**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





(Mark
      One)





R  **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**  **EXCHANGE
      ACT OF 1934**





**For the quarterly period ended March 31, 2007**





**OR**





£  **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 100****Rockville,
                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 R No £





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes £ No R





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: 83,021,551 shares of Common Stock par value
      of $0.00004 as of May 3, 2007.





Transitional
      Small Business Disclosure Form (check one): Yes £ No R
















AIRBEE
      WIRELESS, INC.





FORM
      10-QSB





INDEX





**PAGE**PART
                I FINANCIAL INFORMATIONItem
                1. Financial Statements
            3Condensed
                Consolidated Balance Sheet as of March 31, 2007
                (Unaudited)
            4Condensed
                Consolidated Statements of Operations for the Three Months Ended
                March 31,
                2007 and 2006 (Unaudited)
            5Condensed
                Consolidated Statement of Accumulated Other Comprehensive Income
                for the
                Three Months Ended March 31, 2007 (Unaudited)
            6Condensed
                Consolidated Statements of Cash Flows for the Three Months Ended
                March 31,
                2007 and 2006 (Unaudited)
            7Notes
                to the Condensed Consolidated Financial Statements
                (Unaudited)
            9Item
                2. Management’s Discussion and Analysis or Plan of
                Operations
            27Item
                3. Controls and Procedures
            34PART
                II OTHER INFORMATION
            35Item
                1. Legal Proceedings
            35Item
                2. Unregistered Sales of Equity Securities and Use of
                Proceeds
            35Item
                3. Defaults Upon Senior Securities
            37Item
                4. Submission of Matters to a Vote of Security Holders
            37Item
                5. Other Information
            37Item
                6. Exhibits
            37SIGNATURES
            38





2





**PART
      I FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**AIRBEE
      WIRELESS, INC.**


**CONDENSED
      CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**


**(UNAUDITED)**




3


**AIRBEE
                  WIRELESS, INC.****CONDENSED
                  CONSOLIDATED BALANCE SHEET****MARCH
                  31, 2007****(UNAUDITED)**
  **ASSETS****2006**Current
                  Assets:Cash
                  and cash equivalents
              
              $
              -Accounts
                  receivable, net
              
              
              10,395Prepaid
                  expenses and other current assets
              
              
              3,455Total
                  Current Assets
              
              
              13,850Fixed
                  assets, net of depreciation
              
              
              231,575Intangible
                  assets
              
              
              392,650Deferred
                  financing costs
              
              
              11,595Other
                  assets
              
              
              55,266459,511**TOTAL
                  ASSETS**
              
              $
              704,936**LIABILITIES
                  AND STOCKHOLDERS' (DEFICIT)****LIABILITIES**Current
                  Liabilities:Notes
                  payable - related party
              
              $
              120,109Notes
                  payable - other
              
              
              1,016,714Montgomery
                  settlement liability
              
              
              217,268Fair
                  value of derivatives
              
              
              689,517Convertible
                  debentures, net of discount of $131,250
              
              
              218,750Warrants
                  liability
              
              
              987,804Accounts
                  payable and accrued expenses
              
              
              1,962,597Total
                  Current Liabilities
              
              
              5,212,759**Total
                  Liabilities**
              
              
              5,212,759**COMMITMENTS
                  AND CONTINGENCIES**
              
              
              -**STOCKHOLDERS'
                  DEFICIT**Common
                  stock, $.00004 Par Value; 200,000,000 shares authorized;97,219,931
                  shares issued; 14,142,511 shares held in escrow;and
                  81,421,551 shares outstanding
              
              
              3,257Additional
                  paid-in capital
              
              
              8,372,747Unearned
                  compensation
              
              
              (18,562
              )Other
                  accumulated comprehensive income
              
              
              20,404Accumulated
                  deficit
              
              
              (12,588,626
              )(4,210,780
              )Less:
                  stock subscription receivable
              
              
              -Less:
                  treasury stock, 1,655,869 shares at cost
              
              
              (297,043
              )**Total
                  Stockholders' Deficit**
              
              
              (4,507,823
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS' DEFICIT**
              
              $
              704,936The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




4


**AIRBEE
                  WIRELESS, INC.****CONDENSED
                  CONSOLIDATED STATEMENTS OF OPERATIONS****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(UNAUDITED)**
  **Restated****2007**
              
              **2006****OPERATING
                  REVENUES**Sales
              
              $
              20,790
              
              $
              51,600**COST
                  OF SALES**
              
              
              -
              
              
              -**GROSS
                  PROFIT**
              
              
              20,790
              
              
              51,600**OPERATING
                  EXPENSES**Compensation
                  and professional fees
              
              
              475,448
              
              
              547,220Stock
                  option compensation expense
              
              
              469
              
              
              1,015,141Research
                  and development
              
              
              4,842
              
              
              -Selling,
                  general and administrative expenses
              
              
              202,094
              
              
              130,155Depreciation
                  and amortization
              
              
              55,685
              
              
              12,056**Total
                  Operating Expenses**
              
              
              738,538
              
              
              1,704,572**LOSS
                  BEFORE OTHER INCOME (EXPENSE)**
              
              
              (717,748
              )
              
              (1,652,972
              )**OTHER
                  INCOME (EXPENSE)**Gain
                  (loss) on derivatives/warrants
              
              
              (290,818
              )
              
              427,532Other
                  income
              
              
              18,959
              
              
              -Interest
                  expense
              
              
              (206,378
              )
              
              (64,740
              )**Total
                  Other Income (Expense)**
              
              
              (478,237
              )
              
              362,792**LOSS
                  BEFORE PROVISION FOR INCOME TAXES**
              
              
              (1,195,985
              )
              
              (1,290,180
              )**Provision
                  for Income Taxes**
              
              
              -
              
              
              -**NET
                  LOSS APPLICABLE TO COMMON SHARES**
              
              $
              (1,195,985
              )
              $
              (1,290,180
              )**NET
                  LOSS PER BASIC AND DILUTED SHARES**
              
              $
              (0.01
              )
              $
              (0.02
              )**WEIGHTED
                  AVERAGE NUMBER OF COMMON****SHARES
                  OUTSTANDING**
              
              
              80,594,953
              
              
              60,230,066
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




5




**CONDENSED
                  CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE
                  INCOME****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007****(UNAUDITED)**
  Balance,
                  December 31, 2006
              
              $
              933Gain
                  on foreign currency translations
              
              
              19,471Balance,
                  March 31, 2007
              
              $
              20,404
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.





6


**AIRBEE
                  WIRELESS, INC.****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(UNAUDITED)**
  **Restated****2007**
              
              **2006****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  loss
              
              $
              (1,195,985
              )
              $
              (1,290,180
              )Adjustments
                  to reconcile net loss to net cash(used
                  in) operating activitiesDepreciation
                  and amortization
              
              
              55,685
              
              
              12,056Common
                  stock issued for services
              
              
              137,730
              
              
              90,500Common
                  stock issued for compensation
              
              
              -
              
              
              25,000Gain
                  on valuation of derivatives
              
              
              290,818
              
              
              (427,532
              )Amortization
                  of derivative discounts
              
              
              43,750
              
              
              39,183Stock
                  option compensation expense 123R
              
              
              469
              
              
              1,015,141Amortization
                  of financing fees
              
              
              3,864
              
              
              3,864Gain
                  on foreign currency translations
              
              
              19,471
              
              
              (6
              )Amortization
                  of unearned compensation
              
              
              3,992
              
              
              3,992Extension
                  and late payment fees on bridge loans
              
              
              85,065
              
              
              -Excess
                  tax benefits from share-based payment arrangement
              
              
              (164
              )
              
              (355,299
              )**Changes
                  in assets and liabilities**(Increase)
                  in accounts receivable
              
              
              (10,395
              )
              
              (17,110
              )Decrease
                  in prepaid expenses and other current assets
              
              
              21,038
              
              
              40,128(Increase)
                  in other assets
              
              
              (1,031
              )
              
              (383
              )Increase
                  in accounts payable andand
                  accrued expenses
              
              
              258,333
              
              
              272,633Total
                  adjustments
              
              
              908,625
              
              
              702,167**Net
                  cash (used in) operating activities**
              
              
              (287,360
              )
              
              (588,013
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of intangible assets
              
              
              -
              
              
              (36,298
              )Acquisitions
                  of fixed assets
              
              
              (62,145
              )
              
              (1,897
              )**Net
                  cash (used in) investing activities**
              
              
              (62,145
              )
              
              (38,195
              )
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




7


**AIRBEE
                  WIRELESS, INC.****CONDENSED
                  CONSOLIDATED STATEMENTS OF CASH FLOWS,
                  CONTINUED****FOR
                  THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006****(UNAUDITED)**
  **Restated****2007**
              
              **2006****CASH
                  FLOWS FROM FINANCING ACTIVITES**Proceeds
                  from common stock issuances
              
              $
              70,000
              
              $
              96,400Proceeds
                  from stock subscriptions receivable
              
              
              -
              
              
              122,500Proceeds
                  from notes payable - other
              
              
              200,064
              
              
              40,000Proceeds
                  from notes payable - related party, net
              
              
              19,979
              
              
              -Excess
                  tax benefits from share-based payment arrangement
              
              
              164
              
              
              355,299**Net
                  cash provided by financing activities**
              
              
              290,207
              
              
              614,199**NET
                  (DECREASE) IN****CASH
                  AND CASH EQUIVALENTS**
              
              
              (59,298
              )
              
              (12,009
              )**CASH
                  AND CASH EQUIVALENTS -****BEGINNING
                  OF PERIOD**
              
              
              59,298
              
              
              27,854**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              -
              
              $
              15,845**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW****INFORMATION:****CASH
                  PAID DURING THE PERIOD FOR:**Interest
                  expense
              
              $
              13,125
              
              $
              4,659Income
                  taxes
              
              $
              -
              
              $
              -**SUPPLEMENTAL
                  DISCLOSURE OF NONCASH****ACTIVITIES:**Common
                  stock issued for compensation
              
              $
              -
              
              $
              25,000Common
                  stock issued for services
              
              $
              137,730
              
              $
              90,500Stock
                  options vested during period
              
              $
              469
              
              $
              1,015,141Common
                  stock issued for subscription receivable
              
              $
              -
              
              $
              5,000Warrants
                  converted to liability
              
              $
              420,546
              
              $
              -Conversion
                  of note payable - other and accrued interest to common
                  stock
              
              $
              60,225
              
              $
              73,085Use
                  of pledged collateral for settlement of note payable and accrued
                  interest
              
              $
              59,030
              
              $
              191,424Conversion
                  of related party notes payable, accrued salaries payable
                and
                  accrued interest to common stock
              
              $
              40,266
              
              $
              1,890,012
  The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




8




**AIRBEE
      WIRELESS, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**


**(UNAUDITED)**


**NOTE
                  1 -**
              **ORGANIZATION
                  AND BASIS OF
                  PRESENTATION**




The
      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, 2006 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. (“ *Airbee* ”
or
      the
“ *Company* ”),
      was
      incorporated in Delaware in 2002 to develop and supply cutting edge intelligent
      software that is generally embedded into microprocessors thereby allowing
      manufacturers (OEMs) of various products to create advanced wireless
      communications systems.




Focusing
      on its core competencies in the design and engineering of advanced, embedded
      short-range wireless data and voice communications software, the Company
      believes that it is positioned to play a pivotal role in the convergence of
      various wireless communications applications through software embedded on
      silicon and in niche service applications for its software.




