UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
AMENDMENT 3
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 29, 2005 (April 4, 2005)
PEGASUS WIRELESS CORP.
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(Exact name of registrant as specified in its charter)
Colorado 000-30807 65-0904572
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
48499 Milmont Dr., Freemont, CA 94538
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(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
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(Former name or former address, if changed since last report.)
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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 1 - REGISTRANT'S BUSINESS AND OPERATIONS
Item 1.02 - Termination of a Material Definitive Agreement
On February 1, 2005, Pegasus Wireless acquired United Service Attendants, Inc.
by issuing common tock of Pegasus in exchange for 100% of the issued and
outstanding common stock of United. The agreement thereto was an exhibit to a
Form 8-K filed by United on February 8, 2005.
On March 31, 2005, this acquisition was rescinded and terminated and is
considered to be void ab initio, ("as if it had never happened"). The agreement
thereto was an exhibit to a Form 8-K/A filed by United on April 4, 2005.
SECTION 2 - FINANCIAL INFORMATION
Item 2.01 Completion of Acquisition or Disposition of Assets.
On April 4, 2005, Pegasus Wireless Corp., (Pegasus or PWC), 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 Securities Exchange Act of
1934, as amended, as successor registrant to CEOC. As a result of this
acquisition, CEOC has adopted the fiscal year end of Pegasus, June 30. The first
consolidated post-acquisition report will be the Form 10-KSB for the fiscal year
ended June 30, 2005.
Pursuant to this agreement, Pegasus is issuing 3,000,000 shares of its
restricted common stock to settle, in full, the then existing 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.
On November 5, 2004, Pegasus Wireless Corp. acquired via reverse merger,
accounted for as a reorganization, OTC Wireless, Inc. Pursuant to this
agreement, Pegasus issued 22,409,992 shares of its restricted common stock to
affect this reverse merger.
Business
OTC Telecom, Inc. (the Company or OTC Wireless), changed its name to OTC
Wireless, Inc. in 2000 to better reflect the nature of the company's core
business. It was incorporated in September 1993 as a California corporation. The
Company began its operations 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 to provide wireless communication technologies and products to serve the
business, education and industrial application markets.
OTC Wireless introduced its 900MHz spread spectrum wireless Ethernet bridge in
1995, among the industry's earliest true plug-and-play wireless network
solution. The Company also submitted its first patent application in October
1995, based on the spread spectrum receiver technology developed for this
product.
2
In 1996, OTC Wireless then introduced one of 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 one of the industry's earliest 2.4GHz
IEEE 802.11b wireless bridges.
In 2000, the Company introduced the one of the industry's earliest 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
classrooms as well as meeting rooms. In the same year, the Company introduced
its 802.11b wireless projector/display solution, WiJET.
In 2004, the Company introduced a 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 as well as its WIPP,
plug-and-play and wireless display technology:
"Non-coherent direct sequence spread spectrum receiver for
detecting bit/symbol chip sequences using threshold comparisons
of chip sequence correlation," U.S. Patent No. 5,687,190, awarded
11/11/1997.
"A robust system for wireless projection of computer display and
rendering of motion video contents," U.S. Patent Application No.
60/542,247, filed on 2/4/2004, pending.
Although the Company initialized the following provisional patent applications,
it 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," U.S. Patent
Application No. 10/209,118, filed 7/30/2002.
"USB-interface radio," U.S. Patent Application No. 60/388,553,
filed 6/12/2002.
