Amendment to Annual Report — Small Business — Form 10-KSB
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10KSB/A — Amendment to Annual Report — Small Business
Document Table of Contents
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 2005
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from _______________ to ________________
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)
Copies of Communications Sent to:
Carl Duncan, Esq.
Duncan Blum & Assoc.
5718 Tanglewood Dr.
Bethesda, MD 20817
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 June 30, 2005:$3,172,351.
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
September 13, 2005 was $284,600,000.
There were 65,770,596 shares of the registrant's common stock outstanding as of
September 13, 2005.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format: Yes [_] No [X]
SUMMARY TABLE OF CONTENTS
PART I
Item 1. Description of Business................................................
Item 2. Description of Property................................................
Item 3. Legal Proceedings......................................................
Item 4. Submission of Matters to a Vote of Security Holders....................
PART II
Item 5. Market for Common Equity and Related Shareholder Matters...............
Item 6. Management's Discussion and Analysis or Plan of Operation..............
Item 7. Financial Statements...................................................
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure....................................
Item 8A. Controls and Procedures ..............................................
Item 8B. Other Information ....................................................
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act.............
Item 10. Executive Compensation................................................
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters............................
Item 12. Certain Relationships and Related Transactions........................
Item 13. Exhibits..............................................................
Item 14. Principal Accountant Fees and Services ...............................
SIGNATURES.....................................................................
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.
4
In March 2003, the Company formed Blue Industries, Inc., a new subsidiary
under the laws of Florida. In late 2003, the Company elected to liquidate its
foreign operating subsidiaries and reverted to an inactive status again.
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.
OTC Wireless, Inc. manufactures wireless connectivity devices.
The Company has authorized 50,000,000 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 33,478,070 and 7,015,578 shares of common
stock and no shares of preferred stock issued and outstanding at June 30, 2005
and December 31, 2004, respectively.
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.
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.
(b) Business of Issuer.
General
The operating entity of Pegasus Wireless Corp. Is 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.
5
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.
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:
6
"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:
OTCW Model # Application
-------------- -------------------------------------------
AVCW*-AP: 11Mbps outdoor wireless access point
AVCW*-BRG: 11Mbps outdoor wireless bridge station
AVCW*-AP-G: 54 Mbps outdoor wireless access point
AVCW*-BRG-G: 54 Mbps outdoor wireless bridge station
ASR: 11 Mbps indoor wireless access point
ACR: 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:
OTCW Model # Application
-------------- -------------------------------------------
WiSER: 11 Mbps wireless serial modem
WiSER.ip: 11 Mbps wireless serial TCP/IP modem
For wireless multimedia/video networking solutions:
OTCW Model # Application
-------------- -------------------------------------------
WiJET: 11 Mbps wireless display solution
WiJET.G: 54 Mbps wireless display solution
WiJET.Video: 54 Mbps wireless display solution with video streaming
OTC Wireless has been delivering products to customers since 1995, both
domestically and overseas. In addition to system integrators, value-added
resellers and end users worldwide, the Company also offers products to major
account customers who either bundle OTC Wireless's solution to their own
7
products, or carry OTC Wireless's products under their own names by private
labeling or OEM custom-designed products from the Company. Over the years, the
Company's major account customers include our largest Japanese customer, CallUS
Computers, which private labels our wireless technology products to Wireless
Internet, (WI) and Nippon Telephone and Telegraph-ME Group, (NTT-ME). The
Company also is a direct supplier to Showa Electric Cable Company (SWCC). In
addition the Company is also the direct supplier of its products to, among
others, Smart Technologies of Canada, Lexmark in the U.S. and D-Link, a major
worldwide network equipment provider based in Taiwan, each of which private
labels our technology products through their distribution network in their
country of origin.
The AVCW series of outdoor wireless Ethernet bridge products are used by
Internet Service Providers (ISPs) to offer high speed Internet access to their
customers wirelessly. They are also used by business customers and schools to
interconnect computer networks in different buildings. When used in a point to
point configuration, a pair of AVCW radios can reach a distance up to 20 miles.
In a point to multiple- point configuration, the radius of a "coverage cell"
typically ranges between 3 to 5 miles. Working with its service providers, the
Company has deployed numerous wireless broadband Internet networks domestically
as well as overseas (including Japan, China and South America).
