Document/Exhibit Description Pages Size
1: 10KSB Annual Report -- Small Business 34 160K
2: EX-31 Certification per Sarbanes-Oxley Act (Section 302) 2± 9K
3: EX-31 Certification per Sarbanes-Oxley Act (Section 302) 2± 9K
4: EX-32 Certification per Sarbanes-Oxley Act (Section 906) 1 7K
5: EX-32 Certification per Sarbanes-Oxley Act (Section 906) 1 7K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[_] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from July 1, 2005 to December 31, 2005
Commission file no.: 000-32567
PEGASUS WIRELESS CORP.
--------------------------------------------
(Name of small business issuer in its charter)
Nevada 52-2273215
--------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
48499 Milmont Dr.
Fremont, California 94538
--------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (510) 490-8288
---------------------------------
(Former name or former address,
if changes since last report)
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange on
Title of each class which registered
None
----------------------------- --------------------------
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.0001 par value
------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB. [X]
The Registrant's revenue for the fiscal year ended December 31, 2005:
$17,639,881.
The aggregate market value of the voting and non-voting common equity held
by non-affiliates (computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity) as of
January 11, 2005 was $694,466,000.
There were 73,391,261 shares of the registrant's common stock outstanding
as of January 11, 2006.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format: Yes [X] No [_]
SUMMARY TABLE OF CONTENTS
PART I
Item 1. Description of Business............................................4
Item 2. Description of Property............................................9
Item 3. Legal Proceedings.................................................10
Item 4. Submission of Matters to a Vote of Security Holders...............10
PART II
Item 5. Market for Common Equity and Related Shareholder Matters..........10
Item 6. Management's Discussion and Analysis or Plan of Operation.........11
Item 7. Financial Statements..............................................12
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..........................................25
Item 8A. Controls and Procedures .........................................25
Item 8B. Other Information ...............................................25
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.................25
Item 10. Executive Compensation...........................................29
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters..................................30
Item 12. Certain Relationships and Related Transactions...................30
Item 13. Exhibits.........................................................31
Item 14. Principal Accountant Fees and Services ..........................32
SIGNATURES................................................................33
PART I
Forward Looking Statements
Certain statements contained in this annual filing, including, without
limitation, statements containing the words "believes", "anticipates", "expects"
and words of similar import, constitute forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements.
Such factors include, among others, the following: international, national
and local general economic and market conditions: demographic changes; the
ability of the Company to sustain, manage or forecast its growth; the ability of
the Company to successfully make and integrate acquisitions; raw material costs
and availability; new product development and introduction; existing government
regulations and changes in, or the failure to comply with, government
regulations; adverse publicity; competition; the loss of significant customers
or suppliers; fluctuations and difficulty in forecasting operating results;
changes in business strategy or development plans; business disruptions; the
ability to attract and retain qualified personnel; the ability to protect
technology; and other factors referenced in this and previous filings. Given
these uncertainties, readers of this Form 10-KSB and investors are cautioned not
to place undue reliance on such forward-looking statements. The Company
disclaims any obligation to update any such factors or to publicly announce the
result of any revisions to any of the forward- looking statements contained
herein to reflect future events or developments.
Item 1. Description of Business
(a) Development
Blue Industries, Inc., (the "Company"), was incorporated under the laws of
Nevada on April 5, 2000 as Burrard Technologies, Inc. ("Burrard") and was
involved in software development. During 2001, the Company discontinued the
software development and became inactive until December 18, 2001, when it
acquired all the issued and outstanding shares of Technocall S.A.
("Technocall"), a Swiss company. Technocall SA, a proprietary micro-calculator
and electronic management system that regulates and controls the water treatment
process, had been inactive until September 2001, at which time it acquired all
the assets comprising the Blue Industries water treatment process. On April 2,
2002, the Company changed its name to Blue Industries Inc. In March 2003, the
Company formed Blue Industries, Inc., a new subsidiary under the laws of
Florida. In December 2003, the Company elected to liquidate its foreign
operating subsidiaries and reverted to an inactive status again.
In March 2002, the Company's stockholders approved a change to the
Company's authorized share capital to increase the authorized common stock to
50,000,000 shares at a par value of $0.001 per share, and to authorize the
creation of 10,000,000 shares of preferred stock at a par value of $0.001 per
share.
4
In May 2005, the Company changed its name to Pegasus Wireless Corp. and
acquired issued and outstanding shares of OTC Wireless, Inc. by acquiring all
the issued and outstanding shares of Pegasus Wireless Corp. (A Colorado
corporation). At the time of this acquisition the Company changed its fiscal
year end to June 30, to match that of OTC Wireless. On December 22, the Company
changed its fiscal year end to December 31, effective immediately.
On August 31, 2005, the Company completed a two for one forward split of
its common stock, which included the forward split of the authorized common
stock to 100,000,000 and the preferred stock to 20,000,000, without affecting
the par value of either class of stock.
The Company has authorized 100,000,000 shares of $0.0001 par value common
stock and 10,000,000 shares of $0.0001 par value preferred stock. Rights and
privileges of the preferred stock are to be determined by the Board of Directors
prior to issuance. The Company had 71,569,039 and 66,956,140, (33,478,070
pre-split), shares of common stock and no shares of preferred stock issued and
outstanding at December 31, 20045 and June 30, 2005, respectively.
(b) Business of Issuer.
General
The fist acquisition of the Company was OTC Wireless, Inc. 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.
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, VCW 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.
5
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
obsolesence 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.
Today, the Company offers the following products in three major application
areas:
For indoor and outdoor wireless networking:
Pegasus Model # Application
------------------------------ ---------------------------------------------
TRIMAR 54/108 Mbps outdoor wireless access point
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: 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:
Pegasus Model # Application
--------------------------------- -----------------------------------------
WiSER: 11 Mbps wireless serial modem
WiSER.ip: 11 Mbps wireless serial TCP/IP modem
6
For wireless multimedia/video networking solutions:
Pegasus 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
The Company 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 Pegasus Wireless's solution to their own
products, or carry Pegasus 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 and Dell 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 networks.
The TRIMAR and 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 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, Pegasus 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 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 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.
7
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.
In December, the company completed the acquisition of AMAX Engineering and
AMAX Information Technologies (AIT), both based in Fremont, California. The
company owns 51% controlling interest in both subsidiaries.
AMAX Engineering is a computer system and peripheral solution providers. It
manufactures, markets and distributes PC systems and subsystems, components,
networking devices and storage solutions for both consumer and enterprise
markets. It has 5 branch offices covering North America. The company is expected
to benefit from the AMAX's extensive channel capacity in delivering the
company's products to the market.
