**UNITED
STATES**


**SECURITIES
AND EXCHANGE COMMISSION**


**Washington,
D.C. 20549**





**FORM
10-KSB**








ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For the
fiscal year ended December 31, 2004


Commission
File No. 1-8497





**CALYPSO
WIRELESS, INC.**


(Name of
small business issuer in its charter)




Delaware
    13-5671924(State
      or jurisdiction of incorporation or organization)
    (I.R.S.
      Employer Identification No.)





5753 N.W.
158 Street


Miami,
Florida 33014


305-828-1483


(Address,
including zip code and telephone number, including area


code, of
registrant's executive offices)





Securities
registered under Section 12 (b) of the Exchange Act: NONE





Securities
registered under to Section 12(g) of the Exchange Act:





Common
Stock


(Title of
class)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the Company was required to file such reports), and
(2) has been subject to such filing requirements for the past 90
days.


Yes x NO o





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.


Yes oNO x





Issuer's
revenues for its most recent fiscal year: $0





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such stock, as of a specified date
within the past 60 days: As of March 31, 2005: $40,756,576





State the
number of shares outstanding of each of the issuer's classes of common equity,
as of the latest practicable date: As of December 31, 2004, there were
110,597,276 shares of the Company's common stock issued and
outstanding.










TABLE OF
CONTENTS





FORM 10 -
KSB ANNUAL REPORT





CALYPSO
WIRELESS, INC.




Facing
      Page
    
    1IndexPART
      I.Item
      1.
    Description of Business
    3Item
      2.
    Description
      of Property
    8Item
      3.
    Legal
      Proceedings
    8Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    8PART
      IIItem
      5.
    Market
      for the Registrant's Common Equity And Related Stockholder
      Matters
    9Item
      6.
    Management's
      Discussion and Analysis of FinancialCondition
      and Results of Operations
    10Item
      7.
    Financial
      Statements
    13Item
      8.
    Changes
      in and Disagreements on Accounting and Financial
    Disclosures
    14Item
      8A.
    Controls and Procedures
    14PART
      IIIItem
      9.
    Directors,
      Executive Officers, Promoters and ControlPersons;
      Compliance with Section 16 (a) ofThe
      Exchange Act
    14Item
      10.
    Executive Compensation
    18Item
      11.
    Security Ownership of Certain Beneficial Ownersand
      Management
    19Item
      12.
    Certain Relationships and Related Transactions
    19Item
      13.
    Exhibits and Reports on Form 8-K
    19PART
      IVItem
      14.
    Principal Accountants Fees and Services
    19SIGNATURESCertifications
    
    20


2


**PART
I**





**ITEM
1. DESCRIPTION OF BUSINESS.**





Calypso
Wireless, Inc. (the "Company" or "Calypso"), formerly Kleer-Vu Industries, Inc.
(Kleer-Vu), was incorporated in the State of Delaware on March 22, 1983. The
Company operates as a holding company with one subsidiary, Industria de
Telecomunicaciones Americanas ATEL, S.A. (American Telecom Industries ATEL,
S.A.), which was incorporated in 1997 under the Laws of the Republic of Costa
Rica.





The
Company is a result of a business combination on October 4, 2002, between
Kleer-Vu Industries, Inc., a public shell company, and Calypso Wireless, Inc., a
privately held development stage company incorporated in the State of Florida in
1998. Kleer-Vu acquired all of the outstanding capital stock of Calypso
Wireless, Inc. by issuing 90,000,000 shares of its restricted common stock. For
accounting purposes, the acquisition has been treated as the recapitalization of
Calypso Wireless, Inc., with Calypso Wireless, Inc. being deemed the acquirer of
Kleer-Vu in a reverse merger. At the conclusion of the merger, Calypso Wireless,
Inc. stockholders held 99.8% of the combined company.





The
Company intends to become a supplier and licensor of cellular broadband real
time video phones, and other wireless devices supporting telecommunications
infrastructure, which utilize our patented ASNAPTM technology (U.S. Patent
Number: 6,680,923). ASNAPTM technology enables users of cellular phones, PCMCIA
(Personal Computer Media Interface Card Accessory) cards and other wireless
devices to seamlessly roam between existing cellular WAN (Wide Area Network’s
GSM/GPRS ( Global
System for Mobile Communications/General Packet Radio Service ) **** or CDMA
(Code Division Multiple Access) and WLAN (Wireless Local Area Networks)
utilizing the 802.11 Wi-Fi standard (Wireless Fidelity). We believe we are
currently the only company offering the wireless telephone and data service
provider (mobile carriers) with technology that effectively integrates
traditional cellular telephone systems and internet broadband access through
WLAN (cellular, broadband, real time, video phones, WLAN access points and
call-control media gateways).





Calypso
believes its technology will be a permanent solution to delivering broadband
real time video conference, data and voice to mobile phones since the current
cellular network capacity is limited by the available radio spectrum and network
infrastructure. The cellular network capacity can be improved by using Calypso’
patented technology and providing short-range wireless networks (via use of
WLAN, embedded within the larger cellular coverage areas).





Calypso
envisions that the ASNAPTM technology will become the de-facto standard for all smart cellular phones and
mobile devices of the future.





Calypso
expects to receive substantial revenue through the sales of its cellular
broadband real time video phones, WLAN access points, call-control media
gateways and related software products and also through the licensing of it’s
technology to original equipment manufacturers (OEMs).





THE
COMPANY’S PRODUCTS AND SERVICES





As
mentioned above, we intend to become a supplier and licenser of cellular
broadband real time video phones, and other wireless devices and supporting
telecommunications infrastructure, which utilize our proprietary ASNAPTM
technology. Calypso’s ASNAPTM patented technology enables users of wireless
cellular phones, laptop computers and other wireless personal computing devices
to increase the wireless bandwidth from the current 9.6 - 14.4 thousand bits per
second (Kbps) data transmission rate of the cellular network (cell towers) to
more than 11 million bits per second (Mbps) on the WLAN network.





The
Company believes that cellular phones incorporating Calypso’s patented ASNAPTM
technology will have superior performance to existing cellular phone
because they will have broadband real time two way video connectivity with
high resolution color displays and 30 frames per second video connectivity.





3




Calypso
plans to sell the following products:





·
    Cellular
      Broadband Real Time Video Phone with
ASNAPTM.


·
    Advanced
      Wireless Access Point.


·
    PCMCIA
      Card for laptop users.


·
    Software
      for the Cellular Operators and Internet Service Providers
      (ISP).





In
addition, Calypso plans to license its patented technology for the following
markets:





·
    Original
      equipment manufacturers (OEMs) in the following areas: Cellular phones,
      WLAN access points, laptops computers, personal computers, personal
      digital assistances (PDAs), network servers, call-control media gateways,
      telecommunication equipments, microprocessor
  manufacturers.





·
    Service
      providers such as: Cellular operators, telecom operators and Internet
      Service Providers (ISPs).




Also the
Company has developed a new patent-pending technology that will allow users of
mobile devices such as cellular phones, PDAs, satellite radios and portable
music players, such as Apple Computer's iPod, to receive satellite broadcasts on
those devices from either Satellite transmitters or wireless LAN access points,
such as WiFi.


Calypso
built upon its patented technology to create a new application, which could
allow satellite radio signals from carriers such as XM Satellite Radio and
Sirius Satellite Radio to be readily received by all types of mobile wireless
devices, thus generating a new potential revenue stream for the satellite radio
companies and the companies supplying service to mobile phones and devices, the
manufacturers and retailers of those devices, as well for the licensing of this
technology by Calypso.




INDUSTRY
BACKGROUND





Demand
for the Company’s Products and Services





Today’s
wireless device market presents several gaps that need to be filled in order to
satisfy the desires and needs of wireless device users. In 2004, over 600
million cellular phones were sold worldwide.





In 1997,
there were approximately 206 million cellular subscribers worldwide. In 2003,
cellular subscribers worldwide grew to over one billion users. Today’s users are
becoming ever more sophisticated and educated about the technology of their
devices and services. Users expect greater capabilities at reduced cost.
Cellular telephone services providers (Mobile Carriers) have faced difficulties
in providing quality wireless telephone and data communication services at
prices acceptable to end-users while maintaining profitability.





Forecasts
were completed during the first half of 2004 by Gartner, Inc. and projections
state that annual sales could reach 650
million units as a result of higher-than-expected demand in
some markets, especially Latin America.


****


**African
Markets Will Grow Fastest**





The
global market for mobile terminals will continue to increase strongly during the
forecast period. It will be characterized by two distinct trends: new growth in
emerging markets and sales of replacement handsets
in mature markets.





In
regions with emerging markets, such as Africa, Asia/Pacific,
Latin America and the
Middle East, growth is expected to continue throughout
the forecast period.
Unit sales in Africa will rise at a compound annual
growth rate (CAGR) of 16.2 percent between 2004 and 2008. Sales in the Middle
East will grow at a CAGR of 10.4 percent over the same period.





In mature
markets like North America and Western Europe,
more moderate growth is expected. By the end of the forecast period, the number
of net sub-scriber additions is expected to be negligible, any growth should be
consid-ered exceptional, as it will caused by replacement sales alone. A
cyclical pattern will emerge in Western Europe. Demand will slow in 2006, but
pick up again in 2007 and 2008 as subscribers buy replacement phones based on
wideband code
division multiple access (WCDMA) technology.





4





Asia/Pacific
will continue to be the world's largest market for mobile termi-nals. Over 1.3
billion phones will be sold in the region between 2004 and 2008. North America
is expected to overtake Western Europe in 2006 to become the second-biggest
market.




**Smartphones
Become More Popular, But Enhanced Models Dominate**





The
enhanced phone category will
remain the largest segment of the market, accounting for 564.6 million units in
2008, or 74 percent of all sales. Sales of basic phones will fall from 134.7
million units in 2004 to 41.2 million units in 2008.




Smartphones
will be the fastest-growing segment. With a CAGR of 52.4 percent, they are one
of the biggest growth opportunities for mobile terminal vendors over the next
five years. Sales will exceed 150 million units in 2008, which is almost a fifth
of the market. Given the higher average selling price and margins
of these products, it is likely that manufacturers will eye
this segment with interest.





**GSM
Remains the Dominant Technology**





In 2008,
terminals based on GSM technologies will still
make up the largest part of the
market Terminals using GSM, general
packet radio service (GPRS)
and Enhanced Data Rates for Global Evolution (EDGE)
will account for 436 million units, which is 57 percent of the total market.
Code division multi-ple access technologies (CDMA IS-95, CDMA 1x, CDMA 1xEV-DO
and CDMA 1xEV-DV) will account for 151.3 million units (20 percent of the
market), and sales of WCDMA terminals will hit 162.4 million (21
percent).




WCDMA is
expected to be the fastest-growing technology segment,
with a CAGR of 82.1 percent between 2004 and 2008. There will be 50 WCDMA
net-works in operation by the end of 2004, and this will rise to over 120 by the
end of 2006. Most of these networks will be deployed in mature markets, which
will fuel sales of replacement handsets.





