UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549





FORM
      10-KSB





(Mark
      One)





x ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934




For
      the
      fiscal year ended December 31, 2006




OR





o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT
      OF 1934





For
      the
      transition period from _________ to _________





Commission
      File Number: 0-23532





GLOBETEL
      COMMUNICATIONS CORP.


(Name
      of
      small business issuer in its charter)


Delaware
              
              88-0292161(State
                  or other jurisdiction of incorporation)
              
              (I.R.S.
                  Employer Identification No.)




101
      NE
      3 rd Ave,
      Suite 1500, Fort Lauderdale, Florida 33301


(Address
      of Principal Executive Offices) (Zip Code)





Issuer's
      telephone number: (954) 332-3759





Securities
      registered under Section 12 (b) of the Exchange Act:


Title
                  of each class
              Name
                  of exchange on which
                  registered





Securities
      registered pursuant to Section 12 (g) of the Exchange Act: Common Stock Par
      Value $.00001 per share




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. o No: x





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will
      not be contained, to the best of registrant's knowledge, in definite proxy
      or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K. o





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





State
      issuer's revenues for its most recent fiscal year ended December 31, 2006:
      $37,808.





As
      of
      July 1, 2008, there were 146,198,784 shares of the issuer's common stock issued
      and outstanding. Affiliates of the issuer own 1,851,111 shares of the issuer's
      issued and outstanding common stock and the remaining 144,347,673 shares are
      held by non-affiliates. The aggregate market value of the shares held by
      non-affiliates at July 1, 2008 was $13,279,986.









DOCUMENTS
      INCORPORATED BY REFERENCE:




There
      are
      documents incorporated by reference in this Annual Report on Form 10-KSB, which
      are identified in Part III, Item 13.





Transitional
      Small Business Disclosure Format (Check one): Yes o No x





(*)
      Affiliates for the purposes of this Annual Report refer to the officers,
      directors of the issuer and subsidiaries and/or persons or firms owning 5%
      or
      more of issuer's common stock, both of record and beneficially.










**TABLE
      OF CONTENTS**





PART
                IItem
                1. Description of Business
            
            5Item
                2. Description of Property
            
            11Item
                3. Legal Proceedings
            
            12Item
                4. Submission of Matters to a Vote of Security Holders
            
            15PART
                IIItem
                5. Market for Common Equity and Related Stockholder
                Matters
            
            16Item
                6. Management's Discussion and Analysis or Plan of
                Operation
            
            18Item
                7. Financial Statements and Supplementary Data
            
            24Item
                8. Changes In and Disagreements With Accountants on Accounting and
                Financial Disclosure
            
            64Item
                8a. Controls and Procedures
            
            65Item
                8b. Other Information
            
            66PART
                IIIItem
                9. Directors and Executive Officers, Promoters and Control
                Persons
            
            67Item
                10. Executive Compensation
            
            70Item
                11. Security Ownership of Certain Beneficial Owners and Management
                and
                Related Stockholder Matters
            
            74Item
                12. Certain Relationships and Related Transactions
            
            74Item
                13. Principal Accountant Fees and Services
            
            74Item
                14. Exhibits and Financial Statement Schedules
            
            75





3





**PART
      I**





**Forward-Looking
      Statements and Risk Factors**





Certain
      information included in this Form 10-KSB and other materials filed or to be
      filed by GlobeTel Communications Corp. ("GlobeTel," the “Company”, "we", "us" or
      "ours") with the Securities and Exchange Commission (as well as information
      included in oral or written statements made from time to time by us, may contain
      forward-looking statements about our current and expected performance trends,
      business plans, goals and objectives, expectations, intentions, assumptions
      and
      statements concerning other matters that are not historical facts. These
      statements may be contained in our filings with the Securities and Exchange
      Commission, in our press releases, in other written communications, and in
      oral
      statements made by or with the approval of one of our authorized officers.
      Words
      or phrases such as "believe", "plan", "will likely result", "expect", "intend",
      "will continue", "is anticipated", "estimate", "project", "may", "could",
      "would", "should" and similar expressions are intended to identify
      forward-looking statements. These statements, and any other statements that
      are
      not historical facts, are forward-looking statements.





Those
      statements include statements regarding our intent, belief or current
      expectations, and those of our officers and directors and the officers and
      directors of our subsidiaries as well as the assumptions on which such
      statements are based. Prospective investors are cautioned that any such
      forward-looking statements are not guarantees of future performance and involve
      risks and uncertainties, and that actual results and the timing of certain
      events may differ materially from those contemplated by such forward-looking
      statements.





We
      are
      filing the following summary to identify important factors, risks and
      uncertainties that could cause our actual results to differ materially from
      those projected in forward-looking statements made by us, or on our behalf.
      These cautionary statements are to be used as a reference in connection with
      any
      forward-looking statements. The factors, risks and uncertainties identified
      in
      these cautionary statements are in addition to those contained in any other
      cautionary statements, written or oral, which may be made or otherwise addressed
      in connection with a forward-looking statement or contained in any of our
      subsequent filings with the Securities and Exchange Commission. Because of
      these
      factors, risks and uncertainties, we caution against placing undue reliance
      on
      forward-looking statements. Although we believe that the assumptions underlying
      forward-looking statements are reasonable, any of the assumptions could be
      incorrect, and there can be no assurance that forward-looking statements will
      prove to be accurate. Forward-looking statements speak only as of the date
      on
      which they are made. We do not undertake any obligation to modify or revise
      any
      forward-looking statement to take into account or otherwise reflect subsequent
      events, or circumstances arising after the date that the forward-looking
      statement was made.





The
      following risk factors may affect our operating results and the environment
      within which we conduct our business. If our projections and estimates regarding
      these factors differ materially from what actually occurs, our actual results
      could vary significantly from any results expressed or implied by
      forward-looking statements. These risk factors include, but are not limited
      to,
      changes in general economic, demographic, geopolitical or public safety
      conditions which affect consumer behavior and spending, including the armed
      conflict in Iraq or other potential countries; increasing competition in the
      VoIP segment of the telecommunications industry; adverse Internet conditions
      which impact customer traffic on our Company's networks in general and which
      cause the temporary underutilization of available bandwidth; various factors
      which increase the cost to develop and/or affect the number and timing of the
      openings of new networks, including factors under the influence and control
      of
      government agencies and others; fluctuations in the availability and/or cost
      of
      local minutes or other resources necessary to successfully operate our Company's
      networks; our Company's ability to raise prices sufficiently to offset cost
      increases, including increased costs for local minutes; the feasibility and
      commercial viability of our Stratellite project; related contemplated funding
      from third parties to finance the project, and necessary cooperation with
      various military and non-military agencies of the United States government,
      and
      similar agencies of foreign government and telecommunication companies; depth
      of
      management and technical expertise and source of intellectual and technological
      resources; adverse publicity about us and our networks; our current dependence
      on affiliates in our overseas markets; relations between our Company and its
      employees; legal claims and litigation against the Company; including the
      recently commenced SEC investigation; the availability, amount, type, and cost
      of capital for the Company and the deployment of such capital, including the
      amounts of planned capital expenditures; changes in, or any failure to comply
      with, governmental regulations; the amount of, and any changes to, tax rates
      and
      the success of various initiatives to minimize taxes; and other risks and
      uncertainties referenced in this Annual Report on Form 10-K. This statement,
      and
      any other statements that are not historical facts, are forward-looking
      statements.





This
      annual report also contains certain estimates and plans related to the
      telecommunications industry in which we operate. The estimates and plans assume
      that certain events, trends and activities will occur, of which there can be
      no
      assurance. In particular, we do not know what level of growth will exist, if
      any, in the telecommunications industry, and particularly in those domestic
      and
      international markets in which we operate. Our growth will be dependent upon
      our
      ability to compete with larger telecommunications companies, and such factors
      as
      our ability to collect on our receivables and to generate profitable revenues
      from operations and/or from the sale of debt or equity securities, of which
      there can be no assurance. If our assumptions are wrong about any events, trends
      and activities, then our estimates for the future growth of GlobeTel and our
      consolidated business operations may also be wrong. There can be no assurance
      that any of our estimates as to our business growth will be
      achieved.




4




**ITEM
      1. DESCRIPTION OF BUSINESS**





**General**





GlobeTel
      Communications Corp. ("Globetel", “we”, “us”, or the “Company”), a Delaware
      corporation established in July 2002, is engaged in the business of airships
      and
      telecommunications delivery systems. GlobeTel operates business units in the
      sale of Internet telephony using Voice over Internet Protocol ("VoIP")
      technology and equipment, and wireless communications both domestically and
      internationally. In addition, we are developing high-altitude airships called
      Stratellites that will be used to provide wireless voice, video, and data
      services.





**Reverse
      Stock Split**





GlobeTel
      is authorized to issue up to 250,000,000 shares of Common Stock, par value
      $0.00001 per share, (subsequent to a 15-for-1 reverse stock split on May 23,
      2005 and subsequent to an increase in the authorized shares from 150,000,000
      to
      250,000,000 at the shareholder meeting on June 21, 2006) and 10,000,000 shares
      of Preferred Stock, par value $0.001. The post split share calculation will
      be
      used throughout this document, unless noted. 760,000 shares of Preferred Stock
      has been allocated into different series of issuance and the remaining 9,240,000
      shares is a so-called "blank check" preferred, meaning that its terms such
      as
      dividends, liquidation and other preferences, are to be fixed by our Board
      of
      Directors at the time of issuance. The dividends, liquidation rights and other
      preferences for each class of Preferred Stock are explained in Item 7, Financial
      Statements, Note 20.





**Recent
      Developments**





On
      October 5, 2007,
      GlobeTel received a "Wells Notice"
      from the Securities and Exchange Commission (the "SEC") in connection with
      the
      SEC’s ongoing investigation of the Company. The Wells Notice provides
      notification that the staff of the SEC intends to recommend to the Commission
      that it bring a civil action against the Company for possible violations of
      the
      securities laws including violations of Sections 5 and 17(a) of the Securities
      Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B) of the Securities
      Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11,
      and 13a-13 thereunder; and seeking as relief a permanent injunction, civil
      penalties, and disgorgement with prejudgment interest.  The staff is also
      considering recommending that the SEC authorize and institute proceedings to
      revoke the registration of Company’s securities pursuant to Section 12(j) of the
      Exchange Act.





On
      November 26, 2007 the SEC announced that it had filed a civil lawsuit against
      two former employees of GlobeTel alleging that Joseph J. Monterosso, former
      Chief Operating Officer of GlobeTel and former president of the Company’s
      Centerline Communications Subsidiary, and Luis Vargas, an employee of
      Centerline, engaged in a scheme to create $119 million in revenue that was
      subsequently reported on the Company’s financial statements as filed with the
      Commission. *Securities
      and Exchange Commission v. Joseph J. Monterosso and Luis E.
      Vargas* , Civil
      Action No. 07-61693 (S.D. Fla., filed on November 21, 2007).





On
      May 1,
      2008 the SEC filed a lawsuit (the “complaint”) against GlobeTel and three of the
      company's former officers ( *Securities
      and Exchange Commission v. GlobeTel Communications Corp., Timothy J. Huff,
      Thomas Y. Jimenez and Lawrence E. Lynch* ,
      Case
      No. 08-CV-60647 (S.D. Fla., filed May 1, 2008).  The complaint filed
      represents decisions and actions taken by GlobeTel's management team during
      the
      company's operations covering 2004-2006.  Specifically the complaint
      concerns former CEO Timothy Huff, former COO and CFO Larry  Lynch, and
      former CFO Thomas Jimenez.  The complaint reiterates that former officer
      Joseph Monterosso and former employee Louis Vargas conspired to and carried
      out
      a scheme to fraudulently cause the company to report 119 million dollars in
      nonexistent revenue. The company no longer has any relationship with those
      individuals.  As a result of the alleged schemes and actions of the
      previous management mentioned in the complaint, the company is diligently
      working to come into compliance with all relevant regulations.  The company
      has formally exited all businesses associated with the alleged schemes and
      continues to operate under new management with the goal of completing the
      restructuring of the company and focusing all its efforts on new opportunities
      in the aerospace sector.





The
      Company has filed amendments to its annual reports on Form 10-K and 10-KSB
      for
      the years ending December 31, 2005, and December 31, 2004, respectively,
      restating its financial statements for these periods.




**Background**





We
      were
      previously a wholly-owned subsidiary of American Diversified Group, Inc.
      (“ADGI”). At a special meeting of stockholders of ADGI held on July 24, 2002,
      the stockholders of ADGI approved a plan (the "Plan") for the exchange of all
      outstanding shares of ADGI for an equal number of shares of
      GlobeTel.





ADGI
      was
      incorporated under the laws of the State of Nevada as Terra West Homes, Inc.
      on
      January 16, 1979. On March 15, 1995, its name was changed to "American
      Diversified Group, Inc." During the period ended July 24, 2002, ADGI's business
      activities included (i) sale of telecommunication services primarily involving
      Internet telephony using VoIP through its Global Transmedia Communications
      Corporation subsidiary ("Global"), and (ii) wide area network and local area
      network services provided through its NCI Telecom, Inc. subsidiary
      ("NCI").





5




Global
      was acquired by ADGI on February 19, 2000, and NCI was acquired on June 29,
      2000. During 2002, Global and NCI were merged with and into ADGI, with ADGI
      as
      the surviving corporation.





When
      ADGI
      exchanged all of its outstanding shares of common stock for GlobeTel common
      stock, ADGI became a wholly-owned subsidiary of GlobeTel and GlobeTel began
      conducting the business formerly conducted by ADGI.





We
      have a
      99% ownership of GTCC de Mexico, S.A. de C.V., a Mexican company established
      to
      represent our interests in Mexico. The remaining 1% is owned by the Company's
      Mexican lawyer who is representing the Company in all matters of the operations
      in Mexico. GTCC de Mexico is utilized in connection with our operations in
      Mexico including No Mas Cables de Mexico S.A. de CV.




In
      2004,
      we formed wholly-owned subsidiaries: Sanswire, LLC (“Sanswire-FL”) for our
      Stratellite project; and Centerline Communications, LLC, (“Centerline” or “CLC”)
      and its wholly-owned subsidiaries, EQ8, LLC, G Link Solutions, LLC, Volta
      Communications, LLC, and Lonestar Communications, LLC for the purpose of the
      recording and managing the sale of wholesale minutes and related network
      management functions. We have since closed Centerline and its
      subsidiaries.





In
      2004,
      we acquired a 73.15% interest in Consolidated Global Investments, Ltd. (“CGI”),
      formerly known as Advantage Telecommunications, Ltd. (“ATC”), an Australian
      company. CGI was to be utilized in the carrier sales sector of our business
      and
      was later to be a licensee of the Sanswire Networks, LLC in Australia. However,
      we have since sold our shares in CGI back to the Company and no longer have
      any
      interest in CGI. Certain shares of GlobeTel acquired by CGI were sold by CGI.
      The Securities and Exchange Commission has questioned the validity of the
      exemption used for the sale of such shares as more fully discussed below in
      Item
      3 “Legal Proceedings.”





**Business
      of GlobeTel**





We
      are a
      communications company with a range of services, product lines, and projects
      as
      described below. Our core products and services are: wireless broadband
      networks, IP Telephony (“VoIP” or “Voice over Internet Protocol”), and lighter
      than air (“LTA”) unmanned aerial vehicles (“UAVs”) for use in communications and
      other applications.





From
      time
      to time, we embark on certain services, product lines and projects and enter
      into certain contractual and non-contractual relationships, which we may
      subsequently deem unfeasible, impractical, cost prohibitive or otherwise
      incompatible with our overall business plans. In such cases, we disclose the
      initial intent and anticipated result of the applicable service, product,
      project or relationship. We further disclose the current status of each project
      and current and/or contemplated changes resulting from the factors mentioned
      above.





**International
      Wholesale Carrier Traffic**





The
      business of International Wholesale Carrier traffic is a business whereby we
      bought and sold large blocks of calling minutes with particular origination
      and
      termination points. In some instances, we would enter into agreements with
      established international telephone carriers to deliver international calls
      into
      their domestic telephone networks for termination to the parties being called.
      Additionally we purchased a bulk package of minutes to specific destinations
      and
      resold these minutes in smaller quantities to individual and business customers.
      In most instances, our customers prepaid for these minutes or posted letters
      of
      credit with our bank, securing their purchases. Beginning in July 2004, we
      began
      to migrate these operations from GlobeTel, the parent company, to our
      subsidiary, Centerline and its subsidiaries. The migration was completed in
      the
      beginning of September 2004.





In
      2007,
      the Centerline business was wound down and the Company has liquidated most
      of
      the Centerline assets. Additionally, certain revenues reported by Centerline
      are
      being restated and are the subject of an investigation by the Securities and
      Exchange Commission. The Commission believes that certain former officers and
      employees of the Company improperly recognized revenue from carrier traffic
      that
      ran off third party telecommunications switches, and created false invoices
      with
      regard to such revenue.





**Networks**





To
      provide the above described services we interconnected with licensed carriers
      in
      each country we desired to provide calling services. In some countries, we
      placed electronic equipment called a "hub" on the carrier's premises and then
      interconnected with their local network. In other countries, we would connect
      directly to the carrier's hub, which was connected to the local telephone
      network in that country. Historically, we maintained hubs in Miami, Los Angeles,
      Monterrey Mexico, Sao Paulo, Brazil and Hong Kong. When we would establish
      service to a new country and traffic volume was relatively low, we created
      a
      "virtual" network connection between the two hubs. Virtual networks have been
      described as "tunnels" through the Internet.





In
      line
      with the Company’s strategy to close down the Centerline business, all Virtual
      Networks were also shut down.




6


**Internet
      Telephony**





Since
      our
      launch of the MagicPhone in May of 2004, we expanded and upgraded our Internet
      Telephony product line. Our original MagicPhone product and program, which
      was
      based on the SIP protocol was being sold primarily in the Mexican market. Along
      with the MagicPhone launch, we continued product development and upgraded the
      system based on new open source standards that better serve the needs of both
      residential and business consumers. It also opened up many markets that the
      older technology could not reach. Our new MagicPhone was "plug and play" and
      provides the user with enhanced features such as conference calling, call
      forwarding, emergency services, voice mail and multiple lines.





We
      targeted the Mexican, Latin American and Eastern European markets for the
      continued rollout of this product.





The
      MagicPhone line was replaced by the StrateVoIP system in 2006 which uses the
      SIP
      protocol and industry standard Linksys PAPs. StrateVoIP launched services aimed
      at the Brazilian market with its VozBrasil and iLigue products. The StrateVoIP
      system also underlies the Company’s wireless broadband offerings. The Company is
      no longer actively promoting or supporting the VozBrasil and iLigue services,
      though the underlying StrateVoIP platform remains in use.





**Enhanced
      Services - PrePaid Calling Services**





Our
      Enhanced Services use proprietary software that operated on our switch
      interconnected with various customer networks. PrePaid Calling Services are
      the
      most widely used Enhanced Service. Our Prepaid Calling Services allowed carrier
      customers and reseller customers to sell their own branded prepaid calling
      cards
      in their markets and allows their customers to make both domestic and
      international calls.





We
      focused on prepaid calling services and outsourcing the use of our Enhanced
      Services switch. We were a provider and enabler of these services having
      expanded our market from telephone companies and prepaid calling card resellers
      to financial institutions who wish to create new revenue sources from their
      existing bank card customer base by introducing new value added services to
      their bank cards.





These
      enhanced services were part of the Stored Value assets, further discussed below,
      which were part of an agreement with Gotham Financial Services (“Gotham”). On
      November 3, 2006, GlobeTel Communications Corp. entered into an agreement
      regarding the stored value card assets that was also known as the Magic Money
      program, to Gotham. Under terms of the agreement, Gotham acquired substantially
      all of the assets, which include the stored value program, financial processing
      switch and contracts totaling $5,279,567, and assumed the liabilities of
      associated with the program including certain employees and leased office space
      totaling $57,500, but due to the lack of consideration received, no sale has
      been recorded and the assets were instead impaired.





The
      agreement calls for the payment, over a 3 to 6 year period, of $3,250,000 with
      additional clauses that could bring the total to $4,000,000. The length of
      the
      payment period depends upon Gotham making certain minimum payments. Revenues
      earned by GlobeTel will be based on the successful rollout of the platform
      by
      Gotham and on user fees following a formula that considers the total number
      of
      transactions on a Stored Value card and use of the card at any ATM,
      Point-of-Sale (POS) or other transaction, under closed and committed contracts
      GlobeTel had at the time of sale, and the number of transactions utilizing
      the
      Financial Processing Switch. As of the date of this report, no payments have
      been received in relation to this agreement. In the event the Company does
      receive future payments, it will record the payments as income at the time
      they
      are received.





**Stored
      Value Services**





In
      late
      2003, we began offering new products and services which we call the MagicMoney
      program. The features of the MagicMoney program allowed telecommunications
      companies and financial institutions worldwide to add true stored value services
      to their existing products and create new products. MagicMoney stored value
      services included: prepaid long distance and international calling services,
      debit card "electronic bank accounts" and funds sharing services.





We
      developed the MagicMoney program as a stored value product to sell into specific
      ethnic communities around the world so that Overseas Foreign Workers remain
      connected with their family members and friends in their country of origin.
      Some
      of the features that made our product unique were the combination of such stored
      value services as inexpensive prepaid calling services, funds sharing between
      linked cardholders, electronic banking services and a full complement of debit
      card services that were offered anywhere the Maestro and Cirrus logos are found,
      which covers between 5 - 8 million merchants and approximately 1 million ATMs
      around the world.





7





Our
      programs were geared towards Latin American, Filipino and Asian markets, linking
      their overseas family members to home. One of our key goals was to tap into
      the
      multi-billion dollar money remittance market while providing all of the other
      financial and non-financial services not commonly available to these ethnic
      groups.





We
      were
      widely recognized as "an enabler" of ground-breaking stored value applications
      and technology. Our suite of stored value applications aided firms with existing
      card programs and brought them flexibility to add ancillary services to their
      cards. These ancillary services helped firms
      create new profit centers from products, drive new value added benefits for
      existing cardholders and create new marketing vehicles for firms to attract
      new
      cardholders and grow their businesses. These new stored value technology based
      solutions further defined our paradigm shift.





We
      have
      developed a wireless access application to enable the cardholders in the United
      States to access all of the stored value features and functionally via their
      mobile phones using SMS technology.





The
      following 2 Stored Value Service Agreements & Programs were transferred to
      Gotham Financial as part of an agreement involving the MagicMoney program in
      November 2006.





**Englewood
      Agreement**





In
      May of
      2004, we signed a joint venture agreement with Englewood Corporation
      (“Englewood”) whereby Englewood would provide all of its current and future
      business opportunities to GlobeTel. This included carrier customers, carrier
      termination networks, stored value products and services and value added ATM,
      debit and credit card products for both financial and non financial products
      and
      services and the processing capabilities for such transactions on ATM/debit
      card
      networks including but not limited to MasterCard Inc, MasterCard International,
      VISA and private banking ATM networks. This was transferred to Gotham as part
      of
      an agreement involving the Stored Value assets.





**Processing
      Switch Agreement**





In
      August
      2004, through Englewood, we entered into an agreement to join with Grupo
      Ingedigit C.A. ("GI"), a certified MasterCard third party transaction processor
      and the leading electronic financial transactions services backbone provider
      for
      the banking industry in Venezuela, establishing a new venture in Miami, Florida
      providing domestic and worldwide financial transaction processing services.
      This
      domestic venture combined with GI's current international processing
      capabilities will support on its own network all the Magic Money and other
      private label GlobeTel stored value card programs around the world, as well
      as
      other third party cards. Both parties were to contribute equally to the
      operation of the Miami switch. The switch was expected to be certified to
      process MasterCard, Visa, Cirrus, and other independent ATM network
      transactions. Operations were expected to begin by the third quarter of 2005.
      The switch was to be installed and integrated by Englewood; however the Switch
      was included in an agreement with Gotham Financial involving the Stored Value
      assets in November 2006.





**HotZone
      Wireless**





In
      September 2004, the Company entered into an independent contractor agreement
      with Hotzone Wireless, LLC (“HotZone”), a service provider for
      consulting/engineering services related to the Sanswire Stratellite project.
      The
      non-exclusive service provider provided engineering / consulting services,
      transmission equipment, and installation and testing of equipment. The term
      of
      the agreement was for six (6) months and was automatically renewable for
      additional one (1) year terms after the initial term unless terminated by either
      party. As initial compensation, the Company paid the service provider $10,000
      per month. This agreement was terminated during fiscal year 2005.





On
      June
      2, 2005, the Company entered into an agreement to acquire assets of HotZone
      Wireless LLC and its principal owner, Ulrich Altvater, who was also HotZone
      Wireless’ principal engineer. Upon the acquisition, Mr. Altvater became
      President of GlobeTel Wireless Corp., a wholly-owned subsidiary of GlobeTel.
      The
      acquisition transaction, which closed during the three months ended September
      30, 2005, was paid with $27,000 cash and provides for a total of 2 million
      (post
      split) shares of the Company's common stock to be issued in increments of
      666,667 shares on each of the first, second, and third anniversary dates of
      the
      agreement, assuming that certain milestones are achieved. The first milestone
      was achieved for 2005, and accordingly, 666,667 shares were issued during fiscal
      year 2006. The remainder of the shares were issued in 2007.





Mr.
      Altvater subsequently left the Company and the Company entered into a consulting
      agreement with him to continue to provide technical support and manufacturing
      to
      the Company. That agreement was terminated in May 2007 and the Company has
      filed
      an action for the return of certain property held by Altvater pursuant to the
      consulting agreement. The Company and Altvater are currently in negotiations
      to
      resolve the outstanding matters between the parties.




8





The
      Company has installed a HotZone based wireless network in and around Pachuca,
      Mexico, northwest of Mexico City. At this time, the Company cannot determine
      whether or not this venture will be successful in its current form. The joint
      venture, No Mas Cables de Mexico, SA de CV provides coverage to approximately
      8,000 housing units, but penetration of the service has been lower than
      expected. With our partners, VPN de Mexico sa de cv, we are exploring how to
      increase market penetration and which other markets would benefit from the
      services offered.





**Sanswire
      Networks LLC**





Sanswire
      is developing a Wireless Broadband Network utilizing high-altitude airships
      called Stratellites that will be used to provide wireless voice, video, and
      data
      services. These Stratellites will form strategic nodes for the Super Hub(TM)
      Network. A Stratellite is similar to a satellite, but is stationed in the
      stratosphere rather than in orbit. At an altitude of only 13 miles, each
      Stratellite will have clear line-of-site to an entire major metropolitan area
      and should allow subscribers to easily communicate in "both directions" using
      readily available wireless devices. Each Stratellite will be powered by a series
      of solar powered hybrid electric motors and other state-of-the-art energy
      storage technologies.




In
      addition to Sanswire's Wireless Broadband Network, proposed telecommunications
      uses include cellular, 3G/4G mobile, MMDS, paging, fixed wireless telephony,
      HDTV and others.





The
      Stratellite is being designed and tested to operate at an altitude of between
      55,000 and 65,000 feet using GPS coordinates to achieve its on-station position.
      Tests of the Stratellite and its systems began in the second quarter of
      2005.





In
      December 2006, Sanswire demonstrated the Sanswire 2A Technology Demonstrator
      that opened a new area of service for the Company: low and mid-altitude
      airships. In 2007, Sanswire introduced the SAS-51, a low altitude airship.
      This
      airship been designed to address the growing military and defense markets;
      providing integrated solutions for Homeland Security, Border Control and
      persistent surveillance. These airships will supplement the high-altitude
      airship, Stratellites that can be used to provide wireless voice, video, and
      data services.





In
      September 2007, GlobeTel entered into letter of intent with TAO Technologies
      GmbH, a German company specializing in the design of remotely operated airships.
      GlobeTel had been working with TAO since 2005. Pursuant to the letter of intent
      GlobeTel will purchase 50% of TAO, and TAO will be renamed Sanswire-TAO GmbH.
      The Company will be focused on the design, development and production of
      unmanned aerial vehicles. It is expected that Sanswire-TAO will be based chiefly
      in Stuttgart. The acquisition of 50% of TAO follows the October 2005 development
      agreement between Sanswire and TAO that resulted in the construction and testing
      of the Sanswire 2A.





The
      letter of intent calls for TAO and GlobeTel/Sanswire to share sales and
      marketing rights of various aerial vehicles developed and currently owned by
      TAO. Additionally, upon closing of definitive agreements, TAO will grant to
      Sanswire-TAO the respective patents and intellectual property rights covering
      the products, including the AirChain segmented airship.





In
      November 2007, the Company entered into a Licensing and Technical Cooperation
      Agreement with TAO. TAO granted to Globetel an exclusive license for the
      territories of the US, Canada, Mexico and Chile for the marketing and
      distribution of airships based upon the technologies patented and developed
      by
      TAO. TAO will also provide testing and engineering support for the development
      of airships to meet the criteria required by Sanswire customers. GlobeTel is
      obligated to provide TAO with engineering orders of at least $1,000,000 per
      year
      and certain cash and stock payments on a quarterly basis.





Since
      the
      signing of the agreements, Sanswire and TAO have performed several airship
      tests
      in Germany.





**Competitive
      Business Conditions - Telecommunications Services**





The
      telecommunications industry is highly competitive, rapidly evolving and subject
      to constant technological change and to intense marketing by different providers
      of functionally similar services. Since there are few, if any, substantial
      barriers to entry, except in those markets that have not been subject to
      governmental deregulation, we expect that new competitors are likely to enter
      our markets. Most, if not all, of our competitors are significantly larger
      and
      have substantially greater market presence and longer operating history as
      well
      as greater financial, technical, operational, marketing, personnel and other
      resources than we do. Due to these competitive conditions and the high cost
      of
      capital associated with running the business, the Company has decided to shut
      down its telecommunications operations.




9





**Competitive
      Business Conditions - Sanswire Project**





We
      are
      aware of other companies that are also developing high altitude platforms
      similar in nature to our Stratellite project. Our competitors, though, may
      have
      more resources available to develop their respective products. Furthermore,
      since the Sky Sat and Stratellite project are currently in the development
      stage, there can be no assurance that the project will successfully complete
      the
      development stage and result in a commercially viable product. Even if a
      properly functioning, commercially viable product is established there can
      be no
      assurance that revenues will be achieved from the sales of Stratellites or
      other
      airships or that the costs to produce such revenues will not exceed the revenues
      or that the project will otherwise be profitable. There can be no assurance
      that
      we will be able to successfully achieve the results we anticipate with this
      project.





**Sources
      and Availability of Hardware and Software**





GlobeTel
      has developed in-house proprietary software for network applications and stored
      value products. We are dependent upon many suppliers of hardware and software.
      However we use equipment from prime manufacturers of equipment including Cisco,
      Motorola, SUN, HP and Newbridge Networks, among others. Equipment for the
      Stratellite, SAS-51 and the prototypes thereof are custom made for those
      products and are dependent upon either single or limited number of suppliers
      for
      certain goods. Failure of a supplier could cause significant delays in delivery
      of the airships if another supplier cannot be promptly found .





**Sources
      and Availability of Technical Knowledge and Component
      Parts**





The
      Sanswire project requires a high level of technological knowledge and adequately
      functioning component parts and sub-assemblies to continue the project and
      achieve commercial viability. We have current and contemplated arrangements
      for
      supply of both internal and external technical knowledge to provide the
      intellectual capital to continue with this project. Specifically, there is
      a
      high level of interest and anticipated cooperation from technical experts within
      the government, military, and commercial sectors. Similarly, we have current
      and
      contemplated arrangements for supply required component parts, both internally
      developed, as well as, outsourced from specialty contractors to provide
      component parts to continue with this project in the near term.





**Dependence
      on a Few Customers**





As
      discussed below in Item 6, Management Discussion and Analysis and Plan of
      Operation, we are currently dependent on a limited number of customers. As
      we
      expand our products, services, and markets, we expect to substantially broaden
      our customer base and reduce our dependence upon just a few customers. However,
      there is no guarantee that we will be able to broaden our customer
      base.





**Trademarks**





We
      have
      filed for registration of the names "Stratellite" and "Sanswire" under the
      Madrid Protocol and in many non-Madrid Protocol countries.





We
      intend
      to file for patents covering unique design and intellectual property covering
      the design and engineering of the Stratellite, but will wait until these are
      finalized. We have additionally entered into an agreement with TAO Technologies
      GmbH, with whom Sanswire has collaborated since 2005. This agreement provides
      exclusive licensing rights for TAO’s airship technologies and allows Sanswire to
      register the TAO patents in the United States.





**Regulatory
      Matters**





Carriers
      seeking to provide international telecommunication services are required by
      Section 214 of the Telecommunications Act to obtain authorization from the
      Federal Communications Commission to provide those services. We applied for
      and
      obtained the required authorization.





Our
      operations in foreign countries must comply with applicable local laws in each
      country we serve. The communications carrier with which we associate in each
      country is licensed to handle international call traffic, and takes
      responsibility for all local law compliance. For that reason we do not believe
      that compliance with foreign laws will affect our operations or require us
      to
      incur any significant expense.





The
      export of the Stratellite or SkySat may be subject to United States State
      Department restrictions on the transfer of technology. We are currently
      investigating whether or not the export of the Sanswire products would require
      export licenses and how the production of these vehicles in Germany through
      our
      agreement with TAO Technologies, GmbH would impact this.




