##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
 EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 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.
  DELAWARE
(State or other jurisdiction
of incorporation or organization)9400 Key West Avenue, Suite 100
Rockville, MD
(Address of principal executive offices)
    
    46-0500345
(IRS Employer
Identification No.)20850-3322
(Zip Code)
 (301) 517-1860
 þ o
   o þ




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##### 



PAGEPART I FINANCIAL INFORMATION
    
    
    2Item 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheet as of June 30, 2005 (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Six Months and Three Months Ended June 30, 2005 and 2004
    
    
    4Condensed Consolidated Statement of Accumulated Other Comprehensive Income (Loss) for the Six Months Ended June 30, 2005 and 2004
    
    
    5Condensed Consolidated Statements of Cash Flow for the Six Months Ended June 30, 2005 and 2004
    
    
    6Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis or Plan of OperationsItem 3. Controls and Procedures
    
    
    40PART II OTHER INFORMATION
    
    
    42Item 1. Legal Proceedings
    
    
    42Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    42Item 3. Defaults Upon Senior Securities
    
    
    44Item 4. Submission of Matters to a Vote of Security Holders
    
    
    45Item 5. Other Information
    
    
    45Item 6. Exhibits
    
    
    45SIGNATURES
    
    
    46




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##### 



PART I FINANCIAL INFORMATION
 Item 1. Financial Statements
 AIRBEE WIRELESS, INC.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
 (UNAUDITED)
 2




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##### 



AIRBEE WIRELESS, INC.
 CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
(UNAUDITED)
 ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    58,250Accounts receivable, net
    
    
    254,737Inventory
    
    
    433,997Prepaid expenses and other current assets
    
    
    116,375Total Current Assets
    
    
    863,359Fixed assets
    
    
    78,155Goodwill
    
    
    3,216,296Intangible assets
    
    
    1,648,542Other assets
    
    
    1,9094,866,747TOTAL ASSETS
    
    $
    5,808,261LIABILITIES AND STOCKHOLDERS EQUITYLIABILITIESCurrent Liabilities:Notes payable  related party
    
    $
    1,040,396Notes payable  other
    
    
    800,000Accounts payable and accrued expenses
    
    
    1,173,504Total Current Liabilities
    
    
    3,013,900Long-term Liabilities:Due officer
    
    
    40,927Total Long-term Liabilities
    
    
    40,927Total Liabilities
    
    
    3,054,827STOCKHOLDERS EQUITYCommon stock, $0.00004 Par Value; 200,000,000 shares authorized
53,070,132 shares issued and outstanding
    
    
    2,123Additional paid-in capital
    
    
    7,486,989Unearned compensation
    
    
    (34,367
    )Accumulated other comprehensive income
    
    
    736Retained earnings (deficit)
    
    
    (4,440,958
    )3,014,523Less: Treasury stock, 939,152 shares at cost
    
    
    (261,089
    )Total Stockholders Equity
    
    
    2,753,434TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    5,808,261
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 3




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##### 



AIRBEE WIRELESS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
 THREE MONTHSSIX MONTHS ENDED
    
    ENDEDJUNE 30,
    
    JUNE 30,2005
    
    2004
    
    2005
    
    2004Restated
    
    
    
    
    
    RestatedOPERATING REVENUESSales
    
    $
    725,357
    
    
    $
    
    
    
    $
    725,357
    
    
    $
    COST OF SALES
    
    
    566,314
    
    
    
    
    
    
    
    566,314
    
    
    
    GROSS PROFIT
    
    
    159,043
    
    
    
    
    
    
    
    159,043
    
    
    
    OPERATING EXPENSESCompensation and professional fees
    
    
    805,010
    
    
    
    272,248
    
    
    
    562,021
    
    
    
    151,258Research and development
    
    
    334,502
    
    
    
    43,044
    
    
    
    122,432
    
    
    
    41,574Selling, general and administrative expenses
    
    
    513,266
    
    
    
    74,830
    
    
    
    451,137
    
    
    
    38,559Depreciation and amortization
    
    
    22,545
    
    
    
    1,555
    
    
    
    19,463
    
    
    
    925Total Operating Expenses
    
    
    1,675,323
    
    
    
    391,677
    
    
    
    1,155,053
    
    
    
    232,316LOSS BEFORE OTHER (EXPENSE)
    
    
    (1,516,280
    )
    
    
    (391,677
    )
    
    
    (996,010
    )
    
    
    (232,316
    )OTHER (EXPENSE)Interest expense
    
    
    (110,312
    )
    
    
    (15,923
    )
    
