UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





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, 2009




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





SANSWIRE
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.)




17501 Biscayne Blvd, Suite
430, Aventura, Florida 33160


(Address
of Principal Executive Offices) (Zip Code)





Issuer’s
telephone number: (786) 288-0717





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 R No £





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 .  £











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, 2009:
$0.




As of
March 30, 2010, there were 267,040,586 shares of the issuer's common stock
issued and outstanding. Affiliates of the issuer own 7,435,586 shares of the
issuer's issued and outstanding common stock and the remaining 259,605,000
shares are held by non-affiliates. The aggregate market value of the shares held
by non-affiliates at March 30, 2010 was $12,461,040.




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 10% or
more of issuer’s common stock, both of record and beneficially.




2




TABLE
OF CONTENTS





PART
      IItem
      1. Business
            
            5Item
      1A. Risk Factors
            
            9Item
      1B. Unresolved Staff Comments
            
            12Item
      2. Properties
            
            12Item
      3. Legal Proceedings
            
            12Item
      4. Submission of Matter to a Vote of Security Holders
            
            14PART
      IIItem
      5. Market for Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            
            15Item
      6. Selected Financial Data
            
            18Item
      7. Management’s Discussion and Analysis of Financial Condition and Results
      of Operations
            
            19Item
      7a. Quantitative and Qualitative Disclosures about Market
    Risk
            
            23Item
      8. Financial Statements and Supporting Data
            
            24Item
      9. Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure
            
            51Item
      9a. Controls and Procedures
            
            51Item
      9b. Other Information
            
            53PART
      IIIItem
      10. Directors and Executive Officers and Control Persons
            
            54Item
      11. Executive Compensation
            
            55Item
      12. Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
            
            56Item
      13. Certain Relationships and Related Transactions, and Director
      Independence
            
            56Item
      14. Principal Accountant Fees and Services
            
            57Item
      15. Exhibits, Financial Statements Schedules
            
            58





3





PART I





Forward-Looking
Statements and Risk Factors





Certain
information included in this 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 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. 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. On May 3, 2009, the Board of
Directors approved the creation of a Series E Preferred Stock. The Company is
authorized to issue 10,000,000 shares of preferred stock. 860,000 shares of
Preferred Stock has been allocated into different series of issuance and the
remaining 9,140,000 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. On November 2, 2009, holders
of a majority of voting shares of the Company, Sanswire Corp., acted by written
consent in lieu of a special meeting of shareholders to an adopt amendment to
the articles of incorporation to increase the number of shares of common stock
which the Company is authorized to issue from 250,000,000 shares to 500,000,000
shares.





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 SEC filed a lawsuit in the United States District Court for the
Southern District of Florida against 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”). 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, and (ii) wide area network and local area network services provided
through its NCI Telecom, Inc. subsidiary.





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.





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.




6




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. The company is focused on the development and of
the STS-111 Lighter than air (LTA) Mid Altitude Long Endurance (MALE) Unmanned
Aerial Vehicle (UAV) platform for providing surveillance and reconnaissance
capabilities.





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;





·
            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.




7




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 transferred 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 is focused on developing and/or utilizing the
following:





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


(2)
            Access
      to Resources – Through contractual relationships with 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.


(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 the Stratellite 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.




8





Sources
and Availability of Hardware and Software





Equipment
for the Stratellite, STS-111, SkySat, 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 perspective
customers.





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 Department of
State 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.





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
March 31, 2010, we have 4 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 1A. 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.




9





We need
to raise $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.





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
$9,414,507 during fiscal 2009 and a net loss from continuing operations of
$4,598,076 during fiscal 2008.  We anticipate that our net loss will
increase for fiscal 2010.





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, 2009 and 2008 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.




10





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
March 31, 2010, we had approximately twenty two thousand (22,000) 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.





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.




11





ITEM
1B. UNRESOLVED STAFF COMMENTS





As a
smaller reporting company, the Company is not required to include the disclosure
in this Item 1B.





ITEM
2. PROPERTIES





Sanswire’s
corporate offices are now located at 17501 Biscayne Blvd, Aventura, FL 33160.
Base rent is $2,900 per month. The lease is for a period of 36 months and
terminates on June 30, 2012.   We believe our facilities are
adequate for our current and near-term needs.  Sanswire’s corporate
offices were previously located at 101 NE 3 rd Ave.,
Suite 1500, Fort Lauderdale, FL 33301 which was vacated on December 31, 2009 as
the lease expired.




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.





On May 2,
2008, the SEC filed a lawsuit in the United States District Court for the
Southern District of Florida against 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.




12





Joseph
Monterosso





In
October 2007, the Company filed a lawsuit in the Circuit Court for Broward
County, Florida against Joseph J. Monterosso alleging Libel, Slander and
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. This liability was previously recorded in the Company’s
accounts payable as incurred.





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.





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.




13





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.





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.





Tsunami Communications v.
GlobeTel





On March
3, 2006, Civil Action File No. 06A-02368-5 was filed in Superior Court for
Gwinnett County Georgia against the Company.  A purported shareholder
of a company from whom GlobeTel purchased assets is seeking to receive shares of
our common stock that they believe they are entitled to as their pro-rata share
of shares paid for the asset. We have asserted affirmative defenses and the
trial of this matter was held in November 2009. We are waiting for a ruling from
the Court.





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





On November 2, 2009, holders of a majority of
voting shares of the Company, Sanswire Corp., acted by written consent in lieu
of a special meeting of shareholders to an adopt amendment to the articles of
incorporation to increase the number of shares of common stock which the Company
is authorized to issue from 250,000,000 shares to 500,000,000
shares.





14




PART II




ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.





(a)
MARKET PRICE





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 2009 and 2008 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
      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
            
            
            $
            0.03CALENDAR
      2009Quarter
      Ended March 31
            
            $
            0.06
            
            
            $
            0.02Quarter
      Ended June 30
            
            $
            0.19
            
            
            $
            0.05Quarter
      Ended September 30
            
            $
            0.15
            
            
            $
            0.11Quarter
      Ended December 31
            
            $
            0.15
            
            
            $
            0.05





(b)
HOLDERS





As of the
date of this report, there were approximately 22,000 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, 2009, under which our common stock is
authorized for issuance.





Number of Securities to be
              issued
              upon exercise of outstanding
              options, warrants and rights
              (a)
            
            Weighted average
              exercise price of
              outstanding options,
              warrants and rights
              (b)
            
            Number of securities
              remaining available for
              future issuance under
              equity compensation plans
              (excluding securities
              reflected in column (a))
              (c)Equity
      compensation plans approved by security holders
            
            38,042,499
            
            $
            0.298
            
            —Equity
      compensation plans not approved by security holders
            
            —
            
            
            —
            
            —Total
            
            38,042,499
            
            $
            0.298
            
            —




15


Recent Sales of Unregistered Securities; Use of
Proceeds





In
February 2009, the Company entered into subscription agreement with 3 accredited
investors. The Company sold $140,000 of the Company’s 7% Convertible Debentures,
3-year warrants to purchase 666,667 of the Company’s common stock at an exercise
price of $0.21, and three-year warrants to purchase 444,444 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.





On
January 5, February 12, and April 23, 2009, the Company issued a total of
1,096,407 shares of common stock to Mitchell Siegel for the settlement of
debts.





During
the 1st Quarter
2009, the Company issued 1,750,000 shares of common stock to 2 parties for the
settlement of debts.





During
the 2nd Quarter
2009, the Company issued 123,939 shares of common stock to a vendor for the
settlement of debts.





During
the 2nd Quarter
2009, the Company issued 10,785,000 shares of common stock to 5 parties for
consulting services.





During
the 3rd Quarter
2009, the Company issued 833,333 shares of common stock to a party for
consulting services.





During
the 4th Quarter 2009, the Company issued 6,316,666 shares of common stock to 3
parties for consulting services.





On June
30, 2009, the Company issued 75,000 shares of common stock to a former employee
for exercised options.





During
the 1st Quarter
2009, the Company issued 1,238,096 shares of common stock to 3 noteholders for
converted notes payable and accrued interest.





During
the 2nd Quarter
2009, the Company issued 2,964,737 shares of common stock to 2 noteholders for
converted notes payable and accrued interest.





During
the 3rd Quarter
2009, the Company issued 21,480,379 shares of common stock to 7 noteholders for
converted notes payable and accrued interest.





On June 1
and December 29, 2009, the Company issued a total of 2,500,000 shares of common
stock and 2,500,000 options exercisable at $.14 and $.073 per share to the
Company’s CFO for signing and performance bonus’ related to an employment
agreement.





On May 29
and December 29, 2009, the Company issued a total of 9,000,000 shares of common
stock to the Company’s previous CEO for a performance bonus related to an
employment agreement.





On May 1,
2009, the Company issued 1,000,000 shares of common stock to an employee for a
performance bonus related to an employment agreement.





During
the 1st Quarter
2009, the Company issued 952,381 shares of common stock to an accredited
investor for stock for cash.




16





During
the 2nd Quarter
2009, the Company issued 8,752,378 shares of common stock to 16 accredited
investors for stock for cash. They also received 3-year warrants to purchase
3,138,094 of the Company’s common stock at an exercise price of $0.21, and
three-year warrants to purchase 3,138,094 shares issuable upon conversion of the
debenture shares of the Company’s common stock at an exercise price of
$0.315.





During
the 3rd Quarter
2009, the Company issued 3,185,237 shares of common stock to 16 accredited
investors for stock for cash. They also received 3-year warrants to purchase
1,592,618 of the Company’s common stock at an exercise price of $0.21, and
three-year warrants to purchase 1,783,095 of the Company’s common stock at an
exercise price of $0.315.





During
the 4th Quarter
2009, the Company issued 5,233,018 shares of common stock to 11 accredited
investors for stock for cash. They also received 3-year warrants to purchase
2,854,603 of the Company’s common stock at an exercise price of $0.21, and
three-year warrants to purchase 2,854,603 of the Company’s common stock at an
exercise price of $0.315.





On May 1
and December 29, 2009, the Company issued a total of 750,000 shares of common
stock and 250,000 options exercisable at $.073 per share to Gen. Wayne Jackson
for stock for director’s fees.





On May 1,
2009, the Company issued 250,000 shares of common stock to David Christian for
stock for director’s fees.





On July
31, 2009, the Company issued 50,000 shares of common stock to William Hotz for
stock for director’s fees.





