10QSB/A

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB/A

Amendment No. 1

(Mark One)

R QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIESEXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2007

OR

£ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934

Commission file number 0-50918

AIRBEE WIRELESS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	46-0500345
(State or other jurisdiction	(IRS Employer
of incorporation or organization)	Identification No.)
9400 Key West Avenue, Suite 100
Rockville, MD	20850-3322
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (301) 517-1860

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 R No £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No R

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: 116,023,381 shares of Common Stock par value of $0.00004 as of December 10, 2007.

Transitional Small Business Disclosure Form (check one): Yes £ No R

AIRBEE WIRELESS, INC.

FORM 10-QSB/A

INDEX

	PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements	3
Condensed Consolidated Balance Sheet as of September 30, 2007 (Unaudited)	4
Condensed Consolidated Statements of Operations for the Nine Months and Three Months Ended September 30, 2007 and 2006 (Unaudited)	5
Condensed Consolidated Statement of Accumulated Other Comprehensive Income for the Nine Months Ended September 30, 2007 (Unaudited)	6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2007 and 2006 (Unaudited)	7
Notes to the Condensed Consolidated Financial Statements (Unaudited)	9
Item 2. Management’s Discussion and Analysis or Plan of Operations	32
Item 3. Controls and Procedures	41
PART II OTHER INFORMATION	42
Item 1. Legal Proceedings	42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3. Defaults Upon Senior Securities	43
Item 4. Submission of Matters to a Vote of Security Holders	43
Item 5. Other Information	43
Item 6. Exhibits	44
SIGNATURES	45

2

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

AIRBEE WIRELESS, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007 AND 2006

(UNAUDITED)

3

AIRBEE WIRELESS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 2007

(UNAUDITED)

	Restated
	2007
ASSETS
Current Assets:
Cash and cash equivalents	$	8,205
Accounts receivable, net		-
Prepaid expenses and other current assets		5,181
Total Current Assets		13,386
Fixed assets, net of depreciation		228,579
Intangible assets		310,157
Deferred financing costs		3,867
Other assets		63,727
		377,751
TOTAL ASSETS	$	619,716
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
LIABILITIES
Current Liabilities:
Notes payable - related party	$	137,974
Notes payable - other		1,852,130
Montgomery settlement liability		-
Litigation settlement liability		700,000
Liability for stock to be issued		70,000
Fair value of derivatives		421,415
Convertible debentures, net of discount of $43,750		156,250
Warrants liability		185,540
Accounts payable and accrued expenses		2,613,789
Total Current Liabilities		6,137,098
Total Liabilities		6,137,098
COMMITMENTS AND CONTINGENCIES		-
STOCKHOLDERS' DEFICIT
Common stock, $.00004 Par Value; 200,000,000 shares authorized; 121,091,538 shares issued; 14,142,511 shares held in escrow; and 105,288,991 shares outstanding		4,211
Additional paid-in capital		14,920,231
Unearned compensation		(10,578	)
Accumulated other comprehensive income		56,061
Prepaid consulting		(208,333	)
Shares issued for deferred financing, net of $3,450,069 discount		(4,216,751	)
Accumulated deficit		(15,764,684	)
		(5,219,843	)
Less: treasury stock, 1,660,036 shares at cost		(297,539	)
Total Stockholders' Deficit		(5,517,382	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT		619,716

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

AIRBEE WIRELESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(UNAUDITED)

	NINE MONTHS ENDED						THREE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	Restated						Restated
	2007			2006			2007			2006
OPERATING REVENUES
Sales	$	29,163		$	127,800		$	5,925		$	-
COST OF SALES		-			1,092			-			361
GROSS PROFIT		29,163			126,708			5,925			(361	)
OPERATING EXPENSES
Compensation and professional fees		2,711,749			1,447,550			925,068			542,809
Stock option compensation expense		27,965			1,254,956			-			27,326
Research and development		10,556			-			124			-
Selling, general and administrative expenses		1,136,354			386,407			451,587			99,850
Depreciation and amortization		146,955			40,841			47,966			16,687
Total Operating Expenses		4,033,579			3,129,754			1,424,745			686,672
LOSS BEFORE OTHER INCOME (EXPENSE)		(4,004,416	)		(3,003,046	)		(1,418,820	)		(687,033	)
OTHER INCOME (EXPENSE)
Gain (loss) on derivatives/warrants		368,213			724,904			306,205			216,276
Other income		19,682			119			723			-
Interest expense		(755,522	)		(423,293	)		(289,233	)		(258,590	)
Total Other Income (Expense)		(367,627	)		301,730			17,695			(42,314	)
LOSS BEFORE PROVISION FOR INCOME TAXES		(4,372,043	)		(2,701,316	)		(1,401,125	)		(729,347	)
Provision for Income Taxes		-			-			-			-
NET LOSS APPLICABLE TO COMMON SHARES	$	(4,372,043	)	$	(2,701,316	)	$	(1,401,125	)	$	(729,347	)
NET LOSS PER BASIC AND DILUTED SHARES	$	(0.05	)	$	(0.04	)	$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING		93,081,086			67,728,836			101,686,807			74,124,876

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

AIRBEE WIRELESS, INC.

CONDENSED CONSOLIDATED STATEMENT OF ACCUMULATED OTHER COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007

(UNAUDITED)

Balance, December 31, 2006	$	933
Gain on foreign currency translations		55,128
Balance, September 30, 2007	$	56,061

&# 160;

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

AIRBEE WIRELESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(UNAUDITED)

	Restated			Restated
	2007			2006
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(4,372,043	)	$	(2,701,316	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		146,955			40,841
Common stock issued for services		1,229,828			341,267
Common stock issued for compensation		-			55,000
Gain on valuation of derivatives		(368,213	)		(443,213	)
Amortization of derivative discounts		131,250			131,250
Stock option compensation expense 123R		27,222			1,254,956
Exercised stock options returned by shareholders		(723	)		-
Amortization of financing fees		11,592			11,592
Gain on foreign currency translations		55,128			(10	)
Amortization of unearned compensation		11,976			11,976
Extension and late payment fees on bridge loans		269,435			92,663
Use of pledged collateral for settlement of note payable and interest expense		-			(387,236	)
Litigation settlement		337,839			-
Amortization of prepaid consulting		291,667			-
Excess tax benefits from share-based payment arrangement		(9,788	)		(439,235	)
Changes in assets and liabilities
(Increase) in accounts receivable		-			10,000
Decrease in prepaid expenses and other current assets		19,312			36,041
(Increase) in other assets		(9,492	)		(31,384	)
Increase in accounts payable, accrued expenses and other current liabilities		1,119,692			490,245
Total adjustments		3,263,680			1,174,753
Net cash used in operating activities		(1,108,363	)		(1,526,563	)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of intangible assets		-			(38,256	)
Acquisitions of fixed assets		(67,926	)		(97,030	)
Net cash used in investing activities		(67,926	)		(135,286	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

AIRBEE WIRELESS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2006

(UNAUDITED) 

	Restated			Restated
	2007			2006
CASH FLOWS FROM FINANCING ACTIVITES
Proceeds from common stock issuances	$	210,000		$	480,296
Proceeds from stock subscriptions receivable		-			127,500
Proceeds from notes payable - other		717,564			483,000
Proceeds from derivative notes payable		-			115,000
Proceeds from secured convertible debenture		150,000			-
Proceeds from stock option exercise		-			400
Proceeds from notes payable - related party, net		37,844			-
Excess tax benefits from share-based payment arrangement		9,788			439,235
Net cash provided by financing activities		1,125,196			1,645,431
NET (DECREASE) IN CASH AND CASH EQUIVALENTS		(51,093	)		(16,418	)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD		59,298			27,854
CASH AND CASH EQUIVALENTS - END OF PERIOD	$	8,205		$	11,436
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest expense	$	27,570		$	30,625
Income taxes	$	-		$	-
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Common stock issued for compensation	$	-		$	55,000
Common stock issued for services	$	1,229,828		$	341,267
Common stock issued for deferred financing (Mercatus), net of discount	$	4,216,751		$	-
Stock options vested during period	$	27,222		$	1,254,956
Reverse issuance of common stock; overruled by court order	$	131,268		$	-
Warrants removed from liability	$	59,621		$	-
Conversion of note payable - other and accrued interest to common stock	$	60,225		$	113,085
Use of pledged collateral for settlement of note payable and accrued interest	$	276,298		$	387,236
Conversion of related party notes payable, accrued salaries payable and accrued interest to common stock	$	46,968		$	1,870,972
Liability for stock to be issued for prepaid consulting fees	$	500,000		$	-
Liability for stock to be issued for services	$	70,000		$	-

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

AIRBEE WIRELESS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2007 AND 2006

(UNAUDITED)

NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION

Airbee Wireless, Inc. (“Airbee” or the “Company”), was incorporated in Delaware in 2002 to develop and supply cutting edge intelligent software that is generally embedded into microprocessors thereby allowing manufacturers (OEMs) of various products to create advanced wireless communications systems.

The condensed unaudited interim consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. The condensed consolidated financial statements and notes are presented as permitted on Form 10-QSB and do not contain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the December 31, 2006 audited consolidated financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these condensed consolidated financial statements are reasonable, the accuracy of the amounts are in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.

These condensed unaudited consolidated financial statements reflect all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

Focusing on its core competencies in the design and engineering of advanced, embedded short-range wireless data and voice communications software, the Company believes that it is positioned to play a pivotal role in the convergence of various wireless communications applications through software embedded on silicon and in niche service applications for its software.

In March 2004, Airbee became a member of The ZigBee Alliance which has defined a global standard for reliable, cost-effective, low-power, low data rate, wireless applications. With over 200 international member companies, the ZigBee standard, based on IEEE 802.15.4 standard, is emerging as a dominant wireless standard for a host of industrial controls, telemetry, and in-building and home automation networking needs.

Airbee’s portfolio of products is generally connected over the rapidly emerging Wireless Personal Area Network (WPAN) or the Wireless Local Area Network (WLAN) technology space. Critical to the success of new products in these areas is the ability to interoperate or “talk to each other” based on industry-adopted standards. Airbee’s products are designed and engineered to be compliant with ZigBee/802.15.4 WPAN standards (approved by IEEE on August 7, 2003). Airbee’s patent-pending software technology, in conjunction with an Airbee enabled wireless network, allows a computer to work with a printer or PDA, a headset accessory to work with a mobile phone, a utility meter to be read remotely, or a manufacturing line to be wirelessly controlled and monitored as examples. Airbee leverages the widespread market awareness created by Bluetooth but offers similar products at less than half the cost, three times the operating range and better reliability per the ZigBee specifications.

As stated in Note 12, the Company has amended its previously issued condensed consolidated financial statements for the three months ended March 31, 2006 for amortization of intangible assets of $5,050 and certain balance sheet reclassifications to conform with the December 31, 2005 restatement. The effect of these changes resulted in an increase of the loss for the three month period ended March 31, 2006 of $5,050 to a net loss of $1,290,180 and an increase in the accumulated deficit to $7,886,805.

These condensed consolidated financial statements for the three months ended September 30, 2007 have been restated to recognize additional compensation and professional fees of $125,000. The effect of this change resulted in an increase of the loss for the three month period ended September 30, 2007 of $125,000 to a net loss of $1,401,125 and an increase in the accumulated deficit to $15,764,684.

9

The Company amended its previously issued condensed consolidated financial statements for the three months ended June 30, 2007 to recognize additional compensation and professional fees of $155,000. The effect of this change resulted in an increase of the loss for the three month period ended June 30, 2007 of $155,000 to a net loss of $1,723,265 and an increase in the accumulated deficit to $14,363,558.

The Company amended its previously issued condensed consolidated financial statement for the three months ended March 31, 2007 to recognize additional compensation and professional fees of $51,667. The effect of these changes resulted in an increase of the loss for the three month period ended March 31, 2007 of $51,667 to a net loss of $1,247,652 and an increase in the accumulated deficit to $12,640,293.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Liquidity

The condensed consolidated financial statements have been presented on the basis that the Company is a going concern, which contemplates, among other things, the realization of assets, continued success in accessing supplemental external financing, and the satisfaction of liabilities in the normal course of business. The Company has incurred losses since its inception, and has an accumulated deficit of approximately $15.76 million as of September 30, 2007. The Company's operations have been financed primarily through a combination of issued equity and debt. For the nine months ended September 30, 2007, the Company had a net loss of approximately $4,372,043 and cash used in operations of approximately $1,108,400.

The Company regularly evaluates its working capital needs and existing burn rate to make appropriate adjustments to operating expenses. On December 29, 2005, the Company executed a $500,000 convertible debenture with Montgomery Equity Partners, Ltd. (“Montgomery”). Pursuant to its terms, Montgomery disbursed $350,000 to the Company upon execution and the remaining $150,000 was disbursed on April 9, 2007. The convertible debenture is due December 29, 2007 and accrues monthly interest at 15% per year.

As discussed below in Note 10, the Company has executed a Restricted Equity Purchase Agreement with Mercatus & Partners Limited (“Mercatus”), a United Kingdom private limited company by which Mercatus purchased 33,334,000 shares of Company stock in a delayed funding transaction. The closing had not been scheduled as of the balance sheet date but is anticipated to take place in the next quarter. There are no assurances that the transaction will close in which case the Company’s sole remedy is the return of its stock.

