Airbee Wireless 10QSB/A 2005 Q1 Quarterly report (small business) (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No. 2 to

FORM 10-QSB/A

(Mark One)

þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2005

OR

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

Commission file number0-50918

AIRBEE WIRELESS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	46-0500345
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)
9400 Key West Avenue, Suite 100
Rockville, MD	20850-3322
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:(301) 517-1860

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 53,462,373 shares of Common Stock par value of $0.00004 as of June 9, 2005.

Transitional Small Business Disclosure Form (check one): Yeso   Noþ

AIRBEE WIRELESS, INC.

FORM 10-QSB

INDEX

	PAGE
PART I FINANCIAL INFORMATION	2
Item 1. Financial Statements	2
Condensed Consolidated Balance Sheet as of March 31, 2005 (Unaudited)	3
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2005 and 2004 (with cumulative totals since inception) (Unaudited)	4
Condensed Consolidated Statement of Accumulated Comprehensive Income for the Period August 9, 2002 (inception) through March 31, 2005 (Unaudited)	5
Condensed Consolidated Statements of Cash Flow for the Three Months Ended March 31, 2005 and 2004 (with cumulative totals since inception) (Unaudited)	6
Notes to the Condensed Consolidated Financial Statements	8
Item 2. Management’s Discussion and Analysis or Plan of Operations	23
Item 3. Controls and Procedures	25
PART II OTHER INFORMATION	26
Item 1. Legal Proceedings	26
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3. Defaults Upon Senior Securities	26
Item 4. Submission of Matters to a Vote of Security Holders	26
Item 5. Other Information	26
Item 6. Exhibits	26
SIGNATURES	27

1

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004

(UNAUDITED)

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2005
(UNAUDITED)

	Restated
Current Assets:
Cash and cash equivalents	$	91,650
Prepaid expenses and other current assets		41,805
Total Current Assets		133,455
Fixed assets, net of depreciation		62,601
Intangible assets		165,975
TOTAL ASSETS	$	362,031
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
LIABILITIES
Current Liabilities:
Notes payable - related party	$	1,010,621
Notes payable – other		50,000
Accounts payable and accrued expenses		457,781
Total Current Liabilities		1,518,402
Long-term Liabilities:
Due officer		40,927
Total Long-term Liabilities		40,927
Total Liabilities		1,559,329
STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $.00004 Par Value; 200,000,000 shares authorized 42,724,056 shares issued and outstanding		1,709
Additional paid-in capital		2,256,600
Unearned compensation		(37,804	)
Accumulated comprehensive income		933
Deficit accumulated during the development stage		(3,366,647	)
		(1,145,209	)
Less: Treasury stock, 704,362 shares at cost		(52,089	)
Total Stockholders’ Equity (Deficit)		(1,197,298	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	362,031

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)

							Restated
							Cumulative Totals
							August 9, 2002
	Restated						to
	2005			2004			March 31, 2005
OPERATING REVENUES
Sales	$	—		$	—		$	10,108
COST OF SALES		—			—			11,040
GROSS PROFIT (LOSS)		—			—			(932	)
OPERATING EXPENSES
Compensation and professional fees		246,426			84,407			1,388,488
Research and development		212,070			61,487			1,496,626
Selling, general and administrative expenses		62,129			9,400			230,408
Impairment		—			—			127,974
Depreciation and amortization		3,082			630			11,428
Total Operating Expenses		523,707			155,924			3,254,924
LOSS BEFORE OTHER (EXPENSE)		(523,707	)		(155,924	)		(3,255,856	)
OTHER (EXPENSE)
Other income		—			—			70,000
Interest expense		(28,574	)		(7,517	)		(180,791	)
Total Other (Expense)		(28,574	)		(7,517	)		(110,791	)
NET LOSS BEFORE PROVISION FOR INCOME TAXES		(552,281	)		(163,441	)		(3,366,647	)
Provision for Income Taxes		—			—			—
NET LOSS APPLICABLE TO COMMON SHARES	$	(552,281	)	$	(163,441	)	$	(3,366,647	)
NET LOSS PER BASIC AND DILUTED SHARES	$	(0.013	)	$	(0.005	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		41,849,373			36,078,979

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)

Balance, August 9, 2002	$	—
Gain on foreign currency translation		—
Balance, December 31, 2002		—
Gain on foreign currency translation		5,882
Balance, December 31, 2003		5,882
Loss on foreign currency translation		(5,152	)
Balance, December 31, 2004		730
Gain on foreign currency translation		203
Balance, March 31, 2005	$	933

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)

(WITH CUMULATIVE TOTALS SINCE INCEPTION)

