UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 5, 2005
(April 4, 2005)
PEGASUS WIRELESS CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 000-30807 65-0904572
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
48499 Milmont Dr., Freemont, CA 94538
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 490-8288
CEO Channel.com, Inc., 11408 Orchard Park, Suite 311, Glen Allen, VA 23059
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
- ----------------------
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
|_| Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
SECTION 2 - FINANCIAL INFORMATION
Item 2.01 Completion of Acquisition or Disposition of Assets.
On April 4, 2005, Pegasus Wireless, Corp., (the Company or Pegasus), acquired
CEO Channel.com, Inc., (CEOC). As a result of this acquisition, Pegasus is
filing this Form 8-K and future forms, as required under the Exchange Act of
1934, as amended, as successor to CEOC.
Pursuant to this agreement, Pegasus is issuing 3,000,000 shares of its
restricted common stock to settle in full convertible debt of CEOC and the
outstanding 12,200,000 shares of CEOC common stock, (held by the same parties
holding the convertible debt), are being contributed back to CEOC for
cancellation.
Business
OTC Telecom (the Company), that changed its name to OTC Wireless in 2000 to
better reflect the nature of the company's core business, was incorporated in
September, 1993 as a California Corporation. The company began its operation in
November 1993 in Sunnyvale, California. OTC Wireless was founded by a group of
experienced technologists from microwave communication and computer networking
industries. The company's major business is in providing wireless communication
technologies and products to serve the business, education and industrial
application markets.
The company introduced its 900MHz spread spectrum wireless Ethernet bridge in
1995, the industry's first true plug-and-play wireless network solution. The
Company also submitted its first patent application based on the spread spectrum
receiver technology developed for this product.
In 1996 the company introduced the industry's first 2.4 GHz plug-and-play
wireless Ethernet bridge, AirEZY, and the 2.4GHz wireless serial radio modem,
ADAM, both based on the Company's direct sequence spread spectrum technology.
In 1998, the Company introduced the enhanced AiEZY series of wireless radios by
combining the plug- and-play feature with the WIPP (wireless internet polling
protocol) multiple access scheme developed by the Company, to provide a
collision-free, adjustable bandwidth wireless access solution platform. In the
same year, the Company also introduced the industry's first 2.4GHz IEEE 802.11b
wireless bridge.
In 2000, the Company introduced the industry's first 54Mbps IEEE 802.11g
plug-and-play indoor and outdoor wireless Ethernet bridge solutions, AVCW and
ASR/ACR.
In 2002, the Company introduced a plug-and-play wireless serial communication
solution, WiSER, for connecting the interactive whiteboard and the computer in
the classrooms as well as the meeting rooms. In the same year the Company
introduced the 802.11b wireless projector/display solution, WiJET.
2
In 2004, the Company introduced the new generation of plug-and-play WiSER, the
WiSER.ip that converts the conventional serial (RS-232) communication based
"dumb" industrial devices into TCP/IP capable, intelligent network nodes. The
Company also introduced two new wireless display solutions based on the 54Mbps
IEEE 802.11g technology: WiJET.G, and WiJET.Video that supports streaming MPEG1
and MPEG2 video files from a computer to a projector, LCD TV or plasma flat
panel display, wirelessly.
The Company has applied and been awarded patents, based on the Company's spread
spectrum receiver signal processing technology, the WIPP technology, the
plug-and-play technology and the wireless display technology:
"Non-coherent direct sequence spread spectrum receiver for detecting
bit/symbol chip sequences using threshold comparisons of chip sequence
correlation," US patent no. 5,687,190, awarded 11/11/1997.
"A robust system for wireless projection of computer display and
rendering of motion video contents," US patent application no.
60/542,247, filed on 2/4/2004, pending.
The Company initialized the following provisional patent applications and
decided not to continue with formal applications due to obsolesce caused by
newer technology development:
"Multiple access scheme for wireless internet connection," US patent
application no. 09/660,285, filed 9/16/1999. Japanese patent
application no. 2000-281792, filed 9/18/2000.
"Wired protocol to wireless protocol converter," US patent application
no. 10/209,118, filed 7/30/2002.
"USB-interface radio," US patent application no. 60/388,553, filed
6/12/2002.
Today, the Company offers the following products in three major application
areas:
For indoor and outdoor wireless networking:
AVCW*-AP:
11Mbps outdoor wireless access point
AVCW*-BRG:
11Mbps outdoor wireless bridge station
AVCW*-AP-G:
54 Mbps outdoor wireless access point
AVCW*-BRG-G:
54 Mbps outdoor wireless bridge station
3
ASR:
11 Mbps indoor wireless access point
ACR:
11Mbps indoor wireless bridge station
ASR-G:
54 Mbps indoor wireless access point
ACR-G:
54 Mbps indoor wireless bridge station
* All AVCW models offer two integrated antenna options: 9dBi and 15 dBi; and
a third option of a Type-N connector for external antenna connection.
For industrial wireless networking solutions:
WiSER:
11 Mbps wireless serial modem
WiSER.ip:
11 Mbps wireless serial TCP/IP modem
For wireless multimedia/video networking solutions:
WiJET:
11 Mbps wireless display solution
WiJET.G:
54 Mbps wireless display solution
WiJET.Video:
54 Mbps wireless display solution with video streaming
OTC Wireless has been delivering products to customers since 1995, both
domestically and overseas. In addition to system integrators, value-add
resellers and end users worldwide, the Company also offers products to major
account customers who either bundle OTC Wireless's solution to their own
products, or carry OTC Wireless's products under their own names by private
labeling or OEM the custom designed products from the Company. Over the years
the Company's major account customers include our Japanese partners CallUS
Computers, WI, NTT-ME and Showa Electric Cable Company (SWCC); Smart
Technologies of Canada, Lexmark in the US and a major worldwide network
equipment provider based in Taiwan.