3
Today, the Company offers the following products in three major application
areas:
For indoor and outdoor wireless networking:
OTCW Model # Application
-------------- --------------------------------------
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
ASR: 11 Mbps indoor wireless access point
ACR: 11 Mbps 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:
OTCW Model # Application
-------------- --------------------------------------
WiSER: 11 Mbps wireless serial modem
WiSER.ip: 11 Mbps wireless serial TCP/IP modem
For wireless multimedia/video networking solutions:
OTCW Model # Application
-------------- --------------------------------------
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-added
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 custom-designed products from the Company. Over the years, the
Company's major account customers include our largest Japanese customer, CallUS
Computers, which private labels our wireless technology products to Wireless
Internet, (WI) and Nippon Telephone and Telegraph-ME Group, (NTT-ME). The
Company also is a direct supplier to Showa Electric Cable Company (SWCC). In
addition the Company is also the direct supplier of its products to, among
others, Smart Technologies of Canada, Lexmark in the U.S. and D-Link, a major
worldwide network equipment provider based in Taiwan, each of which private
labels our technology products through their distribution network in their
country of origin.
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.
4
In a point to multiple-point configuration, the radius of a "coverage cell"
typically ranges between 3 to 5 miles. Working with its service providers, 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
solution, OTC Wireless' 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 to game consoles such as X-Box, Play Station or Game Cube 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
a tethering VGA cable. Home users can use WiJET to deliver movie files stored on
their computer hard drives to an LCD or plasma flat panel TV wirelessly.
The Company has a number of new products in the pipeline which its management
believe to be innovative and responsive to customer needs and desires. 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 4 - MATTERS RELATED TO ACCOUNTANTS AND FINANCIAL STATEMENTS
Item 4.01(a). Changes in Registrant's Certifying Accountant
(1) On March 10, 2005, the Company dismissed Frank L. Sassetti & Company,
as the independent auditor of CEO Channel.com, Inc.
Frank L. Sassetti & Company performed the audits for the period from inception
(February 2, 1999) ended December 31, 1999, which did not contain any adverse
opinion or a disclaimer of opinion, nor was qualified as to audit scope or
accounting principles.
5
During the Registrant's two most recent fiscal years and during any subsequent
interim period prior to the March 10, 2005, dismissal as the Company's
independent auditors, there were no disagreements with Frank L. Sassetti &
Company, with respect to accounting or auditing issues of the type discussed in
Item 304(a)(iv) of Regulation S-B.
(2) On April 4, 2005, as a result of the acquisition of CEOC by Pegasus
Wireless, the Company dismissed Lawrence Scharfman & Company, as the independent
auditor of CEO Channel.com, Inc.
Lawrence Scharfman & Company performed the audits for the five years ended
December 31, 2004, which did not contain any adverse opinion or a disclaimer of
opinion, nor was qualified as to audit scope or accounting principles.
During the Registrant's two most recent fiscal years and during any subsequent
interim period prior to the April 4, 2005, dismissal as the Company's
independent auditors, there were no disagreements with Lawrence Scharfman &
Company, with respect to accounting or auditing issues of the type discussed in
Item 304(a)(iv) of Regulation S-B.
Item 4.01(b). Changes in Registrant's Certifying Accountant
(1) On March 10, 2005, the Company's board of directors approved the
engagement of the firm of Lawrence Scharfman & Company, 9608 Honey bell Circle,
Boynton Beach, Florida 33437 as the Company's independent auditors. Such
appointment was accepted by Lawrence Scharfman of the firm.
During the Registrant's two most recent fiscal years or any subsequent interim
period prior to engaging Lawrence Scharfman & Company the Company, or someone on
the Company's behalf, had not consulted Lawrence Scharfman & Company regarding
any of the accounting or auditing concerns stated in Item 304(a)(2) of
Regulation S-B.
(2) On April 4, 2005, the Company's board of directors approved the
engagement of the firm of Pollard- Kelley Auditing Services, Inc., 3250 W.
Market St., Suite 307, Fairlawn, Ohio 44333, as the Company's independent
auditors. Such appointment was accepted by Terance Kelly of the firm.
During the Registrant's two most recent fiscal years or any subsequent interim
period prior to engaging Pollard-Kelley Auditing Services, Inc., the Company, or
someone on the Company's behalf, had not consulted Pollard-Kelley Auditing
Services, Inc. regarding any of the accounting or auditing concerns stated in
Item 304(a)(2) of Regulation S-B.