The
second fastest-growing technology segment is EDGE,
with a CAGR of 69.7 percent. By 2008, about one in six new terminals will have
EDGE capabil- ity.
CDMA2000 1xEV-DO is expected to be the third fastest-growing
technol-ogy. Sales will grow rapidly between 2004 and 2006 as network deployment
accelerates





The key
difference between Calypso and its competitors is its patented ASNAPTM
technology, which allows Calypso to deliver cellular broadband real time video
phones and other mobile devices (PCMCIA Cards for Laptops) that will offer both
users and Mobile Carriers increased bandwidth at lower cost. This is
accomplished through Calypso’s unique mobile device and infrastructure software
routing architecture design. The user saves money by often using a WLAN and
Internet connectivity for real time two way video conferencing, voice and data
communications for its mobile devices. The service provider saves money by being
able to increase capacity to the existing and future cellular network (mobile
network) while also offering increased bandwidth and additional services via the
WLANs (Wireless Local Area Network) without the need to immediately replace
existing hardware or purchase additional frequency spectrum required for third
generation wireless technology ("3G technology"). ASNAPTM technology delivers
higher wireless bandwidth and Internet connectivity than any others wireless
technology. Our technology is not dependant on the improved cellular 3G
technologies but will complement and improve the performance of these as they
become available. We believe that the demand for products (cellular broadband
real time video phones, WLAN Access Points and PCMCIA Cards) incorporating our
patented ASNAPTM technology is expected to increase as users learn of the
advantages of the system and of the convenience of inexpensive high bandwidth.





The
ASNAPTM patented solution is a switching algorithm between network access points
and the cellular towers based on the availability of the least costly, most
efficient connection. This is accomplished by incorporating two technologies
into a single wireless device (mobile-cell phone, PCMCIA Cards, PDAs);
long-range cellular network access, and short range WLAN (Wireless Local Area
Network) access (via WLAN).





If the
user is within 100-450 yards of a Calypso’s stand alone WLAN Access Point
connected to the Internet, the user will access the cellular service provider’s
network via the Internet. If the user drifts out of range of a WLAN Internet
connection, then the wireless device (or smart phone) switches to a WAN (Wide
Area Network), such as a cellular network. The device is constantly “sniffing”
the airwaves for access to its service provider’s network through the most cost
efficient and spectrum efficient method - a WLAN connection.





5





The
Company believes that it’s patented technology will provide the following
benefits to both end-users and Mobile Carriers:





1.
    Higher
      Bandwidth without High Cost of Deployment. Calypso’s products make
      possible a less expensive wireless broadband Internet connectivity through
      ASNAP’technology.





2.
    Fast
      Wireless Internet Access - ASNAP’technology delivers more than 11Mbps for real time two way video
      conferencing, voice and data fast Internet connectivity while improving
      bandwidth of the existing and future 2.5G and 3G cellular
      networks.





3.
    Large,
      High Quality Color Display - The Company believes that users want, and
      OEMs are manufacturing, cellular phones with larger color displays to
      bring more hand-held PC functionality to the cellular phones. Calypso's
      patented ASNAPTM technology supports large color displays and provides
      greater computing power.





4.
    Improve
      Quality of Service - The Company believes its products will result in
      fewer dropped calls and lost connections.





5.
    Increase
      Capacity in the Cellular Network - Cellular phones with ASNAPTM technology
      should represent large savings for Mobile Carriers by allowing the
      addition of more users to their existing networks without having to add
      significant new infrastructure hardware, or purchase additional frequency
      spectrum, since a large percentage of its users will be accessing the
      mobile network via WLAN access points (public or
  private).





6.
    Wireless
      Advertisement - Our ASNAPTM technology should facilitate and accelerate
      wireless advertising through the increased bandwidth and locating
      capabilities of the Calypso’s cellular broadband real time two way video
      phone. The locating capabilities will allow for targeted
      advertising.





We
believe that our cellular broadband real time two-way video conferencing phone
will fulfill the market needs for the mobile user and Mobile Carriers who are
currently seeking:





·
    services
      that deliver and/or transmit information faster, which means new types of
      services could be offered;


·
    services
      at a higher profit margin; and


·
    services
      which are geographically broader and more
consistent.





We
believe that Calypso’s products will enable Mobile Carriers to deliver faster
data transmission to cellular phones, PDA’s and laptop computers, allowing
delivery of new and better services. Standard cellular phones typically transmit
and receive data at a rate in the range from 14.4 Kbps to 56 Kbps. In contrast,
Calypso’s cellular phones operating in “ASNAPTM” mode can transmit and receive
data at a rate of approximately 11 Mbps or greater when connecting to the
WLAN.





New
high-speed mobile technologies, such as GSM/GPRS and CDMA 2000, only promise
bandwidths from 56kbps to 144kbps; with higher 3G bandwidths projected for the
mass markets after 2006.





Mobile
Carriers using Calypso’s patented technology are able to deliver new services
without replacing the existing cellular network, which should increase the
average revenue per user (ARPU) of Mobile Carriers.





Any
access point with ASNAPTM software will allow customers to access their mobile
carrier’s network from anywhere in the world.





DISTRIBUTION
AGREEMENT





On April
20, 2005, Calypso entered into a distribution agreement with Franc Telecom, LTD.
The company, located in London, England, has been granted an exclusive
distributorship for the United Kingdom, subject to the requirement to place
orders for a minimum of 100,000 cellular broadband GSM/Wi-Fi phones within the
first three months of the agreement and an additional 150,000 units within the
first contract year.


The
distribution agreement provides that Franc Telecom is required to establish, in
favor of Calypso, an irrevocable letter of credit for each purchase order, with
appropriate draw down provisions, from a respectable EU bank acceptable to
Calypso. Calypso will conduct a demonstration of the WiFi/Cellphone on or about
May 16, 2005 and expects to begin delivery of the phones during the fourth
quarter of 2005.





6





SUPPLIERS





The
Company intends to rely on third party suppliers for microprocessors, such as
Intel and Texas Instruments for, displays and other electronic components that
will be use in our products.





COMPETITORS





We may
face competition in the wireless device market from a variety of companies and
technologies, some of which are larger, have longer operating histories, have
substantially greater financial, technical and marketing resources, larger
customer bases, greater name recognition and more established relationships in
the industry than we have. Consequently, these competitors can devote greater
resources to the development, promotion, sale and support of their products. We
believe that our key competition will come from existing companies that
currently market products and services that provide communication with wireless
communication devices. While we believe that our patented ASNAPTM technology
provides numerous benefits to, and is a superior solution for, both end-users
and Mobile Carriers, primarily based upon the fact that our technology enables
users of wireless communication devices to seamlessly roam between existing
cellular systems (i.e., WAN’s- Wide Area Network’s, GSM/GPRS - Global System for
Mobile Communications/General Packet Radio Service, **** or CDMA -
Code Division Multiple Access) and internet broadband access through WLAN
(Wireless Local Area Networks), there can be no assurance that these benefits
will be realized or utilized, or that other companies will not suitably improve
these parameters through the use of other technology.





Calypso’s
products are based on patented technology (U.S. Patent Number: 6,680,923). Based
on this patented technology and our knowledge of wireless products and
technology, we believe that there are currently no other companies that offer
this type of solution. Furthermore, we believe that once mobile carriers are
marketing our real time two way video conferencing cellular phone, we will be in
a favorable position to begin licensing the use of our patented ASNAPTM
technology to other original equipment manufacturers (OEM’s) that manufacture
cellular phones, WLAN access points, laptops computers, personal computers,
personal digital assistants (PDA’s), network servers, call-control media
gateways, telecommunication equipment, and microprocessors.





CONTRACT
MANUFACTURING & DISTRIBUTION FACILITIES





We
anticipate that manufacturing and supply operations of our products will be
conducted initially through third parties.





The
distribution facility and logistics will be handled through FedEx, UPS and/or
another third party that has a logistics group that offers "turn-key" operations
and services directly applicable to the distribution of high volume
products.





PATENTS
AND PROPRIETARY RIGHTS





Calypso
Wireless received a patent for its technology (U.S. Patent Number: 6,680,923) on
January 20, 2004. Our patent covers a communication and system method for
establishing communication with any one of a variety or different wireless
communication devices. This technology enables users of cellular phones, PCMCIA
(Personal Computer Media Interface Card Accessory) cards and other wireless
devices to seamlessly roam between existing cellular WAN (Wide Area Network’s)
GSM/GPRS (Global System for Mobile Communications/General Packet Radio
Service) **** or CDMA
(Code Division Multiple Access) and WLAN (Wireless Local Area Networks)
utilizing the 802.11 Wi-Fi standard (Wireless Fidelity).





The
Company pursues patent protection for its technology and products as soon as
such technology and products are developed. To this end, we have filed United
States patent applications and related technology international patent
applications. The Company has filed foreign patent applications on some of its
technology and products in countries where business considerations warrant such
fillings. Such countries include Australia, Japan, Canada, China, Brazil, and
Mexico, countries of the European Economic Community and other European
countries.





7





We also
rely on proprietary technology, trade secrets, and know-how, which are not
patented. To protect our rights in these areas, the Company requires its
employees, directors, consultants, members of the Advisory Board, outside
engineers and other advisors to execute confidentiality agreements upon the
commencement of employment, consulting or other contractual relationships with
the Company. These agreements provide that all confidential information
developed or made known to the individual during the course of the relationship
is to be kept confidential and not disclosed to third parties except in specific
circumstances. In the case of employees, the agreements provide that all
inventions conceived by the individual shall be the exclusive property of the
Company. There can be no assurance, however, that these agreements will provide
meaningful protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use, misappropriation or disclosure
of such trade secrets, know-how or other proprietary information.





We
believe that our intellectual property gives us an advantage over potential
competitors in that it will allow us to offer products that bring substantial
savings to both the end users and the mobile service providers (cellular
operators).




The
company has filed for patent protection covering an extension of its technology
to allow users of mobile devices such as cellular phones, pda’s, satellite
radios and portable music players, to receive satellite broadcasts on those
devices from either satellite transmitters or wireless LAN access points, such
as WiFi. Calypso built upon its patented technology to create a new solution
that allows satellite radio signals from carriers such as XM Satellite Radio and
Sirius Satellite Radio to be readily received by various types of wireless
devices.




**Employees**





The
Company currently has approximately 50 employees. The Company estimates that an
additional 20 employees will be hired over the next twelve months. We have not
experienced any work stoppages and consider our relations with our employees to
be good.


**ITEM
2. DESCRIPTION OF PROPERTY**





The
Company’s corporate office and its research and development department are
located in a leased facility in Miami Lakes, Florida. At this location, the
Company leases approximately 4,450 square feet of office space under a lease
expiring September of 2005. The company's current annual rent under this lease
is approximately $64,000. The Company expanded its operations by opening a new
research center located in Akron Ohio during the second quarters of 2004. The
Company's annual rent under this lease is approximately $17.600.