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Airbee Wireless (India) Pvt. Ltd., located in India, for the nine months ended September 30, 2007 and 2006, respectively. All significant inter-company accounts and transactions have been eliminated in consolidation. Accounts denominated in non-U.S. currencies have been re-measured using the U.S. Dollar as the functional currency.

Use of Estimates

The preparation of the condensed consolidated 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 of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

10

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.

The Company maintains cash and cash equivalent balances at financial institutions in the United States of America and India. The financial institution in the United States of America is insured by the Federal Deposit Insurance Corporation up to $100,000. Of the $8,205 in cash and cash equivalents on September 30, 2007, the India rupee equivalent of $7,736 is uninsured.

Accounts Receivable

The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has an allowance for doubtful accounts of $0 at September 30, 2007. Accounts receivable are generally due within thirty (30) days and collateral is not required.

Fixed Assets

Fixed assets are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets; two to four years for machinery and equipment and four to forty years for buildings. Reviews are regularly performed to determine whether facts and circumstances exist that indicate carrying amount of assets may not be recoverable or the useful life is shorter than originally estimated. The Company assesses the recoverability of its fixed assets by comparing the projected undiscounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. If assets are determined to be recoverable, but the useful lives are shorter than originally estimated, the net book value of the assets is depreciated over the newly determined remaining useful lives. When fixed assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in operations.

Intangible Assets

Intellectual property assets represent technology and are amortized over the periods of benefit, ranging from two to five years, generally on a straight-line basis.

Identified intangible assets are regularly reviewed to determine whether facts and circumstances exist which indicate that the useful life is shorter than originally estimated or the carrying amount of assets may not be recoverable. The Company assesses the recoverability of its identifiable intangible assets by comparing the projected discounted net cash flows associated with the related asset or group of assets over their remaining lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.

Intellectual Property

Costs incurred in creating products are charged to expense when incurred as research and development until technological feasibility is established upon completion of a working model. Thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product.

In accordance with SFAS No. 2, “Accounting for Research and Development Costs”, SFAS No. 68, “Research and Development Arrangements”, and SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed”, technological feasibility for the Airbee UltraLite^™ was established on November 20, 2002 with completion of the detailed program design. Several working models were delivered at various points through July of 2003.

11

Trademarks and patents are regularly reviewed to determine whether the facts and circumstances exist to indicate that the useful life is shorter than originally estimated or the carrying amount of the assets may not be recoverable. The Company assesses the recoverability of its trademarks and patents by comparing the projected discounted net cash flows associated with the related asset, over their remaining lives, in comparison to their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets.

Intangible assets pertain to the Company’s intellectual property, more specifically software code for both IEEE 802.15.4 and the ZigBee standard version 1.0 and to the 2006 ZigBee standard version 1.1.

The software serves as the core code (i.e., one of the key building blocks) for current and future products that must comply with these international standards. Hence, core software based upon the global standards of IEEE and ZigBee to enable the rest of our software to function has an undefined, but not necessarily infinite, useful life. Management, with the assistance of its technical staff, has determined that this specific intellectual property should be amortized beginning in the second quarter of 2005 in accordance with SFAS No. 86. The status of that intellectual property is reviewed for impairment annually or more frequently if events and circumstances indicate that the asset may be impaired. With the release of the ZigBee 2006 standard in September 2006, it was determined that 30% of the previously capitalized research & development costs should be written off. The Company believes that at this point in time, any further determination of impairment is impractical because (a) the IEEE 802.15 global standard was only finalized in October 2003; (b) the ZigBee global standard was only finalized on September 23, 2006; and (c) the Company’s software written in conformity with both global standards is vital to making the rest of its software function and therefore be in compliance with these global standards.

Revenue and Cost Recognition

The Company currently recognizes revenues from four primary sources: (1) time-based product license fees, (2) time-based license royalties, (3) product revenues for software development tools and kits, and (4) software development services.

Licensing revenues (e.g., Airbee-ZNS^™, Airbee-ZMAC^™, and Airbee-ZNMS^™) consist of revenues from licensing under the enterprise licensing model, of Airbee platforms, which include a combination of products and services, and items such as development tools, an operating system, various protocols and interfaces and maintenance and support services, such as installation and training, which are licensed over a limited period of time, typically 12-36 months. Service revenues are derived from fees for professional services, which include design and development fees, software maintenance contracts, and customer training and consulting.

The Company accounts for the time-based licensing of software in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, “Software Revenue Recognition.” The Company recognizes revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) the ability to collect is reasonably assured. For software arrangements with multiple elements, revenue is recognized dependent upon whether vendor-specific objective evidence (VSOE) of fair value exists for each of the elements. When VSOE does not exist for all the elements of a software arrangement and the only undelivered element is post-contract customer support (PCS), the entire licensing fee is recognized ratably over the contract period.

Revenue attributable to undelivered elements, including technical support, is based on the sales price of those elements, and is recognized ratably on a straight-line basis over the term of the time-based license. Post-contract customer support revenue is recognized ratably over the contract period. Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of sales.

Time-based product licensing fees are collected in advance. Revenues from licenses are recognized on a prorated-basis over the life of the license. Airbee’s customary practice is to have non-cancelable time-based licenses and a customer purchase order prior to recognizing revenue.

Enterprise license model arrangements require the delivery of unspecified future updates and upgrades within the same product family during the time-based license. Accordingly, Airbee will recognize fees from its enterprise license model agreements ratably over the term of the license agreement.

12

Time-based royalties are charged on a unit basis. Royalties are not fixed dollar amounts, but are instead a percentage of the customer’s finished product and the percentage varies on a tiered basis with the time-based number of units shipped by customer.

Revenue attributed to undelivered elements is based on the sales price rather than on the renewal rate for the following reasons:

Because of (i) the newness of the ZigBee standard for this short-range wireless technology, (ii) the newness of the Company’s product introductions into the marketplace for a range of applications being developed by its customers, and (iii) the lack of historical data for potentially defective software, which may be a function of the application into which it is installed, a reasonable reserve for returns cannot yet be established. In accordance with SFAS No. 48 “Revenue Recognition When Right of Return Exists,” in the absence of historical data, the Company is unable to make a reasonable and reliable estimate of product returns at this time.

The Company expects to enter into software maintenance contracts with its customers. Maintenance fees are not a fixed dollar amount, but rather a percentage fee based upon the value of the license and/or royalties billed/received. Maintenance contracts are paid for and collected at the beginning of the contract period. If the Company provides bug fixes (under warranty obligations) free-of-charge that are necessary to maintain compliance with published specifications, it accounts for the estimated costs to provide bug fixes in accordance with SFAS No. 5 “Accounting for Contingencies.”

Revenue from products licensed to original equipment manufacturers (OEMs) is based on the time-based licensing agreement with an OEM and recognized when the OEM ships licensed products to its customers.

The Company assesses probability of collection based on a number of factors, including its past transaction history with the customer and the creditworthiness of the customer. New customers are subject to a credit review process that evaluates the customers’ financial position and ultimately its ability to pay according to the original terms of the arrangement. Based on this review process, if it is determined from the outset of an arrangement that collection of the resulting receivable is not probable, revenue is then recognized on a cash-collected basis.

Cost of revenue includes direct costs to produce and distribute products and direct costs to provide product support and training.

Deferred Financing Costs

Deferred financing fees were incurred in connection with the convertible debenture to Montgomery Equity Partners, Ltd. (see discussion below in Note 5). These will be amortized over the life of the convertible debenture (24 months). During the nine months ended September 30, 2007 and 2006, the Company recognized $11,592 in deferred financing costs.

Research and Development

Research and development costs are related primarily to the Company developing its intellectual property. Research and development costs were expensed as incurred prior to the Company’s demonstration of technical feasibility of its media access control (“MAC”) layer in November 2004 and of its Network and Security layers in April 2005. Research and development costs (which include costs of coding and testing) incurred to produce a product master have been capitalized in accordance with Statement No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed” issued by the Financial Accounting Standards Board.

Income Taxes

Income tax benefit is computed on the pretax loss based on current tax law. Deferred income taxes are recognized for the tax consequences in future years of differences between the tax basis of assets and liabilities and its financial reporting amounts at each year-end based on enacted tax laws and statutory tax rates. No benefit is reflected for the nine months ended September 30, 2007 and 2006, respectively.

13

Start-up Costs

In accordance with the American Institute of Certified Public Accountants Statement of Position 98-5, “Reporting on the Costs of Start-up Activities,” the Company expensed all costs incurred in connection with the start-up and organization of the Company.

Advertising

The Company’s policy is to expense the costs of advertising as incurred. The Company had no such cost for the nine months ended September 30, 2007 and 2006, respectively.

Earnings (Loss) Per Share of Common Stock

Historical net income (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share at September 30, 2007 and 2006 when the Company reported a loss because to do so would be anti-dilutive for periods presented. The Company has incurred losses since inception as a result of funding its research and development, including the development of its intellectual property portfolio which is key to its core products.

The following is a reconciliation of the computation for basic and diluted EPS:

	September 30, 2007 Restated			September 30, 2006
Net Loss	$	(4,372,043	)	$	(2,701,316	)
Weighted-average common shares outstanding (Basic)		93,081,086			67,728,836
Weighted-average common stock Equivalents:
Stock options		-			-
Warrants		-			-
Weighted-average common shares outstanding (Diluted)		93,081,086			67,728,836

Fair Value of Financial Instruments

The carrying amount reported in the consolidated balance sheet for cash and cash equivalents, accounts payable and accrued expenses approximates fair value because of the immediate or short-term maturity of these financial instruments. The carrying amount reported for notes payable approximates fair value because, in general, the interest on the underlying instruments fluctuates with market rates.

Limitations

Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial statement. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

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Derivative Instruments

The Company has an outstanding convertible debt instrument that contains free-standing and embedded derivative features. The Company accounts for these derivatives in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, and EITF Issue No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”. In accordance with the provisions of SFAS No. 133 and EITF Issue No. 00-19, the embedded derivatives are required to be bifurcated from the debt instrument and recorded as a liability at fair value on the consolidated balance sheet. Changes in the fair value of the derivatives are recorded at each reporting period and recorded in net gain (loss) on derivative, a separate component of the other income (expense). As of September 30, 2007, the fair value of the convertible debenture derivatives was $178,851, a decrease of $293,710 from December 31, 2006. The Company also had a net gain of $75,319 for the nine months ended September 30, 2007 on an additional derivative with a fair value of $242,564 at September 30, 2007. The total fair value of these derivatives was $421,415 at September 30, 2007; the total decrease in fair value for the nine months then ended was $218,391. The Company has included these as a component of net gain on derivatives in the Other Income (Expense) section of its Consolidated Statements of Operations.

Stock-Based Compensation

Employee stock awards prior to periods beginning January 1, 2006 under the Company's compensation plans are accounted for in accordance with Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”, and related interpretations. The Company provides the disclosure requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), and related interpretations. Stock-based awards to non-employees are accounted for under the provisions of SFAS 123 and the Company adopted the enhanced disclosure provisions of SFAS No. 148 “Accounting for Stock-Based Compensation- Transition and Disclosure,” an amendment of SFAS No. 123.

The Company measures compensation expense for its employee stock-based compensation using the intrinsic-value method. Under the intrinsic-value method of accounting for stock-based compensation, when the exercise price of options granted to employees is less than the estimated fair value of the underlying stock on the date of grant, deferred compensation is recognized and is amortized to compensation expense over the applicable vesting period. Amortization expense for the nine months ended September 30, 2007 and 2006 was $11,976, respectively.

The Company measures compensation expense for its non-employee stock-based compensation under the Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received. Fair value is measured as the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.

Effective December 31, 2005, the Company adopted the provisions of Financial Accountings Standards Board Statement of Financial Accounting Standard (“SFAS”) No. 123(R), “Share-Based Payments,” which establishes the accounting for employee stock-based awards. Under the provisions of SFAS No. 123(R), stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite employee service period (generally the vesting period of the grant). The Company adopted SFAS No. 123(R) using the modified prospective method and, as a result, periods prior to December 31, 2005 have not been restated. The Company recognized stock-based compensation awards issued under the Company’s stock option plans in the stock option compensation expense line item of the Consolidated Statement of Operations. Additionally, no modifications were made to outstanding stock options prior to the adoption of SFAS No. 123(R), and no cumulative adjustments were recorded in the Company’s financial statements.

SFAS No. 123(R) requires disclosure of pro-forma information for periods prior to the adoption. The pro-forma disclosures are based on the fair value of awards at the grant date, amortized to expense over the service period. The following table illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” for the period prior to the adoption of SFAS No. 123(R), and the actual effect on net income and earnings per share for the period after the adoption of SFAS No. 123(R).

