UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





Amendment
No. 1 to the


FORM
10-K





(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, 2008




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





SANSWIRECORP.


(formerly
GlobeTel Communications Corp.)





(Exact
name of Registrant as specified in its charter)





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




101 NE 3rdAve, 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 is a well-known seasoned issuer as defined
in Rule 405 of the Securities Act.  Yes £     No
R





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes £     No
R





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 £ No R





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act.   (Check one):





.   Large
accelerated filer £               Accelerated
filer £             Non-accelerated
filer £  
Smaller Reporting Company R





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





State
issuer's revenues for its most recent fiscal year ended December 31, 2008:
$0.





As of
September 14, 2009, there were 226,070,599 shares of the issuer's common stock
issued and outstanding. Affiliates of the issuer own 6,735,586 shares of the
issuer's issued and outstanding common stock and the remaining 219,335,013
shares are held by non-affiliates. The aggregate market value of the shares held
by non-affiliates at September 14, 2009 was $28,513,552.







DOCUMENTS
INCORPORATED BY REFERENCE:




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





(*)
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.




EXPLANATORY
NOTE:




The
purpose of this Amendment No. 1 to Form 10-K (“Amendment”) is to amend our
initial filing of an Annual Report on Form 10-K for the year ended December 31,
2008 filed with the Securities and Exchange Commission (“SEC”) on April 9, 2009
and to amend our initial filing of an Annual Report on Form 10-K for the year
ended December 31, 2007, filed with the Securities and Exchange Commission
(“SEC”) on October 8, 2008 (collectively, the “Initial
Filing”).  Defined terms used in this Amendment but not defined herein
have the meanings ascribed to them in the Initial Filing.
  On
September 11, 2009, we filed a Current Report on Form 8-K with the SEC
disclosing that our management concluded that an accounting error had been made
in the Company’s historical December 31, 2008 and 2007 financial statements in
relation to the recording of derivative liabilities related to the conversion
feature and associated warrants issued with convertible notes during 2006, 2007,
and 2008.  As a result, the Company’s financial statements for the
years ended December 31, 2008 and 2007 must be restated (the
“Restatements”).  In light of the Restatements, the financial
statements and other financial information included in the Initial Filing are
being restated in this Amendment.




Unless
specified, the disclosures provided in this document have not been updated for
more current information.  Therefore, this Amendment should be read in
conjunction with our other filings made with the SEC subsequent to the date of
the Initial Filing.








TABLE
OF CONTENTS





PART
      IItem
      1. Description of Business
              
              5Item
      2. Description of Property
              
              10Item
      3. Legal Proceedings
              
              10Item
      4. Submission of Matters to a Vote of Security Holders
              
              13PART
      IIItem
      5. Market for Common Equity and Related Stockholder
Matters
              
              14Item
      6. Selected Consolidated Financial Data
              
              15Item
      7. Management's Discussion and Analysis or Plan of
    Operation
              
              16Item
      7a. Quantitative and Qualitative Disclosures about Market
      Risk
              
              23Item
      8. Financial Statements
              
              23Item
      9. Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure
              
              56Item
      9a. Controls and Procedures
              
              56Item
      9b. Other Information
              
              57PART
      IIIItem
      10. Directors and Executive Officers, Promoters and Control
      Persons
              
              58Item
      11. Executive Compensation
              
              59Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
              
              61Item
      13. Certain Relationships and Related Transactions
              
              61Item
      14. Principal Accountant Fees and Services
              
              61Item
      15. Exhibits
              
              62


3


PART
I





Forward-Looking
Statements and Risk Factors





Certain
information included in this amended Form 10-K and other materials filed or to
be filed by Sanswire Corp. ("Sanswire," "GlobeTel," the “Company”, "we", "us" or
"our") 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; various factors which increase
the cost to develop airships, including factors under the influence and control
of government agencies and others; fluctuations in the availability and/or cost
of helium, carbon fiber or other resources necessary to successfully assemble
our airships; our Company's ability to raise prices sufficiently to offset cost
increases, including increased costs for resources; 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 governments; depth of management and technical
expertise and source of intellectual and technological resources; adverse
publicity about us and our airships; relations between our Company and its
employees and partners; legal claims and litigation against the Company;
including the recently commenced SEC lawsuit; 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 amended 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 airship
industry. 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 market for lighter than
air unmanned aerial vehicles. Our growth will be dependent upon our ability to
compete with larger, well-established companies. If our assumptions are wrong
about any events, trends and activities, then our estimates for the future
growth of Sanswire 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





Sanswire
Corp. ("Sanswire," "Globetel", “we”, “us”, “our”, or the “Company”) is focused
on the design, construction and marketing of various aerial vehicles most of
which would be capable of carrying payloads that provide persistent surveillance
and security solutions at various altitudes. The airships and auxiliary products
are intended for end users that include military, defense and government-related
entities.





From 2002
to 2007, the Company was involved in the following business sectors: stored
value card services; wholesale telecommunications services; voice over IP;
wireless broadband; and high altitude airships. These businesses were run
through various subsidiaries. The Company discontinued operations in all but the
high altitude airship sector.





In 2007,
we began focusing exclusively on opportunities through our wholly-owned
subsidiary at the time, Sanswire Networks. The opportunities associated with
Sanswire Networks were related to the Lighter Than Air (LTA) Unmanned Aerial
Vehicle (UAV) market, and we, through the subsidiary, sought to build and run a
UAV business that includes low-, mid- and high-altitude, lighter-than-air
vehicles intended to provide customers advanced seamless wireless broadband
capabilities and surveillance sensor suites.





On
September 22, 2008, we effected a name change to Sanswire Corp. in recognition
of the entity that contained our sole business focus (See “Recent
Developments”). Thus, moving forward, the Company is Sanswire Corp., whose
primary business is the design, construction and marketing of a variety of
aerial vehicles through a joint venture with TAO Technologies, Stuttgart,
Germany, named Sanswire-TAO Corp.





The High
Altitude class of prospective airships are generally referred to as HAAs
(High Altitude Airships) but have also been called HAPs and HALEs (High Altitude
Platforms, High Altitude Long Endurance). They have been designed to be able to
keep a station in one location in the Stratosphere, at approximately 65,000 ft
for durations of 30 days or more.





Reverse
Stock Split





Sanswire
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 report, 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.





Recent
Developments





On
October 5, 2007, Sanswire 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 the Company’s securities pursuant to Section 12(j) of the
Exchange Act.


5





On
November 26, 2007 the SEC announced that it had filed a civil lawsuit against
two former employees of Sanswire alleging that Joseph J. Monterosso, former
Chief Operating Officer of Sanswire 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 in 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 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 Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, but
which does not add any new defendants. The Company has been vigorously defending
itself in this action.





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
Sanswire.





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").





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 Sanswire common
stock, ADGI became a wholly-owned subsidiary of Sanswire and Sanswire began
conducting the business formerly conducted by ADGI.





In 2004,
we formed wholly-owned subsidiaries: Sanswire Networks, 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.


6




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 Sanswire 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.”




In 2008
we incorporated Sanswire Corp., a Florida corporation and wholly-owned
subsidiary, to deal directly with airship opportunities based upon our agreement
with TAO Technologies, GmbH. We also incorporated Sanswire-TAO Corp., a Florida
corporation that is a 50/50 joint venture with TAO Technologies. The agreements
with TAO are discussed below.




On
September 22, 2008 we filed a Certificate of Merger with the Secretary of State
of the State of Delaware pursuant to which our wholly owned subsidiary, Sanswire
Corp., a Delaware corporation, was merged into us. As a result of the filing of
the Certificate of Merger, our corporate name was changed from GlobeTel
Communications Corp. to Sanswire Corp.




Business
of Sanswire




Sanswire
Corp. has sharply refined its operating model ─ focusing exclusively on
opportunities in Lighter Than Air (LTA) Unmanned Aerial Vehicles (UAV). We seek
to build and run a UAV business that includes low-, mid- and high-altitude,
lighter-than-air vehicles; adding value to their security, surveillance and
broadcasting abilities through the integration of wireless technologies with a
wide array of customer payloads. Our long-term objective is to provide
commercial and government customers advanced seamless wireless broadband
capabilities and surveillance sensor suites utilizing a state of the art High
Altitude Airship technology.  Building upon this high altitude technology,
Our near term goal is to penetrate the military/government use market for low to
mid altitude unmanned airships




Our main
products are airships, which provide a platform to transmit wireless
capabilities from air to ground.




The High
Altitude class of prospective airships are generally referred to as HAAs
(High Altitude Airships) but have also been called HAPs and HALEs (High Altitude
Platforms, High Altitude Long Endurance). They have been designed to be able to
keep a station in one location in the Stratosphere, at approximately 65,000 ft
for durations of 30 days or more.  65,000 ft is the sweet spot in
the stratosphere for optimal wind conditions to keep station using the least
amount of power.




STRATELLITETMThe brand name
for our HAA offering is the StratelliteTM, so named because they offer the
functionality of a satellite, but in the stratosphere. This class of airship
will consist of several models to suit various purposes. StratellitesTM were
conceived to help solve infrastructure issues that plague many parts of the
world, including the so called "last mile" (building expensive ground based
infrastructure for very low density areas) issues.  The StratelliteTM can
bring a full range of telecommunications or broadcasting capabilities to any
area of the world, accessible to people with customer premise equipment that is
inexpensive and available. We are not yet producing the
Stratellite.




The
StratelliteTM is a high altitude long endurance airship intended to populate
“near space” with telecommunications capability.  A presence in near
space with high tech sensors and communications suites offers enormous potential
for both commercial and government applications.  Whether hovering at
65,000 feet or flying a variety of mission profiles, the Stratellite offers many
of the features of satellites with cost savings, refurbishment ability, and
opportunity for regular system upgrades.





There is
a great need for information-transmission in the future performed by High
Altitude Platforms in various fields;


7





·
            mobile
      broadband communications


·
            emergencies,
      use in disaster areas


·
            marine
      radio service


·
            new
      traffic engineering systems


·
            weather
      observation


·
            water
      surveillance (pollution)


·
            ozone
      and smog monitoring


·
            radiation
      monitoring (UV and radioactive)


·
            astronomic
      and terrestrial observation


·
            documentation
      of conditions in the upper
atmosphere


·
            border
      control, coastal surveillance


·
            private
      communication services e.g. cellular
phones


·
            transmission
      of radio- and television programmers
etc.





SANSWIRE-TAO





Sanswire
first entered into an agreement with TAO Technologies GmbH, Stuttgart, Germany,
in 2005.  At that time, TAO provided engineering support to the
efforts of former subsidiary Sanswire Networks, LLC then working out of
facilities in California. In September 2007, the companies reached an agreement
in principle 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 Sanswire 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. Sanswire was
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.





On June
3, 2008 Sanswire and TAO restructured the November 2007 agreement and entered
into a new agreement to form a 50/50 US based joint venture to place, among
other things, the rights to the TAO intellectual property in US, Canada, and
Mexico into the US based JV company to be called Sanswire-TAO.  This
integration of Sanswire and Stuttgart, Germany-based TAO Technologies Gmbh took
place to create various strategic advantages for both companies. Each group
entered the relationship with synergistic, yet very distinct core competencies.
Sanswire’s business development, its inroads into the U.S. Government review
process as well as inroads into overseas markets and other marketing resources
complement TAO’s vast airship product research and development
ability.





On June
19, 2008, we announced that we had agreed to form and commence operations of
Sanswire-TAO Corp., a Florida corporation equally owned by the Company and TAO,
for the customized production, marketing and sales of unmanned aerial vehicles
for the markets of the United States, Canada and Mexico.





The
Sanswire-TAO research and development efforts are centered in Stuttgart, taking
advantage of the relationship between TAO and the University of Stuttgart. This
relationship provides cost-effective access to aerospace testing facilities
including wind tunnels, environmental test chambers, structural testing devices,
computer aided design and a legion of aerospace and physics professionals along
with their more than 10 years of solar powered airship experience. The
Sanswire-TAO joint venture provides the following:





(1)
            Multiple
      Airship Platforms – Ranging from short range low altitude platforms to
      Stratospheric solutions.


(2)
            Access
      to Resources – Through contractual relationships with world-renowned
      universities, including their hometown University of
      Stuttgart.


(3)
            Research
      and Development – More than a decade of knowledge and experience resulting
      from significant data gathered from vital airship
  testing.


8





(4)
            Proprietary
      Systems – Custom developed systems from the design and modeling of
      airships to specialized flight control
systems.


(5)
            Intellectual
      Property – Patented designs and concepts providing worldwide
      protection.


(6)
            Constructed
      Airships – Several platforms built for
  demonstrations


(7)
            Testing
      Facilities – Including aerospace laboratories, assembly and storage
      hangars, wind tunnels, certified launch and flight facilities, and
      certified manufacturing and production
  facilities.





Competitive
Business Conditions





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. 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





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. 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 (that includes the United States) and in many non-Madrid
Protocol countries.





We have
additionally entered into an agreement with TAO Technologies GmbH, with whom
Sanswire has collaborated with since 2005. The current agreement provides
exclusive licensing and existing and future patent rights for TAO’s airship
technologies and allows Sanswire to register the TAO patents in the United
States.  As soon as the design and engineering for the Stratellite are
finalized, we intend to file for patents covering unique design and intellectual
property.





Regulatory
Matters





The
export of the airship products 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.


9





During
2007 and 2008, Sanswire 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.





Number
of Total Employees and Number of Full-Time Employees





As of
September 14, 2009 we have 5 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 for our general
operations and any technical personnel required for the aerospace projects will
primarily be hired overseas to work with the existing TAO
personnel.





ITEM
2. PROPERTIES





Sanswire’s
corporate offices are now located at 101 NE 3 rd Ave.,
Suite 1500, Fort Lauderdale, FL 33301. Base rent is $575 per month plus the cost
of services used by Sanswire. The lease is for a period of 6 months and
terminates on September 30, 2009.   We believe our facilities are
adequate for our current and near-term needs.




GlobeTel
previously leased office facilities at 9050 Pines Blvd., Suite 110, Pembroke
Pines, Florida 33024, as of April 1, 2004, and  vacated the premises
in March 2006, having turned over the space as part of the sale of the Stored
Value assets. 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.





Until
September 2007, GlobeTel 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, the Company 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.





ITEM
3. LEGAL PROCEEDINGS





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, Sanswire 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.


10





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
Sanswire 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 Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, which
motion to amend is still pending with the Court.  On March 23, 2009
the Court granted the SEC’s motion and extended the fact discovery deadline in
the case until July 31, 2009.  The parties are currently engaged in
discovery.  The Company has been vigorously defending 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
Defamation, Tortuous 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 pending additional
information arising from the SEC lawsuit. This action has been dismissed for
lack of prosecution but may be refiled by the Company in the
future.





Hudson Bay Fund LP et
al.





Hudson
Bay Fund LP and Hudson Bay Overseas Fund Ltd. filed an action in Supreme Court
of the State of New York, New York County against the Company claiming
declaratory judgment, specific performance, and breach of contract relating to
the warrants it acquired in connection with its investment.  . The
Hudson Bay entities are seeking to reprice the warrants, increase the number of
shares they can purchase pursuant to the warrants, certain equitable remedies,
and unspecified damages. The Company has retained outside counsel and has filed
an answer and affirmative defenses in the case. The Company intends to
vigorously defend the action, but the outcome of the action cannot be
predicted.





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 $762,902.





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.


11





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 on February 4, 2008.





Derivative
Action





On July
10, 2006 a derivative action was filed against the officers and directors of
Sanswire 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 forthe 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, the Company 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 the Company 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 an October 2006 agreement.  During 2008 the
Company paid $131,250 in the Company’s common stock associated with the
settlement agreement.  During 2009, the Company paid the remaining
$43,750 in the Company’s common stock.





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. Sanswire 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.


12





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
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. The Company has
not been informed of any further developments since the hearing.





Trimax
Wireless





On April
6, 2009, the Company entered into a settlement agreement with Ulrich Altvater, a
former employee, and his company, Trimax Wireless.  As per the terms
of the settlement, Mr. Altvater will return 1,640,000 shares of the Company’s
common stock and certain equipment that was held by Trimax Wireless. The Company
has received the shares and certain equipment pursuant to the settlement and the
matter has been dismissed.





American
Express





American
Express Travel Related Services Company, Inc. has filed a lawsuit against the
Company and Sanswire Networks LLC (CASE NO: CACE 08-013239, Broward County
Florida), seeking to recover a total of $394,919 for unpaid charges on the
Companies’ corporate purchasing account. On October 3, 2008, American Express
received a final judgment for $404,113.





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





There
were no matters brought to a vote of security holders in 2008 and
2007.