10





During
      2007, Globetel and its subsidiaries incurred payroll tax liability during the
      normal course of business at each payroll cycle. The Company submitted certain
      withholding tax payments during the first quarter through a payroll processor,
      ADP. Subsequent thereto, the Company no longer processed its payroll through
      ADP. During this time, the Company did not file the appropriate tax forms or
      deposit the appropriate withholding amounts. The Company has recognized this
      issue and contacted the IRS accordingly to bring its filings up-to-date and
      pay
      any taxes due. The Company may be subject to penalties and interest from the
      IRS.





**IPW**





In
      May
      2002, the Company entered into a Network Purchase Agreement with IP World Ltd.,
      (IPW) an Australian corporation to build as many as five (5) networks to be
      located in different countries throughout the world. As payment for each network
      the Company agreed to accept 64 million shares of IPW stock, at an agreed-upon
      value of $ .10 (US) per share, in full payment of the promissory note for the
      Brazil and Philippines networks. The IPW shares were not listed for sale on
      the
      Australian Stock Exchange (ASX) or any other domestic or international
      securities exchange. At the time, the Company was informed that such listing
      was
      imminent, and the Company would be able to sell all or a portion of the IPW
      shares.





As
      of
      June 30, 2003, the Company had included in its current assets, $1,600,000 in
      non-readily marketable, available-for-sale equity securities, which represent
      16
      million shares of IP World (IPW) unrestricted stock, valued at $.10 per share,
      held in the Company's name and $4,301,500 in non-readily marketable, available
      for sale equity securities, due from a related party, Charterhouse, which
      represent 70 million shares of IPW restricted stock valued at $.06145 per share,
      held by Charterhouse on the Company's behalf.




As
      of
      September 30, 2003, IP World Ltd. was in liquidation and was no longer listed
      in
      the Australian Exchange. The Company then ceased transacting with IPW.
      Therefore, the Company expensed $4,301,500 in stock receivable as well as the
      $1,600,000 in stock it had in its name during the three months ended September
      30, 2003. As of December 31, 2004, the Company believed that the likelihood
      of
      recovering any such amounts is remote. Based upon the foregoing and the
      Company’s recent restatement of its 2004 and 2005 financial statements, the
      Company is evaluating whether such transactions should be presented differently
      on the Company’s financial statement with the potential effect of eliminating
      the loss from the Company’s net loss (without adding the same back to income).





**Effect
      of Existing or Probable Governmental Regulations**





In
      February 1997, the United States and approximately seventy (70) other countries
      of the World Trade Organization (“WTO”) signed an agreement committing to open
      their telecommunications markets to competition and foreign ownership beginning
      in January 1998. These countries account for approximately 90% of world
      telecommunications traffic. The WTO agreement provides us and all companies
      in
      our industry with significant opportunities to compete in markets where access
      was previously either denied or extremely limited. However, the right to offer
      telecommunications services is subject to governmental regulations and therefore
      our ability to establish ourselves in prospective markets is subject to the
      actions of the telecommunications authorities in each country. In the event
      that
      new regulations are adopted that limit the ability of companies such as
      ourselves to offer VoIP telephony services and other services, we could be
      materially adversely affected.





**Research
      and Development**





Research
      and development costs for 2006 and 2005 were $1,573,150 and $9,467,670,
      respectively for our Sanswire project. Since our acquisition of the Sanswire
      assets in April 2004, amounts of time and resources devoted to these businesses
      are expected to continue increasing in the near team as our Stratellite project
      continues and expands. We had additional research and development costs of
      $110,167 for 2006 and $26,553 in 2005 which were associated with our
      discontinued operations of Globetel Wireless.





**Number
      of Total Employees and Number of Full-Time Employees**





As
      of
      July 1, 2008 we have 7 full-time employees, including our executive officers
      and
      employees of our subsidiaries. We do not believe that we will have difficulty
      in
      hiring and retaining qualified individuals in the fields of Internet telephony
      and other communications projects although the market for skilled technical
      personnel is highly competitive.




**ITEM
      2. DESCRIPTION OF PROPERTY**





GlobeTel’s
      corporate offices are now located at 101 NE 3 rd Ave.,
      Suite 1500, Fort Lauderdale, FL 33301. Base rent is $2,000 per month plus the
      cost of services used by GlobeTel. The lease is for a period of 6
      months.




The
      Company previously leased office facilities at 9050 Pines Blvd., Suite 110,
      Pembroke Pines, Florida 33024, as of April 1, 2004. This lease will expire
      in
      June 2009, and had an initial monthly rent of $5,462. In November 2004, the
      Company leased additional adjacent space at the Pembroke Pines, Florida location
      under the same terms and period as the existing lease, bring the total monthly
      rent to $9,186.




11





In
      June
      2005, we negotiated with the landlord to lease an additional 5,000 square feet
      office on the second floor of our prior facility, 9050 Pines Blvd., Pembroke
      Pines, Florida 33024. The Company began occupancy of this office in April 2006
      and the lease expires in June 2009 with a monthly rent of $9,186 (including
      sales tax). GlobeTel vacated the premises in March 2006, having turned over
      the
      space to Gotham as part of the sale of the Stored Value assets to Gotham.
      However, there was unpaid rent due on both the first and second floor suites.
      In
      August 2007, the landlord received a judgment in the amount of $ 206,730.





GlobeTel
      formerly leased facilities at 444 Brickell Avenue, Suite 522, Miami, Florida
      33131. The Company was under a five-year lease expiring April 2005, with a
      monthly rent of $3,463. In January of 2005 the Company satisfied its lease
      obligation related to this office.




Until
      September 2007, the Company leased a 66,000 square foot space hanger in
      Palmdale, California. The initial lease, between Sanswire Networks, LLC and
      the
      City of Los Angeles World Airports, was for a term of three months, ended July
      22, 2005 with a monthly rent of $19,990. On June 8, 2005 the lease term was
      amended for fifteen months, commencing June 8, 2005 through September 7, 2006,
      with two one-year options. Concurrently with the signing of the amended lease,
      the parties entered into a reimbursement agreement to share the cost of certain
      improvements.





As
      of
      October 2007, Sanswire no longer occupies a hangar at Palmdale Regional Airport,
      the monthly cost of this space was $20,847. This facility was adjacent to the
      United States Air Force’s Plant 42 and Edwards Air Force Base. Sanswire
      constructed and tested Stratellite and Sky Sat prototypes at the facility.
      The
      hangar also included administrative office space. Sanswire is indebted to Los
      Angeles World Airports, the lessor of the hangar, in the amount of
      $161,761.





Sanswire
      Technologies, Inc., the company from which we purchased our Sanswire, LLC
      assets, had an office space lease in Dekalb County, GA. The lease term was
      from
      April 1, 2004 through March 31, 2005, with monthly rent of $2,628. Although
      not
      directly obligated on this lease, Globetel paid the monthly rent from May 2004
      through March 2005, whereas employees of our subsidiary, Sanswire, LLC, utilized
      the premises. The employees have since vacated the premises and the Company
      no
      longer occupies the space and is no longer obligated for any lease
      payments.




**ITEM
      3. LEGAL PROCEEDINGS**





Securities
      and Exchange Commission





In
      March
      2006 the Company received a request from the Securities and Exchange Commission
      (the “SEC”) regarding the purchase of Company shares by an administrative
      assistant around the time of a material corporate announcement. The SEC asked
      for information regarding the announcement and the assistant’s knowledge of the
      announcement. The SEC later informed the Company that it did not intend to
      proceed with its investigation into the assistant.





The
      Company received a formal order of investigation from the SEC on September
      28,
      2006. The formal order only named the Company and was not specific to any
      particular allegations. Through the use of subpoenas, the SEC has requested
      documentation from certain officers and directors of the Company. In subsequent
      subpoenas, the SEC has asked for additional documents and information.





On
      October 5, 2007, GlobeTel received a "Wells Notice" from the SEC in connection
      with the SEC’s ongoing investigation of the Company. The Wells Notice provides
      notification that the staff of the SEC intends to recommend to the Commission
      that it bring a civil action against the Company for possible violations of
      the
      securities laws including violations of Sections 5 and 17(a) of the Securities
      Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B) of the Securities
      Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11,
      and 13a-13 thereunder; and seeking as relief a permanent injunction, civil
      penalties, and disgorgement with prejudgment interest. The staff is also
      considering recommending that the SEC authorize and institute proceedings to
      revoke the registration of Company’s securities pursuant to Section 12(j) of the
      Exchange Act.





On
      May 2,
      2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the
      United States District Court for the Southern District of Florida against
      GlobeTel Communications Corp. (the “Company”) and three former officers of the
      Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC
      alleges, among other things, that the Company recorded $119 million in revenue
      on the basis of fraudulent invoices created by Joseph Monterosso and Luis
      Vargas, two individuals formerly employed by the Company who were in charge
      of
      its wholesale telecommunications business.





The
      SEC
      alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
      Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
      13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
      The SEC seeks as relief a permanent injunction, civil penalties, and
      disgorgement with prejudgment interest. The Company intends to vigorously defend
      itself in this action.




12





Joseph
      Monterosso





In
      October 2007 the Company filed a lawsuit in the Circuit Court for Broward
      County, Florida against Joseph J. Monterosso alleging Libel, Slander and
      Defamantion, Tortious Interference, Violations of FS § 836.05 (THREATS
      EXTORTION)  and violations of FS §517 (Securities Fraud). Mr.
      Monterosso has not yet been served with the complaint.





Wachovia
      v. GlobeTel





In
      connection with the operations of Globetel
      Wireless Europe GmbH and the
      acquisition of Altvater GmbH, the Company guaranteed a letter of credit in
      the
      amount of $600,000. Upon Globetel
      Wireless Europe GmbH ceasing
      operations, the letter of credit was drawn upon. The letter of credit was not
      collateralized. In September 2007, Wachovia filed a lawsuit in Broward County
      in
      an attempt to recover the amount through arbitration with the American
      Arbitration Association. The Company is reviewing the matter and has not made
      a
      determination as to its defenses or the validity of the claim.





Richard
      Stevens v. GlobeTel





The
      Company and its directors were sued in the case RICHARD STEVENS vs. GLOBETEL
      COMMUNICATIONS CORP., et al. Case No.: 06-cv 21071. The original allegations
      of
      the complaint were that the Company’s proposed transaction to build wireless
      networks in Russia was a sham. The amended complaint alleged that the
      transaction was not a sham, but that the Company refused to accept payment
      of
      $300 million. Recently, the officers and directors with the exception of Timothy
      Huff have been dismissed from the case.





The
      Company and the Plaintiff have reached a settlement in principle that has been
      filed with the Court for approval. Under the terms of the proposed settlement
      agreement in the class action, the Company’s D&O insurance carrier will make
      a cash payment to the class of $2,300,000, less up to $100,000 for potential
      counsel fees and expenses. All claims in the class action will be dismissed
      with
      prejudice. The US District Court for the Southern District of Florida has
      approved the final order on settlements reached in its pending securities class
      action and a shareholder derivative action on February 4, 2008.





Alexsam
      v. GlobeTel





In
      August, 2004, GlobeTel was sued in the United States District Court for the
      Eastern District of Texas, Marshall Division, in a civil action entitled Alexsam,
      Inc. v. FSV Payment Systems, Ltd. et al. , Civil
      Action No. 2-03CV-337 (“the Texas Lawsuit”). In this action, Alexsam alleged
      that GlobeTel infringed U.S. Patent No. 6,000,608, issued on December 14, 1999,
      entitled “Multifunction Card System”, and U.S. Patent No. 6,189,787, issued on
      February 20, 2001, entitled “Multifunctional Card System” (collectively referred
      to as “the Patents”). On October 8, 2004, GlobeTel filed a motion in the Texas
      Lawsuit to dismiss the entitled action. GlobeTel’s motion to dismiss was granted
      on January 14, 2005.





GlobeTel
      then took two actions against Alexsam. GlobeTel filed a motion in the Texas
      Lawsuit seeking to recover the attorneys’ fees and costs it incurred defending
      itself. GlobeTel also filed a Declaratory Judgment lawsuit against Alexsam,
      Inc.
      and Robert Dorf in the United States District Court for the Southern District
      of
      Florida, Ft. Lauderdale Division, in a civil action entitled GlobeTel
      Communications Corp. v. Alexsam, Inc. et al. , Civil
      Action No. 05-60201-CIV (“the Florida Lawsuit”). This lawsuit sought, among
      other things, a declaration that GlobeTel’s product and service offerings would
      not infringe the Patents.





Alexsam
      and GlobeTel subsequently settled their dispute in 2006. In exchange for
      granting a non-exclusive license to GlobeTel for the Patents, GlobeTel withdrew
      its motion for attorneys’ fees in the Texas Lawsuit and dismissed the Florida
      Lawsuit. The License Agreement was made and entered into in September 2005.
      The
      license taken by GlobeTel extends further to GlobeTel’s customers, bank
      partners, third party financial processors and cardholders, and all those in
      privity with any of them, but only to the extent those entities’ activities
      relate to GlobeTel and its license.





Derivative
      Action




On
      July
      10, 2006 a derivative action was filed against the officers and directors of
      GlobeTel alleging that they have not acted in the best interest of the Company
      or the shareholders and alleged that the transaction to install wireless
      networks in Russia was a “sham.” The lawsuit is pending in the Federal District
      Court for the Southern District of Florida (Civil Case No. 06-60923). The
      Company believes that the suits are without merit and will vigorously defend
      against it. The Company has hired outside counsel to defend it in this action.
      The Company and the Plaintiff have reached an agreement in principle to settle
      this action and have submitted such settlement with the Court for its approval.
      Under the terms of the settlement, Company’s D&O insurance carrier will pay
      $60,000 in attorneys’ fees to plaintiff’s counsel, the Company will implement or
      maintain certain corporate governance changes, and all claims will be dismissed
      with prejudice.




13




Mitchell
      Siegel v. Globetel




On
      February 2, 2007, GlobeTel was sued in the Circuit Court for Broward County,
      Florida entitled Mitchell
      Siegel v. Globetel Communications Corp. , Case
      no. 0702456 (“the Siegel Lawsuit”). In this action, Siegel sued GlobeTel for
      breach of contract in regards to a Key Executive Employment Agreement. On
      February 15, 2008, both parties entered into a settlement agreement whereas
      Mr.
      Siegel would receive $175,000 worth of stock, payable over 12 months, and 50%
      of
      the gross proceeds, up to a total amount of $300,000, received from Gotham
      pursuant to the October 2006 agreement.





Former
      Consultants





We
      are a
      defendant in two lawsuits filed by Matthew Milo and Joseph Quattrocchi, two
      former consultants, filed in the Supreme Court of the State of New York
      (Richmond County, Case no. 12119/00 and 12118/00). These matters were
      subsequently consolidated as a result of an Order of the Court and now bear
      the
      singular index number 12118/00. The original lawsuits were for breach of
      contract. The complaint demands the delivery of 10,000,000 pre split shares
      of
      ADGI stock to Milo and 10,000,000 pre split shares to Quattrocchi. GlobeTel
      was
      entered into the action as ADGI was the predecessor of the Company. The suit
      also requests an accounting for the sales generated by the consultants and
      attorneys fees and costs for the action. The lawsuits relate to consulting
      services that were provided by Mr. Milo and Mr. Quattrocchi and a $50,000 loan
      advanced by these individuals, dated May 14, 1997, of which $35,000 has been
      repaid.





We
      entered into an agreement with Mr. Milo and Mr. Quattrocchi as consultants
      on
      June 25, 1998. The agreement was amended on August 15, 1998. On November 30,
      1998, both Mr. Milo and Mr. Quattrocchi resigned from their positions as
      consultants to our Company without fulfilling all of their obligations under
      their consulting agreement. We issued 3 million pre split shares each to Mr.
      Milo and Mr. Quattrocchi as consideration under the consulting agreement. We
      have taken the position that Mr. Milo and Mr. Quattrocchi received compensation
      in excess of the value of the services that they provided and the amounts that
      they advanced as loans.





Mr.
      Milo
      and Mr. Quattrocchi disagreed with our position and commenced action against
      us
      that is pending in the Supreme Court of the State of New York. Mr. Milo and
      Mr.
      Quattrocchi claim that they are entitled to an additional 24,526,000 pre split
      shares of our common stock as damages under the consulting agreement and to
      the
      repayment of the loan balance. We believe that we have meritorious defenses
      to
      the Milo and Quattrocchi action, and we have counterclaims against Mr. Milo
      and
      Mr. Quattrocchi.





With
      regard to the issues related to original index number 12119/00, as a result
      of a
      summary judgment motion, the plaintiffs were granted a judgment in the sum
      of
      $15,000. The rest of the plaintiff's motion was denied. The Court did not order
      the delivery of 24,526,000 pre split shares of ADGI common stock as the decision
      on that would be reserved to time of trial.





An
      Answer
      and Counterclaim had been interposed on both of these actions. The Answer denies
      many of the allegations in the complaint and is comprised of eleven affirmative
      defenses and five counterclaims alleging damages in the sum of $1,000,000.
      The
      counterclaims in various forms involve breach of contract and breach of
      fiduciary duty by the plaintiffs.





For
      the
      most part, the summary judgment motions that plaintiffs brought clearly stated
      that their theories of recovery and the documents that they will rely on in
      prosecuting the action. The case was assigned to a judicial hearing officer
      and
      there was one week of trial. The trial has been since adjourned with no further
      trial dates having been set.





It
      is
      still difficult to evaluate the likelihood of an unfavorable outcome at this
      time in light of the fact that there has been no testimony with regard to the
      actions. However, the plaintiffs have prevailed with regard to their claim
      of
      $15,000 as a result of the lawsuit bearing the original index Number
      12119/00.





This
      case
      went before a Judicial Hearing Officer on July 6 and 7, 2006. No resolution
      occurred during the July hearing and the Judicial Hearing Officer has asked
      for
      written statements of facts and law. The outcome cannot be projected with any
      certainty.  However, the Company does not believe that it will be
      materially adversely affected by the outcome of the proceeding.




Trimax
      Wireless




On
      July
      3, 2007 GlobeTel filed suit against its former employee Ulrich Altvater and
      his
      company Trimax Wireless seeking the return of certain equipment held at the
      former GlobeTel Wireless offices and for the return of $175,000 lent to Altvater
      by the Company. The replevin action against Trimax was dismissed on the basis
      of
      venue and the Company intends to refile the suit with regard to Trimax in
      Collier County, Florida.




14




On
      July
      12, 2007, the Company announced that it terminated its agreement with Mr.
      Altvater and his company, Trimax Wireless, Inc.




In
      August
      2007, Altvater and Trimax filed suit against GlobeTel alleging, defamation,
      conversion, breach of contract and seeking injunctive relief. GlobeTel
      successfully moved to have the two cases consolidated and has filed a Motion
      to
      Dismiss this suit. The Company intends to vigorously defend this suit, but
      no
      assurance can be given about the outcome of the litigation.





**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





ANNUAL
      MEETING





On
      June
      16, 2006, by written consent of the majority vote of its shares at the Company's
      annual meeting, the shareholders re-elected the Company’s directors and approved
      all proposals. The directors included, Timothy Huff, J. Randolph Dumas, Dorian
      Klein, Jonathan Leinwand, Amb. Ferdinando Salleo, and Michael Castellano.
      Additionally, proposals to ratify Dohan & Co. CPA's PA as our auditors, and
      increase the number of authorized common shares from 150 million to 250 million
      were all approved.





The
      following table lists the number of votes cast for each matter, including a
      separate tabulation with respect to each nominee for office. There were no
      votes
      against and no abstentions. The total number of shares eligible to vote were
      92,940,883, and the total number of shares voted were
      81,524,314.





J.
                Randolph Dumas
            
            
            79,313,917Timothy
                Huff
            
            
            78,903,222Jonathan
                Leinwand
            
            
            79,310,932Dorian
                Klein
            
            
            79,851,604Amb.
                Ferdinando Salleo
            
            
            79,781,689Michael
                Castellano
            
            
            79,850,614Ratify
                the Company's appointment of Dohan and Company, CPAs, PA as independent
                auditors of the Company for the fiscal year ending December 31,
                2006
            
            
            80,627,624Increase
                the number of authorized common shares from 150,000,000 (One Hundred
                Fifty
                Million) to 250,000,000 (Two Hundred Fifty Million)
            
            
            73,996,798





There
      were no other matters brought to a vote of security holders during the
      2006.




15





**PART
      II**




**ITEM
      5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





(a)
      MARKET PRICE





Effective
      May 6, 2005, by written consent of the majority vote of its shares, the Board
      of
      Directors approved a reverse split of our shares of common stock on a one for
      fifteen (1:15) basis, in preparation for our move to the American Stock
      Exchange, which occurred on May 23, 2005. All common stock amounts in this
      report have been retroactively restated to account for the reverse stock split,
      unless otherwise noted. Prior to being listed on the American Stock Exchange,
      our common stock was quoted on the Over-the-Counter Bulletin Board (OTCBB)
      quotation system under the symbol “GTEL”. Since its move to AMEX, GlobeTel stock
      traded under the symbol of “GTE". In October 2006, our stock was delisted from
      the AMEX and began trading on the Pink Sheets under the symbol “GTEM”. Since
      October 2006 our shares of common stock have been quoted on the Pink Sheets
      quotation system under the symbol “GTEM."





The
      following information sets forth the high and low bid price of our common stock
      during fiscal 2005, and 2006 and was obtained from the National Quotation
      Bureau. The quotations reflect inter-dealer prices, without retail mark-up,
      mark-down or commission and may not represent actual transactions.




HIGH
            
            LOWCALENDAR
                2005Quarter
                Ended March 31
            
            $
            5.55
            
            $
            0.45Quarter
                Ended June 30
            
            $
            4.05
            
            $
            2.25Quarter
                Ended September 30
            
            $
            2.88
            
            $
            1.14Quarter
                 Ended December 31
            
            $
            4.34
            
            $
            1.25CALENDAR
                2006Quarter
                Ended March 31
            
            $
            3.92
            
            $
            2.48Quarter
                Ended June 30
            
            $
            2.30
            
            $
            1.07Quarter
                Ended September 30
            
            $
            1.21
            
            $
            0.41Quarter
                Ended December 31
            
            $
            0.62
            
            $
            0.25





(b)
      HOLDERS





As
      of the
      date of this report, there were approximately 28,000 beneficial owners and
      1,400
      registered holders of our common stock.





(c)
      DIVIDENDS





The
      Company has never paid a dividend and do not anticipate that any dividends
      will
      be paid in the near future. It currently has no funds from which to pay
      dividends and as of December 31, 2006, our accumulated deficit was $108,790,248.
      The Company does not expect that any dividends will be paid for the foreseeable
      future.





(d)
      SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS





The
      following table sets forth the information indicated with respect to our
      compensation plans as of December 31, 2006, under which our common stock is
      authorized for issuance.





16





**Number of Securities to be**
              **issued**
              **upon exercise of outstanding**
              **options, warrants and rights**
              **(a)**
            
            **Weighted average**
              **exercise price of**
              **outstanding options,**
              **warrants and rights**
              **(b)**
            
            **Number of securities**
              **remaining available for**
              **future issuance under**
              **equity compensation plans**
              **(excluding securities**
              **reflected in column (a))**
              **(c)**Equity
                compensation plans approved by security holders
            
            
            20,173,602
            
            $
            .894
            
            
            —Equity
                compensation plans not approved by security holders
            
            
            —
            
            
            —
            
            
            —Total
            
            
            20,173,602
            
            $
            .894
            
            
            —





In
      December 2004, we established our 2004 Stock Option Bonus Plan, wherein the
      board of directors authorized the issuance of stock options totaling 1,765,833
      shares to the officers and employees of the Company as payment of accrued
      bonuses through December 31, 2004. The stock options are exercisable at the
      lower of $.675 per share or 50% of the closing market price at the date of
      exercise.





In
      December 2004, the board of directors authorized the issuance of stock options
      totaling 247,886 shares to the directors of the Company as payment of accrued
      board members' stipends through December 31, 2004. The stock options are
      exercisable at the lower of $.5865 per share or 50% of the closing market price
      on date of exercise.





In
      January 2005, the option holders exercised their rights to convert a portion
      of
      the stock options pursuant to the Officers Stock Grant Plan, the 2004 Stock
      Option Bonus Plan, and the options for accrued directors' stipends into common
      stock at $.675, and, as a result, we issued 2,000,000 shares of common stock
      in
      January 2005, in accordance with the stock option agreements.





In
      November 2005, the Company established its 2005 Stock Option Bonus Plan, wherein
      the board of directors authorized the issuance of stock options for restricted
      shares totaling 1,509,180 shares to the officers and employees of the Company
      as
      payment of accrued bonuses through December 31, 2005. The stock options are
      exercisable at $2.12, based on the closing market price of the Company's
      free-trading shares on the date the options were granted. Through the date
      of
      this report, none of these options have been exercised.





During
      2005, the board of directors authorized the issuance of stock options for
      restricted shares totaling 199,490 shares to the directors of the Company as
      board members’ compensation for services through December 31, 2005. The stock
      options are exercisable at various amounts, ranging from $1.99 to $4.35 per
      share, based on the closing market price of the Company's free-trading shares
      on
      the date the options were granted, except for a now former director who was
      issued 37,500 and 30,000 options shares at $1.49 and $0.99, respectively.
      Through the date of this report, none of these options have been
      exercised.




During
      2006, the board of directors authorized the issuance of stock options for
      restricted shares totaling 2,003,215 shares to the directors of the Company
      as
      board members’ compensation for services through December 31, 2006. The stock
      options are exercisable at various amounts, ranging from $1.21 to $2.30 per
      share, based on the closing market price of the Company's free-trading shares
      on
      the date the options were granted.





In
      addition to the above parties, the Corporate Secretary / General Counsel and
      the
      Senior Vice-President were awarded .75% and 2%, respectively, of the total
      shares outstanding, at the fair market value of the Company's stock on the
      date
      the options were granted. Also, a board member, Randolph Dumas, was awarded
      2.5%
      of the total shares outstanding, exercisable at $1.79 per share. A total of
      13,992,374 and 6,654, options shares were granted for 2005.





2004
      STOCK OPTIONS EXERCISED IN 2005





During
      2005, a total of 1,785,490 of stock options shares were exercised and issued
      (net of shares used to pay for "cashless" options"), with payment in cash and
      common stock subscriptions receivable totaling $92,906, pursuant to the 2004
      Stock Option Bonus Plan, the Officers' Stock Option Grant Plan, and for accrued
      board members' stipends, and, furthermore, these shares were registered by
      the
      Company's filing a Form S-8 registration statement. The number of shares
      registered were allocated to the individuals exercising the options based a
      ratio of the number of options held by each individual to the total number
      of
      options held by all individuals.




17





In
      addition, certain employees, vendors, professionals and consultants were paid
      with common stock (see Note 18 to financial statements) and with stock options
      (see Note 19 to financial statements) and certain investment banking and
      broker's fees were paid with preferred stock (see Note 20 to financial
      statements) in lieu of cash compensation.




**ITEM
      6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





GENERAL





Twelve
      months ended December 31, 2006 ("Fiscal 2006" or "2006" or "the current year")
      compared to twelve months ended December 31, 2005 ("Fiscal 2005" or "2005"
      or
      "the prior year").





RESULTS
      OF OPERATIONS





REVENUES.
      During fiscal 2006, our gross sales were $37,808, representing a decrease of
      95.5% over the prior year when our gross sales were $839,163. Our revenues
      decreased primarily due to a decrease in revenues from network management fees.





Revenues
      generated included $404 from our Store Value Card as compared to no revenues
      in
      the prior year and $37,404 from the sale of IP Phones for the current year
      as
      compared to $3,154 in the prior year. No revenues were generated from our Magic
      Money program for the current year as compared to $109,023 in the prior year.





COST
      OF
      SALES. Our cost of sales consists primarily of the wholesale cost of buying
      IP
      Phones as well as network bandwidth. During fiscal 2006, we had cost of sales
      of
      $96,168 representing a decrease of 87.6% from $774,829 for fiscal 2005.





GROSS
      MARGIN (LOSS). Our gross loss was $58,360 or 254% for fiscal 2006, compared
      to
      our gross profit of $64,334 or 7.7% for fiscal 2005, a decrease of $122,694
      or
      190.7%. The decrease is primarily due to the fact that there were so few sales
      in regards to IP Phones and there associated cost of operating.





OPERATING
      EXPENSES. Our operating expenses consist primarily of payroll and related taxes,
      professional and consulting services, expenses for executive and administrative
      personnel and insurance, bad debts, investment banking and financing fees,
      investor and public relations, research and development, sales commissions,
      telephone and communications, facilities expenses, travel and related expenses,
      and other general corporate expenses. Our operating expenses for fiscal 2006
      were $13,158,474 compared to fiscal year 2005 operating expenses of $35,178,870
      an decrease of $22,020,396 or 62.6%.





The
      decrease is primarily due to a decrease in officers' and directors' compensation
      to $1,931,774 (including non-cash compensation), from $12,082,809 in the prior
      year. During fiscal 2006, total officers' and directors' compensation, included
      non-cash equity compensation (stock and stock options) of $561,829, compared
      to
      $10,799,267 in non-cash compensation during fiscal 2005.





We
      incurred $93,571 of bad debt expense, a decrease of $1,278,650 or 93.2% for
      2006
      compared to $1,372,221 in 2005. This decrease is primarily contributable to
      the
      large write down of 2004 receivables during the 2005 fiscal year.





In
      addition, employee payroll and related taxes for fiscal 2006 were $3,916,409
      compared to $3,180,953, an increase of $735,456 or 23.1%. This increase was
      due
      to expansion of our operations, facilities and workforce during 2006, and
      included in non-cash equity compensation (stock and stock options) for employees
      was $497,399 in fiscal 2006 compared to $439,818 in fiscal 2005.





During
      2007, Globetel and its subsidiaries incurred payroll tax liability during the
      normal course of business at each payroll cycle. The Company submitted certain
      withholding tax payments during the first quarter through a payroll processor,
      ADP. Subsequent thereto, the Company no longer processed its payroll through
      ADP. During this time, the Company did not file the appropriate tax forms or
      deposit the appropriate withholding amounts. The Company has recognized this
      issue and contacted the IRS accordingly to bring its filings up-to-date and
      pay
      any taxes due, which is currently estimated to be at least $130,000. The Company
      may be subject to penalties and interest from the IRS.





We
      incurred $623,219 of consulting fees, a decrease of $2,850,015 or 82.1% for
      2006
      compared to $3,473,234 in 2005. These decreases are related to additional
      services required to develop and expand our geographical and product markets
      and
      projects, including the Stored Value Program as well as decreased professional
      fees in maintaining and expanding a public company, which included our move
      to
      the American Stock Exchange in 2005. Our consulting fees include such expenses
      as computer consulting and technical consulting,




18





We
      incurred $1,573,150 of research and development costs for our Sanswire project
      during 2006, compared to $9,467,670 in 2005, a decrease of $7,894,520 or 83.4%.
      During 2005, $2,104,559 of these costs represents direct expenses of development
      and building of the airship, as compared to $1,573,150 of direct expenses during
      2006. This is due mainly to the fact that the first prototype airship was
      completed during 2005.





During
      2006, we incurred $186,501 of investment and broker fees as compared to $788,985
      during 2005. The $602,484 decrease is due to 2005 equity funding related to
      subscription agreements with investors for 5% convertible notes and from private
      placements executed.





LOSS
      FROM
      OPERATIONS. We had an operating loss of ($13,216,834) for fiscal year 2006
      as
      compared to an operating loss of ($35,114,536) for fiscal 2005, primarily due
      to
      decreased operating expenses as described above, including lower operating
      costs
      and reductions of our various programs. We expect that we will continue to
      have
      lower operating costs as we decrease our staffing and continue operate in a
      more
      efficient manner while expanding only primary operations, programs and
      projects.





OTHER
      INCOME (EXPENSE). We had net other expenses totaling ($6,484,551) during fiscal
      year 2006 compared to ($1,713,373) during fiscal 2005. This variance was due
      primarily to the impairment of assets related to the Stored Value assets of
      ($5,222,066) and the write-off of other assets of ($682,695) in 2006. In 2005,
      the Company had a loss on the settlement of an agreement to deploy
      telecommunications in Asia with a related party, Sky China Limited, for
      ($1,256,873). Also during 2005, the Company wrote-off its investment in CGI
      for
      ($352,300).





Interest
      expense for fiscal year 2006 was $625,200 compared to $148,414 for the prior
      year. Interest expense increase was primarily due to noncash financing charges
      associated with the Company’s convertible debentures as well as the accrual of
      interest associated with its unsecured notes.





LOSS
      FROM
      DISCONTINUED OPERATIONS. During 2006 we had a loss of ($7,566,882) related
      to
      our discontinued operations compared to ($2,255,036) during fiscal year 2005.
      See note 3 in the financial statements for more information regarding the
      discontinued operations.





NET
      LOSS.
      We had a net loss of ($27,268,267) in fiscal year 2006 compared to a net loss
      of
      ($39,082,945) in fiscal 2005. The decrease in net loss is primarily attributable
      to the decrease in the operating expenses as discussed above.





LIQUIDITY
      AND CAPITAL RESOURCES





ASSETS.
      At December 31, 2006, we had total assets of $508,905 compared to total assets
      of $10,411,522 as of December 31, 2005.





The
      current assets at December 31, 2006, were $454,525 compared to $3,366,706 at
      December 31, 2005. As of December 31, 2006, we had $4,243 of cash and cash
      equivalents compared to $1,065,952 at December 31, 2005.