The Company's ASR and ACR indoor wireless products are used in the Wireless
Local Area Networks (WLAN) by office and home users to interconnect computers
without having to deploy cables. Being designed as a true plug-and-play wireless
solution, OTC Wireless' radios require no installation of software drivers, and
can be used to wirelessly interlink any devices equipped with the RJ-45 Ethernet
port, not only computers. For example, they can be used to enable wireless
printing, connecting computers and network printers. They can also be used to
connect to game consoles such as X-Box, Play Station or Game Cube with the
wireless home gateways.
The WiSER series wireless serial radios are used by both industrial and
education users. Teachers in the schools use WiSER to wirelessly interconnect
the interactive whiteboards to the computers in the classrooms. Industrial users
use the WiSER to connect the central control computer to the remote data
collecting and sensing devices.
The WiJET series products are used by both business and education
customers. Presenters in a business meeting or teachers in the classroom can
deliver their PowerPoint slide shows to the audience in the most convenient
location with their computers wirelessly connected to the projector without the
restriction of a tethering VGA cable. Home users can use WiJET to deliver movie
files stored on their computer hard drives to an LCD or plasma flat panel TV
wirelessly.
8
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.
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.
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 September 10, 2005, the Company has 24 employees, principally located
at our Fremont, California offices.
9
Manufacturing
As of September 10,2005, all of the Company's products are manufactured in
China by contract manufacturers.
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.
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
2005 HIGH LOW
------ -------- -----
June 30, 2005 7.40 0.10
March 31, 2005 0.10 0.10
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
2002 HIGH LOW
------ -------- -----
December 31, 2002 1.47 0.20
The approximate number of holders of record of common equity is 675 as of
September 8, 2005.
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.
Item 6. Management's Discussion and Analysis or Plan of Operation
Operations
This report on 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
11
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 Twelve Months Ending June 30, 2005 & 2004
Financial Condition, Capital Resources and Liquidity
For the twelve months ending June 30, 2005 and 2004 the Company recorded
revenues of $3,172,400 and $3,136,800 respectively. The lack of increase in
revenue is a direct result of the Company being unable to deliver product which
it is aware would be ordered if it were able to deliver. The Company will not
accept orders that it knows cannot be delivered timely. This problem is caused
by the fact that the Company utilizes contract manufacturers to produces the
Company's products. As such, because our product orders are small relative to
the orders of other companies they manufacture for, (i.e. Motorola, HP, among
many others), our orders slip in priority when the economy is relatively good to
stable. We have been experiencing this problem for several years. As a private
company we have had few viable options, because the cost of buying or building a
manufacturing line has been prohibitive as we have not had access to the capital
required.
For the twelve months ending June 30, 2005 and 2004 the Company had total
salary expenses of $1,219,500 and $1,443,600 respectively. The Company reduced
its cash salary expense more than $200,000 in 2005.
For the twelve months ending June 30, 2005 and 2004 the Company had, on a
consolidated basis, general and administrative expenses of $306,100 and $596,100
respectively. We have employed a concerted effort to reduce our expenses, which
has been successful by a 48.7%, or $290,000 reduction in our general and
administrative expenses.
For the twelve months ending June 30, 2005 and 2004 the Company had, on a
consolidated basis, professional fees of $337,000 and $191,500 respectively. Our
$140,000 increase in professional fees is a direct result of the process of our
becoming a public company.
For the twelve months ending June 30, 2005 and 2004, the Company had on a
consolidated basis total operating expenses of $2,103,300 and $2,541,000,
respectively.
12
Net Loss
For the twelve months ending June 30, 2005 and 2004, the Company reported a
net loss from operations of $672,800 and $969,800, 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
steps to address this problem. In August 2005, the Company entered into two
Letters of Intent to acquire 51%, each, of two contract manufacturing companies
located in Taiwan. The terms of these acquisitions are still being negotiated.
These companies are both familiar with, and have manufactured our products for
us. These two companies, combined, producing only our products, given our
current product sales mix and pricing, have the capacity to support $120 million
in sales.
