##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-QSB/A
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission file number 0-50918
 AIRBEE WIRELESS, INC.
  DELAWARE
    
    46-0500345(State or other jurisdiction
    
    (IRS Employerof incorporation or organization)
    
    Identification No.)9400 Key West Avenue, Suite 100Rockville, MD
    
    20850-3322(Address of principal executive offices)
    
    (Zip Code)
 (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 June 30, 2005 (Unaudited)
    
    
    3Condensed Consolidated Statements of Operations for the Six Months
and Three Months Ended June 30, 2005 and 2004 (Unaudited)
    
    
    4Condensed Consolidated Statement of Accumulated Other Comprehensive
Income (Loss) for the Six Months Ended June 30, 2005 and 2004
(Unaudited)
    
    
    5Condensed Consolidated Statements of Cash Flow for the Six Months
Ended June 30, 2005 and 2004 (Unaudited)
    
    
    6Notes to the Condensed Consolidated Financial Statements (Unaudited)
    
    
    8Item 2. Managements Discussion and Analysis or Plan of Operations
    
    
    26Item 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
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    39Item 5. Other Information
    
    
    40Item 6. Exhibits
    
    
    40SIGNATURES
    
    
    40




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##### 



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




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2005
(UNAUDITED)
 RestatedASSETSCurrent Assets:Cash and cash equivalents
    
    $
    10,992Prepaid expenses and other current assets
    
    
    96,375Total Current Assets
    
    
    107,367Fixed assets
    
    
    66,636Intangible assets
    
    
    327,759Other assets
    
    
    1,559329,318TOTAL ASSETS
    
    $
    503,321LIABILITIES AND STOCKHOLDERS DEFICITLIABILITIESCurrent Liabilities:Notes payable  related party
    
    $
    1,040,396Notes payable  other
    
    
    800,000Accounts payable and accrued expenses
    
    
    956,303Total Current Liabilities
    
    
    2,796,699Long-term Liabilities:Due officer
    
    
    40,927Total Long-term Liabilities
    
    
    40,927Total Liabilities
    
    
    2,837,626COMMITMENTS AND CONTINGENCIES
    
    
    STOCKHOLDERS DEFICITCommon stock, $0.00004 Par Value; 200,000,000 shares authorized
45,377,324 shares issued and outstanding
    
    
    1,815Additional paid-in capital
    
    
    2,487,297Unearned compensation
    
    
    (34,367
    )Accumulated other comprehensive income
    
    
    736Retained earnings (deficit)
    
    
    (4,737,697
    )(2,282,216
    )Less: Treasury stock, 704,362 shares at cost
    
    
    (52,089
    )Total Stockholders Deficit
    
    
    (2,334,305
    )TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
    
    $
    503,321
 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 SIX AND THREE MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION
 RestatedSIX MONTHS ENDED
    
    
    THREE MONTHS ENDED
    
    
    Cumulative TotalsJUNE 30,
    
    
    JUNE 30,
    
    
    August 9, 20022005
    
    
    2004
    
    
    2005
    
    
    2004
    
    
    toRestated
    
    
    Restated
    
    
    Restated
    
    
    Restated
    
    
    June 30, 2005OPERATING REVENUESSales
    
    $
    1,021
    
    
    $
    
    
    
    $
    1,021
    
    
    $
    
    
    
    $
    11,129COST OF SALES
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,040GROSS PROFIT
    
    
    1,021
    
    
    
    
    
    
    
    1,021
    
    
    
    
    
    
    
    89OPERATING EXPENSESCompensation and professional fees
    
    
    764,352
    
    
    
    272,248
    
    
    
    517,926
    
    
    
    151,258
    
    
    
    1,906,414Research and development
    
    
    160,505
    
    
    
    43,044
    
    
    
    (51,565
    )
    
    
    41,574
    
    
    
    1,445,061Selling, general and administrative expenses
    
    
    330,978
    
    
    
    74,830
    
    
    
    268,849
    
    
    
    38,559
    
    
    
    499,257Bad debt
    
    
    536,495
    
    
    
    
    
    
    
    536,495
    
    
    
    
    
    
    
    536,495Depreciation and amortization
    
    
    21,846
    
    
    
    1,555
    
    
    
    18,764
    
    
    
    925
    
    
    
    30,192Total Operating Expenses
    
    
    1,814,176
    
    
    
    391,677
    
    
    