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	Nine Months Ended
	09/30/07 Restated			09/30/06
Net loss, as reported		4,372,043			2,701,316
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects		27,965			1,254,956
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects		(27,965	)		(1,254,956	)
Net loss, pro forma		4,372,043			2,701,316
Earnings per share:
Basic, as reported	$	(0.05	)	$	(0.04	)
Basic, pro forma	$	(0.05	)	$	(0.04	)
Diluted, as reported	$	(0.05	)	$	(0.04	)
Diluted, pro forma	$	(0.05	)	$	(0.04	)

For the purpose of the above table, the fair value of each option granted is estimated as of the date of grant using the Black-Scholes option-pricing model with the following assumptions:

	Nine Months Ended
	09/30/07			09/30/06
Dividend yield		0.00	%		0.00	%
Expected volatility		73.86	%		156.59	%
Risk-free interest rate		4.00	%		4.00	%
Expected life in years		3.75 - 4.67			3.25 - 4.50

The following table summarizes the stock option activity for the nine months ended September 30, 2007:

	Shares		Weighted Average Exercise Price		Weighted Average Contractual Term (Years)
Outstanding, December 31, 2006		34,437,010		0.27420		3.04
Options granted		204,500		0.23280		4.86
Options reinstated		-		-		-
Options exercised		-		-		-
Options cancelled		32,750,010		0.27267		2.67
Options forfeited or expired		17,000		0.32000		3.76
Outstanding, September 30, 2007		1,874,500		0.29530		4.07
Options exercisable, Sept. 30, 2007		559,000		0.38830		4.10

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Product Warranty

The Company’s product warranty accrual includes specific accruals for known product issues and an accrual for an estimate of incurred but unidentified product issues based on historical activity. Due to effective product testing and the short time between product shipment and the detection and correction of product failures, the warranty accrual based on historical activity and the related expense were not significant as of and for the nine months ended September 30, 2007 and 2006, respectively.

Goodwill and Other Intangible Assets

The identifiable intangible assets presented on the consolidated balance sheet represent the intellectual property that was capitalized post-technological feasibility. Management will continue to monitor and assess any impairment charges against those assets in accordance with the provisions of SFAS No. 142 and SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Beginning with the second quarter of 2005, the Company began amortizing its intellectual property costs over a five year period. The amortization amount for the current quarter is calculated based upon the ending balance of intellectual property from the preceding quarter. The amount amortized for the nine months ended September 30, 2007 was $22,650.

The capitalized research and development costs pertain to the development of the Company’s software stack to meet the ZigBee 1.0 standard, which was superseded by ZigBee standard 2006 in September 2006. The ZigBee 2006 standard was not 100% backwards-compatible with the ZigBee 1.0 standard. The Company determined that 30% of its ZigBee 1.0 compatible stack was not transferable to the newer standard and wrote off $173,294 in the fourth quarter. In addition, the Company wrote-off $34,071 of other research and development costs capitalized in the fourth quarter. The Company began amortizing its capitalized research and development costs in the fourth quarter of 2006 over a three-year period, or $33,696 per quarter.

The main components of intangible assets are as follows:

	Nine Months Ended September 30, 2007
	Gross Amount		Accumulated Amortization		Net Carrying  Amount
Intellectual Property	$	116,090	$	75,500	$	40,590
Capitalized Research & Development		404,352		134,785		269,567
Total Intangible Assets	$	520,442	$	210,285	$	310,157

Currency Risk and Foreign Currency Translation

The Company transacts business in currencies other than the U.S. Dollar, primarily the Indian Rupee. All currency transactions occur in the spot foreign exchange market and the Company does not use currency forward contracts, currency options, currency borrowings, interest rate swaps or any other derivative hedging strategy at this point in time.

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The Company has determined that based on the cash flow, sales price, sales market, expense, financing, and inter-company transactions and arrangements indicators set forth in SFAS 52, “Foreign Currency Translation,” that the functional currency of the Company is that of the parent company and is US Dollars. The Company has reported its gain on foreign currency in its consolidated statements of accumulated other comprehensive income due to the fact that these translation adjustments result from the translation of all assets and liabilities at the current rate, while the stockholder equity accounts were translated by using historical and weighted-average rates.

Recent Accounting Pronouncements

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain HybridFinancial Instruments, an amendment of FASB Statements No. 133 and 140.” SFAS No. 155 resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized FinancialAssets,” and permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of SFAS No. 133, establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation, clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends SFAS No. 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of the first fiscal year that begins after September 15, 2006. The implementation of this standard did not have a material impact on its financial position, results of operations or cash flows.

In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statement No. 140.” FAS No. 156 requires an entity to recognize a servicing asset or liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract under a transfer of the servicer’s financial assets that meets the requirements for sale accounting, a transfer of the servicer’s financial assets to a qualified special-purpose entity in a guaranteed mortgage securitization in which the transferor retains all of the resulting securities and classifies them as either available-for-sale or trading securities in accordance with FAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities” and an acquisition or assumption of an obligation to service a financial asset that does not relate to financial assets of the servicer or its consolidated affiliates. Additionally, FAS No. 156 requires all separately recognized servicing assets and servicing liabilities to be initially measured at fair value, permits an entity to choose either the use of an amortization or fair value method for subsequent measurements, permits at initial adoption a one-time reclassification of available-for-sale securities to trading securities by entities with recognized servicing rights and requires separate presentation of servicing assets and liabilities subsequently measured at fair value and additional disclosures for all separately recognized servicing assets and liabilities. FAS No. 156 is effective for transactions entered into after the beginning of the first fiscal year that begins after September 15, 2006. The implementation of this standard did not have a material impact on its financial position, results of operations or cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of income tax uncertainties with respect to position taken or expected to be taken in income tax returns. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the effect the adoption of FIN 48 will have but believes it will not have a material impact on its financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 clarifies the principle that fair value should be based on the assumption that market participants would use when pricing an asset or liability. Additionally, it establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of SFAS No. 157 will have a material impact on it financial position or results of operations.

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In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No 87, 88, 106 and 132(R).” This Statement improves financial reporting by requiring an employer to recognize the under funded or over funded status of a defined benefit postretirement plan as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through accumulated other comprehensive income. Additionally, SFAS No. 158 requires employers to measure the funded status of a plan as of the date of its year-end statement of financial position. The new reporting requirements and related new footnote disclosure rules of SFAS No. 158 are effective for fiscal years ending after December 15, 2006. The new measurement date requirement applies for fiscal years ending after December 15, 2008. The Company does not expect the adoption of SFAS No. 158 will have a material impact on its financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115." SFAS 159 permits companies to choose to measure at fair value many financial instruments and certain other items that are not currently required to be measured at fair value. Entities choosing the fair value option would be required to recognize subsequent changes in the fair value of those instruments and other items directly in earnings. This standard also establishes presentation and disclosure requirements designed to facilitate comparisons between companies that choose different measurement attributes for similar types of assets and liabilities. SFAS 159 is effective beginning the first fiscal year that begins after November 15, 2007. The Company does not expect the adoption of SFAS No. 159 will have a material impact on its financial position or results of operations.

In June 2007, the FASB ratified Emerging Issues Task Force (EITF) Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards." EITF 06-11 provides for the recognition and classification of deferred taxes associated with dividends or dividend equivalents on nonvested equity shares or nonvested equity share units (including restricted stock units (RSUs)) that are paid to employees and charged to retained earnings.  This issue is effective for annual periods beginning after September 15, 2007.  Also in June 2007, the EITF ratified EITF Issue No. 07-3, "Accounting for Advance Payments for Goods or Services to Be Used in Future Research and Development Activities."  EITF 07-3 provides that nonrefundable advance payments made for goods or services to be used in future research and development activities should be deferred and capitalized until such time as the related goods or services are delivered or are performed, at which point the amounts would be recognized as an expense. This issue is effective for fiscal years beginning after December 15, 2007.  We are currently evaluating the potential impact these standards may have on our financial position and results of operations, but do not believe the impact will be material.

Also in June 2007, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 07-1, "Clarification of the Scope of the Audit and Accounting Guide "Investment Companies" and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies." This SOP provides guidance for determining whether an entity is an investment company and also addresses when the specialized industry accounting principles of an investment company should be used by a parent company in consolidation or by an investor that applies the equity method of accounting to its investment in the entity. This SOP is effective for fiscal years beginning on or after December 15, 2007. We have evaluated the potential impact of this standard and anticipate it will have no material impact on our financial position and results of operations.

NOTE 3 - CONCENTRATION OF CREDIT RISK

The Company’s trade receivables are derived from sales to original equipment manufacturers and manufacturers of microprocessors and transceivers. The Company endeavors to keep pace with the evolving computer and communications industries, and has adopted credit policies and standards intended to accommodate industry growth and inherent risk. Management believes that credit risks are moderated by the diversity of the Company’s end customers and geographic sales areas. The Company performs ongoing credit evaluations of its customers’ financial condition and requires collateral as deemed necessary.

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NOTE 4 - FIXED ASSETS

Fixed assets consist of the following at September 30, 2007:

	2007
Computer and office equipment	$	267,739
Leasehold improvements, net		44,601
Less: accumulated depreciation		(83,761	)
Net book value	$	228,579

Depreciation expense for the nine months ended September 30, 2007 and 2006 was $23,217 and $18,191, respectively.

NOTE 5 - DEBT

Notes Payable – Other

On April 20, 2005, the Company executed a promissory note for $750,000 to Montgomery Equity Partners, Ltd. (“Montgomery”). Pursuant to the terms of the promissory note, Montgomery disbursed the entire $750,000 to the Company upon the date the note was executed and an additional $250,000 was to be disbursed to the Company after the Company’s common stock commences trading on the Over-the-Counter Bulletin Board. The promissory note was secured by substantially all of the assets of the Company and shares of stock of an affiliate of the Company. The promissory note had a one-year term and accrued interest monthly at 24% per year. The Company had difficulty meeting the payment schedule called for by the promissory note and by virtue of a settlement with Montgomery, the obligation, which together with interest and liquidated damages totaled $937,500, is being repaid by a Company affiliate’s collateral. Because the settlement with Montgomery permits it to take any action necessary to recover any deficiency should liquidation of the pledged shares fail to recoup the entire agreed payoff amount, the Company continued to recognize this liability on its balance sheet. In September 2007, Montgomery completed the settlement. Over the nearly two year period, it sold a total of 4,019,221 of the 9.4 million pledged shares and realized net proceeds of $937,500.

In September 2005, a former director loaned the Company $100,000 in return for an unsecured demand promissory note. The terms of the note provide for interest at 6.5% per annum. Payment of the note is guaranteed by an affiliate of the Company. On September 19, 2006, the Company issued its promissory note for $100,000 due December 31, 2006 to replace the prior note. The terms of the note provide for interest at 10.0% per annum. The note is secured by 555,555 shares of stock which are held in escrow pursuant to a written escrow agreement. Payment of the promissory note has been extended to December 31, 2007 with the consent of the holder.

On July 28, 2006, the Company executed a promissory note for $58,000 to Sharanpreet Singh. The promissory note was due on or before March 31, 2007 and bore interest at the rate of 8% per annum. The note had a conversion feature exercisable at the holder’s option. On January 17, 2007, the note had accrued interest totaling $2,225. The holder exercised his option to convert the note and on January 17, 2007 the Company issued 446,109 shares of common stock in full payment of principal and accrued interest.

On January 12, 2007 and March 5, 2007, the Company executed promissory notes for $3,491 and $56,573, respectively, to Marcus Perez. The notes were due May 31, 2007 and June 30, 2007, respectively, but have been extended with the consent of the holder to December 31, 2007. Each note bears interest at the rate of 12% per annum. On May 11, 2007 the Company executed a promissory note for $15,000 to Mr. Perez. This note is due within 72 hours of any new significant funding. It is interest-free for 30 days. If not paid within that time, the note bears interest at 12% per annum compounded monthly. On June 6, 2007 the Company executed a promissory note for $25,000 to Mr. Perez. The note bears interest at the rate of 10% per annum and was due July 6, 2007. The note was paid on June 11, 2007. On August 23, 2007 the Company executed a promissory note for $30,000 to Mr. Perez. The note bears no interest; the Company issued 800,000 warrants exercisable through August 29, 2010 at an exercise price of $0.13 in lieu of interest. The note is due within five days after the Company receives a minimum of  $1 million funding. On September 14, 2007 the Company executed a promissory note for $30,000 to Mr. Perez. The note bears no interest; the Company having issued the aforementioned 800,000 warrants exercisable through August 29, 2010 at an exercise price of $0.13 in lieu of interest. The note is due within five days after the Company receives a minimum of $1 million funding. As of September 30, 2007, the notes had accrued interest of $4,788.

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On April 3, 2007 the Company executed a promissory note for $100,000 to Memphis Scale Works, Inc. The note bears interest at the rate of 12% per annum and was due May 2, 2007. In further consideration of the note, the Company issued 200,000 shares of its restricted common stock. The note has been extended with the consent of the holder to December 31, 2007. As of September 30, 2007, the note had accrued interest of $5,918.

On May 11, 2007 the Company executed a promissory note for $20,000 to Larry Watkins. The note bore interest at the rate of 10% per annum for the first 15 days of the term and thereafter at the rate of 15% per annum. The note was due September 30, 2007 but has been extended to December 31, 2007 with the consent of the parties. In further consideration, the Company issued 20,000 warrants to purchase common stock exercisable through November 10, 2008 at an exercise price of $0.50 per share. As of September 30, 2007, the note had accrued interest of $1,167.

On May 11, 2007 the Company executed a promissory note for $20,000 to Robert V. Noone. The note bore interest at the rate of 12% per annum and was due September 30, 2007 but has been extended to December 31, 2007 with the consent of the parties. In further consideration, the Company issued 100,000 warrants to purchase common stock exercisable through November 10, 2008 at an exercise price of $0.50 per share. As of September 30, 2007, the note had accrued interest of $934.

