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 June 30, 2005

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

For the transition period from _______________ to ________________


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.)

48499 Milmont Dr.
Fremont, California                                          94538
---------------------------------------           -------------------------
(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)

Copies of Communications Sent to:

                                   Carl Duncan, Esq.
                                   Duncan Blum & Assoc.
                                   5718 Tanglewood Dr.
                                   Bethesda, MD 20817

<PAGE>



Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days.

Yes [X] No [_]



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 June 30, 2005:$3,172,351.



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
September 13, 2005 was $284,600,000.



There were 65,770,596 shares of the registrant's common stock outstanding as of
September 13, 2005.



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................................................

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

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

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

PART II

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

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

Item 7. Financial Statements...................................................

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

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

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

PART III

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

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

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

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

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

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

SIGNATURES.....................................................................















<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

     Blue Industries,  Inc., (the "Company"), was incorporated under the laws 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.

     Technocall SA, a proprietary  micro-calculator  and  electronic  management
system  that  regulates  and  controls  the water  treatment  process,  had been
inactive  until  September  2001,  at  which  time it  acquired  all the  assets
comprising the Blue Industries  water treatment  process.  On April 2, 2002, the
Company changed its name to Blue Industries Inc.


                                       4
<PAGE>



     In March 2003, the Company formed Blue  Industries,  Inc., a new subsidiary
under the laws of Florida.  In late 2003,  the Company  elected to liquidate its
foreign operating subsidiaries and reverted to an inactive status again.

     In May 2005,  the Company  changed its name to Pegasus  Wireless  Corp. and
acquired  issued and outstanding  shares of 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.

OTC Wireless, Inc. manufactures wireless connectivity devices.

     The Company has  authorized  50,000,000  shares of $0.0001 par value common
stock and 10,000,000  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  33,478,070  and 7,015,578  shares of common
stock and no shares of preferred  stock issued and  outstanding at June 30, 2005
and December 31, 2004, respectively.

     In  March  2002,  the  Company's  stockholders  approved  a  change  to the
Company's  authorized  share capital to increase the authorized  common stock to
50,000,000  shares at a par value of $0.001  per  share,  and to  authorize  the
creation of  10,000,000  shares of preferred  stock at a par value of $0.001 per
share.

     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.

(b) Business of Issuer.

General

The operating entity of Pegasus Wireless Corp. Is OTC Wireless, Inc.

     OTC Telecom,  Inc. (the Company or OTC  Wireless),  changed its name to OTC
Wireless,  Inc.  in 2000 to better  reflect  the  nature of the  company's  core
business. 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  experienced  technologists  from  microwave
communication and computer networking  industries.  The Company's major business
is to provide  wireless  communication  technologies  and  products to serve the
business, education and industrial application markets.

     OTC Wireless introduced its 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.


                                       5
<PAGE>



     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 1998,  the Company  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,  to provide a
collision-free,  adjustable bandwidth wireless access solution platform.  In the
same year, the Company also  introduced one of the  industry's  earliest  2.4GHz
IEEE 802.11b wireless bridges.

     In 2000, the Company  introduced the one of the industry's  earliest 54Mbps
IEEE  802.11g   plug-and-play   indoor  and  outdoor  wireless  Ethernet  bridge
solutions, VCW and ASR/ACR.

     In  2002,  the  Company   introduced  a   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, the Company
introduced its 802.11b wireless projector/display solution, WiJET.

     In 2004, the Company  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. The
Company also introduced two new wireless  display  solutions based on the 54Mbps
IEEE 802.11g technology (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.

     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.

     Although  the  Company   initialized  the  following   provisional   patent
applications,  it  decided  not to  continue  with  formal  applications  due to
obsolesence caused by newer technology development:



                                       6
<PAGE>



          "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.

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

     For indoor and outdoor wireless networking:

       OTCW Model #        Application
   --------------    -------------------------------------------
   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:

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

     For wireless multimedia/video networking solutions:

   OTCW Model #        Application
   --------------    -------------------------------------------
   WiJET:            11 Mbps wireless display solution
   WiJET.G:          54 Mbps wireless display solution
   WiJET.Video:      54 Mbps wireless display solution with video streaming

     OTC Wireless 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  OTC  Wireless's  solution  to their own


                                       7
<PAGE>



products,  or carry OTC  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 in the U.S. and D-Link, a major
worldwide  network  equipment  provider  based in Taiwan,  each of which private
labels our  technology  products  through  their  distribution  network in their
country of origin.

     The 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,  OTC 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 series  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  series  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.


                                       8
<PAGE>



     The  Company  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.

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.

     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 September 10, 2005, the Company has 24 employees, principally located
at our Fremont, California offices.


