##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2005
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission file number 0-50918
 AIRBEE WIRELESS, INC.
  DELAWARE
(State or other jurisdiction
of incorporation or organization)9400 Key West Avenue, Suite 100
Rockville, MD
(Address of principal executive offices)
    
    46-0500345
(IRS Employer
Identification No.)20850-3322
(Zip Code)
 (301) 517-1860
 þ o
 o þ
   o þ




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PAGEPART I FINANCIAL INFORMATION
    
    
    2Item 1. Financial Statements
    
    
    2Condensed Consolidated Balance Sheet as of September 30, 2005 (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Nine Months and
Three Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    4Condensed Consolidated Statement of Other Accumulated Comprehensive Loss
for the Nine Months Ended September 30, 2005 and 2004 (Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flow for the Nine Months Ended
September 30, 2005 and 2004 (Unaudited)
    
    
    6Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis or Plan of OperationsItem 3. Controls and Procedures
    
    
    34PART II OTHER INFORMATION
    
    
    37Item 1. Legal Proceedings
    
    
    37Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    37Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    40Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    41




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##### 



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




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 2005
(UNAUDITED)
 ASSETSCurrent Assets:Cash and cash equivalents
    
    $
    16,618Prepaid expenses and other current assets
    
    
    45,817Total Current Assets
    
    
    62,435Fixed assets, net of depreciation
    
    
    66,800Intangible assets
    
    
    587,561Other assets
    
    
    1,556589,117TOTAL ASSETS
    
    $
    718,352LIABILITIES AND STOCKHOLDERS DEFICITLIABILITIESCurrent Liabilities:Notes payable  related party
    
    $
    1,093,854Notes payable  other
    
    
    150,000Accounts payable and accrued expenses
    
    
    1,401,706Total Current Liabilities
    
    
    2,645,560Long-term Liabilities:Due officer
    
    
    40,927Total Long-term Liabilities
    
    
    40,927Total Liabilities
    
    
    2,686,487COMMITMENTS AND CONTINGENCIES
    
    
    STOCKHOLDERS DEFICITCommon stock, $.00004 Par Value; 200,000,000 shares authorized
45,670,070 shares issued and outstanding
    
    
    1,827Additional paid-in capital
    
    
    3,594,726Unearned compensation
    
    
    (30,859
    )Other accumulated comprehensive loss
    
    
    (1,671
    )Accumulated deficit
    
    
    (5,480,069
    )(1,916,046
    )Less: Treasury stock, 704,362 shares at cost
    
    
    (52,089
    )Total Stockholders Deficit
    
    
    (1,968,135
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    718,352
 The accompanying notes are an integral part of these condensed consolidated financial
statements.
 3




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
 OPERATING REVENUESSales
    
    $
    1,021
    
    
    $
    932
    
    
    $
    
    
    
    $
    932
    
    
    $
    11,129COST OF SALES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,040GROSS PROFIT
    
    
    1,021
    
    
    
    932
    
    
    
    
    
    
    
    932
    
    
    
    89OPERATING EXPENSESCompensation and professional fees
    
    
    1,108,252
    
    
    
    464,376
    
    
    
    343,900
    
    
    
    192,128
    
    
    
    2,250,314Research and development
    
    
    173,017
    
    
    
    71,242
    
    
    
    12,512
    
    
    
    28,198
    
    
    
    1,457,573Selling, general and administrative expenses
    
    
    445,811
    
    
    
    126,189
    
    
    
    114,833
    
    
    
    51,359
    
    
    
    614,090Bad debt
    
    
    536,495
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536,495Depreciation and amortization
    
    
    91,065
    
    
    
    2,515
    
    
    
    69,219
    
    
    
    960
    
    
    
    99,411Total Operating Expenses
    
    
    2,354,640
    
    
    
    664,322
    
    
    
    540,464
    
    
    
    272,645
    
    
    
    4,957,883LOSS BEFORE OTHER INCOME (EXPENSE)
    
    
    (2,353,619
    )
    
    
    (663,390
    )
    
    
    (540,464
    )
    
    
    (271,713
    )
    
    
    (4,957,794
    )OTHER INCOME (EXPENSE)Impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127,974
    )Other Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,000Interest expense
    