(1) On April 18, 2005, the Company provided Frank L. Sassetti & Company
with a copy of this disclosure and requested that it furnish a letter to the
Company, addressed to the SEC, stating that it agreed with the statements made
herein or the reasons why it disagreed.
(2) On April 18, 2005, the Company provided Lawrence Scharfman & Company
with a copy of this disclosure and requested that it furnish a letter to the
Company, addressed to the SEC, stating that it agreed with the statements made
herein or the reasons why it disagreed.
6
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.
(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 Chief Financial Officer and Director
Caspar Lee 51 Director
Jerry Shih 56 Director
- ------------------------------
ALEX TSAO, Chairman and CEO, is the Company's founding CEO. Dr. Tsao 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 U.S. patents.
JASPER KNABB, President and Director, has more than 15 years' experience in the
high tech industry. Mr. Knabb's 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, Inc.,
7
(OTC BB: WFRI), from 2003 to 2004 and was responsible for business development
and successfully negotiating to bring the company to public via a reverse
merger. 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, a
privately held 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, both privately held companies.
STEPHEN DURLAND, CFO and Director , 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. Since 1998, Mr. Durland has been a Director of
Children's Place at Homesafe, Inc. , 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. This company is 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. They are private
operating companies expecting to become publicly traded in 2005 via reverse
merger with publicly trading shell companies. He was a Director of two other OTC
BB listed companies, American Ammunition, Inc. (July 2001 - March 2002), and JAB
International, Inc. (October 2000 - June 2003). He was CFO/Acting CFO for four
private operating companies, Main Line Medical Acquisition, LLC, (November 2002
- - April 2003), Powerhouse Management, Inc., (November 2002 - April 2003), Ong
Corp., (March 2001 - June 2002) and American Hydroculture, Inc., (August 2000 -
August 2001), none of which went public, and four OTC BB listed companies,
American Ammunition, Inc. (July 2001 - March 2002), JAB International, Inc.
(October 2000 - June 2003), Ocean Resources, Inc. (September 2002 - November
2003), and Safe Technologies, Inc. (September 2002 - December 2003). Of the
public companies, all but two, (American Ammunition and Pegasus Wireless), had
completed their reverse mergers well before Mr. Durland became aware of the
companies. These CFO/Acting CFO positions have primarily been interim in nature
to assist these companies through periods when they could either not afford or
did not need a full-time CFO. All of the publicly traded companies, except
Medical Makeover and Safe Technologies became public via reverse merger with
public shells. Mr. Durland was not involved with any of the public shells prior
to the reverse mergers. 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 securities 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.
CASPAR LEE, Director, has been the President of Paradigm Venture Partners since
2001. Paradigm is an Asia-based venture investment firm Mr. Lee co-founded. Mr.
Lee 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
8
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 the 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 Masters 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, is the founder and, since 1985, the Chairman and CEO of
AMAX Engineering Corporation, a PC system and peripheral solution provider. Mr.
Shih 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
Mostek Corporation between 1977 and 1978. Mr. Shih received his Masters degree
in Industrial Engineering from the University of Arizona in 1977.
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
- ---------------------------
9
Related Party Transactions
None
Item 5.03 Amendments to Articles of Incorporation or Bylaws; Change in Fiscal
Year
As a result of this acquisition, CEOC has adopted the June 30 fiscal year end of
Pegasus. The first consolidated post-acquisition report will be the Form 10-KSB
for the fiscal year end June 30, 2005.
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 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 Pegasus (consolidated) for the nine months ended March 31, 2005 and
OTCW for the nine months ended March 31, 2004, 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 start on page F-1 of this Form 8-K.
B. Pro Forma Financial Information
Unaudited Pro Forma Condensed Financial Statements of Pegasus (consolidated) and
CEOC (including Balance Sheet, Statement of Operations and Notes to Pro Form
Financial Statements) as of and for the quarter ended March 31, 2005; Unaudited
Pro Forma Condensed Statement of Operations and Notes to Pro Form Financial
Statements for the year ended June 30, 2004 of Pegasus, OTCW and CEOC filed
hereto start on page F-11 of this Form 8-K.