On May 11, 2007 the Company executed a promissory note for $30,000 to Henry Zimmer. This note is due within 72 hours of any new significant funding. The note is interest-free for the first 30 days of its term and thereafter at the rate of 12% per annum compounded monthly. As of September 30, 2007, the note had accrued interest of $1,111.

On June 1, 2007 the Company executed a promissory note for $10,000 to Shekar Viswanathan. The note bore interest at the rate of 10% per annum and was due July 6, 1007 but has been extended to November 30, 2007 with the consent of the parties. The note has a conversion feature exercisable at the holder’s option. As of September 30, 2007, the note had accrued interest of $332.

On June 1, 2007 the Company executed a promissory note for $25,000 to Lakshminarayana Peesapati and Anasuya Peesapati. The note bore interest at the rate of 10% per annum and was due July 6, 1007. The note has been extended with the consent of the holder to November 30, 2007. The note has a conversion feature exercisable at the holder’s option. As of September 30, 2007, the note had accrued interest of $829.

On June 1, 2007 the Company executed a promissory note for $25,000 to Ramamohan Lal Tummala. The note bore interest at the rate of 10% per annum and was due July 1, 1007. The note has been extended with the consent of the holder to November 30, 2007. The note has a conversion feature exercisable at the holder’s option. As of September 30, 2007, the note had accrued interest of $795.

On June 8, 2007 the Company executed a promissory note for $250,000 to Eric Roderick and Steve Barnes. The note bore interest at the rate of $25,000 for the lending period and is due 60 days from date. The note was extended with the consent of the holder to September 8, 2007 for an additional $12,500 in interest. It was replaced by a new promissory note dated September 6, 2007 in the amount of $287,500 bearing interest at 12% per annum due November 5, 2007, which has been further extended to February 15, 2008. The note has a conversion feature exercisable at the holder’s option. As of September 30, 2007, the note had accrued interest of $2,268.

Convertible Debentures

On December 29, 2005, the Company executed a convertible debenture for $500,000 to Montgomery. Pursuant to the terms of the convertible debenture, Montgomery disbursed $350,000 upon the date the debenture was executed and the remaining $150,000 was disbursed on April 8, 2007. The debenture is convertible at the option of the holder into common shares of the Company at a price per share equal to 80% of the lowest closing value 10 days prior to the closing date or 10 days prior to the conversion date. In addition, the Company issued 2,000,000 freestanding warrants exercisable over three years as follows: 1,000,000 warrants at a strike price of the lesser of 80% of the average closing bid price for the 5 trading days preceding exercise or $0.20 per share; 500,000 warrants at a strike price of the lesser of 80% of the average closing bid price for the 5 trading days preceding exercise or $0.30 per share; and 500,000 warrants at a fixed strike price of $0.001. Montgomery has exercised all 2,000,000 warrants in cashless exercises and received a total of 1,337,009 shares of common stock. On August 10, 2007, Montgomery converted $300,000 of the debentures and received 2,884,615 shares of common stock.

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The convertible debenture is secured by substantially all of the assets of the Company, pledged shares of stock of three affiliates of the Company, and 13.5 million pledged shares of stock (which are not counted as outstanding shares until converted pursuant to the terms of the Stock Purchase Agreement and Escrow Agreement that were part of this transaction). The pledged shares are held by an escrow agent, who is Montgomery’s general counsel, a partner of Montgomery’s general partner and Montgomery’s attorney of this transaction, pursuant to a written escrow agreement. The convertible debenture is due December 29, 2007 and accrues interest monthly at 15% per year. In connection with this transaction, the Company executed an Investor Registration Rights Agreement by which it agreed to file a registration statement with the SEC for at least the pledged shares held by the escrow agent and the 2 million warrants. The registration statement was to be filed within 30 days of the execution of the convertible debenture and declared effective within 90 days of filing. Failure to file or be declared effective within the agreed timeframe subjected the Company to liquidated damages equal to two percent (2%) of the liquidated value of the convertible debenture (initially $10,000, now $4,000 since August 10, 2007) for each thirty (30) day period after the scheduled filing or effective date deadline. By agreement, the filing and effective date deadlines were extended to April 30, 2007 and July 30, 2007, respectively. The registration statement has yet to be declared effective and the Company is working with Montgomery and the SEC to resolve all outstanding issues. Montgomery has not given notice imposing liquidated damages

In accordance with SFAS 133,“Accounting for Derivative Instruments and Hedging Activities” and EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock”, the conversion feature associated with the $500,000 convertible debenture represents an embedded derivative. The Company recognized the embedded derivative in the amount of $659,966 as a liability in its December 31, 2005 consolidated balance sheet and measured it at its estimated fair value. The estimated fair value of the embedded derivative was calculated based on a Black-Scholes pricing model using the following assumptions:

Fair market value of stock	$	0.32
Exercise price	$	0.13
Dividend yield		0.00	%
Risk free interest rate		4.00	%
Expected volatility		115	%
Expected life		2 Years

Changes in the fair value of the embedded and freestanding warrants with a variable price (derivatives) are calculated at each reporting period and recorded in net gain (loss) on derivative, a separate component of other income (expense). As of September 30, 2007, the fair value of the embedded derivative was $178,851 and the Company recognized a net gain on derivative of $293,710 for the nine months then ending.

The allocation of the proceeds of the convertible debenture to the warrants with a fixed exercise price and the recognition of the embedded derivative resulted in discounts to the convertible debenture of $109,597 and $240,403, respectively. The discount on debt of $350,000 is being amortized to interest through December 31, 2007 using the effective interest method. The unamortized discount on debt at September 30, 2007 is $43,750.

The freestanding warrants with a variable exercise price (derivatives) and fixed warrants issued in connection with the $500,000 convertible debenture were initially valued at $379,080 and $109,597, respectively based on a Black-Scholes pricing model using the following assumptions:

Fair market value of stock	$	0.32
Exercise price	$	0.13
Dividend yield		0.00	%
Risk free interest rate		4.00	%
Expected volatility		115	%
Expected life		3 Years

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Changes in the fair value of the embedded and freestanding warrants with a variable price (derivatives) are calculated at each reporting period and recorded in net gain (loss) on derivative, a separate component of other income (expense). Montgomery exercised the 1,500,000 variable price warrants in a cashless exercise on February 1, 2007 and received 841,176 shares of Company stock in the exchange. As of February 1, 2007, the fair value of the freestanding warrants derivative had decreased to $0 and the Company recognized a net gain on derivative of $171,821 for the nine months ended September 30, 2007.

Bridge Loan Derivatives

Between April 16, 2006 and May 5, 2006, five accredited investors accepted the Company’s term sheet for convertible senior secured bridge loans by providing a total of $115,000 cash to the Company. The terms of these bridge loans are: interest at 12% per annum, compounded monthly; repayable in ninety (90) days but the Company has the option of extending for another 30 days for a fee of 8% of the amount provided the Company; these five accredited investors have the option to convert their bridge loans to restricted shares of common stock at an exercise price of the lower of the average closing bid price of the Company’s stock for the five trading days preceding the date of the conversion or the market price of the stock on the trading day preceding the conversion. The Company exercised its option to extend the term for an additional thirty (30) days for these five loans. If the bridge loans are not repaid or converted by the end of their terms plus the optional extension, the Company will pay a penalty of 10% of the dollar value of the amount outstanding; the Company will pay an additional 10% penalty for each quarter thereafter that the bridge loans remain unpaid. These five accredited investors also received warrants to purchase common stock at the ratio of 1 common share for each $2.00 loaned. All warrants have a three year term and an exercise price of $0.50 per share. The warrants and any shares converted have piggyback registration rights. The Company has not repaid the bridge loans and the outstanding balance including accrued interest and penalties is $236,976. As a result of the conversion rights associated with these bridge loans, the Company recorded these bridge loans as a derivative liability valued at $242,564. The loss on this derivative for the nine months was $6,054.

NOTE 6 - PROMISSORY NOTES – RELATED PARTY

The Company entered into promissory notes with some of its officers who have amounts outstanding with the Company. These amounts accrue interest at varying rates between 6.0% and 12.0% annually. As of September 30, 2007, the Company has $137,974 outstanding under these notes, plus $27,475 in accrued interest. With the exception of a promissory note due to an officer in the amount of $39,798 due March 31, 2008, the remaining notes are demand notes. All such notes are therefore reflected as current liabilities on the consolidated balance sheets. The notes relate to services rendered or funds loaned to the Company.

NOTE 7 - PROVISION FOR INCOME TAXES

Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s consolidated tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

At September 30, 2007 and 2006, deferred tax assets consist of the following:

	September 30,
	2007			2006
Deferred tax asset	$	5,517,639		$	3,254,279
Less: valuation allowance		(5,517,639	)		(3,254,279	)
Total	$	-		$	-

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At September 30, 2007 and 2006, the Company had accumulated deficits in the amount of $15,764,684 and $9,297,941, respectively, available to offset future taxable income through 2027. The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.

NOTE 8 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses at June 30, 2007 consist of the following:

	September 30, 2007
Accounts payable	$	1,053,683
Accrued salaries payable		1,266,342
Accrued interest payable		175,535
Accrued payroll liabilities		84,945
Reimbursements owed		23,156
Deferred tax liability (India)		402
Other current liabilities		9,526
Total	$	2,613,589

Trade accounts payable are paid as they become due or as payment terms are extended with the consent of the vendor. At September 30, 2007, one vendor, MindTree Consulting Pvt. Ltd., an India corporation (“MindTree”), accounted for 32% of the Company’s accounts payable. The Company and MindTree entered into a repayment agreement more fully described in Note 10.

NOTE 9 - STOCKHOLDERS’EQUITY

The Company has 200,000,000 shares of common stock, par value $0.00004, authorized at September 30, 2007.

At September 30, 2007, the Company has 121,091,538 common shares issued, 14,142,511 shares held in escrow, 1,660,036 shares in treasury, and 105,288,991 shares outstanding.

The following stock transactions occurred in the nine months ended September 30, 2007:

On January 1, 2007, the Company issued 100,000 warrants to each of two accredited investors in connection with monies loaned to the Company (see Note 10). The warrants have a strike price of $0.40 and expire on January 1, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On January 11, 2007, the Company issued 236,859 restricted shares to an executive officer in partial payment of accrued salary valued at $40,266 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The executive officer received information concerning the Company and had the ability to ask questions about the Company.

On January 11, 2007, the Company issued 73,529 restricted shares and 9,310 warrants with a strike price of $0.40 to an accredited investor in return for his assistance in raising capital and providing short-term loans to the Company. The warrants expire on January 12, 2009. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors.His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services and consideration for providing the short term loans was an aggregate of$12,500 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

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On January 19, 2007, the Company issued 446,109 restricted shares of stock to an accredited investor to settle a note payable totaling $60,225. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On January 29, 2007, the Company issued 30,000 warrants to each of two accredited investors in connection with monies loaned to the Company (see Note 10). The warrants have a strike price of $0.40 and expire on January 29, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On January 31, 2007, the Company issued 200,000 restricted shares of stock to Newbridge Securities, Inc. for services worth $60,000 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On February 1, 2007, the Company issued 841,176 restricted shares to Montgomery Equity Partners, Ltd for the cashless exercise of 1,500,000 warrants. This transaction created 658,824 shares of treasury stock. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On February 5, 2007, the Company issued 36,697 restricted shares to an accredited investor in return for his assistance in raising capital and providing short-term loans to the Company. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors. His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services and consideration for providing the short term loans was an aggregate of$7,000 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On February 28, 2007 the Company issued 9,808 restricted shares to The Ardell Group for public relations services worth $2,550 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

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On March 4, 2007, the Company issued 200,000 warrants to an accredited investor in connection with his loan to the Company of $56,573. The warrants had a strike price of $0.4753 and expire on March 4, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On March 22, 2007, the Company issued 199,368 restricted shares to an accredited investor in return for his assistance in raising capital and providing short-term loans to the Company. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors. His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services and consideration for providing the short term loans was an aggregate of$58,230 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

Throughout the quarter ended March 31, 2007, the Company issued 357,951 restricted shares of common stock to 5 accredited investors for cash totaling $70,000. In addition, the Company issued 143,180 warrants to these investors at strike prices ranging between $0.42 and $0.65 per share. The warrants will expire at varying dates from July 2, 2008 through August 18, 2008. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On April 30, 2007 the Company issued 17,885 restricted shares to The Ardell Group for public relations services worth $4,650 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On May 11, 2007 the Company issued 50,000 restricted shares to Marcus Perez, an accredited investor, in return for his assistance in raising capital and obtaining short-term loans to the Company. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors. His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services was $11,500 at the time of issuance.

On May 11, 2007 the Company issued 100,000 restricted shares to Henry Zimmer, an accredited investor, in return for his assistance in raising capital and obtaining short-term loans to the Company. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors. His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services was $23,000 at the time of issuance.