In
      March
      2004, Airbee became a member of The ZigBee Alliance which has defined a global
      standard for reliable, cost-effective, low-power, low data rate, wireless
      applications. With over 200 international member companies, the ZigBee standard,
      based on IEEE 802.15.4 standard, is emerging as a dominant wireless standard
      for
      a host of industrial controls, telemetry, and in-building and home automation
      networking needs.




Airbee’s
      portfolio of products is generally connected over the rapidly emerging Wireless
      Personal Area Network (WPAN) or the Wireless Local Area Network (WLAN)
      technology space. Critical to the success of new products in these areas is
      the
      ability to interoperate or “talk to each other” based on industry-adopted
      standards. Airbee’s products are designed and engineered to be compliant with
      ZigBee/802.15.4 WPAN standards (approved by IEEE on August 7, 2003). Airbee’s
      patent-pending software technology, in conjunction with an Airbee enabled
      wireless network, allows a computer to work with a printer or PDA, a headset
      accessory to work with a mobile phone, a utility meter to be read remotely,
      or a
      manufacturing line to be wirelessly controlled and monitored as examples. Airbee
      leverages the widespread market awareness created by Bluetooth but offers
      similar products at less than half the cost, three times the operating range
      and
      better reliability per the ZigBee specifications.




As
      stated
      in Note 12, The Company has amended its previously issued condensed consolidated
      financial statements for the three months ended March 31, 2006 for amortization
      of intangible assets of $5,050 and certain balance sheet reclassifications
      to
      conform with the December 31, 2005 restatement. The effect of these changes
      resulted in an increase of the loss for the three month period ended March
      31,
      2006 of $5,050 to a net loss of $1,290,180 and an increase in the accumulated
      deficit to $7,886,805.




9




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




**Liquidity**




The
      consolidated financial statements have been presented on the basis that the
      Company is a going concern, which contemplates, among other things, the
      realization of assets, continued success in accessing supplemental external
      financing, and the satisfaction of liabilities in the normal course of business.
      The Company has incurred losses since its inception, and has an accumulated
      deficit of approximately $12.59 million as of March 31, 2007. The Company's
      operations have been financed primarily through a combination of issued equity
      and debt. For the three months ended March 31, 2007, the Company had a net
      loss
      of approximately $1,196,000 and cash used in operations of approximately
      $287,000.




The
      Company regularly evaluates its working capital needs and existing burn rate
      to
      make appropriate adjustments to operating expenses. On December 29, 2005, the
      Company executed a $500,000 convertible debenture with Montgomery Equity
      Partners, Ltd. Pursuant to its terms, Montgomery disbursed $350,000 to the
      Company with the remaining $150,000 to be disbursed after the Company’s common
      stock commenced trading on the Over-the-Counter Bulletin Board market and two
      days before the Company files a Form SB-2 with the U.S. Securities and Exchange
      Commission. The convertible debenture has a two-year term and accrues monthly
      interest at 15% per year. As more fully disclosed in Note 13 - Subsequent
      Events, Montgomery disbursed the remaining $150,000 on April 9,
      2007.




**Principles
      of Consolidation**




The
      condensed consolidated financial statements include the accounts of the Company
      and its wholly owned subsidiary Airbee Wireless (India) Pvt. Ltd., located
      in
      India, for the three months ended March 31, 2007 and 2006, respectively. 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 Estimates**




The
      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 Equivalents**




The
      Company considers all highly liquid debt instruments and other short-term
      investments with an initial maturity of three months or less to be cash
      equivalents.




The
      Company maintains cash and cash equivalent balances at financial institutions
      in
      the United States of America and India. The financial institution in the United
      States of America is insured by the Federal Deposit Insurance Corporation up
      to
      $100,000.




**Fixed
      Assets**




Fixed
      assets are stated at cost. Depreciation is computed using the straight-line
      method over the estimated useful lives of the assets; two to four years for
      machinery and equipment and four to forty years for buildings. Reviews are
      regularly performed to determine whether facts and circumstances exist that
      indicate carrying amount of assets may not be recoverable or the useful life
      is
      shorter than originally estimated. The Company assesses the recoverability
      of
      its fixed assets by comparing the projected undiscounted net cash flows
      associated with the related asset or group of assets over their remaining lives
      against their respective carrying amounts. Impairment, if any, is based on
      the
      excess of the carrying amount over the fair value of those assets. If assets
      are
      determined to be recoverable, but the useful lives are shorter than originally
      estimated, the net book value of the assets is depreciated over the newly
      determined remaining useful lives. When fixed assets are retired or otherwise
      disposed of, the cost and related accumulated depreciation are removed from
      the
      accounts and the resulting gain or loss is included in operations.




10




**Intangible
      Assets**




Intellectual
      property assets represent technology and are amortized over the periods of
      benefit, ranging from two to five years, generally on a straight-line
      basis.




Identified
      intangible assets are regularly reviewed to determine whether facts and
      circumstances exist which indicate that the useful life is shorter than
      originally estimated or the carrying amount of assets may not be recoverable.
      The Company assesses the recoverability of its identifiable intangible assets
      by
      comparing the projected discounted net cash flows associated with the related
      asset or group of assets over their remaining lives against their respective
      carrying amounts. Impairment, if any, is based on the excess of the carrying
      amount over the fair value of those assets.




**Intellectual
      Property**




Costs
      incurred in creating products are charged to expense when incurred as research
      and development until technological feasibility is established upon completion
      of a working model. Thereafter, all software production costs are capitalized
      and subsequently reported at the lower of unamortized cost or net realizable
      value. Capitalized costs are amortized based on current and future revenue
      for
      each product with an annual minimum equal to the straight-line amortization
      over
      the remaining estimated economic life of the product.




In
      accordance with SFAS No. 2, “ *Accounting
      for Research and Development Costs* ”,
      SFAS
      No. 68, “ *Research
      and Development Arrangements* ”,
      and
      SFAS No. 86, “ *Accounting
      for the Costs of Computer Software to be Sold, Leased, or Otherwise
      Marketed* ”,
      technological feasibility for the Airbee UltraLite TM was
      established on November 20, 2002 with completion of the detailed program design.
      Several working models were delivered at various points through July of 2003.




Trademarks
      and patents are regularly reviewed to determine whether the facts and
      circumstances exist to indicate that the useful life is shorter than originally
      estimated or the carrying amount of the assets may not be recoverable. The
      Company assesses the recoverability of its trademarks and patents by comparing
      the projected discounted net cash flows associated with the related asset,
      over
      their remaining lives, in comparison to their respective carrying amounts.
      Impairment, if any, is based on the excess of the carrying amount over the
      fair
      value of those assets.




Intangible
      assets pertain to the Company’s intellectual property, more specifically
      software code for both IEEE 802.15.4 and the ZigBee standard version 1.0 and
      to
      the 2006 ZigBee standard version 1.1.




The
      software serves as the core code (i.e., one of the key building blocks) for
      current and future products that must comply with these international standards.
      Hence, core software based upon the global standards of IEEE and ZigBee to
      enable the rest of our software to function has an undefined, but not
      necessarily infinite, useful life. Management, with the assistance of its
      technical staff, has determined that this specific intellectual property should
      be amortized beginning in the second quarter of 2005 in accordance with SFAS
      No.
      86. The status of that intellectual property is reviewed for impairment annually
      or more frequently if events and circumstances indicate that the asset may
      be
      impaired. With the release of the ZigBee 2006 standard in September 2006, it
      was
      determined that 30% of the previously capitalized research & development
      costs should be written off. The Company believes that at this point in time,
      any further determination of impairment is impractical because (a) the IEEE
      802.15 global standard was only finalized in October 2003; (b) the ZigBee global
      standard was only finalized on September 23, 2006; and (c) the Company’s
      software written in conformity with both global standards is vital to making
      the
      rest of its software function and therefore be in compliance with these global
      standards.




**Revenue
      and Cost Recognition**




The
      Company currently recognizes revenues from four primary sources: (1) time-based
      product license fees, (2) time-based license royalties, (3) product revenues
      for
      software development tools and kits, and (4) software development
      services.




Licensing
      revenues (e.g., Airbee-ZNS TM ,
      Airbee-ZMAC TM ,
      and
      Airbee-ZNMS TM )
      consist
      of revenues from licensing under the enterprise licensing model, of Airbee
      platforms, which include a combination of products and services, and items
      such
      as development tools, an operating system, various protocols and interfaces
      and
      maintenance and support services, such as installation and training, which
      are
      licensed over a limited period of time, typically 12-36 months. Service revenues
      are derived from fees for professional services, which include design and
      development fees, software maintenance contracts, and customer training and
      consulting.




11




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 time-based number of units shipped
      by customer.




Revenue
      attributed to undelivered elements is based on the sales price rather than
      on
      the renewal rate for the following reasons:




Because
      of (i) the newness of the ZigBee standard for this short-range wireless
      technology, (ii) the newness of the Company’s product introductions into the
      marketplace for a range of applications being developed by its customers, and
      (iii) the lack of historical data for potentially defective software, which
      may
      be a function of the application into which it is installed, a reasonable
      reserve for returns cannot yet be established. In accordance with SFAS No.
      48
“ *Revenue
      Recognition When Right of Return Exists* ,”
in
      the
      absence of historical data, the Company is unable to make a reasonable and
      reliable estimate of product returns at this time.




The
      Company expects to enter into software maintenance contracts with its customers.
      Maintenance fees are not a fixed dollar amount, but rather a percentage fee
      based upon the value of the license and/or royalties billed/received.
      Maintenance contracts are paid for and collected at the beginning of the
      contract period. 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 (OEMs) is based
      on
      the time-based licensing agreement with an OEM and recognized when the OEM
      ships
      licensed products to its customers.




The
      Company assesses probability of collection based on a number of factors,
      including its past transaction history with the customer and the
      creditworthiness of the customer. New customers are subject to a credit review
      process that evaluates the customers’ financial position and ultimately its
      ability to pay according to the original terms of the arrangement. Based on
      this
      review process, if it is determined from the outset of an arrangement that
      collection of the resulting receivable is not probable, revenue is then
      recognized on a cash-collected basis.




12




Cost
      of
      revenue includes direct costs to produce and distribute products and direct
      costs to provide product support and training.




**Deferred
      Financing Costs**




Deferred
      financing fees were incurred in connection with the convertible debenture to
      Montgomery Equity Partners, Ltd. (see discussion below in Note 5). These will
      be
      amortized over the life of the convertible debenture (24 months). During the
      three months ended March 31, 2007 and 2006, the Company recognized $3,864 in
      deferred financing costs.




**Research
      and Development**




Research
      and development costs are related primarily to the Company developing its
      intellectual property. Research and development costs were expensed as incurred
      prior to the Company’s demonstration of technical feasibility of its media
      access control (“MAC”) layer in November 2004 and of its Network and Security
      layers in April 2005. Research and development costs (which include costs of
      coding and testing) incurred to produce a product master have been capitalized
      in accordance with Statement No. 86, “ *Accounting
      for the Costs of Computer Software to be Sold, Leased, or Otherwise
      Marketed* ”
issued
      by the Financial Accounting Standards Board.




**Income
      Taxes**




Income
      tax benefit is computed on the pretax loss based on current tax law. Deferred
      income taxes are recognized for the tax consequences in future years of
      differences between the tax basis of assets and liabilities and its financial
      reporting amounts at each year-end based on enacted tax laws and statutory
      tax
      rates. No benefit is reflected for the three months ended March 31, 2007 and
      2006, respectively.




