##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Amendment No. 2 to FORM 10-QSB/A  þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2005 OR o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934 Commission file number 0-50918 AIRBEE WIRELESS, INC. (Exact name of registrant as specified in its charter) DELAWARE
    
    46-0500345(State or other jurisdiction
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)9400 Key West Avenue, Suite 100Rockville, MD
    
    20850-3322(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code: (301) 517-1860 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 þ   No o APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuers classes of common equity, as of the
latest practicable date: 53,462,373 shares of Common Stock par value of $0.00004 as of June 9,
2005. Transitional Small Business
Disclosure Form (check one): Yes o
  No þ




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##### 



AIRBEE WIRELESS, INC. FORM 10-QSB INDEX PAGEPART I FINANCIAL INFORMATION
    
    2Item 1. Financial Statements
    
    2Condensed Consolidated Balance Sheet as of March 31, 2005 (Unaudited)
    
    3Condensed Consolidated Statements of Operations for the Three Months
Ended March 31, 2005 and 2004 (with cumulative totals since
inception) (Unaudited)
    
    4Condensed Consolidated Statement of Accumulated Comprehensive Income
for the Period August 9, 2002 (inception) through March 31, 2005
(Unaudited)
    
    5Condensed Consolidated Statements of Cash Flow for the Three Months
Ended March 31, 2005 and 2004 (with cumulative totals since
inception) (Unaudited)
    
    6Notes to the Condensed Consolidated Financial Statements
    
    8Item 2. Managements Discussion and Analysis or Plan of Operations
    
    23Item 3. Controls and Procedures
    
    25PART II OTHER INFORMATION
    
    26Item 1. Legal Proceedings
    
    26Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    26Item 3. Defaults Upon Senior Securities
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    26Item 5. Other Information
    
    26Item 6. Exhibits
    
    26SIGNATURES
    
    27
 1




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##### 



PART I FINANCIAL INFORMATION Item 1. Financial Statements AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED) RestatedCurrent Assets:Cash and cash equivalents
    
    $
    91,650Prepaid expenses and other current assets
    
    
    41,805Total Current Assets
    
    
    133,455Fixed assets, net of depreciation
    
    
    62,601Intangible assets
    
    
    165,975TOTAL ASSETS
    
    $
    362,031LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)LIABILITIESCurrent Liabilities:Notes
payable - related party
    
    $
    1,010,621Notes
payable  other
    
    
    50,000Accounts payable and accrued expenses
    
    
    457,781Total Current Liabilities
    
    
    1,518,402Long-term Liabilities:Due officer
    
    
    40,927Total Long-term Liabilities
    
    
    40,927Total Liabilities
    
    
    1,559,329STOCKHOLDERS EQUITY (DEFICIT)Common stock, $.00004 Par Value; 200,000,000 shares authorized
42,724,056 shares issued and outstanding
    
    
    1,709Additional paid-in capital
    
    
    2,256,600Unearned compensation
    
    
    (37,804
    )Accumulated comprehensive income
    
    
    933Deficit accumulated during the development stage
    
    
    (3,366,647
    )(1,145,209
    )Less: Treasury stock, 704,362 shares at cost
    
    
    (52,089
    )Total Stockholders Equity (Deficit)
    
    
    (1,197,298
    )TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    362,031
 The accompanying notes are an integral part of these condensed consolidated financial statements. 3




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION) RestatedCumulative TotalsAugust 9, 2002Restated
    
    
    to2005
    
    
    2004
    
    
    March 31, 2005OPERATING REVENUESSales
    
    $
    
    
    
    $
    
    
    
    $
    10,108COST OF SALES
    
    
    
    
    
    
    
    
    
    
    11,040GROSS PROFIT (LOSS)
    
    
    
    
    
    
    
    
    
    
    (932
    )OPERATING EXPENSESCompensation and professional fees
    
    
    246,426
    
    
    
    84,407
    
    
    
    1,388,488Research and development
    
    
    212,070
    
    
    
    61,487
    
    
    
    1,496,626Selling, general and administrative expenses
    
    
    62,129
    
    
    
    9,400
    
    
    
    230,408Impairment
    
    
    
    
    
    
    
    
    
    
    127,974Depreciation and amortization
    
    
    3,082
    
    
    
    630
    
    
    
    11,428Total Operating Expenses
    
    
    523,707
    
    
    
    155,924
    
    
    
    3,254,924LOSS BEFORE OTHER (EXPENSE)
    
    
    (523,707
    )
    
    
    (155,924
    )
    
    
    (3,255,856
    )OTHER (EXPENSE)Other income
    
    
    
    
    
    
    
    
    
    
    70,000Interest expense
    
    
    (28,574
    )
    
    
    (7,517
    )
    
    
    (180,791
    )Total Other (Expense)
    
    
    (28,574
    )
    
    
    (7,517
    )
    
    
    (110,791
    )NET LOSS BEFORE PROVISION FOR INCOME TAXES
    
    
    (552,281
    )
    
    
    (163,441
    )
    
    
    (3,366,647
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    NET LOSS APPLICABLE TO COMMON SHARES
    
    $
    (552,281
    )
    
    $
    (163,441
    )
    
    $
    (3,366,647
    )NET LOSS PER BASIC AND DILUTED SHARES
    
    $
    (0.013
    )
    
    $
    (0.005
    )WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
    
    
    41,849,373
    
    
    
    36,078,979
 The accompanying notes are an integral part of these condensed consolidated financial
statements. 4




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED) Balance, August 9, 2002
    
    $
    Gain on foreign currency translation
    
    
    Balance, December 31, 2002
    
    
    Gain on foreign currency translation
    
    
    5,882Balance, December 31, 2003
    
    
    5,882Loss on foreign currency translation
    
    
    (5,152
    )Balance, December 31, 2004
    
    
    730Gain on foreign currency translation
    
    
    203Balance, March 31, 2005
    
    $
    933
 The accompanying notes are an integral part of these condensed consolidated financial statements. 5




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED) (WITH CUMULATIVE TOTALS SINCE INCEPTION) RestatedCumulativeTotalsAugust 9,2002Restated
    
    
    To March2005
    
    
    2004
    
    
    31, 2005CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (552,281
    )
    
    $
    (163,441
    )
    
    $
    (3,366,647
    )Adjustments to reconcile net loss to net cash
used in operating activitiesDepreciation
    
    
    3,082
    
    
    
    630
    
    
    
    11,428Amortization of unearned compensation
    
    
    3,437
    
    
    
    3,437
    
    
    
    44,681Common stock issues for services
    
    
    
    
    
    
    
    
    
    
    661,612Interest expense converted to note payable  other
    
    
    
    
    
    
    
    
    
    
    100,000Services provided for equity
    
    
    85,230
    
    
    
    
    
    
    
    161,230Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    127,974Gain (loss) on foreign currency translation
    
