UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549





Form
10-Q


(Mark
one)


x QUARTERLY REPORT
UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE


ACT
OF 1934





For the
quarterly period ended September 30, 2010


OR


o TRANSITION REPORT
UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT





For the
transition period from ____________ to _____________





Commission
file number 001-32509





SANSWIRE
CORP.


(Exact
name of registrant as specified in its charter)





Delaware
                    
                    88-0292161(State or other jurisdiction
                    
                    (IRS Employer Identification No.)of incorporation or organization)





17501
Biscayne Blvd, Suite 430


Aventura,
Florida 33160


(Address
of principal executive offices)





(786)
288-0717


(Issuer's
telephone number)





Indicate
by check mark whether 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 x No  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes x                                           No  o





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





Large
accelerated filer     ̈    Accelerated
filer    ̈    Non-accelerated
filer    ̈    (Do
not check if a smaller reporting company)    Smaller
Reporting Company   x





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





As of
November 12, 2010, there were 317,876,226 shares of the registrant's Common
Stock issued and outstanding.





SANSWIRE
CORP. AND SUBSIDIARIES





TABLE OF
CONTENTS





PagePART
      I - FINANCIAL INFORMATIONItem 1.
                      Condensed
      Consolidated Financial StatementsCondensed
      Consolidated Balance Sheets as of September 30, 2010 and December 31,
      2009
                      
                      3Condensed
      Consolidated Statements of Operations for the three and nine months ended
      September 30, 2010 and 2009
                      
                      4Condensed
      Consolidated Statements of Stockholders’ Deficit for the nine months ended
      September 30, 2010
                      
                      5Condensed
      Consolidated Statements of Cash Flows for the nine months ended September
      30, 2010 and 2009
                      
                      7Notes
      to Condensed Consolidated Financial Statements
                      
                      8Item 2.
                      Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                      
                      18Item 4.
                      Controls
      and Procedures
                      
                      23PART
      II - OTHER INFORMATIONItem 1.
                      Legal
      Proceedings
                      
                      24Item 2.
                      Unregistered
      Sales of Equity Securities and Use of Proceeds
                      
                      26Item 6.
                      Exhibits
                      
                      26Signatures
                      
                      27


2


PART
I - FINANCIAL INFORMATION





Item 1. Financial
Statements.





SANSWIRE
CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS




SEPTEMBER 30,
                  2010
                  (Unaudited)
                
                
                DECEMBER 31,
                  2009ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                
                $
                109,116
                
                
                $
                12Accounts
      receivable – related party
                
                
                50,000
                
                
                
                —Inventories
                
                
                —
                
                
                
                1,545,490Current
      assets from discontinued operations
                
                
                6,406
                
                
                
                6,406TOTAL
      CURRENT ASSETS
                
                
                165,522
                
                
                
                1,551,908Deposits
                
                
                23,845
                
                
                
                11,150Intangible
      assets, net of accumulated amortization of $1,775,950
                
                
                1,453,050
                
                
                
                2,179,574TOTAL
      NONCURRENT ASSETS
                
                
                1,476,895
                
                
                
                2,190,724TOTAL
      ASSETS
                
                $
                1,642,417
                
                
                $
                3,742,632LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCURRENT
      LIABILITIESAccounts
      payable (including $289,753 and $396,625 due to joint venture partner at
      September 30, 2010 and December 31, 2009)
                
                $
                4,989,762
                
                
                $
                4,220,167Notes
      payable
                
                
                7,706,562
                
                
                
                7,391,718Accrued
      expenses and other liabilities (including $2,185,000 due to joint venture
      partner at September 30, 2010 and December 31, 2009)
                
                
                4,154,108
                
                
                
                3,311,025Derivative
      liabilities
                
                
                2,205,463
                
                
                
                1,406,665Current
      liabilities from discontinued operations
                
                
                1,365,929
                
                
                
                1,387,406TOTAL
      CURRENT LIABILITIES
                
                
                20,421,824
                
                
                
                17,716,981TOTAL
      LIABILITIES
                
                
                20,421,824
                
                
                
                17,716,981COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      DEFICITCommon stock, $0.00001 par value,
      500,000,000 shares authorized; 312,224,483 and 263,040,586
      shares issued and outstanding as of September 30, 2010 and December 31,
      2009, respectively
                
                
                3,123
                
                
                
                2,631Additional
      paid-in capital – Common stock
                
                
                123,665,191
                
                
                
                120,114,115Preferred
      stock, 10,000,000 shares authorized;0
      shares and  100,000 shares issued and outstanding as of
      September 30, 2010 and December 31, 2009, respectivelySeries
      E Preferred stock, $0.001 par value, 100,000 shares
      authorized;0
      shares and 100,000 shares issued and outstanding as of September 30, 2010
      and December 31, 2009, respectively:
                