The AVCW series of outdoor wireless Ethernet bridge products are used by
Internet service providers (ISPs) to offer high speed Internet access to their
customers wirelessly. They are also used by business customers and schools to
interconnect computer networks in different buildings. When used in a point to
point configuration, a pair of AVCW radios can reach a distance up to 20 miles.
In a point to multiple- point configuration, the radius of a "coverage cell"
typically ranges between 3 to 5 miles. Working with its service provider
partners, the Company has deployed numerous wireless broadband Internet networks
domestically as well as overseas, including Japan, China and South America.
The Company's ASR and ACR indoor wireless products are used in the wireless
local area networks (WLAN) by office and home users to interconnect computers
without having to deploy cables. Being designed as a true plug-and-play wireless
4
solution, OTC Wireless's radios require no installation of software drivers, and
can be used to wirelessly interlink any devices equipped with the RJ-45 Ethernet
port, not only computers. For example, they can be used to enable wireless
printing, connecting computers and network printers. They can also be used to
connect the game consoles such as X-Box, Play Station or Game Cuble with the
wireless home gateways.
The WiSER series wireless serial radios are used by both industrial and
education users. Teachers in the schools use WiSER to wirelessly interconnect
the interactive whiteboards to the computers in the classrooms. Industrial users
use the WiSER to connect the central control computer to the remote data
collecting and sensing devices.
The WiJET series products are used by both business and education customers.
Presenters in a business meeting or teachers in the classroom can deliver their
Powerpoint slide shows to the audience in the most convenient location with
their computers wirelessly connected to the projector without the restriction of
the tethering VGA cable. Home users can use WiJET to deliver the movie files
stored in their computer hard drives to the LCD or plasma flat panel TV
wirelessly.
Continuing its tradition of innovation, the Company has a number of new products
in the pipeline. The Company is planning to introduce a new generation of
wireless access point products that operate in multiple frequency bands and
supports backbone and last-mile functions from a simple, easy to install
package. The Company also is developing its next generation wireless multi-media
solution that delivers enhanced video streaming and audio performance and
computer presentation capability over the wireless connectivity between the
computer and the remote display/sound devices.
SECTION 5 - CORPORATE GOVERNANCE AND MANAGEMENT
Item 5.01 Change in Control of Registrant.
With the issuance of 3,000,000 shares of Common Stock to holders of the
convertible debt, and the retirement of CEOC's 12,200,000 common shares
completing the acquisition of CEOC, the former holders of capital stock of CEOC
became minority holders of the capital stock of Pegasus. The change of control
of CEOC was effected solely by the issuance of newly issued shares of the
Company to the former convertible debt-holders and shareholders of CEOC upon the
Acquisition without any other consideration.
Item 5.02 Departure of Directors or Principal Officers; Election of Directors;
Appointment of Principal Officers.
(a) Effective on April 4, 2005, and upon the Acquisition, the then officers
and directors of CEOC resigned and were replaced by persons who have been
officers and directors of Pegasus. See 5.02(c) of this report on Form 8-K.
(b) See 5.02(c) of this report on Form 8-K.
5
(c) The following persons became the executive officers and directors of
CEOC on April 4, 2005. Prior to the Acquisition, such persons had no
relationship with CEOC. They are also the officers and directors of Pegasus.
Name Age Position
- ------------------ ----- -----------------------------------------------------
Alex Tsao 52 Chief Executive Officer and Chairman of the Board of
Directors
Jasper Knabb 37 President and Director
Stephen Durland 50 CFO and Director
Caspar Lee 51 Director
Jerry Shih 56 Director
ALEX TSAO, CHAIRMAN AND CEO
Dr. Tsao is the Company's founding CEO. He has more than 20 years
experience in the microwave communication and satellite communication industry.
He has served in both technical and management positions during his association
with Globalstar, Loral Space Systems and Ford Aerospace prior to OTC Wireless.
From 1991 to 1993 he was the technical manager for the satellite communication
payload system for Globalstar, a low earth orbit (LEO) satellite mobile
communication service provider. He was involved in the system design and
development for both the space and the ground segments for the geosynchronous
earth orbit (GEO) communication satellite systems during his tenure with Loral
Space Systems between 1988 and 1991. He was involved in the microwave
communication system development while working for Ford Aerospace during the
1981 to 1988 period. Dr. Tsao received his Ph.D. degree from the University of
Illinois, Champaign-Urbana in 1981 and his Master's degree from Duke University
in 1978, both in Electrical Engineering. Dr. Tsao has been awarded 11 US
patents.
JASPER KNABB, PRESIDENT AND DIRECTOR
Mr. Knabb has more than 15 years experience in the high tech industry. His
expansive involvement in the technology business encompasses PC manufacturing
and sales, computer gaming software development, Internet service provider and
wireless system development and marketing. Prior to Pegasus Wireless, Mr. Knabb
was the President of Wireless Frontier from 2003 to 2004 and was responsible for
successfully bringing the company to public. Prior to Wireless Frontier, Mr.
Knabb was a Managing Director at OTC Wireless responsible for business
development from 2001 to 2002. Prior to OTC Wireless, Mr. Knabb founded and
became the President of Beach Access, an Internet service providing company, in
1998, and successfully sold the company in 2000. Between 1985 and 1998, he was
the owner and the President of Microland, a PC retailing business, and SEI, a
console game developer.