10
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.
16.1 * Frank L. Sassetti & Company letter regarding change of accountants.
16.2 * Lawrence Scharfman & Company letter regarding change of accountants.
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 29, 2005 By: /s/ Stephen Durland
-------------------------
Name: Stephen Durland
Title: CFO
11
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 OTC Wireless, 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, except note 10, as to which the date is April 28, 2005
F-2
Pegasus Wireless Corp / OTC Wireless, Inc.
Consolidated and Sole Balance Sheet
Pegasus OTC
March 31, 2005 June 30, 2004
----------------------- ------------------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 653,791 $ 298,045
Accounts receivable 268,030 421,916
Inventory 337,711 265,146
Prepaid expenses 19,685 11,475
----------------------- ------------------------
Total current assets 1,279,217 996,582
----------------------- ------------------------
FIXED ASSETS
Total fixed assets, net 150,390 226,819
----------------------- ------------------------
OTHER ASSETS
Deposits 16,186 31,186
----------------------- ------------------------
16,186 31,186
----------------------- ------------------------
Total Assets $ 1,445,793 $ 1,254,587
======================= ========================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 384,150 $ 514,258
Accrued expenses 85,768 102,508
Customer deposits 0 63,858
Short-term note 306,447 0
----------------------- ------------------------
Total current liabilities 776,365 680,624
----------------------- ------------------------
LONG-TERM DEBT
Note payable - related party 0 504,231
----------------------- ------------------------
Total long-term liabilities 0 504,231
----------------------- ------------------------
Total liabilities 776,365 1,184,855
----------------------- ------------------------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 and no par value, authorized 100,000,000 and
50,000,000 shares;30,409,992 and 5,645,287 issued and outstanding,
respectively 3,041 416,865
Additional paid in capital in excess of par 14,168,730 n/a
Accumulated deficit (13,502,343) (13,010,342)
----------------------- ------------------------
Total stockholders' equity 669,428 69,732
----------------------- ------------------------
Total Liabilities and Stockholders' Equity $ 1,445,793 $ 1,254,587
======================= ========================
The accompanying notes are an integral part of the financial statements
F-2
Pegasus Wireless Corp. / OTC Wireless, Inc.
Consolidated and Sole Statement of Operations
Pegasus OTC
Nine Months Nine Months
Ended Ended OTC OTC
March 31, March 31, Year Ended Year Ended
2005 2004 June 31, 2004 June 30, 2003
--------------------- ---------------------- ------------------- -------------------
(unaudited) (unaudited)
REVENUES $ 2,610,149 $ 2,315,890 $ 3,136,817 $ 4,339,706
COST OF SALES 1,430,590 1,105,954 1,565,592 2,627,215
--------------------- ---------------------- ------------------- -------------------
GROSS MARGIN 1,179,559 1,209,936 1,571,225 1,712,491
OPERATING EXPENSES
General and administrative expenses 1,570,802 1,832,555 2,385,841 3,373,989
Depreciation 83,394 137,487 155,196 197,706
--------------------- ---------------------- ------------------- -------------------
Total expenses 1,654,196 1,970,042 2,541,037 3,571,695
--------------------- ---------------------- ------------------- -------------------
Income (loss) from operations (474,637) (760,106) (969,812) (1,859,204)
OTHER INCOME (EXPENSE)
Interest income 3,481 6,641 6,751 25,581
Interest expense (22,917) 0 (25,000) (10,550)
Other income (expense) 2,072 (3,771) 0 44,249
--------------------- ---------------------- ------------------- -------------------
Total other income (expense) (17,364) 2,870 (18,249) 59,280
--------------------- ---------------------- ------------------- -------------------
Income (loss) before income taxes (492,001) (757,236) (988,061) (1,799,924)
Provision for income taxes 0 0 (800) (800)
--------------------- ---------------------- ------------------- -------------------
Comprehensive loss $ (492,001) $ (757,236)$ (988,861)$ (1,800,724)
===================== ====================== =================== ===================
Loss per weighted average common share $ (0.01) $ (0.03)$ (0.03)$ (0.06)
===================== ====================== =================== ===================
Number of weighted average common shares
outstanding 30,409,992 30,409,992 30,409,992 30,409,992
===================== ====================== =================== ===================
The accompanying notes are an integral part of the financial statements
F-4
Pegasus Wireless Corp. / OTC Wireless, Inc.