                
                —
                
                
                
                100Additional
      paid-in capital - Series E Preferred stock
                
                
                —
                
                
                
                625,894Accumulated
      deficit
                
                
                (142,447,721
                )
                
                
                (134,717,089
                )TOTAL
      STOCKHOLDERS' DEFICIT
                
                
                (18,779,407
                )
                
                
                (13,974,349
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' DEFICIT
                
                $
                1,642,417
                
                
                $
                3,742,632





See
accompanying notes to condensed consolidated financial statements


3


SANSWIRE
CORP.  AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





THREE MONTHS ENDED
                
                
                NINE MONTHS ENDEDSEPTEMBER
      30,
                
                
                SEPTEMBER
      30,2010
                
                
                2009
                
                
                2010
                
                
                2009REVENUES
      – related party
                
                $
                —
                
                
                $
                —
                
                
                $
                250,000
                
                
                $
                —COST
      OF REVENUES
                
                
                —
                
                
                
                —
                
                
                
                —
                
                
                
                —GROSS
      MARGIN
                
                
                —
                
                
                
                —
                
                
                
                250,000
                
                
                
                —EXPENSESPayroll
      and related taxes
                
                
                156,590
                
                
                
                153,687
                
                
                
                404,536
                
                
                
                404,023Professional
      and consulting fees
                
                
                701,125
                
                
                
                719,488
                
                
                
                1,780,461
                
                
                
                1,474,117Officers'
      and directors' stock based compensation
                
                
                118,000
                
                
                
                335,750
                
                
                
                1,585,546
                
                
                
                3,246,280Amortization
                
                
                242,175
                
                
                
                242,175
                
                
                
                726,525
                
                
                
                807,250Research
      and development
                
                
                1,818,837
                
                
                
                —
                
                
                
                1,968,837
                
                
                
                —General
      and administrative
                
                
                117,716
                
                
                
                95,460
                
                
                
                266,782
                
                
                
                341,119TOTAL
      EXPENSES
                
                
                3,154,443
                
                
                
                1,546,560
                
                
                
                6,732,687
                
                
                
                6,272,789LOSS
      FROM OPERATIONS
                
                
                (3,154,443
                )
                
                
                (1,546,560
                )
                
                
                (6,482,687
                )
                
                
                (6,272,789
                )OTHER
      INCOME (EXPENSE)Gain
      on extinguishment of debt
                
                
                —
                
                
                
                629,563
                
                
                
                16,788
                
                
                
                629,563Change
      in fair value of derivative liabilities
                
                
                348,485
                
                
                
                (378,532
                )
                
                
                (798,798
                )
                
                
                (2,514,686
                )Interest
      expense, net
                
                
                (106,807
                )
                
                
                (197,145
                )
                
                
                (456,153
                )
                
                
                (1,083,941
                )NET
      OTHER INCOME (EXPENSE)
                
                
                241,678
                
                
                
                53,886
                
                
                
                (1,238,163
                )
                
                
                (2,969,064
                )LOSS
      FROM CONTINUING OPERATIONS
                
                
                (2,912,765
                )
                
                
                (1,492,674
                )
                
                
                (7,720,850
                )
                
                
                (9,241,853
                )LOSS
      FROM DISCONTINUED OPERATIONS
                
                
                (9,782
                )
                
                
                —
                
                
                
                (9,782
                )
                
                
                —NET
      LOSS
                
                $
                (2,922,547
                )
                
                $
                (1,492,674
                )
                
                $
                (7,730,632
                )
                
                $
                (9,241,853
                )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBASIC
      and DILUTED
                
                
                306,095,497
                
                
                
                226,806,725
                
                
                
                297,532,916
                
                
                
                206,213,560LOSS
      PER SHARE FROM CONTINUING OPERATIONSBASIC
      and DILUTED
                
                $
                ( 0.01
                )
                
                $
                ( 0.01
                )
                
                $
                ( 0.03
                )
                
                $
                ( 0.04
                )NET
      LOSS PER SHAREBASIC
      and DILUTED
                
                $
                ( 0.01
                )
                
                $
                ( 0.01
                )
                
                $
                ( 0.03
                )
                
                $
                ( 0.04
                )




See
accompanying notes to condensed consolidated financial statements


4


SANSWIRE
CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010


(Unaudited)





COMMON STOCKADDITIONALPAID-INDescription
                          
                          SHARES
                          
                          
                          AMOUNT
                          
                          
                          CAPITALBALANCE,
      DECEMBER 31, 2009
                          
                          
                          263,040,586
                          
                          
                          $
                          2,631
                          
                          
                          $
                          120,114,115Shares
      issued for cash
                          
                          
                          15,023,492
                          
                          
                          