							Restated
							Cumulative
							Totals
							August 9,
							2002
	Restated						To March
	2005			2004			31, 2005
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(552,281	)	$	(163,441	)	$	(3,366,647	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		3,082			630			11,428
Amortization of unearned compensation		3,437			3,437			44,681
Common stock issues for services		—			—			661,612
Interest expense converted to note payable — other		—			—			100,000
Services provided for equity		85,230			—			161,230
Impairment of goodwill		—			—			127,974
Gain (loss) on foreign currency translation		203			(7,396	)		933
Net change in net assets in acquisition of Connexus		—			—			(22,865	)
Changes in assets and liabilities
Decrease in accounts receivable		—			—			19,373
(Increase) in prepaid expenses and other assets		(14,641	)		—			(38,653	)
Increase in accounts payable and and accrued expenses		67,989			16,355			323,273
Total adjustments		145,300			13,026			1,388,986
Net cash (used in) operating activities		(406,981	)		(150,415	)		(1,977,661	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of intangible assets		—			—			(165,975	)
Acquisitions of fixed assets		(14,321	)		(1,523	)		(64,369	)
Net cash (used in) investing activities		(14,321	)		(1,523	)		(230,344	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004 (UNAUDITED)
(WITH CUMULATIVE TOTALS SINCE INCEPTION)

						Restated
						Cumulative
						Totals
						August 9, 2002
	Restated					to March 31,
	2005			2004		2005
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from common stock issuances	$	471,580		$	131,000	$	1,188,107
Services rendered converted to notes payable - demand		—			—		1,056,611
Proceeds from notes payable – other		—			—		60,000
(Payments) proceeds to related party		(45,990	)		46,250		(45,990	)
Amounts due to officer		—			—		40,927
Net cash provided by financing activities		425,590			177,250		2,299,655
NET INCREASE IN CASH AND CASH EQUIVALENTS		4,288			25,312		91,650
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		87,362			23,488		—
CASH AND CASH EQUIVALENTS – END OF PERIOD	$	91,650		$	48,800	$	91,650
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE YEAR FOR:
Interest expense	$	217		$	—	$	217
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Exercise of cashless stock options	$	—		$	—	$	59,089
Common stock issues for services	$	85,230		$	—	$	746,842	��
Interest expense converted to note payable - other	$	—		$	—	$	100,000
Services rendered converted to notes payable - demand	$	—		$	—	$	1,056,611
Services for stock to be issued	$	—		$	—	$	76,000
Conversion of notes payable and accrued interest to common stock	$	—		$	—	$	11,833
Impairment of goodwill	$	—		$	—	$	127,974
Unearned compensation on cashless options	$	—		$	—	$	82,485

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

NOTE 1 -	ORGANIZATION AND BASIS OF PRESENTATION
	The condensed unaudited interim consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements and notes are presented as permitted on Form 10-QSB and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2004 audited consolidated financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these condensed consolidated financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.
	These condensed unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the operations and cash flows for the period presented.
	Airbee Wireless, Inc. (the “Company”), was incorporated in Delaware in 2002 to develop and supply cutting edge intelligent software that is generally embedded into microprocessors thereby allowing manufacturers (OEM’s) of various products to create advanced wireless communications systems.
	Focusing on its core competencies in the design and engineering of advanced, embedded short-range wireless data, voice and video communications software, the Company believes that it is positioned to play a pivotal role in the convergence of various wireless communications applications through software embedded on silicon.
	In March 2004, the Company became a member of The ZigBee Alliance which has defined a global standard for reliable, cost-effective, low-power wireless applications. With over 150 international member companies, the ZigBee standard is emerging as the wireless standard for a host of industrial controls, telemetry, and in-building and home automation networking needs.
	Airbee’s portfolio of products is generally connected over the rapidly emerging Wireless Personal Area Network (WPAN) or the Wireless Local Area Network (WLAN) technology space. Critical to the success of new products in these areas is the ability to interoperate or “talk to each other” based on industry-adopted standards. Airbee’s products are designed and engineered to be compliant with ZigBee/802.15.4 WPAN standards.

8

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

NOTE 2 -	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
	Development Stage Company
	The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises.” The Company has devoted substantially all of its efforts to business planning, patent applications, research and development, recruiting management and technical staff, acquiring operating assets and raising capital. With the release of the ZigBee / IEEE 802.15.4 standard on December 14, 2004, the Company is anticipating that sales will be generated in fiscal 2005, at which time it will emerge from the development stage.
	Principles of Consolidation
	The condensed consolidated financial statements include the accounts of Airbee Wireless, Inc. and its wholly owned subsidiaries Airbee Wireless (Pte.) Ltd., located in Singapore, and Airbee Wireless (India) Pvt. Ltd., located in India, for the three months ended March 31, 2005 and 2004 respectively. The financial statements do not consolidate Identity, Inc. which was acquired subsequent to the reporting period on May 2, 2005 (See Note 14,Subsequent Events). All significant inter-company accounts and transactions have been eliminated in consolidation. Accounts denominated in non-U.S. currencies have been re-measured using the U.S. Dollar as the functional currency.
	Use of Estimates
	The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
	Cash and Cash Equivalents
	The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.
	The Company maintains cash and cash equivalent balances at financial institutions in the United States of America, Singapore and India. The financial institution in the United States of America is insured by the Federal Deposit Insurance Corporation up to $100,000.
	Fixed Assets
	Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets; two to four years for machinery and

9

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

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

Identified Intangible Assets

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

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

Segment Reporting

The Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information.” This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. As of March 31, 2005, there were no operating segments.