AMAX Information Technologies provides high performance and high
availability computing solutions to the enterprise and government customers. It
manufactures and markets cluster servers, grid computing systems, network
storage solutions and interconnect solutions to business, technology and
education users.
Both AMAX and AIT's capability in computer system solutions is also expect
to benefit the company in providing the back-end server platform for the
company's wireless infrastructure solutions.
The company also completed the acquisition of 51% controlling interest of
CNet Technology, Inc. (CNet) which operates an electronics manufacturing plant
in Wu-Jiang, a city 90 miles west of Shanghai, China. CNet owns SMT and DIP
manufacturing lines and produces both wired and wireless networking devices for
consumer and business users. CNet's manufacturing capacity is expect to benefit
the company in providing a stable production resource.
The company is also in the process of negotiating an acquisition of 51%
controlling interest in another electronics manufacturing facility in Taiwan.
This second acquisition will further strengthen the company's capability in
keeping on-schedule products delivering.
COMPETITIVE BUSINESS CONDITIONS
The field of wireless connectivity devices is highly competitive. We
compete with a number of businesses that provide the same or similar products.
Many of these competitors have a longer operating history, greater financial
resources, and provide other products that we do not provide. Pegasus'
competitors include companies such as Linksys, D-Link and Netgear in the
consumer networking devices market. In the multimedia/video wireless market, its
major competitors include companies such as Komatsu and Infocus. In the
enterprise infrastructure wireless market, its major competitors include
companies such as Cisco, Nortel and Motorola. We believe that quality of
product, innovative products, proper pricing and range of product uses offered
are the principal factors that will enable us to compete effectively.
8
Government Regulation
The Company's operations are subject to various federal, state and local
requirements which affect businesses generally, such as taxes, postal
regulations, labor laws, and environment and zoning regulations and ordinances.
Operation of current Pegasus Wireless products are subject to the FCC
regulation under FCC Part 15 rules, specifically, FCC Part 15 subpart C and
subpart E. The company needs to submit its products for the FCC rule compliance
test and obtain certifications before the products are available for sale. The
users of the products need not to obtain usage license from the government.
Research and Development
The Company conducts in research and development on an ongoing basis in
order to improve our current products as well as to develop new products. We do
not have a specific plan of research and development at this stage.
Employees
As of February 10, 2006, the Company has approximately 450 employees, 120
in our Fremont, California offices, 160 in our Peoples Republic of China
manufacturing facility and 160 in our Taiwan manufacturing facility.
Manufacturing
As of February 10, 2006, all of the Company's products are manufactured in
China and Taiwan by the two manufacturing companies we purchased at the end of
December 2005 and early January 2006.
Reports to Security Holders
The Company will send out audited annual reports to its shareholders if
required by applicable law. Until such time, the Company does not foresee
sending out such reports. The Company will make certain filings with the SEC as
needed, and any filings the Company makes to the SEC are available and the
public may read and copy any materials the Company files with SEC at the SEC's
Public Reference Room at 450 Fifth Street, N.W. Washington, D.C. 20549. The
public may also obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site
that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at (http://www.sec.gov).
Item 2. Description of Property
The corporate headquarters of Pegasus Wireless Corp. is located at 48499
Milmont Dr., Fremont, California 94538 and its telephone number is (510)
490-8288. We also maintain offices at 1565 Reliance Way, Fremont, California
94539. We are in the process of consolidating all of our Fremont based personnel
into the Reliance Way location.
We also maintain manufacturing facilities in the Peoples Republic of China
and in Taiwan.
9
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims
arising out of our operations in the normal course of business. The Company is
not currently a party to any legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters.
Market Information
* Reflects 2 for 1 stock split effective close of business August 31, 2005.
2005 HIGH LOW
------ -------- ------
* December 31, 2005 10.50 6.10
* September 30, 2005 7.39 3.70
* June 30, 2005 3.70 0.05
March 31, 2005 0.10 0.10
2004 HIGH LOW
------ -------- ------
December 31, 2004 0.10 0.10
September 30, 2004 0.10 0.10
June 30, 2004 0.25 0.10
March 31, 2004 0.40 0.25
2003 HIGH LOW
------ -------- ------
December 31, 2003 1.01 0.35
September 30, 2003 1.25 0.30
June 30, 2003 0.80 0.45
March 31, 2003 2.20 0.20
The approximate number of holders of record of common equity is 1,900 as of
February 10, 2006.
Dividends
The Company has never declared or paid any cash dividends on its common
stock and does not intend to declare any dividends in the foreseeable future. We
currently intend to retain and reinvest future earnings, if any, to finance our
operations.
Transfer Agent
Our transfer agent is Olde Monmouth Stock Transfer Co., Inc., 200 Memorial
Parkway, Atlantic Highlands, NJ 07716. Their telephone number is (732) 872 2727.
10
Item 6. Management's Discussion and Analysis or Plan of Operation Operations
This report on Transition Form 10-KSB contains forward-looking statements
that are subject to risks and uncertainties that could cause actual results to
differ materially from those discussed in the forward-looking statements and
from historical results of operations. Among the risks and uncertainties which
could cause such a difference are those relating to our dependence upon certain
key personnel, our ability to manage our growth, our success in implementing the
business strategy, our success in arranging financing where required, and the
risk of economic and market factors affecting our customers or us. Many of such
risk factors are beyond the control of the Company and its management
Results of Operations - For the Six and Twelve Months Ending December 31, 2005
and June 30, 2005
Basis of Presentation - On December 22, 2005 the Board of Directors elected
to change the fiscal year end of the Company to December 31, effective
immediately. This was completed as a result of two pending acquisitions of
foreign companies, both of which had December 31, as their fiscal year end. As a
result of this change, the accompanying financial statements include the six
months of Pegasus from July 1, 2005 through December 31, 2005.
On December 22, 2005, the Company acquired 51% of AMAX Engineering Corp.
and AMAX Information Technology, Inc. Pursuant to the acquisition agreement, the
accompanying financial statements include the three months of the AMAX companies
from October 1, 2005 through December 31, 2005.
On December 29, 2005, the Company acquired 51% of Cnet Technology, Inc.
Pursuant to the acquisition agreement, financial statement consolidation begins
on January 1, 2006, therefore the accompanying financial statements do not
include any results of Cnet for the last 2 days of 2005.
Financial Condition, Capital Resources and Liquidity
For the six and twelve months ending December 31, 2005 and June 30, 2005
the Company recorded revenues of $17,639,900 and $3,172,400 respectively. The
increase in revenue is a direct result of the acquisition of the AMAX companies.