    
    (327,163
    )
    
    
    (130,594
    )
    
    
    (216,987
    )
    
    
    (114,671
    )
    
    
    (479,380
    )Recovery of bad debt
    
    
    15,079
    
    
    
    
    
    
    
    15,079
    
    
    
    
    
    
    
    15,079Total Other Income (Expense)
    
    
    (312,084
    )
    
    
    (130,594
    )
    
    
    (201,908
    )
    
    
    (114,671
    )
    
    
    (522,275
    )NET LOSS BEFORE PROVISION FOR INCOME TAXES
    
    
    (2,665,703
    )
    
    
    (793,984
    )
    
    
    (742,372
    )
    
    
    (386,384
    )
    
    
    (5,480,069
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS APPLICABLE TO COMMON SHARES
    
    $
    (2,665,703
    )
    
    $
    (793,984
    )
    
    $
    (742,372
    )
    
    $
    (386,384
    )
    
    $
    (5,480,069
    )NET LOSS PER BASIC AND DILUTED SHARES
    
    $
    (0.06
    )
    
    $
    (0.02
    )
    
    $
    (0.02
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
    
    
    43,702,551
    
    
    
    37,173,703
    
    
    
    45,471,801
    
    
    
    39,339,353
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF
ACCUMULATED OTHER COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
 Balance, December 31, 2003
    
    $
    5,882Loss on foreign currency translations
    
    
    (8,351
    )Balance, June 30, 2004
    
    $
    (2,469
    )Balance, December 31, 2004
    
    $
    730Loss on foreign currency translations
    
    
    (2,401
    )Balance, September 30, 2005
    
    $
    (1,671
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
 Cumulative TotalsRestated
    
    
    August 9, 2002 to2005
    
    
    2004
    
    
    September 30, 2005CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (2,665,703
    )
    
    $
    (407,600
    )
    
    $
    (5,480,069
    )Adjustments to reconcile net loss to net cash
(used in) operating activitiesProvision for bad debts
    
    
    536,495
    
    
    
    
    
    
    
    536,495Depreciation and amortization
    
    
    91,065
    
    
    
    1,555
    
    
    
    99,411Common stock issued for services
    
    
    298,994
    
    
    
    
    
    
    
    960,606Common stock issued for compensation
    
    
    13,000
    
    
    
    
    
    
    
    13,000Use of pledged collateral for settlement of interest expense
    
    
    150,000
    
    
    
    
    
    
    
    150,000Interest expense converted to note payable  other
    
    
    
    
    
    
    
    
    
    
    100,000Services for stock to be issued
    
    
    
    
    
    
    
    
    
    
    76,000Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    127,974Loss on foreign currency translations
    
    
    (2,401
    )
    
    
    (8,351
    )
    
    
    (1,671
    )Amortization of unearned compensation
    
    
    10,382
    
    
    
    6,874
    
    
    
    51,626Changes in assets and liabilitiesDecrease in accounts receivable
    
    
    
    
    
    
    
    
    
    
    19,373(Increase) in prepaid expenses and other assets
    
    
    (95,258
    )
    
    
    (12,260
    )
    
    
    (119,210
    )Net change in net assets in acquisition of Connexus
    
    
    
    
    
    
    
    
    
    
    (22,865
    )(Increase) in other assets
    
    
    (536,446
    )
    
    
    
    
    
    
    (536,506
    )Increase (decrease) in accounts payable and
and accrued expenses
    
    
    1,049,415
    
    
    
    (131,354
    )
    
    
    1,304,699Total adjustments
    
    
    1,515,246
    
    
    
    (143,536
    )
    
    
    2,758,932Net cash (used in) operating activities
    
    
    (1,150,457
    )
    
    
    (551,136
    )
    
    
    (2,721,137
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of intangible assets
    
    
    (426,586
    )
    
    
    
    
    
    
    (592,561
    )Acquisitions of fixed assets
    
    
    (26,503
    )
    
    
    (14,602
    )
    
    
    (76,551
    )Net cash (used in) investing activities
    
    
    (453,089
    )
    
    
    (14,602
    )
    
    
    (669,112
    )
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 6




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004 (CONTINUED)
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
 Restated
    