**Start-up
      Costs**




In
      accordance with the American Institute of Certified Public Accountants Statement
      of Position 98-5, “Reporting on the Costs of Start-up Activities,” the Company
      expensed all costs incurred in connection with the start-up and organization
      of
      the Company.




**Advertising**




The
      Company’s policy is to expense the costs of advertising as incurred. The Company
      had no such cost for the three months ended March 31, 2007 and 2006,
      respectively.




**Earnings
      (Loss) Per Share of Common Stock**




Historical
      net income (loss) per common share is computed using the weighted average number
      of common shares outstanding. Diluted earnings per share (EPS) includes
      additional dilution from common stock equivalents, such as stock issuable
      pursuant to the exercise of stock options and warrants. Common stock equivalents
      were not included in the computation of diluted earnings per share at March
      31,
      2007 and 2006 when the Company reported a loss because to do so would be
      anti-dilutive for periods presented. The Company has incurred losses since
      inception as a result of funding its research and development, including the
      development of its intellectual property portfolio which is key to its core
      products.




13




The
      following is a reconciliation of the computation for basic and diluted
      EPS:




March
                31, 2007
            
            March
                31, 2006Net
                Loss
            
            
            ($1,195,985
            )
            
            ($1,290,180
            )Weighted-average
                common shares outstanding (Basic)
            
            
            80,594,953
            
            
            60,230,066Weighted-average
                common stock
              Equivalents:Stock
                options
            
            
            -
            
            
            -Warrants
            
            
            -
            
            
            -Weighted-average
                common shares outstanding (Diluted)
            
            
            80,594,953
            
            
            60,230,066





**Fair
      Value of Financial Instruments**




The
      carrying amount reported in the consolidated balance sheet for cash and cash
      equivalents, accounts payable and accrued expenses approximates fair value
      because of the immediate or short-term maturity of these financial instruments.
      The carrying amount reported for notes payable approximates fair value because,
      in general, the interest on the underlying instruments fluctuates with market
      rates.




**L****imitations**




Fair
      value estimates are made at a specific point in time, based on relevant market
      information and information about the financial statement. These estimates
      are
      subjective in nature and involve uncertainties and matters of significant
      judgment and therefore cannot be determined with precision. Changes in
      assumptions could significantly affect the estimates.




**Derivative
      Instruments**




The
      Company has an outstanding convertible debt instrument that contains
      free-standing and embedded derivative features. The Company accounts for these
      derivatives in accordance with SFAS No. 133, *“Accounting
      for Derivative Instruments and Hedging Activities”* ,
      and
      EITF Issue No. 00-19, *“Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock”* .
      In
      accordance with the provisions of SFAS No. 133 and EITF Issue No. 00-19, the
      embedded derivatives are required to be bifurcated from the debt instrument
      and
      recorded as a liability at fair value on the consolidated balance sheet. Changes
      in the fair value of the derivatives are recorded at each reporting period
      and
      recorded in net gain (loss) on derivative, a separate component of the other
      income (expense). As of March 31, 2007, the fair value of derivatives was
      $689,517, an increase of $49,711 from December 31, 2006. The Company had a
      net
      gain of $22,046 for the three months ended March 31, 2007 on an additional
      derivative with a fair value of $184,614 at March 31, 2007. The Company has
      included these as a component of net gain on derivatives in the Other Income
      (Expense) section of its Consolidated Statements of Operations.




**Stock-Based
      Compensation**




Employee
      stock awards prior to periods beginning January 1, 2006 under the Company's
      compensation plans are accounted for in accordance with Accounting Principles
      Board Opinion No. 25 (“APB 25”), “ *Accounting
      for Stock Issued to Employees* ”,
      and
      related interpretations. The Company provides the disclosure requirements of
      SFAS No. 123, “ *Accounting
      for Stock-Based Compensation* ”
(“SFAS
      123”), and related interpretations. Stock-based awards to non-employees are
      accounted for under the provisions of SFAS 123 and the Company adopted the
      enhanced disclosure provisions of SFAS No. 148 “ *Accounting
      for Stock-Based Compensation- Transition and Disclosure* ,”
an
      amendment of SFAS No. 123.




The
      Company measures compensation expense for its employee stock-based compensation
      using the intrinsic-value method. 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, 2007 and 2006 was $3,992,
      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.




14




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




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




Three
                Months Ended03/31/07
            
            03/31/06Net
                loss, as reported
            
            
            1,195,985
            
            
            1,290,180Add:
                Stock-based employee compensation expense included inreported
                net income, net of related tax effects
            
            
            469
            
            
            1,015,141Deduct:
                Total stock-based employee compensation expense determinedunder
                fair value based method for all awards, net of related tax
                effects
            
            
            (469
            )
            
            (1,015,141
            )Net
                income, pro forma
            
            
            1,195,985
            
            
            1,290,180Earnings
                per share:Basic,
                as reported
            
            $
            0.01
            
            $
            0.02Basic,
                pro forma
            
            $
            0.01
            
            $
            0.02Diluted,
                as reported
            
            $
            0.01
            
            $
            0.02Diluted,
                pro forma
            
            $
            0.01
            
            $
            0.02


15


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




Three
                Months Ended03/31/07
            
            03/31/06Dividend
                yield
            
            
            0.00
            %
            
            0.00
            %Expected
                volatility
            
            
            164.39
            %
            
            118.16
            %Risk-free
                interest rate
            
            
            4.00
            %
            
            4.00
            %Expected
                life in years
            
            
            4.00
                - 4.92
            
            
            3.75
                - 5.00




The
      following table summarizes the stock option activity for the three months ended
      March 31, 2007:




Shares
            
            Weighted
                Average Exercise Price
            
            Weighted
                Average Contractual Term (Years)Outstanding,
                December 31, 2006
            
            
            34,437,010
            
            
            0.27420
            
            
            3.04Options
                granted
            
            
            2,000
            
            
            0.25000
            
            
            4.96Options
                reinstated
            
            
            -
            
            
            -
            
            
            -Options
                exercised
            
            
            -
            
            
            -
            
            
            -Options
                forfeited or expired
            
            
            17,000
            
            
            0.32000
            
            
            3.76Outstanding,
                March 31, 2007
            
            
            34,422,010
            
            
            0.27410
            
            
            2.57Options
                exercisable, March 31, 2007
            
            
            24,273,010
            
            
            0.26780
            
            
            3.58




**Product
      Warranty**




The
      Company’s product warranty accrual includes specific accruals for known product
      issues and an accrual for an estimate of incurred but unidentified product
      issues based on historical activity. Due to effective product testing and the
      short time between product shipment and the detection and correction of product
      failures, the warranty accrual based on historical activity and the related
      expense were not significant as of and for the three months ended March 31,
      2007
      and 2006, respectively.




**Goodwill
      and Other Intangible Assets**




The
      identifiable intangible assets presented on the consolidated balance sheet
      represent the intellectual property that was capitalized post-technological
      feasibility. Management will continue to monitor and assess any impairment
      charges against those assets in accordance with the provisions of SFAS No.
      142
      and SFAS No. 144, “ *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .”
      Beginning with the second quarter of 2005, the Company began amortizing its
      intellectual property costs over a five year period. The amortization amount
      for
      the current quarter is calculated based upon the ending balance of intellectual
      property from the preceding quarter. The amount amortized for the three months
      ended March 31, 2007 was $7,550.




The
      capitalized research and development costs pertain to the development of the
      Company’s software stack to meet the ZigBee 1.0 standard, which was superseded
      by ZigBee standard 2006 in September 2006. The ZigBee 2006 standard was not
      100%
      backwards-compatible with the ZigBee 1.0 standard. The Company determined that
      30% of its ZigBee 1.0 compatible stack was not transferable to the newer
      standard and wrote off $173,294 in the fourth quarter. In addition, the Company
      wrote-off $34,071 of other research and development costs capitalized in the
      fourth quarter. The Company began amortizing its capitalized research and
      development costs in the fourth quarter of 2006 over a three-year period, or
      $33,696 per quarter.




16




The
      main
      components of intangible assets are as follows:




Three
                Months Ended March 31, 2007Gross
              Amount
            
            Accumulated
                Amortization
            
            Net
                Carrying AmountIntellectual
                Property
            
            $
            116,090
            
            $
            60,400
            
            $
            55,690Capitalized
                Research & Development
            
            
            404,352
            
            
            67,392
            
            
            336,960Total
                Intangible Assets
            
            $
            520,442
            
            $
            127,792
            
            $
            392,650




**Currency
      Risk and Foreign Currency Translation**




The
      Company transacts business in currencies other than the U.S. Dollar, primarily
      the Indian Rupee. All currency transactions occur in the spot foreign exchange
      market and the Company does not use currency forward contracts, currency
      options, currency borrowings, interest rate swaps or any other derivative
      hedging strategy at this point in time.




The
      Company has determined that based on the cash flow, sales price, sales market,
      expense, financing, and inter-company transactions and arrangements indicators
      set forth in SFAS 52, “ *Foreign
      Currency Translation* ,”
that
      the functional currency of the Company is that of the parent company and is
      US
      Dollars. The Company has reported its gain on foreign currency in its
      consolidated statements of accumulated other comprehensive income due to the
      fact that these translation adjustments result from the translation of all
      assets and liabilities at the current rate, while the stockholder equity
      accounts were translated by using historical and weighted-average rates.




**Recent
      Accounting Pronouncements**




On
      December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
      Statement of Financial Accounting Standards No. 123 (Revised 2004),
“ *Share-Based
      Payment* ”
(“SFAS
      123R”). SFAS 123R requires that compensation cost related to share-based payment
      transactions be recognized in the financial statements. Share-based payment
      transactions within the scope of SFAS 123R include stock options, restricted
      stock plans, performance-based awards, stock appreciation rights, and employee
      share purchase plans. The provisions of SFAS 123R, as amended, are effective
      for
      small business issuers beginning as of the next fiscal year after December
      15,
      2005. Accordingly, the Company implemented the revised standard in the first
      quarter of fiscal year 2006. Previously, the Company accounted for its
      share-based payment transactions under the provisions of APB 25, which does
      not
      necessarily require the recognition of compensation cost in the financial
      statements (note 3(e)). FASB 123R had a material impact on its results or
      financial statements.





In
      November 2004, the FASB issued Financial Accounting Standards No. 151 (FAS
      151),
“ *Inventory
      Costs - an amendment of ARB No. 43, Chapter 4* ”.
      FASB
      151 clarifies the accounting for abnormal amounts of idle facility expense,
      freight, handling costs and spoilage. In addition, FASB 151 requires companies
      to base the allocation of fixed production overhead to the costs of conversion
      on the normal capacity of production facilities. FASB 151 is effective for
      the
      Company in 2006. FASB 151 did not have a material impact on its results or
      financial statements.





In
      May
      2005, the FASB issued SFAS No. 154, “ *Accounting
      Changes and Error*  *Corrections.* ”
SFAS
      No. 154 replaces Accounting Principles Board (“APB”) Opinion No. 20,
“ *Accounting
      Changes* ”
and
      SFAS No. 3, “ *Reporting
      Accounting Changes in*  *Interim
      Financial Statements.* ”
SFAS
      No. 154 requires retrospective application to prior periods’ financial
      statements of a voluntary change in accounting principle unless it is
      impracticable. APB No. 20 previously required that most voluntary changes in
      accounting principle be recognized by including the cumulative effect of
      changing to the new accounting principle in net income in the period of the
      change. SFAS No. 154 is effective for accounting changes and corrections of
      errors made in fiscal years beginning after December 15, 2005. The adoption
      of
      SFAS No. 154 did not have a material impact on the Company’s financial position
      or results of operations.