    
    (81,738
    )
    
    
    (8,406
    )Total Other (Expense)
    
    
    (110,312
    )
    
    
    (15,923
    )
    
    
    (81,738
    )
    
    
    (8,406
    )NET LOSS BEFORE PROVISION FOR INCOME TAXES
    
    
    (1,626,592
    )
    
    
    (407,600
    )
    
    
    (1,077,748
    )
    
    
    (240,722
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS APPLICABLE TO COMMON SHARES
    
    $
    (1,626,592
    )
    
    $
    (407,600
    )
    
    $
    (1,077,748
    )
    
    $
    (240,722
    )NET LOSS PER BASIC AND DILUTED SHARES
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
    
    
    45,268,362
    
    
    
    36,078,979
    
    
    
    48,649,779
    
    
    
    36,078,979
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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##### 



AIRBEE WIRELESS, INC.
 CONDENSED CONSOLIDATED STATEMENT OF
ACCUMULATED OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
 Balance, January 1, 2004
    
    $
    5,882Loss on foreign currency translation
    
    
    (8,351

    )Balance, June 30, 2004
    
    $
    (2,469
    )Balance, January 1, 2005
    
    $
    730Loss on foreign currency translation
    
    
    6Balance, June 30, 2005
    
    $
    736
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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##### 



AIRBEE WIRELESS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
 Restated2005
    
    2004CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,626,592
    )
    
    $
    (407,600
    )Adjustments to reconcile net loss to net cash
used in operating activitiesDepreciation and amortization
    
    
    22,545
    
    
    
    1,555Common stock issued for services
    
    
    296,053
    
    
    
    Common stock issued for compensation
    
    
    13,000
    
    
    
    Income (loss) on foreign currency translations
    
    
    6
    
    
    
    (8,351
    )Unearned compensation
    
    
    6,874
    
    
    
    6,874Cash acquired in acquisition of Identity Inc.
    
    
    67,614
    
    
    
    Changes in assets and liabilities(Increase) in accounts receivable
    
    
    (15,571
    )
    
    
    Decrease in inventory
    
    
    98
    
    
    
    (Increase) in prepaid expenses and other assets
    
    
    (103,270
    )
    
    
    (12,260
    )Increase (decrease) in accounts payable and
and accrued expenses
    
    
    493,190
    
    
    
    (131,354
    )Total adjustments
    
    
    780,539
    
    
    
    (143,536
    )Net cash (used in) operating activities
    
    
    (846,053
    )
    
    
    (551,136
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of intangible assets
    
    
    (161,784
    )
    
    
    Acquisitions of fixed assets
    
    
    (24,619
    )
    
    
    14,602
    )Net cash (used in) investing activities
    
    
    (186,403
    )
    
    
    (14,602
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 6




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##### 



AIRBEE WIRELESS, INC.
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (CONTINUED)
(UNAUDITED)
 Restated2005
    
    2004CASH FLOWS FROM FINANCING ACTIVITESProceeds from common stock issuances
    
    $
    503,559
    
    
    $
    521,000Proceeds from notes payable  other
    
    
    750,000
    
    
    
    Proceeds / (payments) to notes payable  related party, net
    
    
    (16,215
    )
    
    
    140,879Purchase of treasury stock
    
    
    (209,000
    )
    
    
    Payments for issuance costs
    
    
    (25,000
    )
    
    
    Net cash provided by financing activities
    
    
    1,003,344
    
    
    
    661,879NET (DECREASE) INCREASE IN
CASH AND CASH EQUIVALENTS
    
    
    (29,112
    )
    
    
    96,141CASH AND
CASH EQUIVALENTS 
BEGINNING OF PERIOD
    
    
    87,362
    
    
    
    23,488CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    58,250
    
    
    $
    119,629SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:CASH PAID DURING THE YEAR FOR:Interest expense
    
    $
    30,270
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:Common stock issued for compensation
    
    $
    13,000
    
    
    $
    Common stock issued for services
    
    $
    296,053
    
    
    $
    Common stock issued for issuance costs
    
    $
    740,000
    
    
    $
    Net effect of acquisition of Identity, Inc.Cash
    
    $
    (67,614
    )
    
    $
    Accounts receivable
    
    
    (239,166
    )
    
    
    Inventory
    
    
    (434,095
    )
    
    
    Goodwill
    
    
    (3,216,296
    )
    
    
    Intangible Assets
    
    
    (1,320,783
    )Fixed assets, net
    
    
    (12,219
    )
    
    
    Other assets
    
    
    (350
    )
    