    1,290,,469
    
    
    
    232,316
    
    
    
    4,417,419LOSS BEFORE OTHER (EXPENSE)
    
    
    (1,813,155
    )
    
    
    (391,677
    )
    
    
    (1,289,448
    )
    
    
    (232,316
    )
    
    
    (4,417,330
    )OTHER (EXPENSE)Impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (127,974
    )Other Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    70,000Interest expense
    
    
    (110,176
    )
    
    
    (15,923
    )
    
    
    (81,602
    )
    
    
    (8,406
    )
    
    
    (262,393
    )Total Other (Expense)
    
    
    (110,176
    )
    
    
    (15,923
    )
    
    
    (81,602
    )
    
    
    (8,406
    )
    
    
    (320,367
    )NET LOSS BEFORE PROVISION FOR INCOME TAXES
    
    $
    (1,923,331
    )
    
    $
    (407,600
    )
    
    $
    (1,371,050
    )
    
    $
    (240,722
    )
    
    $
    (4,737,697
    )Provision for Income Taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    NET LOSS APPLICABLE TO COMMON SHARES
    
    $
    (1,923,331
    )
    
    $
    (407,600
    )
    
    $
    (1,371,050
    )
    
    $
    (240,722
    )
    
    $
    (4,737,697
    )NET LOSS PER BASIC AND DILUTED SHARES
    
    $
    (0.04
    )
    
    $
    (0.01
    )
    
    $
    (0.03
    )
    
    $
    (0.01
    )WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING
    
    
    42,803,263
    
    
    
    36,078,979
    
    
    
    43,746,671
    
    
    
    36,078,979
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 4




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
 CONDENSED CONSOLIDATED STATEMENT OF
ACCUMULATED OTHER COMPREHENSIVE INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
 Balance, January 1, 2004
    
    $
    5,882Loss on foreign currency translation
    
    
    (8,351
    )Balance, June 30, 2004
    
    $
    (2,469
    )Balance, January 1, 2005
    
    $
    730Loss on foreign currency translation
    
    
    6Balance, June 30, 2005
    
    $
    736
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 5




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##### 



AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
 Cumulative TotalsRestated
    
    
    Restated
    
    
    August 9, 2002 to2005
    
    
    2004
    
    
    June 30, 2005CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (1,923,331
    )
    
    $
    (407,600
    )
    
    $
    (4,737,697
    )Adjustments to reconcile net loss
to net cash
used in operating activitiesProvision for bad debts
    
    
    536,495
    
    
    
    
    
    
    
    536,495Depreciation and amortization
    
    
    21,846
    
    
    
    1,555
    
    
    
    30,192Common stock issued for services
    
    
    296,053
    
    
    
    
    
    
    
    957,665Common stock issued for
compensation
    
    
    13,000
    
    
    
    
    
    
    
    13,000Interest expense converted to
note payable  other
    
    
    
    
    
    
    
    
    
    
    100,000Services for stock to be issued
    
    
    
    
    
    
    
    
    
    
    76,000Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    127,974Income (loss) on foreign
currency translations
    
    
    6
    
    
    
    (8,351
    )
    
    
    736Amortization of unearned
compensation
    
    
    6,874
    
    
    
    6,874
    
    
    
    48,118Changes in assets and liabilitiesDecrease in accounts receivable
    
    
    
    
    
    
    
    
    
    
    19,373(Increase) in prepaid
expenses and other assets
    
    
    (619,765
    )
    
    
    (12,260
    )
    
    
    (643,717
    )Net change in net assets in
acquisition of Connexus
    
    
    
    
    
    
    
    
    
    
    (22,865
    )(Increase) in other assets
    
    
    
    
    
    
    
    
    
    
    (60
    )Increase (decrease) in accounts
payable and accrued expenses
    
    
    566,512
    
    
    
    (131,354
    )
    
    
    821,796Total adjustments
    
    
    821,021
    
    
    
    (143,536
    )
    
    
    2,064,707Net cash (used in) operating
activities
    
    
    (1,102,310
    )
    
    
    (551,136
    )
    
    
    (2,672,990
    )CASH FLOWS FROM INVESTING ACTIVITIESAcquisition of intangible assets
    
    
    (161,784
    )
    
    
    
    
    
    
    (327,759
    )Acquisitions of fixed assets
    
    
    (24,620
    )
    
    
    (14,602
    )
    
