UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   Form 10-KSB

(Mark One)

[X]  ANNUAL REPORT  PURSUANT TO SECTION 13 OR 15(d) OF THE  SECURITIES  EXCHANGE
     ACT OF 1934

For the fiscal year ended   December 31, 2006

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934


Commission file no.: 000-32567

                             PEGASUS WIRELESS CORP.
                  --------------------------------------------
                 (Name of small business issuer in its charter)

           Nevada                                                  52-2273215
---------------------------------------                -------------------------
(State or other jurisdiction of                           (I.R.S. Employer
   incorporation or organization)                            Identification No.)

277 Royal Poinciana Way, Suite 153
Palm Beach, Florida                                                   33480
---------------------------------------                -------------------------
(Address of principal executive offices)                     (Zip Code)

Registrant's telephone number: (510) 490-8288


                  --------------------------------------------
                   (Former name or former address, if
                                    changes since last report)


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

                                                    Name of each exchange on
  Title of each class                                     which registered
      None
-----------------------------                      --------------------------

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

                         Common Stock, $0.0001 par value
                            ------------------------
                                (Title of class)




<PAGE>



Check  whether  the  registrant  (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 [_]



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



The  Registrant's   revenue  for  the  fiscal  year  ended  December  31,  2005:
$103,973,890.



The aggregate  market value of the voting and  non-voting  common equity held by
non-affiliates  (computed by  reference to the price at which the common  equity
was sold, or the average bid and asked price of such common  equity) as of March
15, 2007 was $6,386,417.



There were 21,608,848 shares of the registrant's  common stock outstanding as of
January 1, 2007.



DOCUMENTS INCORPORATED BY REFERENCE: None



Transitional Small Business Disclosure Format: Yes [_] No [X]






<PAGE>



                            SUMMARY TABLE OF CONTENTS

                                     PART I

Item 1. Description of Business................................................4

Item 2. Description of Property................................................9

Item 3. Legal Proceedings......................................................9

Item 4. Submission of Matters to a Vote of Security Holders...................10

                                     PART II

Item 5. Market for Common Equity and Related Shareholder Matters..............10

Item 6. Management's Discussion and Analysis or Plan of Operation.............11

Item 7. Financial Statements.................................................F-1

Item 8. Changes in and Disagreements with Accountants on Accounting
        and Financial Disclosure..............................................27

Item 8A. Controls and Procedures .............................................27

Item 8B. Other Information ...................................................27

                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
        Compliance With Section 16(a) of the Exchange Act.....................27

Item 10. Executive Compensation...............................................29

Item 11. Security Ownership of Certain Beneficial Owners and Management
         and Related Stockholder Matters......................................30

Item 12. Certain Relationships and Related Transactions.......................31

Item 13. Exhibits.............................................................31

Item 14. Principal Accountant Fees and Services ..............................31

SIGNATURES....................................................................33





<PAGE>



                                     PART I

Forward Looking Statements

Certain   statements   contained  in  this  annual  filing  including,   without
limitation, statements containing the words "believes", "anticipates", "expects"
and  words  of  similar  import,  constitute  forward-looking  statements.  Such
forward-looking  statements  involve known and unknown risks,  uncertainties and
other factors that may cause the actual results,  performance or achievements of
the Company,  or industry  results,  to be materially  different from any future
results,   performance   or   achievements   expressed   or   implied   by  such
forward-looking statements.

Such factors include, among others, the following:  international,  national and
local general economic and market conditions:  demographic  changes; the ability
of the Company to sustain,  manage or  forecast  its growth;  the ability of the
Company to successfully make and integrate acquisitions;  raw material costs and
availability;  new product  development and  introduction;  existing  government
regulations  and  changes  in,  or  the  failure  to  comply  with,   government
regulations;  adverse publicity;  competition; the loss of significant customers
or suppliers;  fluctuations  and  difficulty in forecasting  operating  results;
changes in business strategy or development  plans;  business  disruptions;  the
ability  to attract  and  retain  qualified  personnel;  the  ability to protect
technology;  and other factors  referenced in this and previous  filings.  Given
these uncertainties, readers of this Form 10-KSB and investors are cautioned not
to  place  undue  reliance  on  such  forward-looking  statements.  The  Company
disclaims any obligation to update any such factors or to publicly  announce the
result of any  revisions to any of the  forward-  looking  statements  contained
herein to reflect future events or developments.


Item 1. Description of Business

(a)      Development

In June 2005,  Pegasus  Wireless  Corp.,  (a Nevada  corporation,  listed on the
OTCBB),  acquired OTC Wireless, Inc. by acquiring all the issued and outstanding
shares of Pegasus Wireless Corp. (A Colorado  corporation).  At the time of this
acquisition the Company changed its fiscal year end to June 30, to match that of
OTC  Wireless.  On  December  22, the  Company  changed  its fiscal  year end to
December 31, effective immediately.

On August 31,  2005,  the Company  completed a two for one forward  split of its
common stock, which included the forward split of the authorized common stock to
100,000,000  and the preferred  stock to 20,000,000,  without  affecting the par
value of either class of stock.

On April 21, 2006, the Company began trading on NASDAQ NMS. On October 28, 2006,
the Company  voluntarily  exited the NASDAQ NMS and  returned to the OTCBB.  The
Company's  letter to NADAQ  request  delisting  stated "Over the  preceding  two
months,  the common stock of PGWC has experienced  significant volume increases,
price reductions and volatility.  PGWC believes that it is in its  shareholders'
best interest" to take this action."

On December 8, 2006,  the Company  completed a one for five reverse split of its
common stock,  which did not affect the authorized  number of shares nor the par
value.

In August 2006, the Company  announced the issuance of purchase  warrants to our
stockholders of record as of close of business August 11, 2006. The warrants are
issued as 1 warrant for each 10 shares  held,  with a strike  price of $8.00 per
share,  exercisable  beginning one year after issuance and expiring worthless on
the second  anniversary of issuance.  As of March , 2007, the Company has issued
warrants to these holders of record.



                                       4
<PAGE>



The Company has authorized  100,000,000 shares of $0.0001 par value common stock
and  20,000,000  shares  of  $0.0001  par  value  preferred  stock.  Rights  and
privileges of the preferred stock are to be determined by the Board of Directors
prior to  issuance.  The Company  had  21,608,848  (at  December  31,  2006) and
14,313,808  (at  December  31,  2005)  shares of  common  stock and no shares of
preferred stock issued and outstanding.

(b) Business of Issuer.

General

The first acquisition of the Company was OTC Wireless, Inc., (the Company or OTC
Wireless  or  OTC),  It was  incorporated  in  September  1993  as a  California
corporation.  The Company  began its  operations  in November 1993 in Sunnyvale,
California.  OTC Wireless was founded by a group of technologists from microwave
communication and computer networking  backgrounds.  The OTC's core business was
to  provide  wireless  communication  technologies  and  products  to serve  the
business, education and industrial application markets.

OTC Wireless  introduced  the first 900MHz  spread  spectrum  wireless  Ethernet
bridge in 1995,  among  the  industry's  earliest  true  plug-and-play  wireless
network  solution.  The Company also  submitted its first patent  application in
October 1995,  based on the spread spectrum  receiver  technology  developed for
this product.

In 1996,  OTC  Wireless  then  introduced  one of the  industry's  first 2.4 Ghz
plug-and-play  wireless  Ethernet bridge,  AirEZY and the 2.4GHz wireless serial
radio modem,  ADAM, both based on the Company's  direct sequence spread spectrum
technology.

In 1999,  OTC  introduced  the  enhanced  AiEZY  series  of  wireless  radios by
combining the plug- and-play  feature with the WIPP (wireless  internet  polling
protocol)  multiple access scheme  developed by the Company and Jasper Knabb, to
provide  a  collision-free,   adjustable   bandwidth  wireless  access  solution
platform.  In the same year, OTC and Jasper Knabb also introduced the industry's
earliest 2.4GHz IEEE 802.11b wireless bridges.

In 2002,  OTC and Jasper Knabb  introduced the first true plug and play wireless
serial communication solution,  WiSER, for connecting the interactive whiteboard
and the computer in classrooms as well as meeting  rooms.  In the same year, OTC
and Mr Knabb  developed and  introduced its 802.11b  wireless  projector/display
solution, WiJET.

In  2003,  OTC  introduced   the   industry's   earliest   54Mbps  IEEE  802.11g
plug-and-play  indoor and outdoor wireless  Ethernet bridge  solutions,  VCW and
ASR/ACR.

In 2004,  Pegasus Wireless,  as parent company of OTC Wireless  introduced a new
generation of plug-and-play WiSER, the WiSER.ip,  that converts the conventional
serial  (RS-232)  communication  based  "dumb"  industrial  devices into TCP/IP-
capable,  intelligent  network nodes.  OTC and Mr. Knabb also introduced two new
wireless display  solutions based on the 54Mbps IEEE 802.11g  technology and the
WiJet  technology  developed in 2002 (WiJET.G,  and  WiJET.Video)  that supports
streaming MPEG1 and MPEG2 video files from a computer to a projector,  LCD TV or
plasma flat panel display, wirelessly.

In early 2005, Pegasus Wireless Corp.  introduced the industry's earliest 54Mbps
IEEE  802.11a/b/g  plug-and-play  indoor and outdoor  wireless  Ethernet  bridge
solutions, AVCW and ASR/ACR, TriMar.

In January 2006 Pegasus  introduced its latest version of WiJet Video,  with the
tradename of CynaLynx,  with  modifications to allow full video  streaming,  5.1
surround  sound as a full feature rich stand alone  internet  appliance.  To the
Company's  knowledge to date, no other company has offered a comparable  product
with the same range of features.



                                       5
<PAGE>


The Company has applied and been awarded patents,  based on the Company's spread
spectrum   receiver   signal   processing   technology  as  well  as  its  WIPP,
plug-and-play and wireless display technology:

     "Non-coherent  direct  sequence  spread  spectrum  receiver  for  detecting
bit/symbol  chip  sequences   using  threshold   comparisons  of  chip  sequence
correlation," U.S. Patent No. 5,687,190, awarded 11/11/1997.