Consolidated Statement of Stockholders' Equity
Total
Number of Shares Par Value of Stock Additional Stockholders'
----------------------- -------------------------- Paid in Accumulated Equity
Pfd Common Pfd Common Capital Deficit (Deficiency)
----------- ---------- ------------ ------------ ----------- ------------ -------------
BEGINNING BALANCE, June 30,
2002 15,195,206 5,124,784 $ 12,413,209 $ 108,538 $ 0 $(10,220,757) $ 2,300,990
Issuance of preferred stock 100,000 0 250,000 0 0 0 250,000
Net loss 0 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 0 (12,021,481) 750,266
Issuance of common stock for services 0 212,811 0 108,327 0 0 108,327
Common stock issued for cash 0 307,692 0 200,000 0 0 200,000
Net income (loss) 0 0 0 0 0 (988,861) (988,861)
------------ ---------- ------------ ------------ ----------- ------------ -------------
BALANCE, June 30, 2004 15,295,206 5,645,287 12,663,209 416,865 0 (13,010,342) 69,732
=======
Conversion of preferred to common (15,295,206) 16,055,205 (12,633,209) 12,633,209 0 0 0
Reorganization of OTC into PWC 0 8,709,500 0 (13,047,033) 14,168,730 0 1,121,697
Net income (loss) 0 0 0 0 0 (492,001) (492,001)
========= =========
------------ ---------- ------------ ------------ ----------- ------------ -------------
ENDING BALANCE, March 31, 2005
(unaudited) 0 30,409,992 $ 0 $ 3,041 $14,168,730 $(13,502,343) $ 669,428
============ ========== ============ ============ =========== ============ =============
The accompanying notes are an integral part of the financial statements
F-5
Pegasus Wireless Corp. / OTC Wireless, Inc.
Consolidated and Sole Statement of Cash Flows
Pegasus OTC
Nine Months Nine Months OTC OTC
Ended Ended Year Ended Year Ended
March 31, March 31, June 30, June 30,
2005 2004 2004 2003
---------------------- --------------------- ----------------- ----------------
(unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (492,001) $ (757,236) $ (988,861) $ (1,800,724)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 83,394 137,487 155,196 197,706
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 153,886 529,738 271,137 627,132
(Increase) decrease in inventory (72,565) 146,624 193,578 72,408
(Increase) decrease in prepaid expenses (8,210) 19,189 31,673 13,586
Increase (decrease) in accounts payable (130,108) (355,630) (438,842) (549,419)
Increase (decrease) in accrued expenses 35,576 33,572 (9,222) (25,132)
Increase (decrease) in customer deposits (63,858) (878,938) (831,300) 788,819
--------------------- --------------------- ------------------ ---------------
Net cash used by operating activities (493,886) (1,125,194) (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:
Payments of notes payable - related party (250,000) 0 0 0
Proceeds of notes payable - related party 0 0 4,231 498,353
Proceeds from issuance of common stock 1,084,632 0 200,000 0
Proceeds from issuance of preferred stock 0 0 0 250,000
--------------------- --------------------- ------------------ ---------------
Net cash provided by financing activities 834,632 0 204,231 748,353
--------------------- --------------------- ------------------ ---------------
Net increase (decrease) in cash 355,746 (1,125,194) (1,260,759) 24,810
--------------------- --------------------- ------------------ ---------------
CASH, beginning of period 298,045 1,558,804 1,558,804 1,533,994
--------------------- --------------------- ------------------ ---------------
CASH, end of period $ 653,791 $ 433,610 $ 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
Pegasus Wireless Corp / OTC Wireless, Inc.