    
    (74,668
    )Net cash (used in) investing
activities
    
    
    (186,404
    )
    
    
    (14,602
    )
    
    
    (402,427
    )
 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 SIX MONTHS ENDED JUNE 30, 2005 AND 2004 (CONTINUED)
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
 Cumulative TotalsRestated
    
    
    Restated
    
    
    August 9, 2002 to2005
    
    
    2004
    
    
    June 30, 2005CASH FLOWS FROM FINANCING ACTIVITESProceeds from common stock
issuances
    
    $
    503,559
    
    
    $
    521,000
    
    
    $
    1,220,086Services rendered converted to
notes payable  related party
    
    
    
    
    
    
    
    
    
    
    1,056,611Proceeds
from notes payable 
other
    
    
    750,000
    
    
    
    
    
    
    
    810,000Payments to
notes payable 
related party, net
    
    
    (16,215
    )
    
    
    140,879
    
    
    
    24,712Payments for issuance costs
    
    
    (25,000
    )
    
    
    
    
    
    
    (25,000
    )Net cash provided by financing
activities
    
    
    1,212,344
    
    
    
    661,879
    
    
    
    3,086,409NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS
    
    
    (76,370
    )
    
    
    96,141
    
    
    
    10,992CASH AND
CASH EQUIVALENTS 
BEGINNING OF PERIOD
    
    
    87,362
    
    
    
    23,488
    
    
    
    CASH AND CASH EQUIVALENTS  END OF
PERIOD
    
    $
    10,992
    
    
    $
    119,629
    
    
    $
    10,992SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:CASH PAID DURING THE YEAR FOR:Interest expense
    
    $
    30,270
    
    
    $
    
    
    
    $
    30,270SUPPLEMENTAL DISCLOSURE OF NONCASH
ACTIVITIES:Common stock issued for
compensation
    
    $
    13,000
    
    
    $
    
    
    
    $
    13,000Common stock issues for services
    
    $
    296,053
    
    
    $
    
    
    
    $
    957,665Common 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
    
    $
    
    
    
    $
    
    
    
    $
    82,485
 The accompanying notes are an integral part of these condensed consolidated financial statements.
 7




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




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##### 



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.NOTE 2 -
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESDevelopment Stage CompanyThe Company is considered to be in the development stage as defined in Statement of
Financial Accounting Standards (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises. The Company has devoted substantially all of its
efforts to business planning, patent applications, research and development,
recruiting management and technical staff, acquiring operating assets and raising
capital. With the release of the ZigBee / IEEE 802.15.4 standard on December 14,
2004, the Company is anticipating that sales will be generated in fiscal 2005, at
which time 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 $4.2 million as of June 30, 2005. The Companys operations have
been financed primarily through a combination of issued equity and debt. For the
six months ended June 30, 2005, the Company had a net loss of approximately $1.39
million and cash used in operations of approximately $566,000.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 at 24% per year. 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 six months ended June 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.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.
 11




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##### 



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 June 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.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
 12




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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.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.
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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 2 months
ended June 30, 2005 is $12,500.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 three month periods ended June 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 three month periods ended June 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 June 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:
 June 30, 2005
    
    
    June 30, 2004Net Loss
    
    
    ($1,923,331
    )
    
    
    ($407,600
    )Weighted-average common shares
outstanding (Basic)
    
    
    42,803,263
    
    
    
    41,073,219Weighted-average common stock
Equivalents:Stock options
    
    
    
    
    
    
    Warrants
    
    
    
    
    
    
    Weighted-average common shares
outstanding (Diluted)
    
    
    42,803,263
    
    
    