    
    Accounts payable and accrued expenses
    
    
    290,523
    
    
    
    Common stock
    
    
    308
    
    
    
    Additional paid-in capital
    
    
    4,999,692
    
    
    
    $
    
    
    
    $
    
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 7




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##### 



AIRBEE WIRELESS, INC.
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 AND 2004
(UNAUDITED)
 NOTE 1  ORGANIZATION AND BASIS OF PRESENTATION
   Airbee Company
  8




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##### 



Current assets
    
    
    741,225Fixed assets
    
    
    12,219Accounts payable and other accrued expenses
    
    
    (290,523
    )Total
    
    
    462,921
  NOTE 2  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Liquidity
   9




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##### 



Principles of Consolidation
 Airbee Company
 Use of Estimates
  Cash and Cash Equivalents
   Fixed Assets
  10




---



##### 



Intangible Assets
   Intellectual Property
  Accounting for Research and Development Costs Research and Development Arrangements Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed 
  11




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##### 



Segment Reporting
 Disclosures about Segments of
an Enterprise and Related Information
 Revenue and Cost Recognition
    
 12




---



##### 



Software Revenue Recognition
       13




---



##### 



Revenue
Recognition When Right of Return Exists
 Accounting for
Contingencies
     Accounts Receivable
  14




---



##### 



Inventory
  Prepaid Financing Costs
  Research and Development
 Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed
 Income Taxes
  Advertising
  Earnings (Loss) Per Share of Common Stock
  15




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##### 



June 30, 2005
    
    June 30, 2004Net Loss
    
    
    ($1,626,592
    )
    
    
    ($407,600
    )Weighted-average common shares
outstanding (Basic)
    
    
    45,268,362
    
    
    
    41,073,219Weighted-average common stockEquivalents:Stock options
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Weighted-average common shares
outstanding (Diluted)
    
    
    45,268,362
    
    
    
    41,073,219
 Fair Value of Financial Instruments
  Stock-Based Compensation
 Accounting
for Stock Issued to Employees Accounting for Stock-Based
Compensation Accounting for
Stock-Based Compensation- Transition and Disclosure
  16




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##### 



Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services
 Product Warranty
  Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets Intangible Assets
  17




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##### 



Goodwill and Other Intangible Assets Accounting for the Impairment or Disposal of Long-Lived Assets
  Six Months Ended June 30, 2005Gross Carrying
    
    AccumulatedAmount
    
    AmortizationIntellectual Property
    
    
    327,759
    
    
    
    2,500Customer lists
    
    
    498,557
    
    
    
    Non-compete agreement
    
    
    480,000
    
    
    
    Trademark
    
    
    342,226
    
    
    
    Goodwill
    
    
    3,216,296
    
    
    
    Total Goodwill and Intangible Assets
    
    
    4,864,838
    
    
    
    2,500
     18




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##### 



Currency Risk and Foreign Currency Translation
  Foreign Currency Translation
 Recent Accounting Pronouncements
 Share-Based
Payment
 Inventory Costs  an amendment of ARB No. 43, Chapter 4
 19




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##### 



Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary Transactions
 NOTE 3- BUSINESS SEGMENT INFORMATION
  EmbeddedSoftware
    
    AutomotiveGroup
    
    Group
    
    TotalRevenues
    
    
    1,021
    
    
    
    724,336
    
    
    
    725,357Cost of sales
    
    
    
    
    
    
    566,314
    
    
    
    566,314Gross Profit
    
    
    1,021
    
    
    
    158,022
    
    
    
    159,043Compensation and professional fees
    
    
    656,520
    
    
    
    148,490
    
    
    
    805,010Research and development
    
    
    334,502
    
    
    
    
    
    
    
    334,502Selling, general and administrative expenses
    
    
    264,114
    
    
    
    249,152
    
    
    
    513,266Depreciation, amortization, impairment
    
    
    21,846
    
    
    
    699
    
    
    
    22,545Interest (net)
    
    
    (110,176
    )
    
    
    (136
    )
    
    
    (110,312
    )Net income (loss)
    
    
    (1,386,137
    )
    
    
    (240,455
    )
    
    
    (1,626,592
    )Segment assets
    
    
    5,031,400
    
    
    
    776,861
    
    
    
    5,808,261Fixed assets, net of depreciation
    
    
    66,636
    
    
    
    11,519
    
    
    
    78,155Intangible assets
    
    
    1,320,783
    
    
    
    
    
    
    
    1,320,783Goodwill
    
    
    3,216,296
    
    
    
    
    
    
    
    3,216,296Intellectual property
    
    
    327,759
    
    
    