     "A robust system for wireless  projection of computer display and rendering
of motion video  contents," U.S. Patent  Application  No.  60/542,247,  filed on
2/4/2004, pending.

     "Multiple  access  scheme  for  wireless  internet  connection,"  US patent
application no.  09/660,285,  filed 9/16/1999.  Japanese Patent  Application No.
2000-281792, filed 9/18/2000.

     "Wired protocol to wireless  protocol  converter," U.S. Patent  Application
No. 10/209,118, filed 7/30/2002.

     "USB-interface  radio,"  U.S.  Patent  Application  No.  60/388,553,  filed
6/12/2002.

Pegasus has applied for a patent,  which is pending,  for its new CynaLynx video
streaming internet appliance.

Today,  the Company  offers the  following  products in three major  application
areas:

     For indoor and outdoor wireless networking:


 Pegasus Model #                  Application
---------------------      ----------------------------------------------
TRIMAR                     54/108 Mbps outdoor wireless access point
AVCW*-AP:                  11Mbps outdoor wireless access point
AVCW*-BRG:                 11Mbps outdoor wireless bridge station
AVCW*-AP-G:                54 Mbps outdoor wireless access point
AVCW*-BRG-G:               54 Mbps outdoor wireless bridge station
ASR:                       11 Mbps indoor wireless access point
ACR:                       11Mbps indoor wireless bridge station
ASR-G:                     54 Mbps indoor wireless access point
ACR-G:                     54 Mbps indoor wireless bridge station

*    All AVCW models offer two integrated  antenna options 9dBi and 15 dBi and a
     third option of a Type-N connector for external antenna connection.

For industrial wireless networking solutions:

 Pegasus Model #                  Application
---------------------      ----------------------------------------------
WiSER:                     11 Mbps wireless serial modem
WiSER.ip:                  11 Mbps wireless serial TCP/IP modem

For wireless multimedia/video networking solutions:

 Pegasus Model #                  Application
---------------------      ----------------------------------------------
CynaLynx                   54/108 Mbps wireless display solution with video
                           streaming and full feature stand alone internet
                           appliance
WiJET:                     11 Mbps wireless display solution
WiJET.G:                   54 Mbps wireless display solution
WiJET.Video:               54 Mbps wireless display solution with video
                           streaming




                                       6
<PAGE>


The  Company  has  been  delivering  products  to  customers  since  1995,  both
domestically  and  overseas.  In  addition  to system  integrators,  value-added
resellers  and end users  worldwide,  the Company also offers  products to major
account  customers who either bundle  Pegasus  Wireless's  solution to their own
products,  or carry Pegasus Wireless's products under their own names by private
labeling or OEM custom-designed  products from the Company.  Over the years, the
Company's major account customers include our largest Japanese customer,  CallUS
Computers,  which private  labels our wireless  technology  products to Wireless
Internet,  (WI) and Nippon  Telephone  and  Telegraph-ME  Group,  (NTT-ME).  The
Company also is a direct  supplier to Showa  Electric Cable Company  (SWCC).  In
addition  the Company is also the direct  supplier  of its  products  to,  among
others, Smart Technologies of Canada,  Lexmark and Dell in the U.S., and D-Link,
a major  worldwide  network  equipment  provider based in Taiwan,  each of which
private label our technology products through their distribution networks.

The TRIMAR and AVCW series of outdoor wireless Ethernet bridge products are used
by Internet  Service  Providers  (ISPs) to offer high speed  Internet  access to
their customers wirelessly. They are also used by business customers and schools
to interconnect  computer networks in different buildings.  When used in a point
to point  configuration,  a pair of AVCW  radios can reach a  distance  up to 20
miles.  In a point to  multiple-point  configuration,  the radius of a "coverage
cell" typically ranges between 3 to 5 miles. Working with its service providers,
the  Company  has  deployed  numerous  wireless   broadband   Internet  networks
domestically as well as overseas (including Japan, China and South America).

The  Company's  ASR and ACR indoor  wireless  products  are used in the Wireless
Local Area Networks  (WLAN) by office and home users to  interconnect  computers
without having to deploy cables. Being designed as a true plug-and-play wireless
solution,  Pegasus Wireless' radios require no installation of software drivers,
and can be used to  wirelessly  interlink  any devices  equipped  with the RJ-45
Ethernet  port,  not only  computers.  For  example,  they can be used to enable
wireless printing,  connecting computers and network printers.  They can also be
used to connect to game consoles  such as X-Box,  Play Station or Game Cube with
the wireless home gateways.

The WiSER  wireless  serial  radios are used by both  industrial  and  education
users.  Teachers  in the  schools  use  WiSER  to  wirelessly  interconnect  the
interactive whiteboards to the computers in the classrooms. Industrial users use
the WiSER to connect the central control  computer to the remote data collecting
and sensing devices.

The WiJET products are used by both business and education customers. Presenters
in a business  meeting or teachers in the classroom can deliver their PowerPoint
slide shows to the audience in the most convenient location with their computers
wirelessly connected to the projector without the restriction of a tethering VGA
cable.  Home users can use WiJET to deliver movie files stored on their computer
hard drives to an LCD or plasma flat panel TV wirelessly.

The CynaLynx  will play DVD movies  wirelessly  and is also a feature rich media
gateway,  wireless  access  point  as well  as an  internet  appliance  offering
simultaneous  wireless  and  wired  connections  . The  CynaLynx  can be  easily
assimilated  into almost any network as a fully  integrated  and secure  network
node  offering   powerful  new  functions  to  mobile  work,   entertainment  or
educational environments.

Pegasus  has a number of new  products  in the  pipeline  which  its  management
believe to be  innovative  and  responsive  to customer  needs and desires.  The
Company is  planning to  introduce a new  generation  of wireless  access  point
products  that operate in multiple  frequency  bands and  supports  backbone and
last- mile functions from a simple, easy to install package. The Company also is
developing  its next  generation  wireless  multi-media  solution  that delivers
enhanced  video  streaming  and  audio  performance  and  computer  presentation
capability  over the wireless  connectivity  between the computer and the remote
display/sound devices supporting HDMI and component video.



                                       7
<PAGE>


In December 2005, Pegasus completed the acquisition of AMAX Engineering and AMAX
Information Technologies (AIT), both based in Fremont,  California.  The company
owns 51% controlling interest in both subsidiaries.

AMAX  Engineering is a computer  system and peripheral  solution  providers.  It
manufactures,  markets and  distributes PC systems and  subsystems,  components,
networking  devices and  storage  solutions  for both  consumer  and  enterprise
markets.  It has 2 branch offices  covering  North America.  AMAX has benefitted
greatly from Pegasus' extensive technology capacity and manufacturing expertise.

AMAX Information Technologies provides computing solutions to the enterprise and
government  customers.   It  manufactures  and  markets  cluster  servers,  grid
computing  systems,  network  storage  solutions and  interconnect  solutions to
business, technology and education users.

Both AMAX and AIT's capability in computer system solutions have benefitted from
Pegasus' extensive technology capacity and manufacturing expertise.

In December 2005, Pegasus completed the acquisition of 51% controlling  interest
of CNet  Technology,  Inc.  (CNet) which operates an  electronics  manufacturing
plant in Wu-Jiang,  a city 90 miles west of Shanghai,  China.  CNet owns SMT and
DIP manufacturing  lines and produces both wired and wireless networking devices
for consumer  and business  users.  CNet's  manufacturing  capacity is expect to
benefit the company in providing a stable production resource.

In January 2006,  Pegasus completed the acquisition of 51% controlling  interest
of SKI  Technologies,  Inc.., an electronics  manufacturing  facility in Taiwan.
This second  acquisition has further  strengthened  the company's  capability in
keeping on-schedule products  delivering,  as SKI sources many of the components
utilized in the Company's current products.

Pegasus  introduced the innovative  CynaLynx product in the 3rd quarter of 2006,
and began  shipments  under the product  name  WiJet.e in Asia,  also in the 3rd
quarter.  The Company changed the name of the WiJet.e to CynaLynx during the 4th
quarter.

During the 4th quarter the Company  decided to relocate the final  manufacturing
operation for the CynaLynx and other products from California to Freeport, Grand
Bahama, The Bahamas.  The Company spent several months getting all the necessary
permits and approvals  from the  government of The Bahamas to put this move into
place. The Company took possession of a building in Freeport on February 2, 2007
and began its transformation  into this facility.  The Company received its last
necessary  permit from the  government on February 21, 2007,  and held its grand
opening on February 22, 2007. The first CynaLynx  assembled in this plant rolled
off the production line on February 22, 2007.

COMPETITIVE BUSINESS CONDITIONS

The field of wireless  connectivity  devices is highly  competitive.  We compete
with a number of businesses that provide the same or similar  products.  Many of
these competitors have a longer operating history,  greater financial resources,
and provide other products that we do not provide.  Pegasus' competitors include
companies such as Linksys, D-Link and Netgear in the consumer networking devices
market. In the  multimedia/video  wireless market, its major competitors include
companies such as Komatsu and Infocus. In the enterprise infrastructure wireless
market,  its major  competitors  include  companies  such as Cisco,  Nortel  and
Motorola.  We believe  that  quality of  product,  innovative  products,  proper
pricing and range of product  uses offered are the  principal  factors that will
enable us to compete effectively.

Government Regulation

The  Company's  operations  are  subject  to  various  federal,  state and local
requirements  which  affect  businesses   generally,   such  as  taxes,   postal
regulations, labor laws, and environment and zoning regulations and ordinances.




                                       8
<PAGE>


Operation of current Pegasus Wireless products are subject to the FCC regulation
under FCC Part 15 rules, specifically,  FCC Part 15 subpart C and subpart E. The
company needs to submit its products for the FCC rule compliance test and obtain
certifications  before the products  are  available  for sale.  The users of the
products need not to obtain usage license from the government.

Research and Development

The Company conducts in research and development on an ongoing basis in order to
improve our current products as well as to develop new products.  We do not have
a specific plan of research and development at this stage.