                                       9
<PAGE>



Manufacturing

     As of September 10,2005,  all of the Company's products are manufactured in
China by contract manufacturers.

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 48499
Milmont  Dr.,  Fremont,  California  94538  and its  telephone  number  is (510)
490-8288.


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
not currently a party to any legal proceedings.


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

2005                                HIGH                 LOW
------                             --------            -----
June 30, 2005                       7.40                0.10
March 31, 2005                      0.10                0.10


                                       10
<PAGE>



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


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


2002                                HIGH                 LOW
------                             --------            -----
December 31, 2002                   1.47                0.20


The  approximate  number of  holders  of  record  of common  equity is 675 as of
September 8, 2005.

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 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


                                       11
<PAGE>



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 Twelve Months Ending June 30, 2005 & 2004

Financial Condition, Capital Resources and Liquidity

     For the twelve  months  ending June 30, 2005 and 2004 the Company  recorded
revenues of  $3,172,400  and  $3,136,800  respectively.  The lack of increase in
revenue is a direct result of the Company being unable to deliver  product which
it is aware  would be ordered if it were able to deliver.  The Company  will not
accept orders that it knows cannot be delivered  timely.  This problem is caused
by the fact that the Company  utilizes  contract  manufacturers  to produces the
Company's  products.  As such,  because our product orders are small relative to
the orders of other companies they  manufacture for, (i.e.  Motorola,  HP, among
many others), our orders slip in priority when the economy is relatively good to
stable.  We have been  experiencing this problem for several years. As a private
company we have had few viable options, because the cost of buying or building a
manufacturing line has been prohibitive as we have not had access to the capital
required.

     For the twelve  months  ending June 30, 2005 and 2004 the Company had total
salary expenses of $1,219,500 and $1,443,600  respectively.  The Company reduced
its cash salary expense more than $200,000 in 2005.

     For the twelve  months  ending June 30, 2005 and 2004 the Company had, on a
consolidated basis, general and administrative expenses of $306,100 and $596,100
respectively.  We have employed a concerted effort to reduce our expenses, which
has been  successful  by a 48.7%,  or  $290,000  reduction  in our  general  and
administrative expenses.

     For the twelve  months  ending June 30, 2005 and 2004 the Company had, on a
consolidated basis, professional fees of $337,000 and $191,500 respectively. Our
$140,000  increase in professional fees is a direct result of the process of our
becoming a public company.

     For the twelve months  ending June 30, 2005 and 2004,  the Company had on a
consolidated  basis total  operating  expenses  of  $2,103,300  and  $2,541,000,
respectively.


                                       12
<PAGE>



Net Loss

     For the twelve months ending June 30, 2005 and 2004, the Company reported a
net loss from operations of $672,800 and $969,800, 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
steps to address  this  problem.  In August 2005,  the Company  entered into two
Letters of Intent to acquire 51%, each, of two contract manufacturing  companies
located in Taiwan.  The terms of these  acquisitions are still being negotiated.
These companies are both familiar with, and have  manufactured  our products for
us.  These two  companies,  combined,  producing  only our  products,  given our
current product sales mix and pricing, have the capacity to support $120 million
in sales.

Research and Development Plans

     Our current  research and  development  activities are relatively  limited.
They focus mainly on improving our current products,  but do include,  from time
to time,  include the  development  of new products or new uses for our existing
products.

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


Item 7. Financial Statements




                [Balance of this page intentionally left blank]








                                       13
<PAGE>




                          INDEX TO FINANCIAL STATEMENTS


Reports 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-6

Notes to Consolidated Financial Statements...................................F-7


























                                       F-1

<PAGE>





             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
Pegasus Wireless Corp.
Fremont, California

We have audited the accompanying consolidated balance sheets of Pegasus Wireless
Corp.,  (the  "Company")  as of June 30,  2005 and of OTC  Wireless,  Inc.  (the
predecessor)  as of June 30, 2004 and the  related  consolidated  statements  of
operations and comprehensive  income (loss),  stockholders'  equity (deficiency)
and cash  flows for the two  years in the  period  ended  June 30,  2005.  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
June 30, 2005 and 2004 and the results of its  operations and its cash flows for
the two  years in the  period  ended  June 30,  2005,  in  conformity  with U.S.
generally accepted accounting principles.