On April
10, 2009, the Company issued 5,305,556 options exercisable at $.08 and $.09 per
share to its non-executive employees.





On May 6,
2009, the Company issued 8,311,116 options exercisable at $.045 per share to its
non-executive employees.





On
December 31, 2009, the Company issued 4,500,000 options exercisable at $.073 per
share to its non-executive employees.





On May 3,
2009, the Board of Directors approved the creation of a Series E Preferred
Stock.  The terms of the Series E Preferred Stock were subsequently
amended on May 14, 2009. The Series E Preferred Stock, as amended, does not pay
dividends but each holder of Series E Preferred Stock shall be entitled to 21.5
votes for each share of common stock that the Series E Preferred Stock shall be
convertible into.  The Series E Preferred Stock, as amended, has a
conversion price of $0.105 and a stated value of $6.26.  Each share of
Series E Preferred Stock is convertible, at the option of the holder, into such
number of shares of common stock of the Company as determined by dividing the
Stated Value by the Conversion Price.  The Series E Preferred Stock
has no liquidation preference.  The Company also cancelled all the
authorized shares associated with the Series A, B, C, and D of Preferred
Stock.





On May 5,
2009, the Company entered into a conversion agreement with Rocky Mountain
Advisors Corp., a consultant to the Company (“RMAC”), pursuant to which the
Company agreed to convert $185,387 in consulting fees owed to RMAC for
consulting services performed from October 19, 2007 to April 9, 2009 into
29,615 shares of Series E Preferred Stock.





On May 5,
2009, the Company entered into a conversion agreement with Daniyel Erdberg, the
Company’s Vice President of Operations, pursuant to which the Company agreed to
convert $121,487.99 in outstanding wages owed to Mr. Erdberg from July 1, 2008
to April 3, 2009 into 19,407 shares of Series E Preferred Stock.





On May 5,
2009, the Company entered into a conversion agreement with Jonathan Leinwand,
the former Chief Executive Officer, pursuant to which the Company agreed to
convert $ 319,118.85 in outstanding wages owed to Mr. Leinwand from October 17,
2007 to April 3, 2009 into 50,978 shares of Series E Preferred
Stock.





During
2010, the Company issued an additional 2,027,160 shares of common stock to 4
accredited investors for stock for cash. They also received 3-year warrants to
purchase 1,013,580 of the Company’s common stock at an exercise price of $0.21,
and three-year warrants to purchase 1,013,580 of the Company’s common stock at
an exercise price of $0.315.




17





The above
issuances were made in reliance upon exemptions from registration pursuant to
Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under
Regulation D thereunder.   The holders of the above securities are
accredited investors as defined in Rule 501 of Regulation D promulgated under
the Securities Act of 1933.





Purchases
of Equity Securities by the Issuer and Affiliated Purchasers





During
the year ended December 31, 2009, the Company and the Affiliated Purchasers (as
defined in Rule 10b-18(a)(3)) did not engage in any repurchases of the Company
securities.





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, 2009 and 2008, and the selected balance sheet data as of
December 31, 2009 and 2008, 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 31,2009
            
            
            2008(Restated)Statement
      of Operations Data:Revenue
            
            $
            —
            
            
            $
            —Operating
      expensesGeneral
      and administrative expenses
            
            
            451,775
            
            
            
            476,827Consulting
      fees
            
            
            1,771,372
            
            
            
            1,415,235Payroll
      and related taxes
            
            
            554,065
            
            
            
            887,283Officers’
      and directors’ compensation
            
            
            3,744,070
            
            
            
            435,000Loss
      from operations
            
            
            (7,570,707
            )
            
            
            (3,214,345
            )(Loss)
      gain on extinguishment of debt
            
            
            —
            
            
            
            (1,096,650
            )Extinguishment
      of derivative liability
            
            
            629,563
            
            
            
            465,173Change
      in fair value of derivative liability
            
            
            (1,287,984
            )
            
            
            375,166Interest
      expense, net
            
            
            (1,185,379
            )
            
            
            (1,127,420
            )Loss
      from continuing operations
            
            
            (9,414,507
            )
            
            
            (4,598,076
            )Loss/Gain
      from discontinued operations
            
            
            —
            
            
            
            (197
            )Net
      loss
            
            $
            (9,414,507
            )
            
            $
            (4,598,273
            )Net
      loss per shareBasic
      and diluted
            
            $
            (0.04
            )
            
            $
            (0.03
            )





As
      of December 31,2009
            
            2008(Restated)Balance
      Sheet Data:Cash
      and cash equivalents
            
            $
            12
            
            
            $
            4,809Inventories
            
            
            1,545,490Investment
      in joint venture
            
            
            —
            
            
            
            3,229,000Intangible
      assets, net
            
            
            2,179,574
            
            
            
            —Total
      assets
            
            
            3,742,632
            
            
            
            3,240,215Total
      liabilities
            
            
            17,716,981
            
            
            
            18,692,369Stockholders’
      deficit
            
            
            (13,974,349
            )
            
            
            (15,452,154
            )





18




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





GENERAL





Twelve
months ended December 31, 2009 (“Fiscal 2009” or “2009” or “the current year”)
compared to twelve months ended December 31, 2008 (“Fiscal 2008” or “2008” or
“the prior year”).





RESULTS
OF OPERATIONS





REVENUES.
During fiscal 2009 and 2008, we had no gross sales.





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 2009 were $7,570,707 compared to fiscal year 2008 operating expenses
of $3,214,345 an increase of $4,356,362 or 136%.





Included
in our operating results are employee payroll and related taxes for fiscal 2009
of $554,065 compared to $887,283 in 2008, a decrease of $333,218 or 37.6%. This
decrease was due to our continued reduction of our operations, facilities and
workforce during 2009.





The
overall increase is primarily due to an increase in officers’ and directors’
compensation to $3,744,070 (including non-cash compensation), from $435,000 in
the prior year and amortization expenses of $1,049,425 in 2009 due to the
amortization of the intangible asset.





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.





We
incurred $1,771,372 of consulting fees, an increase of $356,137 or 25.1% for
2009 compared to $1,415,235 in 2008. This increase is primarily related to
contracts for services required to develop and expand our geographical and
product markets.




During
2009, we incurred $451,775 of general and administrative expenses as compared to
$476,827 during 2008. The $25,052 decrease was due to a continued reduction of
expenses related to our operations, facilities and workforce during
2009.





LOSS FROM
OPERATIONS. We had an operating loss of ($7,570,707) for fiscal year 2009 as
compared to an operating loss of ($3,214,345) for fiscal 2008, primarily due to
increased operating expenses as described above, including lower operating costs
and reductions of our various programs.





OTHER
INCOME (EXPENSE). We had net other expenses totaling ($1,843,800) during fiscal
year 2009 compared to ($1,383,731) during fiscal 2008. This variance was due
primarily to the non cash charges related to derivatives of ($658,421) during
fiscal year 2009 compared to income of $840,339 for fiscal year
2008.  Also included are the 2008 non cash charges related to the
modifications of our convertible debentures of ($1,096,650) compared to a no
activity for 2009.





Interest
expense for fiscal year 2009 was $1,185,379 compared to $1,127,420 for the prior
year. Interest expense increase was primarily due to a financing charges
associated with the Company’s convertible debentures.




19





LOSS FROM
DISCONTINUED OPERATIONS. We had no activity during 2009 compared to a loss of
$197 related to our discontinued operations during 2008. See note 2 in the
financial statements for more information regarding the discontinued
operations.





NET LOSS.
We had a net loss of ($9,414,507) in fiscal year 2009 compared to a net loss of
($4,598,273) in fiscal 2008. The increase in net loss is primarily attributable
to the increase in the operating expenses as discussed above.





LIQUIDITY
AND CAPITAL RESOURCES





ASSETS.
At December 31, 2009, we had total assets of $3,742,632 compared to total assets
of $3,240,215 as of December 31, 2008.





The
current assets at December 31, 2009, were $1,551,908 compared to $11,215 at
December 31, 2008. As of December 31, 2009, we had $12 of cash and cash
equivalents compared to $4,809 at December 31, 2008.





The
Company had $11,150 of deposits as of December 31, 2009 compared to no deposits
as of December 31, 2008.  The $11,150 relates to payments associated
with the Company’s new office space lease.





We had
$6,406 of current assets from discontinued operations as of December 31, 2009
and 2008. See note 2 in the financial statements for more information regarding
the discontinued operations.





LIABILITIES.
At December 31, 2009, we had total liabilities of $17,716,981 compared to total
liabilities of $18,692,369 as of December 31, 2008.





The
current liabilities at December 31, 2009 were $17,716,981 compared to
$18,692,369 at December 31, 2008, a decrease of $975,388. The decrease is
principally due to the decrease in notes payable of $1,873,014 (see note 7 of
the financial statements), the increase in accounts payable of $417,390, and the
decrease in accrued expenses of $178,185 and the increase in derivative
liabilities of $658,421.




CASH
FLOWS. Our cash used in operating activities was $1,990,590 compared to $909,608
for the prior year. The increase was primarily due to the increased level of
operations and operating activities and changes in our current assets and
liabilities.





During
2009, there was $11,150 used in investing activities which was a deposit on a
new office lease compared to $385,000 in 2008 used in investing activities which
was a payment on the Sanswire-Tao joint venture.




Net cash
provided by financing activities was $1,996,943 in 2009 principally from the
sales of the Company’s common stock, as compared to $1,267,139 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 $9,414,507 and a negative cash flow from operations of $1,990,590 for the
year ended December 31, 2009, and had a working capital deficiency of
$16,165,073 and a stockholders’ deficit of $13,974,349 at December 31,
2009.  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 to develop and implement a successful business plan. The Company has a
business plan which, if successful, will allow the Company to sell unmanned
aerial systems for a profit, which in turn will reduce the dependency of raising
additional funds from outside sources.  The financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern.





Throughout
2009 and continuing into 2010, 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 not have sufficient funds to continue its 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.




20





During
2010, the Company has subsequently raised approximately $132,000 from investors;
however this is not adequate funding to cover the estimated working capital
deficit of approximately $16.2 million or the net loss for 2009 of approximately
$9.4 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, 2009 we had a net loss of ($9,414,507) compared to a 2008 net loss of
($4,598,273). Consequently, there is an accumulated deficit of ($134,717,089) at
December 31, 2009 compared to ($125,302,582) at December 31, 2008.