The
      Company had deposits of $72,987 as of December 31, 2006 compared to $1,212,921
      as of December 31, 2005 representing security for letters of credit to suppliers
      for MasterCard in the amount of $1,000,000 in support of the Store Value Card
      program in 2005, a rental deposit for Los Angeles World Airport related to
      the
      Palmdale Hanger occupied by Sanswire Networks, LLC in the amount of $72,000,
      During 2007, the rent deposit with LAWA was used to pay rent obligations on
      the
      Palmdale Hangar, that is no longer occupied by Sanswire.





Our
      net
      accounts receivable, which consisted of a reimbursement check from our insurance
      provider, was $271,262 as of December 31, 2006 compared to $77,905 as of
      December 31, 2005.





We
      had no
      other current assets in 2006 compared to $185,960 of prepaid expenses to a
      related party ISG Jet, LLC, and $67,060 in prepaid expenses in 2005.





Equipment
      as of December 31, 2006 was $0 as compared to $717,425 at December 31, 2005.
      The
      Company wrote down all remaining assets as of December 31, 2006. As of December
      31, 2005, the Company also had $5,279,567 of the Stored Value assets which
      were
      impaired during 2006 (See note 8 of the financial statements).





We
      had
      $106,033 of current assets from discontinued operations as of December 31,
      2006
      as compared to $710,841 at December 31, 2005. We also had $54,380 of other
      assets from discontinued operations as of December 31, 2006 as compared to
      $1,047,824 at December 31, 2005. See note 3 in the financial statements for
      more
      information regarding the discontinued operations.




19





LIABILITIES.
      At December 31, 2006, we had total liabilities of $14,694,994 compared to total
      liabilities of $9,906,932 as of December 31, 2005.





The
      current liabilities at December 31, 2006 were $10,096,661 compared to $2,509,332
      at December 31, 2005, an increase of $7,587,329. The increase is principally
      due
      to the current portion of payments due on the notes payable for $6,262,598
      (see
      note 13 of the financial statements) and the increase in Accounts Payable of
      $1,761,553.




Long-term
        liabilities decreased $2,799,267 from $7,397,600 in 2006 to $4,598,333 in
        2005
        due to stock being issued in 2006 as contemplated for the long term portion
        of
        the due to a related party - Hotzone Wireless as well as for the debt owed
        to
        its former employee.
 
 CASH
        FLOWS. Our cash used in operating activities was $14,140,330 compared to
        $12,807,332 for the prior year. The decrease was primarily due to the decreased
        level of operations and operating activities and changes in our current assets
        and liabilities.
 
 Our
        cash
        used in investing activities was $255,182 which was mainly attributed to
        cash
        payments made towards the purchase of our Hotzone assets and additional
        equipment, compared to $2,048,559 in the prior year.


Net
      cash
      provided by financing activities was $13,333,803 principally from the sale
      of
      common stock and the conversion of notes and loan payables totaling $13,284,693,
      as compared to $15,321,329 in the prior year.





In
      order
      for us to pay our operating expenses during 2006 and 2005, including certain
      operating expenses for our wholly-owned subsidiary, Sanswire, we raised
      $13,299,357 from loans and notes payable related to the exercise of warrants
      by
      convertible note holders and private placements, compared to $13,271,957 in
      the
      prior year.





In
      January 2006, we received approximately $6.3 million from the exercise of
      warrants by certain investors. With this funding, we will still require
      additional capital resources to fund our operations and capital requirements
      as
      presently planned over the next twelve months.





Throughout
      2006 and continuing into 2007, the Company has been dependent upon monthly
      funding from its existing debt holders. Funding decisions have typically not
      extended beyond thirty days at any given time, and the Company does not
      currently have a defined funding source. Funding delays and uncertainties have
      seriously damaged vendor relationships, new product development and revenues.
      In
      the absence of continued monthly funding by its current debt holders, the
      Company would have insufficient funds to continue operations. There is no
      assurance that additional funding from the current debt holders will be
      available or available on terms and conditions acceptable to the
      Company.





During
      2007, the Company raised approximately $1.6 million from investors; however
      this
      is not adequate funding to cover the estimated working capital deficit of
      approximately $12 million or the net loss for 2007 of approximately $15
      million.





As
      reflected in the accompanying financial statements, during the year ended
      December 31, 2006 we had a net loss of ($27,268,267) compared to a net loss
      of
      ($39,082,945) during 2005. Consequently, there is an accumulated deficit of
      ($108,790,248) at December 31, 2006 compared to ($81,521,980) at December 31,
      2005.





CRITICAL
      ACCOUNTING POLICIES





ACCOUNTS
      RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS





Trade
      and
      other accounts receivable are reported at face value less any provisions for
      uncollectible accounts considered necessary. Accounts receivable consists of
      a
      reimbursement from the Company’s Directors and Officers insurance for legal and
      accounting expenses that were paid above the Company’s deductible. The Company
      estimates doubtful accounts on an item-to-item basis and includes over-aged
      accounts for any trade receivable as part of allowance for doubtful accounts,
      which are generally accounts that are ninety-days or more overdue. When accounts
      are deemed uncollectible, the account receivable is charged off and the
      allowance account is reduced accordingly. Bad debt expense for the years ended
      December 31, 2006 and 2005 were $93,571, and $1,372,221, respectively.




20




REGISTRATION
      RIGHTS




In
      connection with the sale of debt or equity instruments, we may enter into
      Registration Rights Agreements. Generally, these Agreements require us to file
      registration statements with the Securities and Exchange Commission to register
      common shares that may be issued on conversion of debt or preferred stock,
      to
      permit re-sale of common shares previously sold under an exemption from
      registration or to register common shares that may be issued on exercise of
      outstanding options or warrants.




The
      Agreements usually require us to pay penalties for any time delay in filing
      the
      required registration statements, or in the registration statements becoming
      effective, beyond dates specified in the Agreement. These penalties are usually
      expressed as a fixed percentage, per month, of the original amount we received
      on issuance of the debt or preferred stock, common shares, options or warrants.
      We account for these penalties as a contingent liability and not as a derivative
      instrument. Accordingly, we recognize the penalties when it becomes probable
      that they will be incurred. Any penalties are expensed over the period to which
      they relate.





REVENUE
      RECOGNITION





Revenues
      for voice, data, and other services to end-users are recognized in the month
      in
      which the service is provided. Amounts invoiced and collected in advance of
      services provided are recorded as deferred revenue. Revenues for carrier
      interconnection and access are recognized in the month in which the service
      is
      provided.





Sales
      of
      telecommunications networks are recognized when the networks are delivered
      and
      accepted by the customer. Sales of computer hardware, equipment, and
      installation are recognized when products are shipped to customers. Provisions
      for estimated returns and allowances are provided for in the same period the
      related sales are recorded. Revenues on service contracts are recognized ratably
      over applicable contract periods. Amounts billed and collected before services
      are performed are included in deferred revenues.





USE
      OF
      ESTIMATES





The
      process of preparing financial statements in conformity with generally accepted
      accounting principles in the United States requires the use of estimates and
      assumptions regarding certain types of assets, liabilities, revenues, and
      expenses. Such estimates primarily relate to unsettled transactions and events
      as of the date of the financial statements. Accordingly, upon settlement, actual
      results may differ from estimated amounts.





STOCK-BASED
      COMPENSATION




On
      January 1, 2006, the Company adopted SFAS No. 123(R), *Share-Based
      Payment* ,
      which
      requires the measurement and recognition of compensation expense for all
      stock-based awards made to employees and directors based on estimated fair
      values. SFAS No. 123(R) supersedes the Company’s previous accounting under
      Accounting Principles Board Opinion (“APB”) No. 25, *Accounting
      for Stock Issued to Employees* .
      In
      March 2005, the Securities and Exchange Commission issued SAB No. 107, *Share-Based
      Payment* ,
      relating to SFAS No. 123(R). The Company has applied applicable
      provisions of SAB No. 107 in its adoption of SFAS No. 123(R).




The
      Company adopted SFAS No. 123(R) using the prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006, the first day of its year ended December 31, 2006. In accordance with
      this transition method, the Company’s consolidated financial statements for
      prior periods have not been restated to reflect, and do not include the impact
      of, SFAS No. 123(R). The Company’s consolidated financial statements, as of
      and for the year ended December 31, 2006 and thereafter, reflect the impact
      of SFAS No. 123(R). Upon adopting SFAS No. 123(R), for awards with
      service conditions and graded-vesting, a one-time election was made to recognize
      stock-based compensation expense on a straight-line basis over the requisite
      service period for the entire award.




The
      Company used the intrinsic value method of measuring the fair value of share
      based payments granted prior to January 1, 2006. Because the Company
      utilized the intrinsic value method for pro forma disclosure purposes under
      the
      original provisions of SFAS No. 123, *Accounting
      for Stock-based Compensation* ,
      disclosures to demonstrate the effect of pro forma compensation cost on net
      loss
      and net loss per share for the year ended December 31, 2005 is not
      appropriate in accordance with SFAS No. 123(R).




The
      stock-based compensation expense related to employee stock options and
      restricted stock awards recognized during the year ended December 31, 2005
      was $122. Stock-based compensation expense recognized under SFAS No. 123(R)
      for the year ended December 31, 2006 was $321,729 before income taxes.




21




The
      Company accounts for stock issued to consultants on a fair value basis in
      accordance with SFAS No. 123(R) and EITF No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services.*





Had
      compensation cost for the Company's stock option plans been determined based
      on
      the fair value at the grant date for awards under those plans, consistent with
      the measurement provisions of SFAS 123 and SFAS 148, the Company's net loss
      and
      basic loss per share would have been adjusted as follows:





For the Year EndedDecember, 31, 2005Net
                LossAs
                Reported
            
            $
            (39,082,945
            )Pro
                Forma
            
            $
            (43,012,437
            )Net
                Loss per common share – basic and dilutedAs
                Reported
            
            $
            (.52
            )Pro
                Forma
            
            $
            (.57
            )





In
      December 2005, the FASB issued SFAS No. 123 (revised 2005), Share-Based Payment,
      which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
      SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued
      to
      Employees and amends SFAS No. 95, Statement of Cash Flows. Effective for the
      years on or after December 15, 2005, the Company will recognize all share-based
      payments to employees, including grants of employee stock options, in the
      statement of operations based on their fair values.





RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS




***SFAS
      No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123(R))***




In
      December 2004, the Financial Accounting Standards Board, or FASB, issued
      SFAS No. 123(R), which is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      No. 123(R) supersedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      Generally, the approach in SFAS No. 123(R) is similar to the approach
      described in SFAS No. 123. However, SFAS No. 123(R) requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the income statement based on their fair values.





In
      March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB
      No. 107) which summarizes the views of the SEC staff regarding the
      interaction between SFAS No. 123(R) and certain SEC rules and regulations.
      SAB No. 107 provides guidance on several topics, including valuation
      methods, the classification of compensation expense, capitalization of
      compensation expenses related to share-based payment arrangements, the
      accounting for income tax effects of share-based payment arrangements, and
      disclosures in “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” subsequent to adoption of SFAS No. 123(R).





In
      April 2005, the SEC issued FR-74, Amendment to Rule 4-01(a) of
      Regulation S-X Regarding the Compliance Date for Statement of Financial
      Accounting Standards No. 123 (Revised 2004), Share-Based Payment (FR-74).
      FR-74 allows companies to implement SFAS No. 123(R) at the beginning of
      their next fiscal year, instead of the next reporting period that begins after
      June 15, 2005. FR-74 does not change the accounting required by SFAS
      No. 123(R); it only changes the implementation date of the standard.





The
      Company adopted SFAS No. 123(R) using the prospective method on
      January 1, 2006. The Company cannot predict the level of its impact since
      it will depend upon the level of share-based payments granted in the future.
      However, the Company generally expects compensation expense to increase.




***SFAS
      No. 154, Accounting Changes and Error Corrections, a replacement of APB
      Opinion No. 20 and FASB Statement No. 39 (SFAS No. 154)***




In
      May 2005, the FASB issued SFAS No. 154, which changes the requirements
      for the accounting and reporting of a change in accounting principle or
      correction of an error. It requires, unless impracticable, retrospective
      application of the required method for reporting a change in accounting
      principle in the absence of explicit transition requirements specific to the
      newly adopted accounting principle. SFAS No. 154 is effective for
      accounting changes and correction of errors made in fiscal years beginning
      after
      December 15, 2005. The Company implemented SFAS No. 154 effective
      January 1, 2006.




22




***FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
      interpretation of FASB Statement No. 109 (FIN 48)***




In
      July
      2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
      in
      tax positions. This interpretation requires that the Company recognize in its
      financial statements the impact of a tax position if that position is more
      likely than not of being sustained upon examination, based on the technical
      merits of the position. The provisions of FIN 48 are effective as of
      January 1, 2007, with the cumulative effect of the change in accounting
      principle recorded as an adjustment to opening retained earnings. The Company
      believes that FIN 48 will not have a material impact on its consolidated
      financial statements.




***SAB
      No. 108, Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements (SAB 108)***




In
      September 2006, the SEC released SAB 108. SAB 108 provides guidance on how
      the
      effects of the carryover or reversal of prior year financial statement
      misstatements should be considered in quantifying a current year misstatement.
      Prior practice allowed the evaluation of materiality on the basis of (1) the
      error quantified as the amount by which the current year income statement was
      misstated (rollover method) or (2) the cumulative error quantified as the
      cumulative amount by which the current year balance sheet was misstated (iron
      curtain method). Reliance on either method in prior years could have resulted
      in
      misstatement of the financial statements. The guidance provided in SAB 108
      requires both methods to be used in evaluating materiality. Immaterial prior
      year errors may be corrected with the first filing of prior year financial
      statements after adoption. The cumulative effect of the correction would be
      reflected in the opening balance sheet with appropriate disclosure of the nature
      and amount of each individual error corrected in the cumulative adjustment,
      as
      well as a disclosure of the cause of the error and that the error had been
      deemed to be immaterial in the past. The Company believes that SAB 108 will
      not
      have a material impact on its consolidated financial statements.





***SFAS
      No. 157, Fair Value Measurements (SFAS No. 157)***




In
      September 2006, the FASB issued SFAS No. 157. This Statement defines fair value
      as used in numerous accounting pronouncements, establishes a framework for
      measuring fair value in GAAP and expands disclosure related to the use of fair
      value measures in financial statements. SFAS No. 157 does not expand the use
      of
      fair value measures in financial statements, but standardizes its definition
      and
      guidance in GAAP. The Standard emphasizes that fair value is a market-based
      measurement and not an entity-specific measurement based on an exchange
      transaction in which the entity sells an asset or transfers a liability (exit
      price). SFAS No. 157 establishes a fair value hierarchy from observable market
      data as the highest level to fair value based on an entity’s own fair value
      assumptions as the lowest level. SFAS No. 157 is to be effective for its
      financial statements issued in 2008. The Company believes that SFAS No. 157
      will
      not have a material impact on its consolidated financial statements.





**SFAS
      No. 141 (R),** ***Business
      Combinations (SFAS No. 141R)*** **and SFAS No. 160,**  ***Non-controlling
      Interests in Consolidated Financial Statements (SFAS No.
      160)***




In
      December 2007, the FASB issued SFAS No. 141R, Business Combinations, and SFAS
      No. 160, Non-controlling Interests in Consolidated Financial Statements.
      SFAS No. 141R requires an acquirer to measure the identifiable assets acquired,
      the liabilities assumed, and any non-controlling interest in the acquiree at
      their fair values on the acquisition date, with goodwill being the excess value
      over the net identifiable assets acquired. SFAS No. 160 clarifies that a
      non-controlling interest in a subsidiary should be reported as equity in the
      consolidated financial statement. The calculation of earnings per share will
      continue to be based on income amounts attributable to the parent. SFAS
      No. 141R and SFAS No. 160 are effective for financial statements
      issued for fiscal years beginning after December 15, 2008. Early adoption is
      prohibited. The Company has not yet determined the effect on our financial
      statements, if any, upon adoption of SFAS No. 141R or SFAS No.
      160.





**SFAS
      No. 161,** ***Disclosures
      about Derivative Instruments and Hedging Activities*** ***(SFAS No. 161)***





In
      March
      2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities”. The new standard is intended to improve
      financial reporting about derivative instruments and hedging activities by
      requiring enhanced disclosures to enable investors to better understand their
      effects on an entity’s financial position, financial performance, and cash
      flows. FAS 161 is effective for the Company in fiscal 2010.





Management
      does not believe that there are any recently-issued, but not yet effective
      accounting pronouncements, which could have a material effect on the
      accompanying condensed consolidated financial statements





23





**ITEM
      7. FINANCIAL STATEMENTS**




24


**Report
        of Independent Registered Public Accounting Firm**
 
 To
        the
        Board of Directors and Stockholders of:
 Globetel
        Communications Corp.
 
 We
        have
        audited the accompanying consolidated balance sheet of Globetel Communications
        Corp. (the “Company”), as of December 31, 2006, and the related consolidated
        statements of operations, stockholders' equity (deficiency), and cash flow
        for
        the year then ended. The consolidated financial statements are the
        responsibility of the Company's management. Our responsibility is to express
        an
        opinion on the consolidated financial statements based on our
        audits.
 
 We
        conducted our audit in accordance with 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 audit provides a reasonable basis for our
        opinion.
 
 We
        were
        not engaged to examine management’s assertion about the effectiveness of
        Globetel Communications Corp.’s internal control over financial reporting as of
        December 31, 2006 included in the Company’s Item 8A “Controls and Procedures” in
        the Annual Report on Form 10-K and, accordingly, we do not express an opinion
        thereon.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the financial position of Globetel Communications
        Corp. as of December 31, 2006 and the consolidated results of their operations
        and their cash flow for the year then ended, in conformity with accounting
        principles generally accepted in the United States of America.
 
 The
        accompanying consolidated financial statements have been prepared assuming
        the
        Company will continue as a going concern. As discussed in Note 1 to the
        consolidated financial statements, the Company has experienced net losses
        and
        negative cash flows from operations and expects such losses to continue.
        These
        conditions raise substantial doubt about the Company’s ability to continue as a
        going concern. Management’s plans in regard to these matters are also described
        in Note 1. The consolidated financial statements do not include any adjustments
        that might result from the outcome of this uncertainty.
 
 As
        discussed in Note 1, on May 2, 2008, the Securities and Exchange Commission
        (“SEC”) filed a lawsuit in the United States District Court for the Southern
        District of Florida against GlobeTel Communications Corp. (the “Company”) and
        three former officers of the Company, Timothy J. Huff, Thomas Y. Jimenez
        and
        Lawrence E. Lynch. The SEC alleges, among other things, that the Company
        recorded $119 million in revenue on the basis of fraudulent invoices created
        by
        Joseph Monterosso and Luis Vargas, two individuals formerly employed by the
        Company who were in charge of its wholesale telecommunications business.
        The SEC
        alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
        Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
        13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
        Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
        The SEC seeks as relief a permanent injunction, civil penalties, and
        disgorgement with prejudgment interest. The Company has advised that it intends
        to vigorously defend itself in this action. The SEC lawsuit states that the
        staff is also considering recommending that the SEC authorize and institute
        proceedings to revoke the registration of Company’s securities pursuant to
        Section 12(j) of the Exchange Act. The consolidated financial statements
        do not
        include any adjustments that might result from the outcome of this uncertainty.
 
 Weinberg
        & Company, P.A.
 
 Boca
        Raton, Florida
 July
        3,
        2008





25


Dohan
                  and Company
              7700
                  North Kendall Drive, 200Certified
                  Public Accountants
              Miami,
                  Florida 33156-7564A
                  Professional Association
              Telephone:
                  (305) 274-1366Facsimile:
                  (305) 274-1368E-mail:   
                  info@uscpa.comInternet: 
                  www.uscpa.com






**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders


Globetel
      Communications Corp. and Subsidiaries


Ft.
      Lauderdale, Florida




We
      have
      audited the accompanying consolidated balance sheet of Globetel Communications
      Corp. and Subsidiaries (the Company) as of December 31, 2005, and the related
      consolidated statements of income (loss), cash flows and stockholders’ equity
      for the year then ended December 31, 2005. These consolidated financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these consolidated financial
      statements based on our audit.





We
      conducted our audit 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. The Company
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      also
      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 audit provides 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 Globetel Communications
      Corp. and Subsidiaries as of December 31, 2005, and the results of their
      operations and their cash flows for the year then ended in conformity with
      U.S.
      generally accepted accounting principles.





As
      described in Note 2 to the financial statements, the 2005 financial statements
      have been restated for an error in the method of revenue recognition related
      to
      reporting gross revenue versus net as per EITF 99-19 and in the application
      of
      an accounting principle relating to purchase accounting.





Miami,
      Florida


/s/
        Dohan
& Company, CPAs




March
      13,
      2006 except as to Note 2, which is November 30, 2007





26





**GLOBETEL
      COMMUNICATIONS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**


DECEMBER 31,
                2006
              
              DECEMBER 31,
                2005(restated)ASSETSCURRENT
                  ASSETSCash
                  and cash equivalents
              
              $
              4,243
              
              $
              1,065,952Accounts
                  receivable, less allowance for doubtful accounts of $0 and
                  $408,128
              
              
              271,262
              
              
              77,905Prepaid
                  expense – related party
              
              
              —
              
              
              185,960Prepaid
                  expense
              
              
              —
              
              
              67,060Loans
                  to employees
              
              
              —
              
              
              46,068Deposits
              
              
              72,987
              
              
              1,212,921Current
                  assets from discontinued operations
              
              
              106,033
              
              
              710,840TOTAL
                  CURRENT ASSETS
              
              
              454,525
              
              
              3,366,706EQUIPMENT,
                  NET
              
              
              —
              
              
              717,425OTHER
                  ASSETSAssets
                  held for sale, net
              
              
              —
              
              
              5,279,567Other
                  assets from discontinued operations
              
              
              54,380
              
              
              1,047,824TOTAL
                  OTHER ASSETS
              
              
              54,380
              
              
              6,327,391TOTAL
                  ASSETS
              
              $
              508,905
              
              $
              10,411,522LIABILITIES
                  AND STOCKHOLDERS’ EQUITY(DEFICIT)LIABILITIESCURRENT
                  LIABILITIESAccounts
                  payable
              
              $
              2,463,605
              
              $
              702,052Notes
                  and convertible notes payable, net of discount of $882,128
              
              
              6,262,598
              
              
              —Bank
                  Overdraft
              
              
              14,664
              
              
              —Accrued
                  officers' and directors' compensation
              
              
              —
              
              
              97,382Accrued
                  expenses and other liabilities
              
              
              460,097
              
              
              459,528Related
                  party payables
              
              
              —
              
              
              57,500Current
                  liabilities from discontinued operations
              
              
              895,697
              
              
              1,192,870TOTAL
                  CURRENT LIABILITIES
              
              
              10,096,661
              
              
              2,509,332LONG-TERM
                  LIABILITIESDue
                  to former employee payable in stock
              
              
              —
              
              
              237,600Due
                  to related party payable in stock
              
              
              4,598,333
              
              
              7,160,000TOTAL
                  LONG-TERM LIABILITIES
              
              
              4,598,333
              
              
              7,397,600TOTAL
                  LIABILITIES
              
              
              14,694,994
              
              
              9,906,932COMMITMENTS
                  AND CONTINGENCIESSTOCKHOLDERS'
                  EQUITY(DEFICIT)Series
                  A Preferred stock, $.001 par value, 250,000 shares
                  authorized;no
                  shares issued and outstanding:
              
              
              —
              
              
              —Series
                  B Preferred stock, $.001 par value, 500,000 shares
                  authorized;no
                  shares issued and outstanding:
              
              
              —
              
              
              —Series
                  C Preferred stock, $.001 par value, 5,000 shares
                  authorized;no
                  shares issued and outstanding:
              
              
              —
              
              
              —Series
                  D Preferred stock, $.001 par value, 5,000 shares
                  authorized;no
                  shares issued and outstanding:
              
              
              —
              
              
              1Additional
                  paid-in capital - Series D Preferred stock
              
              
              —
              
              
              999,999Common
                  stock, $.00001 par value, 250,000,000 shares authorized;109,470,803
                  and 98,192,101 shares issued and outstanding
              
              
              1,095
              
              
              982Additional
                  paid-in capital
              
              
              94,733,346
              
              
              81,570,082Stock
                  subscriptions receivable:Series
                  D Preferred Stock
              
              
              —
              
              
              (500,000
              )Common
                  Stock
              
              
              (130,282
              )
              
              (44,494
              )Accumulated
                  deficit
              
              
              (108,790,248
              )
              
              (81,521,980
              )TOTAL
                  STOCKHOLDERS' (DEFICIT) EQUITY
              
              
              (14,186,089
              )
              
              504,590TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
              
              $
              508,905
              
              $
              10,411,522




**See
      accompanying notes**




27





**GLOBETEL
      COMMUNICATIONS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**FOR
      THE YEARS ENDED DECEMBER 31,**


2006
              
              2005(restated)REVENUES
              
              $
              37,808
              
              $
              839,163COST
                  OF REVENUES
              
              
              96,168
              
              
              774,829GROSS
                  (LOSS) MARGIN
              
              
              (58,360
              )
              
              64,334EXPENSESPayroll
                  and related taxes
              
              
              3,916,409
              
              
              3,180,953Consulting
                  fees
              
              
              623,219
              
              
              3,473,234Officers'
                  and directors' compensation
              
              
              1,931,774
              
              
              12,082,809Bad
                  debts
              
              
              93,571
              
              
              1,372,221Research
                  and development
              
              
              1,573,150
              
              
              9,467,670General
                  and Administrative
              
              
              4,730,437
              
              
              5,533,417Depreciation
                  and amortization
              
              
              289,914
              
              
              68,566TOTAL
                  EXPENSES
              
              
              13,158,474
              
              
              35,178,870LOSS
                  FROM OPERATIONS
              
              
              (13,216,834
              )
              
              (35,114,536
              )OTHER
                  INCOME (EXPENSE)Loss
                  on settlement
              
              
              —
              
              
              (1,256,873
              )Loss
                  on disposition of unconsolidated foreign subsidiary
              
              
              —
              
              
              (352,300
              )Loss
                  on disposition of equipment
              
              
              (682,695
              )
              
              —Loss
                  on impairment of equipment
              
              
              (5,222,066
              )
              
              —Interest
                  income
              
              
              45,410
              
              
              44,214Interest
                  expense
              
              
              (625,200
              )
              
              (148,414
              )NET
                  OTHER EXPENSE
              
              
              (6,484,551
              )
              
              (1,713,373
              )LOSS
                  FROM CONTINUING OPERATIONS
              
              
              (19,701,385
              )
              
              (36,827,909
              )LOSS
                  FROM DISCONTINUED OPERATIONS
              
              
              (7,566,882
              )
              
              (2,255,036
              )NET
                  LOSS
              
              $
              (27,268,267
              )
              $
              (39,082,945
              )WEIGHTED
                  AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBASIC
                  and DILUTED
              
              
              105,643,655
              
              
              75,072,487LOSS
                  PER SHARE FROM CONTINUING OPERATIONSBASIC
                  and DILUTED
              
              $
              (0.19
              )
              $
              (0.49
              )LOSS
                  PER SHARE FROM DISCONTINUED OPERATIONSBASIC
                  and DILUTED
              
              $
              (0.07
              )
              $
              (0.03
              )NET
                  LOSS PER SHAREBASIC
                  and DILUTED
              
              $
              (0.26
              )
              $
              (0.52
              )




**See
      accompanying notes**





28





**GLOBETEL
      COMMUNICATIONS CORP. & SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF STOCKHOLDERS' EQUITY(DEFICIT)**


**FOR
      THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (RESTATED)**


COMMON STOCKADDITIONAL
              
              STOCKPAID-IN
              
              SUBSCRIPTIONSDescription
              
              SHARES
              
              AMOUNT
              
              CAPITAL
              
              RECEIVABLEBalance,
                  Dec. 31, 2004
              
              
              63,389,976
              
              $
              634
              
              $
              39,889,479
              
              $
              —Shares
                  issued for options exercised
              
              
              1,785,490
              
              
              18
              
              
              92,888
              
              
              (44,494
              )Shares
                  issued for services
              
              
              2,232,215
              
              
              22
              
              
              4,930,729
              
              
              —Shares
                  issued for convertible note payable and accrued interest
              
              
              4,269,876
              
              
              43
              
              
              6,367,983
              
              
              —Shares
                  issued for cash
              
              
              3,177,916
              
              
              32
              
              
              6,903,901
              
              
              —Shares
                  issued for brokers fees
              
              
              66,667
              
              
              1
              
              
              (1
              )
              
              —Shares
                  issued for severance pay
              
              
              106,977
              
              
              1
              
              
              177,396
              
              
              —Conversion
                  of amount due to unconsolidated subsidiary to equity per buy-back
                  agreement
              
              
              —
              
              
              —
              
              
              1,568,524
              
              
              —Shares
                  issued for conversion of Preferred Series A shares
              
              
              8,911,651
              
              
              89
              
              
              697,411
              
              
              —Preferred
                  Series B stock subscriptions receivable paid for with cash and
                  equipment
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for conversion of Preferred Series B shares
              
              
              12,931,334
              
              
              129
              
              
              8,435,070
              
              
              —Shares
                  issued for conversion of Preferred Series C shares
              
              
              1,320,000
              
              
              13
              
              
              749,987
              
              
              —Preferred
                  Series D stock subscriptions receivable paid for with cash
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for Board member stipends
              
              
              —
              
              
              —
              
              
              85,575
              
              
              —Options
                  issued for executive compensation
              
              
              —
              
              
              —
              
              
              55,000
              
              
              —Options
                  issued for services, per Executives % Stock Option Grant
                  Plan
              
              
              —
              
              
              —
              
              
              10,359,267
              
              
              —Options
                  issued for settlement of obligations
              
              
              —
              
              
              —
              
              
              1,256,873
              
              
              —Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  DEC. 31, 2005 (restated)
              
              
              98,192,102
              
              $
              982
              
              $
              81,570,082
              
              $
              (44,494
              )Shares
                  issued for options exercised
              
              
              1,953,830
              
              
              20
              
              
              446,517
              
              
              (85,788
              )Shares
                  issued for services
              
              
              520,965
              
              
              5
              
              
              321,724
              
              
              —Shares
                  issued for settlement of debt obligations
              
              
              909,967
              
              
              9
              
              
              3,214,826
              
              
              —Shares
                  issued for cash
              
              
              5,727,272
              
              
              57
              
              
              6,341,091
              
              
              —Shares
                  issued for conversion of Preferred Series D shares
              
              
              1,166,667
              
              
              12
              
              
              499,988
              
              
              —Shares
                  issued for Preferred Series C shares
              
              
              1,000,000
              
              
              10
              
              
              (10
              )
              
              —Options
                  issued for Board member stipends
              
              
              —
              
              
              —
              
              
              586,995
              
              
              —Options
                  issued for executive compensation
              
              
              —
              
              
              —
              
              
              472,133
              
              
              —Warrants
                  issued with convertible notes
              
              
              —
              
              
              —
              
              
              655,131
              
              
              —Beneficial
                  conversion feature with convertible notes
              
              
              —
              
              
              —
              
              
              624,869
              
              
              —Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  DEC. 31, 2006
              
              
              109,470,803
              
              $
              1,095
              
              $
              94,733,346
              
              $
              (130,282
              )




29




SERIES AADDITIONAL
                
                STOCKPAID-IN
                
                SUBSCRIPTIONSDescription
                
                SHARES
                
                AMOUNT
                
                CAPITAL
                
                RECEIVABLEBalance,
                    Dec. 31, 2004
                
                
                96,500
                
                $
                97
                
                $
                697,403
                
                $
                —Shares
                    issued for options exercised
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for services
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for convertible note payable and accrued interest
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for cash
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for brokers fees
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for severance pay
                
                
                —
                
                
                —
                
                
                —
                
                
                —Conversion
                    of amount due to unconsolidated subsidiary to equity per buy-back
                    agreement
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for conversion of Preferred Series A shares
                
                
                (96,500
                )
                
                (97
                )
                
                (697,403
                )
                
                —Preferred
                    Series B stock subscriptions receivable paid for with cash and
                    equipment
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for conversion of Preferred Series B shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for conversion of Preferred Series C shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —Preferred
                    Series D stock subscriptions receivable paid for with cash
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for Board member stipends
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for executive compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for services, per Executives % Stock Option Grant
                    Plan
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for settlement of obligations
                
                
                —
                
                
                —
                
                
                —
                
                
                —Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —BALANCE,
                    DEC. 31, 2005 (restated)
                
                
                —
                
                $
                —
                
                $
                —
                
                $
                —Shares
                    issued for options exercised
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for services
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for settlement of debt obligations
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for cash
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for conversion of Preferred Series D shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for Preferred Series C shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for Board member stipends
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for executive compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —Warrants
                    issued with convertible notes
                
                
                —
                
                
                —
                
                
                —
                
                
                —Beneficial
                    conversion feature with convertible notes
                
                
                —
                
                
                —
                
                
                —
                
                
                —Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —BALANCE,
                    DEC. 31, 2006
                
                
                —
                
                $
                —
                
                $
                —
                
                $
                —




30


SERIES BADDITIONAL
              
              STOCKPAID-IN
              
              SUBSCRIPTIONSDescription
              
              SHARES
              
              AMOUNT
              
              CAPITAL
              
              RECEIVABLEBalance,
                  Dec. 31, 2004
              
              
              35,000
              
              $
              35
              
              $
              14,849,965
              
              $
              (11,500,000
              )Shares
                  issued for options exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for services
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for convertible note payable and accrued interest
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for cash
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for brokers fees
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for severance pay
              