13


PART
II




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





(a)
MARKET PRICE





In
October 2006, our stock was delisted from the American Stock Exchange and began
trading on the Pink Sheets under the symbol “GTEM”. From October 2006 to October
2008 our shares of common stock have been quoted on the Pink Sheets quotation
system under the symbol “GTEM." Effective October 8, 2008 our shares of common
stock have been quoted on the Pink Sheets quotation system under the symbol
“SNSR" and effective August 7, 2009 our shares of common stock have been quoted
on the OTCBB quotation system under the symbol “SNSR"





The
following information sets forth the high and low bid price of our common stock
during fiscal 2008, and 2007 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
      2007Quarter
      Ended March 31
                
                $
                0.52
                
                
                $
                0.24Quarter
      Ended June 30
                
                $
                0.32
                
                
                $
                0.18Quarter
      Ended September 30
                
                $
                0.26
                
                
                $
                0.08Quarter
      Ended December 31
                
                $
                0.16
                
                
                $
                0.04CALENDAR
      2008Quarter
      Ended March 31
                
                $
                0.14
                
                
                $
                0.07Quarter
      Ended June 30
                
                $
                0.09
                
                
                $
                0.03Quarter
      Ended September 30
                
                $
                0.10
                
                
                $
                0.04Quarter
      Ended December 31
                
                $
                0.08
                
                
                $
                0.03





(b)
HOLDERS





As of the
date of this report, there were approximately 21,000 registered holders of our
common stock.





(c)
DIVIDENDS





The
Company has never paid a dividend and does not anticipate that any dividends
will be paid in 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, 2008, under which our common stock is
authorized for issuance.




14




NumberofSecuritiestobe
                  issued
                  uponexerciseofoutstanding
                  options,warrantsandrights
                  (a)
                
                
                Weightedaverage
                  exercisepriceof
                  outstandingoptions,
                  warrantsandrights
                  (b)
                
                
                Numberofsecurities
                  remainingavailablefor
                  futureissuanceunder
                  equitycompensationplans
                  (excludingsecurities
                  reflectedincolumn(a))
                  (c)Equity
      compensation plans approved by security holders
                
                
                15,982,752
                
                
                $
                0.35
                
                
                
                —Equity
      compensation plans not approved by security holders
                
                
                —
                
                
                
                —
                
                
                
                —Total
                
                
                15,982,752
                
                
                $
                0.35
                
                
                
                —





ITEM
6. SELECTED CONSOLIDATED FINANCIAL DATA




The
following tables set forth our selected historical financial data for the
periods indicated. The selected statement of operations data for the years ended
December 31, 2008 and 2007, and the selected balance sheet data as of
December 31, 2008 and 2007, have been derived from our audited financial
statements and related notes thereto included elsewhere in this annual
report.




The
information presented below should be read in conjunction with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” and
the financial statements and the notes thereto included elsewhere in this annual
report.




Year Ended December 31,2008
                    
                    
                    2007(Restated)
                    
                    
                    (Restated)Statement
      of Operations Data:Revenue
                    
                    $
                    —
                    
                    
                    $
                    53,754Cost
      of revenue
                    
                    
                    —
                    
                    
                    
                    15,529Gross
      margin (loss)
                    
                    
                    —
                    
                    
                    
                    38,225Operating
      expensesGeneral
      and administrative expenses
                    
                    
                    476,827
                    
                    
                    
                    1,567,968Consulting
      fees
                    
                    
                    1,415,235
                    
                    
                    
                    1,635,303Payroll
      and related taxes
                    
                    
                    887,283
                    
                    
                    
                    3,611,596Research
      and development
                    
                    
                    —
                    
                    
                    
                    (14,856
                    )Officers’
      and directors’ compensation
                    
                    
                    435,000
                    
                    
                    
                    696,790Loss
      from operations
                    
                    
                    (3,214,345
                    )
                    
                    
                    (7,458,576
                    )(Loss)
      gain on extinguishment of debt
                    
                    
                    (1,096,650
                    )
                    
                    
                    254,200Extinguishment
      of derivative liability
                    
                    
                    465,173
                    
                    
                    
                    123,313Change
      in fair value of derivative liability
                    
                    
                    375,166
                    
                    
                    
                    962,304Interest
      expense, net
                    
                    
                    (1,127,420
                    )
                    
                    
                    (2,482,296
                    )Loss
      from continuing operations
                    
                    
                    (4,598,076
                    )
                    
                    
                    (8,601,055
                    )Loss/Gain
      from discontinued operations
                    
                    
                    (197
                    )
                    
                    
                    (1,918,806
                    )Net
      loss
                    
                    $
                    (4,598,273
                    )
                    
                    $
                    (10,519,861
                    )Net
      loss per shareBasic
      and diluted
                    
                    $
                    (0.03
                    )
                    
                    $
                    (0.09
                    )




15





As of December 31,2008
                  
                  
                  2007(Restated)
                  
                  
                  (Restated)Balance
      Sheet Data:Cash
      and cash equivalents
                  
                  $
                  4,809
                  
                  
                  $
                  32,278Investment
      in joint venture
                  
                  
                  3,229,000
                  
                  
                  
                  —Deposits
                  
                  
                  —
                  
                  
                  
                  391,000Total
      assets
                  
                  
                  3,240,215
                  
                  
                  
                  441,956Total
      liabilities
                  
                  
                  18,692,369
                  
                  
                  
                  15,255,261Stockholders’
      deficit
                  
                  
                  (15,452,154
                  )
                  
                  
                  (14,813,305
                  )





ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.





GENERAL





Twelve
months ended December 31, 2008 ("Fiscal 2008" or "2008" or "the current year")
compared to twelve months ended December 31, 2007 ("Fiscal 2007" or "2007" or
"the prior year").





RESULTS
OF OPERATIONS





REVENUES.
During fiscal 2008, we had no gross sales, representing a decrease of 100% over
the prior year when our gross sales were $53,754. Our revenues decreased
primarily due to the Company focusing on the airship development and continuing
to prepare a commercially feasible product for our future potential
customers.





COST OF
SALES. During fiscal 2008, we had no cost of sales representing a decrease of
100% from $15,529 for fiscal 2007.





GROSS
MARGIN. Our gross margin was $0 for fiscal 2008, compared to our gross margin of
$38,225 or 71.1% for fiscal 2007, a decrease of $38,225 or 100%. The decrease is
due to the fact the Company had no revenues.





OPERATING
EXPENSES. Our operating expenses consist primarily of payroll and related taxes,
professional and consulting services, expenses for executive and administrative
personnel and insurance,  investor and public relations, research and
development,  telephone and communications, facilities expenses,
travel and related expenses, and other general corporate expenses. Our operating
expenses for fiscal 2008 were $3,214,345 compared to fiscal year 2007 operating
expenses of $7,496,801 a decrease of $4,282,456 or 57.1%.





In
addition, employee payroll and related taxes for fiscal 2008 were $887,283
compared to $3,611,596, a decrease of $2,724,313 or 75.4%. This decrease was due
to our continued reduction of our operations, facilities and workforce during
2008.





The
overall decrease is primarily due to a decrease in officers' and directors'
compensation to $435,000 (including non-cash compensation), from $696,790 in the
prior year.





During
2008 and 2007, Sanswire 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 and second quarters
of 2007 through a payroll processor, ADP. Subsequent thereto, the Company no
longer processed its payroll through ADP. The Company did not file its 2007 tax
forms until 2008 but during 2008 the Company has reported its payroll tax
liabilities on a timely basis; however the Company failed to deposit the
appropriate withholding amounts. The Company has recognized this issue and
contacted the IRS accordingly to make arrangement to pay any taxes due, which is
currently estimated to be at least $200,000 including liabilities
associated with the Company’s subsidiaries that are classified in discontinued
operations. The Company may be subject to penalties and interest from the
IRS.


16





We
incurred $1,415,235 of consulting fees, a decrease of $220,068 or 13.5% for 2008
compared to $1,635,303 in 2007. This decrease is primarily related to reduction
of services required to develop and expand our geographical and product
markets.




We
received a $14,856 of research and development refund for our Sanswire project
during 2007, compared to $0 during 2008, a decrease of $14,586 or 100%. During
2008 and 2007, there were no direct expenses for development and building of the
airship. This is due mainly to the fact that Company entered into a revised
agreement with TAO Technologies (See note 3 to the attached financial
statements). The Company believes that further development will increase during
2009 and thus associated expenses are expected to increase for
2009.





During
2008, we incurred $476,827 of general and administrative expenses as compared to
$1,567,968 during 2007. The $1,091,141 decrease was due to a continued
reduction of expenses related to our operations, facilities and workforce during
2008.





LOSS FROM
OPERATIONS. We had an operating loss of ($3,214,345) for fiscal year 2008 as
compared to an operating loss of ($7,458,576) for fiscal 2007, primarily due to
decreased operating expenses as described above, including lower operating costs
and reductions of our various programs.





OTHER
INCOME (EXPENSE). We had net other expenses totaling ($1,383,731) during fiscal
year 2008 compared to ($1,142,479) during fiscal 2007. This variance was due
primarily to the non cash charges related to the non cash charges related to
derivatives of $840,339 during fiscal year 2008 compared to the $1,085,617
for fiscal year 2007.Also included are the non cash charges related to the
modifications of our convertible debentures of ($1,096,650) compared to a
$254,200 gain in 2007.





Interest
expense for fiscal year 2008 was $1,127,420 compared to $2,482,296 for the prior
year. Interest expense decrease was primarily due to a reduction in noncash
financing charges associated with the Company’s convertible
debentures.





LOSS FROM
DISCONTINUED OPERATIONS. During 2008 we had a loss of ($197), related to our
discontinued operations compared to a loss of ($1,918,806) during fiscal year
2007. See note 2 in the financial statements for more information regarding the
discontinued operations.





NET LOSS.
We had a net loss of ($4,598,273) in fiscal year 2008 compared to a net loss of
($10,519,861) in fiscal 2007. 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, 2008, we had total assets of $3,240,215 compared to total assets
of $441,956 as of December 31, 2007.





The
current assets at December 31, 2008, were $11,215 compared to $50,956 at
December 31, 2007. As of December 31, 2008, we had $4,809 of cash and cash
equivalents compared to $32,378 at December 31, 2007.





The
Company had no deposits as of December 31, 2008 compared to $391,000 as of
December 31, 2007.  The $391,000 relates to payments accrued toward an
agreement reached in May 2008 for $3,229,000 as an investment in a joint
venture.  This deposit was applied as an investment in joint venture
in June 2008.  See note 3 in the financial statements for more
information regarding the transaction.





We had
$6,406 of current assets from discontinued operations as of December 31, 2008 as
compared to $18,678 at December 31, 2007. See note 2 in the financial statements
for more information regarding the discontinued operations.





LIABILITIES.
At December 31, 2008, we had total liabilities of $18,692,369 compared to total
liabilities of $15,255,261 as of December 31, 2007.


17





The
current liabilities at December 31, 2008 were $18,692,369 compared to
$15,255,261 at December 31, 2007, an increase of $3,437,108. The increase is
principally due to the increase in current portion of payments due on the notes
payable of $1,208,512 (see note 6 of the financial statements), the increase in
accounts payable of $647,055, and the increase in accrued expenses of
$2,421,855.




CASH
FLOWS. Our cash used in operating activities was $909,608 compared to $2,286,113
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.





During
2008 there was $385,000 used in investing activities which was a payment on
the Sanswire-Tao joint venture compared to $372,500 used in investing
activities of which $130,000 was used as a deposit for the joint venture and
$242,500 from its discontinued operations.




Net cash
provided by financing activities was $1,267,139 principally from the execution
of new convertible debentures, as compared to $2,686,648 in the prior
year.





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 $4,598,273 and
a negative cash flow from operations of $909,608 for the year ended December 31,
2008, and had a working capital deficiency of $18,681,154 and a stockholders’
deficit of $15,452,154 at December 31, 2008.  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.





Throughout
2008 and continuing into 2009, 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
2009, the Company has subsequently raised approximately $1,443,450 from
investors; however this is not adequate funding to cover the estimated working
capital deficit of approximately $18.7 million or the net loss for 2008 of
approximately $4.6 million.  The Company is currently working to
secure additional funding for its current operations as well as for the payments
associated with the Company’s joint venture.





As
reflected in the accompanying financial statements, for the year ended December
31, 2008 we had a net loss of ($4,598,273) compared to a 2007 net loss of
($10,519,861). Consequently, there is an accumulated deficit of ($125,302,582)
at December 31, 2008 compared to ($120,704,309) at December 31,
2007.





CRITICAL
ACCOUNTING POLICIES





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.




18




These
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 when it is probable that a penalty will be
incurred. At December 31, 2008 the Company has no registration rights agreement
requiring penalties to be recorded.




REVENUE
RECOGNITION





Revenue
is recognized when there is persuasive evidence of an arrangement, goods are
shipped and title passes, collection is probable, and the fee is fixed or
determinable.  The Company records deferred revenue when cash is
received in advance of the revenue recognition criteria being met.





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




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 for
the year ended December 31, 2008 and 2007 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.




Stock-based
compensation expense recognized under SFAS No. 123(R) for the years ended
December 31, 2008 and 2007 were $712,501 and $1,667,107, respectively.





The
Company’s determination of fair value of share-based payment awards to employees
and directors on the date of grant uses the Black-Scholes model, which is
affected by the Company’s stock price as well as assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not
limited to our expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise
behaviors.  Forfeitures are recognized as incurred.




The
Company accounts for stock option and warrant grants issued to non-employees for
goods and services using the guidance of SFAS No. 123 and Emerging Issues
Task Force (“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,” whereby the fair value of such option and warrant grants is
determined using the Black-Scholes option pricing model at the earlier of the
date at which the non-employee’s performance is completed or a performance
commitment is reached.




DERIVATIVE FINANCIAL
INSTRUMENTS
 
 The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks. The Company evaluates all of its financial
instruments to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives. For derivative financial instruments that
are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported in the condensed consolidated statements of
operations. For stock-based derivative financial instruments, the Company uses
the Black-Scholes-Merton option pricing model to value the derivative
instruments at inception and on subsequent valuation dates. The classification
of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting
period.  Derivative instrument liabilities are classified in the
balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date.




19




RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS




SFAS No.
159,The Fair Value Option of Financial
Assets and Financial Liabilities (SFAS No. 159)




In
February 2007, the FASB issued SFAS No. 159. The Fair Value Option of Financial
Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159
provides an option to report selected financial assets and financial liabilities
using fair value. The standard establishes required presentation and disclosures
to facilitate comparisons with companies that use different measurements for
similar assets and liabilities. The Company does not expect that the adoption of
SFAS No. 159 for financial assets and financial liabilities to have a
material impact on our consolidated financial statements in subsequent reporting
periods.





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 does not expect that the adoption of SFAS 141R or SFAS
No. 160 to have a material impact on our financial condition and results of
operations, although its effects on future periods will depend on the nature and
significance of business combinations subject to this statement.





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. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Company does not expect the adoption of SFAS 161 to
have a material impact on the presentation of our annual and interim period
disclosures.





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





RISK
FACTORS





Risks
Related to Our Business and Industry





We
need to raise a significant amount of additional capital to meet our current and
future business requirements and such capital raising may be costly or difficult
to obtain and could dilute current stockholders’ ownership
interests.





We need
to raise $4.5 million of additional financing in order to meet our cash
requirements for the next twelve (12) months and to fully implement our business
plan during the next twelve months.  The funds would be used to
increase manufacturing of our products, expand our research and development
efforts, and attract a larger talented sales force.  We intend to
raise the financing from the sale of common stock in one or more private
placements or public offerings and/or from bank financing.  We do not
have any firm commitments or identified sources of additional capital from third
parties or from our officers, directors or shareholders.  Although our
officers and directors or their affiliates have in the past facilitated capital
for us, or provided us with capital, they are not legally bound to do
so.  There can be no assurance that additional capital will be
available to us, or that, if available, it will be on terms satisfactory to
us.  Any additional financing may involve dilution to our
shareholders.  If we are unable to raise additional financing on terms
satisfactory to us, or at all, we would not be able to fully implement our
business plan which would have a materially adverse effect our business and
financial position and could cause us to delay, curtail, scale back or forgo
some or all of our operations or we could cease to exist.


20





We
presently do not have an adequate number of shares of common stock authorized
but unissued to deliver upon conversion or exercise of all of our derivative
securities which may result in various liabilities if we do not increase our
authorized shares of common stock to allow for the issuance of shares of common
stock upon conversion of our convertible securities.




