8-K 1 pgwc-8k_01062006.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): January 06, 2006 (December 29, 2005) PEGASUS WIRELESS CORP. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Nevada 000-32567 52-2273215 -------------------------------------------------------------------------------- (State or other jurisdiction (Commission File (IRS Employer of incorporation) Number) Identification No.) 48499 Milmont Dr., Freemont, CA 94538 -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 490-8288 Blue Industries, Inc., 1480 Breakers West Blvd., Royal Palm Beach, FL 33401 -------------------------------------------------------------------------------- (Former name or former address, if changed since last report.) ----------------- Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): [_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) [_] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) [_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) [_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(C)) SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS Item 1.01 - Entry into a Material Definative Agreement Pegasus closed the acquisition of 51% of Cnet Technology, Inc. on December 29, 2005. The Company purchased 51% of Cnet in exchange for $1,000,000 in cash. The Company also invested $1,000,000 for raw materials to manufacture 8,000 units of Pegasus product line. SECTION 3 - SECURITIES AND TRADING MARKETS Item 3.02 Unregistered Sales of Equity Securities The cash portion of the CNET transaction was provided by the sale of 222,222 shares of restricted common stock of the Company to Jasper Knabb, President of Pegasus, in exchange for $2,000,000 in cash, or $9.00 per share. SECTION 9 - FINANCIAL STATEMENTS AND EXHIBITS Item 9.01 - Financial Statements and Exhibits A. Financials The audited consolidated financial statements of Cnet Technology, Inc. for the years ended December 31, 2004 and 2003, and the unaudited consolidated financial statements for the nine months ended September 30, 2005 and 2004, are included herein, starting on page F-1. These financials are not reflective of the operations purchased. We purchased 51% of CNET-Cayman. CNET-Cayman owns 100% of ANET. ANET is a Peoples Republic of China corporation which is the operating entity. ANET owns and operates two SMT manufacturing lines located in the Peoples Republic of China. CNET-Cayman was owned 100% by CNET-Taiwan. CNET-Taiwan is publicly traded on the Taipei stock exchange. A Taiwanese company is not allowed to directly own a company formed in the Peoples Republic of China. As a result of this legally mandated structure, CNET-Taiwan has managed it accounting and transfer pricing in ways to minimize tax ramifications in the Peoples Republic of China. In essence, CNET-Taiwan purchases the raw materials for the manufacturing process and also records the sale of the manufactured goods to third parties on the financial statements of CNET-Taiwan. CNET-Cayman's revenues are 100% to CNET-Taiwan and consist only of the actual labor cost expended by ANET in the manufacturing process. Upon completion of this acquisition, the accounting at the CNET-Cayman will change, the revenues and related expenses will be recorded at the CNET-Cayman level. B. Pro Forma Financial The unaudited pro-forma financial statements as of June 30, 2005 for Pegasus and December 31, 2004 for CNET and for the three and nine months ended September 30, 2005 are included herein. The first set of pro-forma financials reflect the historical CNET-Cayman financials. The second set of pro- forma financials reflect as if Pegasus had acquired CNET- Cayman and changed the accounting to record the revenues and related expenses at CNET-Cayman as they will be changed from January 1, 2006. (d) Exhibits. Exhibit Number Description -------------- ---------------------------------------------------- 10.1 * Share and Exchange Agreement, dated as of May 25, 2005, by and among the Company and Homeskills, Inc. 10.2 * Share and Exchange Agreement, dated as of November 5, 2004, by and among Homeskills, Inc., and the shareholders of OTC Wireless, Inc. 10.3 Agreement as of December 29, 2005 among Pegasus Wireless Corp., a Nevada corporation ("Buyer"), CNet Technology, Inc., a corporation organized under the laws of Taiwan, Republic of China 14.1 * Code of Ethics 16.1 * Lawrence Scharfman & Company letter regarding change of accountants 17.1 * Letter of Resignation of Roger Pawson 99.3 * July 18, 2005 press release 99.4 * August 3, 2005 press release 99.5 * November 1, 2005 press releas 99.6 * December 22, 2005 press release * - filed previously SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned hereunto duly authorized. PEGASUS WIRELESS CORP. January 06, 2005 By: /s/ Stephen H. Durland -------------------------- Stephen H. Durland Title: CFO INDEX TO FINANCIAL STATEMENTS Reports of Independent Registered Public Accounting Firm....................F-2 Combined Balance Sheets.....................................................F-3 Combined Statements of Operations and Comprehensive Income (Loss)...........F-4 Combined Statements of Stockholders' Equity (Deficiency)....................F-5 Combined Statements of Cash Flows...........................................F-6 Notes to Combined Financial Statements......................................F-7 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders CnetTechnology, Inc. (Cayman) We have audited the accompanying consolidated balance sheets of Cnet Technology, Inc., (Cayman), (the "Companies") as of December 31, 2004 and 2003 and the related consolidated statements of operations and comprehensive income (loss), stockholders' equity (deficiency) and cash flows for the two years in the period ended December 31, 2004. These combined financial statements are the responsibility of the Companies' management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Companies as of December 31, 2004 and 2003 and the results of their operations and their cash flows for the two years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. /s/Pollard-Kelley Auditing Services, Inc. Pollard-Kelley Auditing Services, Inc. Fairlawn, Ohio December 13, 2005 F-2