As previously stated, these financials include only three months of revenue of
the AMAX companies. In addition, we were not able to begin the ramp-up of
production of the Pegasus line of products until the beginning of 2006 as a
result of our acquisition of the two manufacturing companies until the end of
December 2005 and beginning of January 2006.
For the six and twelve months ending December 31, 2005 and June 30, 2005,
the Company had, on a consolidated basis, cost of sales of $15,414,100 and
$1,728,500.The increase is a direct result of the acquisition of the AMAX
companies.
For the six and twelve months ending December 31, 2005 and June 30, 2005,
the Company had, on a consolidated basis, general and administrative expenses of
$1,318,782 and $1,893,400 respectively. The increase is a direct result of the
acquisition of the AMAX companies.
For the six and twelve months ending December 31, 2005 and June 30, 2005,
the Company had, on a consolidated basis, total operating expenses of $2,026,789
and $2,103,300, respectively. The relative increase is a direct result of the
acquisition of the AMAX companies.
11
Net Income/(Loss)
For the six and twelve months ending December 31, 2005 and June 30, 2005,
the Company reported net income/(loss) from operations of $29,378 and $672,800,
respectively.
The ability of the Company to grow is dependent upon its ability to deliver
product to its customers in ever increasing quantities. The Company has taken
the steps necessary to address this problem by its acquisitions of the AMAX
companies to provide the distribution channels needed and Cnet and SKI for the
manufacturing requirements. Given our current product mix and selling prices,
these two manufacuring companies have the ability to produce approximately $650
million, (at selling price), of Pegasus products.
Research and Development Plans
Our current research and development activities are relatively limited.
They focus mainly on improving our current products, but do include, from time
to time, include the development of new products or new uses for our existing
products.
Our plan is that over time, as our revenues grow, we will increase our
expenditures for research and development.
Item 7. Financial Statements
Financial Statement follow on page F-1.
[Balance of this page intentionally left blank.]
12
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm.....................F-2
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)........F-4
Consolidated Statements of Stockholders' Equity (Deficiency).................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Pegasus Wireless Corp.
Fremont, California
We have audited the accompanying consolidated balance sheets of Pegasus Wireless
Corp., (the "Company") as of December 31, 2005 and June 30, 2005 and the related
consolidated statements of operations and comprehensive income (loss),
stockholders' equity (deficiency) and cash flows for the one year and six months
in the period ended December 31, 2005. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2005 and June 30, 2005 and the results of its operations and its
cash flows for the one year and six months in the period ended December 31,
2005, in conformity with U.S. generally accepted accounting principles.
/s/Pollard-Kelley Auditing Services, Inc.
Pollard-Kelley Auditing Services, Inc.
Fairlawn, Ohio
February 24, 2006
F-2
[Enlarge/Download Table]
PEGASUS WIRELESS CORP.
Consolidated Balance Sheets
December 31, June 30,
2005 2005
------------------ -------------------
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,079,588 $ 839,520
Accounts receivable, net of reserve of $115,049 and $5,700 6,676,806 307,389
Inventory, net of reserve of $1,041,248 and $656,602 6,568,274 469,613
Prepaid expenses 81,186 20,675
------------------ -------------------
Total current assets 14,405,854 1,637,197
------------------ -------------------
PROPERTY AND EQUIPMENT
Computers and equipment 1,054,156 213,357
Machinery and equipment 320,685 320,685
Office furniture, fixtures and equipment 974,749 108,945
Vehicles 602,254 0
Leasehold improvements 470,645 0
------------------ -------------------
Total Property and Equipment 3,422,489 642,987
Less accumulated depreciation (2,879,463) (517,746)
------------------ -------------------
Net property and equipment 543,026 125,241
------------------ -------------------
OTHER ASSETS
Investment in unconsolidated subsidiary 1,000,000 0
Goodwill 5,469,609 0
Deposits and other assets 1,471,243 16,186
------------------ -------------------
Total other assets 7,940,852 16,186
------------------ -------------------
Total Assets $ 22,889,732 $ 1,778,624
================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 5,929,969 $ 413,099
Accrued expenses 3,627,513 137,994
Accrued income taxes payable 94,504 0
Customer deposits 3,481 5,097
Current portion of long-term debt 46,268 0
------------------ -------------------
Total current liabilities 9,701,735 556,190
------------------ -------------------
LONG-TERM DEBT
Notes payable 116,105 0
------------------ -------------------
Total long-term debt 116,105 0
------------------ -------------------
Total Liabilities 9,817,840 556,190
------------------ -------------------
Minority interest in consolidated subsidiary 2,545,156 0
------------------ -------------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.0001 par value, authorized 10,000,000 shares;
none issued and outstanding 0 0
Common stock, $0.0001 par value, authorized 100,000,000 shares;
71,569,039 and 69,699,520 issued and outstanding shares 7,157 6,972
Additional paid-in capital 24,923,443 14,898,600
Subscription receivable (750,000) 0
Accumulated comprehensive income (loss) (104) 0
Accumulated deficit (13,653,760) (13,683,138)
--------------------------------------
Total stockholders' equity (deficiency) 10,526,736 1,222,434
------------------ -------------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 22,889,732 $ 1,778,624
================== ===================
The accompanying notes are an integral part of the financial statements
F-3
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PEGASUS WIRELESS CORP.
Consolidated Statements of Operations
Six Months
Ended Year Ended
December 31, June 30,
2005 2005
------------------ -------------------
REVENUES $ 17,639,881 $ 3,172,351
COST OF SALES 15,414,086 1,728,479
------------------ -------------------
Gross Margin 2,225,795 1,443,872
OPERATING EXPENSES
Sales and marketing 651,346 100,858
Depreciation and amortization 56,661 109,074
General and administrative 1,318,782 1,893,397
------------------ -------------------
Total operating expenses 2,026,789 2,103,329
------------------ -------------------
Operating income (loss) 199,006 (659,457)
------------------ -------------------
OTHER INCOME (EXPENSE):
Interest income 5,785 5,581
Other income 33,477 4,798
Interest expense (1,189) (22,918)
------------------ -------------------
Total other income (expense) 38,073 (12,539)
------------------ -------------------
Net income (loss) before income tax and minority interest 237,079 (671,996)
Income tax 93,704 800
------------------ -------------------
Net income (loss) before minority interest 143,375 (672,796)
Minority interest in consolidated subsidiary net income (loss) 113,997 0
------------------ -------------------
Net income (loss) $ 29,378 $ (672,796)
================== ===================
Net income (loss) per common share - basic $ 0.01 $ (0.01)
================== ===================
Weighted average number of common shares outstanding - basic 71,335,806 24,186,993
================== ===================
Net income (loss) per common share - fully diluted $ 0.01 $ (0.01)
================== ===================
Weighted average number of common shares outstanding - fully diluted 75,889,676 24,186,993
================== ===================
The accompanying notes are an integral part of the financial statements
F-4
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PEGASUS WIRELESS CORP.