The
Company's Articles of Incorporation currently allow for issuance of a maximum of
250,000,000 shares of common stock. As of September 14, 2009, the Company has
approximately 226,070,599 shares outstanding, leaving an unissued balance of
authorized shares that is not sufficient to service the maximum requirements of
all of its convertible securities. In the event we are unable to obtain an
increase in our authorized common stock, we will be required to repay the
various convertible debentures that we have issued and we will be subject to
penalties associated with such failure to deliver shares of common stock upon
conversion of the debentures as well as prepayment penalties. In addition, if we
are unable to deliver shares of common stock upon exercise of various derivative
securities, such holders may commence litigation against the
Company.





We
have a history of operating and net losses which we anticipate will
continue.





We have a
history of losses from operations.  We anticipate that for the
foreseeable future, we will continue to experience losses from
operations.  We had a net loss from continuing operations of
$4,598,076 during fiscal 2008 and a net loss from continuing operations of
$8,601,055 during fiscal 2007.  We anticipate that our net loss will
increase for fiscal 2009.




Our
independent auditors have issued a report questioning our ability to continue as
a going concern. This report may impair our ability to raise additional
financing and adversely affect the price of our common stock.
  The
report of our independent auditors contained in our financial statements for the
years ended December 31, 2008 and 2007 includes a paragraph that explains
that we have incurred substantial losses. This report raises substantial doubt
about our ability to continue as a going concern. Reports of independent
auditors questioning a company’s ability to continue as a going concern are
generally viewed unfavorably by analysts and investors. This report may make it
difficult for us to raise additional debt or equity financing necessary to
continue the development of our airships.  We urge potential investors
to review this report before making a decision to invest in the
Company.
  We
have material weaknesses in our internal control over financial reporting
structure which until remedied, may cause errors in our financial statements
that could require a restatement or our filings may not be timely and investors
may lose confidence in our reported financial information, which could lead to a
decline in our stock price.
  We
have identified two material weaknesses in our internal control over
financial reporting and cannot assure you that additional material weaknesses
will not be identified in the future. If our internal control over financial
reporting or disclosure controls and procedures are not effective, there may be
errors in our financial statements that could require a restatement or our
filings may not be timely and investors may lose confidence in our reported
financial information, which could lead to a decline in our stock
price.




If
we fail to protect our intellectual property rights, our competitors may take
advantage of our ideas to compete more effectively with us.





Our
proprietary rights are one of the keys to our performance and ability to remain
competitive. We rely on a combination of patent, trademark, copyright and trade
secret laws in the U.S. and other jurisdictions as well as confidentiality
agreements and procedures, non-compete agreements and other contractual
provisions to protect our intellectual property, other proprietary rights and
our brand.  Our intellectual property rights may be challenged,
invalidated or circumvented by third parties. We may not be able to prevent the
unauthorized disclosure or use of our technical knowledge or other trade secrets
by employees. Furthermore, the laws of foreign countries may not protect our
intellectual property rights to the same extent as the laws of the U.S.
Litigation may be necessary to enforce our intellectual property rights which
could result in substantial costs to us and substantial diversion of management
attention. If we do not adequately protect our intellectual property, our
competitors could use it to enhance their products.  Our inability to
adequately protect our intellectual property rights could adversely affect our
business and financial condition, and the value of our brand name and other
intangible assets.




21


Risk
Related To Ownership of Our Common Stock





There
is currently a small market for our common stock, and we expect that any market
that does develop will be illiquid and extremely volatile.





As of
September 14, 2009, we had approximately twenty one thousand (21,000)
shareholders of record, and we had been subject to the reporting requirements of
the Exchange Act for at least ninety (90) days.  There were shares of
our common stock that had been held by non-affiliates for a minimum of one year
which could be freely resold under Rule 144, and shares of our common stock that
had been held by such persons for a minimum of six months which could be resold
under Rule 144 subject to public information requirements for reporting
issuers.  There were also shares of our common stock that had been
held by affiliates for a minimum of six months which could be resold under Rule
144 subject to the volume limitations, manner of sale provisions, public
information requirements for reporting issuers and notice
requirements.





The
market for our common stock is illiquid and subject to wide fluctuations in
response to several factors, including, but not limited to:




·
            limited numbers of buyers and
      sellers in the market;


·
            actual  or  anticipated  variations  in  our  results  of  operations;


·
            our ability or inability to
      generate new revenues;


·
            increased competition;
      and




Furthermore,
our stock price may be impacted by factors that are unrelated or
disproportionate to our operating performance which include stock market
fluctuations, general economic, political and overall global market conditions,
such  as  recessions, interest rates or international
currency fluctuations. Any and all of these factors, while unrelated directly to
us, may adversely affect the market price and liquidity of our common
stock.





We
have authorized preferred stock which can be designated by our board of
directors without shareholder approval.





We have
authorized 10,000,000 shares of preferred stock.  The shares of
preferred stock may be issued from time to time in one or more series, each of
which shall have distinctive designation or title as shall be determined by our
board of directors prior to the issuance of any shares thereof. The preferred
stock shall have such voting powers, full or limited, or no voting powers, and
such preferences and relative, participating, optional or other special rights
and such qualifications, limitations or restrictions thereof as adopted by our
board of directors. Because our board of directors is able to designate the
powers and preferences of the preferred stock without the vote of the holders of
our common stock, the holders of our common stock will have no control over what
designations and preferences our preferred stock will have. As a result of this,
our board of directors could designate one or more series of preferred stock
with superior rights to the rights of the holders of our common
stock.





We
do not expect to pay dividends for the foreseeable future.





We have
not declared or paid, and do not anticipate declaring or paying in the
foreseeable future, any cash dividends on our common stock.  Our
ability to pay dividends is dependent upon, among other things, our future
earnings, operating and financial condition, our capital requirements, general
business conditions and other pertinent factors, and is subject to the
discretion of our board of directors.  Accordingly, there is no
assurance that any dividends will ever be paid on our common
stock.


22




Investors may face significant
restrictions on the resale of our common stock due to federal regulations of
penny stock.





Our
common stock is subject to the requirements of Rule 15(g)9, promulgated under
the Securities Exchange Act as long as the price of our common stock is below
$5.00 per share. Under such rule, broker-dealers who recommend low-priced
securities to persons other than established customers and accredited investors
must satisfy special sales practice requirements, including a requirement that
they make an individualized written suitability determination for the purchaser
and receive the purchaser's consent prior to the transaction. The Securities
Enforcement Remedies and Penny Stock Reform Act of 1990, also requires
additional disclosure in connection with any trades involving a stock defined as
a penny stock. Generally, the SEC defines a penny stock as any equity security
not traded on an exchange or quoted on NASDAQ that has a market price of less
than $5.00 per share. The required penny stock disclosures include the delivery,
prior to any transaction, of a disclosure schedule explaining the penny stock
market and the risks associated with it. Such requirements could severely limit
the market liquidity of the securities and the ability of purchasers to sell
their securities in the secondary market.  In addition, various state
securities laws impose restrictions on transferring penny stocks.





ITEM
7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





NA




ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


23


Report
of Independent Registered Public Accounting Firm





To the
Board of Directors and Stockholders of:


Sanswire
Corp. (formerly known as GlobeTel Communications Corp.) and
Subsidiaries





We have
audited the accompanying consolidated balance sheets of Sanswire Corp. (formerly
known as GlobeTel Communications Corp.) and Subsidiaries (the “Company”), as of
December 31, 2008 (as restated) and 2007 (as restated), and the related
consolidated statements of operations, stockholders' deficit, and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.





We
conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.





We were
not engaged to examine management’s assertion about the effectiveness of
Sanswire Corp. (formerly known as GlobeTel Communications Corp.) and
Subsidiaries’ internal control over financial reporting as of December 31, 2008
included in the Company’s Item 9A “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 consolidated financial position of Sanswire Corp.
(formerly known as GlobeTel Communications Corp.) and Subsidiaries as of
December 31, 2008 (as
restated)and 2007 (as
restated)and the consolidated results of their operations and their cash
flows for the years 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
described in Note 4 “Restatement of Financial Statements” to the financial
statements, the Company has restated its 2008 and 2007 financial
statements.


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


March
30, 2009, except for Notes 4 and 6, as to which the date is September 8,
2009.


24


SANSWIRE
CORP. (FORMERLY GLOBETEL COMMUNICATIONS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




DECEMBER 31,
                        2008
                        (as Restated)
                      
                      
                      DECEMBER 31,
                        2007
                        (as Restated)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                      
                      $
                      4,809
                      
                      
                      $
                      32,278Current
      assets from discontinued operations
                      
                      
                      6,406
                      
                      
                      
                      18,678TOTAL
      CURRENT ASSETS
                      
                      
                      11,215
                      
                      
                      
                      50,956Deposits
                      
                      
                      —
                      
                      
                      
                      391,000Investment
      in joint venture
                      
                      
                      3,229,000
                      
                      
                      
                      —TOTAL
      NONCURRENT ASSETS
                      
                      
                      3,229,000
                      
                      
                      
                      391,000TOTAL
      ASSETS
                      
                      $
                      3,240,215
                      
                      
                      $
                      441,956LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCURRENT
      LIABILITIESAccounts
      payable
                      
                      $
                      3,802,777
                      
                      
                      $
                      3,155,722Notes
      and convertible notes payable, net of discount of $134,423 and
      $1,257,364
                      
                      
                      9,264,732
                      
                      
                      
                      8,056,220Accrued
      expenses and other liabilities (including $2,185,000 due to related party
      at December 31, 2008)
                      
                      
                      3,489,210
                      
                      
                      
                      1,067,355Derivative
      liabilities
                      
                      
                      748,244
                      
                      
                      
                      1,588,583Current
      liabilities from discontinued operations
                      
                      
                      1,387,406
                      
                      
                      
                      1,387,381TOTAL
      LIABILITIES
                      
                      
                      18,692,369
                      
                      
                      
                      15,255,261COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      DEFICITSeries
      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:
                      
                      
                      —
                      
                      
                      
                      —Common stock, $.00001 par value,
      250,000,000 shares authorized;184,704,015 and 129,756,897
      shares issued and outstanding
                      
                      
                      1,848
                      
                      
                      
                      1,299Additional
      paid-in capital
                      
                      
                      109,848,580
                      
                      
                      
                      105,889,705Accumulated
      deficit
                      
                      
                      (125,302,582
                      )
                      
                      
                      (120,704,309
                      )TOTAL
      STOCKHOLDERS' DEFICIT
                      
                      
                      (15,452,154
                      )
                      
                      
                      (14,813,305
                      )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                      
                      $
                      3,240,215
                      
                      
                      $
                      441,956





See
accompanying notes to consolidated financial statements




25





SANSWIRE
CORP. (FORMERLY GLOBETEL COMMUNICATIONS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR THE YEARS ENDED DECEMBER
31,





2008
                  (as Restated)
                
                
                2007
                  (as Restated)REVENUES
                
                $
                —
                
                
                $
                53,754COST
      OF REVENUES
                
                
                —
                
                
                
                15,529GROSS
      MARGIN
                
                
                —
                
                
                
                38,225EXPENSESPayroll
      and related taxes
                
                
                887,283
                
                
                
                3,611,596Consulting
      fees
                
                
                1,415,235
                
                
                
                1,635,303Noncash
      officers' and directors' compensation
                
                
                435,000
                
                
                
                696,790Research
      and development
                
                
                —
                
                
                
                (14,856
                )General
      and administrative
                
                
                476,827
                
                
                
                1,567,968TOTAL
      EXPENSES
                
                
                3,214,345
                
                
                
                7,496,801LOSS
      FROM OPERATIONS
                
                
                (3,214,345
                )
                
                
                (7,458,576
                )OTHER
      INCOME (EXPENSE)(Loss)
      gain on extinguishment of debt
                
                
                (1,096,650
                )
                
                
                254,200Extinguishment
      of derivative liabilities
                
                
                465,173
                
                
                
                123,313Change
      in fair value of derivative liabilities
                
                
                375,166
                
                
                
                962,304Interest
      expense, net
                
                
                (1,127,420
                )
                
                
                (2,482,296
                )NET
      OTHER EXPENSE
                
                
                (1,383,731
                )
                
                
                (1,142,479
                )LOSS
      FROM CONTINUING OPERATIONS
                
                
                (4,598,076
                )
                
                
                (8,601,055
                )LOSS
      FROM DISCONTINUED OPERATIONS
                
                
                (197
                )
                
                
                (1,918,806
                )NET
      LOSS
                
                $
                (4,598,273
                )
                
                $
                (10,519,861
                )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBASIC
      and DILUTED
                
                
                151,534,774
                
                
                
                121,171,392LOSS
      PER SHARE FROM CONTINUING OPERATIONSBASIC
      and DILUTED
                
                $
                ( 0.03
                )
                
                $
                ( 0.07
                )LOSS
      PER SHARE FROM DISCONTINUED OPERATIONSBASIC
      and DILUTED
                
                $
                ( 0.00
                )
                
                $
                ( 0.02
                )NET
      LOSS PER SHAREBASIC
      and DILUTED
                
                $
                ( 0.03
                )
                
                $
                ( 0.09
                )




See
accompanying notes to consolidated financial statements




26




SANSWIRE
CORP. (FORMERLY GLOBETEL COMMUNICATIONS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(as
RESTATED)





COMMON STOCKADDITIONAL
                            
                            
                            STOCKPAID-IN
                            
                            
                            SUBSCRIPTIONSDescription
                            
                            SHARES
                            
                            
                            AMOUNT
                            
                            
                            CAPITAL
                            
                            
                            RECEIVABLEBALANCE,
      DECEMBER 31, 2006,
      (as Reported)
                            
                            
                            109,470,803
                            
                            
                            $
                            1,095
                            
                            
                            $
                            94,733,346
                            
                            
                            $
                            (130,282
                            )Cumulative
      effect of correction of accounting for warrants and conversion feature of
      convertible notes as derivative liabilities
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (1,280,000
                            )
                            
                            
                            —BALANCE,
      DECEMBER 31, 2006, (as Restated)
                            
                            
                            109,470,803
                            
                            
                            
                            1,095
                            
                            
                            
                            93,453,346
                            
                            
                            
                            (130,282
                            )Shares
      issued for cash
                            
                            
                            3,750,000
                            
                            
                            
                            38
                            
                            
                            
                            749,962
                            
                            
                            
                            —Shares
      issued for services
                            
                            
                            6,824,920
                            
                            
                            
                            68
                            
                            
                            
                            1,667,039
                            
                            
                            
                            —Shares
      issued for settlement of debt obligations
                            
                            
                            1,333,333
                            
                            
                            
                            13
                            
                            
                            
                            4,598,320
                            
                            
                            
                            —Shares
      issued related to discontinued operations
                            
                            
                            4,001,599
                            
                            
                            
                            41
                            
                            
                            
                            1,056,438
                            
                            
                            
                            —Shares
      issued for interest and financing costs
                            
                            
                            1,572,951
                            
                            
                            
                            16
                            
                            
                            
                            557,616
                            
                            
                            
                            —Shares
      issued for conversion of notes
                            
                            
                            939,005
                            
                            
                            
                            9
                            
                            
                            
                            98,556
                            
                            
                            
                            —Shares
      issued for deposit
                            
                            
                            1,864,286
                            
                            
                            
                            19
                            
                            
                            
                            260,981
                            
                            
                            
                            —Writedown
      of receivable related to options
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            (130,282
                            )
                            
                            
                            130,282Options
      issued for executive compensation
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            1,922,992
                            
                            
                            
                            —Change
      of fair value of warrants
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            421,737
                            
                            
                            
                            —Fair
      value of warrants issued with convertible notes
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            1,233,000
                            
                            
                            
                            —Net
      loss
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —BALANCE,
      DECEMBER 31, 2007 (as Restated)
                            
                            
                            129,756,897
                            
                            
                            $
                            1,299
                            
                            
                            $
                            105,889,705
                            
                            
                            $
                            —Shares
      issued for conversion of notes
                            
                            
                            27,265,195
                            
                            
                            
                            272
                            
                            
                            
                            1,788,566
                            
                            
                            
                            —Shares
      issued for services
                            
                            
                            12,269,444
                            
                            
                            
                            123
                            
                            
                            
                            712,378
                            
                            
                            
                            —Shares
      issued for settlement of debt
                            
                            
                            2,700,701
                            
                            
                            
                            27
                            
                            
                            
                            99,647
                            
                            
                            
                            —Shares
      issued for accrued expenses
                            
                            
                            6,831,778
                            
                            
                            
                            68
                            
                            
                            
                            367,852
                            
                            
                            
                            —Shares
      issued for interest
                            
                            
                            3,200,000
                            
                            
                            
                            32
                            
                            
                            
                            189,368
                            
                            
                            
                            —Shares
      issued for joint venture
                            
                            
                            2,680,000
                            
                            
                            
                            27
                            
                            
                            
                            267,973
                            
                            
                            
                            —Options
      issued for executive compensation
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            244,831
                            
                            
                            
                            —Fair
      value of warrants issued with convertible notes
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            288,260
                            
                            
                            
                            —Net
      loss
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —BALANCE,
      DECEMBER 31, 2008 (as Restated)
                            
                            
                            184,704,015
                            
                            
                            $
                            1,848
                            
                            
                            $
                            109,848,580
                            
                            
                            $
                            —




See
accompanying notes to consolidated financial statements




27


SANSWIRE CORP. (FORMERLY GLOBETEL
COMMUNICATIONS CORP.)


AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(RESTATED)





SERIES AADDITIONAL
                          
                          
                          STOCKPAID-IN
                          
                          
                          SUBSCRIPTIONSDescription
                          
                          SHARES
                          
                          
                          AMOUNT
                          
                          
                          CAPITAL
                          
                          
                          RECEIVABLEBALANCE, DECEMBER 31, 2006
                          
                          
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —Cumulative
      effect of correction of accounting for warrants and conversion feature of
      convertible notes as derivative liabilities
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued for cash
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued for services
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued for settlement of
      debt obligations
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued related to
      discontinued operations
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued for interest and
      financing costs
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued for conversion of
      notes
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares issued for deposit
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Writedown
      of receivable related to options
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Options
      issued for executive compensation
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Change of fair value of warrants
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Fair
      value of warrants issued with convertible notes
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —BALANCE,
      DECEMBER 31, 2007
                          
                          
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —Shares
      issued for conversion of notes
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares
      issued for services
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares
      issued for settlement of debt
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares
      issued for accrued expenses
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares
      issued for interest
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Shares
      issued for joint venture
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Options
      issued for executive compensation
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Fair
      value of warrants issued with convertible notes
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —BALANCE, DECEMBER 31, 2008
                          
                          
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —




See
accompanying notes to consolidated financial statements





28




SANSWIRE CORP. (FORMERLY GLOBETEL
COMMUNICATIONS CORP.)


AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(RESTATED)





SERIES BADDITIONAL
                
                
                STOCKPAID-IN
                
                
                SUBSCRIPTIONSDescription
                
                SHARES
                
                
                AMOUNT
                
                
                CAPITAL
                
                
                RECEIVABLEBALANCE,
      DECEMBER 31, 2006
                
                
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Cumulative
      effect of correction of accounting for warrants and conversion feature of
      convertible notes as derivative liabilities
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for cash
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for services
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for settlement of debt obligations
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued related to discontinued operations
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for interest and financing costs
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for conversion of notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for deposit
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Writedown
      of receivable related to options
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Options
      issued for executive compensation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Change
      of fair value of warrants
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Fair
      value of warrants issued with convertible notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —BALANCE,
      DECEMBER 31, 2007
                
                
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Shares
      issued for conversion of notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for services
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for settlement of debt
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for accrued expenses
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for interest
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for joint venture
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Options
      issued for executive compensation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Fair
      value of warrants issued with convertible notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —BALANCE,
      DECEMBER 31, 2008
                
                
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —




See
accompanying notes to consolidated financial statements





29





SANSWIRE CORP. (FORMERLY GLOBETEL
COMMUNICATIONS CORP.)


AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(RESTATED)





SERIES CADDITIONAL
                
                
                STOCKPAID-IN
                
                
                SUBSCRIPTIONSDescription
                
                SHARES
                
                
                AMOUNT
                
                
                CAPITAL
                
                
                RECEIVABLEBALANCE,
      DECEMBER 31, 2006
                
                
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Cumulative
      effect of correction of accounting for warrants and conversion feature of
      convertible notes as derivative liabilities
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for cash
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for services
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for settlement of debt obligations
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued related to discontinued operations
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for interest and financing costs
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for conversion of notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for deposit
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Writedown
      of receivable related to options
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Options
      issued for executive compensation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Change
      of fair value of warrants
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Fair
      value of warrants issued with convertible notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —BALANCE,
      DECEMBER 31, 2007
                
                
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —Shares
      issued for conversion of notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for services
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for settlement of debt
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for accrued expenses
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for interest
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Shares
      issued for joint venture
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Options
      issued for executive compensation
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Fair
      value of warrants issued with convertible notes
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —Net
      loss
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —BALANCE,
      DECEMBER 31, 2008
                
                
                —
                
                
                $
                —
                
                
                $
                —
                
                
                $
                —




See
accompanying notes to consolidated financial statements





30





SANSWIRE
CORP. (FORMERLY GLOBETEL COMMUNICATIONS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007


(as
RESTATED)





SERIES
      DADDITIONAL
                                                          
                                                          
                                                          STOCK
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          TOTALPAID-IN
                                                          
                                                          
                                                          SUBSCRIPTIONS
                                                          
                                                          
                                                          ACCUMULATED
                                                          
                                                          
                                                          STOCKHOLDERS'Description
                                                          
                                                          SHARES
                                                          
                                                          
                                                          AMOUNT
                                                          
                                                          
                                                          CAPITAL
                                                          
                                                          
                                                          RECEIVABLE
                                                          
                                                          
                                                          DEFICIT
                                                          
                                                          
                                                          DEFICITBALANCE,
      DECEMBER 31, 2006(as
      Reported)
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          (108,790,248
                                                          )
                                                          
                                                          $
                                                          (14,186,089
                                                          )Cumulative
      effect of correction of accounting for warrants and conversion feature of
      convertible notes as derivative liabilities
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          (1,394,200
                                                          )
                                                          
                                                          
                                                          (2,674,200
                                                          )BALANCE,
      DECEMBER 31, 2006, (as Restated)
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          (110,184,448
                                                          )
                                                          
                                                          
                                                          (16,860,289
                                                          )Shares
      issued for cash
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          750,000Shares
      issued for services
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          1,667,107Shares
      issued for settlement of debt obligations
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          4,598,333Shares
      issued related to discontinued operations
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          1,056,479Shares
      issued for interest and financing costs
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          557,632Shares
      issued for conversion of notes
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          98,565Shares
      issued for deposit
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          261,000Writedown
      of receivable related to options
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —Options
      issued for executive compensation
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          1,922,992Change
      of fair value of warrants
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          421,737Fair
      value of warrants issued with convertible notes
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          1,233,000Net
      loss
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          (10,519,861
                                                          )
                                                          
                                                          
                                                          (10,519,861
                                                          )BALANCE,
      DECEMBER 31, 2007  (as Restated)
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          (120,704,309
                                                          )
                                                          
                                                          $
                                                          (14,813,305
                                                          )Shares
      issued for conversion of notes
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          1,788,838Shares
      issued for services
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          712,501Shares
      issued for settlement of debt
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          99,674Shares
      issued for accrued expenses
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          367,920Shares
      issued for interest
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          189,400Shares
      issued for joint venture
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          268,000Options
      issued for executive compensation
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          244,831Fair
      value of warrants issued with convertible notes
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          288,260Net
      loss
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          
                                                          (4,598,273
                                                          )
                                                          
                                                          
                                                          (4,598,273
                                                          )BALANCE,
      DECEMBER 31, 2008 (as Restated)
                                                          
                                                          
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          —
                                                          
                                                          
                                                          $
                                                          (125,302,582
                                                          )
                                                          
                                                          $
                                                          (15,452,154
                                                          )





See
accompanying notes to consolidated financial statements





31





SANSWIRE
CORP. (FORMERLY GLOBETEL COMMUNICATIONS CORP.)


AND
SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31,




2008
              (Restated)
            
            
            2007
              (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (4,598,273
            )
            
            $
            (10,519,861
            )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Amortization
      of debt discount
            
            
            314,549
            
            
            
            1,111,963Loss
      (gain) on extinguishment of
      debt
            
            
            1,096,650
            
            
            
            (254,200
            )Fair
      value of stock based compensation
            
            
            712,501
            
            
            
            1,667,107Fair
      value of vested options
            
            
            244,831
            
            
            
            1,922,992Change
      in fair value of derivative liabilities
            
            
            (375,166
            )
            
            
            (962,304
            )Extinguishment
      of derivative liabilities
            
            
            (465,173
            )
            
            
            (123,313
            )Fair
      value of modification of warrants for investment
            
            
            —
            
            
            
            421,737Interest
      expense added to convertible notes payable
            
            
            569,590
            
            
            
            558,612Common
      stock exchanged for interest
            
            
            189,400
            
            
            
            557,632Common
      stock exchanged for financing costs
            
            
            37,681
            
            
            
            —Noncash
      activity from discontinued operations
            
            
            —
            
            
            
            1,056,479Decrease
      in assets:Accounts
      receivable
            
            
            —
            
            
            
            271,262Deposits
            
            
            —
            
            
            
            72,987Decrease
      in assets relating to discontinued operations
            
            
            12,272
            
            
            
            141,735Increase
      in liabilities:Accounts
      payable
            
            
            746,729
            
            
            
            692,117Accrued
      expenses and other liabilities
            
            
            604,776
            
            
            
            607,258Increase
      in liabilities relating to discontinued operations
            
            
            25
            
            
            
            491,684NET
      CASH USED BY OPERATING ACTIVITIES
            
            
            (909,608
            )
            
            
            (2,286,113
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPayment
      on joint venture
            
            
            (385,000
            )
            
            
            —Deposit
      for joint venture
            
            
            —
            
            
            
            (130,000
            )Investing
      activities from discontinued operations
            
            
            —
            
            
            
            (242,500
            )NET
      CASH USED BY INVESTING ACTIVITIES
            
            
            (385,000
            )
            
            
            (372,500
            )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock – exercises of warrants
            
            
            —
            
            
            
            750,000Payments
      on notes payable
            
            
            (25,139
            )
            
            
            —Proceeds
      from notes and loans payable
            
            
            1,292,278
            
            
            
            1,951,312Cash
      overdraft
            
            
            —
            
            
            
            (14,664
            )NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            1,267,139
            
            
            
            2,686,648NET
      (DECREASE) INCREASE IN CASH AND EQUIVALENTS
            
            
            (27,469
            )
            
            
            28,035CASH
      AND EQUIVALENTS – BEGINNING OF PERIOD
            
            
            32,278
            
            
            
            4,243CASH
      AND EQUIVALENTS – END OF PERIOD
            
            $
            4,809
            
            
            $
            32,278SUPPLEMENTAL
      DISCLOSURESCash
      paid during the period for:Interest
            
            $
            16,200
            
            
            $
            25,083NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Shares
      issued for debts
            
            
            —
            
            
            
            4,840,833Shares
      issued for joint venture
            
            
            268,000
            
            
            
            261,000Shares
      issued for accrued expenses
            
            
            367,920
            
            
            
            —Shares
      issued for accounts payable
            
            
            99,674
            
            
            
            —Deposit
      applied to accrued expenses
            
            
            659,000
            
            
            
            —Accrued
      expense for joint venture
            
            
            2,844,000
            
            
            
            —Conversion
      of notes payable to common stock
            
            
            1,788,838
            
            
            
            98,565Fair
      value of warrants issued with convertible notes
            
            
            288,260
            
            
            
            1,233,000





See
accompanying notes to consolidated financial statements





32





SANSWIRE
CORP. (FORMERLY GLOBETEL COMMUNICATIONS CORP.)


AND
SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS
ENDED DECEMBER 31, 2008 AND 2007


(Restated)





NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES





NATURE OF
OPERATIONS





From 2002
to 2007 Sanswire Corp. (formerly known as Globetel Communications Corp.)
("Sanswire") (the “Company”) was involved in the following business sectors:
stored value card services; wholesale telecommunications services; voice over
IP; wireless broadband; and high altitude airships. These business units
operated through various subsidiaries. The Company has discontinued operations
in all but the high altitude airship sector.





On
September 22, 2008, the Company filed a Certificate of Merger with the Secretary
of State of the State of Delaware pursuant to which the wholly owned subsidiary,
Sanswire Corp., a Delaware corporation, was merged into the Company. As a result
of the filing of the Certificate of Merger, the corporate name was changed from
GlobeTel Communications Corp. to Sanswire Corp. The opportunities associated
with Sanswire are related to the Lighter Than Air (LTA) Unmanned Aerial Vehicle
(UAV) market. Sanswire seeks to build and run a UAV business that includes low-,
mid- and high-altitude, lighter-than-air vehicles. Sanswire intends to provide
customers advanced seamless wireless broadband capabilities and surveillance
sensor suites utilizing its High Altitude Airship technology.





Sanswire’s
main products are airships, which provide a platform to transmit wireless
capabilities from air to ground.





The High
Altitude class of prospective airships are generally referred to as HAAs
(High Altitude Airships) but have also been called HAPs and HALEs (High Altitude
Platforms, High Altitude Long Endurance). They have been designed to be able to
keep a station in one location in the Stratosphere, at approximately 65,000 ft
for durations of 30 days or more.





ORGANIZATION
AND CAPITALIZATION





The
Company was organized in July 2002, under the laws of the State of Delaware.
Upon its incorporation, Sanswire 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 the Company.
Subsequently, ADGI was merged into the Company, 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 Sanswire
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, the Company 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.





Common
stock amounts in this report have accounted for the reverse stock split retroactively,
unless otherwise noted.





33





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 Sanswire Corp. ("Sanswire," the
“Company”) and its wholly-owned subsidiaries: Sanswire Networks, LLC(“Sanswire
Networks”); 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 $4,598,273 and
a negative cash flow from operations of $909,608 for the year ended December 31,
2008, and had a working capital deficiency of $18,681,154 and a stockholders’
deficit of $15,542,154 at December 31, 2008.  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.





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, 2009. 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 reduced since January
1, 2008.  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 11)





CASH AND
CASH EQUIVALENTS





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




34





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.




VALUATION
HIERARCHY
 
 SFAS No.
157, “Fair Value Measurements”, establishes a valuation hierarchy for disclosure
of the inputs to valuation used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows.  Level 1
inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities.  Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are observable for the
asset or liability, either directly or indirectly through market corroboration,
for substantially the full term of the financial instrument.  Level 3
inputs are unobservable inputs based on the Company’s own assumptions used to
measure assets and liabilities at fair value.  A financial asset or
liability’s classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
  The
following table provides the assets and liabilities carried at fair value
measured on a recurring basis as of December 31, 2008:
  Fair Value Measurements at December 31, 2008Total Carrying
                    Value at
                    December 31, 2008
                  
                  
                  (Level
      1)
                  
                  
                  (Level
      2)
                  
                  
                  (Level
      3)Cash
      and cash equivalents
                  
                  $
                  4,809
                  
                  
                  $
                  4,809
                  
                  
                  $
                  —
                  
                  
                  $
                  —Derivative
      liabilities
                  
                  
                  748,244
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  748,244
 
 The
derivative liabilities are measured at fair value using quoted market prices and
estimated volatility factors, and are classified within Level 3 of the valuation
hierarchy. There were no changes in the valuation techniques during the year
ended December 31, 2008.




REGISTRATION
RIGHTS




In
connection with the sale of debt or equity instruments, the Company may enter
into Registration Rights Agreements. Generally, these Agreements require the
Company 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.




These
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 the Company
received on issuance of the debt or preferred stock, common shares, options or
warrants. The Company account for these penalties when it is probable that a
penalty will be incurred. At December 31, 2008 the Company has no registration
rights agreement requiring penalties to be recorded.




REVENUE
RECOGNITION





Revenue
is recognized when there is persuasive evidence of an arrangement, goods are
shipped and title passes, collection is probable, and the fee is fixed or
determinable.  The Company records deferred revenue when cash is
received in advance of the revenue recognition criteria being met.





35




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, 2008 and
2007, were $0 and $24,087, respectively, and are included in "General and
Administrative" in the consolidated statements of operations.





FAIR
VALUE OF FINANCIAL INSTRUMENTS





Financial
instruments, including cash, receivables, deposits, accounts payable, accrued
expenses 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





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.





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.





BASIC AND
DILUTED NET INCOME (LOSS) PER COMMON SHARE





Basic and
diluted 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 and diluted 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, 2008, the shares outstanding
would be 245,883,363.





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




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 for
the year ended December 31, 2008 and 2007 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.




36




Stock-based
compensation expense recognized under SFAS No. 123(R) for the years ended
December 31, 2008 and 2007 were $712,501 and $1,667,107, respectively.





The
Company’s determination of fair value of share-based payment awards to employees
and directors on the date of grant uses the Black-Scholes model, which is
affected by the Company’s stock price as well as assumptions regarding a number
of highly complex and subjective variables. These variables include, but are not
limited to our expected stock price volatility over the term of the awards, and
actual and projected employee stock option exercise
behaviors.