STEPHEN DURLAND, CFO AND DIRECTOR
Mr Durland has been the president of Durland & Company, CPAs, PA, since he
founded it in 1991. Durland & Company has specialized in the audits of micro-cap
public companies since its founding. In addition its clients have had operations
in 18 foreign countries, giving the firm very heavy international experience.
Mr. Durland has been a Director of Children's Place at Homesafe, Inc. since
6
1998. It is a local non-profit serving the needs of abused and/or terminally ill
children. He has been a Director of Medical Makeover Corporation of America
since June 2004 and Union Dental Corp. since January 2005. Both of these
companies are listed on the OTC Bulletin Board. He has also been a Director of
ExpressAir Delivery Systems, Inc. since 1999 and Global Eventmakers, Inc. since
2003. These companies are private companies expecting to become publicly traded
in 2005. He was a Director of two other OTC BB listed companies. He was
CFO/Acting CFO for five private companies and four other OTC BB listed
companies. These CFO/Acting CFO positions have primarily been interim in nature
and term to assist these companies through periods when they could either not
afford or did not need a full-time CFO. Prior to Durland & Company he was
responsible for the back-office operations and accounting for two companies with
investment portfolios of $800 and $900 million and $36 billion (face amount) of
futures and options transactions. Prior to that he was a Registered
Representative for two years. Mr. Durland received his BAS in Accounting from
Guilford College in 1982 and has been a CPA in 14 states. He has had two
professional articles published.
CASPAR LEE, DIRECTOR
Mr. Lee has been the President of Paradigm Venture Partners since 2001.
Paradigm is an Asia based venture investment firm Mr. Lee co- founded. He has
more than 25 years experience in the electronics industry and high-tech venture
investment business. Between 1991 and 2001, Mr. Lee was the Senior Vice
President of Hotung International Investment Group, an Asia based investment
firm with more than 170 portfolio companies in Taiwan, Singapore, Hong Kong,
Malaysia, China, Israel, Canada and U.S. Between 1987 and 1991, Mr. Lee was the
President of Astra Computers, a motherboard design and manufacturing company
based in Taiwan. Between 1983 and 1987, Mr. Lee was a Hardware Design Manager at
Sytek Corp., a Mountain View, California based broadband local area network
manufacturer. From 1981 to 1983, Mr. Lee was a Hardware Design Engineer at
Ungermann-Bass Corp., Santa Clara, California. Between 1979 and 1981, Mr. Lee
was a CPU Design Engineer at Intel Corp., Santa Clara, California. From 1978 to
1979, Mr. Lee worked as a SRAM Design Engineer at Texas Instruments, Houston,
Texas. Mr. Lee received his Master degree in Electrical Engineering from
University of California, Berkeley in 1978 and his MBA degree from University of
Santa Clara, Santa Clara, California in 1986.
JERRY SHIH, DIRECTOR
Mr. Shih is the founder and, since 1985, the Chairman and CEO of AMAX
Engineering Corporation, a PC system and peripheral solution provider. He has
more than 25 years' experience in the computer manufacturing and channel
distribution business. He is also the Chairman and CEO of AMAX Information
Technologies, an IT solution provider; President of ASKE Media Inc., an
e-commerce software solution provider and Chairman of Advanced Semiconductor
Engineering Technologies, a semiconductor equipment service provider. He was an
Engineering Manager at VLSI Technology between 1984 and 1985. From 1978 to 1984,
he was an Engineering Manager at Signetics Corporation. He was an Engineer at
MostekCorporation between 1977 and 1978. Mr. Shih received his Master's degree
in Industrial Engineering from University of Arizona in 1977.
7
Executive Compensation of Pegasus's Officers
The officers of Pegasus became the officers of the CEOC after the closing
of the Acquisition. The following table sets forth the compensation earned
during the years ended June 30, 2004 and 2003 by Pegasus (OTC Wireless) officers
who, on April 4, 2005, became officers of the Company:
Long Term
Compensation
Annual Compensation Awards
------------------------------------
Securities
Underlying
Name And Principal Position Salary($) Bonus($) Options
- -------------------------------------------------------------------------------
Alex Tsao, Chief Executive Officer, 2004 $ 120,000 $ 0 $ 0
and Director 2003 $ 120,000 $ 0 $ 0
2004 $ 0 $ 0 $ 0
Jasper Knabb, President 2003 $ 0 $ 0 $ 0
Stephen Durland, CFO 2004 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0
- ---------------------------
Related Party Transactions
None
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
As a result of the acquisition of CEO Channel by Pegasus, CEO Channel is
changing its fiscal year end to that of Pegasus, June 30, effective on April 4,
2005, the date of the acquisition.
Item 5.05 Amendments to the Registrant's Code of Ethics, or Waiver of a
Provision of the Code of Ethics.
Effective on April 4, 2005, the Company adopted a Code of Ethics (filed hereto
as Exhibit 14.1). Prior thereto, the Company had no formal, written code of
ethics.
SECTION 8 - OTHER EVENTS
Item 8.01 Other Events.
A. Certificate of Incorporation and By-laws.
SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS
Item 9.01 Financial Statements and Exhibits
A. Financial Statements of Business Acquired
OTC Wireless, Inc.Financial Statements for the years ended June 30, 2004
and 2003 and for the six months ended December 31, 2004 and 2003, with
independent auditors report (including Balance Sheets, Statement of Operations,
Statements of Shareholders' Equity, Statement of Cash Flows, and Notes to
Consolidated Financial Statements) filed hereto as Exhibit to this Form 8-K.