                          150
                          
                          
                          
                          1,107,062Shares
      issued for settlement of debt
                          
                          
                          10,210,400
                          
                          
                          
                          102
                          
                          
                          
                          586,915Shares
      issued for services
                          
                          
                          23,950,005
                          
                          
                          
                          240
                          
                          
                          
                          1,828,503Fair
      value of vested options issued for officers’ and directors’
      compensation
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          28,596Preferred
      Series E shares cancelled and returned to accrued expenses
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Preferred
      Series E shares cancelled and returned to accounts payable
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —Net
      loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —BALANCE,
      SEPTEMBER 30, 2010
                          
                          
                          312,224,483
                          
                          
                          $
                          3,123
                          
                          
                          $
                          123,665,191





(continued)





See
accompanying notes to condensed consolidated financial statements


5


SANSWIRE
CORP.  AND SUBSIDIARIES (continued)


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2010


(Unaudited)





PREFERRED STOCKADDITIONAL
                    
                    
                    
                    
                    
                    TOTALPAID-IN
                    
                    
                    ACCUMULATED
                    
                    
                    STOCKHOLDERS'Description
                    
                    SHARES
                    
                    
                    AMOUNT
                    
                    
                    CAPITAL
                    
                    
                    DEFICIT
                    
                    
                    DEFICITBALANCE,
      DECEMBER 31, 2009
                    
                    
                    100,000
                    
                    
                    $
                    100
                    
                    
                    $
                    625,894
                    
                    
                    $
                    (134,717,089
                    )
                    
                    $
                    (13,974,349
                    )Shares
      issued for cash
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,107,212Shares
      issued for settlement of debt
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    587,017Shares
      issued for services
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    1,828,743Fair
      value of vested options issued for officers’ and directors’
      compensation
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    28,596Preferred
      Series E shares cancelled and returned  to accrued
      expenses
                    
                    
                    (70,385
                    )
                    
                    
                    (70
                    )
                    
                    
                    (440,537
                    )
                    
                    
                    —
                    
                    
                    
                    (440,607
                    )Preferred
      Series E shares cancelled and returned to accounts payable
                    
                    
                    (29,615
                    )
                    
                    
                    (30
                    )
                    
                    
                    (185,357
                    )
                    
                    
                    —
                    
                    
                    
                    (185,387
                    )Net
      loss
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    (7,730,632
                    )
                    
                    
                    (7,730,632
                    )BALANCE,
      SEPTEMBER 30, 2010
                    
                    
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    (142,447,721
                    )
                    
                    $
                    (18,779,407
                    )





See
accompanying notes to condensed consolidated financial statements


6


SANSWIRE
CORP. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




NINEMONTHSENDEDSEPTEMBER30,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                
                $
                (7,730,632
                )
                
                $
                (9,241,853
                )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Amortization
      of debt discount
                
                
                —
                
                
                
                176,465Amortization
      of intangible asset
                
                
                726,525
                
                
                
                807,250Stock
      based compensation
                
                
                1,828,742
                
                
                
                2,050,726Fair
      value of vested options
                
                
                28,596
                
                
                
                1,707,780Interest
      expense on convertible notes payable
                
                
                314,844
                
                
                
                381,526Change
      in fair value of derivative liabilities
                
                
                798,798
                
                
                
                1,885,123Fair
      value of modification of warrants
                
                
                —
                
                
                
                443,305Increase
      in assets and liabilities:Accounts
      receivable
                
                
                (50,000
                )
                
                
                —Inventories
                
                
                1,545,490
                
                
                
                (1,110,700
                )Accounts
      payable
                
                
                1,017,224
                
                
                
                1,270,636Accrued
      expenses and other liabilities
                
                
                556,477
                
                
                
                175,736Liabilities
      from discontinued operations
                
                
                (21,477
                )
                
                
                —NET
      CASH USED IN OPERATING ACTIVITIES
                
                
                (985,413
                )
                
                
                (1,454,006
                )CASH
      FLOWS FROM INVESTING ACTIVITIES:Deposits
                
                
                (12,695
                )
                
                
                (11,150
                )NET
      CASH USED IN INVESTING ACTIVITIES
                
                
                (12,695
                )
                
                
                (11,150
                )CASH
      FLOWS FROM FINANCING ACTIVITIES:Payments
      on notes payable
                
                
                —
                
                
                
                (25,411
                )Proceeds
      from notes and loans payable
                
                
                —
                
                
                
                140,000Proceeds
      from sale of common stock
                
                
                1,107,212
                
                
                