Consolidated Statements of Stockholders' Equity (Deficiency)
Number of Number of Add'l. Stock Total
Shares - Shares - Amount - Amount - Paid-in Subscript Accumulated Stockholders'
Preferred Common Preferred Common Capital Receivable Deficit Equity
----------- ----------- ------------ ------------ ------------ ------------ ------------ -------------
BEGINNING BALANCE,
June 30, 2003 15,295,206 5,124,784 $ 12,663,209 $ 108,538 $ 0 $ 0 $(12,021,481) $ 750,266
Common stock issued
for cash 0 307,692 0 200,000 0 0 0 200,000
Common stock issued
for services 0 212,811 0 108,327 0 0 0 108,327
Net loss 0 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 0 (13,010,342) 69,732
Preferred converted
to common (15,295,206) 16,764,705 (12,663,209) 12,663,209 0 0 0
Recapitalization 0 8,000,000 0 (13,077,032) 14,102,416 0 0 1,025,384
Acquisition of
subsidiary 0 3,000,000 0 300 0 0 0 300
Recapitalization 0 1,439,768 0 144 799,670 0 0 799,814
Net loss 0 0 0 0 0 0 (672,796) (672,796)
----------- ----------- ------------ ------------ ------------ ------------ ------------ -------------
BALANCE, June 30, 2005 0 34,849,760 0 3,486 14,902,086 0 (13,683,138) 1,222,434
Exercise of employee
stock options 0 118,708 0 11 25,017 0 0 25,028
Two for one forward
split 0 34,968,466 0 3,497 (3,497) 0 0 0
Common stock issued
for cash 0 571,429 0 57 3,999,943 0 0 4,000,000
Common stk issued
for acquisition 0 838,454 0 84 3,999,916 0 0 4,000,000
Common stock issued
for cash 0 222,222 0 22 1,999,978 (750,000) 0 1,250,000
Comprehensive inc/loss 0 0 0 0 0 0 (104) (104)
Net income 0 0 0 0 0 0 29,378 29,378
----------- ----------- ------------ ------------ ------------ ------------ ------------ -------------
Ending Balance,
December 31, 2005 0 71,569,039 $ 0 $ 7,157 $ 24,923,443 $ (750,000) $(13,653,864) $ 10,526,736
=========== =========== ============ ============ ============ ============ ============ =============
The accompanying notes are an integral part of the financial statements
F-5
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PEGASUS WIRELESS CORP.
Consolidated Statements of Cash Flows
Six Months
Ended Year Ended
December 31, June 30,
2005 2005
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 29,378 $ (672,796)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 56,661 109,074
Change in inventory reserve 0 12,602
Minority interest in net income (loss) of consolidated subsidiary 113,997 0
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 420,575 114,527
(Increase) decrease in inventory (2,555,512) (217,069)
(Increase) decrease in prepaid expenses 39,957 (9,200)
(Increase) decrease in deposits and other assets (1,051,424) 15,000
Increase (decrease) in accounts payable 461,285 (101,159)
Increase (decrease) in accrued expenses 629,604 35,486
Increase (decrease) in accrued income taxes payable 95,304 0
Increase (decrease) in customer deposits (1,615) (58,761)
------------------ ------------------
Net cash provided (used) by operating activities (1,761,790) (772,296)
------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (116,512) (7,496)
Cash paid for acquisitions (5,000,000) 0
Proceeds from sale of fixed assets 0 0
------------------ ------------------
Net cash provided (used) by investing activities (5,116,512) (7,496)
------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Cash acquired in acquisition/reorganization 1,771,201 1,825,498
Proceeds from loans 102,988 0
Repayment of loans (5,819) (504,231)
Issuance of common stock for cash 5,250,000 0
------------------ ------------------
Net cash provided by financing activities 7,118,370 1,321,267
------------------ ------------------
Net increase (decrease) in cash and equivalents 240,068 541,475
CASH and equivalents, beginning of period 839,520 298,045
------------------ ------------------
CASH and equivalents, end of period $ 1,079,588 $ 839,520
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 1,189 $ 47,918
================== ==================
Income taxes paid in cash $ 0 $ 800
================== ==================
Non-Cash Financing Activities:
Issuance of common stock to effect acquisition $ 4,000,000 $0
================== ==================
The accompanying notes are an integral part of the financial statements
F-6
PEGASUS WIRELESS CORP.
Notes to the Consolidated Financial Statements
NOTE 1 - THE COMPANY
Pegasus Wireless Corp., (f/k/a Blue Industries, Inc.), was incorporated under
the laws of the State of Nevada on April 5, 2000 as Burrard Technologies, Inc.
("Burrard") and was involved in software development. During 2001, the Company
discontinued the software development and became inactive until December 18,
2001, when it acquired all the issued and outstanding shares of Technocall S.A.
("Technocall"), a Swiss company. On April 2, 2002, the Company changed its name
to Blue Industries Inc. In December 2003, the Company again became inactive. In
June 2005, the Company changed its name to Pegasus Wireless Corp. Subsequent to
the acquisition, via reverse merger of Homeskills, Inc. 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 - On December 22, 2005 the Board of Directors elected to
change the fiscal year end of the Company to December 31, effective immediately.
This was completed as a result of two pending acquisitions of foreign companies,
both of which had December 31, as their fiscal year end. As a result of this
change, the accompanying financial statements include the six months of Pegasus
from July 1, 2005 through December 31, 2005.
On December 22, 2005, the Company acquired 51% of AMAX Engineering Corp. and
AMAX Information Technology, Inc. Pursuant to the acquisition agreement, the
accompanying financial statements include the three months of the AMAX companies
from October 1, 2005 through December 31, 2005.
On December 29, 2005, the Company acquired 51% of Cnet Technology, Inc. Pursuant
to the acquisition agreement, financial statement consolidation begins on
January 1, 2006, therefore the accompanying financial statements do not include
any results of Cnet for the last 2 days of 2005.
Principles of Consolidation - The consolidated financial statements include the
accounts of Pegasus Wireless Corp. and its wholly owned and majority owned
subsidiaries. All inter-company balances and transactions have been eliminated.