Notes to Consolidated and Sole Financial Statements
(Information with regard to the nine months ended
March 31, 2005 and 2004 is unaudited)
NOTE 1 - THE COMPANY
OTC Wireless, Inc., (the Company, OTCW, or OTC Wireless) 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.
Pegasus Wireless Corp., (Pegasus), is a Colorado corporation and was
incorporated on January 30, 2004. OTCW's fiscal year end is June 30, and upon
the reverse merger in November 2004, Pegasus adopted the same fiscal year end.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements have been prepared on a
going concern basis. As of March 31, 2005, the Company had an accumulated
deficit of $13,502,300 and suffered losses since inception. 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.
Principles of consolidation - The consolidated financial statements as of
March 31, 2005, and for the nine months then ended include the accounts of
Pegasus Wireless Corp. and its wholly owned subsidiary. Inter- company balances
and transactions have been eliminated.
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 $644,000 and $900,961 at June 30,
2004 and 2003, respectively.
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, 2004, two customers accounted
for 50% of the Company's total sales and 62% of the accounts receivable balance.
Also, one vendor accounted for 92% of the Company's total purchases and 84% of
the accounts payable balance.
F-7
Pegasus Wireless Corp / OTC Wireless, Inc.
Notes to Consolidated and Sole Financial Statements
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Concentration of Credit Risk, (continued) - 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 suppliers accounted for 39% of the
Company's total purchases and 97% of the accounts payable balance.
During the fiscal years ending and at June 30, 2004 and 2003, the Company
had deposits in banks in excess of the FDIC insurance limit.
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.
Advertising - The Company expenses the production costs of advertising as
they are incurred. Advertising expense was $7,307 and $47,408 for the fiscal
years ending June 30, 2004 and 2003, 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 a credit to
shipping expenses. The net freight costs were $1,856 and $13,699 for the fiscal
years ending June 30, 2004 and 2003, respectively.
Interim financial information - The financial statements for the nine
months ended March 31, 2005 and 2004, 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 nine
months are not indicative of a full year's results.
NOTE 4 - 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, 2004 and 2003, consist of the following:
2004 2003
------------- ------------
Trade accounts receivable $ 427,616 $ 697,253
Allowance for doubtful accounts (5,700) (4,200)
------------- ------------
Total $ 421,916 $ 693,053
NOTE 5 - 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, 2004 and 2003, consist of the following:
2004 2003
------------ ------------
Finished goods $ 909,146 $ 1,359,685
Less: Reserve for obsolescence (644,000) (900,961)
------------ -------------
Total $ 265,146 $ 458,724
F-8
Pegasus Wireless Corp / OTC Wireless, Inc.
Notes to Consolidated and Sole Financial Statements
NOTE 6 - NOTES PAYABLE
On March 6, 2003, the Company obtained a $500,000 loan from one of its
stockholders. The loan is due and payable in two years. It bears interest at 5%
per annum. The total interest accrued on this loan at June 30, 2004 was $25,000.
$250,000 of this loan was paid in the third fiscal quarter.
NOTE 7 - FIXED ASSETS
Fixed assets are stated at cost. 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, 2004 and 2003 consist of the following:
2004 2003
------------- -----------
Furniture and fixtures $ 108,945 $ 120,180
Machinery and equipment 320,685 595,750
Automobiles 0 38,466
Computer equipment 111,184 187,682
Software 94,675 328,007
Leasehold improvements 0 25,961
------------- -----------
Total 635,489 1,296,046
Less: Accumulated depreciation (408,670) (896,099)
------------ -----------
Net $ 226,819 $ 399,947
NOTE 8 - 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 5,645,287 and 5,124,784 shares of common stock outstanding at
June 30, 2004 and 2003, respectively. The authorized common stock of Pegasus is
100,000,000 shares with a par value of $0.0001. At March 31, 2005, there are
20,409,992 common shares issued and outstanding.
