of common stock of the Company. The Purchase
      Agreement contemplates a second tranche of working capital loan to the Company
      in the aggregate amount of $500,000, upon the occurrence of certain events
      that
      may be waived by the Investors. The Purchase Agreement also contemplates a
      third
      tranche of working capital loan to the Company in the maximum aggregate amount
      of $401,157 at the Investors’ sole discretion following ten (10) days of the
      closing of the second tranche.





Each
      Debenture bears interest at a rate of 12% per annum. At the option of the holder
      of the Debenture, the outstanding principal and accrued but unpaid interest
      is
      convertible at any time on or prior to the maturity date of the Debenture,
      into
      shares of the Company’s common stock, at a conversion price of $0.02 per share,
      subject to adjustments as set forth in each Debenture. The Debentures issued
      in
      connection with the first tranche have a maturity date of January 30, 2010.
      The
      Debenture may not be prepaid by the Company in whole or in part prior to the
      maturity date of the Debenture, without the prior written consent of the holder
      of the Debenture. The holder of the Debenture has certain registration rights
      with respect to the shares of common stock of the Company issuable upon
      conversion of the Debenture, pursuant to a Registration Rights Agreement dated
      March 18, 2008. The Debenture is secured by a security interest in all of the
      assets of the Company pursuant to the terms of the Security Agreement entered
      into on February 6, 2008, effective as of January 30, 2008, by and among the
      Company and the investors named therein (the “Security Agreement”). Each
      Debenture lists certain “Events of Default”, which include, without limitation,
      any default in the payment of principal of, interest on or other charges in
      respect of the Debenture as and when they become due and payable, and the
      Company’s failure to observe or perform any other covenant, agreement or
      warranty contained in, or otherwise commit any breach or default of any
      provision of Debenture, the Purchase Agreement or the Security Agreement.





Each
      Warrant is exercisable to purchase 26,667 shares of the Company’s stock for each
      dollar of the principal amount of the Debentures. 33.3333% of the shares
      purchasable upon exercise of the Warrants have a purchase price of $0.10 per
      share, 33.3333% of the shares purchasable upon exercise of the Warrants have
      a
      purchase price of $0.20 per share, and 33.3333% of the shares purchasable upon
      exercise of the Warrants have a purchase price of $0.30 per share, subject
      to
      adjustments as set forth in each Warrant.


86





The
      Security Agreement provides for a security interest in all of the Company’s
      property, to secure all of the obligations of the Company to the Investors,
      existing as of January 30, 2008, or thereafter incurred, including the Company’s
      obligations pursuant to the Purchase Agreement, and the Debentures and Warrants
      issued thereunder. An “Event of Default” under the Debentures constitutes an
“Event of Default” under the Security Agreement.


87


**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 previously 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. A further
      disclosure deficiency was presented when a material services agreement with
      the
      Company’s investment and strategic advisor with an effective date of March 5,
      2007 was not provided to the corporate secretary and the controller until the
      start of the third calendar quarter and after the Company’s Form 10-QSB for the
      quarter ended March 31, 2007 had been filed. This agreement required the Company
      to issue 2 million shares of its common stock as compensation upon the signing
      of the agreement. It also provided for monthly charges of $7,500 paid in cash
      or
      $10,000 paid in restricted stock. The Company issued the two million shares
      of
      common stock on July 10, 2007. However, because the signature date of the
      agreement was deemed to be March 5, 2007 pursuant to its terms, the Company
      has
      restated its Form 10-QSB for the quarter ended March 31, 2007, recognizing
      a
      liability for stock to be issued in the amount of $510,000 on its balance sheet
      offset by a prepaid consulting account in the equity section of its balance
      sheet in the amount of $458,333 and a professional fees - financing expense
      of
      $51,667. The Company has also restated its Form 10-QSB for the quarter ended
      June 30, 2007 to amortize prepaid consulting fees of $125,000 to professional
      fees in the quarter reducing the balance in the prepaid consulting account
      to
      $333,333 and increase the liability for stock to be issued by $30,000 to record
      the professional fees - financing expense for the quarter arising from this
      service agreement. The Company has also restated its Form 10-QSB for the quarter
      ended September 30, 2007 to amortize prepaid consulting fees of $125,000 to
      professional fees in the quarter reducing the balance in the prepaid consulting
      account to $208,333.