The
Company’s manufacturing process will be outsourced to an independent contractor
and under a contract manufacturing agreement.





**ITEM
3. LEGAL PROCEEDINGS**





On
January 12th, 2005, the company retained the prominent Miami Law firm of
Bierman, Shohat, Lowey & Pizzi to oversee all of the company's litigation
and also to advise on our legal affairs. This will allow the company to
efficiently streamline its litigation and save cost.





On March
1, 2005, the Company successfully completed litigation against various
individuals in a thwarted effort to obtain several million shares of the
company predicated upon consulting agreements approved by a former President.
Because no consulting work was ever done and the agreements were not
appropriate, the company was able to cancel the shares, and conclude the
litigation in a manner that benefited the company and the
shareholders.  The agreements had been approved by former president
Patrick Lannen, the initial president after the reverse merger between Kleer Vu
and Calypso. The company is suing Mr. Lannen to recover damages for any harm
caused the company by his actions.





On April
1, 2005, the company terminated the services of the law firm of Sears &
Crawford for not performing up to the company's expectations and a
possible conflict of interest. Sears & Crawford are seeking
arbitration to obtain their legal fees; the company has responded that they
are not entitled to any fees because they did not perform.





8





On April
25, 2005 a lawsuit filed by Calypso consultant Doug Sanders has been amicably
settled in a manner that serves the mutual benefit of the company and Mr.
Sanders.





On
November 5, 2004, Draico Daic d/b/a Tribeca Inc, filed a lawsuit against
the Company, which is pending in Houston Texas. The company has hired new
counsel with direction to expeditiously resolve the matter through settlement
or summary judgment.





**ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No matter
was submitted to a vote of security holders during the fourth quarter of
2004.





**PART
II**





**ITEM
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS**





The
Company's common stock is traded under the symbol "CLYW", The Company's
authorized capital stock consists of 200,000,000 shares of common stock, $.001
par value, of which 110,597,276 shares were issued and outstanding as of
December 31, 2004.





QUARTERLY
COMMON STOCK PRICE RANGES





2004
    
    2003Quarter
    
    High
    
    Low
    
    High
    
    Low1st
    
    
    5.26
    
    
    1.05
    
    
    5.10
    
    
    2.002nd
    
    
    3.99
    
    
    1.94
    
    
    4.00
    
    
    1.003rd
    
    
    1.84
    
    
    .077
    
    
    2.00
    
    
    1.054th
    
    
    1.26
    
    
    0.70
    
    
    1.47
    
    
    0.66





As of
December 31, 2004, there were approximately 1,585 holders of record of the
Company's common stock. The number of stockholders of record does not
necessarily reflect the number of beneficial owners of the Company's common
stock; however, because many beneficial owners may hold shares through nominee
holders, such as brokerage firms which, in turn hold through the nominee of a
securities clearing organization, such as The Depository Trust Company. Thus, a
single stockholder of record may represent numerous beneficial owners.





The
Company has never paid any cash dividends in the past and anticipates that for
the foreseeable future all earnings, if any, will be retained to finance growth
and to meet working capital requirements.





On
October 4, 2002, the Company exchanged 90,000,000 shares of its common stock,
par value $.001 per share, in consideration for all outstanding stock of Calypso
Wireless, Inc., a Florida corporation ("CWF"). Prior to the exchange,
thirty-five individuals and corporations held all of the stock of CWF. The
Company participated in the sale pursuant to Rule 506 of Regulation
D.




**Recent
Issuances of Unregistered Securities**





During
the fourth quarter for the year ended December 31, 2004, the Company sold to
accredited investors an aggregate of 100,000 shares of common stock for an
aggregate purchase price of $55,000. This offering and sale was deemed to be
exempt under Rule 506 of Regulation D and Section 4(2) of the Securities Act. No
advertising or general solicitation was employed in offering the securities. The
offerings and sales were made to accredited investors and transfer was
restricted in accordance with the requirements of the Securities Act of 1933.





9





**ITEM
6. MANAGEMENT DISCUSSION AND ANALYSIS OF PLAN OF OPERATION**





**INTRODUCTION**





The
following discussion of our financial condition and results of our operations
should be read in conjunction with the Financial Statements and Notes thereto.
Our fiscal year ends December 31. ** This
document contains certain forward-looking statements including, among others,
anticipated trends in our financial condition and results of operations and our
business strategy. (See “Factors Which May Affect Future Results”). These
forward-looking statements are based largely on our current expectations and are
subject to a number of risks and uncertainties. Actual results could differ
materially from these forward-looking statements. Important factors to consider
in evaluating such forward-looking statements include (i) changes in external
factors or in our internal budgeting process which might impact trends in our
results of operations; (ii) unanticipated working capital or other cash
requirements; (iii) changes in our business strategy or an inability to execute
our strategy due to unanticipated changes in the industries in which we operate;
and (iv) various competitive market factors that may prevent us from competing
successfully in the marketplace.





**Overview**




The
Company intends to become a supplier and licensor of cellular broadband real
time video phones, and other wireless devices supporting telecommunications
infrastructure, which utilize our patented ASNAPTM technology (U.S. Patent
Number: 6,680,923). ASNAPTM technology enables users of cellular phones, PCMCIA
(Personal Computer Media Interface Card Accessory) cards and other wireless
devices to seamlessly roam between existing cellular WAN (Wide Area Network’s
GSM/GPRS ( Global
System for Mobile Communications/General Packet Radio Service ) **** or CDMA
(Code Division Multiple Access) and WLAN (Wireless Local Area Networks)
utilizing the 802.11 Wi-Fi standard (Wireless Fidelity). We believe we are
currently the only company offering the wireless telephone and data service
provider (mobile carriers) with technology that effectively integrates
traditional cellular telephone systems and internet broadband access through
WLAN (cellular, broadband, real time, video phones, WLAN access points and
call-control media gateways). Also the
Company has filed for a provisional extension of its existing patent, that will
allow users of mobile devices such as cellular phones, pda’s, satellite radios
and portable music players, to receive satellite broadcasts on those devices
from either Satellite transmitters or wireless LAN access points, such as WiFi.




Calypso
built upon its patented technology to create a new application, which could
allow satellite radio signals from carriers such as XM Satellite Radio and
Sirius Satellite Radio to be readily received by various wireless devices, thus
generating a new potential revenue stream for the satellite radio companies, the
companies supplying service to mobile phones and devices, the manufacturers and
retailers of those devices, as well for the licensing of this technology by
Calypso.


**Company
History**





The
Company is a result of a business combination on October 4, 2002, between
Kleer-Vu Industries, Inc., a public shell company, and Calypso Wireless, Inc., a
privately held development stage company incorporated in the State of Florida in
1998. For accounting purposes, however, the acquisition has been treated as the
recapitalization of Calypso Wireless, Inc. with Calypso Wireless, Inc. deemed
the acquirer of Kleer-Vu in a reverse merger.





As noted
above, the Company is a development stage company. The company has been in the
development stage since inception of its wholly owned subsidiary; Industria de
Telecomunicaciones Americanas ATEL, S.A. (American Telecom Industries ATEL,
S.A.) was incorporated in 1997 under the Laws of the Republic of Costa Rica.
American Telecom Industries ATEL, S.A. began its research and development
activities in 1997. To date, the Company subsidiary has expended over $5.4
million on research and development of the Company’s products. In January 1999,
the Company engineers determined that the products were technologically
feasible. Subsequent to the determination of technological feasibility, the
Company has expended approximately $4.7 million to develop the product to its
current stage.





10


****


**Capital
Expenditures**





Since
1997, the Company has expended over $4.1 million on machinery and equipment. The
machinery and equipment is located in a manufacturing plant in Managua,
Nicaragua, Central America. The machinery and equipment for production of the
products had not been placed in service as of December 31, 2004. During 2004,
the Company decided to outsource the production of the products to independent
contractors; therefore the machinery and equipment purchased specifically for
the production of the telephones and other related products was written down to
the net realizable sales value, estimated to be approximately $576,000,
resulting in a impairment charge in the amount of $3,446,411.The $576,000
estimated sales value of the machinery and equipment was reclassified to a
separate line item in the current assets section of the balance sheet as of
December 31, 2004. This evaluation of long-lived assets is consistent with our
accounting policy on "Impairment of Long-Lived Assets as noted in note 1 to the
financial statements .





**Research
and Development**





As noted
above, the Company research and development activities were completed during the
first quarter of 1999, when the technological feasibility of the products was
established. The Company has expended a total of $10.1 million on research and
development and development of the products to its current stage.





**Results
of Operations - Year Ended December 31, 2004 compared to Year Ended December 31,
2003**





**Revenues**





To date
the Company has not generated any revenue related to the sale of the Company's
products, however the Company entered into a distribution agreement with Franc
Telecom, LTD. Pursuant to the distribution agreement, Franc Telecom has, subject
to certain material terms and conditions,  been
appointed exclusive distributor for the United Kingdom. The distributor has the
requirement to place orders for a minimum of 100,000 cellular broadband
GSM/Wi-Fi phones within the first three months of the agreement and an
additional 150,000 units within the first contract year. Failure by the
distributor to complete the purchase requirements will result in cancellation of
the exclusive distributorship.





The
distribution agreement provides that Franc Telecom is required to establish, in
favor of Calypso, an irrevocable letter of credit for each purchase order, with
appropriate draw down provisions, from a respectable EU bank acceptable to
Calypso. Calypso will conduct a demonstration of the WiFi/Cellphone on or about
May 16, 2005 and expects to begin delivery of the phones during the fourth
quarter of 2005.





**Operating
Expenses**





Operating
Expenses incurred for the year ended December 31, 2004, aggregated $8,002,451 as
compared to $ 3,326,702 for the year ended December 31, 2003. Our operating
expenses increased by $4,675,749 for the year ended December 31, 2004 when
compared to the previous year. This increase is due to legal, consulting,
professionals services expenses and an impairment charge in the amount of
$3,446,411 to write down the value of the machinery and equipment to its net
realizable sales value.





**Net
Loss and Loss Per Share**





The net
loss was $8,002,451 for the year ended December 31, 2004, as compared to a
restated net loss of $3,202,702 for the year ended December 31, 2003. The net
loss increased by $4,675,749 from the previous period primarily as a result of
the reasons set forth above. For the years ended December 31, 2004 and 2003, the
net loss per share were $0.07 and $0.03, respectively.





**Off-Balance
Sheet Arrangements**


The
Company had no off-balance sheet arrangements for the fiscal year ending
December 31, 2004.




**Liquidity
and Capital Resources**





At
December 31, 2004, we had a working capital deficit of $125,238 as compared with
a working capital of $172,704 at December 31, 2003. Subsequent to December 31,
2004, the Company raised $1,000,000 in a private placement offering for working
capital purposes. In addition, the Company has signed subscription agreements to
raise an additional $2,000,000. Additionally, the Company is completing a
Private Placement Memorandum to raise additional funds.