On May 11, 2007 the Company issued 20,000 warrants to purchase our common stock exercisable at $0.50 to Larry Watkins, an accredited investor, in connection with his $20,000 loan. The warrants expire November 10, 2008. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

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On May 11, 2007 the Company issued 100,000 warrants to purchase our common stock exercisable at $0.50 to Robert V. and Kendra Noone, accredited investors, in connection with their $20,000 loan. The warrants expire November 10, 2008. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On May 14, 2007, the Company issued 33,334,000 restricted shares to Mercatus & Partners Limited (“Mercatus”), a United Kingdom private limited company, pursuant to a Restricted Equity Purchase Agreement (“REPA”) providing for a delayed purchase transaction. The REPA is a Regulation S transaction. The amount the Company receives will be determined at closing in accordance with the formula established in the REPA, less a 45% discount to market price and less a total of $60,000 in structuring, due diligence and administrative fees. The securities were issued pursuant to the exemption from registration provided by Regulation S of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On May 31, 2007 the Company issued 2,087 restricted shares to The Ardell Group for public relations services worth $480 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On June 1, 2007 the Company issued 25,000 warrants to purchase our common stock exercisable at $0.50 to Lakshmil Narayana Peesapati and Anasuya Peesapati, accredited investors, in connection with their $25,000 loan. The warrants expire May 31, 2008. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On June 1, 2007 the Company issued 10,000 warrants to purchase our common stock exercisable at $0.50 to Shekar Viswanathan, an accredited investor, in connection with his $10,000 loan. The warrants expire May 31, 2008. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On June 1, 2007 the Company issued 25,000 warrants to purchase our common stock exercisable at $0.50 to Ramamohan Lal Tummala, an accredited investor, in connection with his $25,000 loan. The warrants expire May 31, 2008. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On June 25, 2007 the Company issued 38,462 restricted shares to Marcus Perez, an accredited investor, in return for his assistance in raising capital and obtaining short-term loans to the Company. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors. His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services was $7,692 at the time of issuance.

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On June 25, 2007 the Company issued 20,000 restricted shares to Dwight James, an accredited investor, in return for his assistance in raising capital and obtaining short-term loans to the Company. The investor provided the Company with comments regarding the financial structure of the Company as such issues related to the Company’s equity securities and made limited introductions of the Company to potential accredited investors. His services were isolated services which were not solicited by the Company. The investor did not negotiate for the sale of any the Company's securities; discuss details of the nature of the securities sold or whether recommendations were made concerning the sale of the securities; engage in due diligence activities; provide advice relating to the valuation of or the financial advisability of any investments in the Company; or handle any funds or securities on behalf of the Company. The value of these services was $4,000 at the time of issuance.

On July 10, 2007 the Company issued 2,000,000 restricted shares to Allen & Associates LLC for corporate finance and strategic counsel services worth $500,000 when incurred. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On July 17, 2007, the Company issued 495,833 restricted shares to Montgomery Equity Partners, Ltd. for the cashless exercise of 500,000 warrants. This transaction created 4,167 shares of treasury stock. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On July 30, 2007 the Company issued 450,000 restricted shares to City VAC for public relations services worth $65,250 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On August 10, 2007, the Company issued 2,884,615 restricted shares to Montgomery Equity Partners, Ltd. for the conversion of $300,000 of the $500,000 secured convertible debentures due December 29, 2007. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On August 29, 2007 the Company issued 800,000 warrants to purchase our common stock exercisable at $0.13 to Marcus Perez, an accredited investor, in lieu of interest for his $60,000 loan. The warrants expire August 29, 2010. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On September 5, 2007 the Company issued 100,000 warrants to purchase our common stock exercisable at $0.12 to Erik Roderick and Steve Barnes, accredited investors, in connection with their $250,000 loan. The warrants expire September 5, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On September 19, 2007 the Company issued 1,000,000 warrants to purchase our common stock exercisable at $0.20 to Pan American Relations in connection with shareholder and public relations services. The warrants expire June 19, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

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On September 20, 2007 the Company issued 111,703 restricted shares to David McCartney, a former officer, in reimbursement for expenses worth $6,702; this included a 50% premium for the restricted shares. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The individual received information concerning the Company and had the ability to ask questions about the Company.

Throughout the quarter ended September 30, 2007, the Company issued 1,068,627 restricted shares of common stock to 2 accredited investors (one of which is an affiliate of the Company) for cash totaling $140,000. In addition, the Company issued 568,627 warrants to these investors at strike prices ranging between $0.37 and $0.42 per share. The warrants will expire at varying dates from January 8, 2009 through March 9, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Employment Agreements

The Company has entered into employment agreements with key members of management and some officers. Most of these employment agreements are for a period of three to five years; renewals of the employment agreements for the CEO and President have been for one year terms. As part of the employment agreements, the Company has granted stock options to these individuals that vest over a three to five-year period of time.

Lease Agreements

A subsidiary, Airbee Wireless (India) Pvt. Ltd., has entered into a three-year lease agreement for office space in Chennai, India. Monthly rent in the US Dollar equivalent is $5,471. The lease runs from July 2006 through June 2009.

Repayment Agreement

MindTree provided services to the Company under a Time and Materials Contract dated March 30, 2005 (the T&M Contract”). On a monthly basis, MindTree invoiced the Company for work it performed. Payment terms were net 30. The Company was unable to pay the invoices as they became due and, by informal agreement, extended the repayment terms monthly. On December 15, 2005, the Company entered into a written agreement with MindTree by which it agreed to pay MindTree $200,000 on or before December 23, 2005 and $100,000 per month on the last business day of each succeeding month until the outstanding indebtedness of approximately $580,000 was fully paid. The Company’s performance was secured by the software code MindTree developed under the T&M Contract. If the Company defaulted in making any payment when due and such default was not cured within five business days after receipt of a notice of default, MindTree would be entitled to co-own the software code, with any revenue the Company realized from the software code during the co-ownership period to be split 50-50 with MindTree. If full payment is made, full ownership of the software code reverts to the Company.

To date, the Company has paid MindTree $275,000 pursuant to this agreement. MindTree has not yet issued any notice of default. By a series of additional agreements, the payment deadline has been extended to March 31, 2008. The Company expects to complete or substantially complete the repayment by the new deadline. MindTree has indicated that if repayment of the indebtedness is substantially complete it will agree to an additional extension of the agreement

Guarantees

As mentioned in Note 6, above, on March 12, 2003 and April 30, 2003, Sundaresan Raja advanced a total of approximately $39,798 to Airbee Wireless (India) Pvt. Ltd. (“Airbee India”), the Company’s wholly-owned subsidiary in India. Airbee India has issued Mr. Raja a promissory note due on demand. The note accrues interest at 11.25% per year, which is below the local Indian market rates of 14% to 16%. On June 20, 2005, Mr. Raja advanced approximately $12,560 to Airbee India (of which approximately $6,280 remains outstanding) which issued Mr. Raja another demand promissory note. This note accrues interest at 12.0% per year, which is below the local Indian market rates of 14% to 16%. During 2007, Mr. Raja has advanced a total of approximately $31,902 to Airbee India on the same terms as the June 2005 note. At September 30, 2007, $77,979 was due under the notes, plus accrued interest of $23,489. The Company has guaranteed repayment of the advances.

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Deferred Financing

On May 14, 2007, the Company executed a Restricted Equity Purchase Agreement (“REPA”) with Mercatus & Partners Limited (“Mercatus”), a United Kingdom private limited company, by which Mercatus agreed to purchase 33,334,000 shares of the Company’s common stock in a delayed purchase transaction. The REPA is a Regulation S transaction. The amount the Company receives will be determined at closing in accordance with the formula set forth in the REPA, less a 45% discount to market price and less a total of $60,000 in structuring, due diligence and administrative fees. The restricted shares issued by the Company are not subject to registration unless Mercatus is deemed to be an affiliate of the Company pursuant to the Securities Act of 1933, as amended, as of or at any time subsequent to the second anniversary of the closing, at which time the Company will have 120 days after Mercatus’ request to file a registration statement for all shares then held by Mercatus.

The Company issued 33,334,000 shares of its common stock and deposited it with the custodian on May 15, 2007. The Company recorded the issuance of the stock based on the closing stock price of $0.23 per share on May 14, 2007 and shows the anticipated amount of the deferred financing net of the 45% discount to market price in the Equity section of its September 30, 2007 balance sheet. As of the balance sheet date, the closing has not been scheduled but is expected to close in November 2007. There are no assurances that this transaction will close in which case the Company’s sole remedy is the return of its stock.

Litigation

On October 3, 2005, Richard Sommerfeld, Jr., the Company’s former chief financial officer (“Sommerfeld”) filed suit against the Company. For a complete discussion of the claims and counterclaims in this action, please see the Litigation section of Note 9 to the Financial Statements in our Form 10-KSB/A for the year ended December 31, 2005.

On June 8, 2007, an order was entered in favor of Sommerfeld for partial summary judgment in the matter of payment of salary. The order stipulated that Sommerfeld be awarded $183,316.64 in accrued salary through his last day of work (August 29, 2005) plus interest, which is approximately $30,000. It was also ordered that payment be made in cash or cash equivalent and that promissory notes previously issued by the Company to Sommerfeld for wages are unenforceable and that counts one through six of Airbee's counterclaim alleging breach of employment agreement, breach of fiduciary duties, fraudulent inducement, tortious interference and taking of company property are dismissed. The remaining issues in the case were Sommerfeld's enhancement claim, stock option dispute and attorney's fees. The court ordered the parties to proceed to mediation, which took place on July 1, 2007 at which time the parties agreed to settle their disputes. The Company agreed to pay Sommerfeld’s back salary $183,316.64 along with an additional $316,683.36 in full payment of interest, reimbursements owed, and attorney’s fees as provided by statute. The Company had until August 14, 2007 (later extended to September 10, 2007) to pay the total settlement amount of $500,000 but was unable to do so. Pursuant to the settlement agreement, plaintiff was then entitled to enter a consent judgment for $700,000, which was entered on September 26, 2007, and is shown in the Current Liabilities section of the September 30, 2007 balance sheet.

NOTE 11 - GOING CONCERN

As shown in the accompanying consolidated financial statements, as is typical of companies going through early-stage development of intellectual property, and products and services, the Company incurred net losses for the years ended December 31, 2006 and 2005 and for the nine months ended September 30, 2007. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support current operations and expand sales. This raises substantial doubt about the Company’s ability to continue as a going concern.

Management believes that the Company’s capital requirements will depend on many factors including the success of the Company’s sales efforts. The Company has been successful in recent months in raising capital to fund its operating costs.

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The Company has also been enhancing its business processes to account for the significant development that has occurred in the past year, and believes that with the proper bridge financing and potential permanent financing they anticipate, the viability of the Company remains very positive in excess of one year.

The consolidated financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.

NOTE 12 - RESTATEMENT

The Company has amended its previously issued condensed consolidated financial statement for the three months ended March 31, 2006 for amortization of intangible assets of $5,050 and certain balance sheet reclassifications to conform with the December 31, 2005 restatement. The effect of these changes resulted in an increase of the loss for the three month period ended March 31, 2006 of $5,050 to a net loss of $1,290,180 and an increase in the accumulated deficit to $7,886,805.

These condensed consolidated financial statement for the three months ended September 30, 2007 have been restated to recognize additional compensation and professional fees of $125,000. The effect of these changes resulted in an increase of the loss for the three month period ended September 30, 2007 of $125,000 to a net loss of $1,401,125 and an increase in the accumulated deficit to $15,764,684.

The Company amended its previously issued condensed consolidated financial statement for the three months ended June 30, 2007 to recognize additional compensation and professional fees of $155,000. The effect of these changes resulted in an increase of the loss for the three month period ended June 30, 2007 of $155,000 to a net loss of $1,723,265 and an increase in the accumulated deficit to $14,363,558.

The Company amended its previously issued condensed consolidated financial statement for the three months ended March 31, 2007 to recognize additional compensation and professional fees of $51,667. The effect of these changes resulted in an increase of the loss for the three month period ended March 31, 2007 of $51,667 to a net loss of $1,247,652 and an increase in the accumulated deficit to $12,640,293.

NOTE 13 - SUBSEQUENT EVENTS

On October 5, 2007 the Company closed on a $500,000 convertible debenture with Golden Gate Investors, Inc. which contains two funding increments. The first tranche is for $350,000 which was funded on October 9, 2007. The second tranche is for $150,000 and is to be funded when the stock closing bid price reaches a stable or increasing per share price for five successive trading days. An affiliate of the company pledged ten million (10,000,000) shares to guarantee performance on the agreement in the event of default. The debenture bears interest at the rate of 8.75% per annum and matures in twelve months with an extension of up to six months at the option of the holder. The Company issued a three-year two million (2,000,000) share purchase warrant at a strike price of $0.12 per share which contains a cashless exercise provision. Subject to adjustment, the debenture is convertible at the lesser of (a) $0.25, or (b) sixty five percent (65%)of the average of the five (5) lowest daily volume weighted average price for the twenty (20) trading days prior to the conversion date.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations

Forward Looking Statements

This Form 10-QSB, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements regarding future events. These statements are based on current expectations, estimates, forecasts, and projections about the industries in which we operate and the beliefs and assumptions of our management. Words such as “expects,” “anticipates,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “continues,” “may,” variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our businesses including the potential growth of advanced technologies and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update any forward-looking statements for any reason.