88




The
      Company attempted to remediate and eliminate previous internal control and
      disclosure deficiencies by hiring a controller in May 2005. 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
      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
      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. The controller and interim chief financial
      officer have also reminded all executives with authority to bind the Company
      to
      agreements made in the ordinary course of business of the necessity to share
      such agreements as early as practicable so that an appropriate judgment can
      be
      made regarding a given agreement’s impact on the Company’s financial reporting
      requirements.




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 this
      fiscal year ending December 31, 2008. Costs of the controller and finance
      manager and the practices implemented thus far are approximately $170,000 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 fourth quarter of 2006 and have materially affected, or are reasonably
      likely to materially affect, the Company’s internal controls over financial
      reporting. The new policy and practices arising from the material weakness
      giving rise to the restatements of the Company’s quarterly reports during 2007
      were implemented during the third quarter of 2007 and have materially affected,
      or are reasonably likely to materially affect, the Company’s internal controls
      over financial reporting.




**Management’s
      Report on Internal Control over Financial Reporting**




Management
      of the Company is responsible for establishing and maintaining adequate internal
      control of over financial reporting as defined in Rule 13a-15(f) under the
      Securities Exchange Act of 1934. We have assessed the effectiveness of those
      internal controls as of December 31, 2007, using the Committee of Sponsoring
      Organizations of the Treadway Commission (“COSO”) *Internal
      Control - Integrated Framework* as a
      basis for our assessment.




Because
      of inherent limitations, internal control over financial reporting may not
      prevent or detect misstatements. Projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies and procedures may deteriorate. All internal control systems, no matter
      how well designed, have inherent limitations Therefore, even those systems
      determined to be effective can provide only reasonable assurance with respect
      to
      financial statement preparation and presentation. Further, the design of a
      control system must reflect the fact that there are resource constraints, and
      the benefits of controls must be considered relative to their
      costs.




A
      material weakness in internal controls is a deficiency in internal control,
      or
      combination of control deficiencies, that adversely affects the Company’s
      ability to initiate, authorize, record, process or report external financial
      data reliably in accordance with accounting principles generally accepted in
      the
      United States of America such that there is more than a remote likelihood that
      a
      material misstatement of the Company’s annual or interim financial statements
      that is more than inconsequential will not be prevented or detected. In the
      course of making our assessment of the effectiveness of internal controls over
      financial reporting, we identified a material weakness in our internal control
      over financial reporting. This material weakness consisted of inadequate
      staffing and supervision within the accounting operations of our company. The
      relatively small number of employees who have bookkeeping and accounting
      functions prevents us from segregating duties within our internal control
      system. The inadequate separation of duties is a weakness because it could
      lead
      to the untimely identification and resolution of accounting and disclosure
      matters or could lead to a failure to perform timely and effective reviews.
      Inadequate staffing did not play a role causing the restatements of the
      Company’s interim reports during 2007. The root cause of the restatements was an
      officer’s failure to turn over an executed contract in a timely manner which
      prevented the Company from recognizing and recording the transaction in the
      proper period and delayed its discovery until after the close of the second
      calendar quarter. As we are not aware of any other instance in which the Company
      failed to identify or resolve a disclosure matter or failed to perform a timely
      and effective review, we determined that the addition of personnel to our
      bookkeeping and accounting operations is not an efficient use of our resources
      at this time.


89


Because
      of the above condition, the Company’s internal controls over financial reporting
      were not effective as of December 31, 2007.




This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.




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




None.




**PART
      III**




**ITEM
              9.**
            **DIRECTORS,
                EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
                ACT**




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
            Director
                SinceSundaresan
                Raja
            45
            Chief
                Executive Officer, Director
            2002E.
                Eugene Sharer
            74
            President,
                Chief Operating Officer, Secretary, Director
            2002Ramanujam
                Satagopan
            43
            Vice
                President & Chief Technology OfficerJames
                H. Dentzer
            54
            Vice
                President & Chief Accounting OfficerV.V.
                Sundaram
            68
            CEO,
                Airbee Wireless (India) Pte Ltd.Mal
                Gurian
            81
            Director
            2005




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.