The accompanying notes are an integral part of the financial statements F-3

The accompanying notes are an integral part of the financial statements F-4

The accompanying notes are an integral part of the financial statements F-5

The accompanying notes are an integral part of the financial statements F-6 CNET TECHNOLOGY, INC. Notes to the Consolidated Financial Statements (Information with regard to the nine months ended September 30, 2005 and 2004 is unaudited) NOTE 1 - THE COMPANY Cnet Technology, Inc., (The Company), was incorporated under the laws of the Cayman Islands on March 28, 2001, to engage in investments and to sell local computer networks. It is the sole shareholder of Anet Technology (WU- JIANG) Co., Ltd. which was incorporated under the laws of the Peoples Republic of China in 2002 to engage in the manufacture of computer parts, components and systems. The ultimate parent is Cnet Technology, Inc. incorporated under the laws of the Republic of China (a/k/a Taiwan), which is publicly traded on the Taipei Stock Exchange. NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash Equivalents - For purposes of the statement of cash flows, the Company considers all highly liquid investments with maturity of three months or less when purchased to be cash equivalents. Revenue Recognition - The Company recognizes revenue from product sales when units are shipped, provided no significant obligation remains and collection is probable. Inventory - The Company values its inventory at the lower of cost or market, cost determined using the standard cost method. The Company also utilizes the reserve method to account for slow moving and obsolete inventory. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts. Actual results could differ from those estimates. Income (loss) Per Share - Income (loss) per share is computed using the Weighted Average Number of common shares outstanding during the fiscal year. Concentration of Credit Risk - The Company currently has sales only to its ultimate parent company. During the years ending and at December 31, 2004 and 2003, the Company had deposits in banks in excess of the FDIC insurance limit. Interim Financial Information - The financial statements for the nine months ended September 30, 2005 and 2004 are unaudited and include all adjustments which in the opinion of management are necessary for fair presentation, and such adjustments are of a normal and recurring nature. The results for the nine months are not indicative of a full year results. Foreign Currency Transaction and Translation Gains (Losses) - The principal operating entity of the Company is its subsidiary, Anet, which is located in the Peoples Republic of China. The functional currency of Anet is the Chines Yuan, (RMB). Cnet has only one customer which is located in Taiwan, its parent company. Cnet bills this customer in US Dollars and is paid US Dollars, (USD). Anet records a transaction gain or loss at the time of receipt of payment consisting of the difference between the amount of ros billed and the amount of RMB the USD payment is converted into. On a consolidated basis, the Company's reporting currency is the US Dollar. The Company translated the income statement items using the average exchange rate for the period and balance sheet items using the end of period exchange rate, except for equity items, which are translated at historical rates, in accordance with SFAS 52. F-7 CNET TECHNOLOGY, INC. Notes to the Consolidated Financial Statements NOTE 2 - INVENTORY The Company values its inventory at the lower of cost or market, cost determined using the standard cost method. The Company also utilizes the reserve method to account for slow moving and obsolete inventory. NOTE 3 - FIXED ASSETS Fixed assets at December 31, 2004 and 2003 consist of almost exclusively of manufacturing equipment The Company has two SMT lines. The equipment is recorded at historical cost upon acquisition and depreciated on the straight-line basis over its estimated remaining useful life, generally five, seven or ten years. Depreciation expense was $221,877, $271,945, $362,593 and $224, 293 for the nine months ended September 30, 2005 and 2004 and