CRITICAL
ACCOUNTING POLICIES





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 accounts for these penalties when it is probable that a
penalty will be incurred. At December 31, 2009, the Company has no registration
rights agreement requiring penalties to be recorded.





REVENUE
RECOGNITION





The
Company recognized no revenue in the years 2009 and 2008 since it is developing
its unmanned aerial systems.





STOCK-BASED
COMPENSATION





We
account for stock-based compensation under the provisions of ASC 718-10 and ASC
505-50 “Stock Compensation and Equity Based Payments to Non-Employees.” ASC 718
requires companies to estimate the fair value of share-based payment awards on
the date of grant using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the
requisite service periods in our Consolidated Statement of
Operations.





We are
using the Black-Scholes option-pricing model as its method of valuation for
share-based awards.  Our determination of fair value of share-based
payment awards on the date of grant using an option-pricing model is affected by
our 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 certain other
market variables such as the risk free interest rate.




Stock-based
compensation expense recognized under ASC 718 for the years ended
December 31, 2009 and 2008 were $3,744,000 and $435,000,
respectively.





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.




21





RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS




In April
2009, the Financial Accounting Standards Board (“FASB”) issued a staff position
that amends and clarifies the new business combination standard, to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. The Company does not expect the
adoption of this staff position to have a material impact on its financial
condition and results of operations.





In April
2009, the FASB issued a staff position requiring disclosures about fair value of
financial instruments for interim reporting periods as well as in annual
financial statements. This staff position also requires those disclosures in
summarized financial information at interim reporting periods. The Company
adopted this staff position in its second quarter ended June 30, 2009. The
adoption did not have a material impact on the Company’s financial position,
results of operations or cash flows.





In April
2009, the FASB issued a staff position which amends the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. The
Company adopted this staff position in its second quarter ended June 30, 2009.
The adoption did not have a material impact on the Company’s financial position,
results of operations or cash flows.





In April
2009, the FASB issued a staff position which provides additional guidance for
estimating fair value in accordance with the new business combination standard
when the volume and level of activity for the asset or liability have
significantly decreased. This staff position also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The
Company does not expect the adoption of this staff position to have a material
impact on its financial condition and results of operations.





In
May 2009, the FASB issued new guidance on subsequent events which
established general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. It requires the disclosure of the date through which
an entity has evaluated subsequent events and the basis for that date—that is,
whether that date represents the date the financial statements were issued or
were available to be issued. The Company adopted the guidance in the quarter
ended June 30, 2009 and the statement did not have a material impact on our
consolidated results of operation and financial
position.





In June
2009, the FASB issued the standard that established the FASB Accounting
Standards Codification (the “Codification”).  The Codification will
become the source of authoritative United States generally accepted accounting
principles (“GAAP”) recognized by the FASB to be applied by nongovernmental
entities. All other non-grandfathered, non-SEC accounting literature not
included in the Codification will become non-authoritative.  The
Company adopted the standard in the quarter ended September 30,
2009.  Other than the manner in which accounting guidance is
referenced in its financial reporting, the adoption of the Codification had no
impact on the Company’s financial position, results of operations or cash
flows.




In August
2009, the FASB issued guidance which provides clarification for the fair value
measurement of liabilities in circumstances in which a quoted price in an active
market for an identical liability is not available. This guidance is effective
for interim periods beginning after August 28, 2009. The Company adopted
this guidance in the quarter ended September 30, 2009.  The adoption
did not have a material impact on the Company’s financial position, results of
operations or cash flows.




In
October 2009, the FASB issued amendments to the accounting and disclosure for
revenue recognition. These amendments, effective for fiscal years beginning on
or after June 15, 2010 (early adoption is permitted), modify the criteria for
recognizing revenue in multiple element arrangements and the scope of what
constitutes a non-software deliverable. The Company does not expect the adoption
of this staff position to have a material impact on its financial condition and
results of operations.





22





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





As a
smaller reporting company, the Company is not required to include the disclosure
under this Item 7A.





23









ITEM
8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





Report
of Independent Registered Public Accounting Firm





Board of
Directors and Stockholders of


Sanswire
Corp. and Subsidiaries:





We have
audited the accompanying consolidated balance sheet of Sanswire Corp. and
subsidiaries (the “Company”), as of December 31, 2009 and the related
consolidated statements of operations, cash flows and stockholders’ deficit for
the year then ended.  These financial statements are the
responsibility of the Company’s management.  Our responsibility is to
express an opinion on these financial statements based on our
audit.





We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting.  Accordingly, we express no
such opinion.  An audit also includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Sanswire Corp. and
subsidiaries as of December 31, 2009 and the consolidated results of their of
operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.





The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As shown in the financial
statements, the Company has experiences significant losses and negative
cash flows, resulting in decreased capital and increased accumulated
deficits. These conditions raise substantial doubt about its ability to
continue as a going concern. In addition, 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 accompanying consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.  Management’s plans regarding those matters are
described in Note 10.





/s/ Rosen
Seymour Shapss Martin & Company LLP


CERTIFIED
PUBLIC ACCOUNTANTS





New York,
New York


March 31,
2010





24




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 sheet of Sanswire Corp. (formerly
known as GlobeTel Communications Corp.) and Subsidiaries (the “Company”), as of
December 31, 2008 (as restated) and the related consolidated statements of
operations, stockholders’ deficit, and cash flows for the year 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 audit.





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





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has experienced net losses and
negative cash flows from operations and expects such losses to continue. These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. Management’s plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.





As
described in Note 4 “Restatement of Financial Statements” to the financial
statements, the Company has restated its 2008 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 Note 4 and 7, as to which the date is September 8,
2009




25


SANSWIRE
CORP. AND SUBSIDIARIES


CONSOLIDATED
BALANCE SHEETS




DECEMBER
      31,
              2009
            
            
            DECEMBER
      31,
              2008(as
      Restated)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
            
            $
            12
            
            
            $
            4,809Inventories
            
            
            1,545,490
            
            
            
            —Current
      assets from discontinued operations
            
            
            6,406
            
            
            
            6,406TOTAL
      CURRENT ASSETS
            
            
            1,551,908
            
            
            
            11,215Deposits
            
            
            11,150
            
            
            
            —Intangible
      assets, net of accumulated amortization of $1,049,425
            
            
            2,179,574Investment
      in joint venture
            
            
            —
            
            
            
            3,229,000TOTAL
      NONCURRENT ASSETS
            
            
            2,190,724
            
            
            
            3,229,000TOTAL
      ASSETS
            
            $
            3,742,632
            
            
            $
            3,240,215LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCURRENT
      LIABILITIESAccounts
      payable (including $396,625 and $0 due to joint venture partner at
      December 31, 2009 and 2008)
            
            $
            4,220,167
            
            
            $
            3,802,777Notes
      and convertible notes payable, net of discount of $0 and
      $134,423
            
            
            7,391,718
            
            
            
            9,264,732Accrued
      expenses and other liabilities (including $2,185,000 due to joint venture
      partner at December 31, 2009 and 2008)
            
            
            3,311,025
            
            
            
            3,489,210Derivative
      liabilities
            
            
            1,406,665
            
            
            
            748,244Current
      liabilities from discontinued operations
            
            
            1,387,406
            
            
            
            1,387,406TOTAL
      LIABILITIES
            
            
            17,716,981
            
            
            
            18,692,369COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS’
      DEFICITCommon
      stock, $.00001 par value, 500,000,000 shares authorized;263,040,586
      and 184,704,015 shares issued and outstanding
            
            
            2,631
            
            
            
            1,848Additional
      paid-in capital
            
            
            120,114,115
            
            
            
            109,848,580Series
      E Preferred stock, $.001 par value, 100,000 shares
    authorized;100,000
      shares issued and outstanding:
            
            
            100
            
            
            
            —Additional
      paid-in capital - Series E Preferred stock
            
            
            625,894
            
            
            
            —Accumulated
      deficit
            
            
            (134,717,089
            )
            
            
            (125,302,582
            )TOTAL
      STOCKHOLDERS’ DEFICIT
            
            
            (13,974,349
            )
            
            
            (15,452,154
            )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
            
            $
            3,742,632
            
            
            $
            3,240,215


See
accompanying notes to consolidated financial statements
  26





SANSWIRE
CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR THE YEARS ENDED DECEMBER
31,





2009
            
            
            2008(as
      Restated)REVENUES
            
            $
            —
            
            
            $
            —EXPENSESPayroll
      and related taxes
            
            
            554,065
            
            
            
            887,283Consulting
      fees
            
            
            1,771,372
            
            
            
            1,415,235Officers’
      and directors’ stock based compensation
            
            
            3,744,070
            
            
            
            435,000Amortization
            
            
            1,049,425
            
            
            
            —General
      and administrative
            
            
            451,775
            
            
            
            476,827TOTAL
      EXPENSES
            
            
            7,570,707
            
            
            
            3,214,345LOSS
      FROM OPERATIONS
            
            
            (7,570,707
            )
            
            
            (3,214,345
            )OTHER
      INCOME (EXPENSE)Loss
      on extinguishment of debt
            
            
            —
            
            
            
            (1,096,650
            )Extinguishment
      of derivative liabilities
            
            
            629,563
            
            
            
            465,173Change
      in fair value of derivative liabilities
            
            
            (1,287,984
            )
            
            
            375,166Interest
      expense, net
            
            
            (1,185,379
            )
            
            
            (1,127,420
            )NET
      OTHER EXPENSE
            
            
            (1,843,800
            )
            
            
            (1,383,731
            )LOSS
      FROM CONTINUING OPERATIONS
            
            
            (9,414,507
            )
            
            
            (4,598,076
            )LOSS
      FROM DISCONTINUED OPERATIONS
            
            
            —
            
            
            
            (197
            )NET
      LOSS
            
            $
            (9,414,507
            )
            
            $
            (4,598,273
            )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBASIC
      and DILUTED
            
            
            216,936,864
            
            
            
            151,534,774LOSS
      PER SHARE FROM CONTINUING OPERATIONSBASIC
      and DILUTED
            
            $
            (
      0.04
            )
            
            $
            (
      0.03
            )LOSS
      PER SHARE FROM DISCONTINUED OPERATIONSBASIC
      and DILUTED
            
            
            —
            
            
            $
            (
      0.00
            )NET
      LOSS PER SHAREBASIC
      and DILUTED
            
            $
            (
      0.04
            )
            