11





The
Company requires approximately 7 million to complete the manufacturing process
and begin shipment of the products. Our material funding requirements of $7
million include working capital, marketing costs, product acquisition costs,
general and administrative costs, and the purchase of inventory and
technology. ****





The
Company signed two procurement agreements to deliver its smart real-time two-way
video conferencing cellular phones, and is currently negotiating additional
procurement agreements to deliver the cellular phones. The Company expects to
begin shipping its products during the fourth quarter of 2005.





We have
historically sustained our operations and funded our capital requirements with
the funds received from the sale of our common stock. To date, the Company's
investors have contributed over $14.4 million in cash and approximately
$6,000,000 in services, in consideration for the issuance of stock.





The
Company is currently negotiating debt and/or equity financing arrangements to
provide an alternative source for its future capital needs. However, there can
be no assurance that will be able to obtain this capital on acceptable terms, if
at all. In such an event, this may have a materially adverse effect on our
business, operating results and financial condition.





The
preparation of financial statements in conformity with generally accepted
accounting principles require the appropriate application of certain accounting
policies, many of which require us to make estimates and assumptions about
future events and their impact on amounts reported in the financial statements,
and related notes. Since future events and their impact cannot be determined
with certainty, the actual results will inevitably differ from our estimates.
Such differences could be material to the financial statements.





We
believe application of accounting policies, and the estimates inherently
required by the policies, are reasonable. These accounting policies and
estimates are periodically reevaluated, and adjustments are made when the facts
and circumstances dictate a change. Historically, we have found the application
of accounting policies to be appropriate, and the actual results have not
differed materially from those determined using necessary
estimates.





Our
accounting policies are more fully described in Note 1 to the consolidated
financial statements, located elsewhere in this 10-KSB. We have identified
certain critical accounting policies that are described below.





Software
development costs represent capitalized costs incurred in the development of the
cellular phones and telecommunications infrastructure software. The Company
began capitalizing this cost once technological feasibility had been established
during the first quarter of 1999. All costs incurred prior to establishment of
technological feasibility were expensed as research and development expenses.
The Company will begin amortizing this cost once the products are available for
general release to customers.





**New
Accounting Pronouncements**





In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153. This statement addresses the measurement
of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29,
“Accounting for Nonmonetary Transactions,” is based on the principle that
exchanges of nonmonetary assets should be measured based on the fair value of
the assets exchanged.





The
guidance in that opinion; however, included certain exceptions to that
principle. This statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for financial statements for fiscal
years beginning after June 15,
2005 . Earlier
application is permitted for nonmonetary asset exchanges incurred during fiscal
years beginning after the date of this statement is issued. Management believes
the adoption of this statement will have no impact on the financial statements
of the
Company .





12





In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, which amends FASB statement No. 66,
“Accounting for Sales of Real Estate,” to reference the financial accounting and
reporting guidance for real estate time-sharing transactions that is provided in
AICPA Statement of Position (SOP) 04-2 , *“Accounting
for Real Estate Time-Sharing Transactions* .” This
statement also amends FASB Statement No. 67, “Accounting for Costs and Initial
Rental Operations of Real Estate Projects,” to state that the guidance for (a)
incidental operations and (b) costs incurred to sell real estate projects does
not apply to real estate time-sharing transactions. The accounting for those
operations and costs is subject to the guidance in SOP 04-2. This statement is
effective for financial statements for fiscal years beginning after June 15,
2005 .
Management believes the adoption of this statement will have no impact on the
financial statements of the
Company .





In
November 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 151, “Inventory Costs— an amendment of ARB
No. 43, Chapter 4.” This statement amends the guidance in ARB No. 43, Chapter 4,
“Inventory Pricing,” to clarify the accounting for abnormal amounts of idle
facility expense, freight, handling costs, and wasted material (spoilage).
Paragraph 5 of ARB 43, Chapter 4, previously stated that “under some
circumstances, items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs may be so abnormal as to require treatment as
current period charges.” This statement requires that those items be recognized
as current-period charges regardless of whether they meet the criterion of “so
abnormal.” In addition, this statement requires that allocation of fixed
production overheads to the costs of conversion be based on the normal capacity
of the production facilities. This statement is effective for inventory costs
incurred during fiscal years beginning after June 15,
2005 .
Management does not believe the adoption of this statement will have any
immediate material impact on the
Company .





In May
2003, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 150, *“Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity”* (hereinafter *“SFAS
No. 150* ”). SFAS
No. 150 establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity and requires
that those instruments be classified as liabilities in statements of financial
position. Previously, many of those instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after May 31,
2003 and
otherwise is effective at the beginning of the first interim period beginning
after June 15,
2003 . The
Company has
determined the adoption of this statement will have no effect on the
Company ’s
financial statements.





SFAS 149 —
In April 2003, the FASB issued SFAS 149, Amendments of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts and
hedging activities under SFAS 133, Accounting for Derivative Instruments
and Hedging Activities. In general, this Statement is effective for contracts entered
into or modified after June 30,
2003 and for
hedging relationships designated after June 30,
2003 . The
adoption of SFAS 149 did not have an impact on the
Company ’s
financial condition or results of operations.





In
January 2003, the FASB issued SFAS No. 148, “Accounting for Stock-Based
Compensation - Transition and Disclosures.” This statement provides alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
also amends the disclosure requirements of SFAS No. 123 to require more
prominent and frequent disclosures in the financial statements about the effects
of stock-based compensation. The transitional guidance and annual disclosure
provisions of this Statement were effective for the December 31, 2002 financial
statements.





**ITEM
7. FINANCIAL STATEMENTS**





The
Company's Consolidated Financial Statements, Notes to Consolidated Financial
Statements and the report of R. E. Bassie & Co., independent auditors, with
respect thereto, referred to in the Index to Financial Statements, appear
elsewhere in this Form 10-KSB, beginning on Page F-1.





13


****


**ITEM
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE**





NONE.





**ITEM
8A. CONTROLS AND PROCEDURES**





The
Company has acted to improve, and will continue to strengthen, certain corporate
governance procedures and certain disclosure controls and procedures. As part of
this commitment, we have initiated a number of steps, including those in
response to the Sarbanes Oxley Act of 2002 and corresponding SEC requirements.
Specific action taken or planned by us includes the following:





We are
conducting a comprehensive review of the adequacy of our policies and procedures
with respect to the administration of our equity compensation plans (including
stock grants, stock option and warrant plans) and purchases and sales of our
securities.





We had
initiated an insider trading policy and are requiring all employees, officers
and directors to read and sign an acknowledgement that they have read the
policy, understand its contents and agree to abide by its terms as a condition
of employment or association with the Company.





We are
implementing a Section 16 reporting program for officers, directors and 10%
beneficial owners to advise those persons of their reporting responsibilities
and to make arrangements for filing timely reports in the event a reportable
transaction occurs.





Our Chief
Executive Officer and Chief Financial Officer, within the ninety (90) calendar
days prior to the date of this report, carried out an evaluation of the
effectiveness of the company's disclosure controls and procedures pursuant to
Rule 13a-14 under the Securities Exchange Act of 1934, as amended. Based upon
the steps outlined in the preceding paragraph, our Chief Executive Officer and
Chief Financial Officer have concluded that, as of the date of their evaluation,
the company's disclosure controls and procedures are effective and designed to
insure that material information relating to us and our consolidated subsidiary
would be made known to them in a timely manner as required to include such
information in the Company's periodic filings with the Securities and Exchange
Commission.





**PART
III**





**ITEM
9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT**





**EXECUTIVE
OFFICERS & DIRECTORS**





The
following table sets forth information regarding our executive officers and
directors as of the date of this filing.





**Name**
    **Age**
    **Title**Antonio
      Zapata
    [45]
    ChairmanJulietta
      Moran
    [60]
    DirectorGeorge
      Schilling
    [54]
    President
      & CEORobert
      Leon
    [43]
    Chief
      Technical OfficerJohn
      W. Stump, III
    [60]
    Chief
      Financial OfficerGeorge
      Olazabal
    [38]
    Director
      of Engineering





There are
no family relationships between any of the directors or executive officers of
the Company.





14





Mr. John
Stump replaces the temporary CFO, Mr. Javier Montiel.


Mr.
Antonio Zapata has accepted the appointment as Chairman of the
Board.








**George
Schilling** -
President & CEO . Age 54.
Mr. Schilling was appointed President and CEO of the Company in December 2004. Mr.
Schilling joined Calypso Wireless as an experienced business manager who had
grown a number of companies that were focused on sales and global marketing,
which led his career to senior management. While in his position at the Company
he and his management team have concentrated their efforts on stabilizing the
Company, enhancing the confidence of the Company’s investors, and significantly
setting the stage for a global licensing strategy that the company will employ
to gain market share in several channels. The competitive environment in which
the Company operates will continue to intensify in the upcoming years since
there is no clearly universal switching solution deployed to date. His
commitment to the vision that the company’s technology has always represented,
his natural ability to position and market the company’s fully developed
products to a variety of customers, and his understanding of exceptional,
fast-paced customer service will be leading characteristics of his leadership of
Calypso Wireless, Inc.





**Robert
Leon** - Chief
Technical Officer, Co-Founder. Age 43. Mr. Leon joined Calypso Wireless in
October 1998. He has served as Director of Engineering and Operations Manager
for the South Florida R&D facility. He is responsible for engineering and
general business operations. He develops concepts and strategies for the
development of new, wireless internet/cellular products.





Prior to
joining Calypso Wireless, as part of a 13-year career with Motorola, Mr. Leon
was Senior Staff Engineer and Project Manager for the Consumer and Light
Industrial Division, Land Mobile Products Sector, Motorola, in Plantation
Florida. Mr. Leon was a major contributor to Motorola's first Nextel/idenTM
Cellular phone (Lingo), the first side display pager (Bravo Express) and the
first TalkAbout FRS radio.





From 1995
to 1996, Mr. Leon was Staff Engineer for the Advanced Manufacturing Technology
Group. During this assignment, Mr. Leon demonstrated technical leadership in the
identification and implementation of new technologies and equipment to improve
component and assembly-manufacturing processes.





From 1994
to 1995, Mr. Leon was Staff Engineer/Mechanical Software Manager for Motorola,
Land Mobile Products Sector. In this capacity he was responsible for software
the inspection process for the release of Unix scripts developed by software
administration personnel to support engineering development. He initiated focus
teams to evaluate engineering software; i.e. FEA software (Cosmos,
Ansys, Patran), and Tolerance Analysis Software (Ti-Tol, VSA-GDT). He also
taught several Pro/Engineer classes at Motorola and for other companies through
Ligi Tool Engineering, Inc. in Pompano, FL.





From 1986
to 1994, Mr. Leon served as Lead Mechanical Engineer/ Project Manager, for
Motorola’s Energy Products Division, Paging & Wireless Systems Group, and
the Microelectronics Department, Land Mobil Products Sector.