    
    203
    
    
    
    (7,396
    )
    
    
    933Net change in net assets in acquisition of
Connexus
    
    
    
    
    
    
    
    
    
    
    (22,865
    )Changes in assets and liabilitiesDecrease in accounts receivable
    
    
    
    
    
    
    
    
    
    
    19,373(Increase) in prepaid expenses and other assets
    
    
    (14,641
    )
    
    
    
    
    
    
    (38,653
    )Increase in accounts payable and
and accrued expenses
    
    
    67,989
    
    
    
    16,355
    
    
    
    323,273Total adjustments
    
    
    145,300
    
    
    
    13,026
    
    
    
    1,388,986Net cash (used in) operating activities
    
    
    (406,981
    )
    
    
    (150,415
    )
    
    
    (1,977,661
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of intangible assets
    
    
    
    
    
    
    
    
    
    
    (165,975
    )Acquisitions of fixed assets
    
    
    (14,321
    )
    
    
    (1,523
    )
    
    
    (64,369
    )Net cash (used in) investing activities
    
    
    (14,321
    )
    
    
    (1,523
    )
    
    
    (230,344
    )
 The accompanying notes are an integral part of these condensed consolidated financial
statements. 6




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION) RestatedCumulativeTotalsAugust 9, 2002Restated
    
    
    to March 31,2005
    
    
    2004
    
    
    2005CASH FLOWS FROM FINANCING ACTIVITIESProceeds from common stock issuances
    
    $
    471,580
    
    
    $
    131,000
    
    
    $
    1,188,107Services
rendered converted to notes payable - demand
    
    
    
    
    
    
    
    
    
    
    1,056,611Proceeds
from notes payable  other
    
    
    
    
    
    
    
    
    
    
    60,000(Payments) proceeds to related party
    
    
    (45,990
    )
    
    
    46,250
    
    
    
    (45,990
    )Amounts due to officer
    
    
    
    
    
    
    
    
    
    
    40,927Net cash provided by financing activities
    
    
    425,590
    
    
    
    177,250
    
    
    
    2,299,655NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    4,288
    
    
    
    25,312
    
    
    
    91,650CASH AND CASH EQUIVALENTS -
BEGINNING OF PERIOD
    
    
    87,362
    
    
    
    23,488
    
    
    
    CASH AND
CASH EQUIVALENTS  END OF PERIOD
    
    $
    91,650
    
    
    $
    48,800
    
    
    $
    91,650SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:CASH PAID DURING THE YEAR FOR:Interest expense
    
    $
    217
    
    
    $
    
    
    
    $
    217SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:Exercise of cashless stock options
    
    $
    
    
    
    $
    
    
    
    $
    59,089Common stock issues for services
    
    $
    85,230
    
    
    $
    
    
    
    $
    746,842Interest
expense converted to note payable - other
    
    $
    
    
    
    $
    
    
    
    $
    100,000Services
rendered converted to notes payable - demand
    
    $
    
    
    
    $
    
    
    
    $
    1,056,611Services for stock to be issued
    
    $
    
    
    
    $
    
    
    
    $
    76,000Conversion of notes payable and accrued interest to common stock
    
    $
    
    
    
    $
    
    
    
    $
    11,833Impairment of goodwill
    
    $
    
    
    
    $
    
    
    
    $
    127,974Unearned compensation on cashless options
    
    $
    
    
    
    $
    
    
    
    $
    82,485
 The accompanying notes are an integral part of these condensed consolidated financial
statements. 7




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) NOTE 1 -
    
    ORGANIZATION AND BASIS OF PRESENTATIONThe condensed unaudited interim consolidated financial statements included herein
have been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial statements
and notes are presented as permitted on Form 10-QSB and do not contain information
included in the Companys annual statements and notes. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the December 31, 2004
audited consolidated financial statements and the accompanying notes thereto. While
management believes the procedures followed in preparing these condensed
consolidated financial statements are reasonable, the accuracy of the amounts are in
some respects dependent upon the facts that will exist, and procedures that will be
accomplished by the Company later in the year.These condensed unaudited consolidated financial statements reflect all adjustments,
including normal recurring adjustments, which, in the opinion of management, are
necessary to present fairly the operations and cash flows for the period presented.Airbee Wireless, Inc. (the Company), was incorporated in Delaware in 2002 to
develop and supply cutting edge intelligent software that is generally embedded into
microprocessors thereby allowing manufacturers (OEMs) of various products to create
advanced wireless communications systems.Focusing on its core competencies in the design and engineering of advanced,
embedded short-range wireless data, voice and video communications software, the
Company believes that it is positioned to play a pivotal role in the convergence of
various wireless communications applications through software embedded on silicon.In March 2004, the Company became a member of The ZigBee Alliance which has defined
a global standard for reliable, cost-effective, low-power wireless applications.
With over 150 international member companies, the ZigBee standard is emerging as the
wireless standard for a host of industrial controls, telemetry, and in-building and
home automation networking needs.Airbees portfolio of products is generally connected over the rapidly emerging
Wireless Personal Area Network (WPAN) or the Wireless Local Area Network (WLAN)
technology space. Critical to the success of new products in these areas is the
ability to interoperate or talk to each other based on industry-adopted standards.
Airbees products are designed and engineered to be compliant with ZigBee/802.15.4
WPAN standards.
 8




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) NOTE 2 -
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDevelopment Stage CompanyThe Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises. The Company has devoted substantially all of its
efforts to business planning, patent applications, research and development,
recruiting management and technical staff, acquiring operating assets and raising
capital. With the release of the ZigBee / IEEE 802.15.4 standard on December 14,
2004, the Company is anticipating that sales will be generated in fiscal 2005, at
which time it will emerge from the development stage.Principles of ConsolidationThe condensed consolidated financial statements include the accounts of Airbee
Wireless, Inc. and its wholly owned subsidiaries Airbee Wireless (Pte.) Ltd.,
located in Singapore, and Airbee Wireless (India) Pvt. Ltd., located in India, for
the three months ended March 31, 2005 and 2004 respectively. The financial
statements do not consolidate Identity, Inc. which was acquired subsequent to the
reporting period on May 2, 2005 (See Note 14, Subsequent Events). All significant
inter-company accounts and transactions have been eliminated in consolidation.
Accounts denominated in non-U.S. currencies have been re-measured using the U.S.
Dollar as the functional currency.Use of EstimatesThe preparation of the condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.Cash and Cash EquivalentsThe Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash equivalents.The Company maintains cash and cash equivalent balances at financial institutions in
the United States of America, Singapore and India. The financial institution in the
United States of America is insured by the Federal Deposit Insurance Corporation up
to $100,000.Fixed AssetsFixed assets are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets; two to four years for
machinery and
 9