                1,353,450NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                
                
                1,107,212
                
                
                
                1,468,039NET
      INCREASE IN CASH AND EQUIVALENTS
                
                
                109,104
                
                
                
                2,883CASH
      AND EQUIVALENTS – BEGINNING OF PERIOD
                
                
                12
                
                
                
                4,809CASH
      AND EQUIVALENTS – END OF PERIOD
                
                $
                109,116
                
                
                $
                7,692SUPPLEMENTAL
      DISCLOSURES:Cash
      paid during the period for:Interest
                
                $
                —
                
                
                $
                2,903NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Shares
      issued for accounts payable
                
                
                433,017
                
                
                
                13,031Shares
      issued for accrued expenses
                
                
                154,000
                
                
                
                43,750Conversion
      of notes payable to common stock
                
                
                28,500
                
                
                
                2,618,973Non-cash
      equity-warrant valuation and intrinsic value of beneficial conversion
      associated with convertible notes
                
                
                —
                
                
                
                28,060Preferred
      stock for accrued expenses
                
                
                —
                
                
                
                440,607Preferred
      stock for accounts payable
                
                
                —
                
                
                
                185,387Accrued
      expenses from cancellation of Preferred stock
                
                
                440,607
                
                
                
                —Accounts
      payable from cancellation of Preferred stock
                
                
                185,387
                
                
                
                —





See
accompanying notes to condensed consolidated financial statements


7


SANSWIRE
CORP. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(UNAUDITED)





NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES





NATURE OF
OPERATIONS





The
Company develops, markets and sells autonomous, lighter-than-air (“LTA”)
unmanned aerial vehicles (“UAVs”) capable of carrying payloads that provide
persistent security solutions at low, mid and high altitudes.  The
Company’s airships are designed for use by government-related and commercial
entities that require real-time intelligence, surveillance and reconnaissance
support for military, homeland defense, border and maritime
missions.





BASIS OF
PRESENTATION





The
accompanying unaudited condensed consolidated financial statements include the
accounts of Sanswire Corp. and its subsidiaries (“Sanswire” or the “Company”)
and have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S. GAAP”) for interim financial
information and reports and pursuant to the requirements for reporting on
Form 10-Q and Regulation S-X for scaled disclosures for smaller reporting
companies. Accordingly, they do not include all, or include a condensed version
of, the information and footnotes required by U.S. GAAP for complete financial
statements. The Company believes, however, that the disclosures are adequate to
make the information presented not misleading.  However, the Company’s
condensed consolidated financial statements reflect all adjustments (consisting
solely of normal recurring adjustments), which are, in the opinion of
management, necessary for the fair presentation of the consolidated financial
position and the consolidated results of operations of the Company for the
periods shown. Results shown for interim periods are not necessarily indicative
of the results to be obtained for a full fiscal year or for any future
period. The preparation of financial statements in conformity with U.S.
GAAP requires us to make estimates, judgments and assumptions that affect the
amounts reported in the consolidated financial statements. Actual results may
differ from management’s estimates.





The
condensed consolidated balance sheet information as of December 31, 2009 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission (“SEC”) for the fiscal year ended December 31, 2009. These
interim condensed consolidated financial statements should be read in
conjunction with the Company’s most recently audited financial statements and
the notes thereto included in such above referenced Report on Form
10-K.





The
Company applies the provisions of U.S. GAAP applicable to consolidations of
variable interest entities to its investment in Sanswire-TAO.  Under
U.S. GAAP, a variable interest entity 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 September 30, 2009, the
Company determined that such consolidation of Sanswire-TAO was
appropriate.  Inter-company accounts and transactions have been
eliminated in consolidation.





GOING
CONCERN





The
accompanying condensed consolidated 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.
However, as reflected in the accompanying condensed consolidated financial
statements, the Company had a net loss of $7,730,632 and used cash in operating
activities of $985,413 for the nine months ended September 30, 2010, and had a
working capital deficit of $20,256,302 and a stockholders’ deficit of
$18,779,407 at September 30, 2010. The Company had an accumulated deficit
of $142,447,721 at September 30, 2010 compared to $134,717,089 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 and
implement its business plan. The condensed consolidated financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company anticipates that a net loss will
continue for the balance of fiscal year 2010.


8


In light
of the above factors, additional cash will be needed to support the Company’s
ongoing operations until such time that operations provide sufficient cash flow
to cover expenditures. The Company believes it will be able to continue to raise
capital through Common Stock sales and from governmental grants in such amounts
sufficient to sustain operations at their current level through at least
December 31, 2010.  If the Company is able to raise additional funds
through the issuance of equity securities, substantial dilution to existing
shareholders may result.  Subsequent to September 30, 2010, the
Company has raised $250,000.  However, if significant unanticipated
expenditures occur or if the Company is unable to obtain the necessary
additional funding on favorable terms or at all, the Company may have to modify
its business plan, reduce, delay, or discontinue some of its operations or seek
a buyer for all or a portion of its assets to continue as a going
concern.