Significant Acquisitions - On December 22, 2005, the Company acquired 51% of
AMAX Engineering Corp. and AMAX Information Technology, Inc., (collectively
"AMAX"), California corporations headquartered in Fremont, California. The
Company paid $4,000,000 in cash and 838,454 shares of the Company's common
stock, valued at $4,000,000, or $4.77 per share. The share valuation was based
on 66% of the average closing price for the preceding 30 trading days, as per
the acquisition agreement. The cash portion of the AMAX transaction was provided
by the sale of 571,429 shares of restricted common stock of the Company to
Jasper Knabb, President of Pegasus, in exchange for $4,000,000 in cash, or $7.00
per share. AMAX has distinguished and established itself as a global leader in
providing technology to all levels of the marketplace. As an ISO-9001 certified
corporation, AMAX manufactures and markets innovative server, industrial,
workstation, storage & clustering systems to meet the most stringent of quality
requirements.
On December 29, 2005, the Company acquired 51% of Cnet Technology, Inc.,
("Cnet"), a Cayman Islands corporation headquartered in Taipei, Taiwan. The
Company paid $1,000,000 in cash. The acquisition was financed by a purchase of
222,222 restricted shares of Pegasus Wireless Corporation's common stock by
Jasper Knabb, the Company's President, in exchange for $2,000,000 in cash, or
$9.00 per share. The additional $1 million cash will be used to obtain raw
F-7
PEGASUS WIRELESS CORP.
Notes to the Consolidated Financial Statements
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
materials to begin the manufacturing of Pegasus Wireless' products that will be
available for distribution within thirty days. CNet Technology, Inc. has been a
leader in designing and manufacturing high-speed, cost-effective solutions for
the worldwide networking and communications market. Their unique combination of
sales and assembly has allowed for CNet to support a vast array of wireless
demands, from the small and home offices to the vast enterprise systems that
span multiple locations. Pegasus has been outsourcing the manufacturing its
wireless products through various venues around the world, and now can
manufacture its products in a centralized controlled environment that will
greatly enhance the speed and volume of their product output.
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 $656,000 at December 31, 2005 and June 30, 2005
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.
Income (Loss) Per Share - Income (loss) per share is computed using the Weighted
Average Number of common shares outstanding during the fiscal year. Fully
diluted includes all common shares that would be required to be issued as a
result of various convertible instruments at their stated conversion rates using
December 31, 2005, closing market price of the underlying common stock.
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. During the years ending and at June 30, 2005 and 2004, the Company
had deposits in banks in excess of the FDIC insurance limit.
Intangibles - Goodwill in the amount of 5,469,609 was recorded as a result of
the acquisition of AMAX in December 2005. The Company will evaluate this asset
periodically to determine impairment, if any.
F-8
PEGASUS WIRELESS CORP.
Notes to the Consolidated Financial Statements
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Property and Equipment - All property and equipment is recorded at cost and
depreciated over their estimated useful lives, using the straight-line method.
Upon sale or retirement, the costs and related accumulated depreciation are
eliminated from their respective accounts, and the resulting gain or loss is
included in the results of operations. Repairs and maintenance charges which do
not increase the useful lives of the assets are charged to operations as
incurred. Depreciation expense was $56,661 and $109,074 for the six months ended
December 31, 2005 and twelve months ended June 30, 2005, respectively.
Research & Development - Research and development costs are expensed in the
period incurred.
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 consist of the following:
December 31, 2005 June 30, 2005
------------------- -----------------
Trade accounts receivable $ 6,791,855 $ 313,089
Allowance for doubtful accounts (115,049) (5,700)
------------------- -----------------
Total $ 6,676,806 $ 307,389
=================== =================
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 consists of the
following:
December 31, 2005 June 30, 2005
------------------- -----------------
Inventory $ 7,609,522 $ 1,126,215
Less: Reserve for obsolescence (1,041,248) (656,602)
------------------- -----------------
Total $ 6,568,274 $ 469,613
=================== =================
NOTE 5 - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 100,000,000 shares of
common stock with a par value of $0.0001 and 20,000,000 shares of preferred
stock with a par value of $0.0001. Rights and privileges of the preferred stock
are to be determined by the Board of Directors prior to issuance. There were
71,569,039 and 34,849,760 shares of common stock outstanding at December 31,
2005 and June 30, 2005, respectively.
In May 2005, the Company issued 1,230,769 shares of common stock in exchange for
$800,000 in cash, or $0.65 per share. In June 2005, the Company issued
28,467,743 shares of common stock to effect the acquisition of OTC Wireless,
Inc., the operating company. In August 2005, eight of the company's employees
F-9
PEGASUS WIRELESS CORP.
Notes to the Consolidated Financial Statements
NOTE 5 - STOCKHOLDERS' EQUITY (Continued)
exercised their employee stock options. These options were issued in years prior
to the reverse merger and had exercise prices ranging from $0.15 to $0.50 per
share. As a result of these option exercises the Company issued 118,708 shares
in exchange for $25,029 in cash.
In August 2005, the Company amended its Articles of Incorporation to increase
the authorized shares from 50,000,000 to 100,000,000 common and from 10,000,000
to 20,000,000 preferred shares. The par value of each remained the same at
$0.0001 for each class of stock. In addition, in August 2005, the Company
declared a two shares for each share held forward split of the Company's issued
and outstanding common stock, which was effective at close of business August
31, 2005. Pursuant to this, the Company issued 34,968,466 shares of common
stock.
In December 2005, the Company issued 571,429 shares of restricted common stock
to the President of the Company in exchange for $4,000,000 in cash , valued at
$7.00 per share. In December 2005, the Company issued 838,454 shares of
restricted common stock to complete the acquisition of AMAX, valued at
$4,000,000, or $4.77 per share. In December 2005, the Company issued 222,222
shares of restricted common stock to the President of the Company in exchange
for $2,000,000 in cash , valued at $9.00 per share.
NOTE 6 - NOTES PAYABLE
The Company is obligated for four vehicle loans, totaling $54,888, $47,154,
$45,623 and $14,709. The loans call for monthly payments of $1,523, $955, $1,347
and $416 and they mature in 2008, 2010, 2008 and 2009. They bear interest at 6%,
5.6%, 5.95% and 2.9%.
NOTE 7 - OPERATING LEASES
The Company leases several operating facilities and various equipment from third
parties under various operating leases expiring in various years through 2013.
The total rental expense for the six months ended December 31, 2005 and year
ended June 30, 2005 was $466,132 and $364,567 respectively.