8
B. Pro Forma Financial Information
Unaudited Pro Forma Condensed Financial Statements of Pegasus, OTC and
United (including Balance Sheet, Statement of Operations and Notes to Financial
Statements) as of and for the quarter ended December 31, 2004 filed hereto as
Exhibit 99.2 to this Form 8-K.
C. Exhibits
Exhibit No. Description
- ----------------------------------------------------------------------
10.1 * Share and Exchange Agreement, dated as of April 4, 2005, by and
among the Company, Pegasus and the convertible debt-holders and
shareholders of CEOC.
10.2 * Share and Exchange Agreement, dated as of November 5, 2004, by
and among Pegasus (f/k/a Homeskills, Inc.), and the shareholders
of OTC Wireless, Inc.
14.1 * Code of Ethics
17.1 * Letter of Resignation of Larry Creeger.
- -------------------
* Filed herewith.
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 hereunto duly authorized.
PEGASUS WIRELESS CORP.
April 5, 2005 By: /s/ Stephen Durland
-------------------------
Name: Stephen Durland
Title: CFO
9
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report.................................................F-2
Balance Sheets...............................................................F-3
Statement of Operations......................................................F-4
Statement of Stockholders' Equity............................................F-5
Statement of Cash Flows......................................................F-6
Notes to Financial Statement.................................................F-7
F-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
OTC Wireless, Inc.
Freemont, California
We have audited the accompanying balance sheet of Smart Technology, Inc., as of
June 30, 2004, and the related statements of income, changes in stockholders'
equity and cash flows for each of the two years in the period ended June 30,
2004. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of OTC Wireless, Inc. as of June
30, 2004 and 2003, and the results of its operations and its cash flows for each
of the two years in the period ended June 30, 2004, in conformity with U.S.
generally accepted accounting principles.
/s/Pollard-Kelley Auditing Services, Inc.
Pollard-Kelley Auditing Services, Inc.
Fairlawn, Ohio
August 4, 2004
F-2
OTC Wireless, Inc.
Balance Sheet
December 31,
2004 June 30, 2004
------------------- -------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 828,931 $ 298,045
Accounts receivable 505,128 421,916
Inventory 429,458 265,146
Prepaid expenses 24,713 11,475
------------------- -------------------
Total current assets 1,788,230 996,582
------------------- -------------------
FIXED ASSETS
Total fixed assets, net 176,488 226,819
------------------- -------------------
OTHER ASSETS
Deposits 16,186 31,186
------------------- -------------------
16,186 31,186
------------------- -------------------
Total Assets $ 1,980,904 $ 1,254,587
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 443,871 $ 514,258
Accrued expenses 62,349 102,508
Customer deposits 6,688 63,858
Short-term note 1,554,980 0
------------------- -------------------
Total current liabilities 2,067,888 680,624
------------------- -------------------
LONG-TERM DEBT
Note payable - related party 0 504,231
------------------- -------------------
Total long-term liabilities 0 504,231
------------------- -------------------
Total liabilities 2,067,888 1,184,855
------------------- -------------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, authorized 35,000,000 shares; Series A -
3,816,000, Series B-3,052,632, Series C- 1,379,310, Series D- 2,999,264,
Series E-3,308,000, Series F- 740,000 issued and outstanding, respectively 12,663,209 12,663,209
Common stock, no par value, authorized 50,000,000 shares;
5,645,287 issued and outstanding, respectively 416,865 416,865
Accumulated deficit (13,167,057) (13,010,342)
------------------- -------------------
Total stockholders' equity (86,983) 69,732
------------------- -------------------
Total Liabilities and Stockholders' Equity $ 1,980,905 $ 1,254,587
=================== ===================
The accompanying notes are an integral part of the financial statements
F-2
OTC Wireless, Inc.
Statement of Operations
Six Months Six Months
Ended Ended
December 31, December 30, Year Ended Year Ended
2004 2003 June 31, 2004 June 30, 2003
-------------------- --------------------- ----------------- -----------------
(unaudited) (unaudited)
REVENUES $ 1,859,335 $ 1,893,187 $ 3,136,817 $ 4,339,706
COST OF SALES 1,003,501 869,491 1,565,592 2,627,215
-------------------- --------------------- ----------------- -----------------
GROSS MARGIN 855,834 1,023,696 1,571,225 1,712,491
OPERATING EXPENSES
General and administrative expenses 940,671 1,342,843 2,385,841 3,373,989
Depreciation 56,775 83,078 155,196 197,706
-------------------- --------------------- ----------------- -----------------
Total expenses 997,446 1,425,921 2,541,037 3,571,695
-------------------- --------------------- ----------------- -----------------
Income (loss) from operations (141,612) (402,225) (969,812) (1,859,204)
OTHER INCOME (EXPENSE)
Interest income 0 6,016 6,751 25,581
Interest expense (15,503) 0 (25,000) (10,550)
Other income (expense) 0 0 0 44,249
-------------------- --------------------- ----------------- -----------------
Total other income (expense) (15,503) 6,016 (18,249) 59,280
-------------------- --------------------- ----------------- -----------------
Income (loss) before income taxes (157,115) (396,209) (988,061) (1,799,924)
Provision for income taxes 400 400 (800) (800)
-------------------- --------------------- ----------------- -----------------
Comprehensive loss $ (156,715) $ (395,809)$ (988,861)$ (1,800,724)
==================== ===================== ================= =================
Loss per weighted average common share $ (0.03) $ (0.08) $ (0.19) $ (0.35)
==================== ===================== ================= =================
Number of weighted average common shares
outstanding 5,645,287 5,124,784 5,177,987 5,124,784
==================== ===================== ================= =================
The accompanying notes are an integral part of the financial statements
F-4
OTC Wireless, Inc.