90


***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. From 1999 to 2004 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.




***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. He 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.




***James
      H. Dentzer.*** Mr.
      Dentzer joined us in May 2005 as our Controller and was promoted to Vice
      President and Chief Accounting Officer in July 2007.  He
      comes
      to us from Intellibridge Corporation where he served as Chief Financial Officer.
      Intellibridge specialized in collection and analysis of open source
      geo-political and economic information for organizations within the US
      intelligence community, military commands, foreign sovereigns, and Fortune
      500
      companies. Prior to Intellibridge, Mr. Dentzer served as Director of Finance
      and
      Administration for Adler Media, Inc., a worldwide distributor of television
      documentaries. Earlier, Mr. Dentzer, who is a licensed attorney as well as
      a
      CPA, practiced law in New York and the District of Columbia. He holds a JD
      from
      Pace University School of Law and a BA from Oberlin College.





***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. While President
      and a Director of OKI Telecom’s Cellular Telephone Division, the world’s first
      manufacturer of a cellular telephone, Mr. Gurian was responsible for OKI
      receiving the first FCC type certification for a cellular telephone. 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 *.*


91


**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
      sufficient revenue from its operations nor had the financial ability to attract
      the requisite Board expertise. We intend to establish an Audit Committee in
      2008.




**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, respectively, the options vest over 12 months
      in
      four equal installments.




**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.





The
      Code
      of Ethics may also be viewed at the Company’s website ( www.airbeewireless.com )
      and is
      available at no cost by contacting the Company’s executive offices.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Securities Exchange Act of 1934 requires officers and directors,
      and persons who own more than ten percent of a registered class of our equity
      securities to file reports of ownership and changes in ownership with the U.S.
      Securities and Exchange Commission (“SEC”). Officers, directors, and greater
      than ten percent beneficial owners are required by SEC regulation to furnish
      us
      with copies of all forms they file pursuant to Section 16(a). Based solely
      on
      our review of the copies of such forms received and written representations
      from
      reporting persons required to file reports under Section 16(a), all of the
      Section 16(a) filing requirements applicable to such persons with respect to
      fiscal 2007 appear to have been complied with to the best of our knowledge,
      except that V.V. Sundaram filed a late Form 4 report on April 3,
      2008.


92





**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
      named executive officers who were executive officers of the Company during
      the
      years ended December 31, 2007 and 2006 (all of the individuals named in the
      following table are collectively defined as “Named Executive Officers”).




**Summary
      Compensation Table**





Name & Principle Position
            
            Year
            
            Salary
              ($)
            
            Bonus
              ($)
            
            Stock Awards
              ($)
            
            Option Awards
              ($)
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            Nonqualified
              Deferred
              Compensation
              ($)
            
            All Other
              Compensation
              ($)
            
            Total
              ($)Sundaresan Raja
              Principal
                Executive Officer
            
            
            2007
            
            
            175,000
            
            
            50,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            225,0002006
            
            
            175,000
            
            
            50,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            225,000E.
                Eugene Sharer
              President
                & COO
            
            
            2007
            
            
            150,000
            
            
            50,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            200,0002006
            
            
            150,000
            
            
            50,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            200,000James
                H. Dentzer
              VP
                & Chief Accounting Officer
            
            
            2007
            
            
            110,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            110,0002006
            
            
            95,000
            
            
            -
            
            
            -
            
            
            60,479
            
            
            -
            
            
            -
            
            
            -
            
            
            155,479Srinivasan
                Krishnamurthy
              VP,
                Business Development
            
            
            2007
            
            
            81,027
            
            
            20,205
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            101,2322006
            
            
            100,000
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            125,000V.V.
                Sundaram
              CEO,
                Airbee India
            
            
            2007
            
            
            100,000
            
            
            30,000
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            130,0002006
            
            
            100,000
            
            
            30,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            130,000




93




**Outstanding
      Equity Awards at Fiscal Year End Table**




The
      table
      below sets forth information concerning the outstanding equity awards granted
      to
      the named executive officers at December 31, 2007.