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AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) equipment and four to forty years for buildings. Reviews are regularly performed to
determine whether facts and circumstances exist that indicate carrying amount of
assets may not be recoverable or the useful life is shorter than originally
estimated. The Company assesses the recoverability of its fixed assets by comparing
the projected undiscounted net cash flows associated with the related asset or group
of assets over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. If assets are determined to be recoverable, but the useful
lives are shorter than originally estimated, the net book value of the assets is
depreciated over the newly determined remaining useful lives. When fixed assets are
retired or otherwise disposed of, the cost and related accumulated depreciation are
removed from the accounts and the resulting gain or loss is included in operations.Identified Intangible AssetsIntellectual property assets represent technology and are amortized over the periods
of benefit, ranging from two to ten years, generally on a straight-line basis.Identified intangible assets are regularly reviewed to determine whether facts and
circumstances exist which indicate that the useful life is shorter than originally
estimated or the carrying amount of assets may not be recoverable. The Company
assesses the recoverability of its identifiable intangible assets by comparing the
projected discounted net cash flows associated with the related asset or group of
assets over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets.Segment ReportingThe Company follows the provisions of SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This standard requires that companies
disclose operating segments based on the manner in which management disaggregates
the Company in making internal operating decisions. As of March 31, 2005, there
were no operating segments.Start-up CostsIn accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, Reporting on the Costs of Start-up Activities,the Company
expenses all costs incurred in connection with the start-up and organization of the
Company.Revenue and Cost RecognitionThe Company currently recognizes revenues from four primary sources: (1) time-based
product license fees, (2) time-based license royalties, (3) product revenues for
software development tools and kits, and (4) service revenues.Licensing revenues (e.g., Airbee-ZNS, Airbee-ZMAC, and Airbee-ZNMS) consist of
revenues from the licensing under the enterprise licensing model, of Airbee
platforms,
 10




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) which include a combination of product and services, and items such as development
tools, an operating system, various protocols and interfaces and maintenance and
support services such as installation and training, which are licensed over a
limited period of time, typically 12-36 months. Service revenues are derived from
fees for professional services, which include design and development fees, software
maintenance contracts, and customer training and consulting.The Company accounts for the time-based licensing of software in accordance with the
American Institute of Certified Public Accountants Statement of Position (SOP) 97-2,
Software Revenue Recognition. The Company recognizes revenue when (i) persuasive
evidence of an arrangement exists; (ii) delivery has occurred or services have been
rendered; (iii) the sales price is fixed or determinable; and (iv) the ability to
collect is reasonably assured. For software arrangements with multiple elements,
revenue is recognized dependent upon whether vendor-specific objective evidence
(VSOE) of fair value exists for each of the elements. When VSOE does not exist for
all the elements of a software arrangement and the only undelivered element is
post-contract customer support (PCS), the entire licensing fee is recognized ratably
over the contract period.Revenue attributable to undelivered elements, including technical support, is based
on the sales price of those elements, and is recognized ratably on a straight-line
basis over the term of the time-based license. Post-contract customer support
revenue is recognized ratably over the contract period. Shipping charges billed to
customers are included in revenue and the related shipping costs are included in
cost of sales.Time-based product licensing fees are collected in advance. Revenues from licenses
are recognized on a prorated-basis over the life of the license. Airbees customary
practice is to have non-cancelable time-based licenses and a customer purchase order
prior to recognizing revenue.Enterprise license model arrangements require the delivery of unspecified future
updates and upgrades within the same product family during the time-based license.
Accordingly, Airbee will recognize fees from its enterprise license model agreements
ratably over the term of the license agreement. Time-based royalties are charged on
a unit basis. Royalties are not fixed dollar amounts, but are instead a percentage
of the customers finished product and the percentage varies on a tiered basis with
the number of units shipped by customer.Revenue attributed to undelivered elements is based on the sales price rather than
on the renewal rate for the following reasons:Because of (i) the newness of the ZigBee standard for this short-range wireless
technology, (ii) the newness of the Companys product introductions into the
marketplace for a range of applications being developed by its customers, and (iii)
the lack of historical data for potentially defective software, which may be a
function of the application into which it is installed, a reasonable reserve for
returns cannot yet be established. In accordance with SFAS No. 48 Revenue
Recognition When Right of
 11




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) Return Exists, in the absence of historical data, the Company is unable to make a
reasonable and reliable estimate of product returns at this time.The Company expects to enter into maintenance contracts with its customers.
Maintenance fees are not a fixed dollar amount, but rather a percentage fee based
upon the value of the license and/or royalties billed/received. Maintenance
contracts are paid for and collected at the beginning of the contract period. If the
Company provides bug fixes (under warranty obligations) free-of-charge that are
necessary to maintain compliance with published specifications, it accounts for the
estimated costs to provide bug fixes in accordance with SFAS No. 5 Accounting for
Contingencies.Revenue from products licensed to original equipment manufacturers (OEMs) is based
on the time-based licensing agreement with an OEM and recognized when the OEM ships
licensed products to its customers.The Company assesses probability of collection based on a number of factors,
including its past transaction history with the customer and the creditworthiness of
the customer. New customers are subject to a credit review process that evaluates
the customers financial position and ultimately its ability to pay according to the
original terms of the arrangement. Based on this review process, if it is determined
from the outset of an arrangement that collection of the resulting receivable is not
probable, revenue is then recognized on a cash-collected basis.Cost of revenue includes direct costs to produce and distribute products and direct
costs to provide product support and training.Research and DevelopmentResearch and development costs are related primarily to the Company developing its
intellectual property. Research and development costs are expensed as incurred.Income TaxesIncome tax benefit is computed on the pretax loss based on current tax law. Deferred
income taxes are recognized for the tax consequences in future years of differences
between the tax basis of assets and liabilities and its financial reporting amounts
at each year-end based on enacted tax laws and statutory tax rates. No benefit is
reflected for the three month periods ended March 31, 2005 and 2004, respectively.AdvertisingThe Companys policy is to expense the costs of advertising and marketing as
incurred. The Company had no such cost for the three month periods ended March 31,
2005 and 2004, respectively.
 12




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) Earnings (Loss) Per Share of Common StockHistorical net income (loss) per common share is computed using the weighted average
number of common shares outstanding. Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable pursuant
to the exercise of stock options and warrants. Common stock equivalents were not
included in the computation of diluted earnings per share at March 31, 2005 and 2004
when the Company reported a loss because to do so would be anti-dilutive for periods
presented. The Company has incurred losses since inception as a result of funding
its research and development, including the development of its intellectual property
portfolio which is key to its core products.The following is a reconciliation of the computation for basic and diluted EPS:
 Restated
    
    
    RestatedMarch 31, 2005
    
    
    March 31, 2004Net Loss
    
    $
    (552,281
    )
    
    
    ($163,441
    )Weighted average common shares
    
    
    41,849,373
    
    
    