Start-up Costs

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

Revenue and Cost Recognition

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

Licensing revenues (e.g., Airbee-ZNS, Airbee-ZMAC, and Airbee-ZNMS) consist of revenues from the licensing under the enterprise licensing model, of Airbee platforms,

10

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

which include a combination of product and services, and items such as development tools, an operating system, various protocols and interfaces and maintenance and support services such as installation and training, which are licensed over a limited period of time, typically 12-36 months. Service revenues are derived from fees for professional services, which include design and development fees, software maintenance contracts, and customer training and consulting.

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

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

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

Enterprise license model arrangements require the delivery of unspecified future updates and upgrades within the same product family during the time-based license. Accordingly, Airbee will recognize fees from its enterprise license model agreements ratably over the term of the license agreement. Time-based royalties are charged on a unit basis. Royalties are not fixed dollar amounts, but are instead a percentage of the customer’s finished product and the percentage varies on a tiered basis with the number of units shipped by customer.

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

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

11

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

Return Exists,” in the absence of historical data, the Company is unable to make a reasonable and reliable estimate of product returns at this time.

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

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

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

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

Research and Development

Research and development costs are related primarily to the Company developing its intellectual property. Research and development costs are expensed as incurred.

Income Taxes

Income tax benefit is computed on the pretax loss based on current tax law. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and its financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. No benefit is reflected for the three month periods ended March 31, 2005 and 2004, respectively.

Advertising

The Company’s policy is to expense the costs of advertising and marketing as incurred. The Company had no such cost for the three month periods ended March 31, 2005 and 2004, respectively.

12

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

Earnings (Loss) Per Share of Common Stock

Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share at March 31, 2005 and 2004 when the Company reported a loss because to do so would be anti-dilutive for periods presented. The Company has incurred losses since inception as a result of funding its research and development, including the development of its intellectual property portfolio which is key to its core products.

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

	Restated			Restated
	March 31, 2005			March 31, 2004
Net Loss	$	(552,281	)		($163,441	)
Weighted average common shares		41,849,373			36,078,979
Outstanding (Basic)
Weighted average common stock
Equivalents:
Stock options		—			—
Warrants		—			—
Weighted average common shares		41,849,373			36,078,979
Outstanding (Diluted)

Fair Value of Financial Instruments

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

Stock-Based Compensation

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

13

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

The Company measures compensation expense for its employee stock-based compensation using the intrinsic-value method. Under the intrinsic-value method of accounting for stock-based compensation, when the exercise price of options granted to employees is less than the estimated fair value of the underlying stock on the date of grant, deferred compensation is recognized and is amortized to compensation expense over the applicable vesting period. Amortization expense for the three months ended March 31, 2005 and 2004 was $3,747, respectively.

The Company measures compensation expense for its non-employee stock-based compensation under the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.” The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

Product Warranty

The Company’s product warranty accrual includes specific accruals for known product issues and an accrual for an estimate of incurred but unidentified product issues based on historical activity. Due to effective product testing and the short time between product shipment and the detection and correction of product failures, the warranty accrual based on historical activity and the related expense were not significant as of and for the three months ended March 31, 2005 and 2004, respectively.

Goodwill and Intangible Assets

The Company follows Statement of Financial Accounting Standards (SFAS) No. 141, “Business Combinations,” and SFAS No. 142, “Goodwill and Other Intangible Assets.” All goodwill associated with the acquisition of Connexus Technologies (Pte.) Ltd. was impaired in 2002 ($127,974), due to the Company being acquired mainly for its development and anticipated future development which management has determined to have no material fair value as of the balance sheet dates.

The identifiable intangible assets presented on the condensed consolidated balance sheet represent the intellectual property that was capitalized post- technological feasibility. Management will continue to monitor and assess any impairment charges against those assets in accordance with the provisions of SFAS 142, “Goodwill and Other Intangible Assets” and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

14

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

Currency Risk and Foreign Currency Translation

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

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

Recent Accounting Pronouncements

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

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

On December 16, 2004, FASB issued Statement of Financial Accounting Standards No. 153, “Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions” (“SFAS 153”). This statement amends APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that

15

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

	do not have commercial substance. Under SFAS 153, if a non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The Company does not anticipate that the implementation of this standard will have a material impact on its financial position, results of operations or cash flows.
NOTE 3-	CONCENTRATION OF CREDIT RISK
	The Company’s trade receivables are derived from sales to original equipment manufacturers and manufacturers of microprocessors. The Company endeavors to keep pace with the evolving computer and communications industries, and has adopted credit policies and standards intended to accommodate industry growth and inherent risk. Management believes that credit risks are moderated by the diversity of the Company’s end customers and geographic sales areas. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary.
NOTE 4-	FIXED ASSETS
	Fixed assets consist of the following at:

	March 31,
	2005
Computer and office equipment	$	73,970
Less: accumulated depreciation		11,369
Net book value	$	62,601

	Depreciation expense for the three months ended March 31, 2005 and 2004 was $3,082 and $630, respectively.
NOTE 5-	NOTE PAYABLE
	The Company entered into a note payable, principal amount of $50,000 payable August 31, 2005. The Company entered into this note in connection with the 2002 acquisition of Connexus Technologies (Pte.) Ltd. The note was non-interest bearing if it was paid prior to August 31, 2003 and if the note was paid between September 1, 2003 and August 31, 2004 the total payment due was $100,000. If the note is paid between September 1, 2004 through August 31, 2005, total payment due is $150,000. The Company, at March 31, 2005 has reflected the value of the note payable, which includes interest at $100,000. The accrued interest is included in accounts payable and accrued expenses.

16

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

NOTE 6-	PROMISSORY NOTES – RELATED PARTY
	The Company entered into promissory notes with some of its officers (see Note 9) who have amounts outstanding with the Company. These amounts accrue interest at 6.0% and 9.75% annually. As of March 31, 2005, the Company has $1,010,621 outstanding under these notes, including $74,888 in accrued interest. The notes are due on June 30, 2005 and are therefore reflected as current liabilities on the condensed consolidated balance sheets. The notes relate to services rendered to the Company.
NOTE 7-	INTELLECTUAL PROPERTY
	Costs incurred in creating products are charged to expense when incurred as research and development until technological feasibility is established upon completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.
	In accordance with SFAS No. 2, “Accounting for Research and Development Costs,” SFAS No. 68, “Research and Development Arrangements”, and SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” technological feasibility for the Airbee UltraLite™was established on November 20, 2002 with completion of the detailed program design. Several working models were delivered at various points through July of 2003.
	Since, the Company had no sales, other than the execution of an inherited software contract for a previous Connexus Technologies (Pte.) Ltd. customer that had nothing to do with its current products, amortization of its software being developed at that time for other purposes is not required. Additionally, the intangible assets pertain to the Company’s intellectual property, more specifically software code for both IEEE 802.15.4 and the ZigBee standard version 1.0. This software serves as the core code (i.e., one of the key building blocks) for current and future products that must comply with both of these international standards. Hence, core software based upon the global standards of IEEE and ZigBee to enable the rest of our software to function has an indefinite, but not necessarily infinite, useful life. As such, management, with the assistance of its technical staff, has determined that this specific intellectual property is determined to have an indefinite useful life. The status of that intellectual property is reviewed for impairment annually, or more frequently if events and circumstances indicate that the asset may be impaired. The Company believes that at this point in time, impairment is impractical because (a) the IEEE 802.15 global standard was only finalized in October 2003; (b) the ZigBee global standard was only finalized on December 14, 2004; and (c) the Company’s software written in conformity with both global standards is vital to making the rest of its software function and therefore be in compliance with these global standards. Therefore, at this point in time, the tests for impairment of the intangible assets being intellectual property indicate no amortization is required.

17

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

NOTE 8-    ACQUISITIONS

The Company’s acquisition of Connexus Technologies (Pte.) Ltd. has been accounted for using the purchase method of accounting. The Company acquired 100% of the common stock of Connexus for 1,662,562 shares of common stock valued at $100,000, and assumed a promissory note which at the time of acquisition (as of October 1, 2002) was valued at $50,000, subsequently with accrued interest is valued at $100,000 as of March 31, 2005. Connexus had a net book value of $22,026 (US dollar equivalent) resulting in $127,974 in goodwill, which management determined to be impaired based on the fact that the purchase price was determined based on what Connexus had been developing. The primary reason the Company acquired Connexus was the working model and software code that it had been developing fits nicely into the current business model and software code of the Company. The Company did not pay any cash for Connexus and there are no contingent payments, options, or commitments specified in the purchase agreement.

The book value of $22,026 of Connexus at the time of acquisition consisted of:

Current assets	$	42,638
Fixed assets		18,190
Accounts payable and other accrued expenses		(38,802	)
Total	$	22,026

NOTE 9-    RELATED PARTY TRANSACTIONS

As discussed in Note 6, the Company has demand promissory notes with some of its officers for services rendered to the Company. Interest is accrued at 6.0% and 9.75% annually on these notes. As of March 31, 2005, the Company has $1,010,621 outstanding under these notes, including $74,888 in accrued interest.

NOTE 10-  PROVISION FOR INCOME TAXES

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

At March 31, 2005, deferred tax assets consist of the following:

Deferred tax asset	$	1,009,994
Less: valuation allowance		(1,009,994	)

18

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

At March 31, 2005, the Company had deficits accumulated during the development stage in the approximate amount of $3,366,647, available to offset future taxable income through 2023. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.

NOTE 11-  STOCKHOLDERS’ (DEFICIT)

The Company has 200,000,000 shares of common stock authorized at March 31, 2005. The par value at March 31, 2005 is $0.00004.

At March 31, 2005, the Company has 42,724,056 common shares issued and outstanding.