Option
                Awards
            
            Stock
                AwardsName
            
            Number of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Exercisable
            
            Number of
              Securities
              Underlying
              Unexercised
              Options
              (#)
              Unexercisable
            
            Equity Incentive
              Plan Awards:
              Number of
              Securities
              Underlying
              Unexercised
              Unearned Options
              (#)
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date
            
            Number of
              Shares or
              Units of
              Stock That
              Have Not
              Vested
              (#)
            
            Market
              Value of
              Shares or
              Units of
              Stock That
              Have Not
              Vested
              ($)
            
            Equity Incentive
              Plan Awards:
              Number of
              Unearned Shares,
              Units or Other
              Rights That Have
              Not Vested
              (#)
            
            Equity Incentive
              Plan Awards:
              Market or Payout
              Value of Unearned
              Shares, Units or
              Other Rights That
              Have Not Vested
              ($)Sundaresan Raja
            
            
            -
            
            
            -
            
            
            -
            
            $
            -
            
            
            
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -E.
                Eugene Sharer
            
            
            -
            
            
            -
            
            
            -
            
            $
            -
            
            
            
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -James
                H. Dentzer
            
            
            187,500
            
            
            62,500
            
            
            -
            
            $
            0.39
            
            
            11/01/10
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -350,000
            
            
            350,000
            
            
            -
            
            $
            0.17
            
            
            11/14/11
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -Srinivasan
                Krishnamurthy
            
            
            -
            
            
            -
            
            
            -
            
            $
            -
            
            
            
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -V.V.
                Sundaram
            
            
            -
            
            
            -
            
            
            -
            
            $
            -
            
            
            
            
            
            -
            
            $
            -
            
            
            -
            
            $
            -





**Employment
      Agreements**




Each
      executive officer serves at the discretion of our board of directors. At the
      inception of their employment we entered into employment agreements with each
      of
      our executive officers. Each agreement usually has an initial term of three
      years. Under the employment agreements, the executive officers receive a base
      salary and guaranteed annual bonus and are entitled to participate in an
      additional bonus in accordance with a formula based on operating results. In
      addition to salary, each executive 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, and medical service
      or other employee benefit plan available to the executive officers of our
      company. Each executive 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. The executive officers are also eligible to participate in the
      Company’s stock option plan.




On
      January 1, 2007, we renewed the employment agreements for Sundaresan Raja,
      our
      CEO, and E. Eugene Sharer, our President, COO, Secretary and Interim CFO for
      one
      year with no changes in the terms. On January 1, 2008, these two employment
      agreements were renewed for another one year term without any changes to base
      salaries or other compensation.




Each
      executive officer may terminate his employment agreement without cause by
      agreement with the Company; the Company remains responsible for all compensation
      due up to the date of such termination. We may terminate each agreement at
      any
      time for “cause” or in the event of the executive officer’s death or disability.
      If we terminate for “cause,” our obligations to such executive officer cease
      after the termination process is complete. During the period of the executive’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 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 Airbee is engaged as
      of
      termination, (1) in all locations in which Airbee is doing business, and (2)
      in
      all locations in respect of which 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 Airbee for the
      purpose of soliciting, diverting or taking away any customer from Airbee (1)
      in
      all locations in which Airbee is doing business, and (2) in all locations in
      respect of which 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 Airbee, to terminate his or her relationship with Airbee. Nothing
      contained in the agreements shall be deemed to prohibit the executive 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
      Airbee.


94





**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 (30%): Targeted eight per year as set by the Board of
      Directors.




If
      an
      employee 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.




**Director
      Compensation**




Our
      inside directors are currently not compensated for their service on our board
      of
      directors. Our outside director’s compensation is listed in the table
      below.