There are six series of preferred stock: Series A - 3,816,000 authorized
and outstanding shares at June 30, 2004 and 2003; Series B - 3,052,632
authorized and outstanding shares at June 30, 2004 and 2003; Series C -
1,379,310 authorized and outstanding shares at June 30, 2004 and 2003; Series D
- - 2,999,264 authorized and outstanding shares at June 30, 2004 and 2003; Series
E - 3,308,000 authorized and outstanding shares at June 30, 2004 and 2003; and
Series F - 740,000 shares authorized and outstanding shares at June 30, 2004 and
2003, respectively. Pegasus has no shares of preferred stock authorized.
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.
F-9
Pegasus Wireless Corp / OTC Wireless, Inc.
Notes to Consolidated and Sole Financial Statements
NOTE 8 - STOCKHOLDERS' EQUITY, continued
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.
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
least 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. 100% of the issued and outstanding preferred stock was
converted into 16,055,205 shares of common stock as of the reverse merger.
NOTE 9 - OPERATING LEASES
On April 12, 2004 the Company entered into an operating lease expiring May
8, 2007, 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, 2004 and 2003 was $364,567 and $388,826 respectively. Future minimum
lease payments for the remaining lease term are as follows: Years ending June
30, 2005 -$79,704, 2006 - $82,892 and 2007 - $71,840.
NOTE 10 - REORGANIZATION
On November 5, 2004, OTCW entered into a reverse merger with Pegasus
Wireless Corp, (f/k/a Homeskills, Inc.), whereby OTCW became a wholly owned
subsidiary of Pegasus, but is considered the accounting acquiror for reporting
purposes. The Company issued 22,409,992 shares of common stock to effect this
reverse merger. The June 30, 2004, Balance Sheet is presented as if the reverse
merger had occurred prior to fiscal year end. In addition, Pegasus raised
$1,158,388 via a Regulation D Rule 506 private offering in August 2004.
NOTE 11 - SUBSEQUENT EVENTS
On April 4, 2005, Pegasus and CEO Channel, Inc., (CEOC), entered into an
agreement for Pregasus to acquire 100% of CEOC by issuing 3,000,000 shares of
its common stock in exchange for the retirement of the convertible debt of CEOC
and the contribution of the outstanding shares of CEOC back to CEOC. As a result
of this transaction, Pegasus, as successor to CEOC, (which was a separate
reporting company), is required to be reporting to the U.S. Securities and
Exchange Commission.
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-11
PEGASUS WIRELESS CORP.
Pro forma Consolidated Balance Sheet
(Unaudited)
March 31, 2005
CEO
Pegasus Channel.
Wireless com, Proforma
Corp. Inc. Adjustments Proforma
----------------- --------------- --------------- ----------------
ASSETS
CURRENT ASSETS
Cash $ 653,791 $ 15,000 $ 668,791
Accounts receivable 268,030 0 268,030
Inventory 337,711 0 337,711
Prepaid expenses and other current assets 19,685 0 19,685
----------------- --------------- ----------------
Total current assets 1,279,217 15,000 1,294,217
----------------- --------------- ----------------
PROPERTY, PLANT AND EQUIPMENT
(Net of accumulated depreciation) 150,390 0 150,390
----------------- --------------- ----------------
Total property, plant and equipment 150,390 0 150,390
----------------- --------------- ----------------
OTHER ASSETS
Investment in subsidiaries 0 0 a) 29,000
b) (29,000) 0
Other 16,186 0 16,186
----------------- --------------- ----------------
Total other assets 16,186 0 16,186
----------------- --------------- ----------------
Total Assets $ 1,445,793 $ 15,000 $ 1,460,793
================= =============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 384,150 $ 0 $ 384,150
Accrued expenses 85,768 7,000 92,768
Customer deposits 0 0 0
Short-term notes payable - related party 306,447 18,500 a) (18,500) 306,447
----------------- --------------- ----------------
Total current liabilities 776,365 25,500 783,365
----------------- --------------- ----------------
LONG-TERM DEBT
Long-term note payable - related party 0 0 0
----------------- --------------- ----------------
Total long-term debt 0 0 0
----------------- --------------- ----------------
Total Liabilities 776,365 25,500 783,365
----------------- --------------- ----------------
STOCKHOLDERS' EQUITY
Common stock, $0.0001 and $0.0001 par value; 100,000,000,
and 50,000,000 shares authorized; 30,409,992, and
12,200,000 shares issued and outstanding 3,041 1,220 a) 300
a) (1,220) 3,341
Additional paid-in capital 14,168,730 233,760 a) 28,700
a) 1,220
e) (234,980) 14,197,430
Accumulated deficit (13,502,343) (245,480) e) 224,480 (13,523,343)
----------------- --------------- ----------------
Total stockholders' equity 669,428 (10,500) 677,428
----------------- --------------- ----------------
Total Liabilities and Stockholders' Equity $ 1,445,793 $ 15,000 $ 1,460,793
================= =============== ================
The accompanying notes are an integral part
of the pro-forma financial statements
F-12
PEGASUS WIRELESS CORP.