Mr. Leon
received a Bachelor of Science in Mechanical Engineering (with Honors) from the
University of Miami in 1985. During his Career, Mr. Leon has received 19 US
Patents and several patents pending. He has 6 Motorola Engineering Awards, and
three Motorola Distinguished Innovator Awards. He also received a Proclamation
Certificate from the Mayor of the City of Lauderhill, Ft. in May 1999 in
recognition of engineering management and development efforts. While with
Calypso, Mr. Leon has submitted over 8 Utility Patent and 4 Design Patent
applications.





**John
W. Stump, III** - Chief
Financial Officer. Age 60. Mr. Stump is responsible for accounting, finance,
treasury, and facilities. Prior to joining the Company in April 2005 , Mr.
Stump has served as Interim Chief Financial Officer of AIMSI TECHNOLOGIES, INC.
He serves in that position on a part-time basis, and he will continue in that
capacity for a short time, in addition to his duties with Calypso.





Mr. Stump
served as a director of American International Industries, Inc., a publicly
traded company, from November 2002 through December 2004. He also served as
Chief Financial Officer of American International Industries, Inc. from August
1998 through October 2003. From December 1996 to October 1997, Mr. Stump served
as Chief Executive Officer of Changes International, a privately held company.
Mr. Stump is a Certified Public Accountant and brings over twenty-five years of
financial and executive management experience in both public and private
companies.





15


****


**George
L. Olazabal** -
Director of Engineering. Age 38. Mr. Olazabal is responsible for all software
engineering. Mr. Olazabal joined Calypso in 1998. He directed the embedded
software effort and wrote the ASNAPTM software. He is responsible for developing
C/C++ programming software packages, VB/MS Access based product-pricing system,
and SQL Server based Internet order entry support system (all Internet tools
used). Prior to joining Calypso, George held various senior software development
positions.




From 1992
to 1998, Mr. Olazabal was involved in the research and development of software
systems for front and back end processing using Visual Basic and Visual C/C++
Frontpage, Homesite, ASP, Vbscript, and Javascript. Database systems used by Mr.
Olazabal include MS Sql Server and MS Access. Mr. Olazabal also Designed and
coded the communications between the PC and the flow cytometer. Mr. Olazabal is
system based on NT, using Visual C++ (object oriented techniques) for the user
interface and NT device drivers (Win NT DDK) for the cytometer interface. Mr.
Olazabal is active in all phases of testing and debugging of these releases. He
has heavy interface with marketing while generating requirements specifications.
He is responsible for selecting software tools necessary
to accomplish marketing requests. He designed and coded all PCL 4 and PCL 5
printer support routines, and he designed the database and the interface to the
database (SQL Engine) from within our software. Embedded temperature controller
using a PIC processor to control a pettier element.





From 1989
to 1992, Mr. Olazabal was a Software Engineer for Motorola, Inc., Boynton Beach
and Plantation, Florida. He was involved in the development of software systems
for subscriber groups. Mr.
Olazabal began
design of a prospective PC Universal Programmer for paging products using
structured methods techniques, "C" language, and assembly language. He
interfaced heavily with marketing and management while developing proposals for
this initial version. He developed a hard contact programmer to run on a PC
(MS-DOS) for the Bravo Plus pager. This platform communicated with the cellular
phone or pager via RS232 and was then used on the development of hard contact
programmers for two other products. He conducted meetings in the development of
various proposals for an Over-The-Air PC programmer.





**Section
16(a) Beneficial Ownership Reporting Compliance**





Section
16(a) of the Securities Exchange Act of 1934 requires the Company's directors,
executive officers and persons who own more than five percent of a registered
class of the Company's equity securities, to file with the Securities and
Exchange Commission (the SEC) initial reports of ownership and reports changes
in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent beneficial owners are required
by SEC regulation to furnish the Company with copies of all Section 16(a)
reports they file.





During
the fiscal year ended December 31, 2004, a Form 3, Initial Statement of
Beneficial Ownership of Securities, was not timely filed by each of the
following officers or directors:


George
Schilling (President and CEO)


Carlos H.
Mendoza (former Chairman)


David
Davila (former President & CEO)


Ricardo
Alvarez  (former
Director, President & CEO)


Winfred
Fields (former Chief Financial Officer)


George
Olazabal (Director of Engineering)





In
addition during the fiscal year ended December 31, 2004, a Form 4, Change of
Beneficial Ownership of Securities, was not timely filed by Robert Leon (2
times). Except as described above, based solely upon a review of Forms 3 and 4
and amendments thereto furnished to the Company under Rule 16(a)-3(e) during the
fiscal year ended December 31, 2004 and Form 5 and amendments thereto furnished
to the Company with respect to such period, the Company is not aware of any
director, officer, or beneficial owner of greater than ten percent of any class
of equity securities of the Company registered pursuant to Section 12 of the
Exchange Act that has failed to file on a timely basis, as disclosed in the
above forms, reports required by Section 16(a) of the Exchange Act during the
Company's most recent fiscal year or prior years.





16


****


**CODE
OF ETHICS**





The
Company has adopted its Code of Ethics and Business Conduct for Officers,
Directors and Employees that applies to all of the officers, directors and
employees of the Company.





**ITEM
10. EXECUTIVE COMPENSATION**


**Summary
of Cash and Certain Other Compensation**





**Summary
Compensation Table**




The
following table reflects all forms of compensation paid to the Company's chief
executive officer and its other most highly compensated executive officers whose
total annual salary and bonus for the fiscal year ending December 31, 2004
exceeded $100,000.




Annual
      compensation
    Long
      term compensationAwards
    PayoutsName
      and
      principal
      position
      
      (a)
    Year
      
      (b)
    Salary
      ($)
      (c)
    Bonus
      ($)
      (d)
    Other
      annual
      compensation
      ($)
      (e)
    Restricted
      Stock
      Awards
      ($)
      (f)
    Securities
      underlying
      options/SARs
      (#)
      (g)
    LTIP
      payouts
      ($)
      (h)
    All
      other
      Compensation
      ($)
      (i)George
      Schilling
      President
      & CEO
    2004
    $57,077
    N/A
    N/A
    (1)
    -
    -
    -David
      Davila,
      President
      & CEO
    2004
      2003
    $45,500
      $74,400
    N/A
      N/A
    N/A
      N/A
    -
      -
    -
      -
    -
      -
    -
      -Robert
      Leon,
      Chief
      Technology Officer
    2004
      2003
      2002
    $121,151
      $114,786
      $90,000
    N/A
      N/A
      N/A
    N/A
      N/A
      N/A
    -
      -
      -
    -
      -
      -
    -
      -
      -
    -
      -
      -Winfred
      Fields,
      Chief
      Financial Officer
    2004
      2003
      2002
    N/A
      $6,870
    N/A
      N/A
    N/A
      N/A
    (2)
      (2)
    -
      -
    -
      -
    -
      -George
      L. Olazabal Director of Engineering
    2004
    $81,255
    N/A
    N/A
    (3)
    -
    -
    -Ricardo
      Alvarez,
      Director
      President
      & CEO
    2004
      2003
    $75,600
    N/A
    *$150,000
    (4)
    -
    -
    -





(1) 120,000 shares of common stock, par value $.001 per share, were
granted to Mr. George Schilling pursuant to that certain Consulting Agreement,
dated September 1, 2003 and May 19, 2004, respectively, as described in the
Index to Exhibits, in consideration of management and professional services
rendered by Mr. Schillings to the Company.


(2)
50,000 shares of common stock, par value $.001 per share, were granted to Mr.
Winfred Fields pursuant to that certain Consulting Agreement, dated August 1,
2003, as described in the Index to Exhibits, in consideration of accounting and
administrative consulting services rendered by Mr. Fields to the Company.
100,000 shares of common stock, par value $.001 per share, were granted to Mr.
Winfred Fields pursuant to that certain Separation Agreement, dated November 1,
2004, as described in the Index to Exhibits, in consideration of termination of
Mr. Fields engagement to the Company.





17





(3)
100,000 shares of common stock, par value $.001 per share, were granted to Mr.
George L. Olazabal  pursuant
to that certain Consulting Agreement, dated September 4, 2003, respectively, as
described in the Index to Exhibits, in consideration of development of Calypso
ASNAPTM software design and architecture consulting services rendered by Mr.
Olazabal to the Company.


(4)
50,000 shares of common stock, par value $.001 per share, were granted to Mr.
Ricardo Alvarez pursuant to that certain Consulting Agreement, dated July 1,
2003 and October 2, 2003, respectively, as described in the Index to Exhibits,
in consideration of general business assistance consulting services rendered by
Mr. Alvarez to the Company.* The Company signed a Separation Agreement with
Ricardo Alvarez to satisfy his three year employment contract with the Company
and agreed to pay him $150,000.





Other
than as noted above, no officers or directors received compensation in any form
during the year ended December 31, 2004.





**OPTION
GRANTS IN LAST FISCAL YEAR**





During
the fiscal year ended December 31, 2004, no executive officer or director was
granted options to purchase shares of common stock.





**FISCAL
YEAR-END OPTION VALUES**





During
the fiscal year ended December 31, 2004, no executive officer or director
exercised any options to purchase shares of common stock, and as of December 31,
2004, no executive officer or director possessed any options to purchase shares
of common stock.





**Directors
Remuneration**





In 2004
Directors were not paid a fee for serving on the Board.





**ITEM
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT**





The
following table sets forth as of December 31, 2004, information with respect to
(a) each person (including "group" as that term is used in section 13(d)(3) of
the Securities Exchange Act of 1934 who is known to the Company to be the
beneficial owner of more than five percent (5%) of the outstanding Common Stock
of the Company and (b) the number and percentage of the Company's Common Stock
owned by (i) each of the directors and the executive officers named on the
Summary Compensation Table above and (ii) all directors and executive officers
of the Company as a group. The Company believes that, unless otherwise
indicated, each of the shareholders has sole voting and investment power with
respect to the shares beneficially owned.





The
following table sets forth certain information regarding the beneficial
ownership of the Company's common capital stock as of the date of this
Memorandum by (i) each person known to the Company as having beneficial
ownership of more than 5% of the Company’s common capital stock, (ii) existing
shareholders, (iii) and all others as a group.




18




Name
      of
    
    Number
      of Common
    
    Percentage
      ofBeneficial
      Owner(1)
    
    Shares
    
    OwnershipBaylis
      Trade, Inc.
    
    
    20,255,138
    
    
    18.3
    %41
      South Audley, London W1K 2F5,United
      KingdomBegdorf
      Holdings, Ltd.
    
    
    5,937,030
    
    
    5.4
    %Donoso
      Cortez 45, Madrid, SpainFerguson,
      Inc.
    
    
    5,837,566
    
    
    5.3
    %P.O.
      Box 7284, Panama 5, PanamaHalston
      Business, Inc.
    
    
    21,161,178
    
    
    19.1
    %23
      Rue de Rive, 1260 Nyon-SwitzerlandLomme
      Development Corporation.
    