Employees

As of February 10, 2007, the Company has approximately 500 employees,  90 in our
Fremont,  California offices, 90 in our Freeport,  Bahamas facility,  160 in our
Peoples  Republic  of  China  manufacturing  facility  and  160  in  our  Taiwan
manufacturing facility.

Manufacturing

As of February 10,  2007,  the  Company's  products  are  manufactured  or parts
sourced in China and Taiwan by the two  manufacturing  companies we purchased at
the end of December 2005 and early  January  2006. As of February 22, 2007,  the
CynaLynx is manufactured in our facility in Freeport, Grand Bahama, The Bahamas.
We have begun to manufacture other Pegasus products in the Freeport facility.

Reports to Security  Holders

The Company will send out audited annual reports to its shareholders if required
by applicable  law.  Until such time,  the Company does not foresee  sending out
such reports.  The Company will make certain filings with the SEC as needed, and
any filings the Company  makes to the SEC are  available and the public may read
and copy any materials the Company files with SEC at the SEC's Public  Reference
Room at 450 Fifth  Street,  N.W.  Washington,  D.C.  20549.  The public may also
obtain  information on the operation of the Public Reference Room by calling the
SEC at  1-800-SEC-0330.  The SEC also  maintains an Internet  site that contains
reports,  proxy and  information  statements,  and other  information  regarding
issuers that file electronically with the SEC at (http://www.sec.gov).


Item 2. Description of Property

The corporate  headquarters  of Pegasus  Wireless  Corp. is located at 277 Royal
Poinciana  Way,  Suite 153, Palm Beach,  FL 334800 and its  telephone  number is
(510)  490-8288.  We also  maintain  offices  at  1565  Reliance  Way,  Fremont,
California 94539.

We also maintain  manufacturing  facilities in the Peoples Republic of China and
in Taiwan. We maintain an manufacturing facility in Freeport,  Grand Bahama, The
Bahamas.


Item 3. Legal Proceedings

From time to time, we may be involved in litigation  relating to claims  arising
out of our operations in the normal course of business. The Company is currently
a party to the following legal proceedings:

Alex Tsao v. Pegasus Wireless Corp. et al. - Mr. Tsao, the former CEO of Pegasus
is alleging that Pegasus has breached the retirement  agreement with Mr. Tsao by
refusing to pay him. Pegasus denies these  allegations.  Therefore,  the Company
believes  that it does not owe Mr. Tsao  anything,  is disputing  his claims and
vigorously defending this case.



                                       9
<PAGE>


Philip Keller v. Alex Tsao,  et al. - Mr.  Keller claims to be a shareholder  of
Pegasus.  Mr.  Keller  has named  individual  members  of the  Pegasus  Board of
Directors as defendants in a shareholder  derivative suit against the individual
directors  claiming  breach of fiduciary duty,  abuse of control,  mismangement,
waste,  unjust  enrichment  and  negligence,  and has named Pegasus as a nominal
defendant and plaintiff.  Pegasus has not yet made an appearance in this action,
but intends to vigorously defend this case.

Michael Mitchell v. Pegasus Wireless Corp., et al. - Mr. Mitchell claims to be a
shareholder of Pegasus. Mr. Mitchell has filed a class action complaint claiming
that  Pegasus,  as well as several  individual  members of the Pegasus  Board of
Directors have violated Federal  Securities Laws by publishing a series of false
and  misleading  statements.  Pegasus  believes  that  it has not  violated  any
securities laws and is therefore vigorously defending this case.

D&D Aviation v. Pegasus  Wireless  Corp.,  et al - D&D is alleging  that certain
transport  transactions  were  scheduled and operated on behalf of Pegasus,  and
that these items remain unpaid. No transportation transactions were scheduled or
operated by Pegasus or on behalf of Pegasus, therefore the Company believes that
it does not owe D&D anything. The Company is vigorously defending this case.


Item 4. Submission of Matters to a Vote of Security Holders

None.



                                     PART II


Item 5. Market Price of and  Dividends  on the  Registrant's  Common  Equity and
        Other Shareholder Matters.

Market Information

* Reflects 2 for 1 stock split effective close of business August 31, 2005 and
the 1 for 5 reverse split effective at close of business December 8, 2006.

2006                           HIGH                 LOW
------                       ------                 -----
* December 31, 2006           3.00                   0.30
* September 30, 2006         45.00                   2.50
* June 30, 2006              94.95                  28.40
* March 31, 2006             78.75                  41.50

2005                          HIGH                   LOW
------                      ------                  -----
* December 31, 2005          52.50                  30.50
* September 30, 2005         36.95                  18.50
* June 30, 2005              18.50                   0.25
March 31, 2005                0.10                   0.10

2004                          HIGH                   LOW
------                      ------                  -----
December 31, 2004             0.10                   0.10
September 30, 2004            0.10                   0.10
June 30, 2004                 0.25                   0.10
March 31, 2004                0.40                   0.25



                                       10
<PAGE>



2003                          HIGH                   LOW
------                      ------                  -----
December 31, 2003             1.01                   0.35
September 30, 2003            1.25                   0.30
June 30, 2003                 0.80                   0.45
March 31, 2003                2.20                   0.20

The  approximate  number of  holders  of record of common  equity is 2,900 as of
February 10, 2007.

Dividends

The Company has never  declared or paid any cash  dividends  on its common stock
and does not intend to declare any dividends in the foreseeable future.

We currently intend to retain and reinvest future  earnings,  if any, to finance
our operations.

Transfer Agent

Our transfer  agent is Olde  Monmouth  Stock  Transfer Co.,  Inc.,  200 Memorial
Parkway, Atlantic Highlands, NJ 07716. Their telephone number is (732) 872 2727.


Item 6.  Management's Discussion and Analysis or Plan of Operation Operations

This report on Transition Form 10-KSB contains  forward-looking  statements that
are subject to risks and uncertainties that could cause actual results to differ
materially  from those  discussed  in the  forward-looking  statements  and from
historical results of operations.  Among the risks and uncertainties which could
cause such a difference are those  relating to our  dependence  upon certain key
personnel,  our ability to manage our growth,  our success in  implementing  the
business strategy,  our success in arranging  financing where required,  and the
risk of economic and market factors  affecting our customers or us. Many of such
risk factors are beyond the control of the Company and its management

Results of Operations - For the Year and Six Months Ending December 31, 2006 and
2005

Basis of  Presentation - On December 22, 2005 the Board of Directors  elected to
change the fiscal year end of the Company to December 31, effective immediately.
This was completed as a result of two pending acquisitions of foreign companies,
both of which had  December  31 as their  fiscal  year end.  As a result of this
change,  the accompanying  financial  statements include the year ended December
31, 2006 and six months from July 1, 2005 through December 31, 2005.

On December 22, 2005,  the Company  acquired 51% of AMAX  Engineering  Corp. and
AMAX Information  Technology,  Inc. Pursuant to the acquisition  agreement,  the
accompanying financial statements include the three months of the AMAX companies
from October 1, 2005 through December 31, 2005.

On December 29, 2005, the Company acquired 51% of Cnet Technology, Inc. Pursuant
to the  acquisition  agreement,  financial  statement  consolidation  begins  on
January 1, 2006, therefore the accompanying  financial statements do not include
any results of Cnet for the last 2 days of 2005.

On January  19,  2006,  the  Company  completed  the  acquisition  of 51% of SKI
Technologies,  Inc. Pursuant to the acquisition  agreement,  financial statement
consolidation begins on January 1, 2006.



                                       11
<PAGE>


Financial Condition, Capital Resources and Liquidity

For the year and six months  ending  December  31,  2006 and 2005,  the  Company
recorded revenues of $103,973,900 and $17,639,900, respectively. The increase in
revenue is a direct result of the acquisition of the  subsidiaries.  We were not
able to begin the ramp-up of  production  of the Pegasus line of products  until
the beginning of 2006 as a result of our  acquisition  of the two  manufacturing
companies until the end of December 2005 and beginning of January 2006.

For the year and six months ending  December 31, 2006 and 2005, the Company had,
on a consolidated  basis,  cost of sales of  $95,078,300  and  $15,414,100.  The
increase is a direct result of the acquisition of the subsidiaries.

For the year and six months ending  December 31, 2006 and 2005, the Company had,
on a consolidated basis,  general and administrative  expenses of $4,110,400 and
$1,318,800  respectively.  The increase is a direct result of the acquisition of
the subsidiaries.

For the year and six months ending  December 31, 2006 and 2005, the Company had,
on a consolidated  basis, total operating expenses of $7,447,200 and $2,026,800,
respectively. The relative increase is a direct result of the acquisition of the
subsidiaries.

Net Income

For the year and six months  ending  December  31,  2006 and 2005,  the  Company
reported net income from operations of $1,448,400 and $199,000, respectively.

The  ability of the  Company to grow is  dependent  upon its  ability to deliver
product to its customers in ever  increasing  quantities.  The Company has taken
the steps  necessary  to address this  problem by its  acquisitions  of the AMAX
companies to provide the  distribution  channels needed and Cnet and SKI and the
new Grand Bahamas facility for the manufacturing requirements. Given our current
product  mix and  selling  prices,  these two  manufacuring  companies  have the
ability to produce  approximately  $650 million,  (at selling price), of Pegasus
products.

Liquidity and Capital Resources

At December 31, 2006 and 2005, the Company had working capital of $9,456,200 and
$4,704,100,  respectively.  The  Company's  cash balance  increased  $796,800 at
December  31, 2006 over 2005.  This  increase  was in spite of a $946,600 use of
cash by  operations  and was  provided by common  stock issued for cash from the
Company's  CEO,  Jasper Knabb.  The use of cash by  operations  was generated by
significant cash  expenditures  related to the final development of the CynaLynx
product  for market as well as for the  relocation  of the  Milmont  facility to
Freeport,   Grand  Bahama.  The  Company  believes  that  this  relocation  will
substantially  contribute to producing cash flow from operations as opposed to a
use of cash from operations.