    
    August 9, 2002 to2005
    
    
    2004
    
    
    September 30, 2005CASH FLOWS FROM FINANCING ACTIVITESProceeds from common stock issuances
    
    $
    670,559
    
    
    $
    521,000
    
    
    $
    1,387,086Services rendered converted to notes payable  related party
    
    
    
    
    
    
    
    
    
    
    1,056,611Proceeds from notes payable  other
    
    
    850,000
    
    
    
    
    
    
    
    910,000Proceeds from notes payable  related party, net
    
    
    37,243
    
    
    
    140,879
    
    
    
    78,170Payments for issuance costs
    
    
    (25,000
    )
    
    
    
    
    
    
    (25,000
    )Net cash provided by financing activities
    
    
    1,532,802
    
    
    
    661,879
    
    
    
    3,406,867NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS
    
    
    (70,744
    )
    
    
    96,141
    
    
    
    16,618CASH AND
CASH EQUIVALENTS 
BEGINNING OF PERIOD
    
    
    87,362
    
    
    
    23,488
    
    
    
    CASH AND CASH EQUIVALENTS  END OF PERIOD
    
    $
    16,618
    
    
    $
    119,629
    
    
    $
    16,618SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:CASH PAID DURING THE YEAR FOR:Interest expense
    
    $
    
    
    
    $
    
    
    
    $
    SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:Common stock issued for compensation
    
    $
    13,000
    
    
    $
    
    
    
    $
    13,000Common stock issues for services
    
    $
    298,994
    
    
    $
    
    
    
    $
    960,606Common stock issued for issuance costs
    
    $
    740,000
    
    
    $
    
    
    
    $
    740,000Exercise of cashless stock options
    
    $
    
    
    
    $
    
    
    
    $
    59,089Interest expense converted to note payable  other
    
    $
    
    
    
    $
    
    
    
    $
    100,000Services for stock to be issued
    
    $
    
    
    
    $
    
    
    
    $
    76,000Conversion of notes payable and accrued interest to common stock
    
    $
    
    
    
    $
    
    
    
    $
    11,833Impairment of goodwill
    
    $
    
    
    
    $
    
    
    
    $
    127,974Unearned compensation on cashless options
    
    $
    
    
    
    $
    
    
    
    $
    82,485Use of pledged collateral for note payable and accrued interest
    
    $
    787,500
    
    
    $
    
    
    
    $
    787,500Use of pledged collateral for settlement of interest expense
    
    $
    150,000
    
    
    $
    
    
    
    $
    150,000
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 7




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AIRBEE WIRELESS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
 NOTE 1 -
    
    ORGANIZATION AND BASIS OF PRESENTATIONThe condensed unaudited interim consolidated financial statements included herein
have been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated financial statements
and notes are presented as permitted on Form 10-QSB and do not contain information
included in the Companys annual statements and notes. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations,
although the Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these condensed
consolidated financial statements be read in conjunction with the December 31, 2004
audited consolidated financial statements and the accompanying notes thereto. While
management believes the procedures followed in preparing these condensed
consolidated financial statements are reasonable, the accuracy of the amounts are in
some respects dependent upon the facts that will exist, and procedures that will be
accomplished by the Company later in the year.These condensed unaudited consolidated financial statements reflect all adjustments,
including normal recurring adjustments, which, in the opinion of management, are
necessary to present fairly the operations and cash flows for the period presented.Airbee Wireless, Inc. (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 (OEMs) of various
products to create advanced wireless communications systems.On May 2, 2005, the Company entered into an agreement and plan of merger (Merger
Agreement) by and with Identity, Inc. (Identity), a Delaware corporation, and
Airbee Automotive Group, Inc., a wholly-owned subsidiary of the Company, whereby the
Companys wholly-owned subsidiary merged with and into Identity. Pursuant to the
Merger Agreement, the surviving entity became a wholly-owned subsidiary of the
Company. By mutual agreement the Merger Agreement was rescinded in August 2005.
See Notes 11 and 12.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 applications for its software.
 8