            $
            (
      0.03
            )




See
accompanying notes to consolidated financial statements





27


SANSWIRE
CORP. AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (as Restated)





COMMON
      STOCKADDITIONALPAID-INDescription
            
            SHARES
            
            
            AMOUNT
            
            
            CAPITALBALANCE,
      DECEMBER 31, 2007 (as Restated)
            
            
            129,756,897
            
            
            $
            1,299
            
            
            $
            105,889,705Shares
      issued for conversion of notes
            
            
            27,265,195
            
            
            
            272
            
            
            
            1,788,566Shares
      issued for services
            
            
            12,269,444
            
            
            
            123
            
            
            
            712,378Shares
      issued for settlement of debt
            
            
            2,700,701
            
            
            
            27
            
            
            
            99,647Shares
      issued for accrued expenses
            
            
            6,831,778
            
            
            
            68
            
            
            
            367,852Shares
      issued for interest
            
            
            3,200,000
            
            
            
            32
            
            
            
            189,368Shares
      issued for joint venture
            
            
            2,680,000
            
            
            
            27
            
            
            
            267,973Options
      issued for executive compensation
            
            
            —
            
            
            
            —
            
            
            
            244,831Fair
      value of warrants issued with convertible notes
            
            
            —
            
            
            
            —
            
            
            
            288,260Net
      lossBALANCE,
      DECEMBER 31, 2008 (Restated)
            
            
            184,704,015
            
            
            $
            1,848
            
            
            $
            109,848,580Shares
      issued for cash
            
            
            18,123,014
            
            
            
            181
            
            
            
            1,882,173Shares
      issued for conversion of notes
            
            
            25,683,212
            
            
            
            257
            
            
            
            2,702,942Shares
      issued for settlement of debt
            
            
            2,720,346
            
            
            
            27
            
            
            
            131,753Shares
      issued for services
            
            
            31,484,999
            
            
            
            314
            
            
            
            2,933,686Shares
      issued for options exercised
            
            
            75,000
            
            
            
            1
            
            
            
            (1
            )Shares
      issued for interest
            
            
            250,000
            
            
            
            3
            
            
            
            9,497Fair
      value of vested options issued for officers’ and directors’
      compensation
            
            
            —
            
            
            
            —
            
            
            
            2,134,120Warrants
      issued with convertible notes
            
            
            —
            
            
            
            —
            
            
            
            28,060Modification
      of warrants
            
            
            —
            
            
            
            —
            
            
            
            443,305Preferred
      Series E shares issued for accrued expenses
            
            
            —
            
            
            
            —
            
            
            
            —Preferred
      Series E shares issued for accounts payable
            
            
            —
            
            
            
            —
            
            
            
            —Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —BALANCE,
      DECEMBER 31, 2009
            
            
            263,040,586
            
            
            $
            2,631
            
            
            $
            120,114,115




(continued)





See
accompanying notes to consolidated financial statements





28


SANSWIRE
CORP.  AND SUBSIDIARIES (continued)


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT


FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (as Restated)




SERIES
      E PREFERRED STOCKADDITIONAL
            
            
            
            
            
            
            
            
            TOTALPAID-IN
            
            
            
            
            
            ACCUMULATED
            
            
            STOCKHOLDERS’Description
            
            SHARES
            
            
            AMOUNT
            
            
            CAPITAL
            
            
            DEFICIT
            
            
            DEFICITBALANCE,
      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(Restated)
            
            
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            (125,302,582
            )
            
            $
            (15,452,154
            )Shares
      issued for cash
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,882,354Shares
      issued for conversion of notes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,703,199Shares
      issued for settlement of debt
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            131,780Shares
      issued for services
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,934,000Shares
      issued for options exercised
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Shares
      issued for interest
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            9,500Fair
      value of vested options issued for officers’ and directors’
      compensation
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,134,120Warrants
      issued with convertible notes
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            28,060Modification
      of warrants
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            443,305Preferred
      Series E shares issued for accrued expenses
            
            
            70,385
            
            
            
            70
            
            
            
            440,537
            
            
            
            —
            
            
            
            440,607Preferred
      Series E shares issued for accounts payable
            
            
            29,615
            
            
            
            30
            
            
            
            185,357
            
            
            
            —
            
            
            
            185,387Net
      loss
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (9,414,507
            )
            
            
            (9,414,507
            )BALANCE,
      DECEMBER 31, 2009
            
            
            100,000
            
            
            $
            100
            
            
            $
            625,894
            
            
            $
            (134,717,089
            )
            
            $
            (13,974,349
            )




See
accompanying notes to consolidated financial statements




29


SANSWIRE
CORP.  AND SUBSIDIARIES


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31,




2009
            
            
            2008(Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
            
            $
            (9,414,507
            )
            
            $
            (4,598,273
            )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Amortization
      of debt discount
            
            
            176,465
            
            
            
            314,549Amortization
      of intangible asset
            
            
            1,049,425
            
            
            
            —Loss
      on extinguishment of debt
            
            
            —
            
            
            
            1,096,650Fair
      value of stock based compensation
            
            
            3,102,725
            
            
            
            712,501Fair
      value of vested options
            
            
            2,134,120
            
            
            
            244,831Change
      in fair value of derivative liabilities
            
            
            (629,563
            )
            
            
            (375,166
            )Extinguishment
      of derivative liabilities
            
            
            1,287,984
            
            
            
            (465,173
            )Fair
      value of modification of warrants
            
            
            443,305
            
            
            
            —Accrued
      interest expense on convertible notes payable
            
            
            482,966
            
            
            
            569,590Common
      stock exchanged for interest and financing costs
            
            
            —
            
            
            
            227,081Change
      in operating assets and liabilities:Inventories
            
            
            (1,545,490
            )
            
            
            —Assets
      from discontinued operations
            
            
            —
            
            
            
            12,272Accounts
      payable
            
            
            615,808
            
            
            
            746,729Accrued
      expenses and other liabilities
            
            
            306,172
            
            
            
            604,776Liabilities
      from discontinued operations
            
            
            —
            
            
            
            25NET
      CASH USED IN OPERATING ACTIVITIES
            
            
            (1,990,590
            )
            
            
            (909,608
            )CASH
      FLOWS FROM INVESTING ACTIVITIESPayment
      on joint venture
            
            
            —
            
            
            
            (385,000
            )Deposits
            
            
            (11,150
            )
            
            
            —Investing
      activities from discontinued operations
            
            
            —
            
            
            
            —NET
      CASH USED IN INVESTING ACTIVITIES
            
            
            (11,150
            )
            
            
            (385,000
            )CASH
      FLOWS FROM FINANCING ACTIVITIESIssuance
      of common stock – exercises of warrants
            
            
            —
            
            
            
            —Payments
      on notes payable
            
            
            (25,411
            )
            
            
            (25,139
            )Proceeds
      from notes and loans payable
            
            
            140,000
            
            
            
            1,292,278Proceeds
      from sale of common stock
            
            
            1,882,354
            
            
            
            —NET
      CASH PROVIDED BY FINANCING ACTIVITIES
            
            
            1,996,943
            
            
            
            1,267,139NET
      CHANGE IN CASH AND EQUIVALENTS
            
            
            (4,797
            )
            
            
            (27,469
            )CASH
      AND EQUIVALENTS – BEGINNING OF PERIOD
            
            
            4,809
            
            
            
            32,278CASH
      AND EQUIVALENTS – END OF PERIOD
            
            $
            12
            
            
            $
            4,809SUPPLEMENTAL
      DISCLOSURESCash
      paid during the period for:Interest
            
            $
            2,903
            
            
            $
            16,200NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Shares
      issued for joint venture
            
            
            —
            
            
            
            268,000Common
      stock for accrued expenses
            
            
            43,750
            
            
            
            367,920Common
      stock for accounts payable
            
            
            13,031
            
            
            
            99,674Deposit
      applied to accrued expenses
            
            
            —
            
            
            
            659,000Accrued
      expense for joint venture
            
            
            —
            
            
            
            2,844,000Conversion
      of notes payable to common stock
            
            
            2,618,973
            
            
            
            1,788,838Non-cash
      equity-warrant valuation and intrinsic value of beneficial conversion
      associated with convertible notes
            
            
            28,060
            
            
            
            288,260Preferred
      stock for accrued expenses
            
            
            440,607
            
            
            
            —Preferred
      stock for accounts payable
            
            
            185,387
            
            
            
            —




See
accompanying notes to consolidated financial statements





30


SANSWIRE
CORP.  AND SUBSIDIARIES


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


YEARS
ENDED DECEMBER 31, 2009 AND 2008





NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES





NATURE OF
OPERATIONS





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 surveillance sensor suites and advanced
seamless wireless broadband capabilities 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.  The company is focused on the development
and construction of the STS-111 Lighter than air (LTA) Mid Altitude Long
Endurance (MALE) Unmanned Aerial Vehicle (UAV) platform for providing
survelliance and reconnaissance capabilities.





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. 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 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.





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.





On
November 2, 2009, holders of a majority of voting shares of the Company,
Sanswire Corp., acted by written consent in lieu of a special meeting of
shareholders to an adopt amendment to the articles of incorporation to increase
the number of shares of common stock which the Company is authorized to issue
from 250,000,000 shares to 500,000,000 shares.





On May 3,
2009, the Board of Directors approved the creation of a Series E Preferred
Stock. The Company is authorized to issue 10,000,000 shares of preferred stock.
As of December 31, 2009, 100,000 shares of preferred stock was issued and
outstanding. The rights, preferences, and provisions of the remaining authorized
shares would be determined, at the discretion of the Board of Directors, at the
time of issuance.





BASIS OF
PRESENTATION





The
consolidated financial statements of the Company include the accounts of its
subsidiaries. The consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. The consolidated financial statements presented reflect entries
necessary for the fair presentation of the Consolidated Statements of Operations
for the years ended December 31, 2009 and 2008, Consolidated Balance Sheets
as of December 31, 2009 and 2008 and Consolidated Statements of Cash Flows
for the years ended December 31, 2009 and 2008. All entries required for
the fair presentation of the financial statements are of a normal recurring
nature. Intercompany transactions and balances are eliminated upon
consolidation.