Research and Development Plans

Our current  research and development  activities focus on improving our current
products  and the  development  of new  products  or new uses  for our  existing
products.

Our plan is that over time,  as our revenues  grow, we will continue to increase
our expenditures for research and development.



                                       12
<PAGE>


Item 7. Financial Statements




Report of Independent Registered Public Accounting Firm......................F-2

Consolidated Balance Sheets..................................................F-3

Consolidated Statements of Operations and Comprehensive Income (Loss)........F-4

Consolidated Statements of Stockholders' Equity (Deficiency).................F-5

Consolidated Statements of Cash Flows........................................F-7

Notes to Consolidated Financial Statements...................................F-8











<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
Pegasus Wireless Corp.
Palm Beach, Florida

We have audited the accompanying consolidated balance sheets of Pegasus Wireless
Corp.,  (the  "Company")  as of  December  31,  2006 and  2005  and the  related
consolidated   statements  of  operations  and   comprehensive   income  (loss),
stockholders' equity (deficiency) and cash flows for the one year and six months
in the period ended December 31, 2006. These consolidated  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an  opinion  on these  consolidated  financial  statements  based on our
audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material  respects,  the financial  position of the Company as of
December 31, 2005 and 2005 and the results of its  operations and its cash flows
for the one year and six  months in the  period  ended  December  31,  2006,  in
conformity with U.S. generally accepted accounting principles.




/s/Pollard-Kelly
Pollard-Kelley Auditing Services, Inc.

Fairlawn, Ohio
March 24, 2007




                                       F-2
<PAGE>

<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                           Consolidated Balance Sheets
                                  December 31,

                                          ASSETS                                        2006                   2005
                                                                                --------------------- ----------------------
<S>                                                                             <C>                   <C>
CURRENT ASSETS
  Cash and equivalents                                                          $           1,876,432 $            1,079,588
  Accounts receivable, net of reserve of $17,053 and $5,700                                11,995,746              6,676,806
  Inventory, net of reserve of $656,602                                                     7,450,706              6,568,274
  Prepaid expenses and other current assets                                                 1,991,108                 81,186
                                                                                --------------------- ----------------------
          Total current assets                                                             23,313,993             14,405,854
                                                                                --------------------- ----------------------
PROPERTY AND EQUIPMENT
  Land                                                                                        422,535                      0
  Buildings                                                                                   152,606                      0
  Computers and equipment                                                                   1,203,067              1,054,156
  Machinery and equipment                                                                   2,352,861                320,685
  Office furniture, fixtures and equipment                                                    873,485                974,749
  Vehicles                                                                                    552,916                602,254
  Leasehold improvements                                                                      468,929                470,645
                                                                                --------------------- ----------------------
    Total Property and Equipment                                                            6,026,398              3,422,489
        Less accumulated depreciation                                                      (3,667,486)            (2,879,463)
                                                                                --------------------- ----------------------
          Net property and equipment                                                        2,358,913                543,026
                                                                                --------------------- ----------------------
OTHER ASSETS
  Investment in unconsolidated subsidiary                                                           0              1,000,000
  Intangible assets, net                                                                    6,952,291                      0
  Goodwill                                                                                  7,103,207              5,469,609
  Deposits and other assets                                                                 2,601,910              1,471,243
                                                                                --------------------- ----------------------
          Total other assets                                                               16,657,408              7,940,852
                                                                                --------------------- ----------------------
Total Assets                                                                    $          42,330,313 $           22,889,732
                                                                                ===================== ======================
                    LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIENCY)
CURRENT LIABILITIES
   Accounts payable                                                             $           7,428,003 $            5,929,969
   Accrued expenses                                                                         4,113,608              3,627,513
   Accrued income taxes payable                                                                     0                 94,504
   Customer deposits                                                                            8,921                  3,481
   Line of credit                                                                           2,250,000                      0
   Current portion of long-term debt                                                          202,223                 46,268
                                                                                --------------------- ----------------------
          Total current liabilities                                                        14,002,755              9,701,735
                                                                                --------------------- ----------------------
LONG-TERM DEBT
   Notes payable                                                                              429,546                116,105
                                                                                --------------------- ----------------------
          Total long-term debt                                                                429,546                116,105
                                                                                --------------------- ----------------------
Total Liabilities                                                                          14,432,301              9,817,840
                                                                                --------------------- ----------------------
Minority interest in consolidated subsidiary                                                3,916,337              2,545,156
                                                                                --------------------- ----------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
   Preferred stock, $0.0001 par value, authorized 10,000,000 shares;
      none issued and outstanding                                                                   0                      0
   Common stock, $0.0001 par value, authorized 100,000,000 shares;
       21,608,848 and 14,313,808 issued and outstanding shares                                  2,161                  1,431
   Additional paid-in capital                                                              52,298,269             24,929,169
   Deferred compensation                                                                  (15,261,474)                     0
   Subscription receivable                                                                          0               (750,000)
   Accumulated comprehensive income (loss)                                                    (15,795)                  (104)
   Accumulated deficit                                                                    (13,041,485)           (13,653,760)
                                                                                --------------------------------------------
          Total stockholders' equity (deficiency)                                          23,981,676             10,526,736
                                                                                --------------------- ----------------------
Total Liabilities and Stockholders' Equity (Deficiency)                         $          42,330,314 $           22,889,732
                                                                                ===================== ======================
</TABLE>

     The accompanying notes are an integral part of the financial statements
                                       F-3
<PAGE>

<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                      Consolidated Statements of Operations

                                                                                      Year ended           Six Months ended
                                                                                  December 31, 2006          December 31, 2005
                                                                                ----------------------    ----------------------
<S>                                                                             <C>                       <C>
REVENUES                                                                        $          103,973,890    $           17,639,881

COST OF SALES                                                                               95,078,301                15,414,086
                                                                                ----------------------    ----------------------
Gross Margin                                                                                 8,895,589                 2,225,795

OPERATING EXPENSES
    Sales and marketing                                                                      2,885,636                   651,346
    Depreciation and amortization                                                              451,184                    56,661
    General and administrative                                                               4,110,390                 1,318,782
                                                                                ----------------------    ----------------------
          Total operating expenses                                                           7,447,210                 2,026,789
                                                                                ----------------------    ----------------------
 Operating income (loss)                                                                     1,448,379                   199,006
                                                                                ----------------------    ----------------------
OTHER INCOME (EXPENSE):
    Interest income                                                                                  0                     5,785
    Other income                                                                                62,038                    33,477
    Interest expense                                                                           (32,828)                        0
    Other expense                                                                              (26,126)                   (1,189)
                                                                                ----------------------    ----------------------
          Total other income (expense)                                                           3,084                    38,073
                                                                                ----------------------    ----------------------
Net income (loss) before extraordinary items and minority interest
                                                                                             1,451,463                   237,079
Extraordinary items:
    Plant relocation expense                                                                   272,202                         0
                                                                                ----------------------    ----------------------
Net income (loss) before minority interest                                                   1,179,261                   237,079

    Minority interest in consolidated subsidiary net income (loss)                             566,417                   143,375
                                                                                ----------------------    ----------------------
Net income (loss)                                                               $              612,844    $               93,704
                                                                                ======================    ======================
Net income (loss) per common share - basic                                      $                 0.03    $                 0.01
                                                                                ======================    ======================
Weighted average number of common shares outstanding - basic                                21,608,848                12,163,997
                                                                                ======================    ======================
Net income (loss) per common share - fully diluted                              $                 0.03    $                 0.01
                                                                                ======================    ======================
Weighted average number of common shares outstanding - fully diluted                        21,848,848                12,859,997
                                                                                ======================    ======================
</TABLE>

     The accompanying notes are an integral part of the financial statements
                                       F-4
<PAGE>

<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
          Consolidated Statements of Stockholders' Equity (Deficiency)*

                                 Number of         Number of
                                  Shares -         Shares -          Amount -         Amount -
                                 Preferred          Common*         Preferred          Common
                               --------------   ---------------   --------------   --------------
<S>                            <C>              <C>               <C>              <C>
BEGINNING  BALANCE,
 June 30, 2004                     15,295,206         1,129,057       12,663,209          416,865
                               ==============   ===============   ==============   ==============

Pfd converted to common           (15,295,206)        3,352,941      (12,663,209)      12,663,209
Recapitalization                            0         1,600,000                0      (13,079,466)
Acquisition of subsidiary                   0           600,000                0               60
Recapitalization                            0           287,954                0               29
    Net loss                                0                 0                0                0
                               --------------   ---------------   --------------   --------------

BALANCE, June 30, 2005                      0         6,969,952                0              697
Employ stk options exercise                 0            23,742                0                2
Two for one forward split                   0         6,993,693                0              699
Common stk issued for cash                  0           114,286                0               11
Comm stk issued - acquisit                  0           167,691                0               17
Common stk issued for cash                  0            44,444                0                5
Comprehensive inc/loss                      0                 0                0                0
    Net income                              0                 0                0                0
                               --------------   ---------------   --------------   --------------
Balance, December 31, 2005                  0        14,313,808                0            1,431
Recap shares issued                         0           724,742                0               72
Receipt of subs receivable                  0                 0                0                0
Common stk issued for cash                  0            40,000                0                4
Comm stk issued-acquisition                 0            28,547                0                3
Acquisition shs returned                    0           (76,200)               0               (8)
Common stk issued for cash                  0            75,000                0                8
Common stock retired                        0        (2,804,574)               0             (280)
Common stk opt exercised                    0           456,000                0               46
Employ stk options exercise                 0            28,333                0                3
Comm stk-retirement pkg                     0           395,870                0               40
Comm stk - BOD fees                         0            71,431                0                7
Comm stk issued for debt                    0         7,376,016                0              737
Comm stk issed for tech                     0           580,000                0               58
Comm stk issued for svcs                    0           400,000                0               40
Amortize deferred comp                      0                 0                0                0
Comprehensive inc/loss                      0                 0                0                0
    Net income                              0                 0                0                0
                               --------------   ---------------   --------------   --------------
Ending Balance,
December 31, 2006                           0        21,608,973   $            0   $        2,161
                               ==============   ===============   ==============   ==============
</TABLE>

*    Reflects one for five reverse split effective December 8, 2006.