Pro forma Consolidated Statements of Operations
(Unaudited)
Nine Months Ended March 31, 2005
CEO
Pegasus Channel.
Wireless com, Proforma
Corp. Inc. Adjustments Proforma
----------------- --------------- --------------- ----------------
REVENUES
Sales $ 2,610,149 $ 0 $ 2,610,149
----------------- --------------- ----------------
Total revenues 2,610,149 0 2,610,149
COST OF SALES
Cost of sales 1,430,590 0 1,430,590
----------------- --------------- ----------------
Gross margin 1,179,559 0 1,179,559
----------------- --------------- ----------------
OPERATING EXPENSES
General and administrative 1,570,802 7,000 1,577,802
Depreciation 83,394 0 83,394
----------------- --------------- ----------------
Total operating expenses 1,654,196 7,000 1,661,196
----------------- --------------- ----------------
Operating loss (474,637) (7,000) (481,637)
----------------- --------------- ----------------
OTHER INCOME (EXPENSE)
Interest income 3,481 0 3,481
Other income (expense) 2,072 0 2,072
Interest expense (22,917) (900) (23,817)
----------------- --------------- ----------------
Total other income (expense) (17,364) (900) (18,264)
----------------- --------------- ----------------
Net income (loss) $ (492,001)$ (7,900) $ (499,901)
================= =============== ================
The accompanying notes are an integral part
of the pro-forma financial statements
F-13
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., (OTCW), a California company.
This business combination was a reverse merger, accounted for as a
recapitalization of OTCW. The Company issued 22,409,992 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., (CEOC). 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 nine months ended March
31, 2005 for the Company, OTCW and CEOC.
(2) Pro forma Adjustments
a) 3,000,000 shares of common stock of the Company was issued to settle
the then outstanding convertible debt of CEOC. The 12,200,000 shares
of common stock of CEOC was contributed back to CEOC and retired.
Consolidation:
b) Eliminate investment in subsidiaries, the Company's retained deficit
and common stock of subsidiaries.
F-14
INDEX TO PRO FORMA FINANCIAL STATEMENTS
Pro forma Consolidated Statements of Operations.............................F-16
Notes to Pro forma Consolidated Financial Statement........................F-17
F-15
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)
=============== =============== ============= =================
The accompanying notes are an integral part
of the pro-forma financial statements
F-16
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., (OTCW), a California company.
This business combination was a reverse merger, accounted for as a
recapitalization of OTCW. The Company issued 22,409,992 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., (CEOC). 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) 3,000,000 shares of common stock of the Company was issued to settle
the then outstanding convertible debt of CEOC. The 12,200,000 shares
of common stock of CEOC contributed back to CEOC and retired.
Consolidation:
b) Eliminate investment in subsidiaries, the Company's retained deficit
and common stock of subsidiaries.
F-17