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
[Balance of this page intentionally left blank]
13
INDEX TO FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firm.....................F-2
Consolidated Balance Sheets..................................................F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)........F-4
Consolidated Statements of Stockholders' Equity (Deficiency).................F-5
Consolidated Statements of Cash Flows........................................F-6
Notes to Consolidated Financial Statements...................................F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Pegasus Wireless Corp.
Fremont, California
We have audited the accompanying consolidated balance sheets of Pegasus Wireless
Corp., (the "Company") as of June 30, 2005 and of OTC Wireless, Inc. (the
predecessor) as of June 30, 2004 and the related consolidated statements of
operations and comprehensive income (loss), stockholders' equity (deficiency)
and cash flows for the two years in the period ended June 30, 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
June 30, 2005 and 2004 and the results of its operations and its cash flows for
the two years in the period ended June 30, 2005, in conformity with U.S.
generally accepted accounting principles.
/s/Pollard-Kelley Auditing Services, Inc.
Pollard-Kelley Auditing Services, Inc.
Fairlawn, Ohio
July 21, 2005, except for footnote 14, as to which the date is August 16, 2005
F-2
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PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Consolidated Balance Sheets
June 30,
ASSETS Pegasus OTCW
2005 2004
--------------- ---------------
CURRENT ASSETS
Cash and equivalents $ 839,520 $ 298,045
Accounts receivable, net of reserve of $5,700 and $5,700 307,389 421,916
Inventory, net of reserve of $656,602 and $644,000 469,613 265,146
Prepaid expenses 20,675 11,475
--------------- ---------------
Total current assets 1,637,197 996,582
--------------- ---------------
PROPERTY AND EQUIPMENT
Computers and equipment 642,987 635,491
Less accumulated depreciation (517,746) (408,672)
--------------- ---------------
Net property and equipment 125,241 226,819
--------------- ---------------
OTHER ASSETS
Deposits and other assets 16,186 31,186
--------------- ---------------
Total other assets 16,186 31,186
--------------- ---------------
Total Assets $ 1,778,624 $ 1,254,587
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIENCY)
CURRENT LIABILITIES
Accounts payable $ 413,099 $514,258
Accrued Expenses 137,994 102,508
Customer deposits 5,097 63,858
Current portion of long-term debt 0 0
--------------- ---------------
Total current liabilities 556,190 680,624
--------------- ---------------
LONG-TERM DEBT
Notes payable - related party 0 504,231
--------------- ---------------
Total long-term debt 0 504,231
--------------- ---------------
Total Liabilities 556,190 1,184,855
--------------- ---------------
Minority interest in consolidated subsidiary 0 0
--------------- ---------------
STOCKHOLDERS' EQUITY (DEFICIENCY)
Preferred stock, $0.0001 and no par value, authorized
10,000,000 and 35,000,000 shares; none and 15,295,206
issued and outstanding 0 12,663,209
Common stock, $0.0001 and no par value, authorized
50,000,000 and 50,000,000 shares; 32,766,590 and
5,645,287 issued and outstanding shares 3,277 416,865
=======
Additional paid-in capital 14,902,295 0
Accumulated deficit (13,683,138) (13,010,342)
--------------- ---------------
Total stockholders' equity (deficiency) 1,222,434 69,732
--------------- ---------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 1,778,624 $ 1,254,587
=============== ===============
The accompanying notes are an integral part of the financial statements.
F-3
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PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Consolidated Statements of Operations
Year Ended June 30,
Pegasus OTCW
2005 2004
------------------ -----------------
REVENUES $ 3,172,351 $ 3,136,817
COST OF SALES 1,728,479 1,565,592
------------------ -----------------
Gross Margin 1,443,872 1,571,225
OPERATING EXPENSES
Salaries 1,219,485 1,443,638
Sales and marketing 100,858 78,517
Depreciation and amortization 109,074 154,296
Professional fees 337,047 191,514
General and administrative 306,088 596,064
Research and development 30,777 77,008
------------------ -----------------
Total operating expenses 2,103,329 2,541,037
------------------ -----------------
Operating loss (659,457) (969,812)
------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income 5,581 6,751
Other income 4,798 0
Interest expense (22,918) (25,000)
------------------ -----------------
Total other income (expense) (12,539) (18,249)
------------------ -----------------
Net income (loss) before income tax (671,996) (988,061)
Income tax 800 800
------------------ -----------------
Net income (loss) $ (672,796) $ (988,861)
================== =================
Net income (loss) per common share - basic $ (0.01) $ (0.19)
================== =================
Weighted average number of common shares outstanding - basic 24,186,993 5,177,987
================== =================
The accompanying notes are an integral part of the financial statements.