17




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





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





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





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





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





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




18




**NOTE
                  3 -**
              **CONCENTRATION
                  OF CREDIT RISK**




The
      Company’s trade receivables are derived from sales to original equipment
      manufacturers and manufacturers of microprocessors and transceivers. The Company
      endeavors to keep pace with the evolving computer and communications industries,
      and has adopted credit policies and standards intended to accommodate industry
      growth and inherent risk. Management believes that credit risks are moderated
      by
      the diversity of the Company’s end customers and geographic sales areas. The
      Company performs ongoing credit evaluations of its customers’ financial
      condition and requires collateral as deemed necessary.


**NOTE
                  4 -**
              **FIXED
                  ASSETS**




Fixed
      assets consist of the following at March 31, 2007:




2007Computer
                and office equipment
            
            $
            236,119Leasehold
                improvements
            
            
            51,872Less:
                accumulated depreciation and amortization
            
            
            (56,416
            )Net
                book value
            
            $
            231,575





Depreciation
      expense for the three months ended March 31, 2007 and 2006 was $8,713 and
      $4,506, respectively.


**NOTE
                  5 -**
              **DEBT**




**Notes
      Payable - Other**




On
      April
      20, 2005, the Company executed a promissory note for $750,000 to Montgomery
      Equity Partners, Ltd. (“Montgomery”). Pursuant to the terms of the promissory
      note, Montgomery disbursed the entire $750,000 to the Company upon the date
      the
      note was executed and an additional $250,000 was to be disbursed to the Company
      after the Company’s common stock commences trading on the Over-the-Counter
      Bulletin Board. The promissory note was secured by substantially all of the
      assets of the Company and shares of stock of an affiliate of the Company. The
      promissory note had a one-year term and accrued interest monthly at 24% per
      year. The Company had difficulty meeting the payment schedule called for by
      the
      promissory note and by virtue of a settlement with Montgomery, the obligation,
      which together with interest and liquidated damages totaled $937,500, is being
      repaid by a Company affiliate’s collateral. Because the settlement with
      Montgomery permits it to take any action necessary to recover any deficiency
      should liquidation of the pledged shares fail to recoup the entire agreed payoff
      amount, the Company continues to recognize this liability on its balance sheet.
      As of March 31, 2007, Montgomery has sold 3,179,801 of the 9.4 million pledged
      shares and realized net proceeds of $720,232, leaving an outstanding balance
      of
      $217,268, which appears as Montgomery settlement liability on the balance sheet.




In
      September 2005, a former director loaned the Company $100,000 in return for
      an
      unsecured demand promissory note. The terms of the note provide for interest
      at
      6.5% per annum. Payment of the note is guaranteed by an affiliate of the
      Company. On September 19, 2006, the Company issued its promissory note for
      $100,000 due December 31, 2006 to replace the prior note. The terms of the
      note
      provide for interest at 10.0% per annum. The note is secured by 555,555 pledged
      shares of stock which are held by an escrow agreement pursuant to a written
      escrow agreement. Payment of the promissory note has been extended to May 31,
      2007 with the consent of the holder.




19




On
      July
      28, 2006, the Company executed a promissory note for $58,000 to Sharanpreet
      Singh. The promissory note was due on or before March 31, 2007 and bore interest
      at the rate of 8% per annum. The note had a conversion feature exercisable
      at
      the holder’s option. On January 17, 2007, the note had accrued interest totaling
      $2,225. The holder exercised his option to convert the note and on January
      17,
      2007 the Company issued 446,109 shares of common stock in full payment of
      principal and accrued interest.




On
      January 12, 2007 and March 5, 2007, the Company executed promissory notes for
      $3,491 and 56,573, respectively, to Marcus Perez. The notes are due May 31,
      2007
      and June 30, 2007, respectively, and bear interest at the rate of 12% per annum.
      On March 31, 2007, the notes had accrued interest of $573.





**Convertible
      Debentures**




On
      December 29, 2005, the Company executed a convertible debenture for $500,000
      to
      Montgomery. Pursuant to the terms of the convertible debenture, Montgomery
      disbursed $350,000 upon the date the debenture was executed with an additional
      $150,000 to be disbursed two days before the Company files a Form SB-2 with
      the
      U.S. Securities and Exchange Commission. The debenture is convertible at the
      option of the holder into common shares of the Company at a price per share
      equal to 80% of the lowest closing value 10 days prior to the closing date
      or 10
      days prior to the conversion date. In addition, the Company issued 2,000,000
      freestanding warrants exercisable over three years as follows: 1,000,000
      warrants at a strike price of the lesser of 80% of the average closing bid
      price
      for the 5 trading days preceding exercise or $0.20 per share; 500,000 warrants
      at a strike price of the lesser of 80% of the average closing bid price for
      the
      5 trading days preceding exercise or $0.30 per share; and 500,000 warrants
      at a
      fixed strike price of $0.001.




The
      convertible debenture is secured by substantially all of the assets of the
      Company, pledged shares of stock of three affiliates of the Company, and 13.5
      million pledged shares of stock (which are not counted as outstanding shares
      until converted pursuant to the terms of the Stock Purchase Agreement and Escrow
      Agreement that were part of this transaction). The pledged shares are held
      by an
      escrow agent, who is Montgomery’s general counsel, a partner of Montgomery’s
      general partner and Montgomery’s attorney of this transaction, pursuant to a
      written escrow agreement. The convertible debenture has a two-year term and
      accrues interest monthly at 15% per year. In connection with this transaction,
      the Company executed an Investor Registration Rights Agreement by which it
      agreed to file a registration statement with the SEC for at least the pledged
      shares held by the escrow agent and the 2 million warrants. The registration
      statement was to be filed within 30 days of the execution of the convertible
      debenture and declared effective within 90 days of filing. Failure to file
      or be
      declared effective within the agreed timeframe subjected the Company to
      liquidated damages equal to two percent (2%) of the liquidated value of the
      convertible debenture ($7,000) for each thirty (30) day period after the
      scheduled filing or effective date deadline. By agreement, the filing and
      effective date deadlines were extended to April 30, 2007 and July 30, 2007,
      respectively. See Note 13 - Subsequent Events.





In
      accordance with SFAS 133,  *“Accounting
      for Derivative Instruments and Hedging Activities”* and EITF
      00-19, *“Accounting
      for Derivative Financial Instruments Indexed to, and Potentially Settled in,
      a
      Company's Own Stock”* ,
      the
      conversion feature associated with the $500,000 convertible debenture represents
      an embedded derivative. The Company recognized the embedded derivative in the
      amount of $659,966 as a liability in its December 31, 2005 consolidated balance
      sheet and measured it at its estimated fair value. The estimated fair value
      of
      the embedded derivative was calculated based on a Black-Scholes pricing model
      using the following assumptions:


Fair
                  market value of stock
              
              $
              0.32Exercise
                  price
              
              $
              0.13Dividend
                  yield
              
              
              0.00
              %Risk
                  free interest rate
              
              
              4.00
              %Expected
                  volatility
              
              
              115
              %Expected
                  life
              
              
              2
                  Years




20


Changes
      in the fair value of the embedded and freestanding warrants with a variable
      price (derivatives) are calculated at each reporting period and recorded in
      net
      gain (loss) on derivative, a separate component of other income (expense).
      As of March
      31,
      2007, the fair value of the embedded derivative was $500,226 and the Company
      recognized a net loss on derivative of $199,486 for the three months then
      ending.





The
      allocation of the proceeds of the convertible debenture to the warrants with
      a
      fixed exercise price and the recognition of the embedded derivative resulted
      in
      discounts to the convertible debenture of $109,597 and $240,403, respectively.
      The discount on debt of $350,000 is being amortized to interest through December
      31, 2007 using the effective interest method. The unamortized discount on debt
      at March 31, 2007 is $131,250.





The
      freestanding warrants with a variable exercise price (derivatives) and fixed
      warrants issued in connection with the $500,000 convertible debenture were
      initially valued at $379,080 and $109,597, respectively based on a Black-Scholes
      pricing model using the following assumptions:


Fair
                  market value of stock
              
              $
              0.32Exercise
                  price
              
              $
              0.13Dividend
                  yield
              
              
              0.00
              %Risk
                  free interest rate
              
              
              4.00
              %Expected
                  volatility
              
              
              115
              %Expected
                  life
              
              
              3
                  Years




Changes
      in the fair value of the embedded and freestanding warrants with a variable
      price (derivatives) are calculated at each reporting period and recorded in
      net
      gain (loss) on derivative, a separate component of other income (expense).
      Montgomery exercised the 1,500,000 variable price warrants in a cashless
      exercise on February 1, 2007 and received 841,176 shares of Company stock in
      the
      exchange. As of February 1, 2007, the fair value of the freestanding warrants
      derivative had decreased to $0 and the Company recognized a net gain on
      derivative of $171,821 for the three months ended March 31, 2007.




**Bridge
      Loan Derivatives**




Between
      April 16, 2006 and May 5, 2006, five accredited investors accepted the Company’s
      term sheet for convertible senior secured bridge loans by providing a total
      of
      $115,000 cash to the Company. The terms of these bridge loans are: interest
      at
      12% per annum, compounded monthly; repayable in ninety (90) days but the Company
      has the option of extending for another 30 days for a fee of 8% of the amount
      provided the Company; these five accredited investors have the option to convert
      their bridge loans to restricted shares of common stock at an exercise price
      of
      the lower of the average closing bid price of the Company’s stock for the five
      trading days preceding the date of the conversion or the market price of the
      stock on the trading day preceding the conversion. The Company exercised its
      option to extend the term for an additional thirty (30) days for these five
      loans. If the bridge loans are not repaid or converted by the end of their
      terms
      plus the optional extension, the Company will pay a penalty of 10% of the dollar
      value of the amount outstanding; the Company will pay an additional 10% penalty
      for each quarter thereafter that the bridge loans remain unpaid. These five
      accredited investors also received warrants to purchase common stock at the
      ratio of 1 common share for each $2.00 loaned. All warrants have a three year
      term and an exercise price of $0.50 per share. The warrants and any shares
      converted have piggyback registration rights. The Company has not repaid the
      bridge loans and the outstanding balance including accrued interest and
      penalties is $184,614. As a result of the conversion rights associated with
      these bridge loans, the Company recorded these bridge loans as a derivative
      liability valued at $189,291. The loss on this derivative for the three months
      was $4,677.


**NOTE
                  6 -**
              **PROMISSORY
                  NOTES - RELATED
                  PARTY**




The
      Company entered into promissory notes with some of its officers who have amounts
      outstanding with the Company. These amounts accrue interest at varying rates
      between 6.0% and 12.0% annually. As of March 31, 2007, the Company has $120,109
      outstanding under these notes, plus $21,544 in accrued interest. With the
      exception of a promissory note due to an officer in the amount of $40,443 due
      March 31, 2008, the remaining notes are demand notes. All such notes are
      therefore reflected as current liabilities on the consolidated balance sheets.
      The notes relate to services rendered or funds loaned to the Company.