31





The
Company applied the provision of Financial Accounting Standards Board (“FASB”)
ASC 810 “Consolidation of Variable Interest Entities (revised December 2003)”
(“ASC 810”) to its investment in Sanswire-TAO. Under ASC 810, a variable
interest entity (VIE) is subject to consolidation if the total equity investment
at risk is not sufficient to permit the entity to finance its activities without
additional subordinated financial support provided by any parties, including
equity holders. As of December 31, 2009, the Company determined that that
consolidation of Sanswire-TAO was appropriate. Inter-company accounts and
transactions have been eliminated in 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 $9,414,507 and
a negative cash flow from operations of $1,990,590 for the year ended December
31, 2009, and had a working capital deficiency of $16,165,073 and a
stockholders’ deficit of $13,974,349 at December 31, 2009.  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 to develop and
implement a successful business plan. The Company has a business plan which, if
successful, will allow the Company to sell unmanned aerial systems for a profit,
which in turn will reduce the dependency of raising additional funds from
outside sources.  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
current working capital, will be sufficient to sustain operations at its
current level through December 31, 2010. However, if the Company’s plans
are not achieved and/or if significant unanticipated events 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. (See Note 10)





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.





VALUATION
HIERARCHY





FASB ASC
820, “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.




32





The
following table lists the assets and liabilities carried at fair value measured
on a recurring basis as of December 31, 2009:





Fair
      Value Measurements at
              December
      31, 2009Total
      Carrying Value at
              December
      31, 2009
            
            
            (Level
      1)
            
            
            (Level
      2)
            
            
            (Level
      3)Cash
      and cash equivalents
            
            $
            12
            
            
            $
            12
            
            
            $
            —
            
            
            $
            —Derivative
      liabilities
            
            
            1,406,665
            
            
            
            —
            
            
            
            —
            
            
            
            1,406,665





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, 2009.





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 accounts for these penalties when it is probable that a
penalty will be incurred. At December 31, 2009, the Company has no registration
rights agreement requiring penalties to be recorded.




REVENUE
RECOGNITION





The
Company recognized no revenue in the years 2009 and 2008 since it is developing
its unmanned aerial systems.





INVENTORIES





Inventories
consist of work in progress related to the Company’s consolidated joint venture
Sanswire-TAO.





INCOME
TAXES





Income
taxes are computed under the provisions of the Financial Accounting Standards
Board (FASB) ASC 740, “Accounting for Income Taxes.” ASC 740 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. There was
no advertising and marketing expense for the years ended December 31, 2009 and
2008.




33





FAIR
VALUE OF FINANCIAL INSTRUMENTS





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





FOREIGN
CURRENCY TRANSACTIONS





The
currency of the primary economic environment in which the operations of the
Company are conducted is the United States Dollar (“dollar”). Accordingly, the
Company and its subsidiaries use the dollar as their functional currency. All
exchange gains and losses denominated in non-dollar currencies are presented on
a net basis in operating expense in the consolidated statement of operations
when they arise. Foreign currency gains for the years ended December 31,
2009 and 2008 were immaterial.





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 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, 2009, the shares outstanding
would be 341,630,205.  As of March 30, 2010, the Company had
267,040,586 shares of our common stock outstanding. The Company is obligated
under various existing agreements, options and warrants to issue additional
shares of our common stock.





IMPAIRMENT
OF LONG-LIVED ASSETS





The
Company follows FASB ASC 360, “Accounting for the Impairment of Long-Lived
Assets.” ASC 360 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





We
account for stock-based compensation under the provisions of ASC 718-10 and ASC
505-50 “Stock Compensation and Equity Based Payments to Non-Employees.” ASC 718
requires companies to estimate the fair value of share-based payment awards on
the date of grant using an option-pricing model. The value of the portion of the
award that is ultimately expected to vest is recognized as expense over the
requisite service periods in our Consolidated Statement of
Operations.





We are
using the Black-Scholes option-pricing model as its method of valuation for
share-based awards.  Our determination of fair value of share-based
payment awards on the date of grant using an option-pricing model is affected by
our 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 certain other
market variables such as the risk free interest rate.




Stock-based
compensation expense recognized under ASC 718 for the years ended
December 31, 2009 and 2008 were $3,744,070 and $435,000,
respectively.




34





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 ASC 718 and ASC 505 “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





In April
2009, the Financial Accounting Standards Board (“FASB”) issued a staff position
that amends and clarifies the new business combination standard, to address
application issues on initial recognition and measurement, subsequent
measurement and accounting, and disclosure of assets and liabilities arising
from contingencies in a business combination. The Company does not expect the
adoption of this staff position to have a material impact on its financial
condition and results of operations.





In April
2009, the FASB issued a staff position requiring disclosures about fair value of
financial instruments for interim reporting periods as well as in annual
financial statements. This staff position also requires those disclosures in
summarized financial information at interim reporting periods. The Company
adopted this staff position in its second quarter ended June 30, 2009. The
adoption did not have a material impact on the Company’s financial position,
results of operations or cash flows.





In April
2009, the FASB issued a staff position which amends the other-than-temporary
impairment guidance for debt securities to make the guidance more operational
and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. The
Company adopted this staff position in its second quarter ended June 30, 2009.
The adoption did not have a material impact on the Company’s financial position,
results of operations or cash flows.





In April
2009, the FASB issued a staff position which provides additional guidance for
estimating fair value in accordance with the new business combination standard
when the volume and level of activity for the asset or liability have
significantly decreased. This staff position also includes guidance on
identifying circumstances that indicate a transaction is not orderly. The
Company does not expect the adoption of this staff position to have a material
impact on its financial condition and results of operations.





In
May 2009, the FASB issued new guidance on subsequent events which
established general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. It requires the disclosure of the date through which
an entity has evaluated subsequent events and the basis for that date—that is,
whether that date represents the date the financial statements were issued or
were available to be issued. The Company adopted the guidance in the quarter
ended June 30, 2009 and the statement did not have a material impact on our
consolidated results of operation and financial
position.





In June
2009, the FASB issued the standard that established the FASB Accounting
Standards Codification (the “Codification”).  The Codification will
become the source of authoritative United States generally accepted accounting
principles (“GAAP”) recognized by the FASB to be applied by nongovernmental
entities. All other non-grandfathered, non-SEC accounting literature not
included in the Codification will become non-authoritative.  The
Company adopted the standard in the quarter ended September 30,
2009.  Other than the manner in which accounting guidance is
referenced in its financial reporting, the adoption of the Codification had no
impact on the Company’s financial position, results of operations or cash
flows.




In August
2009, the FASB issued guidance which provides clarification for the fair value
measurement of liabilities in circumstances in which a quoted price in an active
market for an identical liability is not available. This guidance is effective
for interim periods beginning after August 28, 2009. The Company adopted
this guidance in the quarter ended September 30, 2009.  The adoption
did not have a material impact on the Company’s financial position, results of
operations or cash flows.




35




In
October 2009, the FASB issued amendments to the accounting and disclosure for
revenue recognition. These amendments, effective for fiscal years beginning on
or after June 15, 2010 (early adoption is permitted), modify the criteria for
recognizing revenue in multiple element arrangements and the scope of what
constitutes a non-software deliverable. The Company does not expect the adoption
of this staff position to have a material impact on its financial condition and
results of operations.





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,
2009 and 2008.





The loss
on the Company’s consolidated statements of operations for the years ended
December 31, 2009 and 2008 is summarized as follows:





Telecom
            
            2009
            
            
            2008Loss
      from discontinued operations
            
            $
            —
            
            
            $
            (197
            )GlobeTel
      WirelessLoss
      from discontinued operations
            
            
            —
            
            
            
            —Total
      loss from discontinued operations
            
            $
            —
            
            
            $
            (197
            )





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





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





The
Company had the following assets and liabilities from its discontinued
operations on its consolidated balance sheet as of December 31, 2009 and
2008:





2009
            
            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





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




36




NOTE
3. JOINT VENTURE AND INTANGIBLE ASSETS





On June
3, 2008 Sanswire and TAO Technologies Gmbh (“TAO”) with support from Professor
Bernard Kroplin (“Kroplin”) 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 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 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 reclassified the transaction as the purchase of assets and
recognized a $3,229,000 Intangible Asset related to the intellectual property,
including existing patent. 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, 2009 (see Note 6).





The
Company determined that the intangible assets have a definite life equal to the
remaining life of the patent, which was through March 3, 2012, and accordingly,
is subject to amortization using that life or 40 months, which is $80,725 per
month. During the normal process of testing for an intangible impairment, the
Company updated its ASC 360 analysis as of the end of December 2009 and
determined there were no cash flows associated with the Company’s intangible
assets.  The Company has determined that the appropriate method of
determining if any impairment was necessary was the stated value for the
intangible assets.





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 financial statements in relation to the recording
of derivative liabilities related to the conversion feature and associated
warrants issued with convertible notes during 2008.  As a result, the
Company’s consolidated financial statements for the year ended December 31, 2008
have been amended and restated.





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 consolidated financial statements in relation to
the provisions of FASB ASC 815, “Accounting for Derivative Financial Instruments
and Hedging Activities” and the recording of certain warrants and the beneficial
conversion feature of the Company’s convertible notes payable. In accordance
with ASC 815, the fair value of certain of the Company’s options and warrants
and the embedded conversion feature of the Company’s convertible notes payable,
have been re-characterized as derivative liabilities effective January 1, 2007.
ASC 815 requires that the fair value of these liabilities be re-measured at the
end of every reporting period with the change in value reported in the statement
of operations. As a result, the Company’s consolidated financial statements as
of December 31, 2008 have been restated.




37





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





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




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
            4
            
            
            (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





38




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





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)
            Effect
      on Earnings per share of
restatements




NOTE
5. INVENTORIES





Inventories
as of December 31, 2009 and 2008 consisted of the following:





December
      31,
            
            
            December
      31,2009
            
            
            2008Work
      in process
            
            $
            1,545,490
            
            
            $
            —INVENTORIES
            
            $
            1,545,490
            
            
            $
            —




39




NOTE
6. ACCRUED EXPENSES AND OTHER LIABILITIES





Accrued
expenses and other liabilities consisted of the following:





December
      31,
              2009
            
            
            December
31,
              2008Payroll
      liabilities
            
            $
            1,007,079
            
            
            $
            1,185,264Professional
      fees
            
            
            118,946
            
            
            
            118,946Due
      to Joint Venture Partner
            
            
            2,185,000
            
            
            
            2,185,000ACCRUED
      EXPENSES AND OTHER LIABILITIES
            
            $
            3,311,025
            
            
            $
            3,489,210




NOTE
7. NOTES AND CONVERTIBLE NOTES PAYABLE





December
      31,
              2009
            
            
            December
      31,
              2008(A)
      Notes payable
            
            $
            5,997,030
            
            
            $
            5,997,030(B)
      Convertible notes payable, net of unamortized discount of $0 and
      $454,531
            
            
            —
            
            
            
            80,000(C)
      Convertible promissory notes, net of unamortized discount of $0 and
      $134,423
            
            
            —
            
            
            
            2,016,913Total
            
            
            5,997,030
            
            
            
            8,093,943Accrued
      interest
            
            
            1,394,688
            
            
            
            1,170,789NOTES
      AND CONVERTIBLE NOTES PAYABLE
            
            $
            7,391,718
            
            
            $
            9,264,732





(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, 2009 and 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 $1,162,544 from inception to
December 31, 2009.