                                  (Continued)
                                       F-5
<PAGE>

                             PEGASUS WIRELESS CORP.
          Consolidated Statements of Stockholders' Equity (Deficiency)
                                  (Continued)

         .                Stock
    Add'l.              Subscript                                 Total
   Paid-in             Receivable/          Accumulated        Stockholders'
   Capital              Def Comp              Deficit             Equity
--------------     -------------------   -----------------   ----------------


             0                       0         (13,010,342)            69,732
==============     ===================   =================   ================

             0                       0                                      0
    14,104,850                       0                   0          1,025,384
           240                       0                   0                300
       799,785                       0                   0            799,814
             0                       0            (672,796)          (672,796)
--------------     -------------------   -----------------   ----------------

    14,904,875                       0         (13,683,138)         1,222,434
        25,026                       0                   0             25,028
          (699)                      0                   0                  0
     3,999,989                       0                   0          4,000,000
     3,999,983                       0                   0          4,000,000
1,999,995                    (750,000)                   0          1,250,000
             0                       0                (104)              (104)
             0                       0              29,378             29,378
--------------     -------------------   -----------------   ----------------
    24,929,169               (750,000)         (13,653,864)        10,526,736
           (72)                      0                   0                  0
             0                 750,000                   0            750,000
1,999,996                            0                   0          2,000,000
       649,997                       0                   0            650,000
             8                       0                   0                  0
     2,999,992                       0                   0          3,000,000
           280                       0                   0                  0
       740,954                       0                   0            741,000
        35,414                       0                   0             35,417
    11,381,211            (11,381,251)                   0                  0
     2,053,623             (2,053,630)                   0                  0
       367,795                       0                   0            368,532
     4,999,942                       0                   0          5,000,000
     2,139,960             (2,140,000)                   0                  0
             0                 313,407                   0            313,407
             0                       0             (15,691)           (15,691)
             0                       0             612,275            612,275
--------------     -------------------   -----------------   ----------------

    52,298,269            (15,261,474)   $     (13,057,280)  $     23,981,676
==============     ===================   =================   ================

     The accompanying notes are an integral part of the financial statements
                                       F-6
<PAGE>

<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                      Consolidated Statements of Cash Flows

                                                                                      Year ended           Six Months ended
                                                                                  December 31, 2006          December 31, 2005
                                                                                ----------------------    ----------------------
<S>                                                                             <C>                       <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                               $             612,844     $             29,378
Adjustments to reconcile net loss to net cash used by operating activities:
     Depreciation and amortization                                                            451,184                   56,661
     Amortization of deferred compensation                                                    313,407                        0
     Extraordinary items - plant relocation write-off                                         272,202                        0
     Minority interest in net income (loss) of consolidated subsidiary                        566,417                  113,997
Changes in operating assets and liabilities:
     (Increase) decrease in accounts receivable                                            (3,533,147)                 420,575
     (Increase) decrease in inventory                                                        (408,979)              (2,555,512)
     (Increase) decrease in prepaid expenses                                               (1,627,960)                  39,957
     (Increase) decrease in deposits and other assets                                        (780,068)              (1,051,424)
     Increase (decrease) in accounts payable                                                2,092,979                  461,285
     Increase (decrease) in accrued expenses                                                 (719,296)                 629,604
     Increase (decrease) in other current liabilities                                          47,458                        0
     Increase (decrease) in accrued income taxes payable                                            0                   95,304
     Increase (decrease) in customer deposits                                                   4,519                   (1,615)
                                                                                ---------------------     --------------------
Net cash  provided (used) by operating activities                                          (2,708,440)              (1,761,790)
                                                                                ---------------------     --------------------
CASH FLOW FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                                      (337,059)                (116,512)
     Purchase of R&D                                                                       (1,952,291)                       0
     Cash paid for acquisitions                                                              (650,000)              (5,000,000)
     Sale/retirement of fixed assets                                                           38,996                        0
                                                                                ---------------------     --------------------
Net cash provided (used) by investing activities                                           (2,900,354)              (5,116,512)
                                                                                ---------------------     --------------------
CASH FLOW FROM FINANCING ACTIVITIES:
     Cash acquired in acquisition/reorganization                                              687,618                1,771,201
     Proceeds from loans                                                                            0                  102,988
     Repayment of loans                                                                       (42,706)                  (5,819)
     Exercise of employee stock options for cash                                              776,417                        0
     Issuance of common stock for cash                                                      5,000,000                5,250,000
                                                                                ---------------------     --------------------
Net cash provided by financing activities                                                   6,421,329                7,118,370
                                                                                ---------------------     --------------------
Effect of exchange rates on cash                                                              (15,691)                       0
                                                                                ---------------------     --------------------
Net increase (decrease) in cash and equivalents                                               796,844                  240,068

CASH and equivalents, beginning of period                                                   1,079,588                  839,520
                                                                                ---------------------     --------------------
CASH and equivalents, end of period                                             $           1,876,432     $          1,079,588
                                                                                =====================     ====================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash                                                           $              32,828     $              1,189
                                                                                =====================     ====================
Income taxes paid in cash                                                       $             245,808     $                  0
                                                                                =====================     ====================
Non-Cash Financing Activities:
  Issuance of common stock for deferred compensation                            $          15,574,881     $                  0
                                                                                =====================     ====================
  Issuance of common stock to settle debt                                       $             368,531     $                  0
                                                                                =====================     ====================
 Issuance of common stock for intangible assets                                 $           5,000,000     $                  0
                                                                                =====================     ====================
  Issuance of common stock to effect acquisition                                $             650,000     $          4,000,000
                                                                                =====================     ====================
</TABLE>

     The accompanying notes are an integral part of the financial statements
                                       F-7
<PAGE>


                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements

NOTE 1 - THE COMPANY

Pegasus Wireless Corp.,  (f/k/a Blue Industries,  Inc.), was incorporated  under
the laws of the State of Nevada on April 5, 2000 as Burrard  Technologies,  Inc.
("Burrard") and was involved in software  development.  During 2001, the Company
discontinued  the software  development  and became  inactive until December 18,
2001, when it acquired all the issued and outstanding  shares of Technocall S.A.
("Technocall"),  a Swiss company. On April 2, 2002, the Company changed its name
to Blue Industries Inc. In December 2003, the Company again became inactive.  In
June 2005, the Company changed its name to Pegasus Wireless Corp., subsequent to
the acquisition,  via reverse merger of Homeskills,  Inc. The Company is engaged
in the business of designing,  manufacturing and marketing wireless hardware and
software solutions for broadband fixed, portable networking and Internet access.

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of  Presentation - On December 22, 2005 the Board of Directors  elected to
change the fiscal year end of the Company to December 31, effective immediately.
This was completed as a result of two pending acquisitions of foreign companies,
both of which had December 31 as their fiscal year end.

On December 22, 2005,  the Company  acquired 51% of AMAX  Engineering  Corp. and
AMAX  Information  Technology,  Inc.  Pursuant  to  the  acquisition  agreement,
financial  statement  consolidation  began on October 1, 2005.  On December  29,
2005,  the  Company  acquired  51% of  Cnet  Technology,  Inc.  Pursuant  to the
acquisition  agreement,  financial  statement  consolidation began on January 1,
2006.  On January 19, 2006,  the Company  acquired 51% of SKI  Technology,  Inc.
Pursuant to the acquisition agreement,  financial statement  consolidation began
on January 1, 2006.

Principles of Consolidation - The consolidated  financial statements include the
accounts of Pegasus  Wireless  Corp.  and its wholly  owned and  majority  owned
subsidiaries. All inter-company balances and transactions have been eliminated.

Significant  Acquisitions  - On December 22, 2005,  the Company  acquired 51% of
AMAX Engineering  Corp. and AMAX  Information  Technology,  Inc.,  (collectively
"AMAX"),  California  corporations  headquartered  in Fremont,  California.  The
Company  paid  $4,000,000  in cash and 838,454  shares of the  Company's  common
stock,  valued at $4,000,000,  or $4.77 per share. The share valuation was based
on 66% of the average  closing  price for the  preceding 30 trading days, as per
the acquisition agreement. The cash portion of the AMAX transaction was provided
by the sale of  571,429  shares of  restricted  common  stock of the  Company to
Jasper Knabb, President of Pegasus, in exchange for $4,000,000 in cash, or $7.00
per share. AMAX has  distinguished and established  itself as a global leader in
providing technology to all levels of the marketplace.  As an ISO-9001 certified
corporation,  AMAX  manufactures  and  markets  innovative  server,  industrial,
workstation,  storage & clustering systems to meet the most stringent of quality
requirements.  In March 2006, the sellers of AMAX returned 381,000 shares to the
Company,  bringing  their per  share  value to $8.75 per  share,  or the  market
closing price the day before the acquisition was closed.

On  December  29,  2005,  the Company  acquired  51% of Cnet  Technology,  Inc.,
("Cnet"),  a Cayman Islands  corporation  headquartered in Taipei,  Taiwan.  The
Company paid  $1,000,000 in cash. The  acquisition was financed by a purchase of
222,222  restricted  shares of Pegasus  Wireless  Corporation's  common stock by
Jasper Knabb,  the Company's  President,  in exchange for $2,000,000 in cash, or
$9.00 per  share.  The  additional  $1  million  cash will be used to obtain raw
materials to begin the manufacturing of Pegasus Wireless'  products that will be
available for distribution within thirty days. CNet Technology,  Inc. has been a
leader in designing and manufacturing  high-speed,  cost-effective solutions for
the worldwide networking and communications  market. Their unique combination of
sales and  assembly  has  allowed  for CNet to support a vast array of  wireless
demands,  from the small and home  offices to the vast  enterprise  systems that
span multiple locations. Pegasus has been outsourcing the manufacturing

                                       F-8
<PAGE>

                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Significant  Acquisitions,  continued - its wireless  products  through  various
venues around the world,  and now can  manufacture its products in a centralized
controlled  environment  that will greatly enhance the speed and volume of their
product output.