Statement of Stockholders' Equity
Total
Number of Shares Value of Stock Stockholders'
------------------------- ----------------------------- Accumulated Equity
Pfd Common Pfd Common Deficit (Deficiency)
------------ ------------ -------------- ------------- ------------- -------------
BEGINNING BALANCE, June 30,
2002 15,195,206 5,124,784 $ 12,413,209 $ 108,538 $ (10,220,757) $ 2,300,990
Issuance of preferred stock 100,000 0 250,000 0 0 250,000
Net loss 0 0 0 0 (1,800,724) (1,800,724)
------------ ------------ -------------- ------------- ------------- -------------
BALANCE, June 30, 2003 15,295,206 5,124,784 12,663,209 108,538 (12,021,481) 750,266
Issuance of common stock for services 0 212,811 0 108,327 0 108,327
Common stock issued for cash 0 307,692 0 200,000 0 200,000
Net income (loss) 0 0 0 0 (988,861) (988,861)
------------ ------------ -------------- ------------- ------------- -------------
BALANCE, June 30, 2004 15,295,206 5,645,287 12,663,209 416,865 (13,010,342) 69,732
=======
Net income (loss) 0 0 0 0 (156,715) (156,715)
------------ ------------ -------------- ------------- ------------- -------------
ENDING BALANCE, December 30,
2004 (unaudited) 15,295,206 5,645,287 $ 12,663,209 $ 416,865 $ (13,167,057) $ (86,983)
============ ============ ============== ============= ============= =============
The accompanying notes are an integral part of the financial statements
F-5
OTC Wireless, Inc.
Statement of Cash Flows
Six Months Six Months
Ended Ended Year Ended Year Ended
December 31, December 30, June 30, June 30,
2004 2003 2004 2003
----------------- ----------------- ----------------- ---------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (156,715) $ (395,809)$ (988,861) $ (1,800,724)
Adjustments to reconcile net loss to net cash used by
operating activities:
Depreciation and amortization 56,775 83,078 155,196 197,706
Loss on disposal of assets 0 0 18,541 404
Stock issued for services 0 0 108,327 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (83,212) 544,967 271,137 627,132
(Increase) decrease in inventory (164,312) 64,005 193,578 72,408
(Increase) decrease in prepaid expenses (13,238) 18,269 31,673 13,586
Increase (decrease) in accounts payable (70,387) (257,205) (438,842) (549,419)
Increase (decrease) in accrued expenses (40,159) (31,126) (9,222) (25,132)
Increase (decrease) in customer deposits (57,170) (884,530) (831,300) 788,819
----------------- ----------------- ----------------- ---------------
Net cash used by operating activities (528,418) (858,351) (1,489,773) (675,220)
----------------- ----------------- ----------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets 0 0 (12,225) (48,323)
Proceeds from the sale of fixed assets 0 0 11,616 0
Decrease in deposits 15,000 0 25,392 0
----------------- ----------------- ----------------- ---------------
Net cash from investment activities 15,000 0 24,783 (48,323)
----------------- ----------------- ----------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds of notes payable - related party 1,006,899 0 4,231 498,353
Proceeds from issuance of common stock 0 0 200,000 0
Proceeds from issuance of preferred stock 0 0 0 250,000
----------------- ----------------- ----------------- ---------------
Net cash provided by financing activities 1,006,899 0 204,231 748,353
----------------- ----------------- ----------------- ---------------
Net increase (decrease) in cash 493,481 (858,351) (1,260,759) 24,810
----------------- ----------------- ----------------- ---------------
CASH, beginning of period 298,045 1,558,804 1,558,804 1,533,994
----------------- ----------------- ----------------- ---------------
CASH, end of period $ 791,526 $ 700,453 $ 298,045 $ 1,558,804
================= ================= ================= ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid in cash $ 0 $ 0 $ 0 $ 1,920
================= ================= ================= ===============
Income taxes paid in cash $ 0 $ 0 $ 800 $ 800
================= ================= ================= ===============
Non-Cash Financing Activities:
Common stock issued for acquisition $ 0 $ 0 $ 0 $ 0
================= ================= ================= ===============
The accompanying notes are an integral part of the financial statements
F-6
OTC Wireless, Inc.
Notes to Financial Statements
(Information with regard to the six months
ended December 31, 2004 and 2003 is unaudited)
NOTE 1 - THE COMPANY
OTC Wireless, Inc., (the Company) was incorporated under the laws of the State
of California on September 21, 1993. The Company is engaged in the business of
designing, manufacturing and marketing wireless hardware and software solutions
for broadband fixed, portable networking and Internet access.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements have been prepared on a going
concern basis. As of December 31, 2004, the Company had an accumulated deficit
of $13,167,057 and suffered losses since inception, until the three months ended
September 30, 2004. Management has implemented workforce reduction, pay cut and
other cost saving programs to reduce the operating expenses. In addition, the
Company also plans to enlarge the customer base, increase the sales volume and
institute more effective management techniques. Management believes these
factors will contribute toward achieving profitability and providing sufficient
cash and financing commitments to meet its funding requirements over the next
year. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of assets and liabilities that may result from
the outcome of this uncertainty.
Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid investments with maturity of three months or less
when purchased to be cash equivalents.
Revenue Recognition - The Company recognizes revenue from product sales when
units are shipped, provided no significant obligation remains and collection is
probable.