    
    5,837,566
    
    
    5.3
    %200
      Mts Oeste Instamasa,Hacienda
      Ojo Agua,San
      Rafael Alajuela San Jose Costa RicaAll
      Directors and Executive Officersas
      a Group (4 persons)
    
    
    2,490,713
    
    
    2.3
    %


(1)
Unless otherwise noted, the address of each of these persons is c/o Calypso
Wireless, Inc., 5753 N.W. 158 Street, Miami, Florida 33014





**ITEM
12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**





NONE.





**ITEM
13. EXHIBITS AND REPORTS ON FORM 8-K.**





a)  The
Exhibits included in this report are indicated below:


Exhibit No.
      
      10.1
      10.2
      10.3
    Description of Exhibit
      
      Executive
      Employment Agreement for George Schilling.
      Executive
      Employment Agreement for John W. Stump.
      Distribution
      Agreement with Franc Telecom, Ltd.











**ITEM
14.**  **PRINCIPAL
ACCOUNTANTS FEES AND SERVICES**





Audit
Fees. The aggregate fees billed by our auditors, for professional services
rendered for the audit of the Company's annual financial statements for the
years ended December 31, 2004 and 2003, and for the reviews of the financial
statements included in the Company's Quarterly Reports on Form 10-QSB during the
fiscal years were $55,500 and $50,000, respectively.





Audit
Related Fees. For the years ended December 31, 2004 and 2003, the Company did
not incurred fees to auditors for audit related fees, respectively.





All Other
Fees. The aggregate fees billed by auditors for services rendered to the
Company, other than the services covered in "Audit Fees" and for the fiscal
years ended December 31, 2004 and 2003 were zero for both years.





The Board
of Directors has considered whether the provision of non-audit services is
compatible with maintaining the principal accountant's
independence.




19


**SIGNATURES**





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





CALYPSO
WIRELESS, INC.

By:/s/
      George Schilling
    
    Date:
      May 5, 2005George
      SchillingChief
      Executive Officer andPresidentBy:/s/
      John W. Stump, III
    
    Date:
      May 5,2005John
      W. Stump, IIIChief
      Financial Officer

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.

SignatureBy:/s/
      George Schilling
    
    Date:
      May 5, 2005George
      SchillingChief
      Executive Officer andPresidentBy:/s/
      John W. Stump, III
    
    Date:
      May 5, 2005John
      W. StumpChief
      Financial OfficerBy:/s/
      Antonio Zapata
    
    Date:
      May 5, 2005Antonio
      ZapataChairmanBy:/s/
      Julietta Moran
    
    Date:
      May 5, 2005Julietta
      MoranDirector


20


**CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Index**
 
 
 
 
 Report of
Independent Registered Public Accounting Firm
 
 Consolidated
Financial Statements:
 
 Balance
Sheets - December 31, 2004 and 2003
 
 Statements
of Operations - Years ended December 31, 2004 and 2003
 With
cumulative totals from inception to December 31, 2004
 
 Statements
of Stockholders’ Equity - Years ended December 31, 2004 and 2003
 With
cumulative totals from inception to December 31, 2004
 
 Statements
of Cash Flows - Years ended December 31, 2004 and 2003
 With
cumulative totals from inception to December 31, 2004
 
 Notes to
Consolidated Financial Statements
 
 
 
 **R.
E. Bassie & Co.**
 ***Certified
Public Accountants***
 6671
      Southwest Freeway, Suite 550
      Houston,
      Texas 77074-2220
      Tel:
      (713) 272-8500 Fax: (713) 272-8515
      E-Mail:
      Rebassie@aol.com
 **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 The Board
of Directors and Stockholders
 Calypso
Wireless, Inc.:
 
 We have
audited the consolidated balance sheets of Calypso Wireless, Inc. and subsidiary
(a development stage company - the Company) as of December 31, 2004 and 2003,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the two-year period ended December 31, 2004
and for the period from inception to December 31, 2004. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
 
 In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Calypso Wireless, Inc. and
subsidiary as of December 31, 2004 and 2003, and the results of their operations
and their cash flows for each of the years in the two-year period ended December
31, 2004 and for the period from inception to December 31, 2004, in conformity
with accounting principles generally accepted in the United States of
America.
 
 As
discussed in Note 9 to the financial statements, the 2003 and 2002 consolidated
financial statements have been restated to correct errors which resulted in the
overstatement of software development costs, the understatement of research and
development expenses and the understatement of net losses for the years ended
December 31, 2003 and 2002. Accordingly, an adjustment had been made to retained
earnings at December 31, 2003 to correct the errors.
 
 
 /s/ R. E.
Bassie & Co.
 
 
 Houston,
Texas
 April 15,
2005
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
  **Consolidated
Balance Sheets**
 
 December
31, 2004 and 2003
 2004
    
    2003Assets
    
    
    
    RestatedCurrent
      assets:Cash
    
    $
    36,318
    
    $
    833,209Refund
      receivable
    
    
    183,346
    
    
    —Prepaid
      expenses and other current assets
    
    
    216,056
    
    
    2,679Inventories
    
    
    —
    
    
    86,103Assets
      held for sale
    
    
    576,000
    
    
    —Total
      current assets
    
    
    1,011,720
    
    
    921,991Property
      and equipment, net of accumulateddepreciation
    
    
    100,959
    
    
    4,155,324Patents
    
    
    423,250
    
    
    220,176Software
      development costs
    
    
    4,718,238
    
    
    4,452,169Other
      assets
    
    
    54,310
    
    
    54,767Total
      assets
    
    $
    6,308,477
    
    $
    9,804,427Liabilities
      and Stockholders' EquityLiabilities:Accounts
      payable and accrued expenses
    
    $
    557,263
    
    $
    273,497Advances
      from customers
    
    
    84,790
    
    
    84,790Short-term
      note payable
    
    
    103,905
    
    
    -Loans
      payable
    
    
    391,000
    
    
    391,000Total
      liabilities - current
    
    
    1,136,958
    
    
    749,287Stockholders'
      equity:Common
      stock, $.001 par value. Authorized 200,000,000 shares:110,597,276
      shares issued and outstanding at
      December 31, 2004, and 105,221,483 shares issued
      and outstanding at December 31,
2003
    
    
    110,597
    
    
    105,221Additional
      paid-in capital
    
    
    21,536,837
    
    
    17,713,383Deficit
      accumulated during the development stage
    
    
    (16,475,915
    )
    
    (8,473,464
    )5,171,519
    
    
    9,345,140Less
      stock subscription receivable
    
    
    —
    
    
    (290,000
    )Total
      stockholders' equity
    
    
    5,171,519
    
    
    9,055,140CommitmentsTotal
      liabilities and stockholders' equity
    
    $
    6,308,477
    
    $
    9,804,427
 See
accompanying notes to consolidated financial statements.
  
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Consolidated
Statements of Operations**
 ****
 Years
ended December 31, 2004 and 2003
  2004
    
    2003
    
    Cumulativetotals
      frominception toDecember
      31,2004RestatedRevenues
    
    $
    —
    
    $
    —
    
    $
    —Cost
      of goods sold
    
    
    —
    
    
    —
    
    
    —Gross
      profit
    
    
    —
    
    
    —
    
    
    —Operating
      expenses:Research
      and development
    
    
    161,256
    
    
    819,626
    
    
    5,443,131Impairment
      expenses
    
    
    3,446,411
    
    
    —
    
    
    3,446,411Write-off
      of inventory
    
    
    86,103
    
    
    —
    
    
    86,103General
      and administrative
    
    
    4,247,065
    
    
    2,427,133
    
    
    7,350,072Interest
    
    
    2,498
    
    
    78,269
    
    
    208,382Depreciation
    
    
    59,118
    
    
    1,674
    
    
    65,816Total
      operating expenses
    
    
    8,002,451
    
    
    3,326,702
    
    
    16,599,915Operating
      loss
    
    
    (8,002,451
    )
    
    (3,326,702
    )
    
    (16,599,915
    )Other
      income - gain on the sale of assets
    
    
    —
    
    
    124,000
    
    
    124,000Net
      loss before provision for income taxes
    
    
    (8,002,451
    )
    
    (3,202,702
    )
    
    (16,475,915
    )Provision
      for income taxes
    
    
    —
    
    
    —
    
    
    —Net
      loss
    
    $
    (8,002,451
    )
    $
    (3,202,702
    )
    $
    (16,475,915
    )Net
      loss per common share - basic and diluted:Net
      loss applicable to common shareholders
    
    $
    (0.07
    )
    $
    (0.03
    )Weighted
      average common shares - basic and diluted
    
    
    107,825,547
    
    
    99,979,194
  See
accompanying notes to consolidated financial statements.
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company) ****
 **Consolidated
Statements of Stockholders' Equity**
 
 Years
ended December 31, 2004 and 2003
  DeficitaccumulatedAdditional
    
    during
      the
    
    Stock
    
    TotalCommon
      Stock
    
    
    
    paid-in
    
    development
    
    subscription
    
    stockholders'shares
    
    amount
    
    capital
    
    stage
    
    receivable
    
    equityBalance,
      December 1, 1997
    
    
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —
    
    $
    —Proceeds
      from the sale of common shares
    
    
    290,000,000
    
    
    29,000
    
    
    9,145,717
    
    
    —
    
    
    —
    
    
    9,174,717Net
      loss
    
    
    —
    
    
    —
    
    
    —
    
    
    (3,202,249
    )
    
    —
    
    
    (3,202,249
    )Balance,
      December 31, 1999
    
    
    290,000,000
    
    
    29,000
    
    
    9,145,717
    
    
    (3,202,249
    )
    
    —
    
    
    5,972,468Proceeds
      from the sale of common shares
    
    
    4,876,834
    
    
    488
    
    
    249,612
    
    
    —
    
    
    —
    
    
    250,100Net
      loss
    
    
    —
    
    
    —
    
    
    —
    
    
    (86,068
    )
    
    —
    
    
    (86,068
    )Balance,
      December 31, 2000
    
    
    294,876,834
    
    
    29,488
    
    
    9,395,329
    
    
    (3,288,317
    )
    
    —
    
    
    6,136,500Issuance
      of common shares for services
    
    
    5,856,000
    
    
    585
    
    
    585,015
    
    
    —
    
    
    —
    
    
    585,600Proceeds
      from the sale of common shares
    
    
    2,120,811
    
    
    212
    
    
    1,109,895
    
    
    —
    
    
    —
    
    
    1,110,107Net
      loss
    
    
    —
    
    
    —
    
    
    —
    
    
    (469,904
    )
    
    —
    
    
    (469,904
    )Balance,
      December 31, 2001
    
    
    302,853,645
    
    
    30,285
    
    
    11,090,239
    
    
    (3,758,221
    )
    
    —
    
    
    7,362,303Proceeds
      from the sale of common shares
    
    
    5,494,036
    
    
    549
    
    
    349,104
    
    
    —
    
    
    —
    
    
    349,653Recapitalization -
      Reverse Merger
    
    
    (218,215,704
    )
    