    41,073,219
 Fair Value of Financial InstrumentsThe carrying amount reported in the condensed 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.
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Stock-Based CompensationEmployee stock awards under the Companys compensation plans are accounted for in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), Accounting
for Stock Issued to Employees, and related interpretations. The Company provides
the disclosure requirements of SFAS No. 123, Accounting for Stock-Based
Compensation (SFAS 123), and related interpretations. Stock-based awards to
non-employees are accounted for under the provisions of SFAS 123 and the Company
adopted the enhanced disclosure provisions of SFAS No. 148 Accounting for
Stock-Based Compensation- Transition and Disclosure, an amendment of SFAS No. 123.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 June 30, 2005 and 2004 was $3,437, respectively.The Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging Issues
Task Force (EITF) Issue No. 96-18, Accounting for Equity Instruments that are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods
or Services. The fair value of the option issued is used to measure the
transaction, as this is more reliable than the fair value of the services received.
Fair value is measured as the value of the Companys common stock on the date that
the commitment for performance by the counterparty has been reached or the
counterpartys performance is complete. The fair value of the equity instrument is
charged directly to compensation expense and additional paid-in capital.Product WarrantyThe Companys product warranty accrual includes specific accruals for known product
issues and an accrual for an estimate of incurred but unidentified product issues
based on historical activity. Due to effective product testing and the short time
between product shipment and the detection and correction of product failures, the
warranty accrual based on historical activity and the related expense were not
significant as of and for the three months ended June 30, 2005 and 2004,
respectively.
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Goodwill and Other Intangible AssetsIn June 2001, the Financial Accounting Standards Board issued Statement No. 142,
Goodwill and Other Intangible Assets. This statement addresses financial
accounting and reporting for acquired goodwill and other intangible assets and
supersedes Accounting Principles Board (APB) Opinion No. 17, Intangible Assets.
It addresses how intangible assets that are acquired individually or with a group of
other assets (but not those acquired in a business combination) should be accounted
for in financial statements upon their acquisition. This statement also addresses
how goodwill and other intangible assets should be accounted for after they have
been initially recorded in the financial statements. All goodwill associated with
the acquisition of Connexus Technologies (Pte.) Ltd. (Connexus) was impaired in
2002 ($127,974), since Connexus was acquired for its development and anticipated
future development which management has determined to have no material fair value as
of the balance sheet date.The identifiable intangible assets presented on the condensed consolidated balance
sheet represent the intellectual property that was capitalized post-technological
feasibility. Management will continue to monitor and assess any impairment charges
against those assets in accordance with the provisions of SFAS No. 142, Goodwill
and Other Intangible Assets 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 sixteen 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 June 30, 2005 is $2,500.The main components of intangible assets are as follows:
 Six Months Ended June 30, 2005Gross Carrying
    
    
    AccumulatedAmount
    
    
    AmortizationIntellectual Property
    
    
    327,759
    
    
    
    2,500Total Intangible Assets
    
    
    327,759
    
    
    
    2,500
 Currency Risk and Foreign Currency TranslationThe Company transacts business in currencies other than the U.S. Dollar, primarily
the Singapore Dollar and the Indian Rupee. All currency transactions occur in the
spot foreign exchange market and the Company does not use currency forward
contracts, currency options, currency borrowings interest rate swaps or any other
derivative hedging strategy at this point in time.
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The Company has determined that based on the cash flow, sales price, sales market,
expense, financing, and inter-company transactions and arrangements indicators set
forth in FASB 52, Foreign Currency Translation, that the functional currency of
the Company is that of the parent company and is US Dollars. The Company has
reported its gain on foreign currency in its consolidated statements of accumulated
other comprehensive income due to the fact that these translation adjustments result
from the translation of all assets and liabilities at the current rate, while the
stockholder equity accounts were translated by using historical and weighted-average
rates.Recent Accounting PronouncementsOn December 16, 2004, the Financial Accounting Standards Board (FASB) published
Statement of Financial Accounting Standards No. 123 (Revised 2004), Share-Based
Payment (SFAS 123R). SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans. The provisions of SFAS 123R, as amended,
are effective for small business issuers beginning as of the next fiscal year after
December 15, 2005. Accordingly, the Company will implement the revised standard in
the first quarter of fiscal year 2006. Currently, the Company accounts for its
share-based payment transactions under the provisions of APB 25, which does not
necessarily require the recognition of compensation cost in the financial statements
(note 3(e)). Management is assessing the implications of this revised standard,
which may materially impact the Companys results of operations in the first quarter
of fiscal year 2006 and thereafter.In November 2004, the FASB issued Financial Accounting Standards No. 151 (FAS 151),
Inventory Costs  an amendment of ARB No. 43, Chapter 4. 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. The Company
does not expect FASB 151 to have a material impact on its results or financial
statements.On December 16, 2004, FASB issued Statement of Financial Accounting Standards No.
153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29,
Accounting for Non-monetary Transactions (SFAS 153). This statement amends APB
Opinion 29 to eliminate the exception for non-monetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
non-monetary assets that do not have commercial substance. Under SFAS 153, if a
non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the
transaction must be accounted for at fair value resulting in recognition of any gain
or loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that
begin after June 15, 2005. The Company does not anticipate that the implementation
of this standard will have a material impact on its financial position, results of
operations or cash flows.
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NOTE 3-
    