Future minimum lease payments for the remaining lease term are as follows:
2006 $ 1,637,528
2007 1,123,318
2008 1,009,173
2009 1,009,173
2010 1,009,173
Thereafter 2,775,227
------------------------
Total $ 8,563,592
========================
F-10
PEGASUS WIRELESS CORP.
Notes to the Consolidated Financial Statements
NOTE 8 - INCOME TAXES
The Company accounts for its income taxes under the asset and liability
approach, whereby the expected future tax consequences of temporary differences
between the book and tax basis of assets and liabilities are recognized as
deferred tax assets and liabilities.
The provision for income taxes for the six months ended December 31, 2005 was
$94,504; ($18,960 state and $74,744 federal) and for the year ending June 30,
2005 was for state taxes of $800.
NOTE 9 - DEFINED CONTRIBUTION PLAN
The Company maintains a voluntary defined contribution plan, covering eligible
employees. Participating employees may elect to defer and contribute a
percentage of their compensation to the plan. The Company did not make any
contributions to the plan for the six months ended December 31, 2005 and the
year ended June 30, 2005.
NOTE 10 - STOCK OPTION PLAN
In 1995 the Company established an Incentive Stock Option Plan. This plan
provides for the granting of incentive stock options and non-statutory stock
options to employees, directors and consultants at 110% of the fair market value
on the date of the grant. The options to employees vest ratably over a four-year
period. The Company has authorized 3,640,000 post-split shares of common stock
options. There where 1,181,584 and 1,419,000 post-split options outstanding at
December 31, 2005 and June 30, 2005, respectively.
NOTE 11 - STOCK OPTION PLAN FOR OFFICERS
The Company's President and CFO elected in July 2004 to accept stock options in
lieu of cash compensation for a period of two years, beginning in July 2004. The
Chairman also elected to receive his performance based bonus for a period of two
years in stock options as well. For the two years the Chairman and President are
to receive 1,200,000 post-split options and the CFO 1,080,000 post-split
options. All of these options are one share per option and carry a post-split
exercise price of $0.325 per share. These options also carry a cash-less
exercise option if elected by the officer at exercise, if the market price of
the Company's common stock is at least $3.25 per share at the time of exercise,
the officer can elect to return shares, to the Company in lieu of cash payment.
These options are exercisable at any time after the Company's share price
exceeds $2.50 per share for a full quarter, and can be exercised cash-lessly on
a pro-rata basis. The performance requirement for the Chairman for year one is:
a) eliminate all debt, b) take the operating company public and c) reduce the
operating company loss by 40%; and for year two to double the Company's base
revenue. If the expenses related to taking the operating company public are
excluded, the Chairman met the requirements for the first year.
F-11
PEGASUS WIRELESS CORP.
Notes to the Consolidated Financial Statements
NOTE 12 - LINE OF CREDIT
The Companies had a line of credit agreement with a bank, which allows the
Company to borrow up to $5,000,000. Outstanding balances bear interest at the
lender's prime rate and are collateralized by inventory, accounts receivable and
property and equipment. The credit facility requires the Companies to maintain
certain financial ratios and comply with certain covenants. This agreement was
renewed in April, 2005, and now expires in June 2006.
NOTE 13 - RELATED PARTY TRANSACTIONS
A - Facilities operating lease - The Company leases it headquarters building
from a majority stockholder. This lease calls for annual rent in the amount of
$863,800.
B- Related companies - The Companies record sales, accounts receivable,
purchases, administrative expenses and accounts payable to and from 5
brother-sister related companies. None of these companies own any stock of the
Companies, nor do the Companies have any investment in these related companies.
They are related by virtue of similar/common control. Following are the
transactions with these related parties for the six months ended December 31,
2005:
Percent
---------------- ---------------
Revenues $ 1,598,063 9.06%
Accounts receivable 616,448 9.23%
Purchases 337,669 2.19%
Administrative expenses 142,288 10.79%
Accounts payable 108,083 1.82%
NOTE 14 - SUBSEQUENT EVENTS
A - Significant Acquisition - On January , 2006, the Company acquired 51% of SKI
Technologies, Inc., ("SKI"), a Taiwanese corporation headquartered in Taipei,
Taiwan. The Company paid $650,000 in cash and issued 142,735 shares of
restricted common stock, valued at $650,000, or $4.55 per share. The acquisition
was financed by a purchase of 200,000 restricted shares of Pegasus Wireless
Corporation's common stock by Jasper Knabb, the Company's President, in exchange
for $2,000,000 in cash, or $10.00 per share.
F-12
Item 8. Changes in and Disagreements with Accountants.
None
Item 8A. Controls and Procedures
Within 90 days prior to the date of this Report, we carried out an
evaluation, under the supervision and with the participation of our Chief
Executive Officer and Chief Financial Officer (or persons performing similar
functions) of the effectiveness of the design and operation of our disclosure
controls and procedures. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer (or persons performing similar functions) concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information required to be included in our periodic reports
that are filed with the Securities and Exchange Commission. It should be noted
that the design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions, regardless of how remote. In addition, we reviewed our
internal controls, and there have been no significant changes in our internal
controls or in other factors that could significantly affect those controls
subsequent to the date of their last valuation.
Internal Control Over Financial Reporting:
There have been no significant changes in the Company's internal controls
or in other factors since the date of the Chief Executive Officer and Chief
Financial Officer's (or persons performing similar functions) evaluation that
could significantly affect these internal controls during the period covered by
this report or from the end of the reporting period to the date of this Form
10-KSB, including any corrective actions with regards to significant
deficiencies and material weaknesses.
Item 8B. Other Information
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16(a) of the Exchange Act
DIRECTORS and EXECUTIVE OFFICERS
The following table sets forth certain information with respect to each of
our executive officers and directors. Our directors are generally elected at the
annual shareholders' meeting and hold office until the next annual shareholders'
meeting or until their successors are elected and qualified. Executive officers
are elected by our board of directors and serve at its discretion. Our bylaws
authorize the board of directors to be constituted of not less than one and such
number as our board of directors may determine by resolution or election. As of
February 15, 2006 our board of directors consists of nine members.
25
NAME AGE POSITION
------------- ------ -----------------
Alex Tsao 52 Chief Executive Officer
and Chairman of the Board of Directors
Jasper Knabb 38 President and Director
Stephen Durland 51 Chief Financial Officer and Director
Caspar Lee 51 Director
Jerry Shih 56 Director, (and President of the AMAX companies)
Nicholas Peraticos 48 Director
Billy Horn 42 Director
Edward Celano 67 Director
Michael Eaton 63 Director
There are no family relationships between or among the executive officers
and directors of the Company, except that Alex Tsao and Jerry Shih are
brothers-in-law by marriage.