Inventory - The Company values its inventory at the lower of cost or market,
cost determined using the standard cost method. The Company also utilizes the
reserve method to account for slow moving and obsolete inventory. The reserve
for inventory obsolescence was $900,961 and $656,004 at June 30, 2003 and 2002
respectively.
Estimates - The preparation of 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. Actual results could differ from those estimates.
Loss Per Share - Loss per share is computed using the Weighted Average Number of
common shares outstanding during the fiscal year.
Concentration of Credit Risk - The Company extends credit, based on the
evaluation of each customer's financial condition, and generally requires no
collateral from its customers. Credit losses, if any have been provided for in
the financial statements and have been generally within management's
expectations. For the fiscal year ended June 30, 2003, three customers accounted
for 46% of the Company's total sales and 71% of the accounts receivable balance.
Also, two vendors accounted for 39% of the Company's total purchases and 97% of
the accounts payable balance.
F-7
OTC Wireless, Inc.
Notes to Financial Statements
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
For the year ended June 30, 2002, two suppliers accounted for 72% of the
Company's total purchases and 89% of the accounts payable balance.
During the years ending and at June 30, 2003 and 2002, the Company had deposits
in banks in excess of the FDIC insurance limit.
Advertising - The Company expenses the production costs of advertising as they
are incurred. Advertising expense was $47,408 and $12,959 for the years ending
June 30, 2003 and 2002 respectively.
Shipping and Handling Costs - The Company incurs and bills shipping and handling
costs related to the sales of its products. Amounts billed customers in sales
transactions for shipping and handling are recorded as credit to shipping
expenses. The net freight were $13,699 and 20,460 for the years ending June 30,
2003 and 2002 respectively.
Interim financial information - The financial statements for the six months
ended December 31, 2004 and 2003 are unaudited and include all adjustments which
in the opinion of management are necessary for fair presentation, and such
adjustments are of a normal and recurring nature. The results for the six months
are not indicative of a full year results.
NOTE 3 ACCOUNTS RECEIVABLE
The Company uses the allowance method to account for its doubtful accounts. The
allowance for doubtful accounts is based on management's estimates. Accounts
receivable as of June 30, 2003 and 2002 consist of the following:
Trade accounts receivable $ 697,253 $1,369,405
Sales return allowance -0- (2,000)
Allowance for doubtful accounts (4,200) (47,220)
---------- ----------
Total $ 693,053 $1,320,185
NOTE 4 INVENTORY
The Company values its inventory at the lower of cost or market, cost determined
using the standard cost method. The Company also utilizes the reserve method to
account for slow moving and obsolete inventory. Inventory as of June 30, 2003
and 2002 consist of the following:
Raw Materials $1,359,685 $1,098,077
Work in process -0- 61,706
Consigned goods -0- 27,353
Less: Reserve for obsolescence (900,961) (606,004)
---------- -----------
Total $ 448,724 $ 531,132
NOTE 5 NOTES PAYABLE
On March 6, 2003, the Company obtained a loan, totaling $500,000 from one of its
stockholders. The loan shall be due and payable in two years. It bears interest
at 5% per annum with quarterly payments. The total interest accrued on this loan
at June 30, 2003 was $8,630.
F-8
OTC Wireless, Inc.
Notes to Financial Statements
NOTE 6 FIXED ASSETS
Fixed assets are stated at cost. Maintenance, repairs and renewals are expensed
as incurred. Maintenance, repairs and renewals are expensed as incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives ranging from 3 to 7 years. Fixed assets as June 30, 2003 and 2002
consist of the following:
2003 2002
----------- ----------
Furniture and fixtures $ 120,180 $ 120,180
Machinery and equipment 595,750 590,321
Automobiles 38,466 38,466
Computer equipment 187,682 175,028
Software 328,007 298,754
Leasehold improvements 25,961 25,740
----------- ----------
Total 1,296,046 1,248,480
Less: Accumulated depreciation (896,099) (698,746)
----------- ----------
Net $ 399,947 $ 549,734
NOTE 7 STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 50,000,000 shares of
common stock and 35,000,000 shares of preferred stock. The stock is no par
value.
There are 5,124,784 shares of common stock outstanding at June 30, 2003 and
2002.
There are six series of preferred stock; Series A - 3,816,000 authorized and
outstanding shares at June 30, 2003 and 2002; Series B - 3,052,632 authorized
and outstanding shares at June 30, 2003 and 2002; Series C - 1,379,310
authorized and outstanding shares at June 30, 2003 and 2002; Series D -
2,999,264 authorized and outstanding shares at June 30, 2003 and 2002; Series E
- - 3,308,000 authorized and outstanding shares at June 30, 2003 and 2002; and
Series F - 740,000 and 640,000 shares authorized and outstanding shares at June
30, 2003 and 2002 respectively.
Holders of the Series A, Series B, and Series C are entitled to receive
distributions as declared by the board of directors. Dividends to common
shareholders are restricted until the aggregate distributions to Series A
holders equals $.25 per share, to Series B holders equals, $.49 per share and
Series C holders equals $.725 per share.
Holders of Series D, Series E and Series F are entitled to receive distributions
as declared by the board of directors at the rate of $.086 per share of Series
D, $.10 per share of Series E, and $.125 per share of Series F. Common share
dividends are restricted unless are dividends are paid to holders of Series D,
Series E, and Series F preferred stock.
Preferred stockholders receive preference and a premium of $.25 per share of
Series A, $.4915 per share of Series B, $.725 per share of Series C, $1.075 per
share of Series D, $1.25 per share of Series E, and $2.50 per share of Series F.