              
              —
              
              
              —
              
              
              —
              
              
              —Conversion
                  of amount due to unconsolidated subsidiary to equity per buy-back
                  agreement
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for conversion of Preferred Series A shares
              
              
              —
              
              
              —
              
              
              —
              
              
              —Preferred
                  Series B stock subscriptions receivable paid for with cash and
                  equipment
              
              
              —
              
              
              —
              
              
              —
              
              
              5,085,200Shares
                  issued for conversion of Preferred Series B shares
              
              
              (35,000
              )
              
              (35
              )
              
              (14,849,965
              )
              
              6,414,800Shares
                  issued for conversion of Preferred Series C shares
              
              
              —
              
              
              —
              
              
              —
              
              
              —Preferred
                  Series D stock subscriptions receivable paid for with cash
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for Board member stipends
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for executive compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for services, per Executives % Stock Option Grant
                  Plan
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for settlement of obligations
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  DEC. 31, 2005 (restated)
              
              
              —
              
              $
              —
              
              $
              —
              
              $
              —Shares
                  issued for options exercised
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for services
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for settlement of debt obligations
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for cash
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for conversion of Preferred Series D shares
              
              
              —
              
              
              —
              
              
              —
              
              
              —Shares
                  issued for Preferred Series C shares
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for Board member stipends
              
              
              —
              
              
              —
              
              
              —
              
              
              —Options
                  issued for executive compensation
              
              
              —
              
              
              —
              
              
              —
              
              
              —Warrants
                  issued with convertible notes
              
              
              —
              
              
              —
              
              
              —
              
              
              —Beneficial
                  conversion feature with convertible notes
              
              
              —
              
              
              —
              
              
              —
              
              
              —Net
                  loss
              
              
              —
              
              
              —
              
              
              —
              
              
              —BALANCE,
                  DEC. 31, 2006
              
              
              —
              
              $
              —
              
              $
              —
              
              $
              —




31


SERIES CADDITIONAL
                  
                  STOCKPAID-IN
                  
                  SUBSCRIPTIONSDescription
                  
                  SHARES
                  
                  AMOUNT
                  
                  CAPITAL
                  
                  RECEIVABLEBalance,
                      Dec. 31, 2004
                  
                  
                  750
                  
                  $
                  1
                  
                  $
                  749,999
                  
                  $
                  —Shares
                      issued for options exercised
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for convertible note payable and accrued interest
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for cash
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for brokers fees
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for severance pay
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Conversion
                      of amount due to unconsolidated subsidiary to equity per buy-back
                      agreement
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for conversion of Preferred Series A shares
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Preferred
                      Series B stock subscriptions receivable paid for with cash
                      and
                      equipment
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for conversion of Preferred Series B shares
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for conversion of Preferred Series C shares
                  
                  
                  (750
                  )
                  
                  (1
                  )
                  
                  (749,999
                  )
                  
                  —Preferred
                      Series D stock subscriptions receivable paid for with cash
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      issued for Board member stipends
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      issued for executive compensation
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      issued for services, per Executives % Stock Option Grant
                      Plan
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      issued for settlement of obligations
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —BALANCE,
                      DEC. 31, 2005 (restated)
                  
                  
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —Shares
                      issued for options exercised
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for services
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for settlement of debt obligations
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for cash
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for conversion of Preferred Series D shares
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Shares
                      issued for Preferred Series C shares
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      issued for Board member stipends
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Options
                      issued for executive compensation
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Warrants
                      issued with convertible notes
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Beneficial
                      conversion feature with convertible notes
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —Net
                      loss
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —
                  
                  
                  —BALANCE,
                      DEC. 31, 2006
                  
                  
                  —
                  
                  $
                  —
                  
                  $
                  —
                  
                  $
                  —





32


SERIES DADDITIONAL
                
                STOCK
                
                
                
                TOTALPAID-IN
                
                SUBSCRIPTIONS
                
                ACCUMULATED
                
                STOCKHOLDERS'Description
                
                SHARES
                
                AMOUNT
                
                CAPITAL
                
                RECEIVABLE
                
                DEFICIT
                
                EQUITYBalance,
                    Dec. 31, 2004
                
                
                1,000
                
                $
                1
                
                $
                999,999
                
                $
                (750,000
                )
                $
                (42,439,036
                )
                $
                2,498,577Shares
                    issued for options exercised
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                48,412Shares
                    issued for services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                4,930,751Shares
                    issued for convertible note payable and accrued interest
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                6,368,026Shares
                    issued for cash
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                6,903,932Shares
                    issued for brokers fees
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for severance pay
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                177,397Conversion
                    of amount due to unconsolidated subsidiary to equity per buy-back
                    agreement
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,568,524Shares
                    issued for conversion of Preferred Series A shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Preferred
                    Series B stock subscriptions receivable paid for with cash and
                    equipment
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                5,085,200Shares
                    issued for conversion of Preferred Series B shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Shares
                    issued for conversion of Preferred Series C shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Preferred
                    Series D stock subsc. receivable paid for with cash
                
                
                —
                
                
                —
                
                
                —
                
                
                250,000
                
                
                —
                
                
                250,000Options
                    issued for Board member stipends
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                85,575Options
                    issued for executive compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                55,000Options
                    issued for services, per Executives % Stock Option Grant
                    Plan
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                10,359,267Options
                    issued for settlement of obligations
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                1,256,873Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (39,082,945
                )
                
                (39,082,944
                )BALANCE,
                    DEC. 31, 2005 (restated)
                
                
                1,000
                
                $
                1
                
                $
                999,999
                
                $
                (500,000
                )
                $
                (81,521,981
                )
                $
                504,589Shares
                    issued for options exercised
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                360,749Shares
                    issued for services
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                321,729Shares
                    issued for settlement of debt obligations
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                3,214,835Shares
                    issued for cash
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                6,341,148Shares
                    issued for conversion of Preferred Series D shares
                
                
                (1,000
                )
                
                (1
                )
                
                (999,999
                )
                
                500,000
                
                
                —
                
                
                —Shares
                    issued for Preferred Series C shares
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —Options
                    issued for Board member stipends
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                586,995Options
                    issued for executive compensation
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                472,133Warrants
                    issued with convertible notes
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                655,131Beneficial
                    conversion feature with convertible notes
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                624,869Net
                    loss
                
                
                —
                
                
                —
                
                
                —
                
                
                —
                
                
                (27,268,267
                )
                
                (27,268,267
                )BALANCE,
                    DEC. 31, 2006
                
                
                —
                
                $
                —
                
                $
                —
                
                $
                —
                
                $
                (108,790,248
                )
                $
                (14,186,089
                )
 33





**GLOBETEL
      COMMUNICATIONS CORP. AND SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE YEARS ENDED DECEMBER 31,**


2006
              
              2005(restated)CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (27,268,267
              )
              $
              (39,082,945
              )Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:Depreciation
              
              
              289,914
              
              
              165,352Loss
                  on settlement
              
              
              —
              
              
              1,256,873Loss
                  on disposition of unconsolidated foreign subsidiary
              
              
              —
              
              
              352,300Loss
                  on disposition of assets
              
              
              682,695
              
              
              —Loss
                  on impairment of assets
              
              
              5,279,567
              
              
              —Bad
                  debt expense
              
              
              93,571
              
              
              1,373,458Research
                  and development expense
              
              
              —
              
              
              7,129,550Stock
                  based compensation
              
              
              321,729
              
              
              4,930,573Common
                  stock exchanged for severance pay
              
              
              —
              
              
              177,397Fair
                  value of vested options
              
              
              1,059,128
              
              
              10,499,842Interest
                  expense for convertible notes payable
              
              
              201,181
              
              
              —Noncash
                  activity from discontinued operations
              
              
              1,681,645
              
              
              —(Increase)
                  decrease in assets:Accounts
                  receivable
              
              
              (193,357
              )
              
              184,003Loans
                  to employees
              
              
              46,068
              
              
              (39,183
              )Prepaid
                  expenses
              
              
              67,060
              
              
              (117,522
              )Prepaid
                  expenses – related party
              
              
              185,960
              
              
              (185,960
              )Inventory
              
              
              —
              
              
              (3,549
              )Amortization
                  of debt discount
              
              
              (397,872
              )
              
              —Deposits
              
              
              1,139,934
              
              
              (1,159,610
              )Decrease
                  in assets relating to discontinued operations
              
              
              1,598,251
              
              
              —Increase
                  (decrease) in liabilities:Accounts
                  payable
              
              
              1,761,553
              
              
              235,597Due
                  to former employee with stock
              
              
              (237,600
              )
              
              237,600Accrued
                  officers' salaries and bonuses
              
              
              (97,382
              )
              
              (100,951
              )Accrued
                  expenses and other liabilities
              
              
              569
              
              
              (452,200
              )Related
                  party payable
              
              
              (57,500
              )
              
              —Deferred
                  revenue
              
              
              —
              
              
              (13,964
              )Decrease
                  in liabilities relating to discontinued operations
              
              
              (297,173
              )
              
              901,606NET
                  CASH USED BY OPERATING ACTIVITIES
              
              
              (14,140,328
              )
              
              (12,807,332
              )CASH
                  FLOWS FROM INVESTING ACTIVITIESAcquisition
                  of property and equipment
              
              
              (255,182
              )
              
              (2,021,559
              )Acquisition
                  of Hotzone assets
              
              
              —
              
              
              (27,000
              )NET
                  CASH USED BY INVESTING ACTIVITIES
              
              
              (255,182
              )
              
              (2,048,559
              )CASH
                  FLOWS FROM FINANCING ACTIVITIESSale
                  of preferred stock - Series B
              
              
              —
              
              
              250,000Sale
                  of preferred stock - Series C
              
              
              —
              
              
              250,000Issuance
                  of common stock – exercises of warrants
              
              
              6,341,148
              
              
              6,903,931Sale
                  of common stock - exercises of options
              
              
              34,446
              
              
              48,412Proceeds
                  from unconsolidated foreign subsidiary
              
              
              —
              
              
              1,568,524Payments
                  on capital lease financing
              
              
              —
              
              
              (4,718
              )Proceeds
                  from notes and loans payable
              
              
              6,943,545
              
              
              6,368,026Payments
                  on notes and loans payable
              
              
              —
              
              
              (2,846
              )Bank
                  overdraft
              
              
              14,664
              
              
              —Payments
                  on related party payables
              
              
              —
              
              
              (60,000
              )NET
                  CASH PROVIDED BY FINANCING ACTIVITIES
              
              
              13,333,803
              
              
              15,321,329NET
                  (DECREASE) INCREASE IN CASH AND EQUIVALENTS
              
              
              (1,061,709
              )
              
              465,438CASH
                  AND EQUIVALENTS – BEGINNING
              
              
              1,065,952
              
              
              600,514CASH
                  AND EQUIVALENTS – ENDING
              
              $
              4,243
              
              $
              1,065,952




34


SUPPLEMENTAL
                  DISCLOSURES
              
              2006
              
              2005(restated)Cash
                  paid during the period for:Interest
              
              $
              26,310
              
              $
              730Income
                  taxes
              
              
              —
              
              
              —NON-CASH
                  INVESTING AND FINANCING ACTIVITIES:Options
                  issued for services
              
              
              —
              
              
              10,499,842Options
                  issued for settlement of obligations
              
              
              —
              
              
              1,256,873Shares
                  issued for services
              
              
              —
              
              
              4,930,573Shares
                  issued for Hotzone debt
              
              
              2,386,667
              
              
              —Shares
                  issued for research and development
              
              
              —
              
              
              7,073,640Shares
                  issued for assets
              
              
              —
              
              
              55,910Conversion
                  of Series A preferred stock to common stock
              
              
              —
              
              
              697,500Conversion
                  of Series B preferred stock to common stock
              
              
              —
              
              
              8,435,200Conversion
                  of Series C preferred stock to common stock
              
              
              —
              
              
              750,000Conversion
                  of Series D preferred stock to common stock
              
              
              1,000,000
              
              
              —Cashless
                  issuance for exercise of options
              
              
              360,749
              
              
              48,412Non
                  cash receipt for services
              
              
              590,568
              
              
              —Non
                  cash disbursement for debt
              
              
              590,568
              
              
              —Conversion
                  of notes payable to common stock
              
              
              —
              
              
              6,368,026Series
                  B preferred stock issued for equipment
              
              
              —
              
              
              4,835,200Non-cash
                  equity-warrant valuation and intrinsic value of beneficialconversion
                  associated with convertible notes
              
              
              1,280,000
              
              
              —




**See
      accompanying notes**




35





**GLOBETEL
      COMMUNICATIONS CORP. AND SUBSIDIARIES**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**YEARS
      ENDED DECEMBER 31, 2006 AND 2005**





**NOTE
      1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES**





NATURE
      OF
      OPERATIONS





GlobeTel
      Communications Corp. ("GlobeTel," “the Company”) is engaged in the business of
      airships and telecommunications delivery systems. GlobeTel is developing
      high-altitude airships called Stratellites that will be used to provide wireless
      voice, video, and data services.





ORGANIZATION
      AND CAPITALIZATION





GlobeTel
      was organized in July 2002, under the laws of the State of Delaware. Upon its
      incorporation, GlobeTel was a wholly-owned subsidiary of American Diversified
      Group, Inc. (ADGI). ADGI was organized January 16, 1979, under the laws of
      the
      State of Nevada. ADGI had two other wholly-owned subsidiaries, Global Transmedia
      Communications Corporation (Global), a Delaware corporation, and NCI Telecom,
      Inc. (NCI), a Missouri corporation.





On
      July
      1, 2002, both Global and NCI were merged into ADGI. On July 24, 2002, ADGI
      stockholders approved a plan of reincorporation for the exchange of all
      outstanding shares of ADGI for an equal number of shares of GlobeTel.
      Subsequently, ADGI was merged into GlobeTel, which is now conducting the
      business formerly conducted by ADGI and its subsidiaries, and all references
      to
      ADGI in these financial statements now apply to GlobeTel
      interchangeably.





In
      July
      2002, pursuant to the reincorporation, the Company authorized the issuance
      of up
      to 1,500,000,000 (pre-split) shares of common stock, par value of $0.00001
      per
      share and up to 10,000,000 shares of preferred stock, par value of $0.001 per
      share.





In
      May
      2005, GlobeTel approved a reverse split of shares of common stock on a one
      for
      fifteen (1:15) basis and changed the number of shares authorized to 100,000,000.
      In the Company's annual shareholders meeting on August 1, 2005, the shareholders
      voted to increase the shares authorized from 100,000,000 to
      150,000,000.





All
      common stock amounts in this report have been retroactively restated to account
      for the reverse stock split, unless otherwise noted.





In
      the
      Company's annual shareholders meeting on June 21, 2006, the shareholders voted
      to increase the shares authorized from 150,000,000 to 250,000,000.





BASIS
      OF
      PRESENTATION





The
      financial statements include the accounts of GlobeTel Communications Corp.
      and
      its wholly-owned subsidiaries: Sanswire Networks, LLC; GlobeTel Wireless Corp.;
      GlobeTel Wireless Europe GmbH, a German corporation, and Centerline
      Communications, LLC, and its wholly-owned subsidiaries, EQ8, LLC, EnRoute
      Telecom, LLC, G Link Solutions, LLC, Volta Communications, LLC, and Lonestar
      Communications, LLC; High Valley Property Ltd., a British Virgin Islands
      corporation; as well as the accounts GTCC de Mexico, S.A. de C.V, which GlobeTel
      owns 99%.





Inter-company
      balances and transactions were eliminated in the consolidation.





GOING
      CONCERN





The
        accompanying financial statements have been prepared on a going concern basis,
        which contemplates the realization of assets and the settlement of liabilities
        and commitments in the normal course of business. As reflected in the
        accompanying financial statements, the Company had a net loss of $27,268,267
        and
        a negative cash flow from operations of $14,140,330 for the year ended December
        31, 2006, and had a working capital deficiency of $13,216,834 and a
        stockholders’ deficit of $14,186,089 at December 31, 2006.  These
        factors raise substantial doubt about the Company’s ability to continue as a
        going concern. The ability of the Company to continue as a going concern
        is
        dependent upon the Company’s ability to raise additional funds and implement its
        business plan. The financial statements do not include any adjustments that
        might be necessary if the Company is unable to continue as a going
        concern.





36





Additional
      cash will still be needed to support operations. Management believes it can
      continue to raise capital from various funding sources, which when added to
      budgeted sales and current working capital,  will
      be
      sufficient to sustain operations at its current level through December 31,
      2007.  However,
      if budgeted sales levels are not achieved and/or if significant unanticipated
      expenditures occur, or if it is unable to obtain the necessary funding, the
      Company may have to modify its business plan, reduce or discontinue some of
      its
      operations or seek a buyer for all or part of its assets to continue as a going
      concern. As
      of the date of this report the Company has continued to raise capital to sustain
      its current operations which have been significantly reduced since January
      1,
      2007.  The Company will need to periodically seek investment to provide
      cash for operations until such time that operations provide sufficient cash
      flow
      to cover expenditures. (see also next paragraph.)





On
        May 2,
        2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the
        United States District Court for the Southern District of Florida against
        GlobeTel Communications Corp. (the “Company”) and three former officers of the
        Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC
        alleges, among other things, that the Company recorded $119 million in revenue
        on the basis of fraudulent invoices created by Joseph Monterosso and Luis
        Vargas, two individuals formerly employed by the Company who were in charge
        of
        its wholesale telecommunications business. The SEC alleges that the Company
        violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as
        amended, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities
        Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 10b-5, 12b-20,
        13a-1, 13a-11 and 13a-13 under the Exchange Act. The SEC seeks as relief
        a
        permanent injunction, civil penalties, and disgorgement with prejudgment
        interest. The Company intends to vigorously defend itself in this action.
        The
        staff is also considering recommending that the SEC authorize and institute
        proceedings to revoke the registration of Company’s securities pursuant to
        Section 12(j) of the Exchange Act. (also see Note 15)




CASH
      AND
      CASH EQUIVALENTS





The
      Company considers all highly liquid debt instruments with an original maturity
      of three months or less at the date of purchase to be cash equivalents.





BANK
      OVERDRAFT





The
      Company records any negative balances in its bank accounts as a bank
      overdraft.





ACCOUNTS
      RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS





Trade
      and
      other accounts receivable are reported at face value less any provisions for
      uncollectible accounts considered necessary. Accounts receivable consists of
      a
      reimbursement from the Company’s Directors and Officers insurance for legal and
      accounting expenses that were paid above the Company’s deductible. The Company
      estimates doubtful accounts on an item-to-item basis and includes over-aged
      accounts for any trade receivable as part of allowance for doubtful accounts,
      which are generally accounts that are ninety-days or more overdue. When accounts
      are deemed uncollectible, the account receivable is charged off and the
      allowance account is reduced accordingly. Bad debt expense for the years ended
      December 31, 2006 and 2005 were $93,571, and $1,372,221, respectively.





INVENTORY





Inventory
      is recorded at lower-of-cost-or-market, first-in first-out (FIFO) basis.





As
      of
      December 31, 2006, the Company had no inventory, however, as of December 31,
      2005, the Company had $60,976 of IP phones inventory, but considered them
      obsolete.





PROPERTY
      AND EQUIPMENT





Property
      and equipment consists of primarily telecommunications equipment, computer
      and
      related equipment and office furniture and fixtures, which are stated at cost
      less depreciation and amortization. Depreciation is based on the estimated
      useful lives of the assets, ranging from seven years for office furniture and
      equipment to five years for telecommunications equipment, using the
      straight-line method. Expenditures for maintenance and repairs are charged
      to
      expense as incurred. Major improvements are capitalized. Gains and losses on
      disposition of property and equipment are included in income as
      realized.




REGISTRATION
      RIGHTS




In
      connection with the sale of debt or equity instruments, we may enter into
      Registration Rights Agreements. Generally, these Agreements require us to file
      registration statements with the Securities and Exchange Commission to register
      common shares that may be issued on conversion of debt or preferred stock,
      to
      permit re-sale of common shares previously sold under an exemption from
      registration or to register common shares that may be issued on exercise of
      outstanding options or warrants.




37




The
      Agreements usually require us to pay penalties for any time delay in filing
      the
      required registration statements, or in the registration statements becoming
      effective, beyond dates specified in the Agreement. These penalties are usually
      expressed as a fixed percentage, per month, of the original amount we received
      on issuance of the debt or preferred stock, common shares, options or warrants.
      We account for these penalties as a contingent liability and not as a derivative
      instrument.





REVENUE
      RECOGNITION





Revenues
      for voice, data, and other services to end-users are recognized in the month
      in
      which the service is provided. Amounts invoiced and collected in advance of
      services provided are recorded as deferred revenue. Revenues for carrier
      interconnection and access are recognized in the month in which the service
      is
      provided.





Sales
      of
      telecommunications networks are recognized when the networks are delivered
      and
      accepted by the customer. Sales of computer hardware, equipment, and
      installation are recognized when products are shipped to customers. Provisions
      for estimated returns and allowances are provided for in the same period the
      related sales are recorded. Revenues on service contracts are recognized ratably
      over applicable contract periods. Amounts billed and collected before services
      are performed are included in deferred revenues.





INCOME
      TAXES





Income
      taxes are computed under the provisions of the Financial Accounting Standards
      Board (FASB) Statement No. 109 (SFAS 109), Accounting for Income Taxes. SFAS
      109
      is an asset and liability approach that requires the recognition of deferred
      tax
      assets and liabilities for the expected future tax consequences of the
      difference in events that have been recognized in the Company's financial
      statements compared to the tax returns.





ADVERTISING
      AND MARKETING COSTS





Advertising
      and marketing costs are charged to operations in the period incurred.
      Advertising and marketing expense for the years ended December 31, 2006 and
      2005, were $230,329 and $265,283, respectively, and are included in "General
      and
      Administrative" in the consolidated statements of income (loss).





FAIR
      VALUE OF FINANCIAL INSTRUMENTS





Financial
      instruments, including cash, receivables, securities, accounts payable, and
      notes payable are carried at amounts which reasonably approximate their fair
      value due to the short-term nature of these amounts or due to variable rates
      of
      interest which are consistent with market rates.





CONCENTRATIONS
      OF CREDIT RISK AND ECONOMIC DEPENDENCE





Financial
      instruments, which potentially subject the Company to a concentration of credit
      risk, are cash and cash equivalents and accounts receivable. The Company had
      cash balances of $4,243 and $1,065,952 as of December 31, 2006 and 2005,
      respectively, which included balances as of December 31, 2005 is in excess
      of
      federally insured limit. As of December 31, 2006, the Company had no balances
      in
      excess of federally insured limits.




The
      Company operates worldwide. Consequently, the Company's ability to collect
      the
      amounts due from customers may be affected by economic fluctuations in each
      of
      the geographical locations in which the Company provides its services,
      principally Central and South America and Asia. The Company is dependent upon
      certain major customers, key suppliers, and contractual agreements, the absence
      of which may affect the Company's ability to operate its telecommunications
      business at current levels.




Additional
      cash will still be needed to support operations. Management believes it can
      continue to raise capital from various funding sources, which when added to
      budgeted sales and current working capital,  will
      be
      sufficient to sustain operations at its current level through December 31,
      2007.  However,
      if budgeted sales levels are not achieved and/or if significant unanticipated
      expenditures occur, or if it is unable to obtain the necessary funding, the
      Company may have to modify its business plan, reduce or discontinue some of
      its
      operations or seek a buyer for all or part of its assets to continue as a going
      concern. As
      of the date of this report the Company has continued to raise capital to sustain
      its current operations which have been significantly reduced since January
      1,
      2007.  The Company will need to periodically seek investment to provide
      cash for operations until such time that operations provide sufficient cash
      flow
      to cover expenditures.




38





USE
      OF
      ESTIMATES





The
      process of preparing financial statements in conformity with generally accepted
      accounting principles in the United States requires the use of estimates and
      assumptions regarding certain types of assets, liabilities, revenues, and
      expenses. Such estimates primarily relate to unsettled transactions and events
      as of the date of the financial statements. Accordingly, upon settlement, actual
      results may differ from estimated amounts.




RECLASSIFICATIONS





Certain
      reclassifications have been made to the 2005 financial statements to conform
      to
      the 2006 presentation for comparative purposes. There were no material changes
      in classifications made to previously issued financial statements.





NET
      LOSS
      PER COMMON SHARE





Basic
      net
      loss per common share has been computed based upon the weighted average number
      of shares of common stock outstanding during each period. The basic net loss
      is
      computed by dividing the net loss by the weighted average number of common
      shares outstanding during each period. In periods where losses are reported,
      the
      weighted average number of common shares outstanding excludes common stock
      equivalents because their inclusion would be anti-dilutive. If all outstanding
      options, warrants and convertible shares were to be converted or exercised
      as of
      December 31, 2006, the shares outstanding would be 139,944,588. If all
      outstanding options, warrants and convertible shares were to be converted or
      exercised as of the date of this report, the shares outstanding would be
      166,806,582.





IMPAIRMENT
      OF LONG-LIVED ASSETS





The
      Company follows FASB Statement No. 144 (SFAS 144), "Accounting for the
      Impairment of Long-Lived Assets." SFAS 144 requires that long-lived assets
      to be
      held and used are reviewed for impairment whenever events or changes in
      circumstances indicate that the related carrying amount may not be recoverable.
      When required, impairment losses on assets to be held and used are recognized
      based on the fair value of the asset. Long-lived assets to be disposed of,
      if
      any, are reported at the lower of carrying amount or fair value less cost to
      sell.




STOCK-BASED
      COMPENSATION




On
      January 1, 2006, the Company adopted SFAS No. 123(R), *Share-Based
      Payment* ,
      which
      requires the measurement and recognition of compensation expense for all
      stock-based awards made to employees and directors based on estimated fair
      values. SFAS No. 123(R) supersedes the Company’s previous accounting under
      Accounting Principles Board Opinion (“APB”) No. 25, *Accounting
      for Stock Issued to Employees* .
      In
      March 2005, the Securities and Exchange Commission issued SAB No. 107, *Share-Based
      Payment* ,
      relating to SFAS No. 123(R). The Company has applied applicable
      provisions of SAB No. 107 in its adoption of SFAS No. 123(R).




The
      Company adopted SFAS No. 123(R) using the prospective transition method,
      which requires the application of the accounting standard as of January 1,
      2006, the first day of its year ended December 31, 2006. In accordance with
      this transition method, the Company’s consolidated financial statements for
      prior periods have not been restated to reflect, and do not include the impact
      of, SFAS No. 123(R). The Company’s consolidated financial statements, as of
      and for the year ended December 31, 2006 and thereafter, reflect the impact
      of SFAS No. 123(R). Upon adopting SFAS No. 123(R), for awards with
      service conditions and graded-vesting, a one-time election was made to recognize
      stock-based compensation expense on a straight-line basis over the requisite
      service period for the entire award.




The
      Company used the intrinsic value method of measuring the fair value of share
      based payments granted prior to January 1, 2006. Because the Company
      utilized the intrinsic value method for pro forma disclosure purposes under
      the
      original provisions of SFAS No. 123, *Accounting
      for Stock-based Compensation* ,
      disclosures to demonstrate the effect of pro forma compensation cost on net
      loss
      and net loss per share for the year ended December 31, 2005 is not
      appropriate in accordance with SFAS No. 123(R).




The
      stock-based compensation expense related to employee stock options and
      restricted stock awards recognized during the year ended December 31, 2005
      was $122. Stock-based compensation expense recognized under SFAS No. 123(R)
      for the year ended December 31, 2006 was $321,729 before income taxes.




The
      Company accounts for stock issued to consultants on a fair value basis in
      accordance with SFAS No. 123(R) and EITF No. 96-18, *Accounting
      for Equity Instruments That Are Issued to Other Than Employees for Acquiring,
      or
      in Conjunction with Selling, Goods or Services.*





Had
      compensation cost for the Company's stock option plans been determined based
      on
      the fair value at the grant date for awards under those plans, consistent with
      the measurement provisions of SFAS 123 and SFAS 148, the Company's net loss
      and
      basic loss per share would have been adjusted as follows:




39


For the Year EndedDecember, 31, 2005Net
                  LossAs
                  Reported
              
              $
              (39,082,945
              )Pro
                  Forma
              
              $
              (43,012,437
              )Net
                  Loss per common share – basic and dilutedAs
                  Reported
              
              $
              (.52
              )Pro
                  Forma
              
              $
              (.57
              )




In
      December 2005, the FASB issued SFAS No. 123 (revised 2005), Share-Based Payment,
      which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation.
      SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued
      to
      Employees and amends SFAS No. 95, Statement of Cash Flows. Effective for the
      years on or after December 15, 2005, the Company will recognize all share-based
      payments to employees, including grants of employee stock options, in the
      statement of operations based on their fair values.




RECENTLY
      ISSUED ACCOUNTING PRONOUNCEMENTS




***SFAS
      No. 123 (Revised 2004), Share-Based Payment (SFAS No. 123(R))***




In
      December 2004, the Financial Accounting Standards Board, or FASB, issued
      SFAS No. 123(R), which is a revision of SFAS No. 123, *Accounting
      for Stock-Based Compensation* .
      SFAS
      No. 123(R) supersedes APB Opinion No. 25, *Accounting
      for Stock Issued to Employees* ,
      and
      amends SFAS No. 95, *Statement
      of Cash Flows* .
      Generally, the approach in SFAS No. 123(R) is similar to the approach
      described in SFAS No. 123. However, SFAS No. 123(R) requires all
      share-based payments to employees, including grants of employee stock options,
      to be recognized in the income statement based on their fair values.





In
      March 2005, the SEC issued Staff Accounting Bulletin No. 107 (SAB
      No. 107) which summarizes the views of the SEC staff regarding the
      interaction between SFAS No. 123(R) and certain SEC rules and regulations.
      SAB No. 107 provides guidance on several topics, including valuation
      methods, the classification of compensation expense, capitalization of
      compensation expenses related to share-based payment arrangements, the
      accounting for income tax effects of share-based payment arrangements, and
      disclosures in “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations” subsequent to adoption of SFAS No. 123(R).





In
      April 2005, the SEC issued FR-74, Amendment to Rule 4-01(a) of
      Regulation S-X Regarding the Compliance Date for Statement of Financial
      Accounting Standards No. 123 (Revised 2004), Share-Based Payment (FR-74).
      FR-74 allows companies to implement SFAS No. 123(R) at the beginning of
      their next fiscal year, instead of the next reporting period that begins after
      June 15, 2005. FR-74 does not change the accounting required by SFAS
      No. 123(R); it only changes the implementation date of the standard.





The
      Company adopted SFAS No. 123(R) using the prospective method on
      January 1, 2006. The Company cannot predict the level of its impact since
      it will depend upon the level of share-based payments granted in the future.
      However, the Company generally expects compensation expense to increase.




***SFAS
      No. 154, Accounting Changes and Error Corrections, a replacement of APB
      Opinion No. 20 and FASB Statement No. 39 (SFAS No. 154)***




In
      May 2005, the FASB issued SFAS No. 154, which changes the requirements
      for the accounting and reporting of a change in accounting principle or
      correction of an error. It requires, unless impracticable, retrospective
      application of the required method for reporting a change in accounting
      principle in the absence of explicit transition requirements specific to the
      newly adopted accounting principle. SFAS No. 154 is effective for
      accounting changes and correction of errors made in fiscal years beginning
      after
      December 15, 2005. The Company implemented SFAS No. 154 effective
      January 1, 2006.




***FASB
      Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
      interpretation of FASB Statement No. 109 (FIN 48)***




In
      July
      2006, the FASB issued FIN 48, which clarifies the accounting for uncertainty
      in
      tax positions. This interpretation requires that the Company recognize in its
      financial statements the impact of a tax position if that position is more
      likely than not of being sustained upon examination, based on the technical
      merits of the position. The provisions of FIN 48 are effective as of
      January 1, 2007, with the cumulative effect of the change in accounting
      principle recorded as an adjustment to opening retained earnings. The Company
      believes that FIN 48 will not have a material impact on its consolidated
      financial statements.




40




***SAB
      No. 108, Considering the Effects of Prior Year Misstatements When Quantifying
      Misstatements in Current Year Financial Statements (SAB 108)***




In
      September 2006, the SEC released SAB 108. SAB 108 provides guidance on how
      the
      effects of the carryover or reversal of prior year financial statement
      misstatements should be considered in quantifying a current year misstatement.
      Prior practice allowed the evaluation of materiality on the basis of (1) the
      error quantified as the amount by which the current year income statement was
      misstated (rollover method) or (2) the cumulative error quantified as the
      cumulative amount by which the current year balance sheet was misstated (iron
      curtain method). Reliance on either method in prior years could have resulted
      in
      misstatement of the financial statements. The guidance provided in SAB 108
      requires both methods to be used in evaluating materiality. Immaterial prior
      year errors may be corrected with the first filing of prior year financial
      statements after adoption. The cumulative effect of the correction would be
      reflected in the opening balance sheet with appropriate disclosure of the nature
      and amount of each individual error corrected in the cumulative adjustment,
      as
      well as a disclosure of the cause of the error and that the error had been
      deemed to be immaterial in the past. The Company believes that SAB 108 will
      not
      have a material impact on its consolidated financial statements.





***SFAS
      No. 157, Fair Value Measurements (SFAS No. 157)***




In
      September 2006, the FASB issued SFAS No. 157. This Statement defines fair value
      as used in numerous accounting pronouncements, establishes a framework for
      measuring fair value in GAAP and expands disclosure related to the use of fair
      value measures in financial statements. SFAS No. 157 does not expand the use
      of
      fair value measures in financial statements, but standardizes its definition
      and
      guidance in GAAP. The Standard emphasizes that fair value is a market-based
      measurement and not an entity-specific measurement based on an exchange
      transaction in which the entity sells an asset or transfers a liability (exit
      price). SFAS No. 157 establishes a fair value hierarchy from observable market
      data as the highest level to fair value based on an entity’s own fair value
      assumptions as the lowest level. SFAS No. 157 is to be effective for its
      financial statements issued in 2008. The Company believes that SFAS No. 157
      will
      not have a material impact on its consolidated financial statements.