On January , 2006, the Company acquired 51% of SKI Technologies,  Inc., ("SKI"),
a Taiwanese  corporation  headquartered  in Taipei,  Taiwan.  The  Company  paid
$650,000 in cash and issued 142,735 shares of restricted common stock, valued at
$650,000,  or $4.55 per share.  The  acquisition  was  financed by a purchase of
200,000  restricted  shares of Pegasus  Wireless  Corporation's  common stock by
Jasper Knabb,  the Company's  President,  in exchange for $2,000,000 in cash, or
$10.00 per share.  Under the terms of the acquisition  agreement,  SKI must meet
certain  revenue  from  sales to  third  parties.  If SKI  does  not meet  these
requirements, Pegasus has the right to receive additional shares of SKI, without
additional consideration, in direct proportion to the revenue shortfall.

Cash  Equivalents  - For purposes of the  statement  of cash flows,  the Company
considers  all highly liquid  investments  with maturity of three months or less
when purchased to be cash equivalents.

Revenue  Recognition  - The Company  recognizes  revenue from product sales when
units are shipped,  provided no significant obligation remains and collection is
probable.

Inventory - The  Company  values its  inventory  at the lower of cost or market,
cost  determined  using the standard cost method.  The Company also utilizes the
reserve  method to account for slow moving and obsolete  inventory.  The reserve
for  inventory  obsolescence  was  $656,000  at  December  31,  2006  and  2005,
respectively.

Estimates  -  The  preparation  of  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. Actual results could differ from those estimates.

Income (Loss) Per Share - Income (loss) per share is computed using the Weighted
Average  Number of common  shares  outstanding  during  the fiscal  year.  Fully
diluted  includes  all common  shares  that would be  required to be issued as a
result of various convertible instruments at their stated conversion rates using
December 31, 2006, closing market price of the underlying common stock.

Concentration  of  Credit  Risk  - The  Company  extends  credit,  based  on the
evaluation of each customer's  financial  condition,  and generally  requires no
collateral from its customers.  Credit losses,  if any have been provided for in
the  financial   statements   and  have  been  generally   within   management's
expectations.  During the six months  and year  ending and at June 30,  2006 and
December  31,  2005,  the  Company  had  deposits in banks in excess of the FDIC
insurance limit.



                                       F-9
<PAGE>


                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements

NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

Intangibles  - Goodwill in the amount of  7,103,207  was recorded as a result of
the  acquisitions  of AMAX,  Cnet and SKI. The Company will  evaluate this asset
periodically  to  determine  impairment,  if any. The Company  acquired  certain
technology  in 2006 in exchange for 580,000  shares of common  stock,  valued at
$5,000,000,  or $8.62 per share.  The Company will  amortize  these amounts over
their expected remaining useful life once commercialiazation begins.

Property  and  Equipment - All  property  and  equipment is recorded at cost and
depreciated over their estimated useful lives,  using the straight-line  method.
Upon sale or  retirement,  the costs and related  accumulated  depreciation  are
eliminated  from their  respective  accounts,  and the resulting gain or loss is
included in the results of operations.  Repairs and maintenance charges which do
not  increase  the  useful  lives of the assets are  charged  to  operations  as
incurred.  Depreciation  expense was  $451,184  and $56,661 for the year and six
months ended December 31, 2006 and 2005, respectively.

Research &  Development  - Research  and  development  costs are expensed in the
period incurred.


NOTE 3 - ACCOUNTS RECEIVABLE

The Company uses the allowance method to account for its doubtful accounts. The
allowance for doubtful accounts is based on management's estimates. Accounts
receivable consist of the following:

                                   December 31, 2006     December 31, 2005
                                  ------------------    ------------------
Trade accounts receivable         $       11,944,181    $        6,682,506
Allowance for doubtful accounts             (17,053)               (5,700)
                                  ------------------    ------------------
Total                             $       11,927,128    $        6,676,806
                                  ==================    ==================


NOTE 4 - INVENTORY

The Company values its inventory at the lower of cost or market, cost determined
using the standard cost method.  The Company also utilizes the reserve method to
account  for slow  moving and  obsolete  inventory.  Inventory  consists  of the
following:

                                  December 31, 2006     December 31, 2005
                                 ------------------    ------------------
Inventory                        $        8,107,308    $        7,609,522
Less: Reserve for obsolescence            (656,602)           (1,041,248)
                                 ------------------    ------------------

Total                            $        7,450,706    $        6,568,274
                                 ==================    ==================


                                       F-10
<PAGE>

                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements


NOTE 5 - STOCKHOLDERS' EQUITY

The authorized  capital stock of the Company  consists of 100,000,000  shares of
common  stock with a par value of $0.0001  and  20,000,000  shares of  preferred
stock with a par value of $0.0001.  Rights and privileges of the preferred stock
are to be  determined  by the Board of Directors  prior to issuance.  There were
21,608,848  and  14,313,808  shares of common stock  outstanding at December 30,
2006 and 2005, respectively.

In May 2005,  the Company  issued 287,954 shares of common stock in exchange for
$800,000 in cash, or $3.25 per share. In June 2005, the Company issued 5,693,549
shares of common stock to effect the  acquisition  of OTC  Wireless,  Inc.,  the
operating company.  In August 2005, eight of the company's  employees  exercised
their employee  stock  options.  These options were issued in years prior to the
reverse merger and had exercise prices ranging from $0.75 to $2.50 per share. As
a result of these option  exercises the Company issued 23,742 shares in exchange
for $25,029 in cash.

In August 2005, the Company  amended its Articles of  Incorporation  to increase
the authorized shares from 50,000,000 to 100,000,000  common and from 10,000,000
to  20,000,000  preferred  shares.  The par value of each  remained  the same at
$0.0001  for each class of stock.  In  addition,  in August  2005,  the  Company
declared a two shares for each share held forward split of the Company's  issued
and  outstanding  common stock,  which was effective at close of business August
31, 2005. Pursuant to this, the Company issued 6,993,693 shares of common stock.

In December 2005,  the Company issued 114,286 shares of restricted  common stock
to the  President of the Company in exchange for  $4,000,000 in cash , valued at
$35.00 per share.  In  December  2005,  the  Company  issued  167,691  shares of
restricted  common  stock  to  complete  the  acquisition  of  AMAX,  valued  at
$4,000,000,  or $23.85 per share.  In December  2005,  the Company issued 44,444
shares of  restricted  common stock to the  President of the Company in exchange
for $2,000,000 in cash , valued at $45.00 per share.

In the first quarter  2006,  the Company  issued  724,742  shares,  inclusive of
forward split shares,  as a direct  result of  stockholders  being unable to get
their  Homeskills share  certificates  from their brokerage house holdings until
this time in order to complete the exchange. In January 2006, the Company issued
40,000  shares of  restricted  common  stock to the  President of the Company in
exchange for  $2,000,000 in cash , valued at $50.00 per share.  In January 2006,
the Company  issued  28,547  shares of  restricted  common stock to complete the
acquisition of SKI, valued at $650,000,  or $22.75 per share. In March 2006, the
sellers of AMAX returned 76,200 shares to the Company,  bringing their per share
value to $43.75  per  share,  or the  market  closing  price the day  before the
acquisition  was closed.  On June 28, 2006,  the Company issued 75,000 shares of
restricted  common  stock  to the  President  of the  Company  in  exchange  for
$3,000,000 in cash,  valued at $4.00 per share.  On June 28, 2006, the President
and CFO of the Company  exercised  their  options,  (granted in June 2004),  for
shares amounting to 240,000 and 216,000,  respectively.  The cash exercise price
of these  options was $1.625 per share,  for a total of $390,000  and  $351,000,
respectively.  In the third  quarter,  the estate of a former  company  employee

                                      F-11
<PAGE>

                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements

NOTE 5 - STOCKHOLDERS' EQUITY, continued-

exercised their employee stock options. These options were issued in years prior
to the reverse  merger and had exercise  prices  ranging from $0.75 to $2.50 per
share.  As a result of this option  exercise the Company issued 28,333 shares in
exchange for $35,417 in cash.  In the third quarter the Company  issued  395,870
shares of common  stock as a portion of the  retirement  and 5-year non- compete
package of Alex Tsao. During 2006 the Company retired 2,804,574 shares of common
stock.  During  2006 the  Company  issued  7,376,016  shares of common  stock to
satisfy  $368,532  debt owed by the Company from prior to the change in control.
In the third quarter the Company issued 580,000 shares of common stock valued at
$5,000,000  to acquire  the  Maccontrol  technology.  In the third  quarter  the
Company  issued  400,000  shares of common  stock in  exchange  for  prospective
consulting  services  valued at  $2,140,000.  In the third  quarter  the Company
issued 71,431 shares of common stock to the members of the Board of Directors as
payment of Board compensation, valued at $2,053,630.

Warrants - In August  2006,  the  Company  announced  the  issuance  of purchase
warrants to our  stockholders of record as of close of business August 11, 2006.
The  warrants  are issued as 1 warrant  for each 10 shares  held,  with a strike
price of $8.00 per share,  excerisable  beginning  one year after  issuance  and
expiring  worthless on the second  anniversary of issuance.  As of March , 2007,
the Company has issued warrants to these holders of record.


NOTE 6 - NOTES PAYABLE

The Company is obligated  for four vehicle  loans,  totaling  $54,888,  $47,154,
$45,623 and $14,709. The loans call for monthly payments of $1,523, $955, $1,347
and $416 and they mature in 2008, 2010, 2008 and 2009. They bear interest at 6%,
5.6%, 5.95% and 2.9%.

The Company is  obligated  on notes  payable  amounting  to  $145,000  remaining
balance which were undisclosed when current management took control of the shell
company.  These notes were entered into at various times in 2003 and were 2 year
notes, all of which have matured.  The notes were entered into by a wholly owned
subsidiary  but are  convertible  into common stock of the parent company at the
discretion  of the holder.  Management  two steps back failed to disclose  these
notes to subsequent  management,  thus current  management  was unaware of their
existence.