The
Company accounts for stock option and warrant grants issued to non-employees for
goods and services using the guidance of SFAS No. 123 and Emerging Issues
Task Force (“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,” whereby the fair value of such option and warrant grants is
determined using the Black-Scholes option pricing model at the earlier of the
date at which the non-employee’s performance is completed or a performance
commitment is reached.





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS





SFAS No.
159,The Fair Value Option of Financial
Assets and Financial Liabilities (SFAS No. 159)




In
February 2007, the FASB issued SFAS No. 159. The Fair Value Option of Financial
Assets and Financial Liabilities (“SFAS No. 159”). SFAS No. 159
provides an option to report selected financial assets and financial liabilities
using fair value. The standard establishes required presentation and disclosures
to facilitate comparisons with companies that use different measurements for
similar assets and liabilities. The Company does not expect that the adoption of
SFAS No. 159 for financial assets and financial liabilities to have a
material impact on our consolidated financial statements in subsequent reporting
periods.





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 does not expect that the adoption of SFAS 141R or SFAS
No. 160 to have a material impact on our financial condition and results of
operations, although its effects on future periods will depend on the nature and
significance of business combinations subject to this statement.





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. SFAS 161 is effective for fiscal years and interim periods beginning
after November 15, 2008. The Company does not expect the adoption of SFAS 161 to
have a material impact on the presentation of our annual and interim period
disclosures.





37




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. DISCONTINUED OPERATIONS





The
Company decided to close several of its operations and has presented certain
activities as discontinued operations as of and for the years ended December 31,
2008 and 2007.





Telecom


The
Company decided to wind down its telecom operations, including those of its
subsidiary, Centerline Communications LLC. It did not have sufficient working
capital to make its telecom operations 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. The Company believed at the
time that this would be a more cost efficient manner of running the
business.  However, in May of 2007 the Company 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).





In March
2007, the Company received $242,500 in exchange for a note payable that was
secured by common stock of the Company.  The proceeds were used by
GlobeTel Wireless as a further investment in a joint venture that was abandoned
in 2007. The Company received a Notice of Acquisition of Collateral which
allowed the note holder to satisfy the note payable with the pledged common
shares.





During
2007, the Company discontinued two components of its business which constituted
discontinued operations – Telecom and GlobeTel Wireless Corp.  The
loss on the Company’s consolidated statements of operations for the years ended
December 31, 2008 and 2007 is summarized as follows:





Telecom
                            
                            2008
                            
                            
                            2007Loss
      from discontinued operations
                            
                            $
                            (197
                            )
                            
                            $
                            (781,455
                            )GlobeTel
      WirelessLoss
      from discontinued operations
                            
                            
                            —
                            
                            
                            
                            (1,137,351
                            )Total
      loss from discontinued operations
                            
                            $
                            (197
                            )
                            
                            $
                            (1,918,806
                            )





The
Company incurred the following losses from discontinued operations for the years
ended December 31, 2008 and 2007:





2008
                  
                  Telecom
                  
                  
                  GlobeTel
      Wireless
                  
                  
                  TotalGeneral
      and administrative
                  
                  $
                  (197
                  )
                  
                  $
                  —
                  
                  
                  $
                  (197
                  )Gain/loss
      from discontinued operations
                  
                  $
                  (197
                  )
                  
                  $
                  —
                  
                  
                  $
                  (197
                  )




38




2007
                          
                          Telecom
                          
                          
                          GlobeTel
      Wireless
                          
                          
                          TotalRevenue
                          
                          $
                          4,849
                          
                          
                          $
                          —
                          
                          
                          $
                          4,849Cost
      of sales
                          
                          
                          (11,676
                          )
                          
                          
                          —
                          
                          
                          
                          (11,676
                          )Gross
      margin (loss)
                          
                          
                          (6,827
                          )
                          
                          
                          —
                          
                          
                          
                          (6,827
                          )Payroll
      and related taxes
                          
                          
                          (18,935
                          )
                          
                          
                          (91,865
                          )
                          
                          
                          (110,800
                          )General
      and administrative
                          
                          
                          (84,385
                          )
                          
                          
                          (798,736
                          )
                          
                          
                          (883,121
                          )Depreciation
      and amortization
                          
                          
                          (654,672
                          )
                          
                          
                          —
                          
                          
                          
                          (654,672
                          )Consulting
      and professional fees
                          
                          
                          (16,636
                          )
                          
                          
                          —
                          
                          
                          
                          (16,636
                          )Loss
      on investment
                          
                          
                          —
                          
                          
                          
                          (246,750
                          )
                          
                          
                          (246,750
                          )Loss
      from discontinued operations
                          
                          $
                          (781,455
                          )
                          
                          $
                          (1,137,351
                          )
                          
                          $
                          (1,918,806
                          )





The
Company had the following assets and liabilities from its discontinued
operations on its consolidated balance sheet as of December 31, 2008 and
2007:





2008
                        
                        Telecom
                        
                        
                        GlobeTel
      Wireless
                        
                        
                        TotalCash
                        
                        $
                        6,406
                        
                        
                        $
                        —
                        
                        
                        $
                        6,406Total
      assets
                        
                        
                        6,406
                        
                        
                        
                        —
                        
                        
                        
                        6,406Accounts
      payable
                        
                        
                        140,116
                        
                        
                        
                        1,216,208
                        
                        
                        
                        1,356,324Accrued
      liabilities
                        
                        
                        9,605
                        
                        
                        
                        21,477
                        
                        
                        
                        31,082Total
      current liabilities
                        
                        
                        149,721
                        
                        
                        
                        1,237,685
                        
                        
                        
                        1,387,406Net
      liabilities of discontinued operations
                        
                        $
                        143,315
                        
                        
                        $
                        1,237,685
                        
                        
                        $
                        1,381,000





2007
                          
                          Telecom
                          
                          
                          GlobeTel
      Wireless
                          
                          
                          TotalCash
                          
                          $
                          6,942
                          
                          
                          $
                          —
                          
                          
                          $
                          6,942Accounts
      receivable
                          
                          
                          11,736
                          
                          
                          
                          —
                          
                          
                          
                          11,736Total
      assets
                          
                          
                          18,678
                          
                          
                          
                          —
                          
                          
                          
                          18,678Accounts
      payable
                          
                          
                          140,091
                          
                          
                          
                          1,216,208
                          
                          
                          
                          1,356,299Accrued
      liabilities
                          
                          
                          9,605
                          
                          
                          
                          21,477
                          
                          
                          
                          31,082Total
      current liabilities
                          
                          
                          149,696
                          
                          
                          
                          1,237,685
                          
                          
                          
                          1,387,381Net
      liabilities of discontinued operations
                          
                          $
                          131,018
                          
                          
                          $
                          1,237,685
                          
                          
                          $
                          1,368,703





NOTE
3. TAO TECHNOLOGIES TRANSACTIONS





In
November 2007, the Company and TAO-Technologies (“TAO”), in cooperation with the
University of Stuttgart in Germany, entered into a Technical Cooperation and
License Agreement wherein the Company acquired the exclusive license rights to
certain TAO remote airship technologies and patents.   TAO
granted to Sanswire 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 was also to provide testing and
engineering support for the development of airships to meet the criteria
required by Sanswire customers. Sanswire was 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.





During
2007, the Company paid $391,000, made up of $130,000 in cash and the issuance of
1,864,286 shares of the Company’s common stock valued at $261,000, as part of
its November 2007 agreement with TAO Technologies GmbH and Professor Bernd
Kroplin.  These payments were initially part of the Technical
Cooperation and License Agreements wherein the Company acquired the exclusive
license rights to certain TAO remote airship technologies and
patents.




39




On June
3, 2008 Sanswire and TAO restructured the November 2007 agreement and entered
into a new agreement to form a 50/50 US based joint venture to place, among
other things, the license rights to the TAO intellectual property in US, Canada,
and Mexico into the US-based joint venture company to be called Sanswire-TAO
that was to be owned equally by TAO and Sanswire Corp. Additionally,
Sanswire-TAO would register the patents and the intellectual property of TAO
Technologies and Kroplin in the United States for the exclusive use of
Sanswire-TAO.  The intellectual property includes, but is not limited to an
existing patent as well as any updates to that patent. This integration of
Sanswire and Stuttgart, Germany-based TAO Technologies Gmbh took place to create
various strategic advantages for both companies. Each group entered the
relationship with synergistic, yet very distinct core competencies. Sanswire’s
business development, its inroads into the U.S. Government review process as
well as inroads into overseas markets and other marketing resources complement
TAO’s vast airship product research and development ability. In addition the
joint venture has an exclusive agreement with TAO that may require additional
payments in the future.




On June
3, 2008, the Company treated the transaction as an investment in a joint venture
and recorded an investment of $3,229,000.  The $391,000 paid during
2007 was applied as payment towards the investment.  During 2008, the
Company paid an additional $653,000 for the investment, made up of $385,000 in
cash and the issuance of 2,680,000 shares of the Company’s common stock valued
at $268,000.  After application of the 2007 deposit of $391,000 and
the 2008 payments of $653,000, the balance of $2,185,000 due for the investment
is included in accrued expenses as of December 31, 2008 (see Note
5).  The investment will be subject to being tested for impairment in
the future.





NOTE
4.  RESTATEMENT OF FINANCIAL STATEMENTS




On
September 4, 2009, the Company concluded, with the concurrence of the Company’s
Board of Directors, that an
accounting error had been made in the Company’s historical December 31, 2008 and
2007 financial statements in relation to the recording of derivative liabilities
related to the conversion feature and associated warrants issued with
convertible notes during 2006, 2007, and 2008. As a
result, the Company’s consolidated financial statements for the years ended
December 31, 2008 and 2007 are being amended and
restated.




The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks.  The Company evaluates all of its
financial instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives.  For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the condensed
consolidated statements of operations.  For stock-based derivative
financial instruments, the Company uses the Black-Scholes option pricing model
to value the derivative instruments at inception and on subsequent valuation
dates.  The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
evaluated at the end of each reporting period.  Derivative instrument
liabilities are classified in the balance sheet as current or non-current based
on whether or not net-cash settlement of the derivative instrument could be
required within 12 months of the balance sheet date.




The
restatements reflect adjustments to recognize derivative liabilities and related
changes in the fair value of the derivative liabilites.  The convertible notes and associated
warrants provide for a strike pricereset if the Company
issues stock at a price less than the defined exercise price, and the Company
determined derivative liability classification was required for the conversion
feature and associated warrants underEITF00-19.  In particular, the Company compared (a) the
number of authorized but unissued shares, less the maximum number of shares that
could be required to be delivered during the contract period under existing
commitments (i.e. other convertible notes, warrants, and options) with (b) the
maximum number of shares that could be required to be delivered upon conversion
of the convertible notes.  Since the amount in (b) exceeded the amount in
(a), the Company determined that share settlement was not within its
control.


The
effects of the restatement on the Company’s condensed consolidated financial
statements for the years ended December 31, 2008 and 2007 are shown below (note:
see table of adjustment descriptions at end of this section):




40




December
      31, 2008Account
                
                (As
      Initially
                  Reported)
                
                
                (Adjustment)
                
                
                (As
      Restated)Current
      AssetsCash
                
                $
                4,809
                
                
                $
                —
                
                
                $
                4,809Current
      assets from discontinued operations
                
                
                6,406
                
                
                
                —
                
                
                
                6,406Total
      current assets
                
                
                11,215
                
                
                
                —
                
                
                
                11,215Investment
      in joint venture
                
                
                3,229,000
                
                
                
                —
                
                
                
                3,229,000Total
      Assets
                
                $
                3,240,215
                
                
                $
                —
                
                
                $
                3,240,215Liabilities
      and Stockholders’
      DeficitCurrent
      liabilitiesAccounts
      payable
                
                $
                3,802,777
                
                
                $
                —
                
                
                $
                3,802,777Notes
      and notes payable, net of discount of $134,423
                
                
                9,264,732
                
                
                
                —
                
                
                
                9,264,732Accrued
      expenses and other liabilities
                
                
                3,489,210
                
                
                
                —
                
                
                
                3,489,210Derivative
      liabilities
                
                
                —
                
                
                
                748,244
                1
                
                
                748,244Current
      liabilities from discontinued operations
                
                
                1,387,406
                
                
                
                —
                
                
                
                1,387,406Total
      current liabilities
                
                
                17,944,125
                
                
                
                748,244
                
                
                
                18,692,369Stockholders’
      DeficitCommon
      stock
                
                
                1,848
                
                
                
                —
                
                
                
                1,848Additional
      paid-in capital
                
                
                111,128,580
                
                
                
                (1,280,000
                )
      1
                
                
                109,848,580Accumulated
      deficit
                
                
                (125,834,338
                )
                
                
                531,756
                1
                
                
                (125,302,582
                )Total
      Stockholders’ Deficit
                
                
                (14,703,910
                )
                
                
                (748,244
                )
                
                
                (15,452,154
                )Total
      Liabilities and Stockholders’ Deficit
                
                $
                3,240,215
                
                
                $
                —
                
                
                $
                3,240,215


December 31, 2007Account
                    
                    (As Initially
                      Reported)
                    
                    
                    (Adjustment)
                    
                    
                    (As Restated)Current
      AssetsCash
                    
                    $
                    32,278
                    
                    
                    $
                    —
                    
                    
                    $
                    32,278Current
      assets from discontinued operations
                    
                    
                    18,678
                    
                    
                    
                    —
                    
                    
                    
                    18,678Total
      current assets
                    
                    
                    50,956
                    
                    
                    
                    —
                    
                    
                    
                    50,956Deposits
                    
                    
                    391,000
                    
                    
                    
                    —
                    
                    
                    
                    391,000Total
      Assets
                    
                    $
                    441,956
                    
                    
                    $
                    —
                    
                    
                    $
                    441,956Liabilities
      and Stockholders’ DeficitCurrent
      liabilitiesAccounts
      payable
                    
                    $
                    3,155,722
                    
                    
                    $
                    —
                    
                    
                    $
                    3,155,722Notes
      and notes payable, net of discount of $1,257,364
                    
                    
                    8,056,220
                    
                    
                    
                    —
                    
                    
                    
                    8,056,220Accrued
      expenses and other liabilities
                    
                    
                    1,067,355
                    
                    
                    
                    —
                    
                    
                    
                    1,067,355Derivative
      liabilities
                    
                    
                    —
                    
                    
                    
                    1,588,583
                    4
                    
                    
                    1,588,583Current
      liabilities from discontinued operations
                    
                    
                    1,387,381
                    
                    
                    
                    —
                    
                    
                    
                    1,387,381Total
      current liabilities
                    
                    
                    13,666,678
                    
                    
                    
                    1,588,583
                    
                    
                    
                    15,255,261Stockholders’
      DeficitCommon
      stock
                    
                    
                    1,299
                    
                    
                    
                    —
                    
                    
                    
                    1,299Additional
      paid-in capital
                    
                    
                    107,169,705
                    
                    
                    
                    (1,280,000
                    ) 4
                    
                    
                    105,889,705Accumulated
      deficit
                    
                    
                    (120,395,726
                    )
                    
                    
                    (308,583
                    ) 4
                    
                    
                    (120,704,309
                    )Total
      Stockholders’ Deficit
                    
                    
                    (13,224,722
                    )
                    
                    
                    (1,588,583
                    )
                    
                    
                    (14,813,305
                    )Total
      Liabilities and Stockholders’ Deficit
                    
                    $
                    441,956
                    
                    
                    $
                    —
                    
                    
                    $
                    441,956




41




Year ended December 31,
2008Account
                    
                    (As Initially
                      Reported)
                    
                    
                    (Adjustment)
                    
                    
                    (As Restated)Revenue
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Cost
      of revenues
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Gross
      margin
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Payroll
      and related taxes
                    
                    
                    (887,283
                    )
                    
                    
                    —
                    
                    
                    
                    (887,283
                    )Consulting
      fees
                    
                    
                    (1,415,235
                    )
                    
                    
                    —
                    
                    
                    
                    (1,415,235
                    )Noncash
      officers’ and directors’ compensation
                    
                    
                    (435,000
                    )
                    
                    
                    —
                    
                    
                    
                    (435,000
                    )General
      and administrative expenses
                    
                    
                    (476,827
                    )
                    
                    
                    —
                    
                    
                    
                    (476,827
                    )Loss
      from operations
                    
                    
                    (3,214,345
                    )
                    
                    
                    —
                    
                    
                    
                    (3,214,345
                    )Loss
      on extinguishment of debt
                    
                    
                    (1,096,650
                    )
                    
                    
                    —
                    
                    
                    
                    (1,096,650
                    )Interest
      expense
                    
                    
                    (1,127,420
                    )
                    