**SFAS
      No. 141 (R),** ***Business
      Combinations (SFAS No. 141R)*** **and SFAS No. 160,**  ***Non-controlling
      Interests in Consolidated Financial Statements (SFAS No.
      160)***




In
      December 2007, the FASB issued SFAS No. 141R, Business Combinations, and SFAS
      No. 160, Non-controlling Interests in Consolidated Financial Statements.
      SFAS No. 141R requires an acquirer to measure the identifiable assets acquired,
      the liabilities assumed, and any non-controlling interest in the acquiree at
      their fair values on the acquisition date, with goodwill being the excess value
      over the net identifiable assets acquired. SFAS No. 160 clarifies that a
      non-controlling interest in a subsidiary should be reported as equity in the
      consolidated financial statement. The calculation of earnings per share will
      continue to be based on income amounts attributable to the parent. SFAS
      No. 141R and SFAS No. 160 are effective for financial statements
      issued for fiscal years beginning after December 15, 2008. Early adoption is
      prohibited. The Company has not yet determined the effect on our financial
      statements, if any, upon adoption of SFAS No. 141R or SFAS No.
      160.





**SFAS
      No. 161,** ***Disclosures
      about Derivative Instruments and Hedging Activities*** ***(SFAS No. 161)***





In
      March
      2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities”. The new standard is intended to improve
      financial reporting about derivative instruments and hedging activities by
      requiring enhanced disclosures to enable investors to better understand their
      effects on an entity’s financial position, financial performance, and cash
      flows. FAS 161 is effective for the Company in fiscal 2010.





Management
      does not believe that there are any recently-issued, but not yet effective
      accounting pronouncements, which could have a material effect on the
      accompanying condensed consolidated financial statements




**NOTE
      2. RESTATEMENT OF RESULTS**




The
      Company determined that, in certain cases, it misinterpreted or misapplied
      Generally Accepted Accounting Principles (“GAAP”) in the 2005 consolidated
      financial statements and, accordingly, the Company has restated these
      consolidated financial statements.




As
      discussed more fully below, the restatements involve, among other matters,
      revenue recognition issues related to reporting gross revenue versus net as
      per
      EITF Issue 99-19. In making these restatements, the Company performed an
      internal analysis of its accounting policies, practices, procedures and
      disclosures for the affected period.




*Summary
      of restatement items*




The
      following table set forth the effects of the restatement adjustments discussed
      below on revenue; cost of sales; net loss; and loss per share as presented
      in
      the consolidated statement of operations for the year ended December 31,
      2005 and intangible assets. The restatement adjustments are discussed in the
      paragraphs following the tables.




41


**Net
        Revenue Adjustment**




**Year ended December 31, 2005****Revenue**
                
                **Cost of Sales**
                
                **Net Loss**
                
                **Loss per**
                  **Share**
                
                **Intangible Assets**Previously
                    reported
                
                $
                81,143,838
                
                $
                80,730,141
                
                $
                (31,953,395
                )
                $
                (0.426
                )
                $
                9,907,550**Restatement
                    Adjustments, net:**Net
                    Revenue Adjustment
                
                $
                (70,999,058
                )
                $
                (70,999,058
                )
                
                —
                
                
                —2004
                    Purchase accounting
                
                
                —
                
                
                —
                
                
                
                
                
                —
                
                
                (2,778,000
                )Purchase
                    accounting
                
                
                —
                
                
                —
                
                
                (7,129,550
                )
                
                (0.095
                )
                
                (7,129,550
                )Net
                    restatements
                
                $
                (70,999,058
                )
                $
                (70,999,058
                )
                
                (7,129,550
                )
                
                (0.095
                )
                
                (9,907,550
                )As
                    restated
                
                $
                10,144,780
                
                $
                9,731,083
                
                $
                (39,082,945
                )
                $
                (0.521
                )
                $
                —





In
      2005,
      the Company engaged in transactions where it recorded wholesale
      telecommunications revenues as Gross Revenue. After thorough review, the Company
      concluded that 2005 revenues equaling $70,999,058 could not be supported and
      thus were reduced from previously reported revenues. The adjustments were offset
      against previously reported cost of sales by the same amount of
      $70,999,058.





In
      the
      previously issued consolidated financial statements, the gross consideration
      was
      recorded for all wholesale telecommunications revenue without additional
      consideration to its characteristics. As part of the internal analysis of the
      accounting policies, practices and procedures in place in 2005, the Company
      did
      not review the previous accounting model for recording the
      revenues.





For
      financial statement purposes, part of this restatement has been reclassified
      into discontinued operations (see Note 3 below).





Purchase
      Accounting





As
      described in Item 7, Financial Statements, Note 9 - Asset Acquisition –
Hotzone, the Company found a discrepancy in the application of purchase
      accounting for the June 2, 2005 transaction and have recorded an adjustment
      to
      the consolidated financial statements.





Intangible
      Assets.  The Company recorded restatement adjustments to the amounts
      allocated to the technology-in-place intangible assets acquired in the
      transaction. The effect of the adjustments to intangible assets in 2005 was
      a
      reduction of $7,129,550 and subsequently an increase to research and development
      expense in 2005 of $7,129,550.





**NOTE
      3. DISCONTINUED OPERATIONS**





The
      Company has decided to close several of its operations and has presented certain
      activities as discontinued operations as of and for the years ended December
      31,
      2006.





Telecom





The
      Company decided to wind down the operations of Centerline Communications LLC.
      It
      did not have sufficient working capital to make Centerline profitable. The
      Company decided that any capital should be directed towards the Company’s other
      programs and that it should collect Centerline’s outstanding receivables and
      sell its assets.





GlobeTel
      Wireless Corp.





During
      the first quarter of 2007, the president of GlobeTel Wireless, Ulrich Altvater,
      became a consultant to the company to provide many of the services that were
      provided under the auspices of GlobeTel Wireless. Globetel believed at the
      time
      that this would be a more cost efficient manner of running the business.
      However, in May of 2007 Globetel terminated the contract with Altvater. In
      the
      second quarter of 2007, the Company decided to shut down the subsidiary and
      concentrate its efforts solely on the development and sale of Lighter than
      Air
      Unmanned Aerial Vehicles (LTA UAV’s).




42





During
      2007, the Company disposed of two components of its business which constituted
      discontinued operations – Centerline Communications, LLC and Globetel
      Wireless Corp. The loss on the Company’s consolidated statements of operations
      for the years ended December 31, 2006 and 2005 is summarized as
      follows:





**Telecom**
            
            **2006**
            
            **2005**Loss
                from discontinued operations
            
            $
            (3,306,546
            )
            $
            (1,510,388
            )**Globetel
                Wireless**Loss
                from discontinued operations
            
            
            (4,260,336
            )
            
            (744,649
            )Loss
                from discontinued operations - net
            
            $
            (7,566,882
            )
            $
            (2,255,037
            )





The
      Company incurred the following losses from discontinued operations for the
      years
      ended December 31, 2006 and 2005:





**2006**
            
            **Telecom**
            
            **Globetel Wireless**
            
            **Total**Revenue
            
            $
            7,478,250
            
            $
            260,058
            
            $
            7,738,308Cost
                of sales
            
            
            (7,297,515
            )
            
            (207,884
            )
            
            (7,505,399
            )**Gross
                margin (loss)**
            
            
            180,735
            
            
            52,174
            
            
            232,909Payroll
                and related taxes
            
            
            (627,403
            )
            
            (617,916
            )
            
            (1,245,319
            )General
                and Administrative
            
            
            (628,102
            )
            
            (2,855,053
            )
            
            (3,483,155
            )Deprecation
                and Amortization
            
            
            (274,451
            )
            
            (118,258
            )
            
            (392,709
            )Loss
                on Disposition of Assets
            
            
            (891,692
            )
            
            (692,582
            )
            
            (1,584,274
            )Bad
                debt expense
            
            
            (1,065,634
            )
            
            (28,700
            )
            
            (1,094,334
            )Loss
                from discontinued operations
            
            $
            (3,306,547
            )
            $
            (4,260,335
            )
            $
            (7,566,882
            )





**2005**
            
            **Telecom**
            
            **Globetel Wireless**
            
            **Total**Revenue
            
            $
            9,296,973
            
            $
            8,644
            
            $
            9,305,617Cost
                of sales
            
            
            (8,947,920
            )
            
            (8,335
            )
            
            (8,956,255
            )**Gross
                margin**
            
            
            349,053
            
            
            309
            
            
            349,362Payroll
                and related taxes
            
            
            (342,834
            )
            
            (216,297
            )
            
            (559,131
            )General
                and Administrative
            
            
            (1,352,368
            )
            
            (524,211
            )
            
            (1,876,579
            )Deprecation
                and Amortization
            
            
            (163,002
            )
            
            (4,450
            )
            
            (167,452
            )Bad
                debt expense
            
            
            (1,237
            )
            
            —
            
            
            (1,237
            )Loss
                from discontinued operations
            
            $
            (1,510,388
            )
            $
            (744,649
            )
            $
            (2,255,037
            )





The
      Company had the following assets and liabilities from its discontinued
      operations on its consolidated balance sheet for the years ended December 31,
      2006 and 2005:





43





**2006**
            
            **Telecom**
            
            **Globetel Wireless**
            
            **Total**Cash
            
            $
            9,011
            
            $
            10,903
            
            $
            19,914Accounts
                receivable
            
            
            16,761
            
            
            —
            
            
            16,761Prepaid
                expense
            
            
            1,607
            
            
            —
            
            
            1,607Deposits
            
            
            65,551
            
            
            2,200
            
            
            67,751**Total
                current assets**
            
            
            92,930
            
            
            13,103
            
            
            106,033Other
                assets
            
            
            54,380
            
            
            —
            
            
            54,380**Total
                assets**
            
            
            147,310
            
            
            13,103
            
            
            160,413Accounts
                payable
            
            
            202,963
            
            
            458,584
            
            
            661,547Accrued
                liabilities
            
            
            44,651
            
            
            28,280
            
            
            72,931Deferred
                revenue
            
            
            6,412
            
            
            —
            
            
            6,412Due
                to related party
            
            
            154,807
            
            
            —
            
            
            154,807**Total
                current liabilities**
            
            
            408,833
            
            
            486,864
            
            
            895,697**Net
                liabilities of discontinued operations**
            
            $
            261,523
            
            $
            473,761
            
            $
            735,284





**2005**
            
            **Telecom**
            
            **Globetel Wireless**
            
            **Total**Cash
            
            $
            113,709
            
            $
            48,520
            
            $
            162,229Accounts
                receivable
            
            
            284,658
            
            
            9,055
            
            
            293,713Prepaid
                expense
            
            
            76,808
            
            
            15,565
            
            
            92,373Inventory
            
            
            —
            
            
            67,525
            
            
            67,525Deposits
            
            
            75,000
            
            
            20,000
            
            
            95,000**Total
                current assets**
            
            
            550,175
            
            
            160,665
            
            
            710,840Other
                assets
            
            
            987,878
            
            
            59,946
            
            
            1,047,824**Total
                assets**
            
            
            1,538,053
            
            
            220,611
            
            
            1,758,664Accounts
                payable
            
            
            105,712
            
            
            99,446
            
            
            205,158Accrued
                liabilities
            
            
            38,604
            
            
            47,503
            
            
            86,107—Due
                to related party
            
            
            901,605
            
            
            —
            
            
            901,605**Total
                current liabilities**
            
            
            1,045,921
            
            
            146,949
            
            
            1,192,870**Net
                assets of discontinued operations**
            
            $
            492,132
            
            $
            73,662
            
            $
            565,794





**NOTE
      4. ACCOUNTS RECEIVABLE**





For
      the
      year ended December 31, 2006 accounts receivable consists of a reimbursement
      of
      $271,262 from the Company’s Directors and Officers insurance for legal and
      accounting expenses that were paid above the Company’s deductible. For the year
      ended December 31, 2005 accounts receivable consisted of two trade receivables
      associated to wholesale customer of $486,033, of which $408,128 was included
      in
      allowance for doubtful accounts. The Company estimates doubtful accounts on
      an
      item-to-item basis and includes over-aged accounts for any trade receivable
      as
      part of allowance for doubtful accounts, which are generally accounts that
      are
      ninety-days or more overdue. When accounts are deemed uncollectible, the account
      receivable is charged off and the allowance account is reduced accordingly.
      Bad
      debt expense for the years ended December 31, 2006 and 2005 were $93,571, and
      $1,372,221, respectively.





44





**NOTE
      5. PREPAID EXPENSES AND EXPENSE-RELATED PARTY**





PREPAID
      EXPENSE





Prepaid
      expenses as of December 31, 2005 consist of $26,191 for prepaid insurance,
      $10,195 for prepaid lease payments related to an equipment lease and $30,674
      in
      miscellaneous prepayments.





PREPAID
      EXPENSE - RELATED PARTY





Prepaid
      expenses as of December 31, 2005 consist of $185,960 for travel services with
      ISG Jet, LLC. The agreement provides the Company with the ability to utilize
      executive air travel services at a reduced rate over a two-year period. The
      Company made a payment of $185,960, which included $60,960 in cash and 81,168
      shares of the Company's common stock, valued at $125,000. During 2006 the
      Company wrote off the prepaid balance that was being reduced over the term
      of
      the agreement, which was to end in September 2007. The prepaid balance was
      written off as the Company’s financial condition did not allow for the
      additional expenditures required to utilize the travel services. The Parent
      company of ISG Jet, LLC is owned by Investor Source Group, LLC, which is owned
      100% by Steven King, Executive Vice President of GlobeTel.





LOANS
      TO
      EMPLOYEES





Loans
      to
      employees of $46,068 as of December 31, 2005 consist of advances made by the
      Company to non-officer employees for payment of payroll taxes on stock options
      exercised during 2005. The Company recovered the December 31, 2005 amount from
      the employees during the first quarter of 2006.




**NOTE
      6. DEPOSITS**





Deposits
      as of December 31, 2006 of $72,987 include a rental deposit for Los Angeles
      World Airport related to the Palmdale Hanger occupied by Sanswire Networks,
      LLC
      in the amount of $72,000. Deposits as of December 31, 2005 were $1,212,921
      of
      which $1,000,000 was payments made for the new MasterCard Switch and the
      remaining balances were $104,993 for deposits for equipment, $82,924 for rental
      deposits, $25,004 for other operating deposits. During 2006, Los Angeles World
      Airports has drawn against the rental deposit and the MasterCard assets were
      transferred as part of an agreement to sell the Stored Value assets. See Note
      8
      below for more information.





**NOTE
      7. EQUIPMENT**


EQUIPMENT
                  CONSISTS OF THE FOLLOWING:
              
              2006
              
              2005Telecommunications
                  equipment
              
              $
              —
              
              $
              409,949Assets
                  not yet placed in service
              
              
              —
              
              
              80,825Computer
                  and related equipment
              
              
              —
              
              
              391,590Office
                  furniture and fixtures
              
              
              —
              
              
              258,357TOTAL
                  EQUIPMENT
              
              
              —
              
              
              1,140,721Accumulated
                  depreciation
              
              
              —
              
              
              (423,296
              )Equipment,
                  net book value
              
              $
              —
              
              $
              717,425





Depreciation
      expense for the years ended December 31, 2006 and 2005, amounted to $289,914
      and
      $68,566, respectively, as reflected in the Consolidated Statement of Operations.





**NOTE
      8. ASSETS HELD FOR SALE**





These
      assets, primarily the financial process switch have been reclassified to assets
      held for sale at December 31, 2005 due to the impending sale during 2006,
      accordingly, no depreciation was recorded for these assets.





45





On
      November 3, 2006, GlobeTel Communications Corp. entered into an agreement
      regarding the stored value card assets that was also known as the Magic Money
      program, to Gotham. Under terms of the agreement, Gotham acquired substantially
      all of the assets, which include the stored value program, financial processing
      switch and contracts totaling $5,279,567, and assumed the liabilities of
      associated with the program including certain employees and leased office space
      totaling $57,500, but due to the lack of consideration received, no sale has
      been recorded and the assets were instead impaired. The $5,279,567 of assets
      were comprised of $5,042,727 for the MasterCard switch, $97,975 in telecom
      equipment, $45,996 in office improvements and $80,825 in other
      assets.





The
      agreement calls for the payment, over a 3 to 6 year period, of $3,250,000 with
      additional clauses that could bring the total to $4,000,000. The length of
      the
      payment period depends upon Gotham making certain minimum payments. Revenues
      earned by GlobeTel will be based on the successful rollout of the platform
      by
      Gotham and on user fees following a formula that considers the total number
      of
      transactions on a Stored Value card and use of the card at any ATM,
      Point-of-Sale (POS) or other transaction, under closed and committed contracts
      GlobeTel had at the time of sale, and the number of transactions utilizing
      the
      Financial Processing Switch. As of the date of this report, no payments have
      been received in relation to this agreement. In the event the Company does
      receive future payments, it will record the payments as income at the time
      they
      are received.





**NOTE
      9. ASSET ACQUISITION – HOTZONE (** restated)





In
      September 2004, the Company entered into an independent contractor agreement
      with Hotzone Wireless, LLC (HotZone), a service provider for
      consulting/engineering services related to the Sanswire Stratellite project.
      The
      non-exclusive service provider provided engineering / consulting services,
      transmission equipment, and installation and testing of equipment. The term
      of
      the agreement was for six (6) months and was automatically renewable for
      additional one (1) year terms after the initial term unless terminated by either
      party. As initial compensation, Company paid the service provider $10,000 per
      month. This agreement was terminated during fiscal year 2005.





On
      June
      2, 2005, the Company entered into an agreement to acquire assets of HotZone,
      an
      advanced developer of WIMAX and extended range WIFI Systems with operations
      in
      the United States and Europe. The acquisition transaction, which closed during
      the three months ended September 30, 2005, was paid with $27,000 cash and
      provides for a total of 2 million (post split) shares of the Company's common
      stock to be issued in increments of 666,667 shares on each of the first, second,
      and third anniversary dates of the agreement, assuming that certain milestones
      are achieved. Additionally, the HotZone staff was entering into employment
      agreements with the Company.





The
      assets acquired under the HotZone agreement consist primarily of intellectual
      property and proprietary rights in intellectual property. As of September 30,
      2005, the Company had placed all of HotZone's tangible assets into GlobeTel
      Wireless Corp. (GlobeTel Wireless), its Florida-based, wholly-owned
      subsidiary.





ACCOUNTING
      FOR PURCHASE PRICE





Whereas
      the milestones for the first year were defined, and the Company believed that
      achievement of such milestones for the first year were probable and the amount
      payable (with GlobeTel common stock) was measurable, the Company recorded the
      amounts during the three months ended September 30, 2005. The purchase price
      for
      the assets acquired was recorded at $2,280,334 based on the $27,000 paid in
      cash, plus $2,253,334, which represents the value of 666,667 shares of common
      stock payable on the first anniversary date. The shares were valued at $ 3.38
      per share, based on the value of the Company's free-trading stock on the
      agreement date. The Company allocated the purchase price based on the estimated
      fair market value of the asset acquired as follows: (a) HotZone tangible assets
      $55,910; and (b) HotZone research and development expense - $2,224,424.




Initially,
      since the milestones to be achieved for the second and third years of the
      contract were undefined and it is unknown whether or not such milestones, even
      if defined, will be achieved, the Company had not recorded the additional
      consideration totaling 1,333,333 shares issuable after year one of the agreement
      (666,667 issuable for each of years two and three).





Subsequently
      and as of December 31, 2005, the Company and HotZone agreed that any and all
      milestones, previously undefined, were in fact achieved. The Company recorded
      the additional contingent shares at fair value upon, since the Company has
      determine that the issuance of the shares is probable and the value ascribable
      to the shares is measurable. Accordingly, as of December 31, 2005, the Company
      recorded the additional 1,333,334 shares payable, which were valued at
      $4,909,665, which represents a based share of 1,333,334 shares, value at $3.68
      per share, based on the value of the Company's free-trading stock as of December
      31, 2005, and increased the HotZone value accordingly. The first traunche of
      shares were delivered in June 2006 with the remainder of the shares delivered
      in
      May 2007.





The
      Company reported the transaction as a charge of $7,129,550 to research and
      development expense in 2005.




46





**NOTE
      10. DUE TO FORMER EMPLOYEE IN STOCK**





In
      September 2005, the Company issued a total of 98,983 shares pursuant to a
      severance and settlement agreement with a former employee, valued at $177,400,
      based on $1.79 per share, the closing price of the shares on the date of the
      agreement and registration of the shares. An additional $237,600 of common
      shares were issuable pursuant to the agreement which has been reflected on
      the
      accompanying balance sheet as due to former employee payable in stock as of
      December 31, 2005. The former employee also received cash of $55,000 pursuant
      to
      the agreement.





**NOTE
      11. ACCRUED OFFICERS' SALARIES AND BONUSES**





In
      2005,
      the Company approved the compensation of $200,000 for its CEO. The CFO, COO,
      CTO
      and General Counsel all had base compensation of $175,000. The Company also
      entered into employment contracts with the Executive Vice Chairman (EVC) and
      Senior Vice President (SVP) of Finance. The EVC agreement called for annual
      salaries of $250,000 plus signing bonuses equal to 2.5% of the outstanding
      shares of the Company as of December 31, 2005. The EVC is also entitled to
      stock
      salary in stock options totaling $750,000 per year for three years at $1.21
      per
      share. The SVP Finance agreement calls for annual salaries of $195,000 plus
      bonuses amounting to 2% of the outstanding shares of the Company's stock at
      the
      end of the year, payable in the form of stock options.





As
      of
      December 31, 2006, the Company recorded no accrued officers' salaries compared
      to $97,382 for year ending December 31, 2005, which were subsequently paid
      in
      January 2006 and 2005, respectively.




**NOTE
      12. ACCRUED EXPENSES AND OTHER LIABILITIES**





Accrued
      expenses and other liabilities consisted of the following:


2006
              
              2005Other
              
              $
              —
              
              $
              3,105Payroll
                  Liabilities
              
              
              206,529
              
              
              190,341Rent
              
              
              —
              
              
              22,467Professional
                  Fees
              
              
              253,568
              
              
              243,615ACCRUED
                  EXPENSES AND OTHER LIABILITIES
              
              $
              460,097
              
              $
              459,528





**NOTE
      13. NOTES AND CONVERTIBLE NOTES PAYABLE**





2006
            
            2005(A)
                NOTES PAYABLE
            
            $
            5,457,545
            
            $
            —(B)
                CONVERTIBLE NOTES PAYABLE, net of unamortized discount of
                $882,128
            
            
            397,872
            
            
            —(C)
                CONVERTIBLE PROMISSORY NOTES
            
            
            206,000
            
            
            —Total
            
            
            6,061,417
            
            
            —ACCRUED
                INTEREST
            
            
            201,181
            
            
            —Total
            
            $
            6,262,598
            
            $
            —





(A)
      NOTES
      PAYABLE





In
      June
      2003, the Company executed a $200,000 promissory note payable to Commercebank,
      N.A., due in June 2005, with interest payable at a rate of one percent over
      the
      prime rate, currently 4%. In August 2005, the Company repaid its $200,000 loan
      with Commercebank, N.A. in full.





From
      April to June 2006, the Company received a total of $4,307,645 through an
      unsecured promissory note with no formal terms of repayment.  The Company
      has accrued interest at a rate of 7% per annum, which totals $161,664 for
      2006.





From
      October to December 2006, the Company received a total of $1,149,900 through
      an
      unsecured promissory note with no formal terms of repayment.  The Company
      has accrued interest at a rate of 7% per annum, which totals $13,270 for 2006.
      In 2007, the note holder converted $150,000 of the loans to 1,428,571 shares
      of
      common stock.





As
      of
      December 31, 2006, the aggregate amounts outstanding under these independent
      notes were $5,457,545.




47





(B)
      CONVERTIBLE NOTES PAYABLE





August
      2005 Notes


On
      August
      31, 2005 the Company entered into subscription agreements with investors for
      5%
      convertible notes payable totaling $4.5 million, with 3 year Class A Warrants
      to
      purchase up to an additional $6,818,181 in common stock. Net proceeds of
      $4,150,730 were received, after deducting costs and expenses related to the
      transaction. The notes amortize at 12.5% per quarter through September 2007,
      payable each quarter in cash or common shares.





Under
      the
      agreements the notes are convertible into common stock of the Company at $
      1.65
      per share. Prior to any notice of conversion, the Company had the right to
      redeem the note(s) at a premium for cash, subject to a 5-day right to convert
      by
      the investor. The Investors also received one Class A Warrant to purchase one
      share of common stock for each share that the notes would be convertible into
      had they been converted on the closing date (August 31, 2005) (a total of
      2,727,273 shares). The per share exercise price of the Warrants is
      $2.50.





In
      December 2005, the note holders elected to convert all of the notes in the
      amount of $4.5 million, plus accrued interest of $62,029. Pursuant to the
      conversion, total shares issued were 2,764,883. Also in December 2005, the
      investors exercised outstanding warrants to acquire a total of 272,727 common
      shares at $2.50 per share for proceeds of $681,818 and agreed to exercise their
      warrants that had an exercise price of $2.50 per share. Accordingly, in December
      2005 the investors exercised their warrants and the Company issued to the
      investors a total of 1,935,606 new warrants with an exercise price of $4.00
      per
      share. The Company recorded the related expense for this transaction in
      2005.





The
      investors were given “piggy-back” registration rights for the warrants. If the
      warrants have not been registered after one year, then the investors have a
      demand registration rights.





The
      warrants expire on August 31, 2008.




September
      2006 Notes


On
      September 6, 2006, the Company entered into subscription agreements with several
      investors whereby these investors bought a total $1,280,000 in one year, 7%
      convertible notes and were issued Class A and Class B Warrants (valued at
      $337,395 and $317,736, respectively as described below). Net proceeds of
      $1,124,080 were received, after deducting costs and expenses related to the
      transaction.  The
      notes are convertible into 3,602,221 shares of the Company’s common stock
      ranging from $.33 to $.39 per share. The common shares underlying the notes
      and
      the warrants carry with them registration rights that obligated the Company
      to
      register such shares within 30 days.





The
      Notes
      were convertible into common stock ranging from $.33 to $.39 per share. Prior
      to
      any notice of conversion the Company had the right, under certain circumstances,
      to redeem the notes at a premium for cash, subject to a right to convert by
      the
      investor. The investors received one Class A Warrant to purchase one share
      of
      common stock for every two shares that the notes were convertible into on the
      closing date as well as one Class B Warrant to purchase the identical number
      of
      shares.





The
      Class
      A Warrants are exercisable for a purchase price equal to 150% of the market
      price on the day prior to closing and the Class B Warrants are exercisable
      for a
      purchase price equal to 200% of the market price on the day prior to closing
      which calculates to 3,602,190 warrants ranging from $.66 to $1.26. The Warrants
      have a 5 year term. The Placement Agent for the transaction, Westor Capital
      Group, has the right to raise up to $3 million for the Company.





The
      company determined that the fair value of the conversion feature was $624,869
      and the fair value of the warrants was $655,131 based upon the relative value
      of
      the Black Scholes valuation of the warrants and the underlying debt amount.
      For
      the Black Scholes calculation, the Company assumed no dividend yield, a risk
      free interest rate of 4.5%, expected volatility of 99.63 % and an expected
      term
      of the warrants of 5 years. The initial calculated fair value of warrants and
      the beneficial conversion of the notes of $1,280,000 was reflected by the
      Company as a valuation discount and offset to the carrying value of the Notes,
      and is being amortized by the effective interest method over the term of the
      Notes. For the year ended December 31, 2007, the Company amortized $397,872
      of
      the valuation discount, which is reflected as financing costs in the Company’s
      consolidated statements of operations.





In
      January 2007, the Company executed several Certificates of Adjustments for
      the
      previously issued Notes. The Notes previously had Exercise Prices ranging from
      $0.33 to $.39 and with the execution of the adjustments; the Exercise Prices
      were then modified to $0.196. On May 1, 2007, the Company executed several
      Certificates of Adjustments for the previously issued Warrants. The Warrants
      previously had Exercise Prices ranging from $0.75 to $1.00 and with the
      execution of the adjustments; the Exercise Prices were then modified to $0.196.
      In January 2008, the Company issued certificates of adjustment for certain
      convertible debentures and warrants issued pursuant to the 2006 financing to
      $.105 per share. The Company anticipates that there will be additional charges
      due to these modifications and such charges will be recorded during the year
      ended December 31, 2007.




48





Additionally,
      as the Company was unable to register the shares underlying the debentures
      and
      warrants due to it restating its financial statements, the Company had to pay
      liquidated damages to the debenture holders. In 2007, the Company agreed to
      and
      issued 662,951 shares valued at $104,400 to pay liquidated damages through
      March 31, 2007.





Also
      in
      2007, the Company separately entered into a forbearance agreement with some
      of
      the debt holders. This agreement changed their conversion to the lesser of
      $.20
      or 70% of the volume weighted average price for the 5 days prior to conversion.
      The Company has not completed its review of the transaction, however there
      may
      be additional charges in 2007 from these modifications. The agreement also
      limits the Hudson Bay Funds from engaging in short sales on the stock and places
      a volume limitation on sales.





(C)
      CONVERTIBLE PROMISSORY NOTES





2005
      Convertible Promissory Notes


In
      January 2005, the Company entered into financing agreements for convertible
      promissory notes payable totaling $1.8 million. Net proceeds of $1,579,487
      were
      received, after deducting costs and expenses related to the transaction. Under
      the agreements the notes were convertible into common stock of the Company
      at
      $1.20 per share. Prior to any notice of conversion, the Company had the right
      to
      redeem the note(s) at a premium, subject to a 3-day right to convert by the
      investor.





In
      addition, there were two types of warrants to purchase additional shares of
      common stock. There were 833,333 Class A Warrants exercisable at $1.80 per
      share
      and Redemption Warrants were to be provided in the event that the Company sought
      to redeem more than 50% of the principal of the note. They were given on the
      basis of 1,111 warrants for each $1,000 in principal the Company sought to
      redeem over $900,000. These Warrants are identical to the Class A Warrants
      except that they have an exercise price of $1.65 per share.





In
      February 2005, the note holders elected to convert all of the notes in the
      amount of $1.8 million, plus accrued interest of $5,969. Pursuant to the
      conversion, total shares issued were 1,538,308 including 33,333 shares as
      commission to a promoter.





At
      the
      same time in February 2005, the 833,333 Class A Warrants were exercised at
      $1.65
      per share, except for 66,666 shares at $1.84 as agreed by the parties. Total
      net
      proceeds of $1,442,650 were received and commissions totaling $80,208 were
      paid.





Upon
      agreement of the parties, in lieu of the Company exercising its redemption
      rights, an additional $1,237,500 was received in connection with the conversion,
      increasing the per share price to $2.85





On
      February 5, 2005, GlobeTel filed a registration statement with the Securities
      and Exchange Commission on Form SB-2 to register shares offered, plus additional
      shares totaling 75% of the underlying convertible notes and warrants to ensure
      that shares are available for conversion under all contingencies.





2006
      Convertible Promissory Notes


In
      December 2006, the Company entered into financing agreements for convertible
      promissory notes payable totaling $250,000. As of December 31, 2006, the Company
      received $206,000 with the balance of $44,000 being received in January 2007.
      Upon receipt of the full 250,000, the notes become convertible into common
      stock
      of the Company at $.196 per share. The note, which is due one year from
      inception, accrues interest at a rate of 7% per annum.





The
      Company entered into additional financing agreements on the same terms and
      conditions as set forth above in March 2007 for a total of $400,000; in June
      for
      $100,000 and in September for $175,000.





In
      November 2007, the Company entered into securities purchase agreements to sell
      shares at $.105 per share for a total of $315,000, only a portion of which
      was
      payable at the time of subscription with the remainder payable upon the
      happening of certain corporate events. This had the effect of resetting the
      conversion provisions on the previously issued convertible notes to $.105 per
      share. The agreements were revised in the first quarter of 2008 to allow a
      larger percentage of the subscribed funds to become available to the Company.
      Thus, a portion of the subscription amount was received in the first quarter
      of
      2008. The
      Company has not completed its review of the transaction, however there may
      be
      additional charges in 2007 from these modifications.





49





**NOTE
      14. AGREEMENTS**





CONSULTING,
      INVESTMENT ADVISORY AND INVESTMENT BANKING AGREEMENTS





On
      August
      16, 2004, the Company entered into an investment advisory agreement with Charles
      Morgan Securities, Inc. (CMS) for term ending on December 31, 2005. CMS would
      render consulting services related to business development, corporate planning,
      investment and securities matters, including the Company's applying for trading
      on a higher listed exchange. As compensation for services, the Company will
      pay
      a one-time fee of 500 shares of Preferred Class C stock, convertible into 1%
      of
      the common shares of the Company after a one year holding period. Pursuant
      to
      the agreement, the compensation is not considered earned until when and if
      the
      advisor accomplishes the moving of the Company's stock from trading on the
      OTCBB
      to another trading board of higher standing by December 31, 2005. In May 2005,
      the Company did in fact move to a trading board of higher standing - the
      American Stock Exchange (AMEX). In October 2006, the Company’s stock was
      delisted from the AMEX and began trading on the Pink Sheets.