F-4
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PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Consolidated Statements of Stockholders' Equity (Deficiency)
Total
Number of Number of Add'l. Stockholders'
Shares - Shares - Amount - Amount - Paid-in Accumulated Equity
Preferred Common Preferred Common Capital Deficit (Deficiency)
----------- ---------- ------------ ------------ ------------ ------------- ------------
BEGINNING BALANCE, June 30,
2003 15,295,206 5,124,784 $ 12,663,209 $ 108,538 $ 0 $ (12,021,481) $ 750,266
Common stock issued for cash 0 307,692 0 200,000 0 0 200,000
Common stock issued for services 0 212,811 0 108,327 0 0 108,327
Net loss 0 0 0 0 0 (988,861) (988,861)
----------- ---------- ------------ ------------ ------------ ------------- ------------
BALANCE, June 30, 2004 15,295,206 5,645,287 12,663,209 416,865 0 (13,010,342) 69,732
=========== ========== ============ ============ ============ ============= ============
Preferred converted to common (15,295,206) 16,764,705 (12,663,209) 12,663,209 0
Recapitalization 0 8,000,000 0 (13,076,985) 14,102,483 0 1,025,498
Acquisition of subsidiary 0 3,000,000 0 199 0 0 199
Recapitalization 0 (643,402) 0 (11) 799,812 0 799,801
Net loss 0 0 0 0 0 (672,796) (672,796)
----------- ---------- ------------ ------------ ------------ ------------- ------------
ENDING BALANCE, June 30,
2005 0 32,766,590 $ 0 $ 3,277 $ 14,902,295 $ (13,683,138) $ 1,222,434
=========== ========== ============ ============ ============ ============= ============
The accompanying notes are an integral part of the financial statements.
F-5
[Enlarge/Download Table]
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Consolidated Statements of Cash Flows
Year Ended June 30,
Pegasus OTCW
2005 2004
------------------ ------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (672,796) $ (988,861)
Adjustments to reconcile net loss to net cash used
by operating activities:
Depreciation and amortization 109,074 155,196
Change in inventory reserve 12,602 0
Common stock issued for services 0 108,327
Loss on disposal of fixed assets 0 18,541
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable 114,527 271,137
(Increase) decrease in inventory (217,069) 193,578
(Increase) decrease in prepaid expenses (9,200) 31,673
(Increase) decrease in deposits and other assets 15,000 25,392
Increase (decrease) in accounts payable (101,159) (438,842)
Increase (decrease) accrued expenses 35,486 (9,222)
Increase (decrease) in customer deposits (58,761) (831,300)
------------------ ------------------
Net cash provided (used) by operating activities (772,296) (1,464,381)
------------------ ------------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of property and equipment (7,496) (12,225)
Proceeds from sale of fixed assets 0 11,616
------------------ ------------------
Net cash provided (used) by investing activities (7,496) (609)
------------------ ------------------
CASH FLOW FROM FINANCING ACTIVITIES:
Cash acquired in reorganization 1,825,498 0
Proceeds from loan - related parties 0 4,231
Repayment of loan (504,231) 0
Issuance of common stock for cash 0 200,000
------------------ ------------------
Net cash provided by financing activities 1,321,267 204,231
------------------ ------------------
Net increase (decrease) in cash and equivalents 541,475 (1,260,759)
CASH and equivalents, beginning of period 298,045 1,558,804
------------------ ------------------
CASH and equivalents, end of period $ 839,520 $ 298,045
================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid in cash $ 47,918 $ 9,728
================== ==================
Income taxes paid in cash $ 800 $ 800
================== ==================
Non-Cash Financing Activities:
None
The accompanying notes are an integral part of the financial statements.
F-6
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
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 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. It returned to an inactive state in 2003. In June 2005,
the Company changed its name to Pegasus Wireless Corp. upon its acquisition of
OTC Wireless, Inc.