Executive Summary

• During 2007, we signed application development agreements with Medtronic Minimed and Fuel Automation India Pvt Ltd.. Our license agreements with foreign and domestic customers such as Radiocrafts (Norway), Texas Instruments (USA) and Infineon (Germany) remain in effect. Our ZNS Software stack version 1.0 was certified ZigBee-compliant through an independent testing laboratory during the fourth quarter of 2005 and version 1.1 was certified in January 2007. In addition, our upcoming version called ZigBee Pro will be undergoing certification soon and has been designated as one of the “golden units”. This means that the product will be used to set the standard by which other vendor’s products will be measured.

• We had a $4,372,043 net loss before provision for income taxes in the first nine months of 2007 on revenue of $29,163. We recorded a $368,213 gain in other income (expense) from the re-valuation of derivatives required under SFAS 133. We raised $210,000 from the sale of stock to accredited investors.

• Liquidity and capital resources issues continue to constrain growth but given signs of an emerging marketplace for our software and our track record of raising capital, we believe we will be able to obtain sufficient funds to continue operations until we can generate increased revenues from our license agreements.

• Risk factors include –

o Royalties from the license agreements are dependent on our customers’ ability to create demand and market acceptance for their product.

o Our international operations involve inherent risks that include currency controls and fluctuations, tariff and import regulations, and regulatory requirements that may limit our or our customers’ ability to manufacture, assemble and test, design, develop or sell products in particular countries.

· Our ability to continue as a going concern is dependent upon our obtaining adequate capital to fund losses until we become profitable.

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Overview

Airbee Wireless, Inc. (hereinafter called “Airbee” or “Company”) reported $29,163 of revenue from planned operations in the first nine months of 2007. We have continued our go-to-market strategy of licensing the major microcontroller and IEEE 802.15.4 radio companies, having previously announced agreements with several microchip manufacturers. We believe this will lead to two types of revenues – service revenue from customized stack work, integration support and application development and royalty revenue from the licensing of our stack. We also announced a new product that facilitates low-power radio frequency (“RF”) application development for mesh networks including ZigBee.

Our goal remains being a preeminent provider of intelligent software for short range wireless communications embedded into silicon chips and platform solutions. We focus our core competencies in the design and engineering of intelligent wireless communications software that is platform agnostic, ultra-low in energy consumption with complete portability across all controllers, radios, and operating system platforms. Our software is licensed to various global manufacturers of radio chips, radio frequency modules, and microprocessors used in an increasing number of wireless communications applications and devices.

We operate in highly innovative environments characterized by a continuing and rapid introduction of new products that offer improved performance at lower prices. With the trend toward convergence in wireless communications products, our software will likely cross over multiple categories, offering us new opportunities, but may also result in more businesses that compete with us. Competition tends to increase pricing pressure on our products, which may mean that we must offer our products at lower prices than we had anticipated, resulting in lower profits This is a two-step approach: (a) become an approved third-party vendor and achieve recognition in the manufacturer’s documentation, website and sales force (i.e. distributors for Texas Instruments and Radiocrafts as examples); and (b) the overriding objective is to be embedded directly into the controller by the manufacturer and shipped directly with each controller.

We operate an online help desk to support our prospective customers as they evaluate the product for their application and use, and we are working with ATMEL now in the certification process for both the 2006 ZigBee standard and the new PRO version. We note similar progress with our ZigBee module partner Radiocrafts, which now has more than 50 OEMs using our ZNS stack and ZAPP (SPPIO) application. We anticipate several of these will go into production in 2008.

We will begin training programs for ATMEL to train their field application engineers upon completion of the certification testing. We expect this will result in increased opportunities with our partner’s customers. In addition, we participated in the ZigBee Developers program this April where we taught new developers how to use our stack to develop applications. We expect to do so again in the upcoming developers conference.. We have also established a world class RF laboratory at our development center in Chennai, India, which has already produced real world knowledge about RF interference issues in the ZigBee environment.

The Company has implemented a service relationship for customers and potential customers which we have named “ZSupport”. This is an online system which is hosted by a Parature product. It is a medium to access deliverables, demonstrations and product documentation. During the third quarter of 2007, we had fewer first-time visitors to our website and received fewer registered customers which is a small decrease from the comparable quarter in 2006. Statistics gathered from such registrations include transceiver and microcontroller preferences, customer profile and case studies. We have seen a further increased interest in our products from OEMs and system integrators in the quarter. We also expect to complete the ZigBee PRO certification and establish ourselves as a “golden unit” company with the ZigBee Alliance. on the new Atmel hardware platform and establish additional partnerships in the fourth quarter.

In January 2007 the Company’s common stock began trading on the over the counter bulletin board (OTCBB) which we believe will facilitate credibility in the money markets. The Mercatus financing which was anticipated to close in the third quarter has not closed at the time of this filing. The delays have been attributed to the devaluation of the NAV score which is driven by the stock price of the target companies in the investment portfolio. The Mercatus people continue to state that they look forward to completing the transaction. We continue to actively pursue other funding opportunities.

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Results of Operations

Nine Months Ended September 30, 2007 Compared to the Nine Months Ended September 30, 2006

During the first nine months of 2007 we had $29,163 in operating revenues, resulting in a net loss applicable to common shares of $4,372,043, or $0.05 net loss per share, compared to a net loss of $2,701,316 or $0.04 net loss per share for the same period in 2006. Cumulative net loss since inception totals $15,764,684.

Our net revenue for the nine months ended September 30, 2007 decreased to $29,163 as compared to $127,800 for the nine months ended September 30, 2006. The ZigBee Alliance released its enhanced standard to its members on September 27, 2006, which was not backwards compatible with the previous standard. Our software was certified ZigBee compliant to the new standard in January 2007. Another ZigBee enhanced standard (ZigBee Pro) will be released later in 2007. We are one of the companies selected to develop the “golden unit” to be used in the certification process. The succession of new standard releases has inhibited the OEMs and integrators from making the financial and technology commitments necessary to integrate our software into their products.

Operating expenses for the nine months ended September 30, 2007 were $4,033,579 as compared to $3,129,754 for the nine months ended September 30, 2006, an increase of 29% or $903,825. This increase, as further explained below, is principally due to increases in compensation and financing fees, selling, general and administrative expenses, interest costs and depreciation and amortization.

Our overall increase in compensation and professional fees for the nine months ended September 30, 2007 compared to the nine months ended September 30, 2006 was $1,264,199, to $2,711,749 from $1,447,550. This increase consists of an increase of $318,844 in compensation, an increase of $906,283 in financing professional fees, and a $39,072 increase in legal and accounting professional fees. Part of the increase in compensation is attributable in part to increased staff in India and retention bonuses paid to retain existing talent but also to an unfavorable change in the exchange rate resulting from the weaker dollar. Financing professional fees increased due to a non-cash payment to our corporate finance and strategic counsel of 2 million common shares of our stock valued at $500,000 when issued plus their monthly fee of $10,000 which we have also paid in restricted stock. We have also incurred financing costs associated with various new notes payable and extensions of existing notes. We believe that general and administrative expenses will not increase significantly in the short-term. However, we do expect an increase in absolute dollars in the long-term, as we continue to invest in staff and infrastructure in the areas of information systems and sales and marketing.

Stock option compensation expense required by SFAS 123R was $27,222 for the nine months ended September 30, 2007 and $1,254,956 for the nine months ended September 30, 2006, a decrease of $1,227,734. Starting in January 2006, the Company is required to expense stock options granted and vesting in the period. This is a non-cash expense caused by the options granted to new India employees in the first half of the year. No options issued prior to December 31, 2005 vested during the first nine months of 2007.

Selling, general and administrative expenses increased to $1,136,809 in the first nine months of 2007, up $750,402 or 194% from $386,407 in the same period in 2006. This increase was due primarily to recognition of $477,969 in costs associated with our settlement of the litigation brought by our former CFO and from increases in sales and marketing and consulting expenses. Our overall selling and marketing expenses consist primarily of marketing related expenses, sales commissions, facility costs and travel costs. Expenses, particularly certain marketing and compensation-related expenses, may vary going forward, depending in part on the level of revenue and profits.

Research and development expense for the nine months ended September 30, 2007 was $10,556 compared to $0 for the nine months ended September 30, 2006. Although our software was certified ZigBee compliant in January 2007, the ZigBee Alliance has announced plans to release a new standard (ZigBee Pro) later in 2007. As a result, we have elected not to capitalize any research and development costs associated with the ZigBee 2006 standard.

Depreciation and amortization expense for the nine months ended September 30, 2007 increased $106,114 as the Company began amortizing its capitalized research and development costs in the fourth quarter of 2006. Interest expense for the nine months ended September 30, 2007 increased $332,229 to $755,522 from $423,293 for the nine months ended September 30, 2006. Interest costs associated with the bridge loans accounted for $207,682 of this increase with increased interest costs for notes payable – related parties and notes payable – others accounting for the rest of the increase.

Three Months Ended September 30, 2007 Compared to the Three Months Ended September 30, 2006

During the third quarter of 2007 we had $5,925 in operating revenues, resulting in a net loss applicable to common shares of $1,401,125, or $0.01 net loss per share, compared to a net loss of $729,347 or $0.01 net loss per share for the same period in 2006. Cumulative net loss since inception totals $15,764,684.

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Our net revenue for the three months ended September 30, 2007 increased to $5,925 as compared to $0 for the three months ended September 30, 2006. The ZigBee Alliance released its enhanced standard to its members on September 27, 2006, which was not backwards compatible with the previous standard. Our software was certified ZigBee compliant to the new standard in January 2007. Another ZigBee enhanced standard (ZigBee Pro) will be released later in 2007. We are one of the companies selected to develop the “golden unit” to be used in the certification process. The succession of new standards releases has inhibited the OEMs and integrators from making the financial and technology commitments necessary to integrate our software into their products.

Operating expenses for the three months ended September 30, 2007 were $1,424,745 as compared to $686,672 for the three months ended September 30, 2006, an increase of 107% or $738,073. This increase, as further explained below, is principally due to increases in compensation and professional fees, selling, general and administrative expenses, and depreciation and amortization, which offset a decreases in stock option compensation expense.

Our overall increase in compensation and professional fees for the quarter ended September 30, 2007 compared to the quarter ended September 30, 2006 was $382,259, to $925,068 from $542,809. This increase consists of an increase of $191,129 in compensation costs, an increase of $181,165 in financing professional fees and a $9,965 increase in legal and accounting professional fees. Part of the increase in compensation is attributable in part to increased staff in India but also to an unfavorable change in the exchange rate resulting from the weaker dollar. Financing professional fees increased due to a non-cash payment to our corporate finance and strategic counsel of restricted shares valued at $10,000 per month plus financing arrangements with other short-term lenders. We believe that general and administrative expenses will not increase significantly in the short-term. However, we do expect an increase in absolute dollars in the long-term, as we continue to invest in staff and infrastructure in the areas of information systems and sales and marketing.

Stock option compensation expense required by SFAS 123R was $0 for the quarter ended September 30, 2007 as the Company is now required to expense stock options granted and vesting in the period. This is a non-cash expense caused by the options granted to new India employees in the quarter. No options issued prior to December 31, 2005 vested during the quarter. The comparable expense in the third quarter of 2006 was $27,326.

Selling, general and administrative expenses increased to $423,728 in the third quarter of 2007, up $323,878 or 324% from $99,850 in the third quarter of 2006. This increase was due primarily to recognition of $200,000 in costs associated with our settlement of the litigation brought by our former CFO and from increases in marketing, travel and other costs which offset decreases other expenses. Our overall selling and marketing expenses consist primarily of marketing related expenses, compensation related expenses, sales commissions, facility costs and travel costs. Expenses, particularly certain marketing and compensation-related expenses, may vary going forward, depending in part on the level of revenue and profits.

Research and development expense for the three months ended September 30, 2007 was $34 compared to $0 for the three months ended September 30, 2006. Although our software was certified ZigBee compliant in January 2007, the ZigBee Alliance has announced plans to release a new standard (ZigBee Pro) later in 2007. As a result, we have elected not to capitalize any research and development costs associated with the ZigBee 2006 standard.

Depreciation and amortization expense for the quarter ended September 30, 2007 increased $58,691 as the Company began amortizing its capitalized research and development costs in the fourth quarter of 2006. Interest expense for the three months ended September 30, 2007 increased $30,457 to $289,047 from $258,590 for the three months ended September 30, 2006. Interest costs associated with notes payable - related parties, notes payable - others and the bridge loans accounted for this increase.

Liquidity and Capital Resources

Since inception, we have principally funded our operations from private placements of securities and management and shareholder loans and contributions of $4,911,883. This amount includes $97,500 in loans from accredited investors made during the third quarter of 2007. As of September 30, 2007, we have $137,974 outstanding under notes payable - related parties, $1,266,342 outstanding under accrued salaries payable and $1,852,130 outstanding in notes payable - other. Proceeds from notes payable were used to pay down current payables. We will require approximately $5 million to continue operations for the next 12 months. To the extent permitted by the lender(s), the funding will be allocated principally for payment of outstanding obligations, sales, marketing and working capital. It is not anticipated that any lack of funding will impact upon the existing license and development agreements with our customers since our software development has been completed for three of our products.

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We have incurred an accumulated deficit at September 30, 2007 of $15,764,684 compared to $9,297,941 at September 30, 2006. We had negative working capital at September 30, 2007 of $6,123,712 compared to negative working capital of $3,696,638 at September 30, 2006. Our ability to continue as a going concern is dependent upon our obtaining adequate capital to fund losses until we become profitable.