NOTE 7 - INCOME TAXES

The  Company  accounts  for its  income  taxes  under the  asset  and  liability
approach,  whereby the expected future tax consequences of temporary differences
between  the book and tax basis of assets  and  liabilities  are  recognized  as
deferred tax assets and liabilities.


NOTE 8 - DEFINED CONTRIBUTION PLAN

The Company maintains a voluntary defined  contribution plan,  covering eligible
employees.   Participating  employees  may  elect  to  defer  and  contribute  a
percentage  of their  compensation  to the plan.  The  Company  did not make any
contributions to the plan for the periods ended December 31, 2006 and 2005.


                                      F-12
<PAGE>

                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements

NOTE 9 - OPERATING LEASES

The Company leases several operating facilities and various equipment from third
parties under various operating leases expiring in various years through 2013.

Future minimum lease payments for the remaining lease term are as follows:

        2007                       $   1,123,318
        2008                           1,009,173
        2009                           1,009,173
        2010                           1,009,173
        2011                           1,009,173
        Thereafter                     1,766,054
                                   -------------
        Total                      $   6,926,064
                                   =============


NOTE 10 - STOCK OPTION PLAN

In 1995 the Company  established  an  Incentive  Stock  Option  Plan.  This plan
provides for the granting of incentive  stock  options and  non-statutory  stock
options to employees, directors and consultants at 110% of the fair market value
on the date of the grant. The options to employees vest ratably over a four-year
period.  The Company has authorized  728,000  post-split  shares of common stock
options.  There were  236,317  and 283,800  post-split  options  outstanding  at
December 31, 2006 and 2005, respectively.


NOTE 11 - STOCK OPTION PLAN FOR OFFICERS

The Company's  President and CFO elected in July 2004 to accept stock options in
lieu of cash compensation for a period of two years, beginning in July 2004. The
former Chairman also elected to receive his performance based bonus for a period
of two years in stock options as well. For the two years the former Chairman and
President  were to  receive  240,000  post-split  options  and  the CFO  216,000
post-split  options.  All of these  options are one share per option and carry a
post-split  exercise  price of $1.625 per share.  These  options  also carried a
cash-less  exercise option if elected by the officer at exercise,  if the market
price of the Company's  common stock is at least $16.25 per share at the time of
exercise, the officer can elect to return shares, to the Company in lieu of cash
payment.  These options are  exercisable  at any time after the Company's  share
price  exceeds  $12.50  per  share  for a full  quarter,  and  can be  exercised
cashlessly  on a pro-rata  basis.  The  performance  requirement  for the former
Chairman for year one is: a) eliminate all debt,  b) take the operating  company
public  and c) reduce the  operating  company  loss by 40%;  and for year two to
double  the  Company's  base  revenue.  If the  expenses  related  to taking the
operating company public are excluded, the Chairman met the requirements for the
first year. On June 28, 2006,  the  President  and CFO of the Company  exercised
their  options,  for shares.  The cash exercise price was $390,000 and $351,000,
respectively.  The Company is  evaluating  the stock  options of Alex Tsao,  the
former Chairman.


                                      F-13
<PAGE>

                             PEGASUS WIRELESS CORP.
                 Notes to the Consolidated Financial Statements

NOTE 12 - LINE OF CREDIT

The  Companies  has a line of credit  agreement  with a bank,  which  allows the
Company to borrow up to  $5,000,000.  Outstanding  balances bear interest at the
lender's prime rate and are collateralized by inventory, accounts receivable and
property and equipment.  The credit facility  requires the Companies to maintain
certain financial ratios and comply with certain  covenants.  This agreement was
renewed in April,  2006,  and now expires in June 2007. The Company had borrowed
$2,250,000 and $0 at December 31, 2006 and 2005, respectively.

NOTE 13 - RELATED PARTY TRANSACTIONS

A - Facilities operating lease - The Company leases it building housing the AMAX
csubsidiaries from a minority  stockholder.  This lease calls for annual rent in
the amount of $863,800.

B-  Related  companies  -  The  Companies  record  sales,  accounts  receivable,
purchases,   administrative   expenses  and  accounts  payable  to  and  from  5
brother-sister  related companies.  None of these companies own any stock of the
Companies,  nor do the Companies have any investment in these related companies.
They are related by virtue of similar/common control.



                [Balance of this page intentionally left blank.]










                                      F-14
<PAGE>


Item 8. Changes in and Disagreements with Accountants.

None


Item 8A. Controls and Procedures

Within 90 days prior to the date of this Report,  we carried out an  evaluation,
under the supervision and with the  participation of our Chief Executive Officer
and Chief Financial  Officer (or persons  performing  similar  functions) of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures.  Based on this  evaluation,  our Chief  Executive  Officer and Chief
Financial Officer (or persons performing  similar functions)  concluded that our
disclosure  controls and  procedures  are  effective in timely  alerting them to
material  information  required to be included in our periodic  reports that are
filed with the Securities and Exchange  Commission.  It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future  events,  and there can be no assurance that any design
will  succeed  in  achieving  its  stated  goals  under  all  potential   future
conditions,  regardless  of how remote.  In  addition,  we reviewed our internal
controls, and there have been no significant changes in our internal controls or
in other factors that could  significantly  affect those controls  subsequent to
the date of their last valuation.

(b) Internal Control Over Financial Reporting:

There have been no significant  changes in the Company's internal controls or in
other factors since the date of the Chief Executive  Officer and Chief Financial
Officer's  (or  persons  performing  similar  functions)  evaluation  that could
significantly  affect these internal  controls during the period covered by this
report or from the end of the reporting  period to the date of this Form 10-KSB,
including any corrective  actions with regards to significant  deficiencies  and
material weaknesses.


Item 8B. Other Information

None.



                                    PART III

Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
        with Section 16(a) of the Exchange Act

DIRECTORS and EXECUTIVE OFFICERS

The following table sets forth certain  information  with respect to each of our
executive  officers and  directors.  Our directors are generally  elected at the
annual shareholders' meeting and hold office until the next annual shareholders'
meeting or until their successors are elected and qualified.  Executive officers
are elected by our board of directors  and serve at its  discretion.  Our bylaws
authorize the board of directors to be constituted of not less than one and such
number as our board of directors may determine by resolution or election.  As of
February 15, 2006 our board of directors consists of nine members.




                                       27
<PAGE>


NAME                 AGE         POSITION
-------------       ------       -----------------
Jasper Knabb           40        CEO and Director
Stephen Durland        52        Chief Financial Officer and Director
Billy Horn             43        Director

There are no family  relationships  between or among the executive  officers and
directors of the Company.

Compliance with Section 16(a) of the Securities Exchange Act of 1934:

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires the
Company's  executive officers and directors and persons who own more than 10% of
a  registered  class  of the  Company's  equity  securities,  to file  with  the
Securities and Exchange Commission (hereinafter referred to as the "Commission")
initial statements of beneficial ownership,  reports of changes in ownership and
annual  reports  concerning  their  ownership,  of Common Stock and other equity
securities of the Company on Forms 3, 4 and 5, respectively. Executive officers,
directors  and  greater  than  10%   shareholders  are  required  by  Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, all executive officers,  directors and greater
than 10%  beneficial  owners of its common  Stock,  and have not  complied  with
Section 16(a) filing requirements applicable to them during the Company's fiscal
year ended June 30,2005.

Business Experience

Officers and Directors

The following is a brief description of the business background of our executive
officers, and directors:

     JASPER KNABB,  CEO and Director,  has more than 20 years  experience in the
high  tech  industry.   Mr.  Knabb's  involvement  in  the  technology  business
encompasses PC manufacturing  and sales,  computer gaming software  development,
Internet service provider and wireless system  development and marketing.  Prior
to Pegasus  Wireless,  Mr. Knabb was the President of Wireless  Frontier,  Inc.,
(OTC BB: WFRI),  from 2003 to 2004 and was responsible for business  development
and  successfully  negotiating  to bring the  company  to  public  via a reverse
merger.  Prior to Wireless  Frontier,  Mr. Knabb was a Managing  Director at OTC
Wireless  responsible  for business and product  development  from 2001 to 2003.
Prior to OTC  Wireless,  Mr.  Knabb  founded and became the  President  of Beach
Access,  a privately  held Internet  Service  Providing  company,  in 1998,  and
successfully  sold the company in 2000.  Between 1985 and 1998, he was the owner
and the President of Microland, a PC retailing business, and SEI, a console game
developer, both privately held companies.

     STEPHEN  DURLAND,  CFO and  Director,  has been the  president of Durland &
Company,  CPAs,  PA,  since  he  founded  it in  1991.  Durland  &  Company  has
specialized in the audits of micro-cap public  companies since its founding.  In
addition,  its clients have had operations in 19 foreign  countries,  giving the
firm very heavy  international  experience.  Since 1998,  Mr. Durland has been a
Director of Children's Place at Homesafe,  Inc., a local non-profit  serving the
needs of abused and/or  terminally  ill  children.  He was a Director of Medical
Makeover Corporation of America,  (OTC BB: MMAM), June 2004 until March 2006. He
has also been a Director of ExpressAir  Delivery  Systems,  Inc.  since 1999 and
Global  Eventmakers,  Inc.  since  2003.  They are private  operating  companies
expecting to become  publicly  traded in 2005 via reverse  merger with  publicly
trading shell companies. He was a Director of two other OTC BB listed companies,
American Ammunition, Inc. (July 2001 - March 2002), and JAB International,  Inc.
(October 2000 - June 2003).  He was  CFO/Acting  CFO for four private  operating
companies,  Main Line Medical  Acquisition,  LLC,  (November 2002 - April 2003),



                                       28
<PAGE>



Powerhouse  Management,  Inc.,  (November 2002 - April 2003), Ong Corp.,  (March
2001 - June 2002) and American Hydroculture,  Inc., (August 2000 - August 2001),
none  of  which  went  public,  and  four  OTC  BB  listed  companies,  American
Ammunition, Inc. (July 2001 - March 2002), JAB International, Inc. (October 2000
- June 2003), Ocean Resources,  Inc.  (September 2002 - November 2003), and Safe
Technologies,  Inc.  (September 2002 - December 2003). Of the public  companies,
all but two,  (American  Ammunition and Pegasus  Wireless),  had completed their
reverse  mergers well before Mr. Durland  became aware of the  companies.  These
CFO/Acting  CFO positions  have primarily been interim in nature to assist these
companies  through  periods  when they could either not afford or did not need a
full-time CFO. All of the publicly traded companies, except Medical Makeover and
Safe  Technologies  became  public via reverse  merger with public  shells.  Mr.
Durland  was not  involved  with any of the public  shells  prior to the reverse
mergers.  Prior to Durland & Company,  he was  responsible  for the  back-office
operations and accounting for two companies with  investment  portfolios of $800
and  $900  million  and  $36  billion  (face  amount)  of  futures  and  options
transactions.  Prior to that, he was a securities Registered  Representative for
two years.  Mr. Durland  received his BAS in Accounting from Guilford College in
1982 and has been a CPA in 14 states.