During
      2005, the Company issued a total of 820,000 shares valued at $1,230,000 in
      connection with its arrangements with CMS.





JOINT
      VENTURE AGREEMENT - LEO A. DALY III AND J. RANDOLPH DUMAS





On
      July
      7, 2005, the Company entered into a joint venture agreement that will lead
      to
      the deployment of the Company's Stratellites(TM), throughout Europe, the Middle
      East, Africa, and the countries of the former Soviet Union. The joint venture
      is
      between Sanswire Networks LLC, a wholly-owned subsidiary of GlobeTel, and a
      venture headed by Leo A. Daly III and J. Randolph Dumas. Sanswire Networks,
      LLC
      will own 55% of the joint venture entity. In September 2005, Mr. Dumas joined
      the Company's Board of Directors.





During
      2006 and as of the date of this report, no transactions have occurred that
      would
      require recording or disclosure in the Company's financial statements related
      to
      this agreement.





COOPERATIVE
      TECHNOLOGIES AGREEMENT - UNIVERSITY OF STUTTGART, GERMANY





On
      October 12, 2005, the Company signed an agreement with TAO-Technologies in
      cooperation with the University of Stuttgart in Germany. The agreement states
      that TAO-Technologies, in cooperation with the University of Stuttgart, will
      design several next-generation airships intended for multiple uses. In November
      2007, the Company and TAO entered into a Technical Cooperation and License
      Agreement wherein GlobeTel acquired the exclusive license rights to certain
      TAO
      remote airship technologies and patents. Pursuant to the Agreement GlobeTel
      will
      also acquire 50% of the ownership of the technology and patents.





OTHER
      AGREEMENTS





Several
      other agreements, letters of intent, and memorandums of understanding regarding
      stored value cards and other telecommunications programs, as well as the
      Sanswire project, were entered into during 2006 and through the date of this
      report, none of which require the recording of any assets, liabilities, revenues
      or expenses.





**NOTE
      15. COMMITMENTS AND CONTINGENCIES**





Securities
      and Exchange Commission





On
      September 28, 2006, the Company received a formal order of investigation from
      the SEC. The formal order only named the Company and was not specific to any
      particular allegations. Through the use of subpoenas, the SEC has requested
      documentation from certain officers and directors of the Company. In subsequent
      subpoenas, the SEC has asked for additional documents and information.





On
      October 5, 2007, GlobeTel received a "Wells Notice" from the SEC in connection
      with the SEC’s ongoing investigation of the Company. The Wells Notice provides
      notification that the staff of the SEC intends to recommend to the Commission
      that it bring a civil action against the Company for possible violations of
      the
      securities laws including violations of Sections 5 and 17(a) of the Securities
      Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B) of the Securities
      Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11,
      and 13a-13 thereunder; and seeking as relief a permanent injunction, civil
      penalties, and disgorgement with prejudgment interest. The staff is also
      considering recommending that the SEC authorize and institute proceedings to
      revoke the registration of Company’s securities pursuant to Section 12(j) of the
      Exchange Act.





50





On
      May 2,
      2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the
      United States District Court for the Southern District of Florida against
      GlobeTel Communications Corp. (the “Company”) and three former officers of the
      Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC
      alleges, among other things, that the Company recorded $119 million in revenue
      on the basis of fraudulent invoices created by Joseph Monterosso and Luis
      Vargas, two individuals formerly employed by the Company who were in charge
      of
      its wholesale telecommunications business.





The
      SEC
      alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
      Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
      13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
      Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
      The SEC seeks as relief a permanent injunction, civil penalties, and
      disgorgement with prejudgment interest. The Company intends to vigorously defend
      itself in this action.





Joseph
      Monterosso





In
      October 2007 the Company filed a lawsuit in the Circuit Court for Broward
      County, Florida against Joseph J. Monterosso alleging Libel, Slander and
      Defamantion, Tortious Interference, Violations of FS § 836.05 (THREATS
      EXTORTION)  and violations of FS §517 (Securities Fraud). Mr.
      Monterosso has not yet been served with the complaint.





Wachovia
      v. GlobeTel





In
      connection with the operations of Globetel
      Wireless Europe GmbH and the
      acquisition of Altvater GmbH, the Company guaranteed a letter of credit in
      the
      amount of $600,000. Upon Globetel
      Wireless Europe GmbH ceasing
      operations, the letter of credit was drawn upon. The letter of credit was not
      collateralized. In September 2007, Wachovia filed a lawsuit in Broward County
      in
      an attempt to recover the amount through arbitration with the American
      Arbitration Association. On June 2, 2008, the American Arbitration Association
      awarded Wachovia $745,733.





Richard
      Stevens v. GlobeTel





The
      Company and its directors were sued in the case RICHARD STEVENS vs. GLOBETEL
      COMMUNICATIONS CORP., et al. Case No.: 06-cv 21071. The original allegations
      of
      the complaint were that the Company’s proposed transaction to build wireless
      networks in Russia was a sham. The amended complaint alleged that the
      transaction was not a sham, but that the Company refused to accept payment
      of
      $300 million. Recently, the officers and directors with the exception of Timothy
      Huff have been dismissed from the case.





In
      February 2008, the Company and the Plaintiff reached a settlement in principle
      that has been filed with the Court for approval. Under the terms of the proposed
      settlement agreement in the class action, the Company’s D&O insurance
      carrier will make a cash payment to the class of $2,300,000, less up to $100,000
      for potential counsel fees and expenses. All claims in the class action will
      be
      dismissed with prejudice. The US District Court for the Southern District of
      Florida has approved the settlements reached in its pending securities class
      action and a shareholder derivative action





Derivative
      Action





On
      July
      10, 2006 a derivative action was filed against the officers and directors of
      GlobeTel alleging that they have not acted in the best interest of the Company
      or the shareholders and alleged that the transaction to install wireless
      networks in Russia was a sham. The lawsuit is pending in the Federal District
      Court for the Southern District of Florida (Civil Case No. 06-60923). The
      Company believes that the suits are without merit and will vigorously defend
      against it. The Company has hired outside counsel to defend it in this action.
      The Company and the Plaintiff have reached an agreement in principle to settle
      this action and have submitted such settlement with the Court for its approval.
      Under the terms of the settlement, Company’s D&O insurance carrier will pay
      $60,000 in attorneys’ fees to plaintiff’s counsel, the Company will implement or
      maintain certain corporate governance changes, and all claims will be dismissed
      with prejudice.





Mitchell
      Siegel v. Globetel





On
      February 2, 2007, GlobeTel was sued in the Circuit Court for Broward County,
      Florida entitled Mitchell Siegel v. Globetel Communications Corp. , Case no.
      0702456 (“the Siegel Lawsuit”). In this action, Siegel sued GlobeTel for breach
      of contract in regards to a Key Executive Employment Agreement. On February
      15,
      2008, both parties entered into a settlement agreement whereas Mr. Siegel would
      receive $175,000 worth of stock, payable over 12 months, and 50% of the gross
      proceeds, up to a total amount of $300,000, received from Gotham pursuant to
      the
      October 2006 agreement.




51





Former
      Consultants





The
      Company is a defendant in two lawsuits filed by Matthew Milo and Joseph
      Quattrocchi, two former consultants, filed in the Supreme Court of the State
      of
      New York (Richmond County, Case no. 12119/00 and 12118/00). These matters were
      subsequently consolidated as a result of an Order of the court and now bear
      the
      singular index number 12118/00. The original lawsuits were for breach of
      contract. The complaint demands the delivery of 10,000,000 pre split shares
      of
      ADGI stock to Milo and 10,000,000 to Quattrocchi. GlobeTel was entered into
      the
      action as ADGI was the predecessor of the Company. The suit also requests an
      accounting for the sales generated by the consultants and attorneys fees and
      costs for the action.





The
      lawsuits relate to consulting services that were provided by Mr. Milo and Mr.
      Quattrocchi and a $50,000 loan advanced by these individuals, dated May 14,
      1997, of which $35,000 has been repaid.





The
      Company entered into an agreement with Mr. Milo and Mr. Quattrocchi as
      consultants on June 25, 1998. The agreement was amended on August 15, 1998.
      On
      November 30, 1998, both Mr. Milo and Mr. Quattrocchi resigned from their
      positions as consultants to the Company without fulfilling all of their
      obligations under their consulting agreement. The Company issued 3 million
      pre
      split shares each to Mr. Milo and Mr. Quattrocchi as consideration under the
      consulting agreement. The Company has taken the position that Mr. Milo and
      Mr.
      Quattrocchi received compensation in excess of the value of the services that
      they provided and the amounts that they advanced as loans.





Mr.
      Milo
      and Mr. Quattrocchi disagreed with the Company’s position and commenced action
      against us that is pending in the Supreme Court of the State of New York. Mr.
      Milo and Mr. Quattrocchi claim that they are entitled to an additional
      24,526,000 pre split shares of common stock as damages under the consulting
      agreement and to the repayment of the loan balance. The Company believes that
      it
      has meritorious defenses to the Milo and Quattrocchi action, and the Company
      has
      counterclaims against Mr. Milo and Mr. Quattrocchi.





With
      regard to the issues related to original index number 12119/00, as a result
      of a
      summary judgment motion, the plaintiffs were granted a judgment in the sum
      of
      $15,000. The rest of the plaintiff's motion was denied. The court did not order
      the delivery of 24,526,000 pre split shares of ADGI common stock as the decision
      on that would be reserved to time of trial.





An
      Answer
      and Counterclaim had been interposed on both of these actions. The Answer denies
      many of the allegations in the complaint and is comprised of eleven affirmative
      defenses and five counterclaims alleging damages in the sum of $1,000,000.
      The
      counterclaims in various forms involve breach of contract and breach of
      fiduciary duty by the plaintiffs.





For
      the
      most part, the summary judgment motions that plaintiffs brought clearly stated
      that their theories of recovery and the documents that they will rely on in
      prosecuting the action. The case was assigned to a judicial hearing officer
      and
      there was one week of trial. The trial has been since adjourned with no further
      trial dates having been set.





It
      is
      still difficult to evaluate the likelihood of an unfavorable outcome at this
      time in light of the fact that there has been no testimony with regard to the
      actions. However, the plaintiffs have prevailed with regard to their claim
      of
      $15,000 as a result of the lawsuit bearing the original index Number
      12119/00.





This
      case
      went before a Judicial Hearing Officer on July 6 and 7, 2006. No resolution
      occurred during the July hearing and the Judicial Hearing Officer has asked
      for
      written statements of facts and law. The outcome cannot be projected with any
      certainty.  However, the Company does not believe that it will be
      materially adversely affected by the outcome of the proceeding.





Trimax
      Wireless





On
      July
      3, 2007 GlobeTel filed suit against its former employee Ulrich Altvater and
      his
      company Trimax Wireless seeking the return of certain equipment held at the
      former GlobeTel Wireless offices and for the return of $175,000 lent to Altvater
      by the Company. The replevin action against Trimax was dismissed on the basis
      of
      venue and the Company intends to refile the suit with regard to Trimax in
      Collier County, Florida.




On
      July
      12, 2007, the Company terminated its agreement with Mr. Altvater and his
      company, Trimax Wireless, Inc.




In
      August
      2007, Altvater and Trimax filed suit against GlobeTel alleging, defamation,
      conversion, breach of contract and seeking injunctive relief. GlobeTel
      successfully moved to have the two cases consolidated and has filed a Motion
      to
      Dismiss this suit. The Company intends to vigorously defend this suit, but
      no
      assurance can be given about the outcome of the litigation.




52





LEASES
      AND RENTS




GlobeTel’s
      corporate offices are now located at 101 NE 3 rd Ave.,
      Suite 1500, Fort Lauderdale, FL 33301. Base rent is $2,000 per month plus the
      cost of services used by GlobeTel. The lease is for a period of 6
      months.





The
      Company previously leased office facilities at 9050 Pines Blvd., Suite 110,
      Pembroke Pines, Florida 33024, as of April 1, 2004. This lease will expire
      in
      June 2009, and had an initial monthly rent of $5,462.




In
      November 2004, the Company leased additional adjacent space at the Pembroke
      Pines, Florida location under the same terms and period as the existing lease,
      bring the total monthly rent to $9,186.




In
      June
      2005, the Company negotiated with the landlord to lease an additional 5,000
      square feet office on the second floor of the present facility, 9050 Pines
      Blvd., Pembroke Pines, Florida 33024. The Company began occupancy of this office
      in April 2006 and the lease expires in June 2009 with a monthly rent of $9,186
      (including sales tax). GlobeTel vacated the premises in March 2006, having
      turned over the space to Gotham Financial as part of the sale of the Stored
      Value assets to Gotham. However, there was unpaid rent due on both the first
      and
      second floor suites. In August 2007, the landlord received a judgment in the
      amount of $206,730 of which $115,693 is accrued for in 2006 as it relates to
      2006 expenses. The balance will be accrued in 2007.




GlobeTel
      formerly leased facilities at 444 Brickell Avenue, Suite 522, Miami, Florida
      33131. The Company was under a five-year lease expiring April 2005, with a
      monthly rent of $3,463. In January of 2005 the Company satisfied its lease
      obligation related to this office.




In
      January 2005, GlobeTel signed a lease agreement with the San Bernardino
      International Airport Authority for hangar space at the airport in San
      Bernardino, California for the purpose of assembling and storing the Stratellite
      prototype. The term of the agreement is from January 15, 2005 through March
      31,
      2005, at a monthly lease rate of $9,767. Three months prepaid rent totaling
      $29,302 was paid in December 2004. The agreement provides that with the consent
      of the lessor the Company may remain on a month-to-month basis, and do intend
      to
      remain in the space for the near term.





Until
      September 2007, the Company leased a 66,000 square foot space hanger in
      Palmdale, California. The initial lease, between Sanswire Networks, LLC and
      the
      City of Los Angeles World Airports, was for a term of three months, ended July
      22, 2005 with a monthly rent of $19,990. On June 8, 2005 the lease term was
      amended for fifteen months, commencing June 8, 2005 through September 7, 2006,
      with two one-year options. Concurrently with the signing of the amended lease,
      the parties entered into a reimbursement agreement to share the cost of certain
      improvements.





As
      of
      October 2007, Sanswire no longer occupies a hangar at Palmdale Regional Airport,
      the monthly cost of this space was $20,847. This facility was adjacent to the
      United States Air Force’s Plant 42 and Edwards Air Force Base. Sanswire
      constructed and tested Stratellite and Sky Sat prototypes at the facility.
      The
      hangar also included administrative office space. Sanswire is indebted to Los
      Angeles World Airports, the lessor of the hangar, in the amount of
      $161,761.





Sanswire
      Technologies, Inc., the company from which the Sanswire, LLC assets were
      purchased, had an office space lease in Dekalb County, GA. The lease term was
      from April 1, 2004 through March 31, 2005, with monthly rent of $2,628. Although
      not directly obligated on this lease, the Company paid the monthly rent from
      May
      2004 through March 2005, whereas employees of the Company’s subsidiary,
      Sanswire, LLC, utilized the premises. The employees have since vacated the
      premises and the Company no longer occupies the space and is no longer obligated
      for any lease payments.





Future
      minimum rental payments required under the above operating leases subsequent
      to
      the year ended December 31, 2006 are as follows:





2007
            
            $
            357,3552008
            
            
            54,0002009
                and thereafter
            
            
            —$
            411,355




Rent
      expense for 2006 and 2005 were $658,522 and $480,995,
      respectively.




53





**NOTE
      16. RELATED PARTY TRANSACTIONS**





Related
      party transactions, other than those discussed in the notes above and below,
      include the following:





RELATED
      PARTY PAYABLES





As
      of
      December 31, 2006 and 2005, related party payables were $0 and $57,500,
      respectively. The 2005 balance represents a short-term, non-interest bearing
      loans by officers of the Company, due on demand. This payable was assumed as
      part of the sale of the Stored Value assets. See Note 8 above.





SETTLEMENT
      WITH FORMER OFFICER AND DIRECTOR





In
      September 2005, the Company issued a total of 82,887 shares pursuant to a
      severance agreement with Leigh Coleman, a former President and Director, valued
      at $123,750, based on the closing price of the shares on the dates of issuance.
      In addition, a total of 81,481 options to purchase common shares, valued at
      $55,000 based on the option exercise price (adjusted for 1:15 reverse stock
      split) per the 2004 Employee Stock Bonus Plan.





LOSS
      ON
      SETTLEMENT WITH FORMER AFFILIATE





In
      September 2005, the Company entered into a settlement agreement with Sky China,
      Ltd., an Australian company that Mr. Coleman is affiliated with. Mr. Coleman
      was
      a former President and member of the Board of Directors for Globetel. The
      Company and Sky China, Ltd. entered into an agreement in 2004 to joint venture
      with the Company for telecommunications services in Australia and Asia, and,
      in
      2004, issued 200,000 shares of common stock valued at $135,000. Pursuant to
      the
      settlement, the Company granted Sky China Ltd. options to acquire 1,544,166
      shares with a fair market value of $213,487.





**NOTE
      17. INCOME TAXES**





Deferred
      income taxes and benefits for 2006 and 2005 are provided for certain income
      and
      expenses, which are recognized in different periods for tax and financial
      reporting purposes. The tax effects (computed at 15%) of these temporary
      differences and carry-forwards that give rise to significant portions of
      deferred tax assets and liabilities consist of the following:




**2005**
              
              **Current**
                **Period**
                **Changes**
              
              **2006**Deferred
                  tax assets:Accrued
                  officers’ compensation
              
              $
              1,201,134
              
              $
              (954,459
              )
              $
              246,675Allowance
                  for doubtful accounts
              
              
              61,365
              
              
              275,725
              
              
              337,090Consulting
                  services elected as start-up costs under IRC Sec. 195 (b)
              
              
              1,270,128
              
              
              (1,270,128
              )
              
              0Reincorporation
                  expenses amortized under IRC Sec. 248
              
              
              25,975
              
              
              (25,975
              )
              
              0Accumulated
                  depreciation
              
              
              (46,280
              )
              
              1,290,460
              
              
              1,244,180Net
                  operating loss carryforwards
              
              
              9,018,333
              
              
              3,196,029
              
              
              12,214,36211,530,655
              
              
              2,511,652
              
              
              14,042,307Valuation
                  allowance
              
              
              (11,530,655
              )
              
              (2,511,652
              )
              
              (14,042,307
              )Net
                  deferred tax asset
              
              $
              —
              
              $
              —
              
              $
              —





A
      reconciliation of income benefit provided at the federal statutory rate of
      15%
      to income tax benefit is as follows:





**2006**
            
            **2005**Income
                tax benefit computed at federal statutory rate
            
            $
            (3,196,029
            )
            $
            (3,136,496
            )Accrued
                salaries
            
            
            41,899
            
            
            1,201,134Allowance
                for doubtful accounts
            
            
            337,090
            
            
            61,365Depreciation
            
            
            682,623
            
            
            (10,269
            )Losses
                not benefited
            
            
            2,134,417
            
            
            1,884,266$
            —
            
            $
            —




54







The
      Company has accumulated net operating losses, which can be used to offset future
      earnings. Accordingly, no provision for income taxes is recorded in the
      financial statements. A deferred tax asset for the future benefits of net
      operating losses and other differences is offset by a 100% valuation allowance
      due to the uncertainty of the Company's ability to utilize the losses. These
      net
      operating losses begin to expire in the year 2021.





At
      the
      end of 2006, the Company had net operating loss carry-forwards (including those
      of its successor due to accounting for the reincorporation as an "F"
      reorganization under the Internal Revenue Code) of approximately $81,429,083,
      which expire at various dates through 2021.




**NOTE
      18. COMMON STOCK TRANSACTIONS**





During
      the year ended December 31, 2006, the Company issued the following shares of
      Common stock, all of which shares are stated in post-split amounts:





**SHARES**
            
            
            **CONSIDERATION**
            
            **VALUATION**38,472
            
            
            Settlement
                of Debt
            
            $
            150,8101,953,830
            
            
            Exercised
                Stock Options
            
            
            *2,727,272
            
            
            Exercised
                Warrants
            
            $
            6,341,1481,000,000
            
            
            Converted
                Preferred Series C
            
            
            *10,325
            
            
            Consulting
                Services
            
            $
            23,7503,000,000
            
            
            Converted
                Notes Payable and Accrued Interest
            
            
            *666,667
            
            
            Stock
                for Debt
            
            $
            2,386,660500,000
            
            
            Services
                - Performance Bonus
            
            $
            295,000204,828
            
            
            Settlement
                of Debt
            
            $
            86,7901,166,667
            
            
            Converted
                Preferred Series D
            
            
            *10,640
            
            
            Services
                - Performance Bonus
            
            $
            2,979





During
      the year ended December 31, 2005, the Company issued the following shares of
      Common stock, all of which shares are stated in post-split amounts:




**DATE ISSUED**
            
            
            **SHARES**
            
            
            **CONSIDERATION**
            
            
            **VALUATION**
            
            
            **RELATIONSHIP**2/9/2005
            
            
            208,000
            
            
            Converted
                Preferred
              Series
                A
            
            $
            36,000
            
            
            Preferred
                Series-A Shareholders2/14/2005
            
            
            520,000
            
            
            Converted
                Preferred
              Series
                A
            
            $
            90,000
            
            
            Preferred
                Series-A Shareholders2/18/2005
            
            
            84,500
            
            
            Converted
                Preferred Series A Received as Broker Fee
            
            
            *
            
            
            Broker
                / Preferred Series-A Shareholders2/24/2005
            
            
            251,421
            
            
            Converted
                Notes Payable and Accrued Interest
            
            $
            301,706
            
            
            Convertible
                Note Holder2/24/2005
            
            
            471,415
            
            
            Converted
                Notes Payable and Accrued Interest
            
            $
            565,698
            
            
            Convertible
                Note Holder2/24/2005
            
            
            157,138
            
            
            Converted
                Notes Payable and Accrued Interest
            
            $
            188,566
            
            
            Convertible
                Note Holder2/24/2005
            
            
            33,333
            
            
            Broker
                Fee
            
            
            *
            
            
            Broker
                / Preferred Series-A Shareholders2/24/2005
            
            
            625,000
            
            
            Convert
                Note Payable and Accrued Interest
            
            $
            750,000
            
            
            Convertible
                Note Holder2/25/2005
            
            
            1,575,833
            
            
            Converted
                Preferred Series A Received as Broker Fee
            
            
            *
            
            
            Broker
                / Preferred Series-A Shareholders2/25/2005
            
            
            33,333
            
            
            Broker
                Fee
            
            
            *
            
            
            Broker
                / Convertible Note Holder3/3/2005
            
            
            1,040,000
            
            
            Converted
                Preferred Series A
            
            $
            180,000
            
            
            Preferred
                Series-A Shareholders3/3/2005
            
            
            33,333
            
            
            Exercised
                Warrants
            
            $
            61,325
            
            
            Broker
                / Convertible Note Holder3/3/2005
            
            
            260,417
            
            
            Exercised
                Warrants
            
            $
            429,688
            
            
            Convertible
                Note Holder turned Stockholder3/3/2005
            
            
            86,806
            
            
            Exercised
                Warrants
            
            $
            143,229
            
            
            Convertible
                Note Holder turned Stockholder3/3/2005
            
            
            138,889
            
            
            Exercised
                Warrants
            
            $
            229,165
            
            
            Convertible
                Note Holder turned Stockholder




55




3/6/2005
            
            
            80,555
            
            
            Exercised
                Warrants
            
            $
            132,916
            
            
            Convertible
                Note Holder turned Stockholder3/7/2005
            
            
            485,333
            
            
            Converted
                Preferred Series A Received as Broker Fee
            
            
            *
            
            
            Preferred
                Series-A Shareholders3/7/2005
            
            
            -
            
            
            Converted
                Preferred Series A Additional Proceeds
            
            $
            9,000
            
            
            Preferred
                Series-A Shareholders3/7/2005
            
            
            66,667
            
            
            Exercised
                Warrants
            
            $
            110,000
            
            
            Convertible
                Note Holder turned Stockholder3/10/2005
            
            
            66,667
            
            
            Exercised
                Warrants
            
            $
            110,000
            
            
            Convertible
                Note Holder turned Stockholder3/11/2005
            
            
            80,000
            
            
            Consulting
                Services
            
            $
            358,200
            
            
            Consultant
                / Legal Counsel3/11/2005
            
            
            80,000
            
            
            Consulting
                Services
            
            $
            358,200
            
            
            Former
                Consultant / Current Executive Vice President3/11/2005
            
            
            200,000
            
            
            Costs
                of Sales
            
            $
            450,000
            
            
            Vendor3/14/2005
            
            
            66,667
            
            
            Exercised
                Warrants
            
            $
            110,000
            
            
            Convertible
                Note Holder turned Stockholder3/14/2005
            
            
            500,000
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            CEO3/14/2005
            
            
            280,216
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            CFO3/21/2005
            
            
            369,022
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            COO3/21/2005
            
            
            172,065
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Former
                Director3/21/2005
            
            
            100,000
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            37,832
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            10,378
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            8,211
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            7,738
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            6,388
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            8,097
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            1,363
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            945
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            1,052
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/22/2005
            
            
            310
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee3/28/2005
            
            
            211,734
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee4/6/2005
            
            
            -
            
            
            Exercise
                Warrants - Additional Proceeds
            
            $
            1,347,500
            
            
            Convertible
                Note Holder turned Stockholder4/12/2005
            
            
            33,333
            
            
            Exercise
                Warrants
            
            $
            61,325
            
            
            Convertible
                Note Holder turned Stockholder4/15/2005
            
            
            8,892
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee4/15/2005
            
            
            8,527
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee4/15/2005
            
            
            8,715
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Director4/15/2005
            
            
            5,790
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee4/15/2005
            
            
            6,151
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee4/27/2005
            
            
            12,897
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Senior
                Vice President5/4/2005
            
            
            174,790
            
            
            Additional
                Shares Issued Per Anti-dilutive Agreement
            
            
            *
            
            
            Convertible
                Note Holder turned Stockholder5/6/2005
            
            
            291,317
            
            
            Additional
                Shares Issued Per Anti-dilutive Agreement
            
            
            *
            
            
            Convertible
                Note Holder turned Stockholder5/12/2005
            
            
            103,950
            
            
            Stock
                for Cash
            
            $
            300,000
            
            
            Investors5/12/2005
            
            
            346,500
            
            
            Stock
                for Cash
            
            $
            1,000,000
            
            
            Investors5/12/2005
            
            
            86,667
            
            
            Stock
                for Cash
            
            $
            250,120
            
            
            Investors5/12/2005
            
            
            86,667
            
            
            Stock
                for Cash
            
            $
            250,120
            
            
            Investors5/12/2005
            
            
            17,325
            
            
            Stock
                for Cash
            
            $
            50,000
            
            
            Investors5/12/2005
            
            
            86,625
            
            
            Stock
                for Cash
            
            $
            250,000
            
            
            Investors5/12/2005
            
            
            6,930
            
            
            Stock
                for Cash
            
            $
            20,000
            
            
            Investors5/12/2005
            
            
            27,720
            
            
            Stock
                for Cash
            
            $
            80,000
            
            
            Investors5/12/2005
            
            
            3,333
            
            
            Stock
                for Cash
            
            $
            9,620
            
            
            Investors5/12/2005
            
            
            3,333
            
            
            Stock
                for Cash
            
            $
            9,620
            
            
            Investors5/12/2005
            
            
            34,650
            
            
            Stock
                for Cash
            
            $
            100,000
            
            
            Investors5/12/2005
            
            
            13,333
            
            
            Stock
                for Cash
            
            $
            38,480
            
            
            Investors5/17/2005
            
            
            650,000
            
            
            Converted
                Preferred Series A
            
            $
            112,500
            
            
            Preferred
                Series-A Shareholders5/27/2005
            
            
            86,625
            
            
            Stock
                for Cash
            
            $
            250,000
            
            
            Investors5/27/2005
            
            
            250,000
            
            
            Consulting
                Services
            
            $
            905,000
            
            
            Former
                Consultant - Corporation owned by current Executive Vice
                President




56




6/8/2005
            
            
            350,000
            
            
            Consulting
                Services
            
            $
            969,500
            
            
            Consultant
                / Legal Counsel6/13/2005
            
            
            22,500
            
            
            Shares
                received as Converted Preferred Series A
            
            
            *
            
            
            Broker/Preferred
                Series-A Shareholders6/13/2005
            
            
            2,444,167
            
            
            Converted
                Preferred Series A Received as Broker Fee
            
            
            *
            
            
            Broker/Preferred
                Series-A Shareholders6/14/2005
            
            
            4,353
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Employee6/27/2005
            
            
            33,334
            
            
            Sales
                Commissions
            
            $
            100,000
            
            
            Affiliate6/30/2005
            
            
            170,000
            
            
            Legal
                Services
            
            $
            493,000
            
            
            Consultant
                / Legal Counsel7/5/2005
            
            
            14,815
            
            
            Exercised
                Stock Options
            
            
            *
            
            
            Consultant7/5/2005
            
            
            8,334
            
            
            Employment
                Signing Bonus
            
            $
            25,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            1,000
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire7/5/2005
            
            
            334
            
            
            Services
                - Performance Bonus
            
            $
            1,000
            
            
            Employee
                of Sanswire8/5/2005
            
            
            20,001
            
            
            Sales
                Commissions
            
            $
            37,402
            
            
            Affiliate
                / Vendor8/5/2005
            
            
            13,333
            
            
            Sales
                Commissions
            
            $
            24,933
            
            
            Affiliate
                / Vendor9/6/2005
            
            
            38,730
            
            
            Equipment
                Purchase
            
            $
            58,206
            
            
            Affiliate
                / Vendor9/8/2005
            
            
            100,000
            
            
            Conversion
                of Preferred Series C to Common Stock
            
            $
            150,000
            
            
            Relation
                to Investment Banker / Consultant9/8/2005
            
            
            720,000
            
            
            Conversion
                of Preferred Series C to Common Stock
            
            $
            1,080,000
            
            
            Investment
                Banker / Consultant9/8/2005
            
            
            3,166
            
            
            Services
                - Performance Bonus
            
            $
            4,750
            
            
            Employee
                of Sanswire9/8/2005
            
            
            133,334
            
            
            Employment
                Signing Bonus
            
            $
            200,000
            
            
            Employee9/13/2005
            
            
            98,983
            
            
            Employment
                Severance Agreement
            
            $
            177,400
            
            
            Former
                Employee9/27/2005
            
            
            185,185
            
            
            Board
                Member Referral Fee
            
            $
            275,926
            
            
            Consultant
                Board Member9/30/2005
            
            
            1,881,317
            
            
            Converted
                Preferred Series A
            
            $
            270,000
            
            
            Preferred
                Series-A Shareholders9/30/2005
            
            
            36,667
            
            
            Officer
                Salary Adjustment
            
            $
            55,000
            
            
            Former
                President / Director9/30/2005
            
            
            33,611
            
            
            Officer
                Salary Adjustment
            
            $
            50,000
            
            
            Former
                President / Director9/30/2005
            
            
            12,500
            
            
            Director
                Fees
            
            $
            18,750
            
            
            Former
                President / Director10/7/2005
            
            
            350,000
            
            
            Consulting
                Services
            
            $
            458,500
            
            
            Corporation
                owned by Former Consultant / Current Executive Vice
                President11/2/2005
            
            
            28,201
            
            
            Exercised
                Stock Options
            
            $
            53,300
            
            
            Employee11/17/2005
            
            
            500,000
            
            
            Conversion
                of Preferred Series C
            
            $
            250,000
            
            
            Chief
                Operating Officer11/28/2005
            
            
            9,333
            
            
            Exercised
                Warrants
            
            $
            15,399
            
            
            Stockholder
                / Warrant Holder11/28/2005
            
            
            2,333
            
            
            Exercised
                Warrants
            
            $
            3,849
            
            
            Stockholder
                / Warrant Holder11/28/2005
            
            
            60,638
            
            
            Exercised
                Warrants
            
            $
            100,053
            
            
            Stockholder
                / Warrant Holder11/28/2005
            
            
            4,851
            
            
            Exercised
                Warrants
            
            $
            8,004
            
            
            Stockholder
                / Warrant Holder11/28/2005
            
            
            72,765
            
            
            Exercised
                Warrants
            
            $
            120,062
            
            
            Stockholder
                / Warrant Holder11/28/2005
            
            
            2,333
            
            
            Exercised
                Warrants
            
            $
            3,849
            
            
            Stockholder
                / Warrant Holder11/28/2005
            
            
            69,545
            
            
            Exercised
                Warrants
            
            $
            114,751
            
            
            Stockholder
                / Warrant Holder




11/29/2005
            
            
            72,766
            
            
            Exercised
                Warrants
            
            $
            120,064
            
            
            Stockholder
                / Warrant Holder11/30/2005
            
            
            19,404
            
            
            Exercised
                Warrants
            
            $
            32,017
            
            
            Stockholder
                / Warrant Holder12/1/2005
            
            
            242,550
            
            
            Exercised
                Warrants
            
            $
            400,208
            
            
            Stockholder
                / Warrant Holder12/2/2005
            
            
            24,255
            
            
            Exercised
                Warrants
            
            $
            40,021
            
            
            Stockholder
                / Warrant Holder12/2/2005
            
            
            60,667
            
            
            Exercised
                Warrants
            
            $
            100,101
            
            
            Stockholder
                / Warrant Holder12/5/2005
            
            
            60,667
            
            
            Exercised
                Warrants
            
            $
            100,101
            
            
            Stockholder
                / Warrant Holder12/8/2005
            
            
            1,857,350
            
            
            Conversion
                of Note Payable and Accrued Interest
            
            $
            3,064,628
            
            
            Convertible
                Note Holder turned Stockholder




57




12/8/2005
            
            
            306,860
            
            
            Conversion
                of Note Payable and Accrued Interest
            
            $
            506,319
            
            
            Convertible
                Note Holder turned Stockholder12/16/2005
            
            
            100,000
            
            
            Exercised
                Warrants
            
            $
            250,000
            
            
            Stockholder
                / Warrant Holder12/19/2005
            
            
            100,000
            
            
            Exercised
                Warrants
            
            $
            250,000
            
            
            Stockholder
                / Warrant Holder12/21/2005
            
            
            72,727
            
            
            Exercised
                Warrants
            
            $
            181,818
            
            
            Stockholder
                / Warrant Holder12/22/2005
            
            
            81,168
            
            
            Travel
                Services
            
            $
            125,000
            
            
            Corporation
                owned by Former Consultant / Current Executive Vice
                President12/27/2005
            
            
            291,961
            
            
            Conversion
                of Note Payable and Accrued Interest
            
            $
            481,736
            
            
            Convertible
                Note Holder turned Stockholder12/27/2005
            
            
            21,429
            
            
            Officer
                Salary
            
            $
            60,000
            
            
            Chief
                Executive Officer / Director12/27/2005
            
            
            19,643
            
            
            Officer
                Salary
            
            $
            55,000
            
            
            Chief
                Financial Officer12/27/2005
            
            
            9,821
            
            
            Officer
                Salary
            
            $
            27,500
            
            
            Corp.
                Secretary / Director12/27/2005
            
            
            19,643
            
            
            Officer
                Salary
            
            $
            55,000
            
            
            Chief
                Operating Officer12/27/2005
            
            
            19,643
            
            
            Officer
                Salary
            
            $
            55,000
            
            
            Chief
                Technology Officer12/27/2005
            
            
            19,643
            
            
            Officer
                Salary
            
            $
            55,000
            
            
            Former
                Chief Operating Officer / Director12/27/2005
            
            
            9,821
            
            
            Officer
                Salary
            
            $
            27,500
            
            
            Senior
                Vice-President of Finance12/31/2005
            
            
            12,931,334
            
            
            Conversion
                of Preferred Series B
            
            $
            8,435,200
            
            
            Preferred
                Stockholder12/31/2005
            
            
            308,712
            
            
            Conversion
                of Note Payable and Accrued Interest
            
            $
            509,375
            
            
            Convertible
                Note Holder turned Stockholder





*
      The
      valuation amounts of the above common stock transactions are based on the
      amounts that common stock and related additional paid-capital were increased
      (decreased) upon recording of each transaction. For exercises of stock options,
      no values are indicated, whereas the options were valued and the additional
      paid-in capital account was increased upon the original issuance (grant) of
      the
      options and no additional charges were recorded upon exercise of the options.
      For conversions of preferred stock, the valuation indicated is the recorded
      amount of the preferred stock upon original issuance of the preferred shares,
      which amount was reclassified to common stock and related additional paid-in
      capital upon conversion. Where preferred stock was originally issued for
      broker's fees (instead of cash) and, accordingly, no monetary compensation
      was
      received or recorded by the Company for the preferred shares issued, the listed
      common stock valuation is also zero.