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

Fairlawn, Ohio
July 21, 2005, except for footnote 14, as to which the date is August 16, 2005








                                       F-2

<PAGE>



<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                           Consolidated Balance Sheets
                                    June 30,

                                   ASSETS                           Pegasus            OTCW
                                                                      2005             2004
                                                                --------------- ---------------
<S>                                                             <C>             <C>
CURRENT ASSETS
  Cash and equivalents                                          $       839,520 $       298,045
  Accounts receivable, net of reserve of $5,700 and $5,700              307,389         421,916
  Inventory, net of reserve of $656,602 and $644,000                    469,613         265,146
  Prepaid expenses                                                       20,675          11,475
                                                                --------------- ---------------
          Total current assets                                        1,637,197         996,582
                                                                --------------- ---------------
PROPERTY AND EQUIPMENT
  Computers and equipment                                               642,987         635,491
        Less accumulated depreciation                                  (517,746)       (408,672)
                                                                --------------- ---------------
          Net property and equipment                                    125,241         226,819
                                                                --------------- ---------------
OTHER ASSETS
  Deposits and other assets                                              16,186          31,186
                                                                --------------- ---------------
          Total other assets                                             16,186          31,186
                                                                --------------- ---------------
Total Assets                                                    $     1,778,624 $     1,254,587
                                                                =============== ===============
  LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIENCY)
CURRENT LIABILITIES
   Accounts payable                                             $       413,099       $514,258
   Accrued Expenses                                                     137,994         102,508
   Customer deposits                                                      5,097          63,858
   Current portion of long-term debt                                          0               0
                                                                --------------- ---------------
          Total current liabilities                                     556,190         680,624
                                                                --------------- ---------------
LONG-TERM DEBT
   Notes payable - related party                                              0         504,231
                                                                --------------- ---------------
          Total long-term debt                                                0         504,231
                                                                --------------- ---------------
Total Liabilities                                                       556,190       1,184,855
                                                                --------------- ---------------
Minority interest in consolidated subsidiary                                  0               0
                                                                --------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
   Preferred stock, $0.0001 and no par value, authorized
     10,000,000 and 35,000,000 shares; none and 15,295,206
     issued and outstanding                                                   0      12,663,209
   Common stock, $0.0001 and no par value, authorized
     50,000,000 and 50,000,000 shares; 32,766,590 and
     5,645,287 issued and outstanding shares                              3,277         416,865
                                                                                        =======
   Additional paid-in capital                                        14,902,295               0
   Accumulated deficit                                              (13,683,138)    (13,010,342)
                                                                --------------- ---------------
          Total stockholders' equity (deficiency)                     1,222,434          69,732
                                                                --------------- ---------------
Total Liabilities and Stockholders' Equity (Deficiency)         $     1,778,624 $    1,254,587
                                                                =============== ===============
</TABLE>



     The accompanying notes are an integral part of the financial statements.

                                       F-3
<PAGE>



<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                      Consolidated Statements of Operations
                               Year Ended June 30,


                                                                  Pegasus               OTCW
                                                                    2005                2004
                                                             ------------------    -----------------
<S>                                                          <C>                   <C>
REVENUES                                                     $        3,172,351    $       3,136,817
COST OF SALES                                                         1,728,479            1,565,592
                                                             ------------------    -----------------
Gross Margin                                                          1,443,872            1,571,225

OPERATING EXPENSES
    Salaries                                                          1,219,485            1,443,638
    Sales and marketing                                                 100,858               78,517
    Depreciation and amortization                                       109,074              154,296
    Professional fees                                                   337,047              191,514
    General and administrative                                          306,088              596,064
    Research and development                                             30,777               77,008
                                                             ------------------    -----------------
          Total operating expenses                                    2,103,329            2,541,037
                                                             ------------------    -----------------
 Operating loss                                                        (659,457)            (969,812)
                                                             ------------------    -----------------
OTHER INCOME (EXPENSE):
    Interest income                                                       5,581                6,751
    Other income                                                          4,798                    0
    Interest expense                                                    (22,918)             (25,000)
                                                             ------------------    -----------------
          Total other income (expense)                                  (12,539)             (18,249)
                                                             ------------------    -----------------
Net income (loss) before income tax                                    (671,996)            (988,061)

    Income tax                                                              800                  800
                                                             ------------------    -----------------
Net income (loss)                                            $         (672,796)   $        (988,861)
                                                             ==================    =================
Net income (loss) per common share - basic                   $             0.01    $           (0.19)
                                                             ==================    =================
Weighted average number of common shares outstanding - basic         24,186,993            5,177,987
                                                             ==================    =================
</TABLE>



     The accompanying notes are an integral part of the financial statements.