    36,078,979Outstanding (Basic)Weighted average common stockEquivalents:Stock options
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Weighted average common shares
    
    
    41,849,373
    
    
    
    36,078,979Outstanding (Diluted)
 Fair Value of Financial InstrumentsThe carrying amount reported in the condensed consolidated balance sheets for cash
and cash equivalents, accounts payable and accrued expenses approximates fair value
because of the immediate or short-term maturity of these financial instruments. The
carrying amount reported for notes payable approximates fair value because, in
general, the interest on the underlying instruments fluctuates with market rates.Stock-Based CompensationEmployee stock awards under the Companys compensation plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting
for Stock Issued to Employees, and related interpretations. The Company provides
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and related interpretations. Stock-based awards to
non-employees are accounted for under the provisions of SFAS 123 and the Company
adopted the enhanced disclosure provisions of SFAS No. 148 Accounting for
Stock-Based Compensation- Transition and Disclosure, an amendment of SFAS No. 123.
 13




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) The Company measures compensation expense for its employee stock-based compensation
using the intrinsic-value method. Under the intrinsic-value method of accounting for
stock-based compensation, when the exercise price of options granted to employees is
less than the estimated fair value of the underlying stock on the date of grant,
deferred compensation is recognized and is amortized to compensation expense over
the applicable vesting period. Amortization expense for the three months ended
March 31, 2005 and 2004 was $3,747, respectively.The Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging Issues
Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services. The fair value of the option issued is used to measure the
transaction, as this is more reliable than the fair value of the services received.
Fair value is measured as the value of the Companys common stock on the date that
the commitment for performance by the counterparty has been reached or the
counterpartys performance is complete. The fair value of the equity instrument is
charged directly to compensation expense and additional paid-in capital.Product WarrantyThe Companys product warranty accrual includes specific accruals for known product
issues and an accrual for an estimate of incurred but unidentified product issues
based on historical activity. Due to effective product testing and the short time
between product shipment and the detection and correction of product failures, the
warranty accrual based on historical activity and the related expense were not
significant as of and for the three months ended March 31, 2005 and 2004,
respectively.Goodwill and Intangible AssetsThe Company follows Statement of Financial Accounting Standards (SFAS) No. 141,
Business Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets.
All goodwill associated with the acquisition of Connexus Technologies (Pte.) Ltd.
was impaired in 2002 ($127,974), due to the Company being acquired mainly for its
development and anticipated future development which management has determined to
have no material fair value as of the balance sheet dates.The identifiable intangible assets presented on the condensed consolidated balance
sheet represent the intellectual property that was capitalized post- technological
feasibility. Management will continue to monitor and assess any impairment charges
against those assets in accordance with the provisions of SFAS 142, Goodwill and
Other Intangible Assets and SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets.
 14




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) Currency Risk and Foreign Currency TranslationThe Company transacts business in currencies other than the U.S. Dollar, primarily
the Singapore Dollar and the Indian Rupee. All currency transactions occur in the
spot foreign exchange market and the Company does not use currency forward
contracts, currency options, currency borrowings interest rate swaps or any other
derivative hedging strategy at this point in time.The Company has determined that based on the cash flow, sales price, sales market,
expense, financing, and inter-company transactions and arrangements indicators set
forth in FASB 52, Foreign Currency Translation, that the functional currency of
the Company is that of the parent company and is US Dollars. The Company has
reported its gain on foreign currency in its consolidated statements of accumulated
other comprehensive income due to the fact that these translation adjustments result
from the translation of all assets and liabilities at the current rate, while the
stockholder equity accounts were translated by using historical and weighted-average
rates.Recent Accounting PronouncementsOn December 16, 2004, the Financial Accounting Standards Board (FASB) published
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment (SFAS 123R). SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans. The provisions of SFAS 123R, as amended,
are effective for small business issuers beginning as of the next fiscal year after
December 15, 2005. Accordingly, the Company will implement the revised standard in
the first quarter of fiscal year 2006. Currently, the Company accounts for its
share-based payment transactions under the provisions of APB 25, which does not
necessarily require the recognition of compensation cost in the financial statements
(note 3(e)). Management is assessing the implications of this revised standard,
which may materially impact the Companys results of operations in the first quarter
of fiscal year 2006 and thereafter.In November 2004, the FASB issued Financial Accounting Standards No. 151 (FAS 151),
Inventory Costs  an amendment of ARB No. 43, Chapter 4. FAS 151 clarifies the
accounting for abnormal amounts of idle facility expense, freight, handling costs
and spoilage. In addition, FAS 151 requires companies to base the allocation of
fixed production overhead to the costs of conversion on the normal capacity of
production facilities. FAS 151 is effective for the Company in 2006. The Company
does not expect FAS 151 to have a material impact on its results or financial
statements.On December 16, 2004, FASB issued Statement of Financial Accounting Standards No.
153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary Transactions (SFAS 153). This statement amends APB
Opinion 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
non-monetary assets that
 15




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) do not have commercial substance. Under SFAS 153, if a non-monetary exchange of
similar productive assets meets a commercial-substance criterion and fair value is
determinable, the transaction must be accounted for at fair value resulting in
recognition of any gain or loss. SFAS 153 is effective for non-monetary
transactions in fiscal periods that begin after June 15, 2005. The Company does not
anticipate that the implementation of this standard will have a material impact on
its financial position, results of operations or cash flows.NOTE 3-
    
    CONCENTRATION OF CREDIT RISKThe Companys trade receivables are derived from sales to original equipment
manufacturers and manufacturers of microprocessors. The Company endeavors to keep
pace with the evolving computer and communications industries, and has adopted
credit policies and standards intended to accommodate industry growth and inherent
risk. Management believes that credit risks are moderated by the diversity of the
Companys end customers and geographic sales areas. The Company performs ongoing
credit evaluations of its customers financial condition and requires collateral as
deemed necessary.NOTE 4-
    
    FIXED ASSETSFixed assets consist of the following at:
 March 31,2005Computer and office equipment
    
    $
    73,970Less: accumulated depreciation
    
    
    11,369Net book value
    
    $
    62,601
 Depreciation expense for the three months ended March 31, 2005 and 2004 was $3,082
and $630, respectively.NOTE 5-
    
    NOTE PAYABLEThe Company entered into a note payable, principal amount of $50,000 payable August
31, 2005. The Company entered into this note in connection with the 2002 acquisition
of Connexus Technologies (Pte.) Ltd. The note was non-interest bearing if it was
paid prior to August 31, 2003 and if the note was paid between September 1, 2003 and
August 31, 2004 the total payment due was $100,000. If the note is paid between
September 1, 2004 through August 31, 2005, total payment due is $150,000. The
Company, at March 31, 2005 has reflected the value of the note payable, which
includes interest at $100,000. The accrued interest is included in accounts payable
and accrued expenses.
 16