The premium amounts are reduced by the aggregate dividends per share theretofore
paid on the shares outstanding.
F-9
OTC Wireless, Inc.
Notes to Financial Statements
NOTE 7 STOCKHOLDERS' EQUITY, continued
Each share of preferred stock shall be convertible, at the option of the holder
thereof, at any time, into such number of shares as determined by the following
conversion rates; Series A $.25 per share, Series B $.4915 per share, Series C
$.725 per share, Series D $1.075 per share, Series E $1.25 per share, and Series
F $2.50 per share. Each share shall automatically convert into shares of common
stock at the above conversion rates immediately prior to the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, covering the offer and sale of
common stock at a price per share of $7.50 and an aggregate offering price of
not less than $20,000,000. There are certain adjustments to the conversion price
for dilution and dividends paid.
The holder of each share of preferred stock has the right to one vote for each
share of common stock into which such share of preferred stock could be
converted. The voting rights are equal in all respects to the common share
voting rights. Special rights exist for voting for directors. Series A holders
are entitled to elect two members of the board of directors. Series B, C and D
holders are each entitled to elect one member to the board of directors. Holders
of Series E are entitled to elect one member to the board of directors if at
lease 1,000,000 shares of Series E preferred are outstanding. And Series F
holders are entitled to elect one member to the board of directors if the
outstanding shares of Series F preferred constitute at least ten percent of the
outstanding capital of the Company. Converted preferred shares shall be canceled
upon conversion.
NOTE 8 OPERATING LEASES
On September 1, 2000 the Company entered into an operating lease expiring August
31, 2005, for office space. The base rent is to be increased by 4% on the
anniversary of the effective date. The total rental expense for the years ended
June 30, 2003 and 2002 was $388,826 and $302,576 respectively.
Future minimum lease payments for the remaining lease term are as follows:
Year ending June 30,
2004 $327,266
2005 $340,356
2006 $57,092
F-10
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Pro forma Consolidated Balance Sheet........................................F-12
Pro forma Consolidated Statements of Operations.............................F-13
Notes to Pro forma Consolidated Financial Statement........................F-14
F-12
PEGASUS WIRELESS CORP.
Pro forma Consolidated Balance Sheet
(Unaudited)
December 31, 2004
CEO
Pegasus OTC Channel.
Wireless Wireless, com, Proforma
Corp. Inc. Inc. Adjustments Proforma
--------------- ------------- ------------- -------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 0 $ 828,931 $ 15,000 $ 843,931
Accounts receivable 0 505,128 0 505,128
Inventory 0 429,458 0 429,458
Prepaid expenses and other current assets 0 24,713 0 24,713
--------------- ------------- ------------- -------------
Total current assets 0 1,788,230 15,000 1,803,230
--------------- ------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT
(Net of accumulated depreciation) 0 176,488 0 176,488
--------------- ------------- ------------- -------------
Total property, plant and equipment 0 176,488 0 176,488
--------------- ------------- ------------- -------------
OTHER ASSETS
Investment in subsidiaries 0 0 0 a) 13,077,074
c) 15,000
d) (13,092,074) 0
Other 0 16,186 0 16,186
--------------- ------------- ------------- -------------
Total other assets 0 16,186 0 16,186
--------------- ------------- ------------- -------------
Total Assets $ 0 $ 1,980,904 $ 15,000 $ 1,995,904
=============== ============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0 $ 443,871 $ 0 $ 443,871
Accrued expenses 0 62,349 0 62,349
Customer deposits 0 6,688 0 6,688
Short-term notes payable - related party 0 552,380 18,200 c) (18,200) 552,380
--------------- ------------- ------------- -------------
Total current liabilities 0 1,065,288 18,200 1,065,288
--------------- ------------- ------------- -------------
LONG-TERM DEBT
Long-term note payable - related party 0 0 0 0
--------------- ------------- ------------- -------------
Total long-term debt 0 0 0 0
--------------- ------------- ------------- -------------
Total Liabilities 0 1,065,288 18,200 1,065,288
--------------- ------------- ------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, n/a, no, no par value; n/a,
35,000,000 and 10,000,000 shares authorized;
n/a, 15,295,206 and 0 issued and outstanding n/a 12,663,209 0 a) (12,663,209) 0
Common stock, $0.0001,no, $0.0001 par value;
100,000,000, 50,000,000 and 50,000,000 shares
authorized; 39,190,985, 5,645,287 and
12,200,000 shares issued and outstanding 3,919 416,865 1,220 a) 12,663,209
a) 2,170
b) (3,000)
c) 300
c) (1,220)
d) (13,080,074) 3,389
Additional paid-in capital 1,068,975 0 233,760 a) 13,074,904
b) 3,000
c) 14,700
c) (233,760) 14,161,579
Accumulated deficit (1,072,894) (12,164,458) (238,180) d) 238,180
d) 3,000 (13,234,352)
--------------- ------------- ------------- -------------
Total stockholders' equity 0 915,616 (3,200) 930,616
--------------- ------------- ------------- -------------
Total Liabilities and Stockholders' Equity $ 0 $ 1,980,904 $ 15,000 $ 1,995,904
=============== ============= ============= =============
The accompanying notes are an integral part of the proforma financial statements
F-13
PEGASUS WIRELESS CORP.
Pro forma Consolidated Statements of Operations
(Unaudited)
Six Months Ended December 31, 2004
United
Pegasus OTC Service Pro forma
Wireless Wireless, Attendants, Adjustments Pro forma
Corp. Inc. Inc.