The following stock transactions occurred in 2005:

Effective January 1, 2005, the Company issued options to purchase 150,000 shares of our common stock to Mal Gurian, in conjunction with his appointment to our board of directors. The options vest over one year in equal quarterly installments. The options are exercisable at $0.22 per share for a period of five years from the date of issuance. The options were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The options contain the appropriate legends restricting their transferability absent registration or applicable exemption. Mr. Gurian received information concerning our company and had the ability to ask questions about our company.

In February 2005, the Company issued 525,000 shares for services valued at $85,230.

In March 2005, the Company issued 982,143 restricted shares of our common stock to five accredited investors for $350,000. In addition, we issued 125,000 warrants to these investors at a strike price of $0.48 per share and 71,429 warrants at $0.36. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The securities contain the appropriate legends restricting their transferability absent registration or applicable exemption. The investors received information concerning our company and had the ability to ask questions concerning our company.

Effective March 1, 2005, the Company issued options to purchase 1,000,000 shares of our common stock to David McCartney, in conjunction with his employment agreement with the company. The options are exercisable at $0.38 per share for a period of five years from the date of issuance. The options were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The options contain the appropriate legends restricting their transferability absent registration or applicable exemption. The employee received information concerning our company and had the ability to ask questions concerning our company.

19

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

NOTE 12-  COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company has entered into employment agreements with key members of management and some officers. Most of these employment agreements are for a period of three to five years. As part of the employment agreements, the Company has granted stock options to these individuals that vest over a three to five-year period of time. The Company, in an effort to incentivize its officers, granted additional options and accelerated the vesting schedules. The officers were not compensated during the initial start-up of operations. However, they did exercise stock options in 2003.

A subsidiary, Airbee Wireless (India) Pvt. Ltd., has entered into a three-year lease agreement for office space in Chennai, India. Monthly rent in the US Dollar equivalent is $1,505. The lease runs from April, 2004 to March, 2007.

NOTE 13-  GOING CONCERN

As shown in the accompanying condensed consolidated financial statements, as is typical of companies going through early-stage development of intellectual property, and products and services, the Company incurred net losses for the years ended December 31, 2004 and 2003. The Company is currently in the development stage, and there is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support current operations and expand sales. This raises substantial doubt about the Company’s ability to continue as a going concern.

Management believes that the Company’s capital requirements will depend on many factors including the success of the Company’s sales efforts. The Company has been successful in recent months in raising capital to fund its operating costs. See Note 14 “Subsequent Events.”

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

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

NOTE 14-  SUBSEQUENT EVENTS

On April 26, 2005, the Company executed a promissory note in the amount of $750,000 in favor of Montgomery Equity Partners, Ltd. Pursuant to the terms of the promissory note, Montgomery Equity Partners disbursed the entire $750,000 to the Company upon the date the note was executed and an additional $250,000 will be

20

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

disbursed to the Company after the Company’s common stock commences trading on the Over-the-Counter Bulletin Board. The promissory note is secured by shares of stock of an affiliate of the Company. The promissory note has a one-year term and accrues interest at 24% per year. The promissory note matures within a year from the date of execution.

On April 26, 2005 the Company, entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, LP, dated as of April 20, 2005. Pursuant to the Standby Equity Distribution Agreement, the Company may, at its discretion, periodically sell to Cornell Capital Partners, LP shares of common stock for a total purchase price of up to $20.0 million. For each share of common stock purchased under the Standby Equity Distribution Agreement, Cornell Capital Partners, LP will pay the Company 97% of the lowest volume weighted average price of the Company’s common stock as quoted by Bloomberg, LP on the Over-the-Counter Bulletin Board or other principal market on which the Company’s common stock is traded for the 5 days immediately following the notice date. The price paid by Cornell Capital Partners, LP for the Company’s stock shall be determined as of the date of each individual request for an advance under the Standby Equity Distribution Agreement. Cornell Capital Partners, LP will also retain 5% of each advance under the Standby Equity Distribution Agreement. Cornell Capital Partner’s obligation to purchase shares of the Company’s common stock under the Standby Equity Distribution Agreement is subject to certain conditions, including the Company obtaining an effective registration statement for shares of the Company’s common stock sold under the Standby Equity Distribution Agreement and is limited to $300,000 per weekly advance.

Cornell Capital Partners, LP received 592,000 shares of the Company’s common stock and warrants to purchase another 200,000 shares of the Company’s common stock exercisable at $1.27 per share as a one-time commitment under the Standby Equity Distribution Agreement.

The Company issued to Monitor Capital, Inc. 8,000 shares of the Company’s common stock as a placement agent fee under a placement agent agreement relating to the Standby Equity Distribution Agreement.