    
    
    
    
    327,759
  20




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##### 



NOTE 4- CONCENTRATION OF CREDIT RISK
  NOTE 5- FIXED ASSETS
  June 30,2005Computer and office equipment
    
    
    91,655Less: accumulated depreciation
    
    
    (13,499
    )Net book value
    
    
    78,156
  NOTE 6- NOTES PAYABLE
   21




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##### 



NOTE 7- PROMISSORY NOTES  RELATED PARTY
  NOTE 8- PROVISION FOR INCOME TAXES
   Deferred tax asset
    
    
    1,554,335Less: valuation allowance
    
    
    (1,554,335
    )
  NOTE 9- STOCKHOLDERSEQUITY
    22




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##### 



23




---



##### 



NOTE 10- COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  Intellectual Property Licensing Agreements
  24




---



##### 



Lease Agreements
   NOTE 11- GOING CONCERN
     NOTE 12- ACQUISITION
   25




---



##### 



® 
   Current assets
    
    
    741,225Fixed assets
    
    
    12,219Accounts payable and other accrued expenses
    
    
    (290,523
    )Total
    
    
    462,921
 NOTE 13- RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
  26




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##### 



27




---



##### 



Forward Looking Statements
  Strategy
     28




---



##### 




  ®
 Embedded Wireless Communications Software Group
  29




---



##### 



Automotive Group
  Critical Accounting Estimates
  Inventory.
 30




---



##### 



Long-Lived Assets.
  Results of Operations
 Overview
   31




---



##### 



Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004
  Six Months
    
    Six MonthsEnded June
    
    ended June 30,30, 2005
    
    2004Net revenue
    
    
    100.0
    %
    
    
    0
    %Cost of sales
    
    
    78.1
    %
    
    
    0
    %Gross margin
    
    
    21.9
    %
    
    
    0
    %Research and development
    
    
    46.1
    %
    
    
    NM
    %Marketing, general and administrative
    
    
    62.2
    %
    
    
    NM
    %Operating income
    
    
    (209.0
    )%
    
    
    NM
    %
   32




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##### 



EmbeddedSoftware
    
    AutomotiveGroup
    
    Group
    
    TotalRevenues
    
    $
    1,021
    
    
    $
    724,336
    
    
    $
    725,357Cost of sales
    
    
    
    
    
    
    566,314
    
    
    
    566,314Gross Profit
    
    
    1,021
    
    
    
    158,022
    
    
    
    159,043Compensation and professional fees
    
    
    656,520
    
    
    
    148,490
    
    
    
    805,010Research and development
    
    
    334,502
    
    
    
    
    
    
    
    334,502Selling, general and administrative expenses
    
    
    264,114
    
    
    
    249,152
    
    
    
    513,266Depreciation, amortization, impairment
    
    
    21,846
    
    
    
    699
    
    
    
    22,545Interest (net)
    
    
    (110,176
    )
    
    
    (136
    )
    
    
    (110,312
    )Net income (loss)
    
    
    (1,386,137
    )
    
    
    (240,455
    )
    
    
    (1,626,592
    )Segment assets
    
    
    5,031,400
    
    
    
    776,861
    
    
    
    5,808,261Fixed assets, net of depreciation
    
    
    66,636
    
    
    
    11,519
    
    
    
    78,155Intangible assets
    
    
    1,320,783
    
    
    
    
    
    
    
    1,320,783Goodwill
    
    
    3,216,296
    
    
    
    
    
    
    
    3,216,296Intellectual property
    
    
    327,759
    
    
    
    
    
    
    
    327,759
  ® ®
  33




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##### 



Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004
    34




---



##### 



Plan of Operations
 Business Outlook
  ®
 35




---



##### 



36




---



##### 



Liquidity and Capital Resources
     37




---



##### 



38




---



##### 



Key Operating Metrics
  Additional Risks
  39




---



##### 



Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
     40




---



##### 



Changes in Internal Controls
  41




---



##### 



PART II OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
       42




---



##### 



43




---



##### 



Item 3. Defaults upon Senior Securities.
  44




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders.
  Item 5. Other Information.
  Item 6. Exhibits.
 31.1
    
    Rule 13a-14(a)/15d-4(a) Certification of Principal Executive Officer
 31.2
    
    Rule 13a-14(a)/15d-4(a) Certification of Principal Financial Officer
 32.1
    
    Section 1350 Certification of Principal Executive Officer
 32.2
    
    Section 1350 Certification of Principal Financial Officer
 45




---



##### 



SIGNATURES
   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 46