21


**NOTE
                  7-**
              **PROVISION
                  FOR INCOME TAXES**





Deferred
      income taxes will be determined using the liability method for the temporary
      differences between the financial reporting basis and income tax basis of the
      Company’s assets and liabilities. Deferred income taxes will be measured based
      on the tax rates expected to be in effect when the temporary differences are
      included in the Company’s consolidated tax return. Deferred tax assets and
      liabilities are recognized based on anticipated future tax consequences
      attributable to differences between financial statement carrying amounts of
      assets and liabilities and their respective tax bases.





At
      March
      31, 2007 and 2006, deferred tax assets consist of the following:




March
                31,2007
            
            2006Deferred
                tax asset
            
            $
            4,406,019
            
            $
            2,760,382Less:
                valuation allowance
            
            
            (4,406,019
            )
            
            (2,760,382
            )Total
            
            $
            -
            
            $
            -




At
      March
      31, 2007 and 2006, the Company had accumulated deficits in the approximate
      amount of $12,588,626 and $7,886,805, respectively, available to offset future
      taxable income through 2027. The Company established valuation allowances equal
      to the full amount of the deferred tax assets due to the uncertainty of the
      utilization of the operating losses in future periods.


**NOTE
                  8 -**
              **ACCOUNTS
                  PAYABLE AND ACCRUED
                  EXPENSES**




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




March
                31, 2007Accounts
                payable
            
            $
            931,060Accrued
                salaries payable
            
            
            848,930Accrued
                interest payable
            
            
            87,736Accrued
                payroll liabilities
            
            
            86,228Deferred
                tax liability (India)
            
            
            5,604Other
                current liabilities
            
            
            3,039Total
            
            $
            1,962,597





Trade
      accounts payable are paid as they become due or as payment terms are extended
      with the consent of the vendor. At March 31, 2007, one vendor, MindTree
      Consulting Pvt. Ltd., an India corporation (“MindTree”), accounted for 35% of
      the Company’s accounts payable. The Company and MindTree entered into a
      repayment agreement more fully described in Note 10.


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




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




At
      March
      31, 2007, the Company has 97,219,931 common shares issued, 14,142,511 shares
      held in escrow, 1,655,869 shares in treasury, and 81,421,551 shares
      outstanding.




The
      following stock transactions occurred in 2007:




22




On
      January 1, 2007, the Company issued 100,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company (see Note 10). The
      warrants have a strike price of $0.40 and expire on January 1, 2009. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company.





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





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





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





On
      January 29, 2007, the Company issued 30,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company (see Note 10). The
      warrants have a strike price of $0.40 and expire on January 29, 2009. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company.





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





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




23




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




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





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





Throughout
      the quarter ended March 31, 2006, the Company issued 357,951 restricted shares
      of common stock to 5 accredited investors for cash totaling $70,000. In
      addition, the Company issued 143,180 warrants to these investors at strike
      prices ranging between $0.42 and $0.65 per share. The warrants will expire
      at
      varying dates from July 2, 2008 through August 18, 2008. The securities were
      issued pursuant to the exemption from registration provided by Section 4(2)
      of
      the Securities Act and contain the appropriate legends restricting their
      transferability absent registration or applicable exemption. The accredited
      investors received information concerning the Company and had the ability to
      ask
      questions about the Company.


**NOTE
                  10 -**
              **COMMITMENTS
                  AND CONTINGENCIES**




**Employment
      Agreements**




The
      Company has entered into employment agreements with key members of management
      and some officers. Most of these employment agreements are for a period of
      three
      to five years; renewals of the employment agreements for the CEO and President
      have been for one year terms. As part of the employment agreements, the Company
      has granted stock options to these individuals that vest over a three to
      five-year period of time.




**Lease
      Agreements**




A
      subsidiary, Airbee Wireless (India) Pvt. Ltd., has entered into a three-year
      lease agreement for office space in Chennai, India. Monthly rent in the US
      Dollar equivalent is $4,560. The lease runs from July 2006 through June
      2009.




24




**Repayment
      Agreement**




MindTree
      provided services to the Company under a Time and Materials Contract dated
      March
      30, 2005 (the T&M Contract”). On a monthly basis, MindTree invoiced the
      Company for work it performed. Payment terms were net 30. The Company was unable
      to pay the invoices as they became due and, by informal agreement, extended
      the
      repayment terms monthly. On December 15, 2005, the Company entered into a
      written agreement with MindTree by which it agreed to pay MindTree $200,000
      on
      or before December 23, 2005 and $100,000 per month on the last business day
      of
      each succeeding month until the outstanding indebtedness of approximately
      $580,000 was fully paid. The Company’s performance was secured by the software
      code MindTree developed under the T&M Contract. If the Company defaulted in
      making any payment when due and such default was not cured within five business
      days after receipt of a notice of default, MindTree would be entitled to co-own
      the software code, with any revenue the Company realized from the software
      code
      during the co-ownership period to be split 50-50 with MindTree. If full payment
      is made, full ownership of the software code reverts to the Company.




To
      date,
      the Company has paid MindTree $275,000 pursuant to this agreement. MindTree
      has
      not yet issued any notice of default. By a series of additional agreements,
      the
      payment deadline has been extended to July 31, 2007. The Company expects to
      complete or substantially complete the repayment by the July 31st deadline.
      MindTree has indicated that if repayment of the indebtedness is substantially
      complete it will agree to an additional extension of the agreement




**Guarantees**




As
      mentioned in Note 6, above, on March 12, 2003 and April 30, 2003,
      Sundaresan Raja advanced approximately $23,013 and $18,062, respectfully, to
      Airbee Wireless (India) Pvt. Ltd. (“Airbee India”), the Company’s
      wholly-owned subsidiary in India. Airbee India has issued Mr. Raja a
      promissory note due on demand. The note accrues interest at 11.25% per year,
      which is below the local Indian market rates of 14% to 16%. On June 20, 2005,
      Mr. Raja advanced approximately $11,273 to Airbee India, which has issued Mr.
      Raja another demand promissory note. This note accrues interest at 12.0% per
      year, which is below the local Indian market rates of 14% to 16%. At March
      31,
      2007, $42,225 was due under the notes, plus accrued interest of $21,525. The
      Company has guaranteed repayment of the advances.




**Litigation**





On
      October 3, 2005, Richard Sommerfeld, Jr., the Company’s former chief financial
      officer (“Sommerfeld”) filed suit against the Company. On December 9, 2005, the
      Company filed an Answer to the Complaint, Affirmative Defenses and
      Counterclaims. On January 6, 2006, Sommerfeld amended his claims by filing
      an
      Amended Complaint and at the same time joining the Company’s two inside
      directors, E. Eugene Sharer (President and Chief Operating Officer) and
      Sundaresan Raja (Chief Executive Officer), and its outside director, Mal Gurian,
      as individual defendants. On February 7, 2006, the Company denied the primary
      allegations in the amended complaint by filing its Answer to Amended Complaint,
      Affirmative Defenses and Counterclaims. The individual defendants moved to
      dismiss Sommerfeld’s claims, and their motion was granted on June 9, 2006 and
      affirmed on reconsideration on July 24, 2006.





For
      a
      complete discussion of the claims and counterclaims in this action, please
      see
      the Litigation section of Note 9 to the Financial Statements in our Form 10-KSB
      for the year ended December 31, 2006.





The
      parties were engaged in discovery for much of 2006 which is almost complete.
      The
      Company is vigorously defending this lawsuit and prosecuting its counterclaims.
      At this stage of the litigation, it is not possible to predict the outcome
      of
      this case with any certainty. Trial has been scheduled for July
      2007.




**NOTE
                  11 -**
              **GOING
                  CONCERN**




As
      shown
      in the accompanying consolidated financial statements, as is typical of
      companies going through early-stage development of intellectual property, and
      products and services, the Company incurred net losses for the years ended
      December 31, 2006 and 2005 and for the three months ended March 31, 2007. 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.




25




Management
      believes that the Company’s capital requirements will depend on many factors
      including the success of the Company’s sales efforts. The Company has been
      successful in recent months in raising capital to fund its operating
      costs.




The
      Company has also been enhancing its business processes to account for the
      significant development that has occurred in the past year, and believes that
      with the proper bridge financing and potential permanent financing they
      anticipate, the viability of the Company remains very positive in excess of
      one
      year.




The
      consolidated financial statements do not include any adjustments relating to
      the
      recoverability or classification of recorded assets and liabilities that might
      result should the Company be unable to continue as a going concern.


**NOTE
                  12 -**
              **RESTATEMENT**




The
      Company has amended its previously issued condensed consolidated financial
      statement for the three months ended March 31, 2006 for amortization of
      intangible assets of $5,050 and certain balance sheet reclassifications to
      conform with the December 31, 2005 restatement. The effect of these changes
      resulted in an increase of the loss for the three month period ended March
      31,
      2006 of $5,050 to a net loss of $1,290,180 and an increase in the accumulated
      deficit to $7,886,805.


**NOTE
                  13 -**
              **SUBSEQUENT
                  EVENTS**




On
      April
      5, 2007, the Company and Montgomery executed an Amended and Restated Secured
      Convertible Debenture, which reduced the amount of the December 29, 2005 Secured
      Convertible Debenture to $350,000 from $500,000. The remaining terms and
      conditions are unchanged. The Company and Montgomery executed a new secured
      convertible debenture, due December 29, 2007, in the amount of $150,000 with
      interest at the rate of 15% per annum payable monthly which funds the balance
      of
      the Stock Purchase Agreement dated December 29, 2005. The conversion price
      provisions are identical to those contained in the December 29, 2005 Secured
      Convertible Debenture as are all other material terms and conditions. Finally,
      the parties executed Amendment No. 3 to the Investor Registration Rights
      Agreement by which it was agreed the Company would prepare and file a Form
      SB-2
      covering at a minimum the conversion shares to be issued upon conversion and
      the
      2 million warrants issued in connection with the December 29, 2005 Secured
      Convertible Debenture no later than April 30, 2007 and would use its best
      efforts to have said Form SB-2 declared effective by July 30, 2007. As the
      result of ongoing discussions with Montgomery and with its consent, the Company
      filed the Form SB-2 on May 8, 2007. All other terms and conditions of the
      Investor Registration Rights Agreement, as amended, are unchanged and remain
      in
      full force and effect. No new or additional shares were reserved or escrowed
      in
      this transaction.





On
      May 4,
      2007, plaintiff Richard Sommerfeld was granted partial summary judgment on
      his
      wage claims and dismissing some of the Company’s counterclaims in a verbal
      ruling by the court. The wage claims total approximately $183,000 plus interest.
      The court denied plaintiff’s request for immediate entry of judgment and as of
      the time of this filing no written order confirming the court’s ruling has been
      entered. See Note 10 - Litigation, above, for additional information on this
      case. The Company is presently reviewing its options.





26





**Item
      2. Management’s Discussion and Analysis of Financial Condition and
      Results**  **of
      Operations**





**Forward
      Looking Statements**





This
      Form
      10-QSB, including “Management’s Discussion and Analysis of Financial Condition
      and Results of Operations,” contains forward-looking statements regarding future
      events. These statements are based on current expectations, estimates,
      forecasts, and projections about the industries in which we operate and the
      beliefs and assumptions of our management. Words such as “expects,”
“anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,”
“seeks,” “estimates,” “continues,” “may,” variations of such words, and similar
      expressions are intended to identify such forward-looking statements. In
      addition, any statements that refer to projections of our future financial
      performance, our anticipated growth and trends in our businesses including
      the
      potential growth of advanced technologies and other characterizations of future
      events or circumstances are forward-looking statements. Readers are cautioned
      that these forward-looking statements are only predictions and are subject
      to
      risks, uncertainties, and assumptions that are difficult to predict. Therefore,
      actual results may differ materially and adversely from those expressed in
      any
      forward-looking statements. We undertake no obligation to revise or update
      any
      forward-looking statements for any reason.