CASH AND
CASH EQUIVALENTS





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





REVENUE
RECOGNITION





The
Company develops and sells LTA UAV’s. The Company recognizes revenue for such
sales when the following criteria have been met: delivery of the UAV has
occurred, the price of the UAV is fixed and determinable, collection of such
price is probable, and persuasive evidence of an arrangement exists.  
The Company recognized $250,000 in revenue for the nine months ended September
30, 2010 from the sale of one UAV and no revenue for the nine months ended
September 30, 2009.





ACCOUNTS
RECEIVABLE





Trade and
other accounts receivable are reported at face value, less any provisions for
uncollectible accounts considered necessary. Accounts receivable consists of
trade receivables from customers and a receivable in connection with the sale of
a 50% interest in a SkySAT airship. (See Note 3)





INVENTORIES





Inventories
consist of work in progress related to the Company's consolidated joint venture
Sanswire-TAO. Inventories are stated at the lower of cost or market. Cost is
determined principally on a first-in-first-out average cost basis. (See Notes 6
and 7)





INCOME
TAXES





Income
taxes are computed using 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 its tax returns. (See Note
13)





FAIR
VALUE MEASUREMENTS





U.S. GAAP
includes a framework for measuring fair value which also addresses disclosure
requirements for fair value measurements. Fair value is the price that would be
received upon sale of an asset or paid upon transfer of a liability in an
orderly transaction between market participants at the measurement date and in
the principal or most advantageous market for that asset or liability. The fair
value, in this context, should be calculated based on assumptions that market
participants would use in pricing the asset or liability, not on assumptions
specific to the entity. In addition, the fair value of liabilities should
include consideration of non-performance risk, including the Company’s own
credit risk.


9


Under the
measurement framework, a fair valuation hierarchy for disclosure of the inputs
to valuation used to measure fair value has been established. This hierarchy
prioritizes the inputs into three broad levels that reflect the degree of
subjectivity necessary to determine fair value measurements, as
follows.  Level 1 inputs are based on unadjusted quoted prices in
active markets for identical assets or liabilities.  Level 2 inputs
are based on 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
asset or liability.  Level 3 inputs are unobservable inputs and
reflect the Company’s estimates of assumptions that market participants would
use to measure assets and liabilities at fair value.  The fair values
are therefore determined using model-based techniques that include option
pricing models and discounted cash flow models. A financial asset or liability’s
classification within the hierarchy is determined based on the lowest level
input that is significant to the fair value measurement.





The
following table provides the assets and liabilities carried at fair value
measured on a recurring basis as of September 30, 2010 (unaudited):





Fair Value Measurements at September 30, 2010
      Using:September30,
                  2010
                
                
                (Level 1)
                
                
                (Level 2)
                
                
                (Level 3)Cash
      and cash equivalents
                
                $
                109,116
                
                
                $
                109,116
                
                
                $
                —
                
                
                $
                —Derivative
      liabilities
                
                
                2,205,463
                
                
                
                —
                
                
                
                —
                
                
                
                2,205,463$
                2,414,579
                
                
                $
                109,116
                
                
                $
                —
                
                
                $
                2,205,463





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, due to use of an estimate of volatility factors. There were no
changes in the valuation techniques during the three months ended September 30,
2010.





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.





USE OF
ESTIMATES





The
process of preparing financial statements in conformity with U.S. GAAP requires
the use of estimates, judgments and assumptions regarding certain types of
assets, liabilities, revenues, and expenses. These estimates, judgments and
assumptions are evaluated on an ongoing basis. The Company bases its estimates
on historical experience and on various other assumptions that it believes are
reasonable at that time, the results of which form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. 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 the Company’s
estimated amounts.





BASIC AND
DILUTED NET LOSS PER COMMON SHARE





Basic and
diluted net loss per common share 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 used in the diluted net loss per share calculation excludes all
outstanding options, warrants and shares convertible or exercisable into shares
of Common Stock (“Common Stock Equivalents”) because their inclusion would be
anti-dilutive. If all Common Stock Equivalents were to be converted or exercised
as of September 30, 2010, the common shares outstanding would be
386,767,991.   As of November 12, 2010, the Company had
317,876,226 shares of its Common Stock outstanding. The Company is obligated
under various existing agreements, options and warrants to issue additional
shares of Common Stock.