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##### 



NOTE 2 -
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDevelopment Stage CompanyThe Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises. The Company has devoted substantially all of its
efforts to business planning, patent applications, research and development,
recruiting management and technical staff, acquiring operating assets and raising
capital. With the release of the ZigBee / IEEE 802.15.4 standard on December 14,
2004, the Company is anticipating that sales will be generated in the
first quarter of fiscal 2006, at
which time the Company will emerge from the development stage.LiquidityThe condensed consolidated interim 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 $5.5 million as of September 30, 2005. The Companys operations
have been financed primarily through a combination of issued equity and debt. For
the nine months ended September 30, 2005, the Company had a net loss of
approximately $2.67 million and cash used in operations of approximately $1.15
million.The Company regularly evaluates its working capital needs and existing burn rate to
make appropriate adjustments to operating expenses. On April 26, 2005, the Company
executed a promissory note in the amount of $750,000 in favor of Montgomery Equity
Partners, Ltd. Pursuant to the terms of the promissory note, Montgomery Equity
Partners disbursed the entire $750,000 to the Company upon the date the note was
executed and an additional $250,000 will be disbursed to the Company after the
Companys common stock commences trading on the Over-the-Counter Bulletin Board
market. The promissory note is secured by all of the assets of the Company plus
shares of stock of an affiliate of the Company. It has a one-year term and accrues
interest monthly at 24% per year. The Company has had difficulty adhering to the
payment schedule of the note and has entered into a settlement agreement with
Montgomery to satisfy the note with the liquidation of some of the pledged shares.
The settlement agreement has not yet been signed by Montgomery. Depending on future
working capital needs, the Company may
from time to time avail itself of a $20 million standby equity distribution
agreement from Cornell Capital Partners LP secured on April 26, 2005.
 9




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##### 



Principles of ConsolidationThe condensed consolidated financial statements include the accounts of Airbee
Wireless, Inc. and its wholly owned subsidiaries (Airbee or the Company) Airbee
Wireless (Pte.) Ltd., located in Singapore, and Airbee Wireless (India) Pvt. Ltd.,
located in India, for the nine months ended September 30, 2005 and 2004
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 EstimatesThe preparation of the condensed consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates.Cash and Cash EquivalentsThe Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash equivalents.The Company maintains cash and cash equivalent balances at financial institutions in
the United States of America, Singapore and India. The financial institution in the
United States of America is insured by the Federal Deposit Insurance Corporation up
to $100,000.Fixed AssetsFixed assets are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets; two to four years for
machinery and 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




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##### 



Intangible AssetsIntellectual property assets represent technology and are amortized over the periods
of benefit, ranging from two to sixteen 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 PropertyCosts incurred in creating products are charged to expense when incurred as research
and development until technological feasibility is established upon completion of a
working model. Thereafter, all software production costs are capitalized and
subsequently reported at the lower of unamortized cost or net realizable value.
Capitalized costs are amortized based on current and future revenue for each product
with an annual minimum equal to the straight-line amortization over the remaining
estimated economic life of the product.In accordance with SFAS No. 2, Accounting for Research and Development Costs, SFAS
No. 68, Research and Development Arrangements, and SFAS No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,
technological feasibility for the Airbee UltraLite was established on
November 20, 2002 with completion of the detailed program design. Several working
models were delivered at various points through July of 2003.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.
 11