     BILLY HORN,  President and CEO of Horn Asset,  Inc. a Miami,  Florida based
equity hedge fund.  Prior to this position Mr. Horn was a trader with two equity
hedge funds for 12 years.  Mr. Horn  received  his BA from  Adelphi  University,
Garden City, NY.


Item 10. Executive Compensation

The  following  summary   compensation  table  sets  forth  the  aggregate  cash
compensation  paid or accrued by the Company to each of the Company's  executive
officers  and key  employees  for  services  rendered to the Company  during the
Company's   fiscal  years  ended  2005  and  2004  and  all  plan  and  non-plan
compensation  awarded  to,  earned by or paid to  certain  designated  executive
officers.

                           SUMMARY COMPENSATION TABLE
                                                     Long Term
                                                     Compensation
------------------  ------- ------------------------ -------------
                               Annual Compensation     Awards
------------------  ------- ------------ ----------  ----------
                                                     Securities
Name and                                             Underlying
Principal            Year    Salary ($)   Bonus ($)    Options/
Position                                              SARs
------------------   ------- ------------ ----------  ----------
Alex Tsao,
former CEO and       2006    $     60,000 $        0  $        0
Chairman
                     2005-B  $     60,000 $        0  $        0
                     2005-A  $    120,000 $        0  $        0
                     2004    $    120,000 $        0  $        0

Jasper Knabb, CEO    2006    $          0 $        0  $        0
                     2005-B  $          0 $        0  $        0
                     2005-A  $          0 $        0  $        0
                     2004    $          0 $        0  $        0

Stephen Durland, CFO 2006    $          0 $        0  $        0
                     2005-B  $          0 $        0  $        0
                     2005-A  $          0 $        0  $        0
                     2004    $          0 $        0  $        0



                                       29
<PAGE>


Mr Knabb and Mr Durland  elected in July 2004 to accept stock options in lieu of
cash  compensation  for a period of two years,  beginning in July 2004.  Mr Tsao
also elected to receive his performance based bonus for a period of two years in
stock  options  as well.  For the two years Mr Knabb and Mr Tsao were to receive
240,000 post-split options and the CFO 216,000 post-split options.  All of these
options are one share per option and carry a post-split exercise price of $1.625
per share.  These options also carry a cash-less  exercise  option if elected by
the officer at exercise, if the market price of the Company's common stock is at
least $16.25 per share at the time of exercise,  the officer can elect to return
shares, to the Company in lieu of cash payment. These options are exercisable at
any time after the  Company's  share price  exceeds  $12.50 per share for a full
quarter, and can be exercised  cash-lessly on a pro- rata basis. The performance
requirement for the Chairman for year one is: a) eliminate all debt, b) take the
operating  company  public and c) reduce the operating  company loss by 40%; and
for year two to double the  Company's  base  revenue.  On June 28, 2006,  Jasper
Knabb and Stephen  Durland  elected to  exercise  their  options  for cash.  The
Company is evaluating Mr Tsao's options at present.

Compensation of Directors

The Company has no standard  arrangements  for compensating the directors of the
Company for their attendance at meetings of the Board of Directors.

Item 11.  Security  Ownership of Certain  Beneficial  Owners and  Management and
          Related Stockholder Matters.

Security Ownership of Certain Beneficial Owners

The  following  table  summarizes  certain   information  with  respect  to  the
beneficial  ownership of company  shares as of December 31, 2005,  regarding the
ownership of common stock by each shareholder known to be the owner of more than
5% of the  outstanding  shares,  each  director and all  executive  officers and
directors as a group.  Except as otherwise  indicated,  each of the shareholders
has sole voting and investment  power with respect to the shares of common stock
beneficially owned.

----------------------------------------------------------------------------
Name and Address of              Title of   Amount and Nature of    Percent
Beneficial Owner                  Class       Beneficial Owner      of Class
----------------------------------------------------------------------------
Jasper Knabb(1)                  Common            764,135             3.5%
277 Royal Poinciana Way,
 Suite 153
Palm Beach, FL 33480
----------------------------------------------------------------------------
Stephen Durland(1)               Common            226,381             1.1%
277 Royal Poinciana Way,
 Suite 153
Palm Beach, FL 33480
----------------------------------------------------------------------------
Billy Horn(1)                    Common             20,000             0.1%
277 Royal Poinciana Way,
 Suite 153
Palm Beach, FL 33480
----------------------------------------------------------------------------
All Executive Officers, Directors                1,010,516             4.7%
as a group




                                       30
<PAGE>


                           Certain Beneficial Owners
----------------------------------------------------------------------------
Name and Address of              Title of   Amount and Nature of    Percent
Beneficial Owner                  Class       Beneficial Owner      of Class
----------------------------------------------------------------------------
Vision 2000 Ventures, Ltd(1)     Common          1,814,752             8.4%
Taiwan, Republic of China
---------------------------------------------------------------------------
Alex Tsao(1)                     Common          1,860,903            8.6%
Saratoga, CA
---------------------------------------------------------------------------
TOTAL                                            1,814,752           17.0%

(1)  Based upon  21,608,848  shares of the  Company's  common  stock  issued and
     outstanding as of December 301 2005.


Item 12. Certain Relationships and Related Transactions

None


Item 13. Exhibits

Exhibit
Number    Description
-------   -----------------------

31.1      Certification  Certificate of the Chief Executive  Officer pursuant to
          Section 302 of Sarbanes-Oxley Act of 2002.

31.2      Certification  Certificate of the Chief Financial  Officer pursuant to
          Section 302 of Sarbanes-Oxley Act of 2002.

32.1      Certification  Certificate of the Chief Executive  Officer pursuant to
          Section 906 of Sarbanes-Oxley Act of 2002.

32.2      Certification  Certificate of the Chief Financial  Officer pursuant to
          Section 906 of Sarbanes-Oxley Act of 2002.
--------
*    Filed herewith

(b) Reports on Form 8-K filed in the last quarter of 2006:

None


Item 14. Principal Accountant Fees and Services

The Company paid or accrued the following fees in each of the prior two fiscal
years to it's principal accountant, Pollard-Kelley Auditing Services, Inc.:

                                Year ended                 Six Months ended
                                  December 31,               December 31,
                                   2006                            2005
                               ---------------            ---------------
1.   Audit fees                   $     60,000                 $   20,000
2.   Audit-related fees                      -                          -
3.   Tax fees                                -                          -
4.   All other fees                          -                          -
                               ---------------            ---------------
   Totals                         $     60,000                 $   20,000




                                       31
<PAGE>


The  Company  has  designated  a formal  audit  committee.  In  discharging  its
oversight   responsibility  as  to  the  audit  process,   commencing  with  the
engagement,  the Board obtained from it's independent  auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors'  independence as required by Independence  Standards
Board Standard No. 1,  "Independence  Discussions  with Audit  Committees."  The
Board  discussed  with the  auditors  any  relationships  that may impact  their
objectivity  and  independence,  including  fees  for  non-audit  services,  and
satisfied itself as to the auditors' independence. The Board also discussed with
management  and  the  independent  auditors  the  quality  and  adequacy  of the
Company's  internal controls.  The Board reviewed with the independent  auditors
their management letter on internal controls, if one was issued by the Company's
auditors.

The Board  discussed  and  reviewed  with the  independent  auditors all matters
required to be discussed by auditing standards  generally accepted in the United
States of America,  including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees".

The Board reviewed the audited financial statements of the Company as of and for
the year and six months ended December 31, 2006 and 2005 with management and its
independent  auditors.  Management has the sole ultimate  responsibility for the
preparation of the Company's financial statements and the respective independent
auditors have the responsibility for their examination of those statements.

Based  on  the  above-mentioned  review  and  discussions  with  the  respective
independent  auditors  and  management,  the  Board of  Directors  approved  the
Company's audited financial  statements and recommended that they be included in
its Annual Report on Form 10-KSB for the year and six months ended  December 31,
2006 and 2005, for filing with the Securities and Exchange Commission.

The Company's  principal  accountant  for the year and six months ended December
31, 2006 and 2005,  Pollard-Kelley  Auditing  Services,  Inc. did not engage any
other  persons  or  firms  other  than  the  respective  principal  accountant's
full-time, permanent employees.









                                       32
<PAGE>



                                   SIGNATURES

In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                            Pegasus Wireless Corp.
                                  (Registrant)

Date: March 29, 2007        /s/ Jasper Knabb
                           ------------------------------------------------
                           Jasper Knabb, CEO and Director

                           /s/Stephen Durland
                           ------------------------------------------------
                           Stephen Durland, CFO and Director

                           /s/Billy Horn
                           ------------------------------------------------
                           Billy Horn, Director


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

Signature                               Title                        Date

By: /s/Jasper Knabb
   --------------------------     CEO & Director          March 29, 2007
    Jasper Knabb


By: /s/Stephen Durland
   --------------------------     CFO & Director          March 29, 2007
    Stephen Durland


By: /s/Billy Horn
   --------------------------    Director                 March 29, 2007
    Billy Horn








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