                    
                    —
                    
                    
                    
                    (1,127,420
                    )Extinguishment
      of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    465,173
                    3
                    
                    
                    465,173Change
      in fair value of warrants and conversion feature
                    
                    
                    —
                    
                    
                    
                    375,166
                    2
                    
                    
                    375,166Net
      other expense
                    
                    
                    (2,224,070
                    )
                    
                    
                    840,339
                    
                    
                    
                    (1,383,731
                    )Loss
      from continuing operations
                    
                    
                    (5,438,415
                    )
                    
                    
                    840,339
                    
                    
                    
                    (4,598,076
                    )Loss
      from discontinued operations
                    
                    
                    (197
                    )
                    
                    
                    —
                    
                    
                    
                    (197
                    )Net
      loss
                    
                    $
                    (5,438,612
                    )
                    
                    $
                    840,339
                    
                    
                    $
                    (4,598,273
                    )Net
      loss per share from continuing operations, basic and
    diluted
                    
                    $
                    (0.04
                    )
                    
                    
                    0.01
                    7
                    
                    
                    (0.03
                    )Net
      loss per share from discontinuing operations, basic and
      diluted
                    
                    $
                    (0.00
                    )
                    
                    
                    —
                    
                    
                    $
                    (0.00
                    )Weighted
      average shares outstanding, basic and diluted
                    
                    
                    151,534,774
                    
                    
                    
                    
                    
                    
                    
                    151,534,774




Year ended December 31,
2007Account
                    
                    (As Initially
                      Reported)
                    
                    
                    (Adjustment)
                    
                    
                    (As Restated)Revenue
                    
                    $
                    53,754
                    
                    
                    $
                    —
                    
                    
                    $
                    53,754Cost
      of revenues
                    
                    
                    15,529
                    
                    
                    
                    —
                    
                    
                    
                    15,529Gross
      margin
                    
                    
                    38,225
                    
                    
                    
                    —
                    
                    
                    
                    38,225Payroll
      and related taxes
                    
                    
                    (3,611,596
                    )
                    
                    
                    —
                    
                    
                    
                    (3,611,596
                    )Consulting
      fees
                    
                    
                    (1,635,303
                    )
                    
                    
                    —
                    
                    
                    
                    (1,635,303
                    )Noncash
      officers’ and directors’ compensation
                    
                    
                    (696,790
                    )
                    
                    
                    —
                    
                    
                    
                    (696,790
                    )Research
      and development
                    
                    
                    14,856
                    
                    
                    
                    —
                    
                    
                    
                    14,856General
      and administrative expenses
                    
                    
                    (1,567,968
                    )
                    
                    
                    —
                    
                    
                    
                    (1,567,968
                    )Loss
      from operations
                    
                    
                    (7,458,576
                    )
                    
                    
                    —
                    
                    
                    
                    (7,458,576
                    )Gain
      on extinguishment of debt
                    
                    
                    254,200
                    
                    
                    
                    —
                    
                    
                    
                    254,200Interest
      expense
                    
                    
                    (2,482,296
                    )
                    
                    
                    —
                    
                    
                    
                    (2,482,296
                    )Extinguishment
      of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    123,313
                    6
                    
                    
                    123,313Change
      in fair value of warrants and conversion feature
                    
                    
                    —
                    
                    
                    
                    962,304
                    5
                    
                    
                    962,304Net
      other expense
                    
                    
                    (2,228,096
                    )
                    
                    
                    1,085,617
                    
                    
                    
                    (1,142,479
                    )Loss
      from continuing operations
                    
                    
                    (9,686,672
                    )
                    
                    
                    1,085,617
                    
                    
                    
                    (8,601,055
                    )Loss
      from discontinued operations
                    
                    
                    (1,918,806
                    )
                    
                    
                    —
                    
                    
                    
                    (1,918,806
                    )Net
      loss
                    
                    $
                    (11,605,478
                    )
                    
                    $
                    1,085,617
                    
                    
                    $
                    (10,519,861
                    )Net
      loss per share from continuing operations, basic and
    diluted
                    
                    $
                    (0.08
                    )
                    
                    
                    0.01
                    7
                    
                    
                    (0.07
                    )Net
      loss per share from discontinuing operations, basic and
      diluted
                    
                    $
                    (0.02
                    )
                    
                    
                    —
                    
                    
                    $
                    (0.02
                    )Weighted
      average shares outstanding, basic and diluted
                    
                    
                    121,171,392
                    
                    
                    
                    
                    
                    
                    
                    121,171,392




42




Year ended December 31,
      2008(As Initially
                          Reported)
                        
                        
                        (Adjustment)
                        
                        
                        (As Restated)Cash
      flow from operating activities:Net
      loss
                        
                        $
                        (5,438,612
                        )
                        
                        $
                        840,339
                        
                        
                        $
                        (4,598,273
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of debt discount
                        
                        
                        314,549
                        
                        
                        
                        —
                        
                        
                        
                        314,549Loss
      on extinguishment of debt
                        
                        
                        1,096,650
                        
                        
                        
                        —
                        
                        
                        
                        1,096,650Stock
      based compensation
                        
                        
                        712,501
                        
                        
                        
                        —
                        
                        
                        
                        712,501Fair
      value of vested options
                        
                        
                        244,831
                        
                        
                        
                        —
                        
                        
                        
                        244,831Change
      in fair value of derivative liabilities
                        
                        
                        —
                        
                        
                        
                        (375,166
                        ) 2
                        
                        
                        (375,166
                        )Extinguishment
      of derivative liabilities
                        
                        
                        —
                        
                        
                        
                        (465,173
                        ) 3
                        
                        
                        (465,173
                        )Interest
      expense on convertible notes payable
                        
                        
                        569,590
                        
                        
                        
                        —
                        
                        
                        
                        569,590Common
      stock exchanged for interest
                        
                        
                        189,400
                        
                        
                        
                        —
                        
                        
                        
                        189,400Common
      stock exchanged for financing costs
                        
                        
                        37,681
                        
                        
                        
                        —
                        
                        
                        
                        37,681Decrease
      in assets:Decrease
      in assets relating to discontinued operations
                        
                        
                        12,272
                        
                        
                        
                        —
                        
                        
                        
                        12,272Increase
      in liabilities:Accounts
      payable
                        
                        
                        746,729
                        
                        
                        
                        —
                        
                        
                        
                        746,729Accrued
      expenses and other liabilities
                        
                        
                        604,776
                        
                        
                        
                        —
                        
                        
                        
                        604,776Increase
      in liabilities relating to discontinued operations
                        
                        
                        25
                        
                        
                        
                        —
                        
                        
                        
                        25Net
      cash used in operating activities
                        
                        
                        (909,608
                        )
                        
                        
                        —
                        
                        
                        
                        (909,608
                        )Cash
      flows from investing activities:Payment
      on joint venture
                        
                        
                        (385,000
                        )
                        
                        
                        —
                        
                        
                        
                        (385,000
                        )Net
      cash used in investing activities
                        
                        
                        (385,000
                        )
                        
                        
                        —
                        
                        
                        
                        (385,000
                        )Cash
      flows from financing activities:Payments
      on notes payable
                        
                        
                        (25,139
                        )
                        
                        
                        —
                        
                        
                        
                        (25,139
                        )Proceeds
      from notes and loans payable
                        
                        
                        1,292,278
                        
                        
                        
                        —
                        
                        
                        
                        1,292,278Net
      cash provided by financing activities
                        
                        
                        1,267,139
                        
                        
                        
                        —
                        
                        
                        
                        1,267,139Net
      decrease in cash and cash equivalents
                        
                        
                        (27,469
                        )
                        
                        
                        —
                        
                        
                        
                        (27,469
                        )Cash
      and cash equivalents, beginning of period
                        
                        
                        32,278
                        
                        
                        
                        —
                        
                        
                        
                        32,278Cash
      and cash equivalents, end of period
                        
                        $
                        4,809
                        
                        
                        $
                        —
                        
                        
                        $
                        4,809




Year ended December 31,
      2007(As Initially
                          Reported)
                        
                        
                        (Adjustment)
                        
                        
                        (As Restated)Cash
      flow from operating activities:Net
      loss
                        
                        $
                        (11,605,478
                        )
                        
                        $
                        1,085,617
                        
                        
                        $
                        (10,519,861
                        )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of debt discount
                        
                        
                        1,111,963
                        
                        
                        
                        —
                        
                        
                        
                        1,111,963Gain
      on extinguishment of debt
                        
                        
                        (254,200
                        )
                        
                        
                        —
                        
                        
                        
                        (254,200
                        )Stock
      based compensation
                        
                        
                        1,667,107
                        
                        
                        
                        —
                        
                        
                        
                        1,667,107Fair
      value of vested options
                        
                        
                        1,922,992
                        
                        
                        
                        —
                        
                        
                        
                        1,922,992Fair
      value of modification of warrants for investment
                        
                        
                        421,737
                        
                        
                        
                        —
                        
                        
                        
                        421,737Change
      in fair value of derivative liabilities
                        
                        
                        —
                        
                        
                        
                        (962,304
                        ) 5
                        
                        
                        (962,304
                        )Extinguishment
      of derivative liabilities
                        
                        
                        —
                        
                        
                        
                        (123,313
                        ) 6
                        
                        
                        (123,313
                        )Interest
      expense on convertible notes payable
                        
                        
                        558,612
                        
                        
                        
                        —
                        
                        
                        
                        558,612Common
      stock exchanged for interest
                        
                        
                        557,632
                        
                        
                        
                        —
                        
                        
                        
                        557,632Noncash
      activity from discontinued operations
                        
                        
                        1,056,479
                        
                        
                        
                        —
                        
                        
                        
                        1,056,479


43
  Year ended December 31,
2007(As Initially
                                            Reported)
                                          
                                          
                                          (Adjustment)
                                          
                                          
                                          (As Restated)Decrease
      in assets:Accounts
      receivable
                                          
                                          
                                          271,262
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          271,262Deposits
                                          
                                          
                                          72,987
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          72,987Decrease
      in assets relating to discontinued operations
                                          
                                          
                                          141,735
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          141,735Increase
      in liabilities:Accounts
      payable
                                          
                                          
                                          692,117
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          692,117Accrued
      expenses and other liabilities
                                          
                                          
                                          607,258
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          607,258Increase
      in liabilities relating to discontinued operations
                                          
                                          
                                          491,684
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          491,684Net
      cash used in operating activities
                                          
                                          
                                          (2,286,113
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (2,286,113
                                          )Cash
      flows from investing activities:Deposit
      for joint venture
                                          
                                          
                                          (130,000
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (130,000
                                          )Investing
      activities from discontinued operations
                                          
                                          
                                          (242,500
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (242,500
                                          )Net
      cash used in investing activities
                                          
                                          
                                          (372,500
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (372,500
                                          )Cash
      flows from financing activities:Issuance
      of common stock – exercises of warrants
                                          
                                          
                                          750,000
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          750,000Proceeds
      from notes and loans payable
                                          
                                          
                                          1,951,312
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,951,312Bank
      overdraft
                                          
                                          
                                          (14,664
                                          )
                                          
                                          
                                          —
                                          
                                          
                                          
                                          (14,664
                                          )Net
      cash provided by financing activities
                                          
                                          
                                          2,686,648
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,686,648Net
      increase in cash and cash equivalents
                                          
                                          
                                          28,035
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          28,035Cash
      and cash equivalents, beginning of period
                                          
                                          
                                          4,243
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,243Cash
      and cash equivalents, end of period
                                          
                                          $
                                          32,378
                                          
                                          
                                          $
                                          —
                                          
                                          
                                          $
                                          32,378




Description
of adjustments:




(1)
              To
      record $748,244 increase to derivative liability, $531,756 decrease to
      accumulated deficit for prior period recognition of derivative liability,
      and $1,280,000 decrease to additional paid in capital for
      cumulative effect of correction of accounting for warrants and conversion
      feature of convertible notes as derivative
    liabilities.
 (2)
              To
      record $375,166 decrease in derivative liability for the year ended
      December 31, 2008.
 (3)
              To
      record $465,173 decrease from the extinguishment of derivative liabilities
      for the year ended December 31,
2008.
 (4)
              To
      record $1,588,583 increase to derivative liability, $308,583 increase to
      accumulated deficit for prior period recognition of derivative liability,
      and $1,280,000 decrease to additional paid in capital for
      cumulative effect of correction of accounting for warrants and conversion
      feature of convertible notes as derivative
    liabilities.
 (5)
              To
      record $962,304 decrease in derivative liability for the year ended
      December 31, 2007.
 (6)
              To
      record $123,313 decrease from the extinguishment of derivative liabilities
      for the year ended December 31, 2007.(7)
              Effect
      on Earnings per share of
restatements.




Derivative
Liabilities
 
 The
Company’s derivatives consisted of the following at December 31, 2008 and 2007
and were valued using the Black-Scholes option pricing model and the following
assumptions:
 
 December
      31, 2008
              
              
              December
      31, 2007Conversion
      feature:Risk-free
      interest rate
              
              
              0.27
      – 0.76
              %
              
              
              3.05
      – 3.34
              %Expected
      volatility
              
              
              118
      - 134
              %
              
              
              114
              %Expected
      life (in years)
              
              
              0.33
      - 1.76
              
              
              
              .53
      – 1.88Expected
      dividend yield
              
              
              —Warrants:Risk-free
      interest rate
              
              
              0.11
      – 1.00
              %
              
              
              3.05
      – 3.34
              %Expected
      volatility
              
              
              28
      - 167
              %
              
              
              114
              %Expected
      life (in years)
              
              
              0.01
      – 2.74
              
              
              
              1.00
      – 3.75Expected
      dividend yield
              
              
              —
              
              
              
              —Derivative
      Fair value:Conversion
      feature
              
              $
              495,805
              
              
              $
              1,152,975Warrants
              
              $
              252,439
              
              
              $
              435,608
 
 The
risk-free interest rate was based on rates established by the Federal
Reserve.  In 2008 and 2007, the Company’s expected volatility was
based upon the historical volatility for its common stock.  The
expected life of the Debentures’ conversion option was based on the maturity of
the Debentures and the expected life of the warrants was determined by the
expiration date of the warrants.  The expected dividend yield was
based upon the fact that the Company has not historically paid dividends, and
does not expect to pay dividends in the future.




NOTE
5. ACCRUED EXPENSES AND OTHER LIABILITIES





Accrued
expenses and other liabilities consisted of the following:





2008
                          
                          
                          2007Payroll
      Liabilities
                          
                          $
                          1,185,264
                          
                          
                          $
                          813,787Professional
      Fees
                          
                          
                          118,946
                          
                          
                          
                          253,568Due
      for Investment in Joint Venture
                          
                          
                          2,185,000
                          
                          
                          
                          —ACCRUED
      EXPENSES AND OTHER LIABILITIES
                          
                          $
                          3,489,210
                          
                          
                          $
                          1,067,355




44


NOTE
6. NOTES AND CONVERTIBLE NOTES PAYABLE
 
 2008
              
              
              2007(A)
      Notes payable
              
              $
              5,997,030
              
              
              $
              6,139,357(B)
      Convertible notes payable, net of unamortized discount of $0 and
      $454,531
              
              
              80,000
              
              
              
              825,469(C)
      Convertible promissory notes, net of unamortized discount of $134,423 and
      $802,833
              
              
              2,016,913
              
              
              
              336,036Total
              
              
              8,093,943
              
              
              
              7,300,862Accrued
      interest
              
              
              1,170,789
              
              
              
              755,358NOTES
      AND CONVERTIBLE NOTES PAYABLE
              
              $
              9,264,732
              
              
              $
              8,056,220
 
 (A)
NOTES PAYABLE
 
 Notes
payable are made up of two separate notes.
 
 From
February 2007 to October 2007, the Company received a total of $641,812 from the
first note. During January 2008, the Company received a total of $7,673. As of
December 31, 2008 a balance of $4,997,130 remains 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 $826,784 as of December 31,
2008.
 
 During
2007 and 2008, the Company received no additional funding related to the second
note. In January 2008, the note holder converted $150,000 of the loans to
1,428,571 shares of common stock. As of December 31, 2008 a balance of $999,900
remains 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
$162,151 as of December 31, 2008.
 
 As of
December 31, 2008 and 2007, the aggregate amounts outstanding under these
independent notes were $5,997,030 and $6,139,357, respectively.
 
 (B)
CONVERTIBLE NOTES PAYABLE
 
 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 two year, 7%
convertible notes and were issued Class A and Class B Warrants.  Net
proceeds of $1,124,080 were received, after deducting costs and expenses related
to the transaction.
The notes were initially convertible into shares of common stock of the Company
at $0.33 to $0.39 per share.  The warrants had initial exercise prices
ranging from $0.75 to $1.00 per share.
 