                                       F-4
<PAGE>


<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
          Consolidated Statements of Stockholders' Equity (Deficiency)


                                                                                                                  Total
                                  Number of   Number of                               Add'l.                  Stockholders'
                                   Shares -    Shares -    Amount -     Amount -     Paid-in    Accumulated       Equity
                                  Preferred    Common     Preferred     Common       Capital      Deficit      (Deficiency)
                                -----------  ---------- ------------ ------------ ------------ -------------   ------------
<S>                             <C>          <C>        <C>          <C>          <C>          <C>             <C>
BEGINNING BALANCE, June 30,
2003                             15,295,206   5,124,784 $ 12,663,209 $    108,538 $          0 $ (12,021,481)  $    750,266

Common stock issued for cash              0     307,692            0      200,000            0             0        200,000
Common stock issued for services          0     212,811            0      108,327            0             0        108,327
Net loss                                  0           0            0            0            0      (988,861)      (988,861)
                                -----------  ---------- ------------ ------------ ------------ -------------   ------------

BALANCE, June 30, 2004           15,295,206   5,645,287   12,663,209      416,865            0   (13,010,342)        69,732
                                ===========  ========== ============ ============ ============ =============   ============

Preferred converted to common   (15,295,206) 16,764,705  (12,663,209)  12,663,209                                         0
Recapitalization                          0   8,000,000            0  (13,076,985)  14,102,483             0      1,025,498
Acquisition of subsidiary                 0   3,000,000            0          199            0             0            199
Recapitalization                          0    (643,402)           0          (11)     799,812             0        799,801
Net loss                                  0           0            0            0            0      (672,796)      (672,796)
                                -----------  ---------- ------------ ------------ ------------ -------------   ------------

ENDING BALANCE, June 30,
2005                                      0  32,766,590 $          0 $      3,277 $ 14,902,295 $ (13,683,138)  $  1,222,434
                                ===========  ========== ============ ============ ============ =============   ============
</TABLE>













     The accompanying notes are an integral part of the financial statements.

                                       F-5
<PAGE>



<TABLE>
<CAPTION>
                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                      Consolidated Statements of Cash Flows
                               Year Ended June 30,


                                                                 Pegasus                OTCW
                                                                   2005                 2004
                                                            ------------------   ------------------
<S>                                                         <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                           $         (672,796)  $         (988,861)
Adjustments to reconcile net loss to net cash used
  by operating activities:
     Depreciation and amortization                                     109,074              155,196
     Change in inventory reserve                                        12,602                    0
     Common stock issued for services                                        0              108,327
     Loss on disposal of fixed assets                                        0               18,541
Changes in operating assets and liabilities:
     (Increase) decrease in accounts receivable                        114,527              271,137
     (Increase) decrease in inventory                                 (217,069)             193,578
     (Increase) decrease in prepaid expenses                            (9,200)              31,673
     (Increase) decrease in deposits and other assets                   15,000               25,392
     Increase (decrease) in accounts payable                          (101,159)            (438,842)
     Increase (decrease) accrued expenses                               35,486               (9,222)
     Increase (decrease) in customer deposits                          (58,761)            (831,300)
                                                            ------------------   ------------------
Net cash  provided (used) by operating activities                     (772,296)          (1,464,381)
                                                            ------------------   ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
     Purchase of property and equipment                                 (7,496)             (12,225)
     Proceeds from sale of fixed assets                                      0               11,616
                                                            ------------------   ------------------
Net cash provided (used) by investing activities                        (7,496)                (609)
                                                            ------------------   ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
     Cash acquired in reorganization                                 1,825,498                    0
     Proceeds from loan - related parties                                    0                4,231
     Repayment of loan                                                (504,231)                   0
     Issuance of common stock for cash                                       0              200,000
                                                            ------------------   ------------------
Net cash provided by financing activities                            1,321,267              204,231
                                                            ------------------   ------------------

Net increase (decrease) in cash and equivalents                        541,475           (1,260,759)
CASH and equivalents, beginning of period                              298,045            1,558,804
                                                            ------------------   ------------------
CASH and equivalents, end of period                         $          839,520   $          298,045
                                                            ==================   ==================

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash                                       $           47,918   $            9,728
                                                            ==================   ==================
Income taxes paid in cash                                   $              800   $              800
                                                            ==================   ==================

Non-Cash Financing Activities:
  None
</TABLE>






     The accompanying notes are an integral part of the financial statements.

                                       F-6
<PAGE>



                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                 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 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. It returned to an inactive state in 2003. In June 2005,
the Company  changed its name to Pegasus  Wireless Corp. upon its acquisition of
OTC Wireless, Inc.

OTC Wireless,  Inc., (the operating  company) was incorporated under the laws of
California  on  September  21,  1993.  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 - The financial  statements have been prepared on a going
concern basis.  As of June 30, 2005,  the Company had an accumulated  deficit of
$13,983,100 and has suffered losses and negative cash flow from operations since
inception.  Management has implemented  workforce  reduction,  pay cut and other
cost saving  programs to reduce  operating  expenses.  In addition,  the Company
plans to enlarge the customer base, increase the sales volume and institute more
effective  management   techniques.   Management  believes  these  factors  will
contribute toward achieving  profitability.  Please see note 13, which addresses
subsequent  events.  Management has taken steps to address the inherent problems
with using contract  manufacturers  as well as providing for the purchase of the
raw materials  needed to produce the Company's  products in sufficient  quantity
and with  requisite  timeliness  in order to  produce  positive  cash  flow from
operations, and profits. Management expects that it could take a year before the
results of these steps is fully reflected in the financial statements.