OTC Wireless, Inc., (the operating company) was incorporated under the laws of
California on September 21, 1993. The Company is engaged in the business of
designing, manufacturing and marketing wireless hardware and software solutions
for broadband fixed, portable networking and Internet access.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements have been prepared on a going
concern basis. As of June 30, 2005, the Company had an accumulated deficit of
$13,983,100 and has suffered losses and negative cash flow from operations since
inception. Management has implemented workforce reduction, pay cut and other
cost saving programs to reduce operating expenses. In addition, the Company
plans to enlarge the customer base, increase the sales volume and institute more
effective management techniques. Management believes these factors will
contribute toward achieving profitability. Please see note 13, which addresses
subsequent events. Management has taken steps to address the inherent problems
with using contract manufacturers as well as providing for the purchase of the
raw materials needed to produce the Company's products in sufficient quantity
and with requisite timeliness in order to produce positive cash flow from
operations, and profits. Management expects that it could take a year before the
results of these steps is fully reflected in the financial statements.
Principles of Consolidation - The consolidated financial statements include the
accounts of Pegasus Wireless Corp. and its 4 wholly-owned subsidiaries, 3 of
which are shells. Inter-company balances and transactions have been eliminated.
Cash Equivalents - For purposes of the statement of cash flows, the Company
considers all highly liquid investments with maturity of three months or less 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.
F-7
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Notes to the Consolidated Financial Statements
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Inventory - The Company values its inventory at the lower of cost or market,
cost determined using the standard cost method. The Company also utilizes the
reserve method to account for slow moving and obsolete inventory. The reserve
for inventory obsolescence was $644,000 and $900,961 at June 30, 2004 and 2003,
respectively.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts. Actual results could differ from those estimates.
Loss Per Share - Loss per share is computed using the Weighted Average Number of
common shares outstanding during the fiscal year.
Advertising - The Company expenses the production costs of advertising as they
are incurred. Advertising expense was $5,100 and $7,300 for the years ending
June 30, 2005 and 2004, respectively.
Concentration of Credit Risk - The Company extends credit based on the
evaluation of each customer's financial condition, and generally requires no
collateral from its customers. Credit losses, if any, have been provided for in
the financial statements and have been generally within management's
expectations. For the fiscal year ended June 30, 2005, two customers accounted
for 50% of the Company's total sales and 62% of the accounts receivable balance.
Also, one vendor accounted for 92% of the Company's total purchases and 84% of
the accounts payable balance.
For the year ended June 30, 2005, two suppliers accounted for 39% of the
Company's total purchases and 97% of the accounts payable balance. During the
years ending at June 30, 2005 and 2004, the Company had deposits in banks in
excess of the FDIC insurance limit.
F-8
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Notes to the Consolidated Financial Statements
NOTE 3 - ACCOUNTS RECEIVABLE
The Company uses the allowance method to account for its doubtful accounts. The
allowance for doubtful accounts is based on management's estimates. Accounts
receivable as of June 30, 2005 and 2004 consist of the following:
2005 2004
---------- ----------
Trade accounts receivable $ 313,089 $ 427,616
Allowance for doubtful accounts (5,700) (5,700)
---------- ----------
Total $ 307,389 $ 421,916
NOTE 4 - INVENTORY
The Company values its inventory at the lower of cost or market, cost determined
using the standard cost method. The Company also utilizes the reserve method to
account for slow moving and obsolete inventory. Inventory as of June 30, 2005
and 2004 consist of the following:
2005 2004
---------- ----------
Raw Materials $1,126,215 $ 909,146
Less: Reserve for obsolescence (656,602) (644,000)
---------- ----------
Total $ 469,613 $ 265,146
NOTE 5 - FIXED ASSETS
Fixed assets are stated at cost. Maintenance, repairs and renewals are expensed
as incurred. Depreciation is computed using the straight-line method over the
estimated useful lives ranging from 3 to 7 years. Fixed assets as June 30, 2004
and 2003 consist of the following:
2005 2004
---------- ----------
Furniture and fixtures $ 108,945 $ 108,945
Machinery and equipment 320,685 320,685
Computer equipment 117,013 111,184
Software 96,343 94,675
---------- ----------
Total 642,987 635,489
Less: Accumulated depreciation (517,746) (408,670)
---------- ----------
Net $ 125,241 $ 226,819
F-9
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Notes to the Consolidated Financial Statements
NOTE 6 - NOTES PAYABLE
On March 6, 2003, OTC Wireless obtained a loan, totaling $500,000 from one of
its stockholders. The loan was due and payable in two years. It bears interest
at 5% per annum with quarterly payments This loan was paid in full in fiscal
2005 and accrued interest totaling $47,900 was paid in full in early fiscal
2006.
