Pegasus Wireless Corp · 10KSB · For 12/31/05

Filed On 3/2/06, 6:16pm ET   ·   Accession Number 1164150-6-66   ·   SEC File 0-32567

Annual Report — Small Business   —   Form 10-KSB
Filing Table of Contents

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 

10KSB   —   Annual Report — Small Business
Document Table of Contents

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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)

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     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 [_]         

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 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    

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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.                                                                          

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     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.              

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     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     

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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.        

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     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.           

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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.                                                                  

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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.

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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.                                              

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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.]

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 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

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 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                                                               

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                             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

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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

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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

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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

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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

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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.                                   

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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

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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                          
    ========================

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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.                 

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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.                                    

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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.              

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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.                                                        

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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,

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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.      

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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.         

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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                                                                  

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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                                                                 

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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.                                    

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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   

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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
		4/5/00		4		19
		12/18/01		4		19			8-K, 8-K/A
		4/2/02		4		19
		6/30/04		20					10QSB
		1/11/05		2
		5/10/05		31					8-K
		6/2/05		31					8-K
		6/30/05		5		32			10KSB, 10KSB/A, 5, 5/A
		7/1/05		1		19
		8/8/05		31					8-K
		8/31/05		5		22
		10/1/05		11		19
		11/1/05		31					8-K
		12/22/05		11		31			4, 4/A, 8-K
		12/23/05		31					4, 8-K
		12/29/05		11		31			4, 8-K, 8-K/A
For The Period Ended		12/31/05		1		32			5
		1/1/06		11		19
		1/11/06		2					4/A, 5
		2/10/06		9		10
		2/15/06		25
		2/24/06		14
Filed On		3/2/06		33		34			4
Filed As Of		3/3/06
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