---



##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED) NOTE 6-
    
    PROMISSORY NOTES  RELATED PARTYThe Company entered into promissory notes with some of its officers (see Note 9) who
have amounts outstanding with the Company. These amounts accrue interest at 6.0%
and 9.75% annually. As of March 31, 2005, the Company has $1,010,621 outstanding
under these notes, including $74,888 in accrued interest. The notes are due on June
30, 2005 and are therefore reflected as current liabilities on the condensed
consolidated balance sheets. The notes relate to services rendered to the Company.NOTE 7-
    
    INTELLECTUAL PROPERTYCosts incurred in creating products are charged to expense when incurred as research
and development until technological feasibility is established upon completion of a
working model. Thereafter, all software production costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value.
Capitalized costs are amortized based on current and future revenue for each product
with an annual minimum equal to the straight-line amortization over the remaining
estimated economic life of the product.In accordance with SFAS No. 2, Accounting for Research and Development Costs, SFAS
No. 68, Research and Development Arrangements, and SFAS No. 86,  Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
technological feasibility for the Airbee UltraLite was established on
November 20, 2002 with completion of the detailed program design. Several working
models were delivered at various points through July of 2003.Since, the Company had no sales, other than the execution of an inherited software
contract for a previous Connexus Technologies (Pte.) Ltd. customer that had nothing
to do with its current products, amortization of its software being developed at
that time for other purposes is not required. Additionally, the intangible assets
pertain to the Companys intellectual property, more specifically software code for
both IEEE 802.15.4 and the ZigBee standard version 1.0. This software serves as the
core code (i.e., one of the key building blocks) for current and future products
that must comply with both of these international standards. Hence, core software
based upon the global standards of IEEE and ZigBee to enable the rest of our
software to function has an indefinite, but not necessarily infinite, useful life.
As such, management, with the assistance of its technical staff, has determined that
this specific intellectual property is determined to have an indefinite useful life.
The status of that intellectual property is reviewed for impairment annually, or
more frequently if events and circumstances indicate that the asset may be impaired.
The Company believes that at this point in time, impairment is impractical because
(a) the IEEE 802.15 global standard was only finalized in October 2003; (b) the
ZigBee global standard was only finalized on December 14, 2004; and (c) the
Companys software written in conformity with both global standards is vital to
making the rest of its software function and therefore be in compliance with these
global standards. Therefore, at this point in time, the tests for impairment of the
intangible assets being intellectual property indicate no amortization is required.
 17




---



##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)  NOTE 8-
    ACQUISITIONS
The Companys acquisition of Connexus Technologies (Pte.) Ltd. has been accounted
for using the purchase method of accounting. The Company acquired 100% of the
common stock of Connexus for 1,662,562 shares of common stock valued at $100,000,
and assumed a promissory note which at the time of acquisition (as of October 1,
2002) was valued at $50,000, subsequently with accrued interest is valued at
$100,000 as of March 31, 2005. Connexus had a net book value of $22,026 (US dollar
equivalent) resulting in $127,974 in goodwill, which management determined to be
impaired based on the fact that the purchase price was determined based on what
Connexus had been developing. The primary reason the Company acquired Connexus was
the working model and software code that it had been developing fits nicely into the
current business model and software code of the Company. The Company did not pay
any cash for Connexus and there are no contingent payments, options, or commitments
specified in the purchase agreement.
The book value of $22,026 of Connexus at the time of acquisition consisted of: Current assets
    
    $
    42,638Fixed assets
    
    
    18,190Accounts payable and other accrued expenses
    
    
    (38,802
    )Total
    
    $
    22,026
  NOTE 9-
    RELATED PARTY TRANSACTIONS
As discussed in Note 6, the Company has demand promissory notes with some of its
officers for services rendered to the Company. Interest is accrued at 6.0% and
9.75% annually on these notes. As of March 31, 2005, the Company has $1,010,621
outstanding under these notes, including $74,888 in accrued interest.  NOTE 10-
    PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability method for the
temporary differences between the financial reporting basis and income tax basis of
the Companys assets and liabilities. Deferred income taxes will be measured based
on the tax rates expected to be in effect when the temporary differences are
included in the Companys consolidated tax return. Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences attributable
to differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases.
At March 31, 2005, deferred tax assets consist of the following: Deferred tax asset
    
    $
    1,009,994Less: valuation allowance
    
    
    (1,009,994
    )
 18




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)  At March 31, 2005, the Company had deficits accumulated during the development stage
in the approximate amount of $3,366,647, available to offset future taxable income
through 2023. The Company established valuation allowances equal to the full amount
of the deferred tax assets due to the uncertainty of the utilization of the
operating losses in future periods.  NOTE 11-
    STOCKHOLDERS (DEFICIT)
The Company has 200,000,000 shares of common stock authorized at March 31, 2005. The
par value at March 31, 2005 is $0.00004.
At March 31, 2005, the Company has 42,724,056 common shares issued and outstanding.
The following stock transactions occurred in 2005:
Effective January 1, 2005, the Company issued options to purchase 150,000 shares of
our common stock to Mal Gurian, in conjunction with his appointment to our board of
directors. The options vest over one year in equal quarterly installments. The
options are exercisable at $0.22 per share for a period of five years from the date
of issuance. The options were issued pursuant to the exemption from registration
provided by Section 4(2) of the Securities Act. The options contain the appropriate
legends restricting their transferability absent registration or applicable
exemption. Mr. Gurian received information concerning our company and had the
ability to ask questions about our company.
In February 2005, the Company issued 525,000 shares for services valued at $85,230.
In March 2005, the Company issued 982,143 restricted shares of our common stock to
five accredited investors for $350,000. In addition, we issued 125,000 warrants to
these investors at a strike price of $0.48 per share and 71,429 warrants at $0.36.
The securities were issued pursuant to the exemption from registration provided by
Section 4(2) of the Securities Act. The securities contain the appropriate legends
restricting their transferability absent registration or applicable exemption. The
investors received information concerning our company and had the ability to ask
questions concerning our company.
Effective March 1, 2005, the Company issued options to purchase 1,000,000 shares of
our common stock to David McCartney, in conjunction with his employment agreement
with the company. The options are exercisable at $0.38 per share for a period of
five years from the date of issuance. The options were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act. The
options contain the appropriate legends restricting their transferability absent
registration or applicable exemption. The employee received information concerning
our company and had the ability to ask questions concerning our company. 19