During
2008 and 2009, 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, 2009 and 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 $232,144 from inception to December 31, 2009.





Interest
expense on these notes totaled $405,753 for each of the years ended December 31,
2009 and 2008, respectively.





(B)
CONVERTIBLE NOTES PAYABLE





Effective
January 16, 2008, the Company entered into a forbearance agreement with certain
note holders that were issued in 2006. 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 interest was converted into approximately 23.4
million shares of Company common stock.





During
2009, $80,000 of principal and interest was converted into 1,047,619 million
shares of Company common stock.




40





(C)
CONVERTIBLE PROMISSORY NOTES





On
February 17, 2009, the Company entered into subscription agreements with
accredited investors. The Company sold $110,000 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.





The
Company determined that the total fair value of the warrants was $21,365 based
upon the relative value of the Black Scholes valuation of the warrants and the
underlying debt amount.  For the Black Scholes calculation, the
Company assumed no dividend yield, a risk free interest rate ranging from 1.31%
to 1.40%, expected volatility of 169.01% and an expected term of the warrants of
3 years.  The initial calculated fair value of warrants of $21,365 was
reflected by the Company as a valuation discount and an offset to the carrying
value of the Notes, and is being amortized by the straight line method over the
term of the Notes. As of December 31, 2009, the Company amortized $21,365 of the
valuation discount, which is reflected as interest expense in the Company’s
consolidated statements of operations.  During the year ended December
31, 2009, all principal and interest has been converted as part of an overall
conversion request that includes all outstanding notes from this note
holder.  On September 30, 2009, the balance of $1,633,869 of principal
and $199,648 of interest were converted into 17,462,080 shares of Company common
stock.





On April
29, 2009, the Company agreed to extend the expiration of certain warrants
associated with the notes.  A charge of $399,707 was recorded for the
change in the fair value of the warrants at the time of
modification.





On
February 17, 2009, the Company entered into subscription agreement with an
accredited investor. The Company sold $30,000 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.





The
Company determined that the total fair value of the warrants was $4,865 based
upon the relative value of the Black Scholes valuation of the warrants and the
underlying debt amount.  For the Black Scholes calculation, the
Company assumed no dividend yield, a risk free interest rate of 1.22%, expected
volatility of 169.01% and an expected term of the warrants of 3
years.  The initial calculated fair value of warrants of $4,865 was
reflected by the Company as a valuation discount and offset to the carrying
value of the Notes, and is being amortized by the straight line method over the
term of the Notes. As of December 31, 2009, the Company amortized $4,865 of the
valuation discount, which is reflected as interest expense in the Company’s
consolidated statements of operations.  During the year ended December
31, 2009, all principal and interest has been converted as part of an overall
conversion request that includes all outstanding notes from this note
holder.  On September 30, 2009, the balance of $130,000 of principal
and $10,558 of interest were converted into 1,338,651 shares of Company common
stock.





On April
29, 2009, the Company agreed to extend the expiration of certain warrants
associated with the notes.  A charge of $41,121 was recorded for the
change in the fair value of the warrants at the time of
modification.





During
2009, the Company made payments totaling $42,630 to reduce a previously entered
into note. On September 30, 2009, the balance of $119,836 of principal and
$9,084 of interest were converted into 1,227,810 shares of Company common
stock.





In
October 2008, the Company entered into a new financing agreement for a
convertible promissory note payable totaling $25,000.  On February 11,
2009, $25,438 of principal and interest was converted into 238,096 shares of the
Company’s common stock.




41





During
May 2009, the Company converted a previously entered into note totaling $290,000
of principal and $5,921 of interest into 2,447,790 shares of Company common
stock.





In
September 2008, the Company entered into a new financing agreement for a
convertible promissory note payable totaling $50,000. On February 12, 2009, the
Company issued 250,000 shares, valued at $9,500, as a penalty to extend the
maturity to an unspecified date. On March 30, 2009, the investor foreclosed on
its lien and security interest based on the previously entered into pledge
agreement.  The note was secured by 1,000,000 shares of common stock
of the Company held by the Company’s CEO.  As a result, the holder
acknowledged that by virtue of its ownership of the shares, the note was deemed
satisfied in full.





On April
17, 2009, the Company entered into an amendment to the Subscription Agreement,
dated September 17, 2008 pursuant to which the Company agreed (i) to extend the
expiration date of both the Series A Warrant and Series B Warrant issued from
October 15, 2010 to December 31, 2010 and (ii) extend the final date that the
holder may make up to two additional purchases of the Company’s securities, from
October 15, 2008 and December 15, 2008, respectively, until December 31, 2010
and December 31, 2010, respectively.  A charge of $2,477 was recorded
for the change in the fair value of the warrants at the time of
modification.





In 2008,
the Company entered into $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.





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, 2009 and December 31, 2008, the Company amortized
$157,548 and $114,238, 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.





NOTE 8.  DERIVATIVE
LIABILITIES





In 2007,
the Company adopted FASB ASC 815 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”
and FASB ASC 815 “Accounting for Derivative Instruments and Hedging
Activities,” as amended by FASB ASC 815 “Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB ASC
815,” collectively referred to as FASB ASC 815. FASB ASC 815 requires
that all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income.




42





The
derivative liabilities were valued using the Black-Scholes option pricing model
and the following assumptions:





December
      31, 2009
            
            
            December
      31,
              2008Conversion
      feature:Risk-free
      interest rate
            
            
            —
            
            
            
            0.27
      – 0.76
            %Expected
      volatility
            
            
            —
            
            
            
            118
      – 134
            %Expected
      life (in years)
            
            
            —
            
            
            
            0.33
      – 1.76Expected
      dividend yield
            
            
            —
            
            
            
            —Warrants:Risk-free
      interest rate
            
            
            0.14
      – 1.45
            %
            
            
            0.11
      – 1.00
            %Expected
      volatility
            
            
            10
      – 168
            %
            
            
            28
      – 167
            %Expected
      life (in years)
            
            
            0.08
      – 2.92
            
            
            
            0.01
      – 2.74Expected
      dividend yield
            
            
            —
            
            
            
            —


Fair
      value:Conversion
      feature
            
            $
            —
            
            
            $
            495,805Warrants
            
            $
            1,406,665
            
            
            $
            252,439





The
risk-free interest rate was based on rates established by the Federal
Reserve.  In 2009, 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
9. AGREEMENTS





AGREEMENTS





Several
agreements, letters of intent, and memorandums of understanding regarding the
Sanswire project were entered into during 2009 and 2008 and through the date of
this report, none of which require the recording of any assets, liabilities,
revenues or expenses.





NOTE
10. 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.




43


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. The trial of this matter has been set for October
2010.





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 against the
Company relating to the warrants attached to a Subscription Agreement between
those entities and the Company. 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. This liability was previously recorded in the Company’s
accounts payable as incurred.





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.




44





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 2009, the Company paid
the remaining $43,750 in the Company’s common stock.





Tsunami Communications v.
GlobeTel





On March
3, 2006, Civil Action File No. 06A-02368-5 was filed in Superior Court for
Gwinnett County Georgia.  A purported shareholder of a company from
whom GlobeTel purchased assets is seeking to receive shares of our common stock
that they believe that they are entitled to as their pro-rata share of shares
paid for the asset. We have asserted affirmative defenses and the trial of this
matter was held in November 2009. We are waiting for a ruling from the
Court.





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.




45





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





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





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





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





Leases
and Rents




Sanswire’s
corporate offices are now located at 17501 Biscayne Blvd, Aventura,
FL 33160. Base rent is $2,900 per month. The lease is for a period of 36
months and terminates on June 30, 2012.   We believe our
facilities are adequate for our current and near-term
needs.  Sanswire’s corporate offices were previously located at 101 NE
3 rd
Ave., Suite 1500, Fort Lauderdale, FL 33301 which were vacated on December
31, 2009 as the lease expired.




Rent
expense for 2009 and 2008 were $23,498 and $42,431, respectively.





Estimated
future minimum rental payments and lease payments on noncancelable operating
leases as of December 31, 2009 were as follows:




Year
      Ended December 31,2010
            
            $
            34,6682011
            
            
            34,6682012
            
            
            17,334




46


NOTE
11. INCOME TAXES





Deferred
income taxes and benefits for 2009 and 2008 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:





2008
            
            
            Current
              Period
              Changes
            
            
            2009Deferred
      tax assets:Net
      operating loss carryforwards
            
            $
            15,665,187
            
            
            $
            1,412,176
            
            
            $
            17,077,36315,665,187
            
            
            
            1,412,176
            
            
            
            17,077,363Valuation
      allowance
            
            
            (15,665,187
            )
            
            
            (1,412,176
            )
            
            
            (17,077,363
            )Net
      deferred tax asset
            
            $
            —
            
            
            $
            —
            
            
            $
            —





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





2009
            
            
            2008Income
      tax benefit computed at federal statutory rate
            
            $
            (1,412,176
            )
            
            $
            (815,792
            )Deferred
      income taxes
            
            
            1,412,176
            
            
            
            815,792$
            —
            
            
            $
            —




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 2009, 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
12. COMMON STOCK TRANSACTIONS





During
the year ended December 31, 2009, the Company issued the following shares of
common stock:


SHARES
                
                CONSIDERATION
                
                VALUATION2,970,346
                
                Settlement
      of Debts
                $
                141,28117,934,999
                
                Consulting
      Services
                
                1,421,25075,000
                
                Exercised
      Options
                
                —35,387,971
                
                Converted
      Notes Payable and Accrued Interest
                
                3,722,19812,500,000
                
                Services
      - Performance Bonus
                
                1,405,0008,418,255
                
                Stock
      for Cash
                
                863,3551,050,000
                
                Stock
      for Directors Fees
                
                107,750




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


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.