On May 2, 2005, the Company entered into an agreement and plan of merger by and among Identity, Inc., a Delaware corporation and Daniel R. Nelson, the Company and Airbee Automotive Group, Inc., a wholly-owned subsidiary of the Company, whereby the Company’s wholly-owned subsidiary merged with and into Identity, Inc. Pursuant to the Merger Agreement, the surviving entity became a wholly-owned subsidiary of the Company and the Company issued 7,692,808 shares of its restricted common stock (the “Purchase Price”) to Daniel R. Nelson, the sole shareholder of Identity, Inc. The shares issued to Mr. Nelson are valued at $5,000,000 (the “Merger Consideration”), which is based upon the 30-day average closing price of the Company’s common stock through April 25, 2005. Fifty percent of the Purchase Price is immediately issuable to Mr. Nelson. The remaining shares are subject to an Escrow Agreement dated May 2, 2005 (the “Escrow Agreement”), under which such shares shall only be released to Mr. Nelson upon the completion by Identity, Inc. of audited financial statements for the period

21

AIRBEE WIRELESS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005 AND 2004 (UNAUDITED)

commencing August 1, 2003 through March 31, 2005 and acceptance by the Company (in its sole discretion) and filed with the Securities and Exchange Commission no later than May 31, 2005.

Identity is based in Rancho Cordova, California and uses advance short-range wireless technology to provide total immobilization of a vehicle’s ignition system to prevent theft. Its current nationwide customer base includes dealerships representing General Motors, Ford, Daimler-Chrysler, Dodge, Toyota, Lexus, Nissan, Honda, Acura, Suzuki, Hyundai and Kia.

NOTE 15-  RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company had amended its previously issued consolidated financial statements for the year ended December 31, 2003 and period August 9, 2002 (inception) through December 31, 2002 on its report dated May 20, 2004. The Company had amended these consolidated financial statements to recognize an additional $381,513 and $48,168 in compensation and interest expense for the year ended December 31, 2003 and period August 9, 2002 (inception) through December 31, 2002. In addition, certain issuances of common stock have been restated due to valuation adjustments, the recording of unearned compensation due to the issuance of options below the fair market value (including amortization of unearned compensation of $13,748 in 2003 and 2002, respectively) and 2002 common share information has been restated to retroactively account for the stock split that occurred in September 2003. These transactions resulted in an increase in net loss applicable to common shares of $380,554 and $32,189 for the year ended December 31, 2003 and period August 9, 2002 (inception) through December 31, 2002 to a net loss of $1,360,577 and $317,046 as restated, and an increase in the deficits accumulated during the development stage to $1,677,623 and $317,046, respectively. The December 31, 2004 financial statements have been restated for the amortization of unearned compensation for the year ended December 31, 2004 by $13,748 and this has increased the loss for the year then ended to $1,136,743 as restated, and the accumulated deficit during the development stage to $2,814,366.

In addition, the Company has restated its previously issued condensed consolidated financial statements for the three month period ended March 31, 2005 and 2004 for amortization of unearned compensation of $3,747 and the reclassification of various selling, general and administrative expenses, and compensation to research and development expenses. The effect of these changes resulted in an increase of the loss for the three month period ended March 31, 2005 and 2004 of $3,747 to a net loss of $552,281 and $163,441, respectively, and an increase in the deficit accumulated during the development stage to $3,366,647.

22

Item 2. Management’s Discussion and Analysis or Plan of Operations

Three Months Ended March 31, 2005 Compared to the Three Months Ended March 31, 2004

     For the first quarter of 2005 we had no operating revenues, resulting in a net loss applicable to common shares of $552,281, or $0.013 net loss per share, compared to a net loss of $163,441 or $0.005 net loss per share for the first quarter of 2004. Cumulative net loss since inception totaled $3,366,647.

     Operating expenses for the three months ending March 31, 2005 were $523,707 as compared to $155,924 for the three months ending March 31, 2004, an increase of 236% or $367,783. The increase, as further explained below, is principally due to increases in compensation and professional fees, research and development and selling and administrative expenses. Operating expenses increased as the Company developed and implemented its business plan and commenced its reporting obligations with the SEC.

     Compensation and professional fees increased by $162,091 or 192% to $246,426 for the three months ending March 31, 2005 from 84,407 for the three months ending March 31, 2004. This increase was primarily due to a $101,506 increase in costs associated with SEC reporting and financial advisory services. The remaining increase was primarily due to increase compensation associated with the Company’s implementation of its business plan. Management expects SEC reporting costs to decrease significantly in the future.

     Research and development expenses for the three months ending March 31, 2005 increased by $150,583 or 245% to $212,070 as compared to $61,487 for the three months ending March 31, 2004. This increase was primarily due to product enhancements and product development. While a majority of the Company’s products are marketable, the Company continues to focus research and development on product extensions and incorporation into potential vendor platforms. Over the next 12 months, research and development expenses are expected to remain consistent with the three months ending March 31, 2005.

     Selling, general and administrative expenses increased for the three months ending March 31, 2005 by $52,729 or 560% to $62,129 as compared to $9,400 for the three months ending March 31, 2004. The increase was primarily due to the Company’s commencement of sales initiatives, including direct customer calling and participation in industry trade shows in the US and abroad to market its products. As the Company attempts to grow and develop its business, the Company expects selling, general and administrative expenses to increase.