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)  NOTE 12-
    COMMITMENTS AND CONTINGENCIESEmployment Agreements
The Company has entered into employment agreements with key members of management
and some officers. Most of these employment agreements are for a period of three to
five years. As part of the employment agreements, the Company has granted stock
options to these individuals that vest over a three to five-year period of time.
The Company, in an effort to incentivize its officers, granted additional options
and accelerated the vesting schedules. The officers were not compensated during the
initial start-up of operations. However, they did exercise stock options in 2003.
A subsidiary, Airbee Wireless (India) Pvt. Ltd., has entered into a three-year lease
agreement for office space in Chennai, India. Monthly rent in the US Dollar
equivalent is $1,505. The lease runs from April, 2004 to March, 2007.  NOTE 13-
    GOING CONCERN
As shown in the accompanying condensed consolidated financial statements, as is
typical of companies going through early-stage development of intellectual property,
and products and services, the Company incurred net losses for the years ended
December 31, 2004 and 2003. The Company is currently in the development stage, and
there is no guarantee whether the Company will be able to generate enough revenue
and/or raise capital to support current operations and expand sales. This raises
substantial doubt about the Companys ability to continue as a going concern.
Management believes that the Companys capital requirements will depend on many
factors including the success of the Companys sales efforts. The Company has been
successful in recent months in raising capital to fund its operating costs. See Note
14 Subsequent Events.
The Company has also been enhancing its business processes to account for the
significant development that has occurred in the past year, and believes that with
the proper bridge financing and potential permanent financing they anticipate, the
viability of the Company remains very positive in excess of one year.
The condensed consolidated financial statements do not include any adjustments
relating to the recoverability or classification of recorded assets and liabilities
that might result should the Company be unable to continue as a going concern.  NOTE 14-
    SUBSEQUENT EVENTS
On April 26, 2005, the Company executed a promissory note in the amount of
$750,000 in favor of Montgomery Equity Partners, Ltd. Pursuant to the terms of
the promissory note, Montgomery Equity Partners disbursed the entire $750,000 to the
Company upon the date the note was executed and an additional $250,000 will be 20




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)  disbursed to the Company after the Companys common stock commences trading on the
Over-the-Counter Bulletin Board. The promissory note is secured by shares of stock
of an affiliate of the Company. The promissory note has a one-year term and accrues
interest at 24% per year. The promissory note matures within a year from the date of
execution.
On April 26, 2005 the Company, entered into a Standby Equity Distribution Agreement
with Cornell Capital Partners, LP, dated as of April 20, 2005. Pursuant to the
Standby Equity Distribution Agreement, the Company may, at its discretion,
periodically sell to Cornell Capital Partners, LP shares of common stock for a total
purchase price of up to $20.0 million. For each share of common stock purchased
under the Standby Equity Distribution Agreement, Cornell Capital Partners, LP will
pay the Company 97% of the lowest volume weighted average price of the Companys
common stock as quoted by Bloomberg, LP on the Over-the-Counter Bulletin Board or
other principal market on which the Companys common stock is traded for the 5 days
immediately following the notice date. The price paid by Cornell Capital Partners,
LP for the Companys stock shall be determined as of the date of each individual
request for an advance under the Standby Equity Distribution Agreement. Cornell
Capital Partners, LP will also retain 5% of each advance under the Standby Equity
Distribution Agreement. Cornell Capital Partners obligation to purchase shares of
the Companys common stock under the Standby Equity Distribution Agreement is
subject to certain conditions, including the Company obtaining an effective
registration statement for shares of the Companys common stock sold under the
Standby Equity Distribution Agreement and is limited to $300,000 per weekly advance.
Cornell Capital Partners, LP received 592,000 shares of the Companys common stock
and warrants to purchase another 200,000 shares of the Companys common stock
exercisable at $1.27 per share as a one-time commitment under the Standby Equity
Distribution Agreement.
The Company issued to Monitor Capital, Inc. 8,000 shares of the Companys common
stock as a placement agent fee under a placement agent agreement relating to the
Standby Equity Distribution Agreement.
On May 2, 2005, the Company entered into an agreement and plan of merger by and
among Identity, Inc., a Delaware corporation and Daniel R. Nelson, the Company and
Airbee Automotive Group, Inc., a wholly-owned subsidiary of the Company, whereby the
Companys wholly-owned subsidiary merged with and into Identity, Inc. Pursuant to
the Merger Agreement, the surviving entity became a wholly-owned subsidiary of the
Company and the Company issued 7,692,808 shares of its restricted common stock (the
Purchase Price) to Daniel R. Nelson, the sole shareholder of Identity, Inc. The
shares issued to Mr. Nelson are valued at $5,000,000 (the Merger Consideration),
which is based upon the 30-day average closing price of the Companys common stock
through April 25, 2005. Fifty percent of the Purchase Price is immediately issuable
to Mr. Nelson. The remaining shares are subject to an Escrow Agreement dated May 2,
2005 (the Escrow Agreement), under which such shares shall only be released to Mr.
Nelson upon the completion by Identity, Inc. of audited financial statements for the
period 21




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)  commencing August 1, 2003 through March 31, 2005 and acceptance by the Company (in
its sole discretion) and filed with the Securities and Exchange Commission no later
than May 31, 2005.
Identity is based in Rancho Cordova, California and uses advance short-range
wireless technology to provide total immobilization of a vehicles ignition system
to prevent theft. Its current nationwide customer base includes dealerships
representing General Motors, Ford, Daimler-Chrysler, Dodge, Toyota, Lexus, Nissan,
Honda, Acura, Suzuki, Hyundai and Kia.  NOTE 15-
    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company had amended its previously issued consolidated financial statements for
the year ended December 31, 2003 and period August 9, 2002 (inception) through
December 31, 2002 on its report dated May 20, 2004. The Company had amended these
consolidated financial statements to recognize an additional $381,513 and $48,168 in
compensation and interest expense for the year ended December 31, 2003 and period
August 9, 2002 (inception) through December 31, 2002. In addition, certain
issuances of common stock have been restated due to valuation adjustments, the
recording of unearned compensation due to the issuance of options below the fair
market value (including amortization of unearned compensation of $13,748 in 2003 and
2002, respectively) and 2002 common share information has been restated to
retroactively account for the stock split that occurred in September 2003. These
transactions resulted in an increase in net loss applicable to common shares of
$380,554 and $32,189 for the year ended December 31, 2003 and period August 9, 2002
(inception) through December 31, 2002 to a net loss of $1,360,577 and $317,046 as
restated, and an increase in the deficits accumulated during the development stage
to $1,677,623 and $317,046, respectively. The December 31, 2004 financial
statements have been restated for the amortization of unearned compensation for the
year ended December 31, 2004 by $13,748 and this has increased the loss for the year
then ended to $1,136,743 as restated, and the accumulated deficit during the
development stage to $2,814,366.
In addition, the Company has restated its previously issued condensed consolidated
financial statements for the three month period ended March 31, 2005 and 2004 for
amortization of unearned compensation of $3,747 and the reclassification of various
selling, general and administrative expenses, and compensation to research and
development expenses. The effect of these changes resulted in an increase of the
loss for the three month period ended March 31, 2005 and 2004 of $3,747 to a net
loss of $552,281 and $163,441, respectively, and an increase in the deficit
accumulated during the development stage to $3,366,647. 22