    59,298
    
    
    (59,298
    )
    
    —
    
    
    —
    
    
    —Issuance
      of common shares for services
    
    
    10,000,000
    
    
    10,000
    
    
    70,000
    
    
    —
    
    
    —
    
    
    80,000Net
      loss, as restated
    
    
    —
    
    
    —
    
    
    —
    
    
    (1,512,541
    )
    
    —
    
    
    (1,512,541
    )Balance,
      December 31, 2002, as restated
    
    
    100,131,977
    
    
    100,132
    
    
    11,450,045
    
    
    (5,270,762
    )
    
    —
    
    
    6,279,415Proceeds
      from private placement of common shares
    
    
    3,720,913
    
    
    3,721
    
    
    1,669,609
    
    
    —
    
    
    (290,000
    )
    
    1,383,330Issuance
      of common shares for services
    
    
    5,589,757
    
    
    5,590
    
    
    3,341,258
    
    
    —
    
    
    —
    
    
    3,346,848Issuance
      of common shares for conversion debt
    
    
    2,445,503
    
    
    2,445
    
    
    1,245,804
    
    
    —
    
    
    —
    
    
    1,248,249Cancellation
      of previously issued shares
    
    
    (6,666,667
    )
    
    (6,667
    )
    
    6,667
    
    
    —
    
    
    —
    
    
    —Net
      loss, as restated
    
    
    —
    
    
    —
    
    
    —
    
    
    (3,202,702
    )
    
    —
    
    
    (3,202,702
    )Balance,
      December 31, 2003, as restated
    
    
    105,221,483
    
    
    105,221
    
    
    17,713,383
    
    
    (8,473,464
    )
    
    (290,000
    )
    
    9,055,140Proceeds
      from private placement of common shares
    
    
    3,507,093
    
    
    3,507
    
    
    1,839,033
    
    
    —
    
    
    290,000
    
    
    2,132,540Issuance
      of common shares for services
    
    
    1,768,700
    
    
    1,769
    
    
    1,914,521
    
    
    —
    
    
    —
    
    
    1,916,290Issuance
      of common shares for productdevelopment
      costs
    
    
    100,000
    
    
    100
    
    
    69,900
    
    
    —
    
    
    —
    
    
    70,000Net
      loss
    
    
    —
    
    
    —
    
    
    —
    
    
    (8,002,451
    )
    
    —
    
    
    (8,002,451
    )Balance,
      December 31, 2004
    
    
    110,597,276
    
    $
    110,597
    
    $
    21,536,837
    
    $
    (16,475,915
    )
    $
    —
    
    $
    5,171,519
 See
accompanying notes to consolidated financial statements.
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company) ****
 Consolidated Statements of Cash Flows
 Years
ended December 31, 2004 and 2003
 December
      31,2004
    
    2003
    
    2004RestatedCash
      flows from operating activities:Net
      loss
    
    $
    (8,002,451
    )
    $
    (3,202,702
    )
    $
    (16,475,915
    )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
    
    
    59,120
    
    
    1,674
    
    
    65,816Common
      stock issued for services
    
    
    1,916,290
    
    
    3,346,848
    
    
    5,928,738Impairment
      expenses
    
    
    3,446,411
    
    
    —
    
    
    3,446,411Write-off-
      of inventory
    
    
    86,103
    
    
    —
    
    
    86,103(Increase)
      decrease in operating assets:Refund
      receivable
    
    
    (183,346
    )
    
    —
    
    
    (183,346
    )Inventories
    
    
    —
    
    
    271,867
    
    
    —Prepaid
      expenses and other current assets
    
    
    (213,377
    )
    
    (2,679
    )
    
    (216,056
    )Stock
      subscription receivable
    
    
    290,000
    
    
    (290,000
    )
    
    —Patent
    
    
    (203,074
    )
    
    (140,402
    )
    
    (423,250
    )Software
      development costs
    
    
    (196,069
    )
    
    (205,956
    )
    
    (4,648,238
    )Other
      assets
    
    
    457
    
    
    (7,806
    )
    
    (54,310
    )Increase
      (decrease) in operating liabilities:
    
    
    
    
    
    
    
    
    —Accounts
      payable and accrued expenses
    
    
    283,766
    
    
    (953,949
    )
    
    360,714Advances
      from customers
    
    
    —
    
    
    84,790
    
    
    84,790Net
      cash used in operating activities
    
    
    (2,716,170
    )
    
    (1,098,315
    )
    
    (12,028,543
    )Cash
      flows from investing activities:Capital
      expenditures for property and equipment
    
    
    (27,166
    )
    
    (6,818
    )
    
    (3,613,186
    )Net
      cash used in investing activities
    
    
    (27,166
    )
    
    (6,818
    )
    
    (3,613,186
    )Cash
      flows from financing activities:Proceeds
      from issuance of stock
    
    
    1,842,540
    
    
    1,673,330
    
    
    14,400,447Proceeds
      from short-term borrowing
    
    
    181,934
    
    
    —
    
    
    181,934Repayment
      of short-term borrowing
    
    
    (78,029
    )
    
    —
    
    
    (78,029
    )Proceeds
      from loans payable
    
    
    —
    
    
    —
    
    
    391,000Proceeds
      from long-term borrowings
    
    
    —
    
    
    —
    
    
    782,695Net
      cash provided by financing activities
    
    
    1,946,445
    
    
    1,673,330
    
    
    15,678,047Net
      increase (decrease) in cash
    
    
    (796,891
    )
    
    568,197
    
    
    36,318Cash
      at beginning of year
    
    
    833,209
    
    
    265,012
    
    
    —Cash
      at end of year
    
    $
    36,318
    
    $
    833,209
    
    $
    36,318Supplemental
      schedule of cash flow information:Interest
      paid
    
    $
    2,498
    
    $
    78,269
    
    $
    208,382Non-cash
      transactions:Issuance
      of common stock for conversion of debt
    
    $
    —
    
    $
    1,248,249
    
    $
    1,248,249Issuance
      of common stock for acquisition
      of
      software development costs
    
    $
    70,000
    
    $
    —
    
    $
    70,000
  See
accompanying notes to consolidated financial statements.
 ****
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Notes
to Consolidated Financial Statements**
 
 December
31, 2004 and 2003
 **(1)**
    **Summary of Significant Accounting
      Policies**
 
 **Organization,
Ownership and Business**
 
 Calypso
Wireless, Inc. (the "Company or Calypso"), formerly Kleer-Vu Industries, Inc.
(Kleer-Vu), was incorporated in the State of Delaware on March 22, 1983 (see
note 2). Its wholly-owned subsidiary, Industria de Telecomunicaciones Americanas
ATEL, S.A. (American Telecom Industries ATEL, S.A.) was incorporated in 1997
under the Laws of the Republic of Costa Rica. The Company operates as a holding
company with one wholly owned subsidiary. All monetary amounts noted in the
financial statements are expressed in U.S. Dollars.
 
 Calypso
Wireless, Inc. is a development stage company. The Company is a developer and
supplier of real-time video cellular phones and telecommunications
infrastructure software. The Company’s core business focuses on the development
of smart real-time video cellular phones and wireless devices, which through
Calypso’s ASNAPTM unique switching technology provides greater bandwidth to
seamlessly integrate the existing cellular networks and Internet IP-based
telecommunications networks without having to replace the existing
infrastructure. The Company’s research and development facilities are located in
Miami Lakes, Florida and Akron, Ohio.
 
 During
2001, the Company subsidiary relocated its machinery and equipment from
facilities leased in Costa Rica to a plant owned by Selectron, S.A., which is
domiciled in Nicaragua, Central America.
 
 The
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, American Telecom Industries ATEL, S.A. All significant
intercompany transactions and balances have been eliminated in
consolidation.
 
 **Refund
Receivable**
 
 Refund
receivable represents a net amount paid to a manufacturer for the production of
the telephone. The contract was subsequently cancelled and the manufacturer
agreed to return all funds received.
 
 **Inventories**
 
 Inventories
are valued at the lower-of-cost or market on a first-in, first-out
basis.
 
 **Investment
Securities**
 
 The
Company accounts for its investments in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Management determines the appropriate classification of its
investments in marketable securities at the time of purchase and reevaluates
such determination at each balance sheet date. Securities that are bought and
held principally for the purpose of selling them in the near term are classified
as trading securities. Debt securities for which the Company does not have the
intent or ability to hold to maturity and equity securities not classified as
trading securities are classified as available-for-sale. The cost of investments
sold is determined on the specific identification or the first-in, first-out
method. Trading securities are reported at fair value with unrealized gains and
losses recognized in earnings, and available-for-sale securities are also
reported at fair value but unrealized gains and losses are shown in the caption
"unrealized gains (losses) on shares available-for-sale" included in
stockholders' equity. Management determines fair value of its investments based
on quoted market prices at each balance sheet date.
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
(A
Development Stage Company)
****
**Notes
to Consolidated Financial Statements**
****
December
31, 2004 and 2003**Property, Equipment and
Depreciation**
 
 Property
and equipment are recorded at cost less accumulated depreciation. Upon
retirement or sale, the cost of the assets disposed of and the related
accumulated depreciation are removed from the accounts, with any resultant gain
or loss being recognized as a component of other income or expense. Depreciation
is computed over the estimated useful lives of the assets (5 to 20 years) using
the straight-line method for financial reporting purposes and accelerated
methods for income tax purposes. Maintenance and repairs are charged to
operations as incurred.
 
 **Intangible
Assets**
 
 SFAS No.
142 eliminates the amortization of goodwill, and requires annual impairment
testing of goodwill and introduces the concept of indefinite life intangible
assets. The Company adopted SFAS No. 142 effective January 1, 2002. Patents will
be amortized over a straight-line basis over 5 to 17 years, with the balance
evaluated for recoverability at each balance sheet date. Capitalized product
development costs will be amortized on a product-by-product basis, with the
costs evaluated for recoverability at each balance sheet date.
 
 **Impairment
of Long-Lived Assets**
  Realization
of long-lived assets is periodically assessed by the management of the Company.
Accordingly, in the event that facts and circumstances indicate that property
and equipment, and intangible or other assets may be impaired, an evaluation of
recoverability would be performed. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset are compared to the
asset's carrying amount to determine if a write-down to market value is
necessary.
  **Revenue
Recognition**
 
 The
Company recognizes revenue at the time of shipment of product to its customers
or completion of services provided.
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Notes
to Consolidated Financial Statements**
 
 December
31, 2004 and 2003
 **Income
Taxes**
 
 The
Company is a taxable entity and recognizes deferred tax assets and liabilities
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax basis. Deferred tax assets and liabilities are measured
using enacted tax rates expected to be in effect when the temporary differences
reverse. The effect on the deferred tax assets and liabilities of a change in
tax rates is recognized in income in the year that includes the enactment date
of the rate change. A valuation allowance is used to reduce deferred tax assets
to the amount that is more likely than not to be realized.
 