On December 29, 2005, we entered into a Securities Purchase Agreement with Montgomery pursuant to which we agreed to issue Montgomery secured convertible debentures in the principle amount of $500,000. Of these secured convertible debentures, $350,000 was funded on December 29, 2005. The remaining $150,000 was funded on April 9, 2007. The secured convertible debentures are convertible, in whole or in part, at any time and from time to time before maturity (December 29, 2007) at the option of the holder at the lesser of (a) eighty percent (80%) of the lowest closing bid price of the common stock for the ten (10) trading days immediately preceding the closing date or (b) eighty percent (80%) of the lowest closing bid price of common stock for ten (10) trading days immediately preceding the conversion date. The secured convertible debentures are due December 29, 2007, have piggy-back registration rights and accrue interest monthly at the rate of fifteen percent (15%) per year. We are $28,646, behind with our interest payments.

In connection with the Securities Purchase Agreement we issued Montgomery three warrants to purchase a total of 2,000,000 shares of our common stock. The warrants are exercisable for a period of three years. The exercise price for the first warrant for 1,000,000 shares is the lesser of 80% of the lowest closing bid price for the five trading days immediately preceding the exercise date or $0.20 per share. The exercise price for the second warrant for 500,000 shares is the lesser of 80% of the lowest closing bid price for the five trading days immediately preceding the exercise date or $0.30 per share. The exercise price for the third warrant for 500,000 shares is $0.001 per share. The first two such warrants for 1.5 million shares were exercised in February 2007 which yielded 841,176 shares under a cashless exercise provision; the third warrant for 500,000 shares was exercised in July 2007 which yielded 495,833 shares under a cashless exercise provision.

On May 14, 2007, the Company executed a Restricted Equity Purchase Agreement (“REPA”) with Mercatus & Partners Limited (“Mercatus”), a United Kingdom private limited company, by which Mercatus agreed to purchase 33,334,000 shares of the Company’s restricted common stock in a delayed purchase transaction. The REPA is a Regulation S transaction. The amount the Company receives will be determined at closing in accordance with the provisions of the REPA less a 45% discount to market price and less a total of $60,000 in structuring, due diligence and administrative fees. The restricted shares issued by the Company are not subject to registration unless Mercatus is deemed to be an affiliate of the Company pursuant to the Securities Act of 1933, as amended, as of or at any time subsequent to the second anniversary of the closing, at which time the Company will have 120 days after Mercatus’ request to file a registration statement for all shares then held by Mercatus. The Company issued 33,334,000 shares of its common stock and deposited it with the custodian on May 15, 2007. As of the balance sheet date, the closing has not been scheduled but is expected to occur in November 2007.There are no assurances that this transaction will close in which case the Company’s sole remedy is the return of its stock.

Our principal sources of liquidity have been private placements of our securities and loans from management and shareholders. There will continue to be an operating cash flow deficit from the licensing of embedded software in the near term.

Cash at September 30, 2007 and 2006, respectively, was $8,205 and $11,436. At September 30, 2007 and 2006, respectively, we had total stockholders’ deficit of $5,517,382 and $2,899,243.

Our capital requirements depend on numerous factors including our research and development expenditures, expenses related to selling, general and administrative operations and working capital to support business growth. We anticipate that our operating and capital expenditures will constitute a material use of our cash resources. As a result, our net cash flows will depend heavily on (a) the level of our future sales (which depend, to a large extent, on general economic conditions affecting us and our customers, as well as the timing of our products’ sales cycles (for both the ZigBee 2006 global standard and the upcoming release of the ZigBee Pro global standard) and other competitive factors) and (b) our ability to control expenses.

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With regard to our current liabilities at September 30, 2007, $137,974 is payable to related note holders who have deferred repayment (one has deferred interest as well). Trade payables at September 30, 2007 of $1,027,036 are outstanding and will be paid as they come due or as payment may be extended by agreement of the parties. One vendor, MindTree Consulting Pvt. Ltd. (“MindTree”), accounted for 32% of the Company’s accounts payable. MindTree provided services to the Company under a Time and Materials Contract dated March 30, 2005 (the T&M Contract”). On a monthly basis, MindTree invoiced the Company for work it performed. Payment terms were net 30 days. The Company was unable to pay the invoices as they became due and, by informal agreement, extended the repayment terms monthly. On December 15, 2005, the Company entered into a written agreement with MindTree by which it agreed to pay MindTree $200,000 on or before December 23, 2005 and $100,000 per month on the last business day of each succeeding month until the outstanding indebtedness of approximately $580,000 was fully paid. The Company’s performance was secured by the software code then in existence (the “Intellectual Property”) MindTree developed under the T&M Contract; the ZigBee version 1.0 software. If the Company defaulted in making any payment when due and such default was not cured within five business days after receipt of a notice of default, MindTree would be entitled to co-own the Intellectual Property, with any revenue the Company realized from the Intellectual Property during the co-ownership period to be split 50-50 with MindTree. To date, the Company has paid MindTree $275,000 pursuant to this agreement. As of October 31, 2007, the Company is behind in making the scheduled payments. MindTree has not yet issued any notice of default and has extended the deadline to substantially complete the repayment until March 31, 2008.

We believe that revenues will lag during 2007 from our licensing and other agreements until that the enhanced ZigBee standard (ZigBee Pro) is released to members of the Alliance. We are one of a few members of the Alliance selected to develop the so-called “Golden Unit” to be used in the certification testing for this new standard. We shall continue to be dependent upon financing to accelerate our marketing activities and continue product enhancement. We anticipate monthly expenses of approximately $165,000 to $185,000 over the next several months. This amount includes costs of our SEC reporting obligations, which were approximately $160,000 for the year ending December 31, 2006. Cost of SEC reporting obligations includes all filing costs and professional fees.

As shown in the accompanying condensed consolidated financial statements, as is typical of companies going through early-stage development of intellectual property, and products and services, the Company incurred net losses for the years ended December 31, 2006 and 2005 and for the nine month period ended September 30, 2007. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to satisfy past due obligations, support current operations and expand sales. This raises substantial doubt about the Company’s ability to continue as a going concern.

The Company’s current financing and related security agreements contain numerous covenants that restrict our ability to raise needed funds. It is possible that needed funds may not be available, in which case the Company may be forced to temporarily suspend operations. Our existing financing contains a right of first refusal for our lender. Numerous discussions with investment bankers throughout the country lead us to conclude that additional financing will be available.

The Company expects to be able to satisfy its past-due accounts payable when additional financing is obtained and intends to negotiate lump-sum payment reductions with the larger vendors (MindTree excepted). The bulk of the Contractual Obligations in the table below are employment contracts with current management. Given management’s commitment to the success of the Company, it is not anticipated these contracts will be an impediment. The long-term debt listed in the table is the secured convertible debenture, which the Company expects will be paid off or converted when substitute financing is arranged.

If circumstances require, the Company will renegotiate employment contracts with management to defer (but not eliminate) its obligations under these contracts. It will also consider overhead reductions at its headquarters and at its India subsidiary. This would be as a last resort as (a) the Company is leanly staffed at the administrative level and (b) staff cuts in India would adversely impact our ability to complete product development, deliver product and provide support.

Critical Accounting Estimates

General

Management’s discussion and analysis of our financial condition and results of operations is based upon our Consolidated Financial Statements, which were prepared in accordance with accounting principles generally accepted in the United States, or GAAP. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities. Note 2, “Summaryof Significant Accounting Policies” of Notes to the Consolidated Financial Statements describes our significant accounting policies which are reviewed by us on a regular basis and which are also reviewed by senior management with our Board of Directors.

An accounting policy is deemed by us to be critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, and if different estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the financial statements. The policy and estimate that we believe is most critical to an understanding of our financial results and condition and that requires a higher degree of judgment and complexity is revenue recognition.

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Revenue Recognition

We account for the time-based licensing of software in accordance with the American Institute of Certified Public Accountants Statement of Position (SOP) 97-2, “Software Revenue Recognition.” We recognize revenue when (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the sales price is fixed or determinable; and (iv) the ability to collect is reasonably assured. For software arrangements with multiple elements, revenue is recognized dependent upon whether vendor-specific objective evidence (VSOE) of fair value exists for each of the elements. When VSOE does not exist for all the elements of a software arrangement and the only undelivered element is post-contract customer support (PCS), the entire licensing fee is recognized ratably over the contract period.

Revenue attributable to undelivered elements, including technical support, is based on the sales price of those elements, and is recognized ratably on a straight-line basis over the term of the time-based license. Post-contract customer support revenue is recognized ratably over the contract period. Shipping charges billed to customers are included in revenue and the related shipping costs are included in cost of sales.

Time-based product licensing fees are collected in advance. Revenues from licenses are recognized on a prorated-basis over the life of the license. Airbee’s customary practice is to have non-cancelable time-based licenses and a customer purchase order prior to recognizing revenue.

Enterprise license model arrangements require the delivery of unspecified future updates and upgrades within the same product family during the time-based license. Accordingly, Airbee will recognize fees from its enterprise license model agreements ratably over the term of the license agreement.

Time-based royalties are charged on a unit basis. Royalties are not fixed dollar amounts, but are instead a percentage of the customer’s finished product and the percentage varies on a tiered basis with the number of units shipped by customer.

Revenue attributed to undelivered elements is based on the sales price rather than on the renewal rate because of (i) the newness of the ZigBee standard for this short-range wireless technology, (ii) the newness of the Company’s product introductions into the marketplace for a range of applications being developed by its customers, and (iii) the lack of historical data for potentially defective software, which may be a function of the application into which it is installed, a reasonable reserve for returns cannot yet be established. In accordance with SFAS No. 48 “Revenue Recognition When Right of Return Exists,” in the absence of historical data, the Company is unable to make a reasonable and reliable estimate of product returns at this time.

We expect to enter into maintenance contracts with its customers. Maintenance fees are not a fixed dollar amount, but rather a percentage fee based upon the value of the license and/or royalties billed/received. Maintenance contracts are paid for and collected at the beginning of the contract period. We provide bug fixes (under warranty obligations) free-of-charge that are necessary to maintain compliance with published specifications, it accounts for the estimated costs to provide bug fixes in accordance with SFAS No. 5 “Accounting for Contingencies.”

Revenue from products licensed to original equipment manufacturers (OEMs) is based on the time-based licensing agreement with an OEM and recognized when the OEM ships licensed products to its customers.

Factors That May Affect Future Results

Our business faces significant risks. The risks described below may not bethe only risks we face. Additional risks that we do not yet know of or that wecurrently think are immaterial may also impair our business operations. If anyof the events or circumstances described in the following risks actuallyoccurs, our business, financial condition or results of operations couldsuffer, and the trading price of our common stock could decline.

Our future results of operations and the other forward-looking statements contained in this filing, including this MD&A, involve a number of risks and uncertainties—in particular, the statements regarding our goals and strategies, new product introductions, plans to cultivate new businesses, future economic conditions, revenue, pricing, gross margin and costs, capital spending, depreciation and amortization, research and development expenses and the tax rate. In addition to the various important factors discussed above, a number of other factors could cause actual results to differ materially from our expectations.

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Because a significant portion of our revenue will be derived from softwarelicenses, we are dependent upon the ability of our customers to develop andpenetrate new markets successfully.

Our software license revenues depend not only upon our ability to successfully negotiate license agreements with our customers but also upon our customers’ ability to commercialize their products using our embedded software. We cannot control our customers’ product development or commercialization or predict their success. Demand for our products, which impacts our revenue and gross margin percentage, is affected by business and economic conditions, as well as communications industry trends, and the development and timing of introduction of compelling software applications and operating systems that take advantage of the features of our products. Demand for our products is also affected by changes in customer order patterns, such as changes in the levels of inventory maintained by our customers and the timing of customer purchases. Airbee operates in a highly competitive industry (i.e., embedded communications software), and our revenue and gross profits could be affected by factors such as competing software technologies and standards, pricing pressures, actions taken by our competitors and other competitive factors, as well as market acceptance of our new ZigBee-compliant products in specific market segments. Future revenue is also dependent on continuing technological advancement, including the timing of new product introductions, sustaining and growing new businesses, and integrating and operating any acquired businesses. Results could also be affected by adverse effects associated with product defects and deviations from published specifications, and by litigation or regulatory matters involving intellectual property or other issues.

Numerous factors may cause out total revenues and operating results tofluctuate significantly from period to period. These fluctuations increase thedifficulty of financial planning and forecasting and may result in decreases inour available cash and declines in the market price of our stock.

A number of factors, many of which are outside our control, may cause or contribute to significant fluctuations in our total revenues and operating results. These fluctuations make financial planning and forecasting more difficult and may result in unanticipated decreases in our available cash, which could negatively impact our operations and increase the volatility of our stock price. Factors that may cause or contribute to fluctuations in our operating results and revenues include:

• Acceptance by our customers of our Airbee embedded software platforms and/or the slow acceptance by the market of the ZigBee global standard for short-range wireless voice and data communications;

• The number and timing of orders we receive, including disproportionately higher receipt and shipment of orders in the last month of a quarter;

• Changes in the length of our products sales cycles, which increases as our customers’ purchase decisions become more strategic and are made at higher management levels;

• The success of our customers’ products from which we derive our production license revenue;

• The mix of our revenues between sales of products and lower-margin sales of services;

• Our ability to control our operating expenses and fully realize the impact of the restructuring plans we have implemented;

• Our ability to continue to develop, introduce and ship competitive new products and product enhancements quickly;

• Possible deferrals of orders by customers in anticipation of new product introductions;

• Announcements, product introductions and price reductions by competitors;

• The impact of, and our ability to react to, natural disasters and/or terrorist actions;

• Changes in business cycles that affect the markets in which we sell our products and services;

• Economic, political and other conditions in the United States and internationally;

• Foreign currency exchange rates; and

• The impact of any stock-based compensation charges arising from the issuance of stock options, stock appreciation rights or any other stock-based awards.