10


IMPAIRMENT
OF LONG-LIVED ASSETS





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. Impairment is recognized when the carrying amount is not
recoverable and exceeds the fair value of the asset.  The impairment
loss is measured as the amount by which the carrying amount exceeds fair
value.  Long-lived assets to be disposed of, if any, are reported at
the lower of carrying amount or fair value less cost to sell. The Company has
not recognized any impairment loss as of September 30, 2010 or December 31,
2009. (See Note 7)





INTANGIBLE
ASSETS





Intangible
assets are related to intellectual property in the Company's consolidated joint
venture Sanswire-TAO.  Intangible assets with finite lives are
amortized over their estimated useful lives, which are three years for patents
and intellectual property.  In addition to amortization, intangible
assets are tested at least annually for impairment, or whenever events or
changes in circumstances indicate that the carrying amount should be
assessed.  An asset is considered impaired if its carrying amount
exceeds the future net cash flow the asset is expected to generate. If an asset
is considered to be impaired, the impairment to be recognized is measured by the
amount by which the carrying amount of the asset exceeds its fair
value.  The Company generally measures fair value by considering sales
prices for similar assets or by discounting estimated future net cash flows from
such assets using a discount rate reflecting the Company's average cost of
capital. (See Note 7)





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 current earnings or
other comprehensive income in the condensed consolidated statements of
operations.  For stock-based derivative financial instruments, the
Company uses the Black-Scholes option pricing model to value the derivative
instruments at inception and on subsequent valuation dates.  The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is evaluated at the end of each
reporting period.  Derivative instrument liabilities are classified in
the balance sheet as current or non-current based on whether or not net-cash
settlement of the derivative instrument could be required within 12 months of
the balance sheet date. (See Note 8)





STOCK-BASED
COMPENSATION





The
Company periodically issues stock options to employees and non-employees in
non-capital raising transactions for services. The Company accounts for stock
option issuances and vesting to employees based on the grant date fair value of
the option and charges to expense as they vest over the requisite service
period. The Company accounts for stock option grants issued and vesting to
non-employees based on the fair value determined at either a) the date at which
a performance commitment is reached, or b) the date at which the necessary
performance to earn the equity instruments is complete. Stock-based compensation
expense for employees and non-employees recognized for the nine months ended
September 30, 2010 and 2009 was $1,828,742 and $2,050,726,
respectively. (See Note 11)





NOTE
2. DISCONTINUED OPERATIONS





The
Company decided to close several of its operations relating to its telecom and
wireless activities during 2007 and has presented certain activities as
discontinued operations as of September 30, 2010.


11


The
Company has the following assets and liabilities from its discontinued
operations on its consolidated balance sheet as of September 30, 2010
(unaudited) and December 31, 2009:





SEPTEMBER
      30, 2010 (Unaudited)
                
                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
                
                
                
                —
                
                
                
                9,605Total
      current liabilities
                
                
                149,721
                
                
                
                1,216,208
                
                
                
                1,365,929Net
      liabilities of discontinued operations
                
                $
                143,315
                
                
                $
                1,216,208
                
                
                $
                1,359,523





DECEMBER
      31, 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





The
Company incurred the following losses from discontinued operations for the three
and nine months ended September 30, 2010 (no activity for comparative periods in
2009):





Three
      and nine months ended September 30, 2010
                  (Unaudited)
                
                Telecom
                
                
                GlobeTel
      Wireless
                
                
                TotalGeneral
      and administrative
                
                $
                —
                
                
                
                9,782
                
                
                $
                9,782Gain/loss
      from discontinued operations
                
                $
                —
                
                
                $
                9,782
                
                
                $
                9,782





NOTE
3. SKYSAT SALE




On April
20, 2010, the Company and Global Telesat Corp. (“GTC”), a shareholder of the
Company, entered into an agreement whereby GTC purchased a 50% interest in the
Company’s SkySat Mid Altitude, LTA UAV airhsip.  The Company is
required to utilize the purchase price paid to complete the requisite
development work so that the airship may be tested and demonstrated to potential
customers.





The
Company delivered the airship to a destination and facility designated by
GTC.  The Company received a deposit of $50,000 on March 25, 2010
which has been applied as a payment. The Company recognized revenue of $250,000
and to date has received $200,000.   The remaining balance of
$50,000 is reflected as accounts receivable.





The
Company has granted to GTC, upon the payment in full of the remaining purchase
price, a first lien and security interest in the airship and all remedies of a
secured creditor under the Uniform Commercial Code. The Company also granted GTC
the option to acquire the remaining 50% of the airship for an amount equal to 3
times the amount paid for the initial 50% interest.  Upon exercising
such option, GTC will be required to pay 1/3 of the remaining purchase price
within ten business days and two additional payments of 1/3 each at 30-day
intervals.  The option expires December 31, 2010.