47




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
13. STOCK OPTIONS AND WARRANTS





During
the year ended December 31, 2009, the Company issued the following fully vested
options to acquire Common stock:





Date
      Issued
            
            Shares
            
            Consideration
            
            Valuation
            
            Relationship4/10/2009
            
            
            5,305,556
            
            Employees’
      Bonus
            
            $
            221,239
            
            Non
      Executive Employees5/6/2009
            
            
            8,311,116
            
            Employees’
      Bonus
            
            $
            852,959
            
            Non
      Executive Employees5/6/2009
            
            
            5,555,556
            
            Officer
      Stock Option Grant
            
            $
            570,160
            
            Former
      Chief Executive Officer6/1/2009
            
            
            500,000
            
            Officer
      Stock Option Grant
            
            $
            63,422
            
            Chief
      Financial Officer12/31/2009
            
            
            4,500,000
            
            Employees’
      Bonus
            
            $
            284,227
            
            Non
      Executive Employees12/31/2009
            
            
            250,000
            
            Director
      Stock Option Grant
            
            $
            15,791
            
            Board
      Member12/31/2009
            
            
            2,000,000
            
            Officer
      Stock Option Grant
            
            $
            126,323
            
            Chief
      Financial Officer





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





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 ASC 718 (see
Note 1 above). The fair value of the options at the time of issuance was
determined using the Black-Scholes option-pricing model with the following
assumptions:





Risk
      free interest rate
            
            
            1.36
      – 1.52
            %Expected
      life
            
            3
      yearsExpected
      volatility
            
            
            171
      - 192
            %Expected
      dividend yield
            
            
            0
            %




48




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, 2009, all options issued and
outstanding have fully vested and thus there was no deferred compensation, Stock
option activity for the years ended December 31, 2009 and 2008 was as
follows:





Number
      of Options
              (in
      shares)
            
            
            Weighted
      Average Exercise PriceOutstanding
      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
            
            
            $
            .350Options
      Granted
            
            
            26,422,222
            
            
            
            .062Options
      Exercised
            
            
            (250,000
            )
            
            
            .105Options
      Forfeited
            
            
            (4,112,475
            )
            
            
            .994Outstanding
      at December 31, 2008
            
            
            38,042,499
            
            
            $
            .298





The
following table summarizes information about stock options outstanding as of
December 31, 2009:




Options Outstanding
              
              Options ExercisableRange of Exercise
      Prices
              
              Number of
                Shares
              
              
              Weighted Average
                Exercise Price
              
              Weighted Average
                Remaining Contractual
                Life (in years)
              
              Number of
                Shares
              
              
              Weighted Average
                Exercise Price$0.045 to $0.37
              
              38,042,499
              
              $
              0.298
              
              1.63
              
              38,042,499
              
              $
              0.29838,042,499
              
              
              
              
              
              
              38,042,499
 WARRANTS





During
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.





During
2009, the Company entered into financing agreements for convertible promissory
notes payable  as well as stock subscription agreements 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, 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
            
            
            $
            0.253Warrants
      Granted
            
            
            8,251,982
            
            
            
            8,220,236
            
            
            
            0.262Warrants
      Expired
            
            
            (3,305,382
            )
            
            
            (2,203,588
            )
            
            
            0.252Outstanding
      at December 31, 2009
            
            
            18,933,804
            
            
            
            15,651,411
            
            
            $
            0.258





The fair
value of the warrants issued during 2009 was determined using the Black-Scholes
option-pricing model with the following assumptions:





Risk
      free interest rate
            
            
            .14
      – 1.45
            %Expected
      life
            
            .08
      – 2.92 yearsExpected
      volatility
            
            
            10
      – 168
            %Expected
      dividend yield
            
            
            0
            %





The
aggregate intrinsic value of 38,042,499options and
18,933,804 Class A and 15,651,411 Class B warrants outstanding and exercisable
as of December 31, 2009 was $5,301,823. The aggregate intrinsic value for the
options is calculated as the difference between the price of the underlying
awards and quoted price of the Company’s common shares for the options that were
in-the-money as of December 31, 2009. At December 31, 2009, all warrant
shares were vested. Therefore there is no unamortized cost to be recognized
in future periods.




49





NOTE
14. PREFERRED STOCK





On May 3,
2009, the Board of Directors approved the creation of a Series E Preferred
Stock.  The terms of the Series E Preferred Stock were subsequently
amended on May 14, 2009. The Series E Preferred Stock, as amended, does not pay
dividends but each holder of Series E Preferred Stock shall be entitled to 21.5
votes for each share of common stock that the Series E Preferred Stock shall be
convertible into.  The Series E Preferred Stock, as amended, has a
conversion price of $0.105 and a stated value of $6.26.  Each share of
Series E Preferred Stock is convertible, at the option of the holder, into such
number of shares of common stock of the Company as determined by dividing the
Stated Value by the Conversion Price.  The Series E Preferred Stock
has no liquidation preference.  The Company also cancelled all the
authorized shares associated with the Series A, B, C, and D of Preferred
Stock.





As of
December 31, 2009, the Company has 100,000 shares of Series E Preferred Stock
outstanding.





NOTE
15. SUBSEQUENT EVENTS





The
Company has evaluated subsequent events from the balance sheet
date.  The following are material subsequent events:





On
February 8, 2010, the Company  received an executed Mutual Release and
Settlement Agreement from David A. Christian (“Christian”), pursuant to which
Christian resigned as Chief Executive Officer of the Company.  The
Christian Agreement provided for the resolution and settlement of all issues
relating to the employment of Christian by the Company, provides a mutual
release between the parties as well as the following:




·
              the Company agreed to issue
      Christian 4,000,000 shares of common stock of the
      Company;
 ·
              the Company agreed to issue to
      Christian an option to purchase 500,000 shares of common stock of the
      Company at an exercise price of $0.075 per
  share;
 
 ·
              the Company agreed to pay
      Christian Fifteen Thousand Dollars ($15,000) in cash as settlement of all
      accrued and unpaid expenses; and
 ·
              the Company agreed to issue
      Christian 250,000 shares with regard to his original contract to serve on
      the Board of
Directors.




On
February 8, 2010, the Company received an executed Mutual Release and
Settlement Agreement between the Company and William J. Hotz (“Hotz”), Hotz
resigned as a Director of the Company.  The Hotz Agreement provided
for the resolution and settlement of all issues relating to the employment of
Hotz by the Company, including but not limited to a provision whereby the
Company will pay to Hotz:




·
              1,000,000 shares of common stock
      of the Company;
 ·
              Options to purchase 200,000
      shares of common stock of the Company at an exercise price of $0.075 per
      share; and
 
 ·
              Ten Thousand Dollars ($10,000) in
      cash as settlement of all accrued and unpaid salary, benefits, bonuses,
      expenses and/or other
remuneration.




In January 2010, the Company satisfied the judgment with Delma
Pembroke Pines in exchange for the issuance of 4,000,000 shares of our common
stock to be issued to Star Capital Funding LLC. Delma Pembroke Pines sued the
Company for passed due and unpaid rents on its former offices located in
Pembroke Pines. On August 17, 2007, Delma obtained a judgment however the
company has been unable to make any payments towards the settlement. Delma
subsequently sold the judgment to Star Capital Funding LLC.


50


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





On October 19, 2009 (the “Dismissal Date”), the Company dismissed
Weinberg & Co., as its independent certifying accountant.  The
Company’s Board of Directors approved of the dismissal on October 20, 2009.
There were no disputes or disagreements between Weinberg & Co. and the
Company during the previous two fiscal years. Except for the provision of a
“Going Concern” opinion, the reports of Weinberg & Co. on the Company’s
financial statements for the years ended December 31, 2008 and 2007 did not
contain an adverse opinion or disclaimer of opinion, and such reports were not
qualified or modified as to uncertainty, audit scope, or accounting
principle.





During
the years ended December 31, 2008 and 2007, and through the Dismissal Date, the
Company has not had any disagreements with Weinberg & Co. on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to Weinberg & Co.’s
satisfaction, would have caused them to make reference to the subject
matter of the disagreement in connection with its report.





During
the years ended December 31, 2008 and 2007, and through the Dismissal Date,
there were no reportable events, as defined in Item 304(a)(1)(v) of
Regulation S-K.





The
Company provided Weinberg & Co. with a copy of the Current Report on Form
8-K disclosing the dismissal prior to its filing with the Securities and
Exchange Commission (“SEC”) and requested that Weinberg & Co. furnish the
Company with a letter addressed to the SEC stating whether it agrees with the
above statements and, if it does not agree, the respects in which it does not
agree.  A copy of the letter from Weinberg & Co. was attached as
Exhibit 16.1 to the Form 8-K.





On
October 20, 2009, the Company engaged Rosen Seymour Shapss Martin & Company
Llp (“RSSM”), as its independent registered public accounting firm, to audit the
Company’s financial statements. The decision to engage RSSM was approved by the
Company’s Board of Directors at a Board meeting called for such
purpose.





During the Company’s two most recent fiscal years and through
the date of the engagement of RSSM, the Company did not consult with RSSM
regarding either (1) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Company’s financial statements, or
(2) any matter that was either the subject of a disagreement (as defined in
Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in
Item 304(a)(1)(v) of Regulation S-K).





Prior to
the engagement of RSSM, RSSM did not provide the Company with any written or
oral advice that RSSM concluded was an important factor considered by the
Company in reaching any decision as to any accounting, auditing or financial
reporting issue.





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 of Thomas Seifert, the Company’s Principal Executive Officer
and/or Chief Financial Officer (the “Reviewing Officers”), of the
effectiveness of the Company’s disclosure controls and procedures as of December
31, 2009. 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, 2009, 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.




51





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.





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, 2009 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 principal 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, 2009 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, 2009, 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.




52





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 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.





On
February 8, 2010, David A. Christian resigned as Chief Executive Officer of the
Company.





On
February 8, 2010, William J. Hotz resigned as a director of the
Company.





On
February 10, 2010, Thomas Seifert, the Company’s Chief Financial Officer, was
appointed to the Board of Directors.