the year ended December 31, 2004 and 2003, respectively. NOTE 4 - STOCKHOLDERS' EQUITY The authorized capital stock of the Company consists of 50,000 shares of common stock. The stock is $1.00 par value. There were 30,100 shares of common stock outstanding at September 30, 2005 and 2004 and December 31, 2004 and 2003. During the year ended December 31, 2003, 30,100 shares of common stock were issued to the Company's parent company in exchange for $672,000 in cash and $2,338,000 in equipment, valued at the parent's then current net book value. NOTE 5 - INCOME TAXES As a Cayman Islands corporation the Company carries no liability for income taxes. In addition, the Company's wholly owned subsidiary, Anet, has no liability for income taxes in the Peoples Republic of China, as it has recorded only losses since inception. The Company does not forsee Anet recording a profit in the future due to the fact that 100% of its revenues are generated within the control group of companies. NOTE 6 - OPERATING LEASES The Company leases an operating facility in the Peoples Republic of China from a third party under an operating lease expiring in 2006. Future minimum lease payments, including payments to related parties, for the remaining lease term are as follows: 2006 $ 1,705,118 2007 1,115,943 2008 1,009,173 2009 1,009,173 2010 1,009,173 Thereafter 3,027,520 -------------- Total $ 8,876,100 ============== F-8 CNET TECHNOLOGY, INC. Notes to the Consolidated Financial Statements NOTE 7 - RELATED PARTY TRANSACTIONS Related companies - The Companies record sales, accounts receivable, purchases, administrative expenses and accounts payable to and from its parent company and subsidiary and two brother-sister related companies. This includes 100% of its revenues and accounts receivable. These transactions are completed at negotiated prices which are not indicative of fair market value of the goods sold. The majority of this negotiated price is merely reimbursement of the cost of labor to manufacture the goods. NOTE 8 - SUBSEQUENT EVENTS On December 29, 2005, the Company's sole stockholder - Cnet (Taiwan) sold 51% of the Company to Pegasus Wireless Corp., a US based company for $1,000,000 in cash. Part of this purchase agreement calls for Cnet to produce a minimum of $13.2 million in revenue from the sale of third party products during the 12 months following the acquisition. In addition, Pegasus placed an initial order with Cnet for the immediate production of approximately 8,000 units of Pegasus product. F-9 INDEX TO PRO FORMA FINANCIAL STATEMENTS Pro forma Consolidated Balance Sheet.........................................F-2 Pro forma Consolidated Statements of Operations..............................F-3 Notes to Pro forma Consolidated Financial Statement.........................F-4 F-1

The accompanying notes are an integral part of the pro-forma financial statements F-2

The accompanying notes are an integral part of the pro-forma financial statements F-3 PEGASUS WIRELESS CORP. Notes to Pro forma Consolidated Financial Statements (Unaudited) (1) Pro forma Changes On December 29, 2005, the Company entered into an acquisition agreement to acquire 51% of Cnet Technology, Inc. (CNET), , a Cayman Islands company. This business combination was accounted for as an acquisition. The Company paid $1,000,000 in cash to complete this acquisition. The Pro forma statement of operations includes the three months for the Company and nine months for CNET ended September 30, 2005. (2) Pro forma Adjustments a) 222,222 shares of restricted common stock of the Company were issued to Jasper Knabb, President of the Company, in exchange for $2,000,000, (or $9.00 per share), in cash. b) $1,000,000 in cash was paid to effect the acquisition. In addition the Company invested $1,000,000 for raw material to manufacture 8,000 units of Pegasus products. Consolidation: c) Eliminate investment in subsidiaries, the Company's retained deficit and common stock of subsidiaries. F-4 INDEX TO PRO FORMA FINANCIAL STATEMENTS Pro forma Consolidated Statements of Operations............................F-6 Notes to Pro forma Consolidated Financial Statement.......................F-7 F-5