Principles of Consolidation - The consolidated  financial statements include the
accounts of Pegasus  Wireless Corp. and its 4  wholly-owned  subsidiaries,  3 of
which are shells. Inter-company balances and transactions have been eliminated.

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


                                      F-7
<PAGE>



                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                 Notes to the Consolidated Financial Statements


NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

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 $644,000 and $900,961 at June 30, 2004 and 2003,
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.

Loss Per Share - Loss per share is computed using the Weighted Average Number of
common shares outstanding during the fiscal year.

Advertising - The Company expenses the production costs of advertising as they
are incurred. Advertising expense was $5,100 and $7,300 for the years ending
June 30, 2005 and 2004, respectively.

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.  For the fiscal year ended June 30, 2005, two customers  accounted
for 50% of the Company's total sales and 62% of the accounts receivable balance.
Also, one vendor  accounted for 92% of the Company's  total purchases and 84% of
the accounts payable balance.

For the year  ended  June  30,  2005,  two  suppliers  accounted  for 39% of the
Company's total purchases and 97% of the accounts  payable  balance.  During the
years  ending at June 30, 2005 and 2004,  the  Company had  deposits in banks in
excess of the FDIC insurance limit.



                                       F-8
<PAGE>



                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                 Notes to the Consolidated Financial Statements


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 as of June 30, 2005 and 2004 consist of the following:

                                                  2005              2004
                                               ----------        ----------
    Trade accounts receivable                  $  313,089        $  427,616
    Allowance for doubtful accounts                (5,700)           (5,700)
                                               ----------        ----------
             Total                             $  307,389        $  421,916


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 as of June 30, 2005
and 2004 consist of the following:

                                                  2005              2004
                                               ----------        ----------
         Raw Materials                         $1,126,215        $  909,146
         Less: Reserve for obsolescence          (656,602)         (644,000)
                                               ----------        ----------
                  Total                        $  469,613        $  265,146


NOTE 5 - FIXED ASSETS

Fixed assets are stated at cost. Maintenance, repairs and renewals are expensed
as incurred. Depreciation is computed using the straight-line method over the
estimated useful lives ranging from 3 to 7 years. Fixed assets as June 30, 2004
and 2003 consist of the following:


                                                  2005              2004
                                               ----------        ----------

         Furniture and fixtures                $  108,945        $  108,945
         Machinery and equipment                  320,685           320,685
         Computer equipment                       117,013           111,184
         Software                                  96,343            94,675
                                               ----------        ----------
                  Total                           642,987           635,489
         Less: Accumulated depreciation          (517,746)        (408,670)
                                               ----------        ----------
                  Net                          $  125,241        $  226,819




                                       F-9
<PAGE>



                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                 Notes to the Consolidated Financial Statements


NOTE 6 - NOTES PAYABLE

On March 6, 2003, OTC Wireless  obtained a loan,  totaling  $500,000 from one of
its  stockholders.  The loan was due and payable in two years. It bears interest
at 5% per annum  with  quarterly  payments  This loan was paid in full in fiscal
2005 and accrued  interest  totaling  $47,900  was paid in full in early  fiscal
2006.


NOTE 7 - STOCKHOLDERS' EQUITY

The  authorized  capital stock of the Company  consists of 50,000,000  shares of
common  stock with a par value of $0.0001  and  10,000,000  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
32,766,590 and 5,645,287 shares of common stock outstanding at June 30, 2005 and
2004.

In 2004, the Company issued  2,144,864 shares of common stock to settle payables
in the amount of $113,495, or $0.05 per share. In early fiscal 2005, the Company
issued 10,000,000  shares in exchange for services valued at $20,000,  or $0.002
per share. Subsequently,  the Company completed a 1 for 200 reverse split of the
common  stock,  retiring  16,947,500  shares,  leaving  68,078 shares issued and
outstanding. The Company issued 3,000,000 shares of common stock in exchange for
convertible  debt in the amount of $22,000,  or $0.007 per share.  In June 2005,
the Company issued  1,230,769 shares of common stock in exchange for $800,000 in
cash, or $0.65 per share. In June 2005, the Company issued  28,467,743 shares of
common stock to effect the  acquisition  of OTC  Wireless,  Inc.,  the operating
company.