---



##### 



Item 2. Managements Discussion and Analysis or Plan of Operations Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004 For the first quarter of 2005 we had no operating revenues, resulting in a net loss
applicable to common shares of $552,281, or $0.013 net loss per share, compared to a net loss of
$163,441 or $0.005 net loss per share for the first quarter of 2004. Cumulative net loss since
inception totaled $3,366,647. Operating expenses for the three months ending March 31, 2005 were $523,707 as compared to
$155,924 for the three months ending March 31, 2004, an increase of 236% or $367,783. The
increase, as further explained below, is principally due to increases in compensation and
professional fees, research and development and selling and administrative expenses. Operating
expenses increased as the Company developed and implemented its business plan and commenced its
reporting obligations with the SEC. Compensation and professional fees increased by $162,091 or 192% to $246,426 for the three
months ending March 31, 2005 from 84,407 for the three months ending March 31, 2004. This increase
was primarily due to a $101,506 increase in costs associated with SEC reporting and financial
advisory services. The remaining increase was primarily due to increase compensation associated
with the Companys implementation of its business plan. Management expects SEC reporting costs to
decrease significantly in the future. Research and development expenses for the three months ending March 31, 2005 increased by
$150,583 or 245% to $212,070 as compared to $61,487 for the three months ending March 31, 2004.
This increase was primarily due to product enhancements and product development. While a majority
of the Companys products are marketable, the Company continues to focus research and development
on product extensions and incorporation into potential vendor platforms. Over the next 12 months,
research and development expenses are expected to remain consistent with the three months ending
March 31, 2005. Selling, general and administrative expenses increased for the three months ending March 31,
2005 by $52,729 or 560% to $62,129 as compared to $9,400 for the three months ending March 31,
2004. The increase was primarily due to the Companys commencement of sales initiatives, including
direct customer calling and participation in industry trade shows in the US and abroad to market
its products. As the Company attempts to grow and develop its business, the Company expects
selling, general and administrative expenses to increase. Depreciation and amortization expense increased for the three months ending March 31, 2005 by
$2,452 or 389% to $3,082 as compared to $630 for the three months ending March 31, 2004. The
increase was due to the purchase of equipment for the Companys development center in Chennai,
India. The Company expects to begin amortizing its intellectual property during the second quarter
of 2005 now that license agreements associated with its intellectual property have been and will
continue to be executed with third parties. Management of operating overheads helped to control costs broadly in line with the previous
fiscal year, while shifting our priorities from product research and development more toward sales
and marketing of finished software products. Consolidated assets rose to $362,031. Consolidated
liabilities stood at $1,559,329, of which $1,051,548 constituted loans by related parties (i.e.,
management) to the Company. Shareholders deficit fell to $1,197,298 compared to $1,281,466 at
December 31, 2004 because of the placement of $350,000 of common stock with existing shareholders. To date, our financial results typically reflect a development stage company. We have signed
several licensing and joint development agreements with prospective clients and have successfully
embedded our software onto six different hardware platforms (i.e., Motorola, Texas Instruments,
Chipcon, SupaRule, Intel and WinEdge & Wireless). With the ZigBee Alliance releasing version 1.0 of its international standard for wireless
voice and data communications on December 14, 2004, the Company signed a three-year licensing and
teaming arrangement with Radiocrafts AS in April to provide ZigBee-ready solutions. Radiocrafts is
a leading RF module design and manufacturing company based in Norway. Liquidity and Capital Resources Since inception we have principally funded our operations from private placements of
securities and management and shareholder loans and contributions. As of March 31, 2005 and 2004,
the Company has $1,010,621 and $506,250 outstanding under related party notes, including $74,888
and $23,852 in accrued interest. During the quarter ended March 31, 2005, we received an aggregate
of $350,000 from five investors in consideration of 982,143 shares of our common stock and 196,429
common stock purchase warrants. Proceeds have been used to pay down current payables. Although it
is difficult to predict future liquidity requirements with certainty, we expect our cash
requirements for working capital, product development and capital expenditures will be financed
from our cash, cash equivalents and supplemented by approximately $21,000,000 of debt and equity
financing from Montgomery Equity Partners LP and Cornell Capital Partners LP (See below). Most of
the funding will be allocated principally for sales and marketing. It is not anticipated that any
lack of funding will impact upon the license and development agreements since the software
development has been completed for three of our products. We have incurred an accumulated deficit at March 31, 2005 of approximately $3,366,647 compared
to $1,841,064 at March 31, 2004. The Company had negative working capital at March 31, 2005 of
$1,381,947 compared to negative working capital of $770,643 at March 31, 2004. Management believes
the acquisition subsequent to the period covered by this report of Identity, Inc. and its wireless
automotive anti-theft devices will provide an ongoing source of revenue; however it will be
insufficient to cover all operating costs which raise doubt about our ability to continue as a
going concern. Our ability to continue as a going concern is dependent upon our obtaining adequate
capital to fund losses until we become profitable. 23




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On April 26, 2005, the Company executed a promissory note in the amount of $750,000 in favor
of Montgomery Equity Partners, Ltd. Pursuant to the terms of the promissory note, Montgomery Equity
Partners disbursed the entire $750,000 to the Company upon the date the note was executed and an
additional $250,000 will be disbursed to the Company after the Companys common stock commences
trading on the Over-the-Counter Bulletin Board. The promissory note has a one-year term and accrues
interest at 24% per annum. The promissory note matures within a year from the date of execution. On April 26, 2005 the Company, entered into a Standby Equity Distribution Agreement with
Cornell Capital Partners, LP. Pursuant to the Standby Equity Distribution Agreement, the Company
may, at its discretion, periodically sell to Cornell Capital Partners, LP shares of common stock
for a total purchase price of up to $20.0 million. For each share of common stock purchased under
the Standby Equity Distribution Agreement, Cornell Capital Partners, LP will pay the Company 97% of
the lowest volume weighted average price of the Companys common stock as quoted by Bloomberg, LP
on the Over-the-Counter Bulletin Board or other principal market on which the Companys common
stock is traded for the 5 days immediately following the notice date. The price paid by Cornell
Capital Partners, LP for the Companys stock shall be determined as of the date of each individual
request for an advance under the Standby Equity Distribution Agreement. Cornell Capital Partners,
LP will also retain 5% of each advance under the Standby Equity Distribution Agreement. Cornell
Capital Partners obligation to purchase shares of the Companys common stock under the Standby
Equity Distribution Agreement is subject to certain conditions, including the Company obtaining an
effective registration statement for shares of the Companys common stock sold under the Standby
Equity Distribution Agreement and is limited to $300,000 per weekly advance. Our principal sources of liquidity have been private placements of our securities and loans
from management and shareholders. Management believes that the acquisition of Identity, Inc. on May
2, 2005 will provide surplus operating cash flow over the ensuing 12 months from our Airbee
Automotive Group operations, but there will continue to be an operating cash flow deficit from the
licensing of embedded software in the near term. Cash at March 31, 2005 and December 31, 2004, respectively, was $91,650 and $87,362. At March
31, 2005 and December 31, 2004, respectively, we had total stockholders deficit of $1,197,298 and
$1,281,466. Our capital requirements depend on numerous factors including our research and development
expenditures, expenses related to selling, general and administrative operations and working
capital to support business growth. We anticipate that our operating and capital expenditures will
constitute a material use of our cash resources. As a result, our net cash flows will depend
heavily on (a) the level of our future sales (which depend, to a large extent, on general economic
conditions affecting us and our customers, as well as the timing of our products sales cycles
(especially for the newly introduced ZigBee global standard) and other competitive factors) and (b)
our ability to control expenses. With regard to our current liabilities at March 31, 2005, $1,010,621 is payable to related
party note holders and employees who have deferred repayment as well as interest. Trade payables at
March 31, 2005, which are current at this time, of approximately $457,781 are outstanding and will
be paid as they come due or as payment may be extended by agreement of the parties. A payment of
$60,000 for certification of our ZNS software stack is our only other current obligation (other
than compensation). We are required to submit payment within approximately 45 days of the date we
submit our product for certification. We have set aside $60,000 from our currently available cash
for such purposes. 24