In
      connection with the above, for certain issuances of shares, Forms S-8 have
      been
      filed with the Securities and Exchange Commission relative to such issuances
      of
      stock. The shares issued were valued by the Company based upon the average
      bid
      and asked price of the shares on the date of issuance. The value of these shares
      was charged to expense unless they were in consideration for future services,
      in
      which case they were recorded as deferred consulting fees.




For
      other
      issuances of shares during the periods described above, the Company-issued
      restricted shares (Rule 144) of its common stock to consultants and officers
      for
      services to the Company. Through December 31, 2004, issuance of restricted
      shares (Rule 144) were valued, due to limitations in current marketability,
      by
      the Company based upon half of the average bid and asked price of the Company's
      shares on the date of issuance, unless the services provided were valued at
      another amount as agreed upon between the parties.




Effective
      January 1, 2005, the Company adopted the policy of valuing all shares of common
      stock issued in consideration for services at the closing price of the shares
      on
      the date of issuance or date of Board approval or agreement, if earlier,
      regardless of whether the shares are issued or restricted or free-trading,
      except for instances where the closing price is based on contractual
      agreements.





Shares
      issued (retired) for loan collateral were recorded at par value.





On
      May 9,
      2005, the Company entered into a private placement with a number of accredited
      investors, whereby these investors have purchased $2,357,960 of common shares
      at
      a price of $ 2.886 with warrants to purchase up to an additional 571,924 shares
      of common stock at an exercise price of $ 5.0925. However, the subscription
      agreement with the investors allows for the price of the warrant to be adjusted
      should the Company offer equity securities at a lower price prior to the
      Warrants being exercised. As stated below the Company has entered into such
      an
      agreement and will be obligated to adjust the Warrant exercise price. The
      Company subsequently registered those shares on Form S-3 which has been declared
      effective by the Securities and Exchange Commission.





58





On
      May
      23, 2005, the Company accepted an additional subscription from one of the
      initial investors increasing their investment by $250,000 on the same terms
      and
      conditions as all the other investors.





The
      Company received net proceeds of $2,328,489 from the above transactions, after
      fees and costs of $279,471 related to the issuance.





In
      November and December 2005, the investors exercised outstanding warrants to
      acquire a total of 702,108 common shares at $1.65 per share for proceeds of
      $1,158,478.





Also,
      in
      May 2005, the Company issued an additional 291,317 unrestricted shares to an
      institutional investor that received shares for cash in private placements
      during 2004, pursuant to an anti-dilutive provision in the original agreement.
      These shares were recorded at par value. As previously disclosed, Timothy M.
      Huff, CEO of GlobeTel, held a 40% interest in this investment, and accordingly
      received 116,526 shares.




**NOTE
      19. STOCK OPTIONS AND WARRANTS**





During
      the year ended December 31, 2006, the Company issued the following options
      to
      acquire Common stock:




Date Issued
            
            Shares
            
            Consideration
            
            Valuation
            
            Relationship4/6/2006
            
            
            159,793
            
            Director
                Bonus
            
            $
            212,660
            
            Former
                Directors7/4/2006
            
            
            133,967
            
            Director
                Bonus
            
            $
            97,595
            
            Former
                Directors10/4/2006
            
            
            123,967
            
            Director
                Bonus
            
            $
            32,274
            
            Former
                Director10/10/2006
            
            
            1,585,488
            
            Director
                Severance/Bonus
            
            $
            219,200
            
            Former
                Director12/29/2006
            
            
            2,109,260
            
            Employees
                Bonus
            
            $
            497,399
            
            Non
                Executive Employees





See
      below
      for more information regarding vesting term and exercise prices.





All
      options were fully vested and thus there was no deferred
      compensation.





The
      above
      scheduled stock options were recorded at fair market value under SFAS 123R
      (see
      Note 1 above). The fair value of the options at the time of issuance was
      determined using the Black-Scholes option-pricing model with the following
      assumptions:





Risk
                free interest rate
            
            
            4.50
            %Expected
                life
            
            
            3
                yearsExpected
                volatility
            
            
            87-112
            %Expected
                dividend yield
            
            
            0
            %




During
        the year ended December 31, 2005, the Company issued the following options
        to
        acquire Common stock:


Date Issued
            
            Shares
            
            Consideration
            
            Valuation
            
            Relationship9/27/2005
            
            
            81,481
            
            Additional
                stock options per
            
            $
            55,000
            
            Former
                President / Director settlement agreement9/27/2005
            
            
            1,542,176
            
            Settlement
                Agreement
            
            $
            1,256,873
            
            Consultant
                / Affiliate or Former President12/9/2005
            
            
            37,500
            
            Director
                Bonus
            
            $
            55,875
            
            Former
                Director12/9/2005
            
            
            30,000
            
            Director
                Severance
            
            $
            29,700
            
            Former
                Director12/31/2005
            
            
            2,945,763
            
            Officer
                Stock Option Grant
            
            $
            1,988,390
            
            Chief
                Executive Officer/ Director12/31/2005
            
            
            1,963,842
            
            Officer
                Stock Option Grant
            
            $
            1,325,593
            
            Chief
                Operating Officer / Director12/31/2005
            
            
            1,472,882
            
            Officer
                Stock Option Grant
            
            $
            994,195
            
            Chief
                Financial Officer12/31/2005
            
            
            490,961
            
            Officer
                Stock Option Grant
            
            $
            331,398
            
            Director
                / Former President12/31/2005
            
            
            981,921
            
            Officer
                Stock Option Grant
            
            $
            662,797
            
            Chief
                Technology Officer / Former Consultant12/31/2005
            
            
            981,921
            
            Officer
                Stock Option Grant
            
            $
            662,797
            
            Chief
                Operating Officer12/31/2005
            
            
            2,454,803
            
            Officer
                Stock Option Grant
            
            $
            4,394,097
            
            Director




The
      above
      scheduled stock options include only those recorded at intrinsic value (see
      Note
      1 above). Other stock options with no intrinsic value (i.e., not discounted)
      are
      discussed below, but are not required to be recorded in the financial
      statement.




59





STOCK
      OPTION BONUS PLANS





In
      November 2005, the Company established its 2005 Stock Option Bonus Plan, wherein
      the board of directors authorized the issuance of stock options for restricted
      shares totaling 1,509,180 shares to the officers and employees of the Company
      as
      payment of accrued bonuses through December 31, 2005. The stock options are
      exercisable at $2.12, based on the closing market price of the Company's
      free-trading shares on the date the options were granted. Through the date
      of
      this report, none of these options have been exercised.





During
      2005, the board of directors authorized the issuance of stock options for
      restricted shares totaling 199,490 shares to the directors of the Company as
      board members' compensation for services through December 31, 2005. The stock
      options are exercisable at various amounts, ranging from $1.99 to $4.35 per
      share, based on the closing market price of the Company's free-trading shares
      on
      the date the options were granted, except for a now former director who was
      issued 37,500 and 30,000 options shares at $1.49 and $0.99, respectively.
      Through the date of this report, none of these options have been
      exercised.





All
      of
      the options granted during 2006 and 2005, unless otherwise discounted as noted
      above, were exercisable based on the closing market price of the Company's
      free-trading shares. Accordingly, whereas through December 31, 2005 the Company
      expenses stock options only at intrinsic value (per APB 25 - see Note 1 above),
      no expense was recorded for shares exercised based on the closing price of
      the
      Company's free-trading shares at the date granted.





2004
      STOCK OPTIONS EXERCISED IN 2005 and 2006





During
      2006 and 2005, a total of 1,953,830 and 1,785,490, respectively, of the above
      options shares were exercised and issued (net of shares used to pay for
      "cashless" options"), with payment in cash and common stock subscriptions
      receivable totaling $85,788 and $92,906, pursuant to the 2004 Stock Option
      Bonus
      Plan, the Officers' Stock Option Grant Plan, and for accrued board members'
      stipends, and, furthermore, these shares were registered by the Company's filing
      a Form S-8 registration statement. The number of shares registered were
      allocated to the individuals exercising the options based a ratio of the number
      of options held by each individual to the total number of options held by all
      individuals. Employee options vest according to the terms of the specific grant
      and expire from 3 to 5 years from date of grant. As of December 31, 2006,
      all options issued and outstanding have fully vested and thus there was no
      deferred compensation, Stock option activity for the years ended
      December 31, 2006 and 2005 was as follows:





Number of Options
              (in shares)
            
            Weighted Average
              Exercise PriceOutstanding
                at December 31, 2004
            
            
            7,674,257
            
            $
            .675Options
                Granted
            
            
            15,888,598
            
            
            1.273Options
                Exercised
            
            
            (1,813,692
            )
            
            .675Options
                Forfeited
            
            
            (96,296
            )
            
            .675Outstanding
                at December 31, 2005
            
            
            21,652,867
            
            $
            1.114Options
                Granted
            
            
            4,112,475
            
            
            .822Options
                Exercised
            
            
            (1,953,830
            )
            
            .675Options
                Cancelled
            
            
            (28,643
            )
            
            .675Options
                Forfeited
            
            
            (3,609,267
            )
            
            2.253Outstanding
                at December 31, 2006
            
            
            20,173,602
            
            $
            .894





As
      of
      December 31, 2006, the exercise price of all options outstanding exceeds the
      market price of the Company’s stock, and therefore there was no intrinsic
      value.





WARRANTS





On
      May 9,
      2005, the Company entered into a private placement with a number of accredited
      investors, whereby these investors have purchased $2,357,960 of common shares
      at
      a price of $ 2.886 with warrants to purchase up to an additional 571,924 shares
      of common stock at an exercise price of $ 5.0925. However, the subscription
      agreement with the investors allows for the price of the warrant to be adjusted
      should the Company offer equity securities at a lower price prior to the
      Warrants being exercised. As stated below the Company has entered into such
      an
      agreement and will be obligated to adjust the Warrant exercise price. The
      Company subsequently registered those shares on Form S-3 which has been declared
      effective by the Securities and Exchange Commission.





On
      May
      23, 2005, the Company accepted an additional subscription from one of the
      initial investors increasing their investment by $250,000 on the same terms
      and
      conditions as all the other investors.




60





The
      Company received net proceeds of $2,328,489 from the above transactions, after
      fees and costs of $279,471 related to the issuance.





In
      November and December 2005, the investors exercised outstanding warrants to
      acquire a total of 702,108 common shares at $1.65 per share for proceeds of
      $1,158,478.





Also,
      in
      May 2005, the Company issued an additional 291,317 unrestricted shares to an
      institutional investor that received shares for cash in private placements
      during 2004, pursuant to an anti-dilutive provision in the original agreement.
      These shares were recorded at par value. As previously disclosed, Timothy M.
      Huff, CEO of GlobeTel, held a 40% interest in this investment, and accordingly
      received 116,526 shares.





The
      following table summarizes certain information about the Company’s stock
      warrants.





Warrants
              Class A
            
            Warrants
              Class B
            
            Weighted Average
              Exercise PriceOutstanding
                at December 31, 2004
            
            —
            
            —
            
            —Warrants
                Granted
            
            
            4,535,440
            
            
            —
            
            $
            2.595Warrants
                Exercised
            
            
            (1,808,168
            )
            
            —
            
            
            1.778Outstanding
                at December 31, 2005
            
            
            2,727,272
            
            
            —
            
            $
            2.500Warrants
                Granted
            
            
            3,736,701
            
            
            1,801,095
            
            
            1.994Warrants
                Exercised
            
            
            (2,727,272
            )
            
            —
            
            
            2.500Outstanding
                at December 31, 2006
            
            
            3,736,701
            
            
            1,801,095
            
            $
            1.994





The
      fair
      value of the warrants issued during 2006 was determined using the Black-Scholes
      option-pricing model with the following assumptions:





Risk
                free interest rate
            
            
            4.50
            %Expected
                life
            
            
            3
                yearsExpected
                volatility
            
            
            99.63
            %Expected
                dividend yield
            
            
            0
            %





**NOTE
      20. PREFERRED STOCK**





SERIES
      A





During
      2005, the preferred shareholders converted all of the remaining 96,500 Series
      A
      Preferred shares into 8,911,651 (pre-split) shares of the Company's common
      stock.





SERIES
      B





On
      April
      27, 2004, the Company agreed to sell 1,000 shares of Series B Preferred Stock
      of
      GlobeTel Communications Corp. to Caterham Financial Management, Ltd., a
      Malaysian company (Caterham), for a total investment of $15 million. The Company
      intended to use $5 million of this investment for working capital and $10
      million to purchase two Stored Value Card Data switches.





The
      agreement was later modified so that the total number of shares is 35,000 for
      the same investment convertible into the same amount of common stock as agreed
      upon on April 27, 2005.





With
      respect to the $5 million in working capital, Caterham had agreed to advance
      $1
      million to GlobeTel Communications on May 7, July 1, September 1, November
      1 and
      December 31 of 2004. The Agreement provides that Caterham has a 10 day grace
      period, in which to make any scheduled payments. With respect to the Master
      Card
      Data switches, Caterham has agreed to advance an aggregate of $5 million to
      GlobeTel Communications to purchase a Stored Value Card Data Switch, which
      will
      be located in Miami, Florida and subsequently a second switch will be installed
      in the Company's Hong Kong operations.





The
      Certificate of Designation for the Series B Preferred Stock was filed with
      the
      State of Delaware on July 30, 2004.




61





Except
      for voting rights and conversion rights, each share of Series B Preferred Stock
      shall have rights that are identical to shares of the Company's common stock.
      The Series B Preferred Stock issued to Caterham and its nominees will have
      voting rights equal to 50% plus one share of the Company's authorized shares
      of
      common stock for a period of three years beginning on the first closing date
      an
      ending three years thereafter, provided that Caterham and/or its nominee have
      not converted more than 15% of their Series B Preferred Stock into the Company's
      common stock during this time period. In March 2005 the Company and Caterham
      amended the agreement to revise voting rights to specify that provided at least
      85% of the Series B Preferred Stock remains outstanding, the holders of the
      Series B Preferred Stock, voting as a group, will have voting rights equal
      to
      50% plus one shares of the Company's authorized shares of common stock for
      a
      period up to and including April 30, 2005. Thereafter the holders shall have
      one
      vote for each share of common stock for which the Series B Preferred Stock
      may
      be converted, regardless of the percentage of Series B Preferred Stock
      outstanding.





Beginning
      on the first anniversary after the first closing date and expiring two years
      thereafter, Caterham and its nominees may convert (in whole or in part) its
      Series B Preferred Stock into GlobeTel common stock. Each 1,000 share increment
      of Series B Preferred Stock, as a class, issued to Caterham and its nominees
      shall be convertible into that number of shares of the Company's common stock
      equal to 1% of GlobeTel then issued and outstanding shares (the "Aggregate
      Conversion Shares") as determined on the date in which Caterham, or one of
      its
      nominees, first converts its Series B Preferred Stock into the Company's common
      stock (the "First Conversion Date"). In March 2005, the Company and Caterham
      amended the agreement to revise conversion rights to provide issuance of 369,467
      shares of GlobeTel common stock. Each holder of the Series B Preferred Stock
      will receive shares of GlobeTel aggregate conversion shares based on his
      pro-rata ownership of the Series B Preferred Stock. Three years after the first
      closing date, all of the shares of GlobeTel's Series B Preferred Stock which
      have not converted into GTEL common stock will be automatically converted into
      shares of GlobeTel's common stock.





The
      Company had subscribed and received $3,350,000 as of December 31, 2004 (net
      of
      $11.5 million of subscriptions receivable). A total of $2,850,000 was received
      from Caterham; an amount representing $500,000 was issued to Charterhouse in
      settlement of outstanding obligations. In addition an amount representing
      $150,000, was issued as a broker's fee.





In
      January 2005 an additional $250,000 was received from Caterham. The remaining
      amount of the subscription receivable was subsequently received during 2005
      in
      the form of $4,835,200 of telecommunication equipment - the data switch in
      connection with the Stored Value Card program.





In
      December 2005, the Company entered into an agreement with Caterham wherein
      all
      35,000 Series A Preferred shares were converted into 12,931,334 shares of
      GlobeTel common stock in full settlement of all obligations of the
      parties.





SERIES
      C





On
August
      20, 2004, the Company agreed to sell 500 shares of Series C Preferred Stock
      of
      GlobeTel Communications Corp. to Paul E. Taboada for a total investment of
      $500,000. Mr. Taboada, an individual investor, has also been providing
      consulting services for the Company for over four years. The Company is using
      this $500,000 investment for working capital and purchase of equipment for
      Sanswire Networks, LLC, necessary to launch the prototype of the
      Stratellite.





The
      purchase price was payable in five (5) installments of $100,000, payable no
      later than August 30, 2004, September 30, 2004, October 30, 2004, November
      30,
      2004, and December 30, 2004. The Purchaser has a three-day cure period to remit
      the monthly payments. As of December 31, 2004, the Company has received the
      full
      $500,000 as agreed upon.





In
      September 2005, Mr. Taboada converted all 500 shares of Series C Preferred
      Stock
      into 820,000 shares of the Company's common stock based on 1% of the then
      outstanding total of the Company's common stock, as agreed upon by the
      parties.





On
      October 22, 2004, the Company agreed to sell 250 shares of Series C Preferred
      Stock of GlobeTel Communications Corp. to Lawrence Lynch for a total investment
      of $250,000. Mr. Lynch, an individual investor, was also the current Chief
      Operating Officer of the Company. The Company used this $250,000 investment
      for
      working capital and purchase of equipment necessary to expand the Company's
      stored value card programs.





In
      November 2005, Mr. Lynch converted all 250 shares of Series C Preferred Stock
      into 500,000 shares of the Company's common stock.





As
      of
      December 31, 2005, the there were no subscriptions receivable for Series C
      preferred stock, all shares were converted into Company common stock, and the
      Company does not anticipate issuing any additional shares in connection with
      this preferred stock series.




62





SERIES
      D





On
      July
      28, 2004, the Company agreed to sell 1,000 shares of Series D Preferred Stock
      of
      GlobeTel Communications Corp. to Mitchell A. Siegel, former Chief Operating
      Officer and Vice President and Director of the Company. The Company intends
      to
      use $1 million of this investment for working capital and purchase of equipment
      necessary to expand the Company's stored value card programs.





Mitchell
      A. Siegel agreed to advance $1 million to GlobeTel in four (4) quarterly
      installments beginning August 2004. The agreement was subsequently modified
      for
      the installment period to be semi-annual and to begin in October 2004. Mr.
      Siegel has remitted the initial $250,000, and in June 2005, remitted the second
      $250,000. The
      Company does not expect to receive the remaining $500,000 in stock
      subscriptions receivable from Mr. Siegel. Mr. Siegel converted his shares in
      October 2006.




The
      Certificate of Designation for the Series D Preferred Stock was filed with
      the
      State of  Delaware  on
      July
      30, 2004.




**NOTE
      21. SUBSEQUENT EVENTS**




Completion
      of Agreement To Form “No Mas Cables” Joint Venture with VPN de Mexico S.A. de
      C.V





On
      April
      3, 2007, the Company and VPN de Mexico S.A. de C.V., subsidiary of Grupo IUSA
      S.A. de C.V., Mexico, finalized an agreement that called for the creation of
      a
      joint venture company called “No Mas Cables de Mexico S.A. de C.V.” to be owned
      51% by VPN and 49% by GlobeTel. The purpose of the joint venture is to install
      and operate wireless broadband networks utilizing GlobeTel's HotZone 4010
      wireless base station. The parties had originally entered into a Test Network
      Installation Agreement in June 2006, pursuant to which GlobeTel installed a
      network in the Mexican city of Pachuca. As of the date of this filing, the
      Company as abandoned the joint venture.





Entry
      Into A Material Definitive Agreement to Reprice Exercise Price of
      Warrants





On
      April
      13, 2007, the Company agreed to reprice the exercise price of warrants
      previously packaged with aforementioned Convertible Note financing in September
      2006 to $.20 per share, and increased the number of shares issuable upon
      exercise of such warrants 1.5 times the original amount of warrants issued.
      In
      consideration of the aforementioned the investors exercised their warrants
      which
      will result in the issuance of up to 4,839,014 shares of common being issued
      for
      a total consideration of up to $967,802. As of that date, warrants have been
      exercised for a total of 3,750,000 shares for total consideration of $750,000.
      The Company relied on the exemption from registration provided by Section 4(2)
      of the Securities Act of 1933, as amended (the "Securities Act"). The Company
      believes that the investors are 'accredited investors', as such term is defined
      in Rule 501(a) promulgated under the Securities Act.





Refinancing
      of Debt





In
      January 2007, the Company executed several Certificates of Adjustments for
      the
      previously issued Notes. The Notes previously had Exercise Prices ranging from
      $0.33 to $.39 and with the execution of the adjustments; the Exercise Prices
      were then modified to $0.196. On May 1, 2007, the Company executed several
      Certificates of Adjustments for the previously issued Warrants. The Warrants
      previously had Exercise Prices ranging from $0.75 to $1.00 and with the
      execution of the adjustments; the Exercise Prices were then modified to $0.196.
      In January 2008, the Company issued certificates of adjustment for certain
      convertible debentures and warrants issued pursuant to the 2006 financing to
      $.105 per share. The Company anticipates that there will be additional charges
      due to these modifications and such charges will be recorded during the year
      ended December 31, 2007.





Agreement
      with TAO Technologies GmbH





In
      June
      2008 the Company restructured its November 2007 agreement with TAO Technologies
      GmbH and Professor Bernd Kroplin. The new agreement called for the establishment
      of a new US-based joint venture company to be called Sanswire-TAO that was
      to be
      owned equally by TAO and Sanswire Corp., the wholly-owned subsidiary of
      GlobeTel. Additionally, Sanswire-TAO would register the patents and intellectual
      property of TAO Technologies and Kroplin in the United States for the exlusive
      use of Sanswire-TAO. The agreement also covered Canada and Mexico.
 Further, the compensation for the assets was reduced from $12 million in
      cash and stock to $3.5 million in cash stock. GlobeTel has paid $809,000,
      consisting of $280,000 in cash and 4.45 million shares valued at $529,000.
      The
      remaining balance of $2,691,000 is payable in cash over the next three years.





63





**ITEM
      8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE.**





Dismissal
      of Dohan & Co. PA





On
      January 4, 2007, the Audit Committee of the Board of Directors dismissed Dohan
      & Co., CPAs PA as the Company's certifying accountant.





During
      the two years ended December 31, 2005 and the subsequent interim periods until
      the change, there were no disagreements with Dohan & Co. on any matter of
      accounting principles or practices, financial statement disclosure, or auditing
      scope or procedure, which disagreements, if not resolved to the satisfaction
      of
      Dohan & Co. would have caused them to make reference in connection with
      their report to the subject matter of the disagreement, and Dohan & Co. has
      not advised the Company of any reportable events as defined in Item 304(a)(1)(v)
      of Regulation S-K.





The
      report of independent registered public accounting firm of Dohan & Co. as of
      and for the two years ended December 31, 2005, did not contain any adverse
      opinion or disclaimer of opinion, nor was it qualified or modified as to audit
      scope or accounting principle.





On
      January 4, 2007 the Company engaged McKean Paul Chrycy Fletcher & Co. as the
      Company's certifying accountants, which subsequently declined to accept the
      engagement. During the two years ended December 31, 2005, and through January
      4,
      2007, the Company did not consult with McKean Paul Chrycy Fletcher & Co.
      regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii)
      of Regulation S-K.





Appointment
      of Weinberg, PA





The
      Board
      of Directors of the Company appointed Weinberg & Company, P.A. of Boca
      Raton, Florida as the Company's new independent registered public accounting
      firm to audit and certify our financial statements for fiscal year ended
      December 31, 2006. Weinberg & Company has accepted this appointment and has
      been engaged by the Company. During the most recent fiscal year and through
      April 13, 2007, neither the Company nor any one on behalf of the Company has
      consulted with Weinberg & Company, P.A. regarding the application of
      accounting principles to a specified transaction, either completed or proposed,
      or the type of audit opinion that might be rendered on the Registrant's
      financial statements, or any other matters or reportable events required to
      be
      disclosed under Items 304 (a) (2) (i) and (ii) of Regulation S-K.





Limited
      Engagement of Dohan & Co., P.A.





The
      Company appointed Dohan & Co., P.A. (“Dohan”) CPAs of Miami, Florida as the
      Company’s independent registered public accounting firm to amend and recertify
      our financial statements for fiscal year ended December 31, 2004 and 2005.
      The
      Board of Directors of the Company has approved the appointment of Dohan. Dohan
      has accepted this appointment and has been engaged by the Company   after
      assurances and verifications from the Company that previous management from
      2004
      and 2005 are no longer associated with the Company and have been since been
      replaced. The amended forms 10KSB and 10K were filed on November 2, 2007 and
      December 5, 2007 respectively.





During
      the most recent fiscal year and through September 11, 2007, neither the Company
      nor any one on behalf of the Company has consulted with Dohan regarding the
      application of accounting principles to a specified transaction, either
      completed or proposed, or the type of audit opinion that might be rendered
      on
      the Company's financial statements, or any other matters or reportable events
      required to be disclosed under Items 304 (a) (2) (i) and (ii) of Regulation
      S-K.
      The Company provided Dohan with a copy of the applicable Form 8-K prior to
      filing it with the SEC.




64


**ITEM
      8A. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**





As
      required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended
      (the "Exchange Act"), the Company carried out an evaluation under the
      supervision and with the participation of Jonathan Leinward, the Company’s Chief
      Executive Officer and Principal Financial Officer (the “Reviewing Officer”), of
      the effectiveness of the Company's disclosure controls and procedures as of
      December 31, 2006. In designing and evaluating the Company's disclosure controls
      and procedures, the Company and its management recognize that there are inherent
      limitations to the effectiveness of any system of disclosure controls and
      procedures, including the possibility of human error and the circumvention
      or
      overriding of the controls and procedures. Accordingly, even effective
      disclosure controls and procedures can only provide reasonable assurance of
      achieving their desired control objectives. Additionally, in evaluating and
      implementing possible controls and procedures, the Company's management was
      required to apply its reasonable judgment. Furthermore, in the course of this
      evaluation, management considered certain internal control areas, including
      those discussed below, in which we have made and are continuing to make changes
      to improve and enhance controls. Based upon the required evaluation, the
      Reviewing Officer concluded that as of December 31, 2006, the Company's
      disclosure controls and procedures were not effective to ensure that information
      required to be disclosed by the Company in the reports 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.





For
      the
      year ended December 31, 2003, the Company's independent auditors, Dohan and
      Company, CPA's, P.A. ("Dohan") advised management and the Board of Directors
      by
      a letter dated March 30, 2004, that in connection with its audit of the
      Company's consolidated financial statements for the year ended December 31,
      2003, it noted certain matters involving internal control and its operation
      that
      it considered to be a material weakness under standards established by the
      American Institute of Certified Public Accountants. Reportable conditions are
      matters coming to an independent auditors' attention that, in their judgment,
      relate to significant deficiencies in the design or operation of internal
      control and could adversely affect the organization's ability to record,
      process, summarize, and report financial data consistent with the assertions
      of
      management in the financial statements. Further, a material weakness is a
      reportable condition in which the design or operation of one or more internal
      control components does not reduce to a relatively low level the risk that
      errors or fraud in amounts that would be material in relation to the financial
      statements being audited may occur and not be detected within a timely period
      by
      employees in the normal course of performing their assigned functions. Dohan
      advised management and the Board of Directors that it considered the following
      to constitute material weaknesses in internal control and operations: (i) the
      Company's failure to adequately staff its finance group to effectively control
      the increased level of transaction activity, address the complex accounting
      matters and manage the increased financial reporting complexities and (ii)
      the
      Company's current monthly close process does not mitigate the risk that material
      errors could occur in the books, records and financial statements, and does
      not
      ensure that those errors would be detected in a timely manner by the Company's
      employees in the normal course of performing their assigned functions. Dohan
      noted that these matters were considered by them during its audit and did not
      modify the opinion expressed in its independent auditor's report dated March
      30,
      2004.





In
      light
      of the letter from Dohan, we identified deficiencies in our internal controls
      and disclosure controls related to our accounting and audit procedures.
      Specifically, the identified deficiencies involved the ineffective controls
      over
      (i) revenue reporting, (ii) audit preparation procedures and (iii) financial
      reporting procedures.





Remediation
      of Material Weaknesses





We
      have
      formulated a program to remedy the material weaknesses identified above. In
      the
      first phase of the program, already completed as of September 30, 2007, we
      have
      hired outside accountants and consultants to review our financial statements
      and
      prepare the restatement of our financial statements. We have also hired outside
      counsel to advise on the amendment of our previously filed annual and quarterly
      reports filed with the SEC, which were filed on November 2, 2007 and December
      5,
      2007.




Additionally
      we determined that the Company had ineffective controls over revenue
      recognition. Our remediation measures relating to revenue recognition include
      a
      review by management of revenue items other than normal sales and also the
      discontinuation of the operations of our Centerline Communications LLC
      subsidiary for which we have restated revenue.





In
      the
      second phase of the program, commencing with the filing of our restated
      financial statements, we will be implementing certain new policies and
      procedures such as:





a.
 
      Seeking to recruit board members independent of management;





b.
 
      Granting Board committees standing authority to retain counsel and special
      or
      expert advisors of their own choice;





c.
 
      Seeking outside review of acquisition transactions




65





**Changes
      in Internal Control Over Financial Reporting**





Except
      as
      set forth above, there have been no changes in our internal control over
      financial reporting that occurred during the year ended December 31, 2006 that
      have materially affected or are reasonably likely to materially affect our
      internal control over financial reporting.





**Item
      8A(T). Controls and Procedures.**





Not
      applicable




**ITEM
      8B. OTHER INFORMATION**





BOARD
      APPOINTMENTS AND RESIGNATIONS





On
      August
      30, 2005, Leigh Coleman, a director of the Company, resigned effective August
      18, 2005. There were no disputes with the Company.





The
      Board
      of Directors appointed Jonathan Leinwand to the Board of Directors effective
      August 18, 2005. Mr. Leinwand was also the Company’s general
      counsel.





On
      September 16, 2005, the Company named Sir Christopher Meyer, KCMG, as Chairman
      of its Board of Directors. The appointment of Sir Christopher, 61, increased
      the
      number of independent Directors to three among a total of seven Board
      members.