    CONCENTRATION OF CREDIT RISKThe Companys trade receivables are derived from sales to original equipment
manufacturers and manufacturers of microprocessors. The Company endeavors to keep
pace with the evolving computer and communications industries, and has adopted
credit policies and standards intended to accommodate industry growth and inherent
risk. Management believes that credit risks are moderated by the diversity of the
Companys end customers and geographic sales areas. The Company performs ongoing
credit evaluations of its customers financial condition and requires collateral as
deemed necessary.NOTE 4-
    
    FIXED ASSETSFixed assets consist of the following at:
 June 30,2005Computer and office equipment
    
    
    84,328Less: accumulated depreciation
    
    
    (17,692
    )Net book value
    
    
    66,636
 Depreciation expense for the six months ended June 30, 2005 and 2004 was $9,346 and
$925, respectively.NOTE 5-
    
    NOTES PAYABLEThe Company entered into a note payable, principal amount of $50,000 payable August
31, 2005. The Company entered into this note in connection with the 2002
acquisition of Connexus Technologies (Pte.) Ltd. The note was non-interest bearing
if it was paid prior to August 31, 2003 and if the note was paid between September
1, 2003 and August 31, 2004 the total payment due was $100,000. If the note is paid
between September 1, 2004 through August 31, 2005, total payment due is $150,000.
The Company, at June 30, 2005 has reflected the value of the note payable, which includes interest at $100,000. The accrued interest is
included in accounts payable and accrued expenses.
 19




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##### 



On April 26, 2005, the Company executed a promissory note for $750,000 to Montgomery
Equity Partners, Ltd. Pursuant to the terms of the promissory note, Montgomery
Equity Partners disbursed the entire $750,000 to the Company upon the date the note
was executed and an additional $250,000 will be disbursed to the Company after the
Companys common stock commences trading on the Over-the-Counter Bulletin Board.
The promissory note is secured by substantially all of the assets of the Company and
shares of stock of an affiliate of the Company. The promissory note has a one-year
term and accrues interest at 24% per year. Interest expense for the three months
ended June 30, 2005 was $30,000.NOTE 6-
    
    PROMISSORY NOTES  RELATED PARTYThe 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 June 30, 2005, the Company has $1,246,043
outstanding under these notes, including $205,647 in accrued interest. The notes
are due on September 30, 2005 and are therefore reflected as current liabilities on
the condensed consolidated balance sheets. The notes relate to services rendered to
the Company.NOTE 7-
    
    PROVISION FOR INCOME TAXESDeferred 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 June 30, 2005, deferred tax assets consist of the following:
 Deferred tax asset
    
    
    1,554,335Less: valuation allowance
    
    
    (1,554,335
    )
 At June 30, 2005, the Company had deficits accumulated during the development stage
in the approximate amount of $4,201,202, available to offset future taxable income
through 2023. The Company established valuation allowances equal to the full amount
of the deferred tax assets due to the uncertainty of the utilization of the
operating losses in future periods.
 20




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NOTE 8-
    
    STOCKHOLDERSEQUITYThe Company has 200,000,000 shares of common stock authorized at June 30, 2005. The
par value at June 30, 2005 is $0.00004.At June 30, 2005, the Company has 45,377,324 common shares issued and outstanding.The following stock transactions occurred in 2005:Effective January 1, 2005, the Company issued options to purchase 150,000 shares of
common stock to Mal Gurian, in conjunction with his appointment to the board of
directors. The options vest over one year in equal quarterly installments. The
options are exercisable at $0.22 per share for a period of five years from the date
of issuance.On January 13, 2005, the Company issued 400,000 shares of common stock to an
organization in return for business and financial consulting services, which
included assisting us with strategic planning, marketing and financial positioning
strategies. The shares were issued for services valued at $120,000 at the time of
issuance.On February 10, 2005, the Company issued to an organization 375,000 shares of common
stock for services valued at $138,750 at the time of issuance. The shares were
issued to the organization in return for providing investor relations and public
relations services.In March 2005, the Company issued 982,143 restricted shares of common stock to five
accredited investors for $350,000. In addition, the Company issued 125,000 warrants
to these investors at a strike price of $0.48 per share and 71,429 warrants at
$0.36.Effective March 1, 2005, the Company issued options to purchase 1,000,000 shares of
common stock to an employee in conjunction with his employment agreement with the
Company. The options are exercisable at $0.38 per share for a period of five years
from the date of issuance.In April, 2005 an organization received 592,000 shares of common stock and warrants
to purchase another 200,000 shares of common stock exercisable at $1.27 per share as
a one-time commitment under the Standby Equity Distribution Agreement for issuance
costs valued at $740,000.In April, 2005, the Company issued to an organization 8,000 shares of common stock
as a placement agent fee under a placement agent agreement relating to the Standby
Equity Distribution Agreement for services valued at $10,000.
 21