NOTE 7 - STOCKHOLDERS' EQUITY
The authorized capital stock of the Company consists of 50,000,000 shares of
common stock with a par value of $0.0001 and 10,000,000 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
32,766,590 and 5,645,287 shares of common stock outstanding at June 30, 2005 and
2004.
In 2004, the Company issued 2,144,864 shares of common stock to settle payables
in the amount of $113,495, or $0.05 per share. In early fiscal 2005, the Company
issued 10,000,000 shares in exchange for services valued at $20,000, or $0.002
per share. Subsequently, the Company completed a 1 for 200 reverse split of the
common stock, retiring 16,947,500 shares, leaving 68,078 shares issued and
outstanding. The Company issued 3,000,000 shares of common stock in exchange for
convertible debt in the amount of $22,000, or $0.007 per share. In June 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.
NOTE 8 - OPERATING LEASES
On April 12, 2004, the Company entered into an operating lease, expiring May 8,
2007, for office space. The base rent is to be increased by 4% on the
anniversary of the effective date. The total rental expense for the years ended
June 30, 2005 and 2004 was $112,600 and $364,600, respectively.
Future minimum lease payments for the remaining lease term are as follows:
Year ending June 30,
2006 $ 79,704
2007 $ 68,134
F-10
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Notes to the Consolidated Financial Statements
NOTE 9 - RELATED PARTY TRANSACTIONS
On March 6, 2003, the Company obtained a loan, totaling $500,000 from one of its
stockholders. The loan was due and payable in two years. It bears interest at 5%
per annum with quarterly payments. This loan was paid in full in fiscal 2005 and
accrued interest totaling $47,900 was paid in full in early fiscal 2006.
NOTE 10 - 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. A valuation reserve has been established
which sets the value of these computations to zero at June 30, 2005 and 2004
because the realization of these benefits is uncertain.
The provision for income taxes for the years ending June 30, 2005 and 2004 was
for state taxes of $800 and $800 respectively.
NOTE 11 - 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 in the years ended June 30, 2005 and 2004.
NOTE 12 - 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 1,820,000 shares of common stock options.
There were 709,500 options outstanding on June 30, 2005 and 2004, respectively.
The Company accounts for its stock-based awards using the intrinsic value
method. If the fair value method were used, the Company's losses for the year
ended June 30, 2005 would have increased by $137,761 to $810,467 and by $137,761
to $1,126,622 for the year ended June 30, 2004.
F-11
PEGASUS WIRELESS CORP.
(OTC Wireless, Inc. - predecessor)
Notes to the Consolidated Financial Statements
NOTE 13 - 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 600,000 options and the CFO 540,000 options. All of these options are
one share per option and carry an exercise price of $0.65 per share. These
options also carry a cashless 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 Chairman and President can elect to
return 100,000 of their 600,000 shares, and the CFO 90,000 of his 540,000, 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 cashlessly 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 has met the requirements for
the first year.
NOTE 14 - SUBSEQUENT EVENTS
A - Acquisition Letters of Intent - In August 2005, the Company entered into
letters of intent to acquire 51% each of two companies based in Taiwan. These
LOIs are contingent on, among other items, the drafting of a definitive
acquisition agreement with final purchase price and terms acceptable to all
parties, the delivery of acceptable audited financial statements by the
companies to be acquired and delivery by Pegasus of the final agreed upon
compensation.
These two companies own manufacturing lines in China which are capable of
producing, and are familiar with, the Company's products.
In expectation of the closing of these acquisitions, the Company has arranged
financing in the amount of $3.5 million in order to close the acquisitions and
purchase raw materials for a ramp-up of production.
F-12
Item 8. Changes in and Disagreements with Accountants.
On May 25, 2005, as a result of the acquisition of OTC Wireless, Inc. by
Pegasus Wireless, the Company dismissed Lawrence Scharfman & Company, as the
independent auditor of the Company.