     Depreciation and amortization expense increased for the three months ending March 31, 2005 by $2,452 or 389% to $3,082 as compared to $630 for the three months ending March 31, 2004. The increase was due to the purchase of equipment for the Company’s development center in Chennai, India. The Company expects to begin amortizing its intellectual property during the second quarter of 2005 now that license agreements associated with its intellectual property have been and will continue to be executed with third parties.

     Management of operating overheads helped to control costs broadly in line with the previous fiscal year, while shifting our priorities from product research and development more toward sales and marketing of finished software products. Consolidated assets rose to $362,031. Consolidated liabilities stood at $1,559,329, of which $1,051,548 constituted loans by related parties (i.e., management) to the Company. Shareholders deficit fell to $1,197,298 compared to $1,281,466 at December 31, 2004 because of the placement of $350,000 of common stock with existing shareholders.

     To date, our financial results typically reflect a development stage company. We have signed several licensing and joint development agreements with prospective clients and have successfully embedded our software onto six different hardware platforms (i.e., Motorola, Texas Instruments, Chipcon, SupaRule, Intel and WinEdge & Wireless).

     With the ZigBee Alliance releasing version 1.0 of its international standard for wireless voice and data communications on December 14, 2004, the Company signed a three-year licensing and teaming arrangement with Radiocrafts AS in April to provide ZigBee-ready solutions. Radiocrafts is a leading RF module design and manufacturing company based in Norway.

Liquidity and Capital Resources

     Since inception we have principally funded our operations from private placements of securities and management and shareholder loans and contributions. As of March 31, 2005 and 2004, the Company has $1,010,621 and $506,250 outstanding under related party notes, including $74,888 and $23,852 in accrued interest. During the quarter ended March 31, 2005, we received an aggregate of $350,000 from five investors in consideration of 982,143 shares of our common stock and 196,429 common stock purchase warrants. Proceeds have been used to pay down current payables. Although it is difficult to predict future liquidity requirements with certainty, we expect our cash requirements for working capital, product development and capital expenditures will be financed from our cash, cash equivalents and supplemented by approximately $21,000,000 of debt and equity financing from Montgomery Equity Partners LP and Cornell Capital Partners LP (See below). Most of the funding will be allocated principally for sales and marketing. It is not anticipated that any lack of funding will impact upon the license and development agreements since the software development has been completed for three of our products.

     We have incurred an accumulated deficit at March 31, 2005 of approximately $3,366,647 compared to $1,841,064 at March 31, 2004. The Company had negative working capital at March 31, 2005 of $1,381,947 compared to negative working capital of $770,643 at March 31, 2004. Management believes the acquisition subsequent to the period covered by this report of Identity, Inc. and its wireless automotive anti-theft devices will provide an ongoing source of revenue; however it will be insufficient to cover all operating costs which raise doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our obtaining adequate capital to fund losses until we become profitable.

23

     On April 26, 2005, the Company executed a promissory note in the amount of $750,000 in favor of Montgomery Equity Partners, Ltd. Pursuant to the terms of the promissory note, Montgomery Equity Partners disbursed the entire $750,000 to the Company upon the date the note was executed and an additional $250,000 will be disbursed to the Company after the Company’s common stock commences trading on the Over-the-Counter Bulletin Board. The promissory note has a one-year term and accrues interest at 24% per annum. The promissory note matures within a year from the date of execution.

     On April 26, 2005 the Company, entered into a Standby Equity Distribution Agreement with Cornell Capital Partners, LP. Pursuant to the Standby Equity Distribution Agreement, the Company may, at its discretion, periodically sell to Cornell Capital Partners, LP shares of common stock for a total purchase price of up to $20.0 million. For each share of common stock purchased under the Standby Equity Distribution Agreement, Cornell Capital Partners, LP will pay the Company 97% of the lowest volume weighted average price of the Company’s common stock as quoted by Bloomberg, LP on the Over-the-Counter Bulletin Board or other principal market on which the Company’s common stock is traded for the 5 days immediately following the notice date. The price paid by Cornell Capital Partners, LP for the Company’s stock shall be determined as of the date of each individual request for an advance under the Standby Equity Distribution Agreement. Cornell Capital Partners, LP will also retain 5% of each advance under the Standby Equity Distribution Agreement. Cornell Capital Partner’s obligation to purchase shares of the Company’s common stock under the Standby Equity Distribution Agreement is subject to certain conditions, including the Company obtaining an effective registration statement for shares of the Company’s common stock sold under the Standby Equity Distribution Agreement and is limited to $300,000 per weekly advance.

     Our principal sources of liquidity have been private placements of our securities and loans from management and shareholders. Management believes that the acquisition of Identity, Inc. on May 2, 2005 will provide surplus operating cash flow over the ensuing 12 months from our Airbee Automotive Group operations, but there will continue to be an operating cash flow deficit from the licensing of embedded software in the near term.