**Executive
      Summary**





**•**
            Airbee
                Wireless, Inc. is no longer a development stage company and continues
                to
                concentrate on software development. During 2007, we signed one
                application development agreement with Medtronic Minimed. Our license
                agreements with foreign and domestic customers such as ZMD. Radiocrafts
                (Norway), Texas Instruments (USA) and Infineon (Germany) remain in
                effect.
                Our ZNS Software stack version 1.0 was certified ZigBee-compliant
                through
                an independent testing laboratory during the fourth quarter of 2005
                and
                version 1.1 was certified in January 2007. In addition, our upcoming
                version called ZigBee Pro will be undergoing certification soon and
                has
                been designated as one of the “golden units”. This means that the product
                will be used to set the standard by which other vendor’s products will be
                measured.





**•**
            We
                had a $1,195,985 net loss before provision for income taxes in the
                first
                three months of 2007 on revenue of $20,790. We recorded a $290,818
                loss in
                other income (expense) from the re-valuation of derivatives required
                under
                SFAS 133. We raised $70,000 from the sale of stock to accredited
                investors.





**•**
            Liquidity
                and capital resources issues continue to constrain growth but given
                signs
                of an emerging marketplace for our software and our track record
                of
                raising capital, we believe we will be able to obtain sufficient
                funds to
                continue operations until we can generate increased revenues from
                our
                license agreements.





**•**
            Risk
                factors include -





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





o  Our
      international operations involve inherent risks that include currency controls
      and fluctuations, tariff and import regulations, and regulatory requirements
      that may limit our or our customers’ ability to manufacture, assemble and test,
      design, develop or sell products in particular countries.





·
            Our
                ability to continue as a going concern is dependent upon our obtaining
                adequate capital to fund losses until we become
                profitable.





27





**Overview**





Airbee
      Wireless, Inc. (hereinafter called “Airbee” or “Company”) reported $20,790 of
      revenue from planned operations in the first quarter of 2007. We have continued
      our go-to-market strategy of licensing the major microcontroller and IEEE
      802.15.4 radio companies, having previously announced agreements with several
      microchip manufacturers. We believe this will lead to two types of revenues
      -
      service revenue from customized stack work, integration support and application
      development and royalty revenue from the licensing of our stack. We also
      announced a new product that facilitates low-power radio frequency
      (“RF”)application development for mesh networks including ZigBee.





Our
      goal
      remains being a preeminent provider of intelligent software for short range
      wireless communications embedded into silicon chips and platform solutions.
      We
      focus our core competencies in the design and engineering of intelligent
      wireless communications software that is platform agnostic, ultra-low in energy
      consumption with complete portability across all controllers, radios, and
      operating system platforms. Our software is licensed to various global
      manufacturers of radio chips, radio frequency modules, and microprocessors
      used
      in an increasing number of wireless communications applications and devices.





We
      operate in highly innovative environments characterized by a continuing and
      rapid introduction of new products that offer improved performance at lower
      prices. With the trend toward convergence in wireless communications products,
      our software will likely cross over multiple categories, offering us new
      opportunities, but may also result in more businesses that compete with us.
      Competition tends to increase pricing pressure on our products, which may mean
      that we must offer our products at lower prices than we had anticipated,
      resulting in lower profits This is a two-step approach: (a) become an approved
      third-party vendor and achieve recognition in the manufacturer’s documentation,
      website and sales force (i.e. distributors for Texas Instruments and Radiocrafts
      as examples); and (b) the overriding objective is to be embedded directly into
      the controller by the manufacturer and shipped directly with each
      controller.





As
      validation of our strategy, our engagement with Texas Instruments (“TI”) has
      picked up activity this quarter and we believe TI will become a significant
      customer. Since the announcement of our agreement with TI, we have downloaded
      nearly 500 copies of our limited network size stack to TI customers for
      evaluation. We operate an online help desk to support these prospective
      customers as they evaluate the product for their application and use, and we
      are
      working with ATMEL and Infineon to set up a similar process. We note similar
      progress with our ZigBee module partner Radiocrafts, which now has more than
      35
      OEMs using our ZNS stack and ZAPP (SPPIO) application. We anticipate many of
      these will go into production in the coming quarters.





We
      began
      training programs for Infineon to train their field application engineers.
      We
      expect this will result in increased opportunities with our partners’ customers.
      In addition, we participated in the ZigBee Developers program this April where
      we taught new developers how to use our stack to develop applications. We have
      also established a world class RF laboratory at our development center in
      Chennai, India, which has already produced real world knowledge about RF
      interference issues in the ZigBee environment.





In
      January 2007 the Company’s common stock began trading on the over the counter
      bulletin board (OTCBB) which we believe will facilitate credibility in the
      money
      markets. We are actively pursuing significant funding opportunities and
      anticipate closure of such financing in the next quarter.





**Results
      of Operations**





***Three
      Months Ended March 31, 2007 Compared to the Three Months Ended March 31,
      2006***





During
      the first quarter of 2007 we had $20,790 in operating revenues, resulting in
      a
      net loss applicable to common shares of $1,195,985, or $0.01 net loss per share,
      compared to a net loss of $1,290,180 or $0.02 net loss per share for the same
      period in 2006. This quarter’s net loss was increased by the realization of
      $290,818 as a loss from the re-valuation of derivatives in accordance with
      accounting rules. Cumulative net loss since inception totals
      $12,588,626.





Our
      net
      revenue for the three months ended March 31, 2007 decreased to $20,790 as
      compared to $51,600 for the three months ended March 31, 2006. The ZigBee
      Alliance released its enhanced standard to its members on September 27, 2006,
      which was not backwards compatible with the previous standard. Our software
      was
      certified ZigBee compliant to the new standard in January 2007.





Operating
      expenses for the three months ended March 31, 2007 were $738,538 as compared
      to
      $1,704,572 for the three months ended March 31, 2006, a decrease of 57% or
      $966,034. This decrease, as further explained below, is principally due to
      decreases in compensation and professional fees and stock option compensation
      expense, which offset increases in selling, general and administrative expenses,
      research and development costs and depreciation and amortization.




28




Our
      overall decrease in compensation and professional fees for the quarter ended
      March 31, 2007 compared to the quarter ended March 31, 2006 was $71,772, to
      $475,448 from $547,220. This decrease consists of a decrease of $75,844 in
      compensation and a decrease of $697 in financing professional fees, and a $4,769
      increase in legal and accounting professional fees. We believe that general
      and
      administrative expenses will not increase significantly in the short-term.
      However, we do expect an increase in absolute dollars in the long-term, as
      we
      continue to invest in staff and infrastructure in the areas of information
      systems and sales and marketing.





Stock
      option compensation expense required by SFAS 123R was $469 for the quarter
      ended
      March 31, 2007 as the Company is now required to expense stock options granted
      and vesting in the period. This is a non-cash expense caused by the options
      granted to new India employees in the quarter. No options issued prior to
      December 31, 2005 vested during the quarter. The comparable expense in the
      first
      quarter of 2006 was $1,015,141.





Selling,
      general and administrative expenses increased to $202,094 in the first quarter
      of 2007, up $71,939 or 55% from $130,155 in the first quarter of 2006. This
      increase was due primarily from increases in travel and entertainment, printing,
      dues and subscriptions, utilities and other costs which offset decreases in
      insurance, loan transaction costs and others expenses. Our overall selling
      and
      marketing expenses consist primarily of marketing related expenses, compensation
      related expenses, sales commissions, facility costs and travel costs. Expenses,
      particularly certain marketing and compensation-related expenses, may vary
      going
      forward, depending in part on the level of revenue and profits.





Research
      and development expense for the three months ended March 31, 2007 was $4,842
      compared to $0 for the three months ended March 31, 2006. Although our software
      was certified ZigBee compliant in January 2007, the ZigBee Alliance has
      announced plans to release a new standard (ZigBee Pro) later in 2007. As a
      result, we have elected not to capitalize any research and development costs
      associated with the ZigBee 2006 standard.





Depreciation
      and amortization expense for the quarter ended March 31, 2007 increased $43,629
      as the Company is began amortizing its capitalized research and development
      costs in the fourth quarter of 2006. Interest expense for the three months
      ended
      March 31, 2007 increased $141,638 to $206,378 from $64,740 for the three months
      ended March 31, 2006. Interest costs associated with the bridge loans accounted
      for $119,030 of this increase with increased interest costs for notes payable
      -
      related parties and notes payable - others accounting for the rest of the
      increase.





**Liquidity
      and Capital Resources**





Since
      inception, we have principally funded our operations from private placements
      of
      securities and management and shareholder loans and contributions of $4,229,428.
      This amount includes $200,064 in loans from accredited investors made during
      the
      first quarter of 2007. As of March 31, 2007, we have $120,109 outstanding under
      notes payable - related parties, $848,930 outstanding under accrued salaries
      payable and $1,016,714 outstanding in notes payable - other. During the first
      quarter of 2007, we received an aggregate of $70,000 in cash from accredited
      investors in consideration of 357,951 shares of our common stock and 143,180
      common stock purchase warrants. We also received $200,064 from shareholder
      loans. Proceeds were used to pay down current payables. We will require
      approximately $5 million to continue operations for the next 12 months. Most
      of
      the funding will be allocated principally for payment of outstanding
      obligations, sales, marketing and working capital. It is not anticipated that
      any lack of funding will impact upon the existing license and development
      agreements with our customers since our software development has been completed
      for three of our products.





We
      have
      incurred an accumulated deficit at March 31, 2007 of $12,588,626 compared to
      $7,886,805 at March 31, 2006. We had negative working capital at March 31,
      2007
      of $5,198,909 compared to negative working capital of $3,132,694 at March 31,
      2006. Our ability to continue as a going concern is dependent upon our obtaining
      adequate capital to fund losses until we become profitable.





On
      December 29, 2005, we entered into a Securities Purchase Agreement with
      Montgomery pursuant to which we agreed to issue Montgomery secured convertible
      debentures in the principle amount of $500,000. Of these secured convertible
      debentures, $350,000 was funded on December 29, 2005. The remaining $150,000
      was
      funded on April 5, 2007. The secured convertible debentures are convertible,
      in
      whole or in part, at any time and from time to time before maturity at the
      option of the holder at the lesser of (a) eighty percent (80%) of the lowest
      closing bid price of the common stock for the ten (10) trading days immediately
      preceding the closing date or (b) eighty percent (80%) of the lowest closing
      bid
      price of common stock for ten (10) trading days immediately preceding the
      conversion date. The secured convertible debentures have a term of two (2)
      years, piggy-back registration rights and accrue interest monthly at the rate
      of
      fifteen percent (15%) per year. We are current with our interest
      payments.