On May 25, 2005, the Company's board of directors approved the engagement
of the firm of Pollard-Kelley Auditing Services, Inc., 3250 W. Market St., Suite
307, Fairlawn, Ohio 44333, as the Company's independent auditors. Such
appointment was accepted by Terance Kelly of the firm.
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.
(b) 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.
26
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. Our
board of directors currently consists of five members.
NAME AGE POSITION
------------- ------ -----------------
Alex Tsao 52 Chief Executive Officer and Chairman of the
Board of Directors
Jasper Knabb 37 President and Director
Stephen Durland 51 Chief Financial Officer and Director
Caspar Lee 51 Director
Jerry Shih 56 Director
There are no family relationships between or among the executive officers
and directors of the Company.
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.
27
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.
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
28
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, 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.
29
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.
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
Underlying
Name And Principal Position Salary($) Bonus($) Options
----------------------------------------------------------------------------
Alex Tsao, Chief Executive Officer, 2005 $ 120,000 $ 0 $ 0
and Director 2004 $ 120,000 $ 0 $ 0
2003 $ 120,000 $ 0 $ 0
Jasper Knabb, President 2005 $ 0 $ 0 $ 0
2004 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0
Stephen Durland, CFO 2005 $ 0 $ 0 $ 0
2004 $ 0 $ 0 $ 0
2003 $ 0 $ 0 $ 0
------------------------------
30
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 600,000 options and the CFO 540,000 options. All of
these options are one share per option and carry an exercise price of $0.65 per
share. These options also carry a cashless 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 Chairman and President can
elect to return 100,000 of their 600,000 shares, and the CFO 90,000 of his
540,000, 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 cashlessly 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 has 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.
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 June 30, 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 3,752,258 11.5%
48499 Milmont Dr.
Fremont, CA 94538
---------------------------------------------------------------------------
Jasper Knabb(1) Common 200,000 0.6%
48499 Milmont Dr.
Fremont, CA 94538
31
----------------------------------------------------------------------------
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 680,000 2.1%
48499 Milmont Dr.
Fremont, CA 94538
----------------------------------------------------------------------------
All Executive Officers, Directors 4,632,258 14.1%
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 4,536,438 13.8%
c/o OTC Wireless, Inc.
48499 Milmont Dr.
Fremont, CA 94538
-------------------------------
TOTAL 4,536,438 13.8%
(1) Based upon 32,766,590 shares of the Company's common stock issued and
outstanding as of June 30, 2005.
Item 12. Certain Relationships and Related Transactions
None
32
Item 13. Index to Exhibits
------- -----------------------
31 * Certificate of the Chief Executive Officer and Chief Financial Officer
pursuant Section 302 of the Sarbanes-Oxley Act of 2002
32 * Certificate of the Chief Executive Officer and 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 fiscal 2005:
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
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, 2005 - Pollard-Kelley Auditing
Services, Inc. and 2004 - Durland & Company, CPA's, P. A. of Palm Beach,
Florida:
Year ended Year ended
June 30, December 31,
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 not designated a formal audit committee. However, as
defined in Sarbanes-Oxley Act of 2002, the entire Board of Directors
33
(Board), in the absence of a formally appointed committee, is, by definition,
the Company's 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 years ended December 31, 2004 and 2003 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 year ended June 30, 2005, for filing
with the Securities and Exchange Commission.
The Company's principal accountant for the year ended June 30, 2005, and
for the year ended December 31, 2004, Pollard-Kelley Auditing Services, Inc. and
Durland & Company, CPA's P.A., respectively, did not engage any other persons or
firms other than the respective principal accountant's full-time, permanent
employees.
34
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: September 20, 2005 /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
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 September 20, 2005
Alex Tsao
By: /s/Jasper Knabb
-------------------------- President & Director September 20, 2005
Jasper Knabb
By: /s/Stephen Durland
-------------------------- CFO & Director September 20, 2005
Stephen Durland
By: /s/Caspar Lee
-------------------------- Director September 20, 2005
Caspar Lee
By: /s/Jerry Shih
-------------------------- Director September 20, 2005
Jerry Shih
35
Dates Referenced Herein and Documents Incorporated by Reference
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