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##### 



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.The software serves as the core code (i.e., one of the key building blocks) for
current and future products that must comply with both of these international
standards. Hence, core software based upon the global standards of IEEE and ZigBee
to enable the rest of our software to function has an 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
with the current financial period 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. The Company
believes that at this point in time, impairment is impractical because (a) the IEEE
802.15 global standard was only finalized in October 2003; (b) the ZigBee global
standard was only finalized on December 14, 2004; and (c) the Companys software
written in conformity with both global standards is vital to making the rest of its
software function and therefore be in compliance with these global standards.Segment ReportingThe Company follows the provisions of SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. This standard requires that companies
disclose operating segments based on the manner in which management disaggregates
the Company in making internal operating decisions. As of September 30, 2005 and
2004, there were no operating segments.Revenue and Cost RecognitionThe Company currently recognizes revenues from four primary sources: (1) time-based
product license fees, (2) time-based license royalties, (3) product revenues for
software development tools and kits, and (4) software service.Licensing revenues (e.g., Airbee-ZNS, Airbee-ZMAC, and
Airbee-ZNMS) 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.
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The Company accounts for the time-based licensing of software in accordance with the
American Institute of Certified Public Accountants Statement of Position (SOP) 97-2,
Software Revenue Recognition. The Company recognizes revenue
when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or
services have been rendered; (iii) the sales price is fixed or determinable; and
(iv) the ability to collect is reasonably assured. For software arrangements with
multiple elements, revenue is recognized dependent upon whether vendor-specific
objective evidence (VSOE) of fair value exists for each of the elements. When VSOE
does not exist for all the elements of a software arrangement and the only
undelivered element is post-contract customer support (PCS), the entire licensing
fee is recognized ratably over the contract period.Revenue attributable to undelivered elements, including technical support, is based
on the sales price of those elements, and is recognized ratably on a straight-line
basis over the term of the time-based license. Post-contract customer support
revenue is recognized ratably over the contract period. Shipping charges billed to
customers are included in revenue and the related shipping costs are included in
cost of sales.Time-based product licensing fees are collected in advance. Revenues from licenses
are recognized on a prorated-basis over the life of the license. Airbees customary
practice is to have non-cancelable time-based licenses and a customer purchase order
prior to recognizing revenue.Enterprise license model arrangements require the delivery of unspecified future
updates and upgrades within the same product family during the time-based license.
Accordingly, Airbee will recognize fees from its enterprise license model agreements
ratably over the term of the license agreement.Time-based royalties are charged on a unit basis. Royalties are not fixed dollar
amounts, but are instead a percentage of the customers finished product and the
percentage varies on a tiered basis with the number of units shipped by customer.Revenue attributed to undelivered elements is based on the sales price rather than
on the renewal rate for the following reasons:Because of (i) the newness of the ZigBee standard for this short-range wireless
technology, (ii) the newness of the Companys product introductions into the
marketplace for a range of applications being developed by its customers, and (iii)
the lack of historical data for potentially defective software, which may be a
function of the application into which it is installed, a reasonable reserve for
returns cannot yet be established. In accordance with SFAS No. 48 Revenue
Recognition When Right of 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.
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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 (OEMs) is based
on the time-based licensing agreement with an OEM and recognized when the OEM ships
licensed products to its customers.The Company assesses probability of collection based on a number of factors,
including its past transaction history with the customer and the creditworthiness of
the customer. New customers are subject to a credit review process that evaluates
the customers financial position and ultimately its ability to pay according to the
original terms of the arrangement. Based on this review process, if it is
determined from the outset of an arrangement that collection of the resulting
receivable is not probable, revenue is then recognized on a cash-collected basis.Cost of revenue includes direct costs to produce and distribute products and direct
costs to provide product support and training.Prepaid Financing CostsPrepaid financing costs were incurred in connection with the note payable to
Montgomery Equity Partners, Ltd. (see discussion below in Note 6) and are amortized
over the life of the note payable (12 months). Amortization expense for the 9 months
ended September 30, 2005 is $31,250. As a result of the settlement agreement, the
balance of the prepaid costs has been written off totaling $43,750 and has been
included in amortization expense.Research and DevelopmentResearch 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 in November 2004.
Research and development costs 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 TaxesIncome tax benefit is computed on the pretax loss based on current tax law.
Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax basis of assets and liabilities and its financial
reporting amounts at each year-end based on enacted tax laws and statutory tax
rates. No benefit is reflected for the nine month period ended September 30, 2005
and 2004, respectively.
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Start-up CostsIn accordance with the American Institute of Certified Public Accountants Statement
of Position 98-5, Reporting on the Costs of Start-up Activities, the Company
expenses all costs incurred in connection with the start-up and organization of the
Company.AdvertisingThe Companys policy is to expense the costs of advertising and marketing as
incurred. The Company had no such cost for the nine month period ended September
30, 2005 and 2004 respectively.Earnings (Loss) Per Share of Common StockHistorical net income (loss) per common share is computed using the weighted average
number of common shares outstanding. Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable pursuant
to the exercise of stock options and warrants. Common stock equivalents were not
included in the computation of diluted earnings per share at September 30, 2005 and
2004 when the Company reported a loss because to do so would be anti-dilutive for
periods presented. The Company has incurred losses since inception as a result of
funding its research and development, including the development of its intellectual
property portfolio which is key to its core products.The following is a reconciliation of the computation for basic and diluted EPS:
 September 30,
    