NOTE 8 - OPERATING LEASES

On April 12, 2004, the Company entered into an operating lease,  expiring May 8,
2007,  for  office  space.  The  base  rent  is to  be  increased  by 4% on  the
anniversary of the effective  date. The total rental expense for the years ended
June 30, 2005 and 2004 was $112,600 and $364,600, respectively.

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

         Year ending June 30,
                  2006                 $  79,704
                  2007                 $  68,134




                                       F-10
<PAGE>



                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                 Notes to the Consolidated Financial Statements


NOTE 9 - RELATED PARTY TRANSACTIONS

On March 6, 2003, the Company obtained a loan, totaling $500,000 from one of its
stockholders. The loan was due and payable in two years. It bears interest at 5%
per annum with quarterly payments. This loan was paid in full in fiscal 2005 and
accrued interest totaling $47,900 was paid in full in early fiscal 2006.


NOTE 10 - 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.  A valuation  reserve has been established
which  sets the value of these  computations  to zero at June 30,  2005 and 2004
because the realization of these benefits is uncertain.

The  provision  for income taxes for the years ending June 30, 2005 and 2004 was
for state taxes of $800 and $800 respectively.


NOTE 11 - 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 in the years ended June 30, 2005 and 2004.


NOTE 12 - 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  1,820,000  shares of common stock options.
There were 709,500 options outstanding on June 30, 2005 and 2004, respectively.

The Company  accounts  for its  stock-based  awards  using the  intrinsic  value
method.  If the fair value method were used,  the Company's  losses for the year
ended June 30, 2005 would have increased by $137,761 to $810,467 and by $137,761
to $1,126,622 for the year ended June 30, 2004.




                                       F-11
<PAGE>



                             PEGASUS WIRELESS CORP.
                       (OTC Wireless, Inc. - predecessor)
                 Notes to the Consolidated Financial Statements


NOTE 13 - 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
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 Chairman and President are
to receive 600,000 options and the CFO 540,000 options. All of these options are
one share per  option  and carry an  exercise  price of $0.65 per  share.  These
options  also carry a  cashless  exercise  option if  elected by the  officer at
exercise,  if the market price of the  Company's  common stock is at least $3.25
per share at the time of  exercise,  the  Chairman  and  President  can elect to
return 100,000 of their 600,000  shares,  and the CFO 90,000 of his 540,000,  to
the Company in lieu of cash payment.  These options are  exercisable at any time
after the Company's share price exceeds $2.50 per share for a full quarter,  and
can be exercised cashlessly 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.  If the expenses  related to taking the
operating company public are excluded, the Chairman has met the requirements for
the first year.


NOTE 14 - SUBSEQUENT EVENTS

A -  Acquisition  Letters of Intent - In August 2005,  the Company  entered into
letters of intent to acquire 51% each of two  companies  based in Taiwan.  These
LOIs are  contingent  on,  among  other  items,  the  drafting  of a  definitive
acquisition  agreement  with final  purchase  price and terms  acceptable to all
parties,  the  delivery  of  acceptable  audited  financial  statements  by  the
companies  to be  acquired  and  delivery  by Pegasus of the final  agreed  upon
compensation.

These two  companies  own  manufacturing  lines in China  which are  capable  of
producing, and are familiar with, the Company's products.

In  expectation of the closing of these  acquisitions,  the Company has arranged
financing in the amount of $3.5 million in order to close the  acquisitions  and
purchase raw materials for a ramp-up of production.



                                       F-12
<PAGE>



Item 8. Changes in and Disagreements with Accountants.

     On May 25, 2005, as a result of the  acquisition  of OTC Wireless,  Inc. by
Pegasus Wireless,  the Company dismissed  Lawrence  Scharfman & Company,  as the
independent auditor of the Company.

     On May 25, 2005, the Company's  board of directors  approved the engagement
of the firm of Pollard-Kelley Auditing Services, Inc., 3250 W. Market St., Suite
307,  Fairlawn,   Ohio  44333,  as  the  Company's  independent  auditors.  Such
appointment was accepted by Terance Kelly of the firm.

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.




                                       26
<PAGE>



                                    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.  Our
board of directors currently consists of five members.

NAME                 AGE         POSITION
-------------       ------       -----------------
Alex Tsao           52           Chief Executive Officer and Chairman of the
                                 Board of Directors
Jasper Knabb        37           President and Director
Stephen Durland     51           Chief Financial Officer and Director
Caspar Lee          51           Director
Jerry Shih          56           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.