 **Advertising
Costs**
 
 The cost
of advertising is expensed as incurred.
 
 **Management's
Estimates and Assumptions**
 
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses. Actual results could differ from these
estimates.
 
 **Stock-based
Compensation**
 
 The
Company has chosen to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related Interpretations and to
elect the disclosure option of SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, compensation cost for stock options issued to
employees is measured as the excess, if any, of the quoted market price of the
Company's stock at the date of the grant over the amount an employee must pay to
acquire the stock.
  **Fair
Value of Financial Instruments**
 
 The
Company estimates the fair value of its financial instruments using available
market information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. Accordingly, the Company estimates of fair value are
not necessarily indicative of the amounts that the Company could realize in a
current market exchange. The use of different market assumption and/or
estimation methodologies may have a material effect on the estimated fair value
amounts. The interest rates payable by the Company on its notes payable
approximate market rates. The Company believes that the fair value of its
financial instruments comprising accounts receivable, notes receivable, accounts
payable, and notes payable approximate their carrying amounts.
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Notes
to Consolidated Financial Statements**
 
 December
31, 2004 and 2003
 **New
Standards Implemented**
 
 In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 153. This statement addresses the measurement
of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, *“Accounting
for Nonmonetary Transactions,”* is based
on the principle that exchanges of nonmonetary assets should be measured based
on the fair value of the assets exchanged.
 
 The
guidance in that opinion; however, included certain exceptions to that
principle. This statement amends Opinion 29 to eliminate the exception for
nonmonetary exchanges of similar productive assets and replaces it with a
general exception for exchanges of nonmonetary assets that do not have
commercial substance. A nonmonetary exchange has commercial substance if the
future cash flows of the entity are expected to change significantly as a result
of the exchange. This statement is effective for financial statements for fiscal
years beginning after June
15, 2005 . Earlier
application is permitted for nonmonetary asset exchanges incurred during fiscal
years beginning after the date of this statement is issued. Management believes
the adoption of this statement will have no impact on the financial statements
of the
Company .
 
 In
December 2004, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 152, which amends FASB statement No. 66, *“Accounting
for Sales of Real Estate,”* to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, *“Accounting
for Real Estate Time-Sharing Transactions.”* This
statement also amends FASB Statement No. 67, *“Accounting
for Costs and Initial Rental Operations of Real Estate
Projects,”* to state
that the guidance for (a) incidental operations and (b) costs incurred to sell
real estate projects does not apply to real estate time-sharing transactions.
The accounting for those operations and costs is subject to the guidance in SOP
04-2. This statement is effective for financial statements for fiscal years
beginning after June
15, 2005 .
Management believes the adoption of this statement will have no impact on the
financial statements of the
Company .
 
 In
November 2004, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 151, *“Inventory
Costs— an amendment of ARB No. 43, Chapter 4.”* This
statement amends the guidance in ARB No. 43, Chapter 4, *“Inventory
Pricing,”* to
clarify the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter
4, previously stated that *“under
some circumstances, items such as idle facility expense, excessive spoilage,
double freight, and rehandling costs may be so abnormal as to require treatment
as current period charges.”* This
statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of *“so
abnormal.”* In
addition, this statement requires that allocation of fixed production overheads
to the costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June
15, 2005 .
Management does not believe the adoption of this statement will have any
immediate material impact on the
Company .
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Notes
to Consolidated Financial Statements**
 
 December
31, 2004 and 2003
 In May
2003, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 150, *“Accounting
for Certain Financial Instruments with Characteristics of Both Liabilities and
Equity”* (hereinafter *“SFAS
No. 150”* ). SFAS
No. 150 establishes standards for classifying and measuring certain financial
instruments with characteristics of both liabilities and equity and requires
that those instruments be classified as liabilities in statements of financial
position. Previously, many of those instruments were classified as equity. SFAS
No. 150 is effective for financial instruments entered into or modified after May
31, 2003 and
otherwise is effective at the beginning of the first interim period beginning
after June
15, 2003 . The
Company has
determined the adoption of this statement will have no effect on the
Company ’s
financial statements.
 
 **Reclassifications**
 
 Certain
2003 amounts have been reclassified to conform to the 2004
presentation.
  **(2)**
    **Inventories**
 
 Inventories
consisted of raw materials at December 31, 2003, and were located at the
Selectron, S.A. plant in Managua, Nicaragua. The December 31, 2003 balance of
inventory was written-off during 2004.
 ****(3)**
    **Property and
    Equipment****
 Major
classes of property and equipment together with their estimated useful lives,
consisted of the following:
 
 December
      31Years
    
    2004
    
    2003Machinery
      and equipment
    
    5-15
    
    $
    —
    
    $
    3,405,952Laboratory
      equipment
    
    5-15
    
    
    99,319
    
    
    715,778Office
      furniture and equipment
    
    3-5
    
    
    67,456
    
    
    40,290166,775
    
    
    4,162,020Less
      accumulated depreciation
    
    
    
    
    65,816
    
    
    6,696Net
      property and equipment
    
    
    
    $
    100,959
    
    $
    4,155,324
 
 The
machinery and equipment for production of the products had not been placed in
service as of December 31, 2003. During 2004, the Company decided to outsource
the production of the products to independent contractors; therefore the
machinery and equipment purchased specifically for the production of the
telephones and other related products was written down to the net realizable
sales value, estimated to be approximately $576,000, resulting in a impairment
charge in the amount of $3,446,411. The $576,000 estimated sales value of the
machinery and equipment was reclassified to a separate line item in the current
assets section of the balance sheet as of December 31, 2004. This evaluation of
long-lived assets is consistent with our accounting policy on "Impairment of
Long-Lived Assets" as noted in note 1 to the financial statements.
 
 
 ****CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
(A
Development Stage Company)

**Notes
to Consolidated Financial Statements**

December
31, 2004 and 2003
**(4)**
    **Software Development
      Costs****
 Software
development costs represent capitalized costs incurred in the development of the
cellular phones and telecommunications infrastructure software. The Company
began capitalizing this cost once technological feasibility had been established
during the first quarter of 1999. All costs incurred prior to establishment of
technological feasibility were expensed as research and development expenses.
The Company will begin amortizing this cost once the products are available for
general release to customers. See note 9 for restatement of amounts reported as
software development costs in 2003 and 2002.
 ****(5)**
    **Long-term
Debt****
 Long-term
debt represents a revolving line of credit agreement with a financial
institution, which allowed the Company to borrow up to $1,500,000 through
December 31, 2003. The note bears interest at 10% per annum, with principal and
accrued interest due at December 31, 2003. The note was secured by a personal
guarantee of the Company’s former Chief Executive Officer. The balance of the
note and accrued interest was converted to equity in 2003 by the issuance of
2,394,820 shares of common stock.
 ****(6)**
    **Capital
      Stock****
 
 The
Company is authorized to issue up to 200,000,000 shares of Common Stock, of
which 110,597,276 were issued and outstanding as of December 31,
2004.
 ****(7)**
    **Income
Taxes****
 A
reconciliation of income taxes at the federal statutory rate to amounts provided
for the years ended December 31, are as follows:
 
 December
      312004
    
    2003Tax
      expense/(benefit) computed at statutory rate forcontinuing
      operations
    
    $
    (2,721,000
    )
    $
    (1,089,000
    )Tax
      (benefit) of operating loss carryforwards
    
    
    2,721,000
    
    
    1,089,000Tax
      expense/(benefit) for continuing operations
    
    $
    
    
    $
    —
 
 The
Company has current net operating loss carryforwards in excess of $16,400,000 as
of December 31, 2004, to offset future taxable income, which expires in various
years through 2024.
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Notes
to Consolidated Financial Statements**
 
 December
31, 2004 and 2003
 Deferred
taxes are determined based on the temporary differences between the financial
statement and income tax bases of assets and liabilities as measured by the
enacted tax rates, which will be in effect when these differences reverse. The
components of deferred income tax assets are as follows:
 
 December
      312004
    
    2003Deferred
      tax assets:Net
      operating loss
    
    $
    5,602,000
    
    $
    2,881,000Total
      deferred tax assets
    
    
    5,602,000
    
    
    2,881,000Valuation
      allowance
    
    
    (5,602,000
    )
    
    (2,881,000
    )Net
      deferred assets
    
    $
    —
    
    $
    —
 
 At
December 31, 2004, the Company provided a 100% valuation allowance for the
deferred tax asset because given the volatility of the current economic climate,
it could not be determined whether it was more likely than not that the deferred
tax asset would be realized.
 ****(8)**
    **Lease
Agreements****
 The
Company leases office space under noncancellable-operating leases, which expires
in various years through September 2007. Future minimum lease under these
operating leases is as follows:
 **Year
      December 31,
    
    
    Amount2005
    
    
    $
    65,1522006
    
    
    
    18,1562007
    
    
    
    7,659$
    90,967
**(9)**
    **Restatements****
 The
December 31, 2003 and 2002 financial statements have been restated to correct
for the misclassification of expenditures between software development cost and
research and development expenses. The prior period adjustments to present the
correction of errors are as follows:
 
 
 
 **CALYPSO
WIRELESS, INC. AND SUBSIDIARY**
 (A
Development Stage Company)
 
 **Notes
to Consolidated Financial Statements**
 
 December
31, 2004 and 2003
 
 2003
    
    2002As
      Previously
      Reported
    
    As
      Restated
    
    As
      Previously
      Reported
    
    As
      RestatedAugust
      31:Software
      development costs
    
    $
    6,531,795
    
    $
    4,452,169
    
    $
    5,506,213
    
    $
    4,246,213Total
      assets
    
    
    11,884,053
    
    
    9,804,427
    
    
    10,406,110
    
    
    9,146,110Deficit
      accumulated during the development stage
    
    
    (6,393,838
    )
    
    (8,473,464
    )
    
    (4,010,762
    )
    
    (5,270,762
    )Total
      stockholders' equity
    
    
    11,134,766
    
    
    9,055,140
    
    
    7,539,415
    
    
    6,279,415For
      the years ended December 31:Research
      and development
    
    
    —
    
    
    819,626
    
    
    —
    
    
    1,260,000Net
      loss
    
    
    (2,383,076
    
    
    (3,202,702
    )
    
    (252,541
    )
    
    (1,512,541Basic
      loss per share
    
    
    (0,02
    )
    
    (0.03
    )
    
    (0.00
    )
    
    (.00
    )
 ****(10)**
    **Subsequent
  Events****
 **Equity
Financing**
 
 Subsequent
to December 31, 2004, the Company raised $1,000,000 through a private placement
with an accredited investor. In addition, the Company has signed subscription
agreements to raise an additional $2,000,000.
 
 On April
20, 2005, the Company entered into a distribution agreement with Franc Telecom,
LTD to purchase 250,000 cellular phones. The Company is expected to deliver the
phones during the fourth quarter of 2005.