53




PART III




ITEM
10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE




As of
March 31, 2010, the officers and directors of the Corporation are:





Name
            
            Age
            
            Position
      with CompanyThomas
      Seifert
            
            
            38
            
            Chief
      Financial Officer and DirectorMaj.
      Gen. Wayne P. Jackson (USA-Ret.)
            
            
            80
            
            Chairman
      of the Board of Directors





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.





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.





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.





(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





Due to
our limited resources, we have not adopted a code of ethics.  We
intend to adopt a Code of Ethics during the coming year.





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.




54





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, 2009, and 2008.





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 ($)David
      Christian, CEO, Director
            
            
            2009
            
            5,000
            
            
            —
            
            27,500
            
            
            —
            
            —
            
            
            —
            
            —
            
            32,500Thomas
      Seifert, CFO
            
            
            2009
            
            34,615
            
            
            —
            
            55,000
            
            
            189,749
            
            —
            
            
            —
            
            —
            
            279,364Jonathan
      Leinwand, CEO, Director
            
            
            2009
            
            68,262
            
            
            —
            
            1,010,000
            
            
            696,483
            
            —
            
            
            —
            
            319,119
            
            2,093,864Jonathan
      Leinwand, CEO, Director
            
            
            2008
            
            34,599
            
            
            —
            
            55,000
            
            
            —
            
            —
            
            
            —
            
            48,205
            
            137,804





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 2009, and each person who served as an executive officer of the Company
as of December 31, 2009:





Option
      Awards
            
            Stock
      AwardsName
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options (#)
              Exercisable
            
            Number
              of
              Securities
              Underlying
              Unexercised
              Options (#)
              Unexercisable
            
            Equity
              Incentive
              Plan Awards:
              Number of
              Securities
              Underlying
              Unexercised
              Unearned
              Options (#)
            
            Option
              Exercise
              Price
              ($)
            
            Option
              Expiration
              Date
            
            Number
              of
              Shares
              or Units
              of Stock
              That
              Have
              Not
              Vested
              (#)
            
            Market
              Value of
              Shares
              or
              Units of
              Stock
              That
              Have
              Not
              Vested
              ($)
            
            Equity
              Incentive
              Plan
              Awards:
              Number of
              Unearned
              Shares,
              Units or
              Other Rights
              That Have
              Not Vested
              (#)
            
            Equity
              Incentive
              Plan
              Awards:
              Market or
              Payout
              Value of
              Unearned
              Shares,
              Units or
              Other Rights
              That Have
              Not Vested
              ($)ThomasSeifert
            
            
            500,000
            
            —
            
            —
            
            0.140
            
            May
      31, 2012
            
            —
            
            —
            
            —
            
            —2,000,000
            
            —
            
            —
            
            0.073
            
            December
      31, 2012JonathanLeinwand
            
            
            921,052
            
            —
            
            —
            
            0.190
            
            May
      22, 2010
            
            —
            
            —
            
            —
            
            —1,400,000
            
            —
            
            —
            
            0.105
            
            October
      18, 2010
            
            —
            
            —
            
            —
            
            —2,916,667
            
            —
            
            —
            
            0.090
            
            January
      10, 2011
            
            —
            
            —
            
            —
            
            —5,555,556
            
            —
            
            —
            
            0.045
            
            May
      5, 2012
            
            —
            
            —
            
            —
            
            —2,000,000
            
            —
            
            —
            
            0.073
            
            December
      31, 2012
            
            —
            
            —
            
            —
            
            —




55




COMPENSATION OF
DIRECTORS




The
following table summarizes the compensation for our non-employee board of
directors for the fiscal years ended December 31, 2009 and
2008:





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)Wayne
      Jackson (2009)
            
            
            5,000
            
            73,750
            
            
            15,790
            
            —
            
            
            —
            
            —
            
            
            89,540William
      Hotz (2009)
            
            
            5,000
            
            6,500
            
            
            —
            
            —
            
            
            —
            
            —
            
            
            11,500




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.





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





Common
Stock





As of
March 30, 2010, there were 267,040,586 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
            
            Thomas
      Seifert, CFO
              17501
      Biscayne Blvd, Suite 430
              Aventura,
      Florida 33160
            
            
            6,735,586
            
            DirectandIndirect
            
            
            2.52
            %Common
      Stock
            
            Wayne
      Jackson, Director
              17501
      Biscayne Blvd, Suite 430
              Aventura,
      Florida 33160
            
            
            750,000
            
            Direct
            
            
            0.28
            %Total
      of all Officers and Directors as a Group
            
            
            7,435,586
            
            
            
            
            2.80
            %










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





Certain
Relationships and Related Transactions





On June 1
and December 29, 2009, the Company issued a total of 2,500,000 shares of common
stock and 2,500,000 options exercisable at $.14 and $.073 per share to the
Company’s CFO for signing and performance bonus’ related to an employment
agreement.





On May 29
and December 29, 2009, the Company issued a total of 9,000,000 shares of common
stock and 7,555,556 options exercisable at $.045 and $.073 per share to the
Company’s previous CEO for a performance bonus related to an employment
agreement.




56





On May 1
and December 29, 2009, the Company issued a total of 750,000 shares of common
stock and 250,000 options exercisable at $.073 per share to Gen. Wayne Jackson
for stock for directors fees.





On May 1,
2009, the Company issued 250,000 shares of common stock to David Christian for
stock for directors fees.





On July
31, 2009, the Company issued 50,000 shares of common stock to William Hotz for
stock for directors fees.





On May 5,
2009, the Company entered into a conversion agreement with Rocky Mountain
Advisors Corp., a consultant to the Company (“RMAC”), pursuant to which the
Company agreed to convert $185,387 in consulting fees owed to RMAC for
consulting services performed from October 19, 2007 to April 9,
2009  into 29,615 shares of  Series E Preferred
Stock.





On May 5,
2009, the Company entered into a conversion agreement with Jonathan Leinwand,
the former Chief Executive Officer, pursuant to which the Company agreed to
convert $ 319,118.85 in outstanding wages owed to Mr. Leinwand from October 17,
2007 to April 3, 2009 into 50,978 shares of Series E Preferred
Stock.





Director
Independence





General
Jackson is 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 Rosen Seymour Shapss Martin &
Company LLP andWeinberg &
Company, P.A. services rendered to the Company during 2009 and
2008.




AmountType of
    Fee
            
            Fiscal
              Year
      2009
            
            
            Fiscal
              Year
      2008Audit(1)
            
            $
            278,958
            
            
            $
            299,260Audit
      Related(2)
            
            
            —
            
            
            
            —Taxes
      (3)
            
            
            —
            
            
            
            —All
      Other (4)
            
            
            —
            
            
            
            —Total
            
            $
            278,958
            
            
            $
            299,260







(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 additional audit
      work on restatements including reports for prior periods. 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.




57





ITEM
15. EXHIBITS





Exhibit 31.1
            
            Certification
      of the Principal Executive Officer and Chief Financial Officer pursuant to
      Section 302 of the
              Sarbanes-Oxley
      Act of 2002Exhibit 32.1
            
            Certification
      of the Principal Executive Officer and Chief Financial Officer pursuant to
      U.S.C. Section 1350 as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 20023.1
            
            Certificate
      of Designations for the Series E Preferred Stock of the Company previously
      filed on Form 8-K on May 8, 20094.1
            
            Form
      of Subscription Agreement between the Company and the Investors previously
      filed on Form 8-K dated February 24, 20094.2
            
            7%
      Convertible Debenture previously filed on Form 8-K dated February 24,
      20094.2
            
            Form
      of Class A Warrant previously filed on Form 8-K dated February 24,
      20094.3
            
            Form
      of Class B Warrant previously filed on Form 8-K dated February 24,
      200910.1
            
            Credit
      Facility Agreement, dated April 15, 2009, by and between Sanswire Corp.
      and Global Telesat Corp. previously filed on Form 8-K on April 21,
      200910.2
            
            Assignment
      and Assumption Agreement, dated April 15, 2009, by and between Sanswire
      Corp., Global Telesat Corp. and International Legal Consultants previously
      filed on Form 8-K on April 21, 200910.3
            
            Services
      Agreement, dated April 15, 2009, by and between Sanswire Corp. and Global
      Telesat Corp. previously filed on Form 8-K on April 21,
    200910.4
            
            Amendment
      to the Subscription Agreement, dated September 17, 2008, by and between
      Sanswire Corp. and Global Telesat Corp., dated April 17, 2009 previously
      filed on Form 8-K on April 21, 200910.5
            
            Loan
      Termination Agreement, dated April 17, 2009, by and among Sanswire Corp.,
      Jonathan D. Leinwand and Global Telesat Corp. previously filed on Form 8-K
      on April 21, 200910.6
            
            Subscription
      Agreement, dated April 17, 2009, by and between Sanswire Corp. and Global
      Telesat Corp. previously filed on Form 8-K on April 21,
    200910.7
            
            Subscription
      Agreement, dated April 18, 2009 previously filed on Form 8-K on April 21,
      200910.8
            
            Employment
      Agreement, effective March 1, 2008, by and between the Company and
      Jonathan Leinwand previously filed on Form 8-K dated May 5,
      200910.9
            
            Conversion
      Agreement, dated May 5, 2009, by and between Sanswire Corp and Rocky
      Mountain Advisors Corp. previously filed on Form 8-K dated May 8,
      200910.10
            
            Conversion
      Agreement, dated May 5, 2009, by and between Sanswire Corp and Daniyel
      Erdberg previously filed on Form 8-K dated May 8, 200910.11
            
            Conversion
      Agreement, dated May 5, 2009, by and between Sanswire Corp and Jonathan
      Leinwand previously filed on Form 8-K dated May 8, 200910.12
            
            Employment
      Agreement, effective June 1, 2009, by and between the Company and Thomas
      Seifert previously filed on Form 8-K dated June 5,
  2009




58




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/
      Thomas SeifertName:
      Thomas Seifert,Title:
      Principal Executive Officer, Chief Financial Officer and
      DirectorDated April
      2, 2010




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/  Thomas
      Seifert
              
              Principal
      Executive Officer and Chief Financial Officer
              
              April
      2, 2010Thomas
      Seifert
              
              Officer
      and Director/s/  Maj.
      Gen. Wayne P. Jackson (USA-Ret.)
              
              Chairman
      of the Board
              
              April
      2, 2010Maj.
      Gen. Wayne P. Jackson (USA-Ret.)
              
              Director





59