On
      October 7, 2005, Przemyslaw Kostro resigned as a director of the Company. Mr.
      Kostro had no disputes with the Company.





On
      November 29, 2005, Mr. J. Randolph Dumas was appointed to the position of
      Executive Vice Chairman and Director. In this new function, Mr. Dumas will
      be
      expanding on his previous role as a joint venture partner in Sanswire
      Europe.





On
      December 8, 2005, Ms. Laina Raveendran Greene, a director of the Company,
      resigned her position on the Board of Directors effectively immediately, for
      personal reasons. Ms. Greene had no disputes with the Company.





On
      January 5, 2006, the Company announced the appointment of Michael P. Castellano
      to the Board of Directors. As an independent director, Mr. Castellano will
      fulfill the role as Chairman of GlobeTel’s Audit Committee as a qualified
      financial expert under Sarbanes-Oxley. He will also serve on GlobeTel’s
      Compensation and Nominating Committees.





On
      January 11, 2006, the Company announced the appointment of Dorian B. Klein
      to
      its Board of Directors. Mr. Klein also serves on GlobeTel's Audit, Compensation
      and Nominating Committees.





On
      February 17, 2006, the Company announced that Sir Christopher Meyer, its
      Non-Executive Chairman, had requested a change in his status, effective March
      19, 2006, to that of an Independent Director. As a result of his current
      professional obligations and commitments in the U.K., Sir Christopher had
      advised the Board that he felt unable to commit the time to the Chairmanship
      of
      GlobeTel that the Company's shareholders had the right to expect.





On
      March
      20, 2006, Sir Christopher Meyer elected to step down completely from GlobeTel’s
      Board, after further considering the time that he had available to devote to
      the
      Company.





On
      March
      23, 2006, the Company announced that J. Randolph Dumas, Vice Chairman, has
      been
      elected Chairman of the Board of Directors, succeeding Sir Christopher Meyer,
      who remains with the Company as Chairman of the GlobeTel International Advisory
      Board.





On
      October 7, 2006, J. Randolph Dumas, Dorian
      Klein ,
      Amb. Amb.
      Ferdinando Salleo ,
      and
      Timothy Huff resigned as directors of the Company (Mr. Huff also resigned as
      CEO) and Przemyslaw
      Kostro and
      Peter Khoury were appointed as directors. Mr. Khoury was also appointed as
      CEO.





On
      March
      14, 2007, Michael Castellano and Patrick Heyn resigned as directors of the
      Company. Mr. Castellano also served as chairman of the Audit
      Committee.





On
      September 7, 2007, Peter Khoury resigned as director of the Company. Mr. Khoury
      also resigned as CEO.




66





**PART
      III**




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
      PERSONS**




**Name**
            
            **Age**
            
            **Position
                with Company**Jonathan
                Leinwand
            
            37
            
            Chief
                Executive Officer, DirectorPrzemyslaw
                Kostro
            
            45
            
            Chairman
                of the Board





All
      directors hold office until the next annual meeting of our stockholders and
      until their successors have been elected and shall qualify. Officers serve
      at
      the discretion of our Board of Directors.




**(During
                2006)**





**Name**
            
            **Age**
            
            **Position
                with Company**Timothy
                Huff (a)
            
            40
            
            Chief
                Executive Officer and DirectorJ.
                Randolph Dumas (b)
            
            
            
            Chairman
                (Until resignation on October 7, 2006)Sir
                Christopher Meyer (c)
            
            
            
            DirectorPrzemyslaw
                Kostro
            
            42
            
            ChairmanMitchell
                Siegel (d)
            
            58
            
            DirectorThomas
                Y. Jimenez (e)
            
            46
            
            Chief
                Financial OfficerKyle
                McMahan (g)
            
            47
            
            DirectorAmb. Amb. Ferdinando Salleo (h)
            
            
            
            DirectorDorian
                Klein(i)
            
            
            
            DirectorMichael
                Castellano (j)
            
            
            
            DirectorPatrick
                Heyn (k)
            
            
            
            DirectorPeter
                Khoury (l)
            
            
            
            Director,
                CEOJonathan
                Leinwand
            
            37
            
            Director,
                CEO




(a)
            Resigned
                as Director and CEO October 7, 2006.(b)
            Resigned
                October 7, 2006(c)
            Resigned
                March 19, 2006(d)
            Retired
                as a Director June 21, 2006.(e)
            Retired
                as Chief Financial Officer on April 17, 2006.(f)
            Declined
                to stand for re-election and term ended August 11,
                2005.(g)
            Declined
                to stand for re-election as director and term ended on June 21,
                2006.(h)
            Resigned
                October 7, 2006(i)
            Resigned
                October 7, 2006(j)
            Resigned
                March 14, 2007(k)
            Resigned
                March 14, 2007(l)
            Resigned
                September 7, 2007




**Jonathan
      Leinwand**





Jonathan
      Leinwand, Chief Executive Officer and Director, joined GlobeTel as General
      Counsel in June 2005 and became a director in August 2005. He was appointed
      CEO
      in September 2007. Prior to joining GlobeTel, he was in private practice since
      1996 concentrating in the areas of corporate and securities law, representing
      a
      number of public companies. As part of his practice, Mr. Leinwand also served
      as
      a deal-maker for several US and foreign corporations arranging strategic
      alliances and funding both in the US and abroad. Mr. Leinwand graduated from
      the
      University of Miami with honors degrees in Political Science and Communications
      and graduated cum laude from the University of Miami School Of Law.





**Przemyslaw
      L. Kostro**




Przemyslaw
      L. Kostro, Chairman, was first elected to the Board of Directors in November
      2001. From November 2001 to April 2002, Mr. Kostro also served as the CEO of
      GlobeTel before relinquishing the position to Timothy Huff. Over the past five
      years, Mr. Kostro has been an attorney engaged in international law, and has
      been providing professional and consulting services to several large and
      mid-sized entities in Europe.  Mr. Kostro resigned as a Director in October
      2005 and was reappointed as Director and Chairman of the Board in October
      2006.




67





**Timothy
      M. Huff**





Timothy
      M. Huff, Director, Chief Executive Officer, joined GlobeTel in October 1999,
      and
      served as CEO and as a member of the Board of Directors from April 2002 to
      October 2006. Prior to joining GlobeTel, Mr. Huff spent over five years owning
      and operating several successful private telecom companies. Mr. Huff has over
      eighteen years experience in international telecom business that included
      working with Sprint and MCI International, where he was involved in the
      construction of MCI's first international gateways. Mr. Huff resigned as
      Director and CEO on October 7, 2006.





**Mitchell
      A. Siegel**





Mitchell
      A. Siegel, Director, Chief Operating Officer, served in this capacity and as
      a
      member of the Board of Directors from May 2002 to June 2006. Since 1996, he
      was
      a consultant to Global Transmedia Communications Corporation and was
      instrumental in defining our role as a licensed telecommunications company.
      Mr.
      Siegel graduated from American University, holding a Bachelors Degree in
      Business Administration and has completed Masters Degree courses in finance
      at
      City College of New York - Bernard Baruch School of Finance. Mr. Siegel retired
      as a Director on June 21, 2006.





**Thomas
      Y. Jimenez**





Thomas
      Y.
      Jimenez, CPA, Chief Financial Officer, served as our CFO since joining the
      Company in October 1999 to April 2006. For the three years prior to joining
      the
      Company, Mr. Jimenez was a consultant to various telecommunications companies,
      running their financial department and assisted in building networks in
      different countries. Previously, Mr. Jimenez was a partner in certified public
      accounting firm in the New York City area. Mr. Jimenez graduated from Cleveland
      State University with a degree in Business Administration. Mr. Jimenez retired
      as Chief Financial Officer on April 17, 2006.





**Kyle
      McMahan**





Kyle
      McMahan served on our Board of Directors from May 2004 to June 2006. From 1989
      to 2003, Mr. McMahan served as Chief Executive Officer of Southern Mortgage
      Reporting, Inc., a credit-reporting agency. From April 2001 through September
      2003, he served as chairman of INFO 1 Co., Inc., a company that organized,
      planned and financed the startup of new businesses in the credit reporting
      industry. Mr. McMahan has served as a board member of The Mortgage Bankers
      Association of Georgia and The National Credit Reporting Association. He has
      been nominated to serve on the Company's Board of Directors in accordance with
      the terms of the Company's asset purchase agreement with Sanswire Technologies,
      Inc. Mr. McMahan declined to stand for re-election as director and term ended
      on
      June 21, 2006.





**J.
      Randolph Dumas**





J.
      Randolph Dumas served as a member of the Board of Directors of GlobeTel
      Communications from December 2005 to October 2006. Mr. Dumas served as a Naval
      Aviation Officer during the Viet Nam War Era and, later, served as a briefing
      officer within the Central Intelligence Agency in Washington D.C. before
      attending The Wharton School where he completed his MBA degree in finance in
      1977. Currently, a resident of London, England - he has lived and worked in
      Europe for the past 25 years. He became a senior Managing Director at Salomon
      Brothers International Limited where he was responsible for the firm's European
      corporate finance, mortgage securities and real estate investment banking
      businesses for a number of years. Subsequently, Mr. Dumas founded and became
      the
      Managing Partner of two prominent private equity firms: Dumas West & Co. (a
      50:50 partnership with the "Baby Bell" telecommunications company, US West)
      and
      Rubikon Partners, a firm focusing on European leveraged buyouts. Mr. Dumas
      has
      had extensive experience working in virtually every business sector and in
      every
      country within Europe, Asia and in much of the Middle East. He maintains strong
      relationships in these countries at the highest levels. Mr. Dumas resigned
      as a
      Director on October 7, 2006.





**Amb.
      Ferdinando Salleo**





His
      Excellency Ambassador Ferdinando Salleo joined the GlobeTel Board of Directors
      in May 2006. From 1995-2003, he served as the Italian ambassador to the United
      States. His distinguished service on behalf of his native Italy began in 1960
      when he joined the Italian Foreign Service. A number of increasingly visible
      assignments brought him to Paris, New York and Prague. He also served in the
      Political Department of his Ministry (as head of NATO Dept.), from where he
      moved to Bonn as Minister Counselor. He later became Director General for the
      Department for Economic Cooperation and Development Aid of the Ministry of
      Foreign Affairs in Rome, and eventually the head of the Italian Permanent
      Mission to the OECD (the Paris-based Organization for Economic Cooperation
      and
      Development) in 1986, as well as to the European Space Agency (ESA). He earned
      a
      M.A. degree from the Law School of the University of Rome. Amb. Salleo resigned
      as a Director on October 7, 2006.




68





**Dorian
      Klein**





Dorian
      Klein was named to the Board of Directors in January 2006. He has a
      distinguished record as an investment banker having worked for more than 20
      years in New York, London and Tokyo, including roles as Managing Director and
      Head of European Structured and Principal Finance at Merrill Lynch in London
      and
      as Managing Director and Head of Asset Finance at Bankers Trust in London.
      He
      also headed the Tokyo office of a highly successful boutique investment bank
      that he co-founded with his colleagues from Paine Webber during the 80's. Mr.
      Klein is currently the Managing Partner of Rubikon Partners, a private equity
      firm specializing in mid-cap European buy-ins and buy-outs. He has also been
      a
      private investor in several European technology companies, including several
      in
      fields which are directly relevant to the business strategy of GlobeTel. Mr.
      Klein is an alumnus of Yale University (BA in Mathematics) and the Harvard
      Business School (MBA in Finance). Mr. Klein resigned as a Director on October
      7,
      2006.





**Michael
      P. Castellano**





Michael
      P. Castellano is a certified public accountant with more than 40 years of
      experience in the financial sector. His distinguished career includes executive
      positions in corporate accounting, finance, and administration at renowned
      companies such as Avis, Inc., E.F. Hutton, Inc., and Fidelity Investments.
      At
      Fidelity, he held the positions of Vice President and Corporate Controller
      and
      was later appointed Senior Vice President and Chief Accounting Officer of the
      Fidelity Institutional Group. He was also a director and head of the Audit
      Committee for Puradyn Filter Technologies from 2001 through 2005 and ResortQuest
      International, a New York Stock Exchange listed property management company,
      from 2002 until November 2003 when it was acquired by Gaylord Entertainment.
      Mr.
      Castellano currently serves as a director and chairman of the Audit Committees
      of Sona Mobile and Sun Capital Advisers Trust. Mr. Castellano resigned as a
      Director on March 14, 2007.





**Patrick
      Heyn**





Mr.
      Heyn
      is a Partner in the Audit and Accounting department of Daszkal Bolton LLP where
      he is responsible for ensuring the quality and technical accuracy of all
      auditing services performed for public and private companies. Mr. Heyn obtained
      his Bachelor in Business Administration degree in Accounting from Columbus
      State
      University and his Master in Professional Accountancy degree from Georgia State
      University in Atlanta. He is a member of the American Institute of Certified
      Public Accountants and the Florida Institute of Certified Public Accountants.
      Mr. Heyn is certified as a CPA in both Florida and Georgia. Mr. Heyn resigned
      as
      a Director on March 14, 2007.





**Peter
      Khoury**





Mr.
      Khoury is the founding partner and former CEO of International Consulting
      Services, a global telecommunications practice focused on assisting companies
      with entering and effectively competing in an aggressive communications market.
      Mr. Khoury oversaw ICS's global operations and its business development
      practices. After graduating from the University of Sydney with an Honours degree
      in Chemical Engineering, Mr. Khoury obtained additional degrees in Computer
      Science and Business Administration. His career began as a Systems Engineer
      at
      IBM. He later joined companies Andersen Consulting and Digital Equipment, where
      he managed key assignments in the telecommunications, finance and insurance
      sectors in Singapore, Hong Kong, Japan, Australia and New Zealand. Mr. Khoury
      resigned as a Director on September 7, 2007.





(B)
      COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT




Section
      16(a) of the Securities Exchange Act of 1934 requires that our officers and
      directors, and persons who own more that ten percent of a registered class
      of
      our equity securities, to file reports of ownership and changes in ownership
      with the Securities and Exchange Commission and with any exchange on which
      the
      Company's securities are traded. Officers, directors and persons owning more
      than ten percent of such securities are required by Commission regulation to
      file with the Commission and furnish the Company with copies of all reports
      required under Section 16(a) of the Exchange Act. Based solely upon our review,
      we did not disclose any failures to file reports under Section 16(a) of the
      Exchange Act.





69


**ITEM
      10. EXECUTIVE COMPENSATION.**





Name & Principal
              Position
            
            Year
            
            Salary ($)
            
            Bonus
              ($)
            
            Stock
              Awards
              ($)
            
            Option
              Awards ($)
            
            Non-Equity
              Incentive Plan
              Compensation ($)
            
            Change in Pension
              Value and Non-
              Qualified Deferred
              Compensation
              Earnings ($)
            
            All Other
              Compensation
              ($)
            
            Total ($)Timothy
                M. Huff, CEO
            
            
            2006
            
            
            176,014
            (a)
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            176,014Timothy
                M. Huff, CEO
            
            
            2005
            
            
            200,000
            (a)
            
            0
            
            
            0
            
            
            2,288,390
            (b,e)
            
            0
            
            
            0
            
            
            50,000
            (d)
            
            2,538,390Mitchell
                A. Siegel, COO
            
            
            2006
            
            
            103,825
            (a)
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            103,825Mitchell
                A. Siegel, COO
            
            
            2005
            
            
            120,000
            (a)
            
            0
            
            
            0
            
            
            3,988,093
            (b,e)
            
            0
            
            
            0
            
            
            55,000
            (d)
            
            4,163,093Thomas
                Y. Jimenez, CFO
            
            
            2006
            
            
            146,067
            (a)
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            146,067Thomas
                Y. Jimenez, CFO
            
            
            2005
            
            
            120,000
            (a)
            
            0
            
            
            0
            
            
            1,256,695
            (b,e)
            
            0
            
            
            0
            
            
            55,000
            (d)
            
            1,431,695Stephen
                King, Sr. VP
            
            
            2006
            
            
            75,903
            (a)
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            75,903Stephen
                King, Sr. VP
            
            
            2005
            
            
            47,682
            (a)
            
            0
            
            
            0
            
            
            143,338
            (b)
            
            0
            
            
            0
            
            
            12,500
            (d)
            
            203,520Lawrence
                E. Lynch, CFO
            
            
            2006
            
            
            109,271
            (a)
            
            0
            
            
            0
            
            
            
            
            
            0
            
            
            0
            
            
            0
            
            
            109,271Lawrence
                E. Lynch, COO
            
            
            2005
            
            
            120,000
            (a)
            
            0
            
            
            0
            
            
            881,547
            (b,e)
            
            0
            
            
            0
            
            
            55,000
            
            
            1,056,547Joseph
                Seroussi, CTO
            
            
            2006
            
            
            101,520
            (a)
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            101,520Joseph
                Seroussi, CTO
            
            
            2005
            
            
            120,000
            (a)
            
            0
            
            
            0
            
            
            881,547
            (b,e)
            
            0
            
            
            0
            
            
            55,000
            
            
            1,056,547Jerrold
                R. Hinton, Director/Former President
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Jerrold
                R. Hinton, Director/Former President
            
            
            2005
            
            
            0
            
            
            0
            
            
            0
            
            
            331,398
            (e)
            
            0
            
            
            0
            
            
            100,000
            (d)
            
            431,398Leigh
                A. Coleman
            
            
            2006
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0Leigh
                A. Coleman
            
            
            2005
            
            
            49,220
            (a)
            
            0
            
            
            0
            
            
            72,417
            (b)
            
            0
            
            
            0
            
            
            0
            
            
            121,637Jonathan
                Leinwand, Director
            
            
            2006
            
            
            120,008
            
            
            0
            
            
            2,979
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            122,987Jonathan
                Leinwand, Secretary
            
            
            2005
            
            
            95,262
            
            
            0
            
            
            0
            
            
            142,188
            (e)
            
            
            
            
            
            
            
            18,750
            (d)
            
            256,200Peter
                Khoury, CEO
            
            
            2006
            
            
            62,500
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            62,500




a)
      Effective January 1, 2002, GlobeTel entered into a three-year employment
      agreements with its key management. Effective 2005, the agreements were renewed
      automatically on a year-to-year basis.





For
      the
      year 2002, the agreements provided for annual compensation of $150,000 for
      its
      Chief Executive Officer (CEO), $125,000 each for its Chief Financial Officer
      (CFO) and Chief Operating Officer (COO) and $75,000 each for its Chief
      Administrative Officer (CAO) and VP of Network Operations. Further, there
      remained an employment contract with its former President, as described below,
      which called for a salary of $100,000 per annum through 2003.





In
      2004,
      the base compensation increased to $200,000 for its CEO, $175,000 each for
      its
      CFO and COO, $120,000 for the Controller (formerly the CAO) and $110,000 for
      its
      VP of Network Operations. Also, GlobeTel hired a new President at an annual
      compensation of $125,000 in June 2005, a Senior Vice President (Sr. VP) at an
      annual compensation of $100,000 in August 2005, and a Chief Technology Officer
      (CTO) at an annual compensation of $125,000 in November 2005.





Accrued
      but unpaid base compensation of $82,500 for the CEO, $57,500 for the CFO and
      $58,333 for the COO (a total of $198,333) were owed as of December 31, 2004.
      These amounts were paid in January 2005.





70


In
      2005,
      the base compensation remained at $200,000 for its CEO. The CFO, COO, CTO and
      General Counsel all had base compensation of $175,000. The Company also entered
      into employment contracts with the Executive Vice Chairman (EVC) and Senior
      Vice
      President (SVP) of Finance. The EVC agreement called for annual salaries of
      $250,000 plus signing bonuses equal to 2.5% of the outstanding shares of the
      Company as of December 31, 2005. The EVC is also entitled to stock salary in
      stock options totaling $750,000 per year for three years at $1.21 per share.
      The
      SVP Finance agreement calls for annual salaries of $195,000 plus bonuses
      amounting to 2% of the outstanding shares of the Company's stock at the end
      of
      the year, payable in the form of stock options.





(b)
      In
      addition to the base compensation, the employment agreements provide for payment
      of bonuses that at a minimum equal the executives' base compensation, unless
      otherwise agreed to by the executives. As of December 31, 2003 and 2002, the
      executives all agreed not to receive bonuses they are entitled to pursuant
      to
      the employment agreements. For 2004, the executives received bonuses as entitled
      to under the agreements. The bonuses received were equal to the amount of gross
      compensation received during 2004. All executive bonuses for 2004 were included
      in the Employee Stock Option Plan (see Note 19 to financial statements) and
      paid
      with stock options.





In
      2005,
      the bonuses were awarded at the recommendation of management and approved by
      the
      board of directors. All executive bonuses for 2005 were included in the Employee
      Stock Options Plan and paid with stock options.





(c)
      Vivian Manevich served as the CAO through 2002. Thereafter, Ms. Manevich
      accepted a non-executive position in the Company, and, accordingly, any and
      all
      compensation for 2003, 2004 and 2005 was included in employee payroll and none
      of her compensation was included in executive compensation.





(d)
      In
      2005, The Company's Directors received stipends of $6,250 per quarter. The
      CFO,
      COO and SVP of Finance who are required to attend and present to the board
      receive stipends of $3,125 per quarter. The Chairman of the Board has stipends
      of $25,000 per quarter.





Non-executive
      directors' stipends were paid with cash, while executive directors' stipends
      were paid in stock options. Further, the board members approved the issuance
      of
      bonuses to the members at the end of the year amounting to 100% of the stipends
      earned during the year, which were paid in stock options.





In
      2004,
      the then Chairman received additional stock compensation of $425,000, for
      services rendered providing assistance in expanding our business and services
      world-wide and in obtaining funding for us.





(e)
      Pursuant to an Officers' Stock Option Grant plan approved by the Board (see
      Note
      19 to financial statements), certain officers are entitled to receive stock
      options in amounts which, after the exercise of such options, would effect
      ownership of various percentages of the total shares then issued and
      outstanding. The following officers received options for restricted shares
      in
      the following percentages for 2005: CEO - 3%, former COO and current SVP -
      2%,
      CFO - 1.5%, current COO - 1%, CTO - 1%, SVP of Finance - 2% and General Counsel
      - .75%.





The
      schedule below indicates the number of shares received upon exercise and the
      aggregate dollar value realized upon exercise in 2006 by officers and directors
      pursuant to the above plans.





NAME
            
            POSITION
            
            SHARES
              EXERCISE
            
            VALUATIONMCMAHAN,
                KYLE
            
            
            Former
                Director
            
            
            31,985
            
            $
            21,590MOLEN,
                MICHAEL
            
            
            Former
                Director
            
            
            23,596
            
            $
            15,927TOTAL
                - OFFICERS & DIRECTORS
            
            
            
            
            
            55,581
            
            $
            37,517




71





**OUTSTANDING
      EQUITY AWARDS**




**Option
                  Awards**
              
              **Stock
                  Awards**Name
              
              Number
                of
                Securities
                Underlying
                Unexercised
                Options (#)
                Exercisable
              
              Number
                of
                Securities
                Underlying
                Unexercised
                Options (#)
                Unexercisable
              
              Equity
                Incentive
                Plan Awards:
                Number of
                Securities
                Underlying
                Unexercised
                Unearned
                Options (#)
              
              Option
                Exercise
                Price
                ($)
              
              Option
                Expiration
                Date
              
              Number
                of
                Shares
                or Units
                of Stock
                That
                Have
                Not
                Vested
                (#)
              
              Market
                Value of
                Shares
                or
                Units of
                Stock
                That
                Have
                Not
                Vested
                ($)
              
              Equity
                Incentive
                Plan
                Awards:
                Number of
                Unearned
                Shares,
                Units or
                Other Rights
                That Have
                Not Vested
                (#)
              
              Equity
                Incentive
                Plan
                Awards:
                Market or
                Payout
                Value of
                Unearned
                Shares,
                Units or
                Other Rights
                That Have
                Not Vested
                ($)Timothy
                  Huff
              
              
              1,782,964
              
              
              
              
              
              
              
              
              0.675
              
              December 31,
                  20061,647,442
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2007116,527
              
              
              
              
              
              
              
              
              0.675
              
              April
                  1, 2007Thomas
                  Jimenez
              
              
              633,842
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2006877,810
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2007Jerrold
                  Hinton
              
              
              1,577,367
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2006569,416
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2007Mitchell
                  Siegel
              
              
              851,853
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 20061,093,113
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2007Jonathan
                  Leinwand
              
              
              921,052
              
              
              
              
              
              
              
              
              0.190
              
              May
                  22, 20101,400,000
              
              
              
              
              
              
              
              
              0.105
              
              October
                  18, 20102,916,667
              
              
              
              
              
              
              
              
              0.090
              
              January
                  10, 2011Leigh
                  Coleman
              
              
              133,333
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2006574,438
              
              
              
              
              
              
              
              
              0.675
              
              December
                  31, 2007




72





**COMPENSATION
      OF DIRECTORS**


**DIRECTOR
        COMPENSATION**





Name
            
            Fees
              Earned or
              Paid in
              Cash
              ($)
            
            Stock Awards
              ($)
            
            Option
              Awards ($)
            
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            
            Non-Qualified
              Deferred
              Compensation
              Earnings
              ($)
            
            All
              Other
              Compensation ($)
            
            Total ($)(a)
            
            (b)
            
            (c)
            
            (d)
            
            
            
            (f)
            
            (g)
            
            (j)Sir
                Christopher Meyer, Chairman (2005)
            
            
            —
            
            
            —
            
            
            25,000
            
            
            
            
            
            
            
            
            
            
            
            25,000J.
                Randolph Dumas, Vice Chairman (2006)
            
            
            100,000
            
            
            —
            
            
            541,136
            
            
            
            
            
            
            
            
            
            
            
            641,136J.
                Randolph Dumas, Vice Chairman (2005)
            
            
            62,500
            
            
            4,397,097
            
            
            6,250
            
            
            
            
            
            
            
            
            
            
            
            4,465,847Przemyslaw
                L. Kostro, Former Chairman (2005)
            
            
            —
            
            
            —
            
            
            18,750
            
            
            
            
            
            
            
            
            
            
            
            18,750Laina
                Green (2005)
            
            
            —
            
            
            85,575
            
            
            19,000
            
            
            
            
            
            
            
            
            
            
            
            104,575Michael
                Molen (2005)
            
            
            —
            
            
            —
            
            
            18,520
            
            
            
            
            
            
            
            
            
            
            
            18,520Michael
                Costellano (2006)
            
            
            13,125
            
            
            7,917
            
            
            10,297
            
            
            
            
            
            
            
            
            
            
            
            31,339Ferdinando
                Salleo (2006)
            
            
            —
            
            
            —
            
            
            27,087
            
            
            
            
            
            
            
            
            
            
            
            27,087Dorian
                Klein (2006)
            
            
            31,666
            
            
            7,917
            
            
            5,148
            
            
            
            
            
            
            
            
            
            
            
            44,731Patrick
                Heyn (2006)
            
            
            —
            
            
            —
            
            
            —
            
            
            
            
            
            
            
            
            
            
            
            —Kyle
                McMahan (2006)
            
            
            26,250
            
            
            7,917
            
            
            3,327
            
            
            
            
            
            
            
            
            
            
            
            37,494Kyle
                McMahan (2005)
            
            
            —
            
            
            —
            
            
            25,000
            
            
            
            
            
            
            
            
            
            
            
            25,000




Compensation
      paid to Directors who are also officers of the Company is reflected in Item
      10.
      Executive Compensation.


We
      maintain a policy of compensating our directors using cash and stock options.
      Currently, the Company determines Board compensation on an individual basis.
      Employee members of the Board do not receive additional compensation for their
      service on the Board.




73





**ITEM
      11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.**


**Common
      Stock**





At
      July
      1, 2008, we had 146,198,784 common shares issued and outstanding. The table
      below sets forth the share ownership of our executive officers and directors,
      individually and as a group. No other person is the beneficial owner of more
      than 5% of our issued and outstanding common shares





Title of Class
            
            Name & Address of
              Beneficial Ownership
            
            Amount and
              Beneficial
            
            Nature of
              Ownership
            
            Percentage
              of Class (1)Common
                Stock
            
            Przemyslaw
                L. Kostro Chairman
              101
                NE 3rdAve, Suite 1500,
              Fort
                Lauderdale, Florida 33301
            
            —
            
            Shares
            
            0.00
            %Common
                Stock
            
            Jonathan
                Leinwand, CEO Since October 2007 and Director Since August
                2005
              101
                NE 3rdAve, Suite 1500,
              Fort
                Lauderdale, Florida 33301
            
            1,851,111
            
            Shares
            
            1.27
            %Total
                of all Officers and Directors as a Group
            
            1,851,111
            
            
            
            1.27
            %





(1)
      Based
      on 146,198,784 shares issued and outstanding on July 1, 2008.




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





**Certain
      Relationships and Related Transactions**





See
      Item
      7, Notes 18 and 19 Common Stock Transactions and Stock Option, respectively,
      to
      the Notes to Consolidated Financial Statements.





**Director
      Independence**





Mr.
      Kostro is independent as that term in defined under section 301 of the
      Sarbanes-Oxley Act of 2002 .




**ITEM
      13. PRINCIPAL ACCOUNTANT FEES AND SERVICES**





AUDIT
      FEES





The
      following table summarizes the fees charged by Weinberg & Company for
      services rendered to the Company during 2006 and 2005.




**Amount****Type
                of Fee**
            
            **Fiscal**
              **Year
                2006**
            
            **Fiscal**
              **Year
                2005**Audit(1)
            
            $
            —
            
            $
            —Audit
                Related(2)
            
            
            —
            
            
            —Taxes
                (3)
            
            
            —
            
            
            —All
                Other (4)
            
            
            —
            
            
            —Total
            
            $
            —
            
            $
            —




The
      following table summarizes the fees charged by Dohan & Company for
      services rendered to the Company during 2006 and 2005.




**Amount****Type
                of Fee**
            
            **Fiscal**
              **Year
                2006**
            
            **Fiscal**
              **Year
                2005**Audit(1)
            
            $
            58,430
            
            $
            66,303Audit
                Related(2)
            
            
            —
            
            
            —Taxes
                (3)
            
            
            —
            
            
            —All
                Other (4)
            
            
            —
            
            
            —Total
            
            $
            58,430
            
            $
            66,303




74







(1)
            This
                category consists of fees for the audit of our annual financial statements
                included in the Company’s annual report on Form 10-KSB and review of
                the financial statements included in the Company’s quarterly reports on
                Form 10-QSB. This category also includes advice on audit and
                accounting matters that arose during, or as a result of, the audit
                or the
                review of interim financial statements, statutory audits required
                by
                non-U.S. jurisdictions and the preparation of an annual “management
                letter” on internal control matters.(2)
            Represents
                services that are normally provided by the independent auditors in
                connection with statutory and regulatory filings or engagements for
                those
                fiscal years, aggregate fees charged for assurance and related services
                that are reasonably related to the performance of the audit and are
                not
                reported as audit fees. These services include consultations regarding
                Sarbanes-Oxley Act requirements, various SEC filings and the
                implementation of new accounting requirements.(3)
            Represents
                aggregate fees charged for professional services for tax compliance
                and
                preparation, tax consulting and advice, and tax
                planning.(4)
            Represents
                aggregate fees charged for products and services other than those
                services
                previously reported.





Dohan
      and
      Company CPAs billed approximately $66,303 for professional services rendered
      for
      the audit of our annual financial statements for fiscal year 2005. This also
      included reviews of the financial statements included in our Forms 10-Q for
      the
      fiscal year and assistance in filing various proxy statements. Dohan &
Company has estimated the fees associated with their review of the restated
      financial statements will be $10,000.





The
      above
      fees were pre-approved by the audit committee based on estimated budgets
      presented to the audit committee.




**ITEM
      14. EXHIBITS**




(A)
      EXHIBITS




EXHIBIT
                NO.
            DESCRIPTION3.1
            Articles
                of Incorporation (filed as Exhibits 3.1, 3.2 and 3.3 to the Company's
                Registration Statement on Form 10-SB and incorporated herein by
                reference)3.2
            Bylaws
                (filed as Exhibit 3.4 to the Company's Registration Statement on
                Form
                10-SB and incorporated Herein by reference)
              
              Material
                Contracts-Consulting Agreements and Employment Agreements (filed
                as
                Exhibits to Registration Statements on Form S-8 and post-effective
                amendments thereto and incorporated herein by
                reference)10.1
            Asset
                Purchase Agreement between the Company and Sanswire, Inc.(incorporated
                by
                reference)10.2
            Asset
                Purchase Agreement between the Company and Stratodyne,Inc. (incorporated
                by reference)10.3
            Subscriptions
                Agreements between the Company and Preferred Series A,B,C, and D
                shareholders (incorporated by reference)21
            Subsidiaries31.1
            Certification
                of Chief Executive Officer and Principal Financial Officer required
                by
                Rule 13a-14(a)/15d-14(a)32.1
            Certification
                of Chief Executive Officer and Principal Financial Officer Pursuant
                to 18
                U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.





75





**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





**GLOBETEL
                COMMUNICATIONS CORP.**By:
            /s/
                Jonathan LeinwandName:
                Jonathan Leinwand ,
              Title:
                Chief Executive Officer (Principal Executive Officer)Dated:
                July 8, 2008





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




SIGNATURE
            
            TITLE
            
            DATE/s/
                Jonathan Leinwand
            
            Chief
                Executive Officer, Principal Financial
            
            July
                8, 2008Jonathan
                Leinwand
            
            Officer
                and Director/s/
                Przemyslaw Kostro
            
            Chairman
                of the Board
            
            July
                8, 2008Przemyslaw
                Kostro





76