     Cash at March 31, 2005 and December 31, 2004, respectively, was $91,650 and $87,362. At March 31, 2005 and December 31, 2004, respectively, we had total stockholders’ deficit of $1,197,298 and $1,281,466.

     Our capital requirements depend on numerous factors including our research and development expenditures, expenses related to selling, general and administrative operations and working capital to support business growth. We anticipate that our operating and capital expenditures will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on (a) the level of our future sales (which depend, to a large extent, on general economic conditions affecting us and our customers, as well as the timing of our products’ sales cycles (especially for the newly introduced ZigBee global standard) and other competitive factors) and (b) our ability to control expenses.

     With regard to our current liabilities at March 31, 2005, $1,010,621 is payable to related party note holders and employees who have deferred repayment as well as interest. Trade payables at March 31, 2005, which are current at this time, of approximately $457,781 are outstanding and will be paid as they come due or as payment may be extended by agreement of the parties. A payment of $60,000 for certification of our ZNS software stack is our only other current obligation (other than compensation). We are required to submit payment within approximately 45 days of the date we submit our product for certification. We have set aside $60,000 from our currently available cash for such purposes.

24

     We believe that revenues will begin during the latter part of the second quarter of 2005 from our licensing and other agreements and from the acquisition of Identity, Inc. on May 2, 2005. However, we shall be dependent upon financing to accelerate our marketing activities and continue product enhancement. We anticipate monthly expenses of approximately $165,000 to $185,000 over the next several months. Based on our historical ability to obtain funding (including but not limited to the Montgomery Equity Partners Loan Noted dated April 26, 2005 and the Cornell Capital partners Standby Equity Distribution Agreement dated April 26, 2005), we believe that sufficient funds will be available until adequate revenues are generated to cover operating expenses as cash flow allows. There are no known trends that are likely to have a material impact on liquidity.

Key Operating Metrics

     With anticipated revenues commencing during the second quarter, our senior management will regularly review key financial information including net revenues, operating income or loss, earnings or loss per share, changes in deferred revenue, cash flow from operations and free cash. We define free cash as the sum of cash and cash equivalents, short and long-term investments and restricted investments less long-term debt. This information will allow us to monitor the profitability of our business and evaluate the effectiveness of investments that we have made in the areas of customer support, product development, marketing and site operations. We believe that an understanding of key financial information and how it changes over time will be important to investors, analysts and other parties analyzing our business results and future market opportunities.

Item 3. Controls and Procedures

     Evaluation of Disclosure Controls and Procedures

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

     The Company has identified certain internal control deficiencies that it considers to be reportable conditions and material weaknesses. These consist of (1) inadequate communication leading to the untimely filing of a current report with the Securities and Exchange Commission and (2) resolution of certain accounting matters. The accounting deficiencies have principally arisen in connection with comments received from the Staff of the SEC who have raised issues about various rule and other GAAP compliance matters, which pertain to the Company when it was a private entity. The Company will use its best efforts to implement necessary policies and procedures within the Company to provide adequate disclosure controls and procedures.

     Changes in Internal Controls

     No change in the Company’s internal control over financial reporting occurred during the last fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings.

     There are presently no material pending legal proceedings to which our company or our subsidiary is a party or to which any of its property is subject and, to the best of our knowledge, no such actions against our company are contemplated or threatened.

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

     Effective January 1, 2005, we issued options to purchase 150,000 shares of our common stock to Mal Gurian, in conjunction with his appointment to our board of directors. The options vest over one year in equal quarterly installments. The options are exercisable at $0.22 per share for a period of five years from the date of issuance. The options were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The options contain the appropriate legends restricting their transferability absent registration or applicable exemption. Mr. Gurian received information concerning our company and had the ability to ask questions about our company.

     In March 2005, we issued 982,143 restricted shares of our common stock to five accredited investors for $350,000. In addition, we issued 125,000 warrants to these investors at a strike price of $0.48 per share and 71,429 warrants at $0.36. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The securities contain the appropriate legends restricting their transferability absent registration or applicable exemption. The investors received information concerning our company and had the ability to ask questions concerning our company.

     Effective March 1, 2005, we issued options to purchase 1,000,000 shares of our common stock to David McCartney, in conjunction with his employment agreement with the company. The options are exercisable at $0.38 per share for a period of five years from the date of issuance. The options were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act. The options contain the appropriate legends restricting their transferability absent registration or applicable exemption. The employee received information concerning our company and had the ability to ask questions concerning our company.

Item 3. Defaults upon Senior Securities.

     None.

Item 4. Submission of Matters to a Vote of Security Holders.

     None.

Item 5. Other Information.

     None.

Item 6. Exhibits

(a) Documents filed as part of this Form 10-QSB.

31.1	Rule 13a-14(a)/15d-4(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-4(a) Certification of Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer

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SIGNATURES

     In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: July 21, 2005

AIRBEE WIRELESS, INC.
By:	/s/ Sundaresan Raja
	Sundaresan Raja
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ Richard P. Sommerfeld, Jr.
	Richard P. Sommerfeld, Jr.
	Principal Financial Officer

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