    
    September 30,2005
    
    
    2004Net Loss
    
    
    ($2,665,703
    )
    
    
    ($793,984
    )Weighted-average common shares
outstanding (Basic)
    
    
    43,702,551
    
    
    
    37,173,703Weighted-average common stock
Equivalents:Stock options
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Weighted-average common shares
outstanding (Diluted)
    
    
    43,702,551
    
    
    
    37,173,703
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Fair Value of Financial Instruments
  Stock-Based Compensation
 Accounting
for Stock Issued to Employees Accounting for Stock-Based
Compensation Accounting for
Stock-Based Compensation- Transition and Disclosure
  Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services
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Product Warranty
  Goodwill and Other Intangible Assets
 Goodwill and Other Intangible Assets Intangible Assets
 Goodwill
and Other Intangible Assets Accounting for the Impairment or
Disposal of Long-Lived Assets
  Nine Months Ended September 30, 2005Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntellectual Property
    
    
    172,789
    
    
    
    5,000Capitalized Research & Development
    
    
    419,772
    
    
    
    Total Intangible Assets
    
    
    592,561
    
    
    
    5,000
 17




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##### 



Currency Risk and Foreign Currency Translation
  Foreign Currency Translation
 Recent Accounting Pronouncements
 Share-Based
Payment
 Inventory Costs  an amendment of ARB No. 43, Chapter 4
 18




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##### 



Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary Transactions
 NOTE 3-
    
    CONCENTRATION OF CREDIT RISK
  NOTE 4-
    
    FIXED ASSETSFixed assets consist of the following at:
 September 30,2005Computer and office equipment
    
    
    86,031Less: accumulated depreciation
    
    
    (19,231
    )Net book value
    
    
    66,800
  19




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##### 



NOTE 5-
    
    NOTES PAYABLE
   NOTE 6-
    
    PROMISSORY NOTES  RELATED PARTY
  NOTE 7-
    
    PROVISION FOR INCOME TAXES
  20




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##### 



Deferred tax asset
    
    
    2,027,626Less: valuation allowance
    
    
    (2,027,626
    )
  NOTE 8-
    
    STOCKHOLDERSEQUITY
        21




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##### 



22




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##### 



NOTE 9-
    
    COMMITMENTS AND CONTINGENCIES
 Employment Agreements
  Lease Agreements
  23




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##### 



NOTE 10-
    
    GOING CONCERN
     NOTE 11-
    
    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
  24




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##### 



NOTE 12
    
    COMMITMENTS AND CONTINGENCIES
    25




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##### 



Forward Looking Statements
  Strategy
     26




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##### 




 
 Embedded Wireless Communications Software
    Critical Accounting Estimates
  27




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##### 



Long-Lived Assets.
  Results of Operations
 Nine Months Ended September 30, 2005 Compared to the Nine Months Ended September 30, 2004
    28




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29




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##### 



Three Months Ended September 30, 2005 Compared to the Three Months Ended September 30, 2004
      30




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##### 



Plan of Operations
 Business Outlook
  Liquidity and Capital Resources
  31




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32




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##### 



Key Operating Metrics
  33




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##### 



Additional Risks
    Item 3. Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  34




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##### 



35




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##### 



Changes in Internal Controls
  36




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##### 



PART II OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
      37




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##### 



38




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##### 



39




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##### 



Item 3. Defaults upon Senior Securities.
   Item 4. Submission of Matters to a Vote of Security Holders.
  Item 5. Other Information.
  Item 6. Exhibits.
 31.1
    
    Rule 13a-14(a)/15d-4(a) Certification of Principal Executive Officer31.2
    
    Rule 13a-14(a)/15d-4(a) Certification of Principal Financial Officer32.1
    
    Section 1350 Certification of Principal Executive Officer32.2
    
    Section 1350 Certification of Principal Financial Officer
 40




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##### 



SIGNATURES
    By:
    
    /s/ Sundaresan RajaSundaresan RajaChief Executive Officer
(Principal Executive Officer)By:
    
    /s/ E. Eugene SharerE. Eugene SharerInterim Principal Financial Officer
 41