Compliance with Section 16(a) of the Securities Exchange Act of 1934:
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers and directors and persons who own more than 10%
of a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (hereinafter referred to as the "Commission")
initial statements of beneficial ownership, reports of changes in ownership and
annual reports concerning their ownership, of Common Stock and other equity
securities of the Company on Forms 3, 4 and 5, respectively. Executive officers,
directors and greater than 10% shareholders are required by Commission
regulations to furnish the Company with copies of all Section 16(a) reports they
file. To the Company's knowledge, all executive officers, directors and greater
than 10% beneficial owners of its common Stock, and have not complied with
Section 16(a) filing requirements applicable to them during the Company's fiscal
year ended June 30,2005.
Business Experience
Officers and Directors
The following is a brief description of the business background of our
executive officers, and directors:
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.
26
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.,
(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 19 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, (OTC BB: MMAM), since June 2004. 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
President of Hotung International Investment Group, an Asia-based investment
firm with more than 170 portfolio companies in Taiwan, Singapore, Hong Kong,
27
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.
BILLY HORN President and CEO of Horn Asset, Inc. a Miami, Florida based equity
hedge fund. Prior to this position Mr. Horn was a trader with two equity hedge
funds for 12 years. Mr. Horn received his BA from Adelphi University, Garden
City, NY.
NICOLAS PERATICOS, Chairman of the Compensation Committee Managing Director of
Pegasus Ocean Services, LTD, a London, England based ocean shipping agency. Mr.
Peraticos has been employed by POS since 1980 and has been Managing Director
since 1992. Mr. Peraticos attended the City of London Polytechnic, majoring in
Business Administration and is a citizen of Great Britain.
EDWARD CELANO, Chairman of the Audit Committee Senior Partner of Walters &
Samuels, a New York City based real estate company. Mr. Celano's
responsibilities are corporate financial services. Prior to 2003, Mr. Celano was
Senior Partner of corporate finance at M.R. Weiser, CPAs for three years;
Executive Vice President and Chief Loan Officer of Atlantic Bank of New York for
five years; Senior Vice President at National Westminster Bank for 11 years and
Vice President at Banker's Trust for 22 years. Mr. Celano received his Masters
in Finance and Investments from CCNY and BA in Business Administration from St.
Francis College.
MICHAEL EATON, Member of the Audit Committee In 1979 Mr. Eaton founded Eaton &
Burley, Solicitors, a United Kingdom based law firm specializing in the music
industry. This firm has represented and does represent a number of the world's
most successful popular music artists. Mr. Eaton received his Masters in Law
from Jesus College , Cambridge, England and is a citizen of Great Britain.
28
Item 10. Executive Compensation
The following summary compensation table sets forth the aggregate cash
compensation paid or accrued by the Company to each of the Company's executive
officers and key employees for services rendered to the Company during the
Company's fiscal years ended 2005 and 2004 and all plan and non-plan
compensation awarded to, earned by or paid to certain designated executive
officers.
Long Term
Compensation
Annual Compensation Awards
----------------------------------
Securities
Name and Underlying
Principal Position Period Salary ($) Bonus ($) Options
--------------------------------------------------------------------------
Alex Tsao, CEO and 2005-B $ 60,000 $ 0 $ 0
Chairman
2005-A $ 120,000 $ 0 $ 0
2004 $ 120,000 $ 0 $ 0
2003 $ 120,000 $ 0 $ 0
Jasper Knabb, President 2005-B $ 0 $ 0 $ 0
2005-A $ 0 $ 0 $ 0
2004 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0
Stephen Durland, CFO 2005-B $ 0 $ 0 $ 0
2005-A $ 0 $ 0 $ 0
2004 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0
The Company's President and CFO elected in July 2004 to accept stock
options in lieu of cash compensation for a period of two years, beginning in
July 2004. The Chairman also elected to receive his performance based bonus for
a period of two years in stock options as well. For the two years the Chairman
and President are to receive 1,200,000 post-split options and the CFO 1,080,000
post-split options. All of these options are one share per option and carry a
post-split exercise price of $0.325 per share. These options also carry a
cash-less exercise option if elected by the officer at exercise, if the market
price of the Company's common stock is at least $3.25 per share at the time of
exercise, the officer can elect to return shares, to the Company in lieu of cash
payment. These options are exercisable at any time after the Company's share
price exceeds $2.50 per share for a full quarter, and can be exercised
cash-lessly on a pro-rata basis. The performance requirement for the Chairman
for year one is: a) eliminate all debt, b) take the operating company public and
c) reduce the operating company loss by 40%; and for year two to double the
Company's base revenue. If the expenses related to taking the operating company
public are excluded, the Chairman met the requirements for the first year
Compensation of Directors
The Company has no standard arrangements for compensating the directors of
the Company for their attendance at meetings of the Board of Directors.
29
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
Security Ownership of Certain Beneficial Owners
The following table summarizes certain information with respect to the
beneficial ownership of company shares as of December 31, 2005, regarding the
ownership of common stock by each shareholder known to be the owner of more than
5% of the outstanding shares, each director and all executive officers and
directors as a group. Except as otherwise indicated, each of the shareholders
has sole voting and investment power with respect to the shares of common stock
beneficially owned.
Alex Tsao(1) Common 7,504,516 10.5%
48499 Milmont Dr.
Fremont, CA 94538
---------------------------------------------------------------------------
Jasper Knabb(1) Common 1,908,637 2.7%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
Stephen Durland(1) Common 0 0.0%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
Caspar Lee(1) Common 0 0.0%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
Jerry Shih(1) Common 1,471,863 2.1%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
All Executive Officers, Directors 10,885,016 15.3%
as a group
Certain Beneficial Owners
----------------------------------------------------------------------------
Name and Address of Title of Amount and Nature of Percent
Beneficial Owner Class Beneficial Owner of Class
----------------------------------------------------------------------------
Vision 2000 Ventures, Ltd Common 9,072,876 12.7%
48499 Milmont Dr.
Fremont, CA 94538
TOTAL 9,072,876 12.7%
(1) Based upon 71,569,039 shares of the Company's common stock issued and
outstanding as of December 301 2005.