                                       27
<PAGE>



Business Experience

Officers and Directors

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

     ALEX TSAO,  Chairman and CEO, is the  Company's  founding CEO. Dr. Tsao has
more than 20 years  experience  in the  microwave  communication  and  satellite
communication industry. He has served in both technical and management positions
during his association with  Globalstar,  Loral Space Systems and Ford Aerospace
prior to OTC Wireless.  From 1991 to 1993, he was the technical  manager for the
satellite  communication payload system for Globalstar,  a low earth orbit (LEO)
satellite mobile communication  service provider.  He was involved in the system
design  and  development  for both the space  and the  ground  segments  for the
geosynchronous  earth orbit (GEO)  communication  satellite  systems  during his
tenure with Loral Space  Systems  between 1988 and 1991.  He was involved in the
microwave  communication  system  development  while working for Ford  Aerospace
during the 1981 to 1988  period.  Dr. Tsao  received  his Ph.D.  degree from the
University of Illinois,  Champaign-Urbana  in 1981 and his Master's  degree from
Duke  University  in 1978,  both in  Electrical  Engineering.  Dr. Tsao has been
awarded 11 U.S. patents.

     JASPER KNABB,  President and Director, has more than 15 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  development  from 2001 to 2002. 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 has been a  Director  of
Medical Makeover Corporation of America, (OTC BB: MMAM), since June 2004. He has
also been a Director of ExpressAir Delivery Systems,  Inc. since 1999 and Global





                                       28
<PAGE>



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),  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.

     CASPAR LEE,  Director,  has been the President of Paradigm Venture Partners
since  2001.  Paradigm  is an  Asia-  based  venture  investment  firm  Mr.  Lee
co-founded.  Mr.  Lee has  more  than 25  years  experience  in the  electronics
industry and high-tech venture investment  business.  Between 1991 and 2001, Mr.
Lee was the Senior Vice President of Hotung  International  Investment Group, an
Asia-based  investment  firm with more than 170  portfolio  companies in Taiwan,
Singapore,  Hong Kong, Malaysia, China, Israel, Canada and the U.S. Between 1987
and 1991, Mr. Lee was the President of Astra Computers, a motherboard design and
manufacturing  company  based in Taiwan.  Between  1983 and 1987,  Mr. Lee was a
hardware  design  Manager  at Sytek  Corp.,  a Mountain  View,  California-based
broadband  local area  network  manufacturer.  From 1981 to 1983,  Mr. Lee was a
hardware  design  engineer at  Ungermann-Bass  Corp.,  Santa Clara,  California.
Between 1979 and 1981, Mr. Lee was a CPU design  engineer at Intel Corp.,  Santa
Clara,  California.  From 1978 to 1979, Mr. Lee worked as a SRAM design engineer
at Texas  Instruments,  Houston,  Texas.  Mr. Lee received his Masters degree in
Electrical  Engineering from University of California,  Berkeley in 1978 and his
MBA degree from University of Santa Clara, Santa Clara, California in 1986.



                                       29
<PAGE>



     JERRY SHIH, Director,  is the founder and, since 1985, the Chairman and CEO
of AMAX Engineering  Corporation,  a PC system and peripheral solution provider.
Mr. Shih has more than 25 years'  experience in the computer  manufacturing  and
channel  distribution  business.  He is  also  the  Chairman  and  CEO  of  AMAX
Information Technologies, an IT solution provider; President of ASKE Media Inc.,
an e- commerce software solution provider and Chairman of Advanced Semiconductor
Engineering Technologies,  a semiconductor equipment service provider. He was an
Engineering Manager at VLSI Technology between 1984 and 1985. From 1978 to 1984,
he was an Engineering  Manager at Signetics  Corporation.  He was an engineer at
Mostek  Corporation  between 1977 and 1978. Mr. Shih received his Masters degree
in Industrial Engineering from the University of Arizona in 1977.

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.

                                                                   Long Term
                                                                   Compensation
                                            Annual Compensation    Awards
                                          ----------------------------------
                                                                 Securities
                                                                  Underlying
Name And Principal Position                Salary($)   Bonus($)   Options
----------------------------------------------------------------------------
Alex Tsao, Chief Executive Officer,   2005 $  120,000 $      0   $       0
and Director                          2004 $  120,000 $      0   $       0
                                      2003 $  120,000 $      0   $       0

Jasper Knabb, President               2005 $        0 $      0   $       0
                                      2004 $        0 $      0   $       0
                                      2003 $        0 $      0   $       0

Stephen Durland, CFO                  2005 $        0 $      0   $       0
                                      2004 $        0 $      0   $       0
                                      2003 $        0 $      0   $       0
------------------------------



                                       30
<PAGE>



     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 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 Chairman
and President are to receive 600,000 options and the CFO 540,000 options. All of
these options are one share per option and carry an exercise  price of $0.65 per
share.  These  options also carry a cashless  exercise  option if elected by the
officer at  exercise,  if the market price of the  Company's  common stock is at
least $3.25 per share at the time of exercise,  the Chairman and  President  can
elect to return  100,000  of their  600,000  shares,  and the CFO  90,000 of his
540,000,  to the Company in lieu of cash payment.  These options are exercisable
at any time after the  Company's  share price exceeds $2.50 per share for a full
quarter,  and can be exercised  cashlessly 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.  If the expenses  related to
taking the  operating  company  public are  excluded,  the  Chairman has met the
requirements for the first year.