One or more of the foregoing factors may cause our operating expenses to be disproportionately high or may cause our net revenue and operating results to fluctuate significantly. Results from prior periods are thus not necessarily indicative of the results of future periods.

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We operate internationally, with sales, marketing and research and development activities. We are, therefore, subject to risks and factors associated with doing business outside the U.S. International operations involve inherent risks that include currency controls and fluctuations, tariff and import regulations, and regulatory requirements that may limit our or our customers’ ability to manufacture, assemble and test, design, develop or sell products in particular countries. If terrorist activity, armed conflict, civil or military unrest, or political instability occurs in the U.S., or other locations, such events may disrupt our customers’ manufacturing, assembly and test, logistics, security and communications, and could also result in reduced demand for our products. Business continuity could also be affected if labor issues disrupt our transportation arrangements or those of our customers or suppliers. In addition, we may rely on a single or limited number of suppliers, or upon suppliers in a single country. On an international basis, we regularly review our key infrastructure, systems, services and suppliers, both internally and externally, to seek to identify potentially significant vulnerabilities as well as areas of potential business impact if a disruptive event were to occur. Once identified, we assess the risks, and as we consider it to be appropriate, we initiate actions intended to mitigate the risks and their potential impact. There can, however, be no assurance that we have identified all significant risks or that we can mitigate all identified risks with reasonable effort.

We are continuing to assemble the personnel and financial resources required to achieve the objectives of our business plan. Future revenue, costs and profits are all influenced by a number of factors, including those discussed above, all of which are inherently difficult to forecast.

As shown in the accompanying condensed consolidated financial statements, as is typical of companies going through early-stage development of intellectual property, and products and services, the Company incurred net losses for the years ended December 31, 2006 and 2005 and for the six month period ended June 30, 2007. There is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to satisfy past due obligations, support current operations and expand sales. This raises substantial doubt about the Company’s ability to continue as a going concern.

Off-Balance Sheet Arrangements

As of September 30, 2007, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.

Contractual Obligations

The table below lists our known contractual obligations at September 30, 2007.

Our long-term debt obligation consists of a $500,000 convertible debenture, plus interest payable monthly at 15% per annum. We are six months behind in our interest payments through September 2007.

Our purchase obligations are limited to employment contracts with company executives and senior staff. These seven written contracts are for one to three years in duration and expire at various dates through May 15, 2008.

The operating leases reported here are limited to the lease for office space in Chennai, India for our India subsidiary. We have signed a three-year lease for 6,000 sq. ft. of office space expiring on June 30, 2009. We are in the second year of a three year lease. The current rent is approximately $5,471 per month with a 10% increase in the third year of the lease.

We have no capital lease obligations as defined in FASB Statement of Accounting Standards No. 13, “Accounting for Leases” nor do we have any other long-term liabilities reflected on the balance sheet under generally accepted accounting principles in the United States.

	Payments due by period
Contractual Obligations	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Purchase Obligations (employment contracts) *	$	712,917		500,417		212,500		-		-
Current Debt Obligations	$	1,027,036		1,027,036		-		-		-
Operating Lease Obligations **	$	139,510		67,293		72,217		-		-
Capital Lease Obligations	$	-		-		-		-		-
Other Long-Term Liabilities Reflected on Balance Sheet under GAAP	$	-		-		-		-		-

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*	Employment contracts with senior executives ranging in length from 1 year to 3 years, expiring on various dates through May 15, 2008.
**	Lease of 6,000 sq. ft. of office space in Chennai, India expiring June 30, 2009. The lease at our Rockville, MD office is month-to-month and therefore not included. Our Rockville rent is $1,687 per month.

Item 3. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company’s management, with the participation of the Company’s chief executive officer and interim chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of the Company’s disclosure controls and procedures as of the end of the period covered by this report, the Company’s chief executive officer and interim chief financial officer concluded that, as of such date, the Company’s disclosure controls and procedures were not effective for the reasons disclosed below.

The Company has previously identified certain internal control deficiencies that we consider to be material weaknesses. These consist of (1) inadequate communication leading to the untimely filing of a current report with the Securities and Exchange Commission in January 2005 and (2) certain accounting and disclosure matters. The accounting and disclosure deficiencies were: (1) a failure to amortize capitalized intellectual property costs and (2) improper accounting of unearned compensation arising from the issuance of stock options below market value. The accounting deficiencies are principally due to the Company’s transition from a private company to a public reporting company. Prior to going public the Company amortized capitalized intellectual property costs and accounted for unearned compensation arising from the issuance of stock options below market value contrary to the requirements of SFAS 86 and SFAS 123, respectively, as such accounting methods were not required by a private entity. Subsequent to going public, the Company’s controller recognized the necessity to account for these items in accordance with SFAS 86 and SFAS 123. A further disclosure deficiency was presented when a material services agreement with the Company’s investment and strategic advisor with an effective date of March 5, 2007 was not provided to the corporate secretary and the controller until the start of the third calendar quarter and after the Company’s Form 10-QSB for the quarter ended March 31, 2007 had been filed. This agreement required the Company to issue 2 million shares of its common stock as compensation upon the signing of the agreement. It also provided for monthly charges of $7,500 paid in cash or $10,000 paid in restricted stock. The Company issued the two million shares of common stock on July 10, 2007. However, because the signature date of the agreement was deemed to be March 5, 2007 pursuant to its terms, the Company has restated its Form 10-QSB for the quarter ended March 31, 2007, recognizing a liability for stock to be issued in the amount of $510,000 on its balance sheet offset by a prepaid consulting account in the equity section of its balance sheet in the amount of $458,333 and a professional fees – financing expense of $51,667. The Company has also restated its Form 10-QSB for the quarter ended June 30, 2007 to amortize prepaid consulting fees of $125,000 to professional fees in the quarter reducing the balance in the prepaid consulting account to $333,333 and increase the liability for stock to be issued by $30,000 to record the professional fees - financing expense for the quarter arising from this service agreement. The Company has also restated its Form 10-QSB for the quarter ended September 30, 2007 to amortize prepaid consulting fees of $125,000 to professional fees in the quarter reducing the balance in the prepaid consulting account to $208,333.

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The Company attempted to remediate and eliminate previous internal control and disclosure deficiencies by hiring a controller in May 2005. The Company’s controller identified the internal control and disclosure control deficiencies disclosed above during the latter part of the third quarter of 2005. The controller is a CPA and has experience in accounting and disclosure procedures for public companies. The Company’s India subsidiary also hired a chartered accountant (equivalent to US CPA) who was also a certified corporate secretary as its finance manager in August 2005. The controller and the subsidiary’s finance manager were tasked with centralizing and formalizing the purchasing decisions, establishing and maintaining proper procedures for payment of accounts payable and other liabilities, setting credit and collection policies, and tracking the fixed assets of the Company, among other duties. The Company has implemented an accounting analysis procedure that requires all transactions, including but not limited to transactions similar to the deficiencies above, be analyzed by an employee of the Company in accordance with SEC public reporting standards. Separation of duties was instituted so that the person authorizing the purchase of goods or services was not the person preparing or signing the check in payment for such goods or services.

The controller and the interim chief financial officer are working together to keep each other appraised of items which may require disclosure and to see that proper level of disclosure is made. The controller and interim chief financial officer have also reminded all executives with authority to bind the Company to agreements made in the ordinary course of business of the necessity to share such agreements as early as practicable so that an appropriate judgment can be made regarding a given agreement’s impact on the Company’s financial reporting requirements.

While the Company has implemented an accounts analysis procedure and hired additional personnel, the abovementioned material weaknesses will not be considered remediated until the new internal controls operate for a sufficient period of time, are tested, and management concludes that these controls are operating effectively. The Company expects to complete its analysis by the end of the fiscal year ending December 31, 2007. Costs of the controller and finance manager and the practices implemented thus far are approximately $120,000 per year, consisting mainly of the controller’s and finance manager’s salaries and the public reporting costs of additional disclosure.

Changes in Internal Controls

The addition of a controller, the chartered accountant and the new policies and practices discussed above constitute changes in the Company’s internal control over financial reporting. The new policies and practices were implemented during the fourth quarter of 2006 and have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. The new policy and practices arising from the material weakness giving rise to this restatement were implemented during the third quarter of 2007 and have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II OTHER INFORMATION

Item 1. Legal Proceedings.

See the Litigation subsection of Note 10 - Commitments and Contingencies to the Condensed Consolidated Financial Statements in Part 1 of this Form 10-QSB.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

The following stock transactions occurred in the third quarter of 2007:

On July 9, 2007, the Company issued 235,294 restricted shares of common stock to Robert V. Noone, an accredited investor, for cash totaling $40,000. In addition, the Company issued 235,294 warrants to Mr. Noone at strike prices of $0.42 per share. The warrants will expire on January 8, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On July 10, 2007 the Company issued 2,000,000 restricted shares to Allen & Associates LLC for corporate finance and strategic counsel services worth $500,000 at the time the obligation was incurred. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On July 17, 2007, the Company issued 495,833 restricted shares to Montgomery Equity Partners, Ltd. for the cashless exercise of 500,000 warrants. This transaction created 4,167 shares of treasury stock. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

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On July 30, 2007 the Company issued 450,000 restricted shares to City VAC for public relations services worth $65,250 at the time of issuance. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On August 10, 2007, the Company issued 2,884,615 restricted shares to Montgomery Equity Partners, Ltd. for the conversion of $300,000 of the $500,000 secured convertible debentures due December 29, 2007. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The organization received information concerning the Company and had the ability to ask questions about the Company.

On August 29, 2007 the Company issued 800,000 warrants to purchase our common stock exercisable at $0.13 to Marcus Perez, an accredited investor, in lieu of interest for his $60,000 loan. The warrants expire August 29, 2010. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On September 5, 2007 the Company issued 100,000 warrants to purchase our common stock exercisable at $0.12 to Erik Roderick and Steve Barnes, accredited investors, in connection with their $250,000 loan. The warrants expire September 5, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On September 10, 2007, the Company issued 833,333 restricted shares of common stock to V.V. Sundaram, an accredited investor and an affiliate of the Company for cash totaling $100,000. In addition, the Company issued 333,333 warrants to Mr. Sundaram at strike prices of $0.37 per share. The warrants will expire on March 9, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investor received information concerning the Company and had the ability to ask questions about the Company.

On September 19, 2007 the Company issued 1,000,000 warrants to purchase our common stock exercisable at $0.20 to Pan American Relations in connection with shareholder and public relations services. The warrants expire June 19, 2009. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The accredited investors received information concerning the Company and had the ability to ask questions about the Company.

On September 20, 2007 the Company issued 111,703 restricted shares to David McCartney, a former officer, in reimbursement for expenses worth $6,702; plus a 50% premium for the restricted shares. The securities were issued pursuant to the exemption from registration provided by Section 4(2) of the Securities Act and contain the appropriate legends restricting their transferability absent registration or applicable exemption. The individual received information concerning the Company and had the ability to ask questions about the Company.

Item 3. Defaults upon Senior Securities.

None

Item 4. Submission of Matters to a Vote of Security Holders.

None

Item 5. Other Information.

None.

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Item 6. Exhibits.

31.1	Rule 13a-14(a)/15d-4(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-4(a) Certification of Principal Financial Officer
32.1	Section 1350 Certification of Principal Executive Officer
32.2	Section 1350 Certification of Principal Financial Officer

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SIGNATURES

In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 10, 2008
AIRBEE WIRELESS, INC.
By:	/s/ Sundaresan Raja
	Sundaresan Raja
	Chief Executive Officer
	(Principal Executive Officer)
By:	/s/ E. Eugene Sharer
	E. Eugene Sharer
	Interim Principal Financial Officer

45

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Sundaresan Raja, certify that:

1.I have reviewed this report on Form 10-QSB/A of Airbee Wireless, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Sundaresan Raja

Sundaresan Raja

Principal Executive Officer

March 10, 2008

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, E. Eugene Sharer, certify that:

1.I have reviewed this report on Form 10-QSB/A of Airbee Wireless, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ E. Eugene Sharer

E. Eugene Sharer

Interim Principal Financial Officer

March 10, 2008

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Airbee Wireless, Inc. (the “Company”) on Form 10-QSB/A for the fiscal quarter ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Sundaresan Raja, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

/s/ Sundaresan Raja

Sundaresan Raja

Principal Executive Officer

March 10, 2008

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Airbee Wireless, Inc. (the “Company”) on Form 10-QSB/A for the fiscal quarter ended September 30, 2007, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, E. Eugene Sharer, Interim Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) The information contained in the report fairly presents, in all material respects, the financial condition and results of the operations of the Company.

/s/ E. Eugene Sharer

E. Eugene Sharer

Interim Principal Financial Officer

March 10, 2008