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We believe that revenues will begin during the latter part of the second quarter of 2005 from
our licensing and other agreements and from the acquisition of Identity, Inc. on May 2, 2005.
However, we shall be dependent upon financing to accelerate our marketing activities and continue
product enhancement. We anticipate monthly expenses of approximately $165,000 to $185,000 over the
next several months. Based on our historical ability to obtain funding (including but not limited
to the Montgomery Equity Partners Loan Noted dated April 26, 2005 and the Cornell Capital partners
Standby Equity Distribution Agreement dated April 26, 2005), we believe that sufficient funds will
be available until adequate revenues are generated to cover operating expenses as cash flow allows.
There are no known trends that are likely to have a material impact on liquidity. Key Operating Metrics With anticipated revenues commencing during the second quarter, our senior management will
regularly review key financial information including net revenues, operating income or loss,
earnings or loss per share, changes in deferred revenue, cash flow from operations and free cash.
We define free cash as the sum of cash and cash equivalents, short and long-term investments and
restricted investments less long-term debt. This information will allow us to monitor the
profitability of our business and evaluate the effectiveness of investments that we have made in
the areas of customer support, product development, marketing and site operations. We believe that
an understanding of key financial information and how it changes over time will be important to
investors, analysts and other parties analyzing our business results and future market
opportunities. Item 3. Controls and Procedures Evaluation of Disclosure Controls and Procedures The Companys management, with the participation of the Companys chief executive officer and
chief financial officer, evaluated the effectiveness of the Companys disclosure controls and
procedures as of the end of the period covered by this report. The term disclosure controls and
procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and
other procedures of a company that are designed to ensure that information required to be disclosed
by a company in the reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be disclosed by a company
in the reports that it files or submits under the Exchange Act is accumulated and communicated to
the companys management, including its principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosure. Management recognizes that
any controls and procedures, no matter how well designed and operated, can provide only reasonable
assurance of achieving their objectives and management necessarily applies its judgment in
evaluating the cost-benefit relationship of possible controls and procedures. Based on the
evaluation of the Companys disclosure controls and procedures as of the end of the period covered
by this report, the Companys chief executive officer and chief financial officer concluded that,
as of such date, the Companys disclosure controls and procedures were not effective for the
reasons disclosed below. The Company has identified certain internal control deficiencies that it considers to be
reportable conditions and material weaknesses. These consist of (1) inadequate communication
leading to the untimely filing of a current report with the Securities and Exchange Commission and
(2) resolution of certain accounting matters. The accounting deficiencies have principally arisen
in connection with comments received from the Staff of the SEC who have raised issues about various
rule and other GAAP compliance matters, which pertain to the Company when it was a private entity.
The Company will use its best efforts to implement necessary policies and procedures within the
Company to provide adequate disclosure controls and procedures. Changes in Internal Controls No change in the Companys internal control over financial reporting occurred during the last
fiscal quarter of the period covered by this report that has materially affected, or is reasonably
likely to materially affect, the Companys internal controls over financial reporting. 25




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PART II OTHER INFORMATION Item 1. Legal Proceedings. There are presently no material pending legal proceedings to which our company or our
subsidiary is a party or to which any of its property is subject and, to the best of our knowledge,
no such actions against our company are contemplated or threatened. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Effective January 1, 2005, we issued options to purchase 150,000 shares of our common stock to
Mal Gurian, in conjunction with his appointment to our board of directors. The options vest over
one year in equal quarterly installments. The options are exercisable at $0.22 per share for a
period of five years from the date of issuance. The options were issued pursuant to the exemption
from registration provided by Section 4(2) of the Securities Act. The options contain the
appropriate legends restricting their transferability absent registration or applicable exemption.
Mr. Gurian received information concerning our company and had the ability to ask questions about
our company. In March 2005, we issued 982,143 restricted shares of our common stock to five accredited
investors for $350,000. In addition, we issued 125,000 warrants to these investors at a strike
price of $0.48 per share and 71,429 warrants at $0.36. The securities were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities Act. The securities contain
the appropriate legends restricting their transferability absent registration or applicable
exemption. The investors received information concerning our company and had the ability to ask
questions concerning our company. Effective March 1, 2005, we issued options to purchase 1,000,000 shares of our common stock to
David McCartney, in conjunction with his employment agreement with the company. The options are
exercisable at $0.38 per share for a period of five years from the date of issuance. The options
were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities
Act. The options contain the appropriate legends restricting their transferability absent
registration or applicable exemption. The employee received information concerning our company and
had the ability to ask questions concerning our company. Item 3. Defaults upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits (a) Documents filed as part of this Form 10-QSB.  31.1
    Rule 13a-14(a)/15d-4(a) Certification of Principal Executive Officer31.2
    Rule 13a-14(a)/15d-4(a) Certification of Principal Financial Officer32.1
    Section 1350 Certification of Principal Executive Officer32.2
    Section 1350 Certification of Principal Financial Officer 26




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SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized. Dated: July 21, 2005 AIRBEE WIRELESS, INC.By:
    
    /s/ Sundaresan RajaSundaresan RajaChief Executive Officer(Principal Executive Officer)By:
    
    /s/ Richard P. Sommerfeld, Jr.Richard P. Sommerfeld, Jr.Principal Financial Officer
 27