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 June 30,  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.


Alex Tsao(1)                   Common           3,752,258             11.5%
48499 Milmont Dr.
Fremont, CA 94538
---------------------------------------------------------------------------
Jasper Knabb(1)                Common             200,000              0.6%
48499 Milmont Dr.
Fremont, CA 94538



                                       31
<PAGE>



----------------------------------------------------------------------------
Stephen Durland(1)             Common                   0              0.0%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
Caspar Lee(1)                  Common                   0              0.0%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
Jerry Shih(1)                  Common             680,000              2.1%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
All Executive Officers, Directors               4,632,258             14.1%
as a group


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         Common          4,536,438           13.8%
c/o OTC Wireless, Inc.
48499 Milmont Dr.
Fremont, CA 94538
-------------------------------
TOTAL                                             4,536,438           13.8%

(1)  Based upon  32,766,590  shares of the  Company's  common  stock  issued and
     outstanding as of June 30, 2005.


Item 12. Certain Relationships and Related Transactions

    None




                                       32
<PAGE>



Item 13.  Index to Exhibits
-------   -----------------------

31 *      Certificate of the Chief Executive Officer and Chief Financial Officer
          pursuant Section 302 of the Sarbanes-Oxley Act of 2002

32 *      Certificate of the Chief Executive Officer and Chief Financial Officer
          pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
-------------------------------------------------
*    Filed herewith

 (b) Reports on Form 8-K filed in the last quarter of fiscal 2005:

     May 10, 2005 - Reporting the change of the Company's independent auditor

     June 2, 2005 - Reporting the completion of acquisition Reporting the change
of the  Company's  independent  auditor  Reporting  the change of control of the
Company  Reporting  the  resignation  of officers and  directors  Reporting  the
replacement  of officers and  directors  Reporting the change of fiscal year end
Reporting the amendments to the Company's Code of Ethics Financial statements of
acquired entity


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,  2005 -  Pollard-Kelley  Auditing
Services,  Inc.  and 2004 -  Durland  &  Company,  CPA's,  P. A. of Palm  Beach,
Florida:

                                           Year ended        Year ended
                                             June 30,        December 31,
                                              2005               2004
                                          ----------------------------------
1.   Audit fees                              $20,000           $20,000
2.   Audit-related fees                            -                 -
3.   Tax fees                                      -                 -
4.   All other fees                                -                 -
                                           ---------         ---------
   Totals                                    $20,000           $20,000
                                           ---------         ---------

     The  Company has not  designated  a formal  audit  committee.  However,  as
defined in Sarbanes-Oxley Act of 2002, the entire Board of Directors



                                       33
<PAGE>



(Board),  in the absence of a formally appointed  committee,  is, by definition,
the Company's 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 years  ended  December  31,  2004 and 2003 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 ended June 30,  2005,  for filing
with the Securities and Exchange Commission.

     The Company's  principal  accountant  for the year ended June 30, 2005, and
for the year ended December 31, 2004, Pollard-Kelley Auditing Services, Inc. and
Durland & Company, CPA's P.A., respectively, did not engage any other persons or
firms other than the  respective  principal  accountant's  full-time,  permanent
employees.






                                       34
<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: September 20, 2005   /s/Alex Tsao
                           ------------------------------------------------
                           Alex Tsao, CEO & Chairman of the Board

                           /s/ Jasper Knabb
                           ------------------------------------------------
                           Jasper Knabb, President and Director

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

                           /s/Caspar Lee
                           ------------------------------------------------
                              Caspar Lee, Director

                           /s/Jerry Shih
                           ------------------------------------------------
                              Jerry Shih, 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/Alex Tsao
   --------------------------     CEO & Chairman          September 20, 2005
    Alex Tsao

By: /s/Jasper Knabb
   --------------------------     President & Director    September 20, 2005
    Jasper Knabb

By: /s/Stephen Durland
   --------------------------     CFO & Director          September 20, 2005
    Stephen Durland

By: /s/Caspar Lee
   --------------------------     Director                September 20, 2005
    Caspar Lee

By: /s/Jerry Shih
   --------------------------     Director                September 20, 2005
    Jerry Shih


                                       35