 The
Company originally accounted for the fair value of the conversion feature and
the fair value of the warrants based upon the relative value of the Black
Scholes Merton valuation of the warrants and the underlying debt
amount.   Subsequently, the Company's identified them as embedded
derivatives due to price resets relating to the convertible notes and warrants.
The accounting treatment of derivative financial instruments requires that the
Company record the fair value of the derivatives as of the inception date of the
related convertible notes up to the proceeds amount and to adjust fair value as
of each subsequent balance sheet date.  At the inception of the
September 2006 convertible notes, the Company determined the fair value of the
embedded derivative to be $1,406,793.  In addition, the Company
determined the fair value of derivative related to warrants issued with the
September 2006 notes to be $1,267,407.  The Company recorded a
discount of $1,280,000 for the September 2006 notes, which is being amortized by
the effective interest method over the term of the Notes. For the years ended
December 31, 2008 and December 31, 2007, the Company amortized $160,714 and
$681,797, respectively of the valuation discount.
 
 The
fair value of the embedded derivative was determined using a probability
weighted Black Scholes Merton option pricing model based on the following
assumptions:  dividend yield: -0-%, volatility 153.92%, risk free
rate: 4.82%, expected term: 1.44 years.
  45
 
 In
January 2007, the Company executed Certificates of Adjustments to the September
2006 notes that reduced the conversion price of the notes to $0.196 per share.
This modification was deemed an extinguishment of debt, with a gain of $254,200
recorded. On May 1,
2007, the Company executed Certificates of Adjustments for the warrants issued
with the September 2006 notes that reduced the exercise price of the warrants to
$0.196. The Company recognized $140,487 expense related to the modification of
warrants.
 
 In
March 2007, the Company determined it was unable to register the shares
underlying the convertible notes and warrants, and issued 662,951 shares
valued at $104,400 to pay liquidated damages to the debenture holders through
March 31, 2007.
 
 Effective
January 16, 2008, the Company entered into a forbearance agreement with some of
the 2006 Note holders. This agreement changed their conversion price to the
lesser of $.20 or 70% of the volume weighted average price for the 10 days prior
to conversion.
 
 In
January 2008, the Company issued certificates of adjustment for certain
convertible notes issued in September 2006 to reduce the conversion prices from
$0.196 to $.105 per share.  The modification was deemed an
extinguishment of debt, with a loss of $293,817 recorded in January
2008.
 
 During
2008, $1,200,000 of principal and was converted into approximately 23.4 million
shares of Company common stock.
 
 (C)
CONVERTIBLE PROMISSORY NOTES
 
 2007 Convertible
Notes
 In
2007, the Company entered into financing agreements for convertible promissory
notes payable totaling $1,233,000 (the 2007 Convertible
Notes).  $206,000 was received in December 2006 and $1,027,000 was
received in 2007.  The notes are convertible into common stock of the
Company at $.196 per share.  The notes are due two years from
inception, accrue interest at a rate of 7% per annum and were issued Class A and
Class B warrants.  The warrants had initial exercise prices ranging
from $0.21 and $0.315 and a 2 year term.
 
 During
2007, $94,130 of principal and interest was converted into
896,480 shares of the Company’s common stock.
 
 In
January 2008, the Company issued certificates of adjustment for certain of the
2007 convertible notes and warrants issued pursuant to the 2007 financings to
reduce the conversion price or exercise price to $.105 per share.  The
modification was deemed an extinguishment of debt, with a loss of $783,667
recorded in January 2008.
 
 The
Company originally accounted for the fair value of the conversion feature and
the fair value of the warrants based upon the relative value of the Black
Scholes Merton valuation of the warrants and the underlying debt
amount.   Subsequently, the Company's identified them as embedded
derivatives due to price resets relating to the 2007 convertible notes. The
accounting treatment of derivative financial instruments requires that the
Company record fair value of the derivatives as of the inception date of the
related convertible notes up to the proceeds amount and to fair value as of each
subsequent balance sheet date.  At the inception of the 2007
convertible notes, the Company determined the fair value of the embedded
derivative to be $1,589,802.  In addition, the Company determined the
fair value of derivative related to warrants issued with the 2007 notes to be
$1,045,503.  The Company recorded a discount of $1,233,000 for the
2007 notes, which is being amortized by the effective interest method over the
term of the Notes.
 
 For
the years ended December 31, 2008 and December 31, 2007, the Company amortized
$0 and $430,166, respectively of the valuation discount.
  46
 
 The
fair value of the embedded derivative was determined using a probability
weighted Black Scholes Merton option pricing model based on the following
assumptions:  dividend yield: -0-%, volatility 114%, risk free rate:
3.05 – 3.34%, expected term: .53 – 3.75 years.
  2008 Convertible Promissory
Notes
 In
2008, the Company entered into an additional $1,234,606 in financing agreements
which are convertible into common stock of the Company at $.105 per share, due
two years from inception, accrue interest at a rate of 7% per annum and were
issued Class A and Class B warrants. The Class A and B warrants are exercisable
for a purchase price of $.21 and $.315, respectively. The warrants have a 2 year
term.
 
 In
December 2008, the Company entered into a new financing agreement for a new
convertible promissory note payable of $50,000.  The note is
convertible into common stock of the Company at a price to be determined in the
future.  The note, which is due on January 31, 2009, accrues interest
at a rate of 5% per annum.  The note is secured by 1,000,000 shares of
the Company’s common stock owned by the Company’s CEO.  In February
2009, the Company issued 250,000 shares, valued at $9,500, as a penalty to
extend the maturity to an unspecified date.
 
 During
2008, $247,000 of principal and interest was converted into
2,389,717 shares of the Company’s and $25,139 was
repaid.
 
 The
Company originally accounted for the fair value of the conversion feature and
the fair value of the warrants based upon the relative value of the Black
Scholes Merton valuation of the warrants and the underlying debt
amount.   Subsequently, the Company's identified them as embedded
derivatives due to price resets relating to the 2008 convertible notes. The
accounting treatment of derivative financial instruments requires that the
Company record fair value of the derivatives as of the inception date of the
related convertible notes up to the proceeds amount and to fair value as of each
subsequent balance sheet date.  At the inception of the 2008
convertible notes, the Company determined the fair value of the embedded
derivative to be $487,883.  In addition, the Company determined the
fair value of derivative related to warrants issued with the 2008 notes to be
$205,172.  The Company recorded a discount of $190,124 for the 2008
notes, which is being amortized by the effective interest method over the term
of the Notes.
 
 For
the years ended December 31, 2008 and December 31, 2007, the Company amortized
$114,238 and $0, respectively of the valuation discount.
 
 The
fair value of the embedded derivative was determined using a probability
weighted Black Scholes Merton option pricing model based on the following
assumptions:  dividend yield: -0-%, volatility 28 - 167%, risk free
rate: .11 – 1.00%, expected term: .01 – 2.74 years.


47




NOTE
7. AGREEMENTS





AGREEMENTS





Several
agreements, letters of intent, and memorandums of understanding regarding the
Sanswire project were entered into during 2008 and 2007 and through the date of
this report, none of which require the recording of any assets, liabilities,
revenues or expenses.





NOTE
8. 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, the Company 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.




48




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 Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, which
motion to amend is still pending with the Court.  The parties are
currently engaged in discovery.  The Company has been vigorously
defending 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
Defamation, Tortuous 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 pending additional
information arising from the SEC lawsuit.




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 $762,902





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 on February 4, 2008.





Derivative
Action





On July
10, 2006 a derivative action was filed against the officers and directors of the
Company 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




49




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 the Company 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 an October 2006 agreement. During 2008 the Company paid
$131,250 in the Company’s common stock associated with the settlement
agreement.  During 2009 the Company paid an additional $29,167 in the
Company’s common stock.





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. The Company 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.




50




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. The Company has
not been informed of any further developments since the hearing.





Trimax
Wireless





On July
3, 2007 the Company 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 the Company alleging, defamation,
conversion, breach of contract and seeking injunctive relief. The Company
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.





American
Express





American
Express Travel Related Services Company, Inc. has filed a lawsuit against the
Company and Sanswire Networks LLC (CASE NO: CACE 08-013239, Broward County
Florida), seeking to recover a total of $394,919 for unpaid charges on the
Companies’ corporate purchasing account. On October 3, 2008, American Express
received a final judgment for $404,113.  This liability was previously
recorded in the Company’s accounts payable as incurred.





LEASES
AND RENTS




Sanswire’s
corporate offices are now located at 101 NE 3 rd Ave.,
Suite 1500, Fort Lauderdale, FL 33301. Base rent is $575 per month plus the cost
of services used by Sanswire. The lease is for a period of 6 months. The lease
is for a period of 6 months and terminates on September 30,
2009.   We believe our facilities are adequate for our current
and near-term needs.





The
Company previously leased office facilities at 9050 Pines Blvd., Suite 110,
Pembroke Pines, Florida 33024, as of April 1, 2004. The Company 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 was accrued for
in 2006 as it relates to 2006 expenses. The balance was accrued in
2007.




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.





Rent
expense for 2008 and 2007 were $42,431 and $285,033, respectively.




51




NOTE
9. INCOME TAXES
 
 Deferred
income taxes and benefits for 2008 and 2007 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:
 
 2007
              
              
              Current
                Period
                Changes
              
              
              2008Deferred
      tax assets:Net
      operating loss carryforwards
              
              $
              14,849,395
              
              
              $
              815,792
              
              
              $
              15,665,18714,849,395
              
              
              
              815,792
              
              
              
              15,665,187Valuation
      allowance
              
              
              (14,849,395
              )
              
              
              (815,792
              )
              
              
              (15,665,187
              )Net
      deferred tax asset
              
              $
              —
              
              
              $
              —
              
              
              $
              —
 
 A
reconciliation of income benefit provided at the federal statutory rate of 15%
to income tax benefit is as follows:
 
 2008
              
              
              2007Income
      tax benefit computed at federal statutory rate
              
              $
              (815,792
              )
              
              $
              (1,740,822
              )Losses
      not benefited
              
              
              815,792
              
              
              
              1,740,822$
              —
              
              
              $
              —
  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 2008, 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
10. COMMON STOCK TRANSACTIONS





During
the year ended December 31, 2008, the Company issued the following shares of
common stock:





SHARES
                                        
                                        CONSIDERATION
                                        
                                        VALUATION2,700,701
                                        
                                        Settlement
      of Debt
                                        
                                        $
                                        99,6741,222,222
                                        
                                        Services
      - Performance Bonus
                                        
                                        
                                        110,0006,047,222
                                        
                                        Consulting
      Services
                                        
                                        
                                        374,50230,465,195
                                        
                                        Converted
      Notes Payable and Accrued Interest
                                        
                                        
                                        1,978,8386,831,778
                                        
                                        Stock
      for Debt
                                        
                                        
                                        367,9201,500,000
                                        
                                        Services
      - Performance Bonus
                                        
                                        
                                        52,5002,680,000
                                        
                                        Stock
      for Joint Venture
                                        
                                        
                                        268,0002,000,000
                                        
                                        Services
      - Performance Bonus
                                        
                                        
                                        78,0001,500,000
                                        
                                        Services
      - Performance Bonus
                                        
                                        
                                        97,500





During
the year ended December 31, 2007, the Company issued the following shares of
common stock:




SHARES
                  
                  CONSIDERATION
                  
                  VALUATION5,584,932
                  
                  Settlement
      of Debts
                  
                  $
                  5,955,565770,870
                  
                  Services
      - Performance Bonus
                  
                  
                  300,6393,750,000
                  
                  Exercised
      Warrants
                  
                  
                  750,0002,521,037
                  
                  Services
      - Performance Bonus
                  
                  
                  614,592177,910
                  
                  Stock
      for Brokers Fees
                  
                  
                  16,0122,475,000
                  
                  Consulting
      Services
                  
                  
                  640,0002,261,956
                  
                  Converted
      Notes Payable and Accrued Interest
                  
                  
                  355,4441,864,286
                  
                  Deposit
      for Joint Venture
                  
                  
                  261,000880,103
                  
                  Stock
      for Directors Fees
                  
                  
                  95,864




52




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.




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.




In August
2008, the Company issued an additional 800,000 contingent shares to a vendor
that will be returned to the Company when the amounts due the vendor are
paid.  The Company has accounted for them as forfeitable shares as
they believe they will be returned under the agreement in 2009.  They
are not considered outstanding for Earnings per share purposes and the liability
remains recorded.





NOTE
11. STOCK OPTIONS AND WARRANTS





During
the year ended December 31, 2008, the Company issued the following fully vested
options to acquire Common stock:





Date Issued
                
                Shares
                
                Consideration
                
                Valuation
                
                Relationship1/18/2008
                
                
                3,444,444
                
                Employees’
      Bonus
                
                $
                228,029
                
                Non
      Executive Employees2/6/2008
                
                
                250,000
                
                Employees’
      Bonus
                
                $
                16,803
                
                Non
      Executive Employees




During
the year ended December 31, 2007, the Company issued the following fully vested
options to acquire Common stock:




Date Issued
                
                Shares
                
                Consideration
                
                Valuation
                
                Relationship3/19/2007
                
                
                500,000
                
                Employee
      Bonus
                
                $
                130,753
                
                Non
      Executive Employee3/28/2007
                
                
                2,000,000
                
                Officer
      Stock Option Grant
                
                $
                352,093
                
                Chief
      Operating Officer4/12/2007
                
                
                2,000,000
                
                Officer
      Stock Option Grant
                
                $
                347,676
                
                Chief
      Operating Officer4/13/2007
                
                
                958,000
                
                Employees’
      Bonus
                
                $
                167,670
                
                Non
      Executive Employees5/22/2007
                
                
                4,078,945
                
                Employee’s
      Bonus
                
                $
                504,470
                
                Executive
      Employees6/15/2007
                
                
                1,500,000
                
                Officer
      Severance/Bonus
                
                $
                266,296
                
                Chief
      Operating Officer8/20/2007
                
                
                55,555
                
                Employees’
      Bonus
                
                $
                5,408
                
                Non
      Executive Employee8/30/2007
                
                
                1,833,333
                
                Officer
      Severance/Bonus
                
                $
                116,236
                
                Former
      Chief Executive Officer10/18/2007
                
                
                750,000
                
                Employees’
      Bonus
                
                $
                32,389
                
                Non
      Executive Employee





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





All
options are fully vested and thus there is no future 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:


53


Risk
      free interest rate
                  
                  
                  3 -
      4.50
                  %Expected
      life
                  
                  3
      yearsExpected
      volatility
                  
                  
                  65-112
                  %Expected
      dividend yield
                  
                  
                  0
                  %





As of
December 31, 2008, the exercise price of all options outstanding exceeds the
market price of the Company’s stock, and therefore there was no intrinsic
value.





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 2008 and 2007, unless otherwise discounted as noted
above, were exercisable based on the closing market price of the Company's
free-trading shares.





STOCK
OPTIONS





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, 2007, all options issued and
outstanding have fully vested and thus there was no deferred compensation, Stock
option activity for the years ended December 31, 2008 and 2007 was as
follows:





Number of Options
                    (in shares)
                  
                  
                  Weighted Average
                    Exercise PriceOutstanding
      at December 31, 2006
                  
                  
                  20,173,602
                  
                  
                  $
                  .894Options
      Granted
                  
                  
                  13,675,833
                  
                  
                  
                  .265Options
      Forfeited
                  
                  
                  (5,144,265
                  )
                  
                  
                  .864Outstanding
      at December 31, 2007
                  
                  
                  28,705,170
                  
                  
                  $
                  .600Options
      Granted
                  
                  
                  3,694,444
                  
                  
                  
                  .091Options
      Forfeited
                  
                  
                  (10,916,862
                  )
                  
                  
                  1.619Options
      Cancelled
                  
                  
                  (5,500,000
                  )
                  
                  
                  .317Outstanding
      at December 31, 2008
                  
                  
                  15,982,752
                  
                  
                  $
                  .350





WARRANTS





On
September 6, 2006, the Company entered into subscription agreements with several
investors whereby these investors were issued Class A and Class B Warrants. 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.


54





On April
13, 2007, the Company agreed to reprice the exercise price of warrants
previously packaged with a previous Convertible Note financing from 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 one of the investors exercised their warrants which resulted
in the issuance of 2,250,000 additional warrants.





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. The Company recognized a $140,487 loss from
the increase in fair value from the modification of warrants.  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 does not anticipate any additional
charge related to this modification due to the new price being above market
price at the time of the modification.





In
December 2007, the Company entered into financing agreements for convertible
promissory notes payable whereby these investors were issued Class A and Class B
warrants. The Class A and B warrants are exercisable for a purchase price of
$.21 and $.315, respectively. The warrants have a 2 year term.