12


NOTE
4. ACCRUED EXPENSES AND OTHER LIABILITIES





Accrued
expenses and other liabilities consisted of the following:





September 30,
                    2010
                    (Unaudited)
                  
                  
                  December
31,
                    2009Payroll
      liabilities
                  
                  $
                  1,575,931
                  
                  
                  $
                  1,007,079Professional
      fees and other costs
                  
                  
                  393,177
                  
                  
                  
                  118,946Due
      to joint venture partner
                  
                  
                  2,185,000
                  
                  
                  
                  2,185,000ACCRUED
      EXPENSES AND OTHER LIABILITIES
                  
                  $
                  4,154,108
                  
                  
                  $
                  3,311,025




NOTE
5. NOTES PAYABLE





Obligations
at September 30, 2010 and December 31, 2009 were as follows:





September 30,
                    2010
                    (Unaudited)
                  
                  
                  December 31,
                    2009Notes
      payable
                  
                  $
                  5,997,030
                  
                  
                  $
                  5,997,030Accrued
      interest
                  
                  
                  1,709,532
                  
                  
                  
                  1,394,688NOTES
      PAYABLE
                  
                  $
                  7,706,562
                  
                  
                  $
                  7,391,718





NOTES
PAYABLE





Notes
payable are comprised of two separate notes.





As of
September 30, 2010 and December 31, 2009, a balance of $4,997,130 remained
payable to an unrelated third party on an unsecured promissory note with no
formal terms of repayment on this note.  The Company has accrued interest
at a rate of 7% per annum, which totals $1,424,893 from inception to September
30, 2010 and $1,162,544 from inception to December 31, 2009.





As of
September 30, 2010 and December 31, 2009, a balance of $999,900 remained payable
to a different unrelated third party on an unsecured promissory note with no
formal terms of repayment on this note.  The Company has accrued interest
at a rate of 7% per annum, which totals $284,639 from inception to September 30,
2010 and $232,144 from inception to December 31, 2009.





CONVERTIBLE
PROMISSORY NOTE





On April
1, 2010, the Company entered into a subscription agreement with an accredited
investor. The Company sold $28,500 of the Company’s 7% Convertible Debentures,
which are convertible into shares of the Company’s Common Stock at $0.075 per
share pursuant to the following terms. The proceeds related to this investment
were paid by the Company to the Internal Revenue Service to settle an
outstanding issue during the three months ended September 30, 2010. On September
30, 2010, the balance of $28,500 of principal and $2,280 of related interest
were converted into 410,400 shares of the Company’s Common Stock.





NOTE
6.  INVENTORIES





Inventories
are related to the Company's consolidated joint venture Sanswire-TAO (see Note
7).  Inventories are stated at the lower of cost or market. Cost is
determined principally on a first-in-first-out average cost
basis.  Inventories consist of the following at:





September 30,
                  2010
                  (Unaudited)
                
                
                December 31,
                  2009Work
      in process
                
                $
                —
                
                
                $
                1,545,490Total
      inventories
                
                
                —
                
                
                
                1,545,490


13


During
the three months ended September 30, 2010, it was determined by the Company and
its partner that the airship that had been transported from Germany to the U.S.
would no longer be upgraded and sold to a customer.  Instead, the
decision was made to use the airship to engage in further research and
development for purposes of completing necessary flight testing and
demonstrations and data gathering required to be able to further develop and to
sell next generation airships.  It was at this time that it was
determined that the existing asset on the Company’s books constituted research
and development rather than work in process/inventory.





NOTE
7.  JOINT VENTURE AND INTANGIBLE ASSETS





On June
3, 2008, the Company restructured a previous agreement with TAO Technologies
GmbH and Professor Bernd Kroeplin. The new agreement called for the
establishment of a US-based joint venture company to be called Sanswire-TAO that
was to be owned equally by TAO and Sanswire Corp., through its wholly-owned
subsidiary Sanswire Corp.—Florida.  The agreement required TAO
Technologies and Kroeplin to transfer the patents and intellectual property of
TAO Technologies and Kroeplin in the United States to Sanswire-TAO for a payment
of $3,229,000.





On June
3, 2008, the Company accounted for the transaction as a purchase of assets and
recognized a $3,229,000 intangible asset related to the intellectual property,
including existing patents. The Company has made cash and stock payments of
$1,044,000 through September 30, 2010 and the remaining balance of $2,185,000
due is included in accrued expenses as of September 30, 2010 and December 31,
2009 (See Note 4).