**Director
      Compensation Table**




Name
            
            Fees
              Earned or
              Paid in
              Cash ($)
            
            Stock
              Awards ($)
            
            Option
              Awards ($)
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
            
            Nonqualified
              Deferred
              Compensation
              ($)
            
            All Other
              Compensation
              ($)
            
            Total
              ($)Mal Gurian
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -





Mr.
      Gurian was granted options to purchase 150,000 shares of common stock at $0.22
      per share on January 1, 2005 and 250,000 shares of common stock at $0.32 per
      share on January 1, 2006. The options vested over 12 months in four equal
      installments. The options expire five years after the date of
      issue.




**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.




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.


95


The
      percentage of beneficial ownership for the following table is based on
      116,253,248 shares of common stock outstanding (net of 14,142,411 non-voting
      shares held in escrow), 9,102,696 warrants and 1,728,000 exercisable stock
      options. The total is 127,083,944 shares.




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.




Name
                and Address of Beneficial Owner
            
            Number of
              Shares
              Beneficially
              Owned
            
            Percent of
              ClassSundaresan
                Raja(1)
            
            
            12,989,022
            
            
            10.22
            %E.
                Eugene Sharer(2)
            
            
            2,773,820
            
            
            2.18
            %Ramanujam
                Satagopan(3)
            
            
            3,620,071
            
            
            2.85
            %Srinivasan
                Krishnamurthy
            
            
            890,308
            
            
            0.70
            %James
                H. Dentzer(4)
            
            
            558,604
            
            
            0.44
            %V.V.
                Sundaram(5)
            
            
            1,404,668
            
            
            1.11
            %Mal
                Gurian(6)
            
            
            400,000
            
            
            0.31
            %All
                Directors & Officers as a Group (7 Persons)
            
            
            22,636,493
            
            
            17.81
            %Marcus
                Perez(7)
              8520
                Reche Canyon Road
              Colton,
                CA 92324
            
            
            8,608,658
            
            
            6.77
            %Henry
                & Catherine Zimmer(8)
              1255
                Victoria Avenue
              Victoria,
                British Columbia V85 4P3
              Canada
            
            
            8,062,500
            
            
            6.34
            %


______________________


(1)
            Includes
                1,200,000 shares pledged as security for the December 29, 2005 secured
                convertible debenture with Montgomery Equity
                Partners.


(2)
            Includes
                126,472 shares pledged as security for the December 29, 2005 secured
                convertible debenture with Montgomery Equity Partners.


(3)
            Includes
                405,405 shares pledged as security for the December 29, 2005 secured
                convertible debenture with Montgomery Equity Partners.


(4)
            Includes
                187,500 shares of common stock underlying options exercisable at
                $0.39 per
                share and 350,000 shares underlying options exercisable at $0.17
                per
                share.


(5)
            Includes
                333,333 warrants to purchase shares of common stock exercisable at
                $0.37
                per share expiring on March 9, 2009


(6)
            Includes
                150,000 shares underlying options exercisable at $0.22 per share
                and
                250,000 shares underlying options exercisable at $0.32 per
                share.


(7)
            Includes
                6,045,230 shares owned plus 2,563,428 warrants to purchase shares
                of
                common stock with exercise prices ranging between $0.05 and $0.50
                expiring
                at various dates from May 31, 2008 through December 9,
                2010.


(8)
            Includes
                5,195,833 shares owned plus 2,866,667 warrants to purchase shares
                of
                common stock with exercise prices ranging between $0.40 and $0.50
                expiring
                at various dates from February 28, 2008 through May 18,
                2009.




96





**ITEM
      12.**  **CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**




The
      Company has received loans from several of its officers. The Company has entered
      into promissory notes with some of its officers as described below. These
      amounts accrue interest at 11.25% and 12.0% annually. As of December 31, 2007,
      the Company has outstanding under these notes, including accrued interest as
      described in the table below. The Company has guaranteed payment of the
      promissory notes due Sundaresan Raja.




Principal
            
            Accrued
              Interest
            
            TotalSundaresan
                Raja
            
            $
            78,721
            
            $
            28,184
            
            $
            106,905Ramanujam
                Satagopan
            
            
            60,565
            
            
            1,360
            
            
            61,925$
            139,286
            
            $
            29,544
            
            $
            168,830




**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.
              
              (8)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.
              