29




In
      connection with the Securities Purchase Agreement we issued Montgomery three
      warrants to purchase a total of 2,000,000 shares of our common stock. The
      warrants are exercisable for a period of three years. The exercise price for
      the
      first warrant for 1,000,000 shares is the lesser of 80% of the lowest closing
      bid price for the five trading days immediately preceding the exercise date
      or
      $0.20 per share. The exercise price for the second warrant for 500,000 shares
      is
      the lesser of 80% of the lowest closing bid price for the five trading days
      immediately preceding the exercise date or $0.30 per share. The exercise price
      for the third warrant for 500,000 shares is $0.001 per share. The first two
      such
      warrants for 1.5 million shares were exercised in February 2007 which yielded
      841,176 shares under a cashless exercise provision.





Our
      principal sources of liquidity have been private placements of our securities
      and loans from management and shareholders. There will continue to be an
      operating cash flow deficit from the licensing of embedded software in the
      near
      term.





Cash
      at
      March 31, 2007 and 2006, respectively, was $0 and $15,845. At March 31, 2007
      and
      2006, respectively, we had total stockholders’ deficit of $4,305,409 and
      $2,334,810.





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 version 1.1) and other competitive factors) and (b) our ability
      to control expenses.





With
      regard to our current liabilities at March 31, 2007, $120,109 is payable to
      related note holders who have deferred repayment (one has deferred interest
      as
      well). Trade payables at March 31, 2007 of $931,060 are outstanding and will
      be
      paid as they come due or as payment may be extended by agreement of the parties.
      One vendor, MindTree Consulting Pvt. Ltd. (“MindTree”), accounted for 35% of the
      Company’s accounts payable. MindTree provided services to the Company under a
      Time and Materials Contract dated March 30, 2005 (the T&M Contract”). On a
      monthly basis, MindTree invoiced the Company for work it performed. Payment
      terms were net 30 days. The Company was unable to pay the invoices as they
      became due and, by informal agreement, extended the repayment terms monthly.
      On
      December 15, 2005, the Company entered into a written agreement with MindTree
      by
      which it agreed to pay MindTree $200,000 on or before December 23, 2005 and
      $100,000 per month on the last business day of each succeeding month until
      the
      outstanding indebtedness of approximately $580,000 was fully paid. The Company’s
      performance was secured by the software code (the “Intellectual Property”)
      MindTree developed under the T&M Contract. If the Company defaulted in
      making any payment when due and such default was not cured within five business
      days after receipt of a notice of default, MindTree would be entitled to co-own
      the Intellectual Property, with any revenue the Company realized from the
      Intellectual Property during the co-ownership period to be split 50-50 with
      MindTree. To date, the Company has paid MindTree $275,000 pursuant to this
      agreement. As of April 30, 2007, the Company is behind in making the scheduled
      payments. MindTree has not yet issued any notice of default and has extended
      the
      deadline to substantially complete the repayment until July 31, 2007.





We
      believe that revenues will lag during 2007 from our licensing and other
      agreements until that the enhanced ZigBee standard (ZigBee Pro) is released
      to
      members of the Alliance. We are one of a few members of the Alliance selected
      to
      develop the so-called “Golden Unit” to be used in the certification testing for
      this new standard. We shall continue to 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. This amount includes costs of our SEC reporting obligations,
      which were approximately $160,000 for the year ending December 31, 2006. Cost
      of
      SEC reporting obligations includes all filing costs and professional
      fees.





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, 2006 and 2005 and for the three month period ended March 31, 2007.
      There is no guarantee whether the Company will be able to generate enough
      revenue and/or raise capital to satisfy past due obligations, support current
      operations and expand sales. This raises substantial doubt about the Company’s
      ability to continue as a going concern.





The
      Company’s current financing and related security agreements contain numerous
      covenants that restrict our ability to raise needed funds. It is possible that
      needed funds may not be available, in which case the Company may be forced
      to
      temporarily suspend operations. Our existing financing contains a right of
      first
      refusal for our lender. Numerous discussions with investment bankers throughout
      the country lead us to conclude that additional financing will be
      available.




30




The
      Company expects to be able to satisfy its past-due accounts payable when
      additional financing is obtained and intends to negotiate lump-sum payment
      reductions with the larger vendors (MindTree excepted). The bulk of the
      Contractual Obligations in the table below are employment contracts with current
      management. Given management’s commitment to the success of the Company, it is
      not anticipated these contracts will be an impediment. The long-term debt listed
      in the table is the secured convertible debenture, which the Company expects
      will be paid off or converted when substitute financing is
      arranged.





If
      circumstances require, the Company will renegotiate employment contracts with
      management to defer (but not eliminate) its obligations under these contracts.
      It will also consider overhead reductions at its headquarters and at its India
      subsidiary. This would be as a last resort as (a) the Company is leanly staffed
      at the administrative level and (b) staff cuts in India would adversely impact
      our ability to complete product development, deliver product and provide
      support.





**Critical
      Accounting Estimates**





***General***





Management’s
      discussion and analysis of our financial condition and results of operations
      is
      based upon our Consolidated Financial Statements, which were prepared in
      accordance with accounting principles generally accepted in the United States,
      or GAAP. GAAP requires us to make estimates and assumptions that affect the
      reported amounts of assets, liabilities, revenues and expenses, as well as
      the
      disclosure of contingent assets and liabilities. Note 2, “ *Summary*  *of
      Significant Accounting Policies* ”
of
      Notes to the Consolidated Financial Statements describes our significant
      accounting policies which are reviewed by us on a regular basis and which are
      also reviewed by senior management with our Board of Directors.





An
      accounting policy is deemed by us to be critical if it requires an accounting
      estimate to be made based on assumptions about matters that are highly uncertain
      at the time the estimate is made, and if different estimates that reasonably
      could have been used, or changes in the accounting estimates that are reasonably
      likely to occur periodically, could materially impact the financial statements.
      The policy and estimate that we believe is most critical to an understanding
      of
      our financial results and condition and that requires a higher degree of
      judgment and complexity is revenue recognition.





***Revenue
      Recognition***





We
      account for the time-based licensing of software in accordance with the American
      Institute of Certified Public Accountants Statement of Position (SOP) 97-2,
      “Software Revenue Recognition.” We recognize revenue when (i) persuasive
      evidence of an arrangement exists; (ii) delivery has occurred or services have
      been rendered; (iii) the sales price is fixed or determinable; and (iv) the
      ability to collect is reasonably assured. For software arrangements with
      multiple elements, revenue is recognized dependent upon whether vendor-specific
      objective evidence (VSOE) of fair value exists for each of the elements. When
      VSOE does not exist for all the elements of a software arrangement and the
      only
      undelivered element is post-contract customer support (PCS), the entire
      licensing fee is recognized ratably over the contract period.





Revenue
      attributable to undelivered elements, including technical support, is based
      on
      the sales price of those elements, and is recognized ratably on a straight-line
      basis over the term of the time-based license. Post-contract customer support
      revenue is recognized ratably over the contract period. Shipping charges billed
      to customers are included in revenue and the related shipping costs are included
      in cost of sales.





Time-based
      product licensing fees are collected in advance. Revenues from licenses are
      recognized on a prorated-basis over the life of the license. Airbee’s customary
      practice is to have non-cancelable time-based licenses and a customer purchase
      order prior to recognizing revenue.





Enterprise
      license model arrangements require the delivery of unspecified future updates
      and upgrades within the same product family during the time-based license.
      Accordingly, Airbee will recognize fees from its enterprise license model
      agreements ratably over the term of the license agreement.





Time-based
      royalties are charged on a unit basis. Royalties are not fixed dollar amounts,
      but are instead a percentage of the customer’s finished product and the
      percentage varies on a tiered basis with the number of units shipped by
      customer.




31




Revenue
      attributed to undelivered elements is based on the sales price rather than
      on
      the renewal rate because of (i) the newness of the ZigBee standard for this
      short-range wireless technology, (ii) the newness of the Company’s product
      introductions into the marketplace for a range of applications being developed
      by its customers, and (iii) the lack of historical data for potentially
      defective software, which may be a function of the application into which it
      is
      installed, a reasonable reserve for returns cannot yet be established. In
      accordance with SFAS No. 48 “Revenue Recognition When Right of Return Exists,”
in the absence of historical data, the Company is unable to make a reasonable
      and reliable estimate of product returns at this time.





We
      expect
      to enter into maintenance contracts with its customers. Maintenance fees are
      not
      a fixed dollar amount, but rather a percentage fee based upon the value of
      the
      license and/or royalties billed/received. Maintenance contracts are paid for
      and
      collected at the beginning of the contract period. We provide bug fixes (under
      warranty obligations) free-of-charge that are necessary to maintain compliance
      with published specifications, it accounts for the estimated costs to provide
      bug fixes in accordance with SFAS No. 5 “ *Accounting
      for Contingencies* .”





Revenue
      from products licensed to original equipment manufacturers (OEMs) is based
      on
      the time-based licensing agreement with an OEM and recognized when the OEM
      ships
      licensed products to its customers.





**Factors
      That May Affect Future Results**





*Our
      business faces significant risks. The risks described below may not
      be*  *the
      only risks we face. Additional risks that we do not yet know of or that
      we*  *currently
      think are immaterial may also impair our business operations. If
      any*  *of
      the events or circumstances described in the following risks
      actually*  *occurs,
      our business, financial condition or results of operations
      could*  *suffer,
      and the trading price of our common stock could decline.*





Our
      future results of operations and the other forward-looking statements contained
      in this filing, including this MD&A, involve a number of risks and
      uncertainties—in particular, the statements regarding our goals and strategies,
      new product introductions, plans to cultivate new businesses, future economic
      conditions, revenue, pricing, gross margin and costs, capital spending,
      depreciation and amortization, research and development expenses and the tax
      rate. In addition to the various important factors discussed above, a number
      of
      other factors could cause actual results to differ materially from our
      expectations.





**Because
      a significant portion of our revenue will be derived from
      software**  **licenses,
      we are dependent upon the ability of our customers to develop
      and**  **penetrate
      new markets successfully.**





Our
      software license revenues depend not only upon our ability to successfully
      negotiate license agreements with our customers but also upon our customers’
ability to commercialize their products using our embedded software. We cannot
      control our customers’ product development or commercialization or predict their
      success. Demand for our products, which impacts our revenue and gross margin
      percentage, is affected by business and economic conditions, as well as
      communications industry trends, and the development and timing of introduction
      of compelling software applications and operating systems that take advantage
      of
      the features of our products. Demand for our products is also affected by
      changes in customer order patterns, such as changes in the levels of inventory
      maintained by our customers and the timing of customer purchases. Airbee
      operates in a highly competitive industry (i.e., embedded communications
      software), and our revenue and gross profits could be affected by factors such
      as competing software technologies and standards, pricing pressures, actions
      taken by our competitors and other competitive factors, as well as market
      acceptance of our new ZigBee-compliant products in specific market segments.
      Future revenue is also dependent on continuing technological advancement,
      including the timing of new product introductions, sustaining and growing new
      businesses, and integrating and operating any acquired businesses. Results
      could
      also be affected by adverse effects associated with product defects and
      deviations from published specifications, and by litigation or regulatory
      matters involving intellectual property or other issues.