The accompanying notes are an integral part of the pro-forma financial statements F-6 PEGASUS WIRELESS CORP. Notes to Pro forma Consolidated Financial Statements (Unaudited) (1) Pro forma Changes On December 29, 2005, the Company entered into an acquisition agreement to acquire 51% of Cnet Technology, Inc. (CNET), , a Cayman Islands company. This business combination was accounted for as an acquisition. The Company paid $1,000,000 in cash to complete this acquisition. The Pro forma statement of operations includes the year ended June 30, 2005 for the Company and December 31, 2004 for CNET. The Revenue and Cost of Sales amounts for CNET reflect the actual amounts recorded by CNET(Cayman). (2) Pro forma Adjustments a) 222,222 shares of restricted common stock of the Company were issued to Jasper Knabb, President of the Company, in exchange for $2,000,000, (or $9.00 per share), in cash. b) $1,000,000 in cash was paid to effect the acquisition. In addition the Company invested $1,000,000 for raw material to manufacture 8,000 units of Pegasus products. Consolidation: c) Eliminate investment in subsidiaries, the Company's retained deficit and common stock of subsidiaries. F-7 INDEX TO PRO FORMA FINANCIAL STATEMENTS Pro forma Consolidated Statements of Operations..............................F-9 Notes to Pro forma Consolidated Financial Statement........................F-10 F-8

The accompanying notes are an integral part of the pro-forma financial statements F-9 PEGASUS WIRELESS CORP. Notes to Pro forma Consolidated Financial Statements (Unaudited) (1) Pro forma Changes On December 29, 2005, the Company entered into an acquisition agreement to acquire 51% of Cnet Technology, Inc. (CNET), , a Cayman Islands company. This business combination was accounted for as an acquisition. The Company paid $1,000,000 in cash to complete this acquisition. The Pro forma statement of operations includes the three months for the Company and nine months for CNET ended September 30, 2005. The Revenue and Cost of Sales amounts for CNET reflect what those amounts would have been had Pegasus acquired CNET on 01/01/05 and changed the accounting of CNET to the methodology that is being implemented effective 01/01/06. (2) Pro forma Adjustments a) 222,222 shares of restricted common stock of the Company were issued to Jasper Knabb, President of the Company, in exchange for $2,000,000, (or $9.00 per share), in cash. b) $1,000,000 in cash was paid to effect the acquisition. In addition the Company invested $1,000,000 for raw material to manufacture 8,000 units of Pegasus products. Consolidation: c) Eliminate investment in subsidiaries, the Company's retained deficit and common stock of subsidiaries. F-10 INDEX TO PRO FORMA FINANCIAL STATEMENTS Pro forma Consolidated Statements of Operations.............................F-12 Notes to Pro forma Consolidated Financial Statement........................F-13

The accompanying notes are an integral part of the pro-forma financial statements F-12 PEGASUS WIRELESS CORP. Notes to Pro forma Consolidated Financial Statements (Unaudited) (1) Pro forma Changes On December 29, 2005, the Company entered into an acquisition agreement to acquire 51% of Cnet Technology, Inc. (CNET), , a Cayman Islands company. This business combination was accounted for as an acquisition. The Company paid $1,000,000 in cash to complete this acquisition. The Pro forma statement of operations includes the year ended June 30, 2005 for the Company and December 31, 2004 for CNET. The Revenue and Cost of Sales amounts for CNET reflect what those amounts would have been had Pegasus acquired CNET on 01/01/04 and changed the accounting of CNET to the methodology that is being implemented effective 01/01/06. (2) Pro forma Adjustments a) 222,222 shares of restricted common stock of the Company were issued to Jasper Knabb, President of the Company, in exchange for $2,000,000, (or $9.00 per share), in cash. b) $1,000,000 in cash was paid to effect the acquisition. In addition the Company invested $1,000,000 for raw material to manufacture 8,000 units of Pegasus products. Consolidation: c) Eliminate investment in subsidiaries, the Company's retained deficit and common stock of subsidiaries. F-13

PEGASUS WIRELESS CORP 8-K