In
December 2008, the Company entered into financing agreements for convertible
promissory notes payable whereby these investors were issued Class A and Class B
warrants. The Class A and B warrants are exercisable for a purchase price of
$.21 and $.315, respectively. The warrants have a 2 year term.





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, 2006
                  
                  
                  3,736,701
                  
                  
                  
                  1,801,095
                  
                  
                  $
                  1.994Warrants
      Granted
                  
                  
                  8,121,428
                  
                  
                  
                  3,914,285
                  
                  
                  
                  0.242Warrants
      Exercised
                  
                  
                  (3,750,000
                  )
                  
                  
                  —
                  
                  
                  
                  0.200Outstanding
      at December 31, 2007
                  
                  
                  8,108,129
                  
                  
                  
                  5,715,380
                  
                  
                  $
                  0.330Warrants
      Granted
                  
                  
                  5,879,075
                  
                  
                  
                  3,919,383
                  
                  
                  
                  0.252Warrants
      Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at December 31, 2008
                  
                  
                  13,987,204
                  
                  
                  
                  9,634,763
                  
                  
                  $
                  0.253





The fair
value of the warrants issued during 2007 was determined using the Black-Scholes
option-pricing model with the following assumptions:





Risk
      free interest rate
                  
                  
                  .75
      - 4.50
                  %Expected
      life
                  
                  2 -
      5 yearsExpected
      volatility
                  
                  
                  58
      - 142
                  %Expected
      dividend yield
                  
                  
                  0
                  %





NOTE
12. PREFERRED STOCK





As of the
date of this report the Company has no preferred shares issued and/or
outstanding.




NOTE
13. SUBSEQUENT EVENTS





February
2009 Financing




55




On February 17, 2009, the Company
entered into subscription agreement with accredited investors. The Company sold
$140,000 of the Company’s 7% Convertible Debentures, 3-year warrants to purchase
a number of shares equal to 50% of the number of shares issuable upon conversion
of the debenture of the Company’s common stock at an exercise price of $0.21,
and three-year warrants to purchase a number of shares equal to 50% of the
number of shares issuable upon conversion of the debenture shares of the
Company’s common stock at an exercise price of $0.315. The Debentures are
convertible into shares of the Company’s common stock at $.105 per share
pursuant to the following terms. If after 90 days from the date hereof the
market price of the Company’s common shares during the 90 day period has not
closed at a bid price at or above $.12 per share for 3 or more consecutive
trading days. In such instance then the Investors’ price per share shall be
equal to the average closing bid price for the last 30 trading days immediately
prior to the 90thday after the date of this addendum.
Should the price of the common shares be $.105 or higher on the 90thday after the date of this addendum,
then the purchase price per share shall remain at $.105 per
share.  Should the Market Price of the shares be $.105 or higher on
the 90thday after the date of this addendum,
but less than $.125, then the Investor shall be entitled to an amount of
additional shares equal to 10% of the number of shares to which the Investor is
otherwise entitled.





ITEM 9
CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURES





ITEM 9A
(T) 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 Leinwand, the Company’s Chief
Executive Officer and Chief Financial Officer (the “Reviewing Officers”), of the
effectiveness of the Company's disclosure controls and procedures as of December
31, 2008. 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 Officers concluded that as of December 31, 2008, 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,
except for the establishment of the audit committee as contemplated
below.





Material
Weaknesses





Initially,
on May 4, 2007  the Company determined that the Company had
ineffective controls over revenue recognition.   On September 3,
2009, the Company then also determined that it has not properly accounted for
various derivative liabilities resulting in this restatement.





We have
categorized our efforts to address our material weaknesses into two
phases.  In the first phase of the program, already completed as of
September 30, 2007, we hired consultants and accounting consultants to review
our financial statements and prepare the restatement of our financial
statements. 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 had previously restated revenue.


56


In the
second phase of the program, we have commenced to and continue to implement
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





d.
            Establishment
      of an audit committee





e.
            Upon
      adequate funding, hiring additional staff leading to the segregation of
      duties to enable a better control
environment




Our
remediation efforts in light of the improper accounting of our derivative
liabilities include restating our financial statements for March 31, June 30,
September 30 and December 31, 2008 as well as March 31, 2009.





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, 2008 that
have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.





Management’s
Report on Internal Control over Financial Reporting





We are
responsible for establishing and maintaining adequate internal control over
financial reporting in accordance with Exchange Act Rule 13a-15. With the
participation of our chief executive officer and chief financial officer, our
management conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2008 based on the criteria
established in Internal Control-Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. Based on this evaluation,
management concluded that our internal control over financial reporting was not
effective as of December 31, 2008, based on those criteria due to the material
weaknesses as outlined above. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the
objectives of the control system are met. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company have
been detected.





This
annual report does not include an attestation report of the Company’s registered
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission.





ITEM
9B. OTHER INFORMATION





BOARD
APPOINTMENTS AND RESIGNATIONS





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.





On August
6, 2009, Jonathan Leinwand resigned as a director and Chief Executive Officer of
the Company and Przemyslaw Kostro resigned as a director of the
Company.


57


PART
III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE




As of
September 14, 2009, the officers and directors of the Corporation
are:





Name
                
                Age
                
                Position
      with CompanyDavid
      A. Christian
                
                60
                
                Chief
      Executive Officer and Chairman of the Board of
DirectorsThomas
      Seifert
                
                38
                
                Chief
      Financial OfficerMaj.
      Gen. Wayne P. Jackson (USA-Ret.)
                
                80
                
                DirectorWilliam
      J. Hotz
                
                
                
                Director





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.





David
A. Christian





On May 3,
2009, the Board of Directors of Sanswire Corp. (the “Company”) appointed David
A. Christian as a director and chairman of the Board of Directors of the Company
and on August 6, 2009, the Board of Directors appointed him as the Chief
Executive Officer of the Company. There is no understanding or arrangement
between Mr. Christian and any other person pursuant to which Mr. Christian was
selected as a director.  Mr. Christian does not have any family
relationship with any director, executive officer or person nominated or chosen
by us to become a director or an executive officer.  Mr. Christian
will receive $5,000 per quarter in cash compensation and 250,000 shares of
common stock per quarter during his tenure as a director.





David A.
Christian is one of the United States’ most decorated veterans, the recipient of
7 Purple Hearts, Silver Star, Bronze Star and numerous other medals and
commendations. He became the youngest National Commander of the Nation's oldest
veterans organization "The Legion of Valor". He was a co-founder of the Vietnam
Veterans of America with US Senator John Kerry and Bob Muller.  Mr.
Christian is currently a lecturer, commentator, advisor to the US Senate, and
runs a Service Disabled Veteran Owned Small Business that does work with the
United States Armed Forces under contract.  From 1998 until 2006 Mr.
Christian was a Senate Fellow in the United States Senate and an advisor in the
areas of National Defense, Foreign Relations and Armed Services. He has also
served in the Carter and Regan administration and has been active in veterans
affairs.  Since 2006 Mr. Christian has served as the Chief Executive
Officer of DacVal LLC, a manufacturer and re-manufacturer providing military
defense support equipment for the United States armed services.





Additionally,
Mr. Christian is an author, consultant to major news organizations, and a
nationally recognized speaker. He is fluent in Russian and German.





Thomas
Seifert





Mr.
Seifert has served as a consultant to the Company since April 2007 and has more
than thirteen years experience in financial management. Prior to joining the
Company, Mr. Seifert served five years as Chief Financial Officer of Globalnet
Corporation, a public telecommunications company.  Past positions
include Chief Financial Officer of 2Sendit.com, Controller for Integrated
Telephony Products and Controller for Mountain Vacations.





Maj.
Gen. Wayne P. Jackson (USA-Ret.)




During
his military career, General Jackson served in various overseas theaters of
operations and in a variety of assignments. He has commanded Aviation, Civil
Affairs, Infantry, Military Intelligence, Signal Corps and Special Forces units,
as well as two General Office Commands and also as the Director of Counter
Intelligence and Security, Headquarters Department of the Army. In addition,
General Jackson also served as Chief, Division of Probation Administrative
Office of the United States Court, Washington, D.C.


58





General
Jackson earned a B.A. and M.A. in Psychology at the University of Tulsa, and
performed other post-graduate work at the Illinois Institute of Technology and
at the University of Southern California. His military education includes the
basic and advanced Officers Course at the Signal and Military Intelligence
schools, advanced courses at the Civil Affairs and Infantry schools, as well as
coursework at the US Army Command and General Staff College and the US Army War
College.





William
J. Hotz





Since
2007, Mr. Hotz has been a consultant and advisor with DAC Consulting Inc., a
consulting firm owned by our chairman, David A. Christian, on national security,
military, and veterans’ issues. From 1997 to 2007, Mr. Hotz served as Agent in
Charge of an Inspector General’s office at a federal agency in Washington D.C.
From 1971 to 1997, Mr. Hotz served as a Special Agent and Supervisory Special
Agent of the U.S. Secret Service with responsibility for the physical protection
of the President and Vice President of the United States and their families, as
well as heads of state and foreign dignitaries, in the United States and
locations around the world. Mr. Hotz received his B.S. in business
administration from Villanova University in 1971.





(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 believe that all reports required under Section 16(a) of the Exchange Act
were made.





Code
of Ethics





We have
not adopted a code of ethics.





Audit
Committee Financial Expert





We do not
have an audit committee financial expert because the Company has been unable to
appoint such a qualified person during the period when the Company has been
restating its financial statements and becoming current with its financial
statements.





ITEM
11. EXECUTIVE COMPENSATION.





The
following table sets forth information regarding compensation paid to our
principal executive officer, principal financial officer, and our highest paid
executive officer, all of whose total annual salary and bonus for the years
ended December 31, 2008, and 2007.





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 ($)Jonathan
      Leinwand, CEO, Director
                              
                              
                              2008
                              
                              34,599
                              
                              
                              —
                              
                              55,000
                              
                              
                              —
                              
                              —
                              
                              
                              —
                              
                              48,205
                              
                              137,804Jonathan
      Leinwand, CEO, Director
                              
                              
                              2007
                              
                              46,153
                              
                              
                              —
                              
                              240,000
                              
                              
                              —
                              
                              —
                              
                              
                              —
                              
                              —
                              
                              286,153





59





OUTSTANDING
EQUITY AWARDS




The
following table sets forth information with respect to the outstanding equity
awards of our principal executive officers and principal financial officer
during 2008, and each person who served as an executive officer of the Company
as of December 31, 2008:





OptionAwards
                            
                            StockAwardsName
                            
                            Number
                              of
                              Securities
                              Underlying
                              Unexercised
                              Options(#)
                              Exercisable
                            
                            
                            Number
                              of
                              Securities
                              Underlying
                              Unexercised
                              Options(#)
                              Unexercisable
                            
                            
                            Equity
                              Incentive
                              PlanAwards:
                              Numberof
                              Securities
                              Underlying
                              Unexercised
                              Unearned
                              Options(#)
                            
                            
                            Option
                              Exercise
                              Price
                              ($)
                            
                            Option
                              Expiration
                              Date
                            
                            Number
                              of
                              Shares
                              orUnits
                              ofStock
                              That
                              Have
                              Not
                              Vested
                              (#)
                            
                            
                            Market
                              Valueof
                              Shares
                              or
                              Unitsof
                              Stock
                              That
                              Have
                              Not
                              Vested
                              ($)
                            
                            
                            Equity
                              Incentive
                              Plan
                              Awards:
                              Numberof
                              Unearned
                              Shares,
                              Unitsor
                              OtherRights
                              ThatHave
                              NotVested
                              (#)
                            
                            
                            Equity
                              Incentive
                              Plan
                              Awards:
                              Marketor
                              Payout
                              Valueof
                              Unearned
                              Shares,
                              Unitsor
                              OtherRights
                              ThatHave
                              NotVested
                              ($)Jonathan
      Leinwand
                            
                            
                            921,052
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            0.190
                            
                            May
      22, 2010
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —1,400,000
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            0.105
                            
                            October
      18, 2010
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —2,916,667
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            0.090
                            
                            January
      10, 2011
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —
                            
                            
                            
                            —




COMPENSATION
OF DIRECTORS




The
following table summarizes the compensation for our non-employee board of
directors for the fiscal years ended December 31, 2008 and
2007:





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)Przemyslaw
      Kostro, Chairman (2007)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    18,750
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    18,750Patrick
      Heyn (2007)
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Michael
      Castellano (2007
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Peter
      Khoury (2007)
                    
                    
                    103,332
                    
                    
                    
                    76,099
                    
                    
                    
                    278,968
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    458,399




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.


60


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


Common
Stock





As of
September 4, 2009, there were 226,070,599 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
                                  
                                  Amount and
                                    Beneficial
                                  
                                  Nature of
                                    Ownership
                                  
                                  Percentage
                                    of Class (1)Common
      Stock
                                  
                                  David
      A. Christian, CEO and Chairman
                                    101
      NE 3 rd
      Ave, Suite 1500,
                                    Fort
      Lauderdale, Florida 33301
                                  
                                  
                                  250,000
                                  
                                  Direct
                                  
                                  
                                  0.11
                                  %Common
      Stock
                                  
                                  Thomas
      Seifert, CFO
                                    101
      NE 3 rd
      Ave, Suite 1500,
                                    Fort
      Lauderdale, Florida 33301
                                  
                                  
                                  6,185,586
                                  
                                  Direct
                                    and
                                    Indirect
                                  
                                  
                                  2.74
                                  %Common
      Stock
                                  
                                  Wayne
      Jackson, Director
                                    101
      NE 3 rd
      Ave, Suite 1500,
                                    Fort
      Lauderdale, Florida 33301
                                  
                                  
                                  250,000
                                  
                                  Direct
                                  
                                  
                                  0.11
                                  %Common
      Stock
                                  
                                  William
      Hotz, Director
                                    101
      NE 3 rd
      Ave, Suite 1500,
                                    Fort
      Lauderdale, Florida 33301
                                  
                                  
                                  50,000
                                  
                                  Direct
                                  
                                  
                                  0.02
                                  %Total
      of all Officers and Directors as a Group
                                  
                                  
                                  6,735,586
                                  
                                  
                                  
                                  
                                  2.98
                                  %





(1) Based
on 226,070,599 shares issued and outstanding on September 4, 2009.




ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE





Certain
Relationships and Related Transactions





See Item
8, Notes 10 and 11 Common Stock Transactions and Stock Option, respectively, to
the Notes to Consolidated Financial Statements.





Director
Independence





Mr. Hotz
and General Jackson are independent as that term in defined under section
301 of the Sarbanes-Oxley Act of 2002.




ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES





AUDIT
FEES





The
following table summarizes the fees for Weinberg & Company, P.A.
services rendered to the Company during 2008 and 2007.




AmountType of Fee
                  
                  Fiscal
                    Year 2008
                  
                  
                  Fiscal
                    Year 2007Audit(1)
                  
                  $
                  299,260
                  
                  
                  $
                  50,858Audit
      Related(2)
                  
                  
                  —
                  
                  
                  
                  —Taxes
      (3)
                  
                  
                  —
                  
                  
                  
                  —All
      Other (4)
                  
                  
                  —
                  
                  
                  
                  —Total
                  
                  $
                  299,260
                  
                  
                  $
                  50,858


61


(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.




ITEM
15. EXHIBITS





Exhibit 31.1
            Certification
      of the Chief Executive Officer pursuant to Section 302 of theSarbanes-Oxley
      Act of 2002Exhibit 31.2
            Certification
      of the Chief Financial Officer pursuant to Section 302 of theSarbanes-Oxley
      Act of 2002





Exhibit 32.1
            Certification
      of the Chief Executive Officer pursuant to U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002Exhibit 32.2
            Certification
      of the Chief Financial Officer pursuant to U.S.C. Section 1350 as adopted
      pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002


62


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.





SANSWIRE
      CORP.By:
                  /s/ David A. ChristianName:
      David A. Christian,
                    Title:
      Chief Executive Officer and Chairman of the Boardof
      Directors (Principal Executive Officer)Dated
      September 22, 2009By:
                  /s/Thomas SeifertName:
      Thomas SeifertTitle:
      Chief Financial
Officer





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/ David Christian
                      
                      Chief
      Executive Officer and Chairman of the
                        Board
      of Directors
                      
                      September
      22, 2009David
      Christian
                      
                      Officer
      and Director/s/Maj. Gen.
      Wayne P. Jackson (USA-Ret.)
                      
                      Director
                      
                      September
      22, 2009Maj.
      Gen. Wayne P. Jackson (USA-Ret.)/s/William
      Hotz
                      
                      Director
                      
                      September
      22, 2009William
      Hotz