**Numerous
      factors may cause out total revenues and operating results
      to**  **fluctuate
      significantly from period to period. These fluctuations increase
      the**  **difficulty
      of financial planning and forecasting and may result in decreases
      in**  **our
      available cash and declines in the market price of our
      stock.**





A
      number
      of factors, many of which are outside our control, may cause or contribute
      to
      significant fluctuations in our total revenues and operating results. These
      fluctuations make financial planning and forecasting more difficult and may
      result in unanticipated decreases in our available cash, which could negatively
      impact our operations and increase the volatility of our stock price. Factors
      that may cause or contribute to fluctuations in our operating results and
      revenues include:





**•**  Acceptance
      by our customers of our Airbee embedded software platforms and/or the slow
      acceptance by the market of the ZigBee global standard for short-range wireless
      voice and data communications;




32




**•**  The
      number and timing of orders we receive, including disproportionately higher
      receipt and shipment of orders in the last month of a quarter;





**•**  Changes
      in the length of our products sales cycles, which increases as our customers’
purchase decisions become more strategic and are made at higher management
      levels;





**•**  The
      success of our customers’ products from which we derive our production license
      revenue;





**•**  The
      mix
      of our revenues between sales of products and lower-margin sales of
      services;





**•**  Our
      ability to control our operating expenses and fully realize the impact of the
      restructuring plans we have implemented;





**•**  Our
      ability to continue to develop, introduce and ship competitive new products
      and
      product enhancements quickly;





**•**  Possible
      deferrals of orders by customers in anticipation of new product
      introductions;





**•**  Announcements,
      product introductions and price reductions by competitors;





**•**  The
      impact of, and our ability to react to, natural disasters and/or terrorist
      actions;





**•**  Changes
      in business cycles that affect the markets in which we sell our products and
      services;





**•**  Economic,
      political and other conditions in the United States and
      internationally;





**•**  Foreign
      currency exchange rates; and





**•**  The
      impact of any stock-based compensation charges arising from the issuance of
      stock options, stock appreciation rights or any other stock-based
      awards.





One
      or
      more of the foregoing factors may cause our operating expenses to be
      disproportionately high or may cause our net revenue and operating results
      to
      fluctuate significantly. Results from prior periods are thus not necessarily
      indicative of the results of future periods.





We
      operate internationally, with sales, marketing and research and development
      activities. We are, therefore, subject to risks and factors associated with
      doing business outside the U.S. International operations involve inherent risks
      that include currency controls and fluctuations, tariff and import regulations,
      and regulatory requirements that may limit our or our customers’ ability to
      manufacture, assemble and test, design, develop or sell products in particular
      countries. If terrorist activity, armed conflict, civil or military unrest,
      or
      political instability occurs in the U.S., or other locations, such events may
      disrupt our customers’ manufacturing, assembly and test, logistics, security and
      communications, and could also result in reduced demand for our products.
      Business continuity could also be affected if labor issues disrupt our
      transportation arrangements or those of our customers or suppliers. In addition,
      we may rely on a single or limited number of suppliers, or upon suppliers in
      a
      single country. On an international basis, we regularly review our key
      infrastructure, systems, services and suppliers, both internally and externally,
      to seek to identify potentially significant vulnerabilities as well as areas
      of
      potential business impact if a disruptive event were to occur. Once identified,
      we assess the risks, and as we consider it to be appropriate, we initiate
      actions intended to mitigate the risks and their potential impact. There can,
      however, be no assurance that we have identified all significant risks or that
      we can mitigate all identified risks with reasonable effort.





We
      are
      continuing to assemble the personnel and financial resources required to achieve
      the objectives of our business plan. Future revenue, costs and profits are
      all
      influenced by a number of factors, including those discussed above, all of
      which
      are inherently difficult to forecast.





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, 2006 and 2005 and for the nine month period ended March 31, 2007.
      There is no guarantee whether the Company will be able to generate enough
      revenue and/or raise capital to satisfy past due obligations, support current
      operations and expand sales. This raises substantial doubt about the Company’s
      ability to continue as a going concern.




33




**Off-Balance
      Sheet Arrangements**





As
      of
      March 31, 2007, we did not have any off-balance sheet arrangements, as defined
      in Item 303(a)(4)(ii) of SEC Regulation S-K.





**Contractual
      Obligations**





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





Our
      long-term debt obligation consists of $350,000 of a $500,000 convertible
      debenture ($150,000 not funded as of March 31, 2007), plus interest payable
      monthly at 15% per annum. We are current in our interest payments through March
      2007.





Our
      purchase obligations are limited to employment contracts with company executives
      and senior staff. These seven written contracts are for one to three years
      in
      duration and expire at various dates between March 31, 2007 and May 15,
      2008.





The
      operating leases reported here are limited to the lease for office space in
      Chennai, India for our India subsidiary. We have signed a three-year lease
      for
      6,000 sq. ft. of office space expiring on June 30, 2009. The rent is
      approximately $4,558 per month with 10% increases in the second and third years
      of the lease.





We
      have
      no capital lease obligations as defined in FASB Statement of Accounting
      Standards No. 13, “Accounting for Leases” nor do we have any other long-term
      liabilities reflected on the balance sheet under generally accepted accounting
      principles in the United States.





Payments
                due by periodContractual
                Obligations
            
            Total
            
            Less
                than 1 year
            
            1
                -
                3 years
            
            3
                -
                5 years
            
            More
                than 5 yearsPurchase
                Obligations (employment contracts) *
            
            $
            1,479,167
            
            
            1,060,000
            
            
            419,167
            
            
            -
            
            
            -Current
                Debt Obligations
            
            $
            402,348
            
            
            402,348
            
            
            -
            
            
            -
            
            
            -Operating
                Lease Obligations **
            
            $
            156,562
            
            
            58,796
            
            
            97,766
            
            
            -
            
            
            -Capital
                Lease Obligations
            
            $
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Other
                Long-Term Liabilities Reflected on Balance Sheet under GAAP
            
            $
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -


____________


*  Employment
      contracts with senior executives ranging in length from 1 year to 3 years,
      expiring on various dates through May 15, 2008.





**  Lease
      of
      6,000 sq. ft. of office space in Chennai, India expiring June 30, 2009. The
      lease at our Rockville, MD office is month-to-month and therefore not included.
      Our Rockville rent is $1,687 per month.





**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 interim chief financial officer, evaluated the effectiveness of
      the
      Company’s disclosure controls and procedures as of the end of the period covered
      by this report. The term “disclosure controls and procedures,” as defined in
      Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other
      procedures of a company that are designed to ensure that information required
      to
      be disclosed by a company in the reports that it files or submits under the
      Exchange Act is recorded, processed, summarized and reported, within the time
      periods specified in the Securities and Exchange Commission’s rules and forms.
      Disclosure controls and procedures include, without limitation, controls and
      procedures designed to ensure that information required to be disclosed by
      a
      company in the reports that it files or submits under the Exchange Act is
      accumulated and communicated to the company’s management, including its
      principal executive and principal financial officers, as appropriate to allow
      timely decisions regarding required disclosure. Management recognizes that
      any
      controls and procedures, no matter how well designed and operated, can provide
      only reasonable assurance of achieving their objectives and management
      necessarily applies its judgment in evaluating the cost-benefit relationship
      of
      possible controls and procedures. Based on the evaluation of the Company’s
      disclosure controls and procedures as of the end of the period covered by this
      report, the Company’s chief executive officer and interim chief financial
      officer concluded that, as of such date, the Company’s disclosure controls and
      procedures were not effective for the reasons disclosed below.




34




The
      Company has previously identified certain internal control deficiencies that
      we
      consider to be material weaknesses. These consist of (1) inadequate
      communication leading to the untimely filing of a current report with the
      Securities and Exchange Commission in January 2005 and (2) certain accounting
      and disclosure matters. The accounting and disclosure deficiencies were: (1)
      a
      failure to amortize capitalized intellectual property costs and (2) improper
      accounting of unearned compensation arising from the issuance of stock options
      below market value. The accounting deficiencies are principally due to the
      Company’s transition from a private company to a public reporting company. Prior
      to going public the Company amortized capitalized intellectual property costs
      and accounted for unearned compensation arising from the issuance of stock
      options below market value contrary to the requirements of SFAS 86 and SFAS
      123,
      respectively, as such accounting methods were not required by a private entity.
      Subsequent to going public, the Company’s controller recognized the necessity to
      account for these items in accordance with SFAS 86 and SFAS 123.





The
      Company’s controller identified the internal control and disclosure control
      deficiencies disclosed above during the latter part of the third quarter of
      2005. The Company attempted to remediate and eliminate previous internal control
      and disclosure deficiencies by hiring a controller in May 2005. The controller
      is a CPA and has experience in accounting and disclosure procedures for public
      companies. The Company’s India subsidiary also hired a chartered accountant
      (equivalent to US CPA) who was also a certified corporate secretary as its
      finance manager in August 2005. The controller and the subsidiary’s finance
      manager were tasked with centralizing and formalizing the purchasing decisions,
      establishing and maintaining proper procedures for payment of accounts payable
      and other liabilities, setting credit and collection policies, and tracking
      the
      fixed assets of the Company, among other duties. The Company has implemented
      an
      accounting analysis procedure that requires all transactions, including but
      not
      limited to transactions similar to the deficiencies above, be analyzed by an
      employee of the Company in accordance with SEC public reporting standards.
      Separation of duties was instituted so that the person authorizing the purchase
      of goods or services was not the person preparing or signing the check in
      payment for such goods or services.





The
      delinquent report was discovered by the Company’s interim chief financial
      officer during the second quarter of 2005. The controller and the interim chief
      financial officer are working together to keep each other appraised of items
      which may require disclosure and to see that proper level of disclosure is
      made.





While
      the
      Company has implemented an accounts analysis procedure and hired additional
      personnel, the abovementioned material weaknesses will not be considered
      remediated until the new internal controls operate for a sufficient period
      of
      time, are tested, and management concludes that these controls are operating
      effectively. The Company expects to complete its analysis by the end of the
      fiscal year ending December 31, 2007. Costs of the controller and finance
      manager and the practices implemented thus far are approximately $120,000 per
      year, consisting mainly of the controller’s and finance manager’s salaries and
      the public reporting costs of additional disclosure.





**Changes
      in Internal Controls**





The
      addition of a controller, the chartered accountant and the new policies and
      practices discussed above constitute changes in the Company’s internal control
      over financial reporting. The new policies and practices were implemented during
      the fourth quarter of 2006 and have materially affected, or are reasonably
      likely to materially affect, the Company’s internal controls over financial
      reporting.





**PART
      II OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





See
      the
      Litigation subsection of Note 10 - Commitments and Contingencies and Note 13
      -
      Subsequent Events to the Condensed Consolidated Financial Statements in Part
      1
      of this Form 10-QSB.





**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds.**





The
      following stock transactions occurred in the first quarter of 2007:





On
      January 1, 2007, the Company issued 100,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company (see Note 10). The
      warrants have a strike price of $0.40 and expire on January 1, 2009. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company.




35




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





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





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





On
      January 29, 2007, the Company issued 30,000 warrants to each of two accredited
      investors in connection with monies loaned to the Company (see Note 10). The
      warrants have a strike price of $0.40 and expire on January 29, 2009. The
      securities were issued pursuant to the exemption from registration provided
      by
      Section 4(2) of the Securities Act and contain the appropriate legends
      restricting their transferability absent registration or applicable exemption.
      The accredited investors received information concerning the Company and had
      the
      ability to ask questions about the Company.





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





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





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




36




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





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





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





**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.**





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





37





**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:
      May 15, 2007





AIRBEE
      WIRELESS, INC.




By:
              /s/ Sundaresan Raja Sundaresan
                  Raja
 Chief
                  Executive Officer
 (Principal
                  Executive Officer)
 
 By:
              /s/ E. Eugene Sharer E.
                  Eugene Sharer
 Interim
                  Principal Financial Officer




38