Item 12. Certain Relationships and Related Transactions
None
30
Item 13. Exhibits and Reports filed on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------------------
31.1 * Certificate of the Chief Executive Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 * Certificate of the Chief Financial Officer pursuant Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 * Certificate of the Chief Executive Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 * Certificate of the Chief Financial Officer pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
-------------------------------------------------
* Filed herewith
(b) Reports on Form 8-K filed in the last quarter of 2005:
December 29, 2005 - Reporting the completion of acquisition Financial
statements of acquired entity
December 23, 2005 - Reporting the completion of acquisition Reporting the
amendment to the By Laws Reporting the change of fiscal year end Financial
statements of acquired entity
December 22, 2005 - Reporting a press release
November 1, 2005 - Reporting a press release
August 8, 2005 -Reporting the stock split.
May 10, 2005 - Reporting the change of the Company's independent auditor
June 2, 2005 - Reporting the completion of acquisition Reporting the change
of the Company's independent auditor Reporting the change of control of the
Company Reporting the resignation of officers and directors Reporting the
replacement of officers and directors Reporting the change of fiscal year end
Reporting the amendments to the Company's Code of Ethics Financial statements of
acquired entity
31
Item 14. Principal Accountant Fees and Services
The Company paid or accrued the following fees in each of the prior two
fiscal years to it's principal accountant, Pollard-Kelley Auditing Services,
Inc.:
Year ended Six Months ended
December 31, June 30,
2005 2004
----------------------------------
1. Audit fees $20,000 $20,000
2. Audit-related fees - -
3. Tax fees - -
4. All other fees - -
--------- ---------
Totals $20,000 $20,000
--------- ---------
The Company has designated a formal audit committee. In discharging its
oversight responsibility as to the audit process, commencing with the
engagement, the Board obtained from it's independent auditors a formal written
statement describing all relationships between the auditors and the Company that
might bear on the auditors' independence as required by Independence Standards
Board Standard No. 1, "Independence Discussions with Audit Committees." The
Board discussed with the auditors any relationships that may impact their
objectivity and independence, including fees for non-audit services, and
satisfied itself as to the auditors' independence. The Board also discussed with
management and the independent auditors the quality and adequacy of the
Company's internal controls. The Board reviewed with the independent auditors
their management letter on internal controls, if one was issued by the Company's
auditors.
The Board discussed and reviewed with the independent auditors all matters
required to be discussed by auditing standards generally accepted in the United
States of America, including those described in Statement on Auditing Standards
No. 61, as amended, "Communication with Audit Committees".
The Board reviewed the audited financial statements of the Company as of
and for the six months and year ended December 31, 2005 and June 30, 2005 with
management and its independent auditors. Management has the sole ultimate
responsibility for the preparation of the Company's financial statements and the
respective independent auditors have the responsibility for their examination of
those statements.
Based on the above-mentioned review and discussions with the respective
independent auditors and management, the Board of Directors approved the
Company's audited financial statements and recommended that they be included in
its Annual Report on Form 10-KSB for the six months and year ended December 31,
2005 and June 30, 2005, for filing with the Securities and Exchange Commission.
The Company's principal accountant for the six months and year ended
December 31, 2005 and June 30, 2005, Pollard-Kelley Auditing Services, Inc. did
not engage any other persons or firms other than the respective principal
accountant's full-time, permanent employees.
32
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Pegasus Wireless Corp.
(Registrant)
Date: March 2, 2006 /s/Alex Tsao
------------------------------------------------
Alex Tsao, CEO & Chairman of the Board
/s/ Jasper Knabb
------------------------------------------------
Jasper Knabb, President and Director
/s/Stephen Durland
------------------------------------------------
Stephen Durland, CFO and Director
/s/Caspar Lee
------------------------------------------------
Caspar Lee, Director
/s/Jerry Shih
------------------------------------------------
Jerry Shih, Director
/s/Billy Horn
------------------------------------------------
Billy Horn, Director
/s/Edward Celano
------------------------------------------------
Edward Celano, Director
/s/Nicholas Peraticos
------------------------------------------------
Nicholas Peraticos, Director
/s/Michael Eaton
------------------------------------------------
Michael Eaton, Director
33
SIGNATURES
(Continued)
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title Date
By: /s/Alex Tsao
-------------------------- CEO & Chairman March 2, 2006
Alex Tsao
By: /s/Jasper Knabb
-------------------------- President & Director March 2, 2006
Jasper Knabb
By: /s/Stephen Durland
-------------------------- CFO & Director March 2, 2006
Stephen Durland
By: /s/Caspar Lee
-------------------------- Director March 2, 2006
Caspar Lee
By: /s/Jerry Shih
-------------------------- Director March 2, 2006
Jerry Shih
By: /s/Billy Horn
-------------------------- Director March 2, 2006
Billy Horn
By: /s/Edward Celano
-------------------------- Director March 2, 2006
Edward Celano
By: /s/Nicholas Peraticos
-------------------------- Director March 2, 2006
Nicholas Peraticos
By: /s/Michael Eaton
-------------------------- Director March 2, 2006
Michael Eaton
34
Dates Referenced Herein and Documents Incorporated by Reference
| Referenced-On Page |
|---|
| This ‘10KSB’ Filing | | Date | | First | | Last | | | Other Filings |
|---|
| |  |
| Filed as of: | | 3/3/06 |
| Filed on: | | 3/2/06 | | 33 | | 34 | | | 4 |
| | 2/24/06 | | 14 |
| | 2/15/06 | | 25 |
| | 2/10/06 | | 9 | | 10 |
| | 1/11/06 | | 2 | | | | | 4/A, 5 |
| | 1/1/06 | | 11 | | 19 |
| For Period End: | | 12/31/05 | | 1 | | 32 | | | 5 |
| | 12/29/05 | | 11 | | 31 | | | 4, 8-K, 8-K/A |
| | 12/23/05 | | 31 | | | | | 4, 8-K |
| | 12/22/05 | | 11 | | 31 | | | 4, 4/A, 8-K |
| | 11/1/05 | | 31 | | | | | 8-K |
| | 10/1/05 | | 11 | | 19 |
| | 8/31/05 | | 5 | | 22 |
| | 8/8/05 | | 31 | | | | | 8-K |
| | 7/1/05 | | 1 | | 19 |
| | 6/30/05 | | 5 | | 32 | | | 10KSB, 10KSB/A, 5, 5/A |
| | 6/2/05 | | 31 | | | | | 8-K |
| | 5/10/05 | | 31 | | | | | 8-K |
| | 1/11/05 | | 2 |
| | 6/30/04 | | 20 | | | | | 10QSB |
| | 4/2/02 | | 4 | | 19 |
| | 12/18/01 | | 4 | | 19 | | | 8-K, 8-K/A |
| | 4/5/00 | | 4 | | 19 |
| List all Filings |
1 Subsequent Filing that References this Filing
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