              (8)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.
              
              (8)




97


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.
              
              (8)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.
              
              (8)4.11
              
              Amended
                  and Restated Secured Convertible Debenture between Montgomery Equity
                  Partners, Ltd. and Airbee Wireless, Inc., dated April 5, 2007,
                  amending
                  the Secured Convertible Debenture dated December 29, 2005.
              
              (9)4.12
              
              Amendment
                  No. 3 to Investor Registration Rights Agreement between Montgomery
                  Equity
                  Partners, Ltd. and Airbee Wireless, Inc., dated April 5, 2007 amending
                  the
                  Investor Registration Rights Agreement dated December 29,
                  2005.
              
              (9)4.13
              
              Secured
                  Convertible Debenture between Montgomery Equity Partners, Ltd.
                  and Airbee
                  Wireless, Inc., dated April 5, 2007 for $150,000.
              
              (9)4.14
              
              8.75%
                  Convertible Note and related financing documents and pledge agreement
                  dated October 5, 2007 between Golden Gate Investors, Inc. and Airbee
                  Wireless, Inc.
              
              (10)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
              
              (8)10.9
              
              Software
                  License Agreement with Compel JSC, dated December 20, 2005
              
              (8)10.10
              
              Software
                  License Agreement Extension with Radiocrafts AS, dated April 25,
                  2006
              
              (8)10.11
              
              Software
                  License Agreement with SoftBaugh, Inc., dated August 19,
                  2005
              
              (8)10.12
              
              Software
                  License Agreement with Texas Instruments Incorporated, dated July
                  13,
                  2005
              
              (8)10.13
              
              Software
                  License Agreement with Zentrum Mikroeletronik Dresden AG, dated
                  January
                  14, 2006
              
              (8)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
                  Officer
              
              (4)31.2
              
              Rule
                  13a-14(a)/15d-4(a) Certification of Principal Financial
                  Officer
              
              (4)





98


32.1
              
              Section
                  1350 Certification of Principal Executive Officer
              
              (4)32.2
              
              Section
                  1350 Certification of Principal Financial Officer
              
              (4)(1)
              
              Previously
                  filed on Form 10SB Registration Statement.(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(8)
              
              Filed
                  with Form 10-KSB/A for December 31, 2005 filed with the SEC on
                  October 4,
                  2006(9)
              
              Filed
                  on Form 8-K Current Report filed with the SEC on April 11,
                  2007(10)
              
              Filed
                  on Form 8-K Current Report filed with the SEC on October 12,
                  2007


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




For
      the
      fiscal years ended December 31, 2007 and 2006, the aggregate fees billed by
      Bagell, Josephs, Levine & Company, LLC were as follows:




**2007**
            
            **2006**Audit
                Fees
            
            $
            64,320
            
            $
            58,348Audit
                Related Fees
            
            $
            —
            
            $
            —Tax
                Fees
            
            $
            —
            
            $
            5,000All
                Other Fees
            
            $
            13,100
            
            $
            17,250




*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.


99





**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:
            April
                7, 2008




In
      accordance with the requirements of the Exchange Act this report has been signed
      below by the following persons on behalf of the Registrant and in the capacities
      and dates indicated.




**SIGNATURE**
            
            **TITLE**
            
            **DATE***/s/
                Sundaresan Raja*
            
            Chief
                Executive Officer, Principal
              Executive
                Officer and Director
            
            April
                7, 2008Sundaresan
                Raja*/s/
                E. Eugene Sharer*
            
            President,
                Chief Operating Officer,
              Interim
                Chief Financial Officer and
              Director
            
            April
                7, 2008E.
                Eugene Sharer*/s/
                V. V. Sundaram*
            
            Chief
                Executive Officer, Airbee India
            
            April
                7, 2008V.
                V. Sundaram*/s/Mal
                Gurian*
            
            Director
            
            April
                7, 2008Mal
                Gurian*/s/
                James H. Dentzer*
            
            Chief
                Accounting Officer
            
            April
                7, 2008James
                H. Dentzer


100