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On May 2, 2005, the Company entered into an agreement and plan of merger by and
among Identity, Inc., a Delaware corporation and Daniel R. Nelson, Airbee and Airbee
Automotive Group, Inc., a wholly owned subsidiary of Airbee, whereby the Companys
wholly owned subsidiary merged with and into Identity, Inc. Pursuant to the Merger
Agreement, the surviving entity became a wholly owned subsidiary. The Company
issued 7,692,808 shares of restricted common stock to Daniel R. Nelson, the sole
shareholder of Identity, Inc. The shares issued to Mr. Nelson are valued at
$5,000,000, which is based upon the 30-day average closing price of our common stock
through April 25, 2005. By mutual agreement the Merger Agreement was rescinded in
August 2005. The shares have been retroactively canceled and are reflected in these
financial statements. Even though the merger has been rescinded, we believe we are
owed the money and that it should be returned. In accordance with generally
accepted accounting principles we have elected to expense this amount as a bad debt
in the current period and will recognize future recoveries in the periods
received. See Notes 11 and 12.On May 9, 2005, the Company issued 2,854 shares and on June 1, 2005, the Company
issued 2,643 shares to Adorno & Yoss LLP for legal services rendered which had a
total cash value of $3,078.On May 16, 2005, the Company issued an option to purchase 1,500,000 shares to V. V.
Sundaram, an executive officer of the Company exercisable at $0.82 per share and in
conjunction with his employment agreement with the Company. The option is
exercisable until May 16, 2010.On June 1, 2005, the Company issued 1,750,000 restricted shares to Satya Akula, a
former director of the Company, for the exercise of two warrants for cash of
$12,000.On June 20, 2005, the Company issued 26,667 shares and 5,333 warrants exercisable
for a three-year period at $0.82 per share in a private placement for $10,000 cash.Throughout the quarter ended June 30, 2005, the Company issued 250,000 shares to
various organizations providing services valued at $197,725 at the time of issuance.The Company issued 21,104 shares to one of its employees as compensation valued at
$13,000 at the time of issuance.
 22




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NOTE 9-
    
    COMMITMENTS AND CONTINGENCIESEmployment AgreementsThe Company has entered into employment agreements with key members of management
and some officers. Most of these employment agreements are for a period of three to
five years. As part of the employment agreements, the Company has granted stock
options to these individuals that vest over a three to five-year period of time.
The Company, in an effort to incentivize its officers, granted additional options
and accelerated the vesting schedules. The officers were not compensated during the
initial start-up of operations. However, they did exercise stock options in 2003.Lease AgreementsA subsidiary, Airbee Wireless (India) Pvt. Ltd., has entered into a three-year lease
agreement for office space in Chennai, India. Monthly rent in the US Dollar
equivalent is $1,505. The lease runs from April, 2004 to March, 2007.NOTE 10-
    
    GOING CONCERNAs shown in the accompanying condensed consolidated financial statements, as is
typical of companies going through early-stage development of intellectual property,
and products and services, the Company incurred net losses for the years ended
December 31, 2004 and 2003 and for the six month period ended June 30, 2005. There
is no guarantee whether the Company will be able to generate enough revenue and/or
raise capital to support current operations and expand sales. This raises
substantial doubt about the Companys ability to continue as a going concern.Management believes that the Companys capital requirements will depend on many
factors including the success of the Companys sales efforts. The Company has been
successful in recent months in raising capital to fund its operating costs.The Company has also been enhancing its business processes to account for the
significant development that has occurred in the past year, and believes that with
the proper bridge financing and potential permanent financing they anticipate, the
viability of the Company remains very positive in excess of one year.The condensed consolidated financial statements do not include any adjustments
relating to the recoverability or classification of recorded assets and liabilities
that might result should the Company be unable to continue as a going concern.NOTE 11-
    
    RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTSThe Company had amended its previously issued consolidated financial statements for
the year ended December 31, 2003 and the period August 9, 2002 (inception) through
December 31, 2002 on its report dated May 20, 2004. The Company had amended these
consolidated financial statements to recognize an additional $381,513 and $48,168 in
compensation and interest expense for the
 23




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year ended December 31, 2003 and the period August 9, 2002 (inception) through
December 31, 2002. In addition, certain issuances of common stock have been
restated due to valuation adjustments, the recording of unearned compensation due to
the issuance of options below the fair market value (including amortization of
unearned compensation of $13,748 in 2003 and 2002, respectively) and 2002 common
share information has been restated to retroactively account for the stock split
that occurred in September 2003. These transactions resulted in an increase in net
loss applicable to common shares of $380,554 and $32,189 for the year ended December
31, 2003 and the period August 9, 2002 (inception) through December 31, 2002 to a
net loss of $1,360,577 and $317,046 as restated, and an increase in the deficits
accumulated during the development stage to $1,677,623 and $317,046, respectively.
The December 31, 2004 financial statements have been restated for the amortization
of unearned compensation for the year ended December 31, 2004 by $13,748 and this
has increased the loss for the year then ended to $1,136,743 as restated, and the
accumulated deficit during the development stage to $2,814,366.The Company has amended its previously issued condensed consolidated financial
statements for the six months ended June 30, 2005 and 2004 to remove the effect of
the now-rescinded May 2, 2005 acquisition of Identity, Inc., namely: revenues of
$724,336; cost of goods sold of $556,314; and selling, general and administrative
expenses of $397,778. In addition, the Company reserved $536,495 for monies
advanced to Airbee Automotive Group, Inc. d/b/a Identity, Inc. The agreement has
been rescinded and the Company believes it is owed the money. The effect of these
changes resulted in an increase of the loss for the six and three month period ended
June 30, 2005 of $296,739 and $293,302, respectively (June 30, 2004 results were not
affected) and an increase in the deficit accumulated during the development stage to
$4,737,697.NOTE 12
    
    COMMITMENTS AND CONTINGENCIESOn May 2, 2005, the Company entered into the Merger Agreement by and among the
Company and Identity, Inc., a Delaware corporation, Daniel R. Nelson, and Airbee
Automotive Group, Inc. (AAG), a wholly owned subsidiary of Airbee, whereby AAG
merged with and into Identity, Inc. Pursuant to the Merger Agreement, the surviving
entity became a wholly owned subsidiary of the Company. Between May 2, 2005 and
August 25, 2005, the Company advanced $535,000 in cash to Identity and paid
additional bills on Identitys behalf, all of which were accounted for as
intra-company loans and eliminated in the preparation of the condensed consolidated
financial statements.
 24




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##### 



By mutual agreement the Merger Agreement was rescinded in August 2005. The shares
of the Companys common stock that formed part of the consideration for the Merger
Agreement have been retroactively canceled and are reflected in these
financial statements. Subsequent to the execution of the rescission agreement,
Identity refused to repay the advances of $535,000. The Company believes it is owed
the money and that Identity has an obligation to return the monies advanced. The
Company has retained counsel to enforce its rights and is prepared to take all
actions necessary to recover the funds.In accordance with generally accepted accounting principles the Company has elected
to expense this amount as a bad debt in the current period and will recognize future
recoveries in the periods received. By doing so, the Company does not waive or in
any way diminish any of its rights to the funds advanced to Identity, all of which
are expressly reserved.
 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
 Six Months Ended June 30, 2005 Compared to the Six Months Ended June 30, 2004
     28




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##### 



Three Months Ended June 30, 2005 Compared to the Three Months Ended June 30, 2004
  29




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##### 



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
  Additional Risks
  33




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##### 



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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##### 



Item 3. Defaults upon Senior Securities.
  Item 4. Submission of Matters to a Vote of Security Holders.
  39




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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
 SIGNATURES
   By:
    
    /s/ Sundaresan RajaSundaresan RajaChief Executive Officer(Principal Executive Officer)By:
    
    /s/ E. Eugene SharerE. Eugene SharerInterim Principal Financial Officer
 40