---------------- ---------------- -------------- -------------- ---------------
REVENUES
Sales $ 0 $ 1,859,335 $ 0 $ 1,859,335
---------------- ---------------- -------------- ---------------
Total revenues 0 1,859,335 0 1,859,335
COST OF SALES
Cost of sales 0 1,003,501 0 1,003,501
---------------- ---------------- -------------- ---------------
Gross margin 0 855,834 0 855,834
---------------- ---------------- -------------- ---------------
OPERATING EXPENSES
General and administrative 104,894 940,671 0 1,045,565
Depreciation 0 56,775 0 56,775
---------------- ---------------- -------------- ---------------
Total operating expenses 104,894 997,446 0 1,102,340
---------------- ---------------- -------------- ---------------
Operating loss (104,894) (141,612) 0 (246,506)
---------------- ---------------- -------------- ---------------
OTHER INCOME (EXPENSE)
Interest income 0 0 0 0
Interest expense 0 (15,503) (600) (16,103)
---------------- ---------------- -------------- ---------------
Total other income (expense) 0 (15,503) (600) (16,103)
---------------- ---------------- -------------- ---------------
Net income (loss) $ (104,894)$ (157,115) $ (600) $ (262,609)
================ ================ ============== ===============
The accompanying notes are an integral part of the proforma financial statements
F-14
PEGASUS WIRELESS CORP.
Notes to Pro forma Consolidated Financial Statements
(Unaudited)
(1) Pro forma Changes On November 5, 2004, the Company entered into a Share
Exchange Agreement with OTC Wireless, Inc., a California company. The
business combination is a reverse merger, accounted for as a
recapitalization of OTC. The Company issued 21,700,492 shares of common
stock of the Company to complete this acquisition.
On April 5, 2005, the Company entered into an acquisition agreement with
CEO Channel.com, Inc. The Company issued 3,000,000 shares of common stock
of the Company to complete this acquisition.
The Pro forma statement of operations includes the six months ended
December 31, 2004 for the Company, OTC and CEOC..
(2) Pro forma Adjustments
a) 21,700,492 shares of common stock of the Company issued in exchange
for 100% of the issued and outstanding common shares, (after
conversion of 100% of the outstanding preferred shares to common
shares) of OTC Wireless, Inc.
b) 30,000,000 shares of common stock of the Company returned to the
Company and retired.
c) 3,000,000 shares of common stock of the Company issued to settle the
convertible debt of CEOC. The 12,200,000 shares of common stock of
CEOC contributed back to the company and retired.
Consolidation:
d) Eliminate investment in subsidiaries, the Company's retained deficit
and common stock of subsidiaries.
F-15
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Pro forma Consolidated Statements of Operations.............................F-17
Notes to Pro forma Consolidated Financial Statement........................F-18
F-16
PEGASUS WIRELESS CORP.
Pro forma Consolidated Statements of Operations
(Unaudited)
Year Ended June 30, 2004
CEO
Pegasus OTC Channel. Pro forma
Wireless Wireless, com, Adjustments Pro forma
Corp. Inc. Inc.
---------------- ---------------- ------------- --------------- -----------------
REVENUES
Sales $ 0 $ 3,136,817 $ 0 $ 3,136,817
---------------- ---------------- ------------- -----------------
Total revenues 0 3,136,817 0 3,136,817
COST OF SALES
Cost of sales 0 1,565,592 0 1,565,592
---------------- ---------------- ------------- -----------------
Gross margin 0 1,571,225 0 1,571,225
---------------- ---------------- ------------- -----------------
OPERATING EXPENSES
General and administrative 0 2,385,841 0 2,385,841
Depreciation 0 155,196 0 155,196
---------------- ---------------- ------------- -----------------
Total operating expenses 0 2,541,037 0 2,541,037
---------------- ---------------- ------------- -----------------
Operating loss 0 (969,812) 0 (969,812)
---------------- ---------------- ------------- -----------------
OTHER INCOME (EXPENSE)
Interest income 0 6,751 0 6,751
Interest expense 0 (25,000) (1,200) (26,200)
---------------- ---------------- ------------- -----------------
Total other income (expense) 0 (18,249) (1,200) (19,449)
---------------- ---------------- ------------- -----------------
Net income (loss) $ 0 $ (988,061) $ (1,200) $ (989,261)
================ ================ ============= =================
F-17
PEGASUS WIRELESS CORP.
Notes to Pro forma Consolidated Financial Statements
(Unaudited)
(1) Pro forma Changes On November 5, 2004, the Company entered into a Share
Exchange Agreement with OTC Wireless, Inc., a California company. The
business combination is a reverse merger, accounted for as a
recapitalization of OTC. The Company issued 21,700,492 shares of common
stock of the Company to complete this acquisition.
On April 5, 2005, the Company entered into an acquisition agreement with
CEO Channel.com, Inc. The Company issued 3,000,000 shares of common stock
of the Company to complete this acquisition.
The Pro forma statement of operations includes the year ended June 30, 2004
for the Company, OTC and CEOC.
(2) Pro forma Adjustments
a) 21,700,492 shares of common stock of the Company issued in exchange
for 100% of the issued and outstanding common shares, (after
conversion of 100% of the outstanding preferred shares to common
shares) of OTC Wireless, Inc.
b) 30,000,000 shares of common stock of the Company returned to the
Company and retired.
c) .3,000,000 shares of common stock of the Company issued to settle the
convertible debt of CEOC. The 12,200,000 shares of common stock of
CEOC contributed back to the company and retired.
Consolidation:
d) Eliminate investment in subsidiaries, the Company's retained deficit
and common stock of subsidiaries.
F-18