The
Company determined that the intellectual property intangible assets have a
finite life equal to the remaining life of the patent, which is through March 3,
2012, and accordingly, is subject to amortization using that life or 40 months,
which is $80,725 per month. The Company determined that the appropriate method
of determining if any impairment has occurred was to assess the stated value for
the intangible assets and during the normal process of testing for intangible
asset impairment, the Company determined there were no cash flows associated
with the Company’s intangible assets and thus no impairment was required as of
September 30, 2010 and December 31, 2009.





NOTE 8.  DERIVATIVE
LIABILITIES





Derivative
instruments are carried 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.





The fair
value of derivative liabilities was determined using the Black-Scholes option
pricing model with the following assumptions:





September30,
                      2010
                      (Unaudited)
                    
                    
                    December 31,
                      2009Warrants:Risk-free
      interest rate
                    
                    
                    0.16
      – 0.64
                    %
                    
                    
                    0.14
      – 1.45
                    %Expected
      volatility
                    
                    
                    34
      - 183
                    %
                    
                    
                    10
      - 168
                    %Expected
      life (in years)
                    
                    
                    0.08
      – 3.00
                    
                    
                    
                    0.08
      – 2.92Expected
      dividend yield
                    
                    
                    —
                    
                    
                    
                    —Fair
      value:Warrants
                    
                    $
                    2,205,463
                    
                    
                    $
                    1,406,665





The
risk-free interest rate was based on rates established by the Federal
Reserve.  The Company’s expected volatility was based upon the
historical volatility for its Common Stock.  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. CONTINGENCIES





In the
ordinary conduct of business, the Company is subject to periodic lawsuits,
investigations and litigation claims, which the Company accrues for where
appropriate. The Company cannot predict with certainty the ultimate resolution
of such lawsuits, investigations and claims asserted against it.  As
of September 30, 2010, the Company had the following material
contingencies:


14


Securities and Exchange
Commission





On May 2,
2008, the SEC filed a lawsuit in the United States District Court for the
Southern District of Florida against GlobeTel Communications Corp. 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
such amendment did not add any new defendants. The Company has been vigorously
defending itself in this action and in August/September 2010 the Company’s newly
elected Chairman of the Board, Michael Clark, and its Chief Executive Officer,
Glenn Estrella, met with representatives of the SEC to discuss a possible
resolution of the matter.  Pursuant to those discussions, the Company
has submitted an offer of settlement and is awaiting approval from the SEC of
the proposal.





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 plaintiffs filed a Summary Judgment Motion on which the parties are
waiting for a ruling from the Court.  The Company intends to
vigorously defend the action, but the outcome of the action cannot be
predicted.





Former
Consultants





Two
lawsuits filed by Matthew Milo and Joseph Quattrocchi were concluded through a
dismissal of all claims against the Company with the exception of one on which a
judgment on a promissory note was entered against the Company in the amount of
approximately $15,000.





Tsunami Communications v.
GlobeTel





On March
3, 2006, Civil Action File No. 06-A-02368-5 was filed in Superior Court for
Gwinnett County Georgia by Tsunami Communications and several of its former
shareholders.  The Company asserted affirmative defenses and a trial
was held in November 2009. By Order of the Court entered on September 2, 2010, a
judgment was entered against Globetel and several other co-defendants for the
breach by Sanswire Technologies, Inc. (“ST”) (a then unrelated party) of its
asset purchase agreement with the plaintiff Tsunami based on a deemed de facto
merger resulting from a subsequent asset purchase agreement between ST and
Globetel.  As damages, Globetel was ordered to issue 530,015 shares of
Common Stock to former shareholders of Tsunami and pay $229,180 to a former
Tsunami shareholder with respect to two outstanding promissory
notes.  The Court in its Order left open the issue of any award for
attorneys fees for a later hearing.





Subsequent
to the Order, the plaintiffs have filed a Motion for Reconsideration asking the
Court to reconsider its decision to deny several of the plaintiffs’
claims.  In addition, plaintiffs are requesting the Court to
reconsider and substantially increase the award of damages.  The
Company is continuing to vigorously defend itself in this matter.





Peter
Khoury





Former
Company CEO Peter Khoury has filed an arbitration against the Company asserting
claims for payment of amounts claimed to be due in connection with his services
provided to the Company.  The Company intends to review and respond to
the allegations and defend itself vigorously in this matter.


15


The DeCarlo
Group





A demand
has been received from the DeCarlo Group for over $400,000 claimed in connection
with CFO and accounting services they assert they rendered to the
Company.  The Company intends to review and respond to the allegations
and defend itself vigorously in this matter.





IRS





During
each of the three month periods ended September 30, 2010 and 2009, Sanswire
incurred and reported to the Internal Revenue Service (“IRS”) payroll tax
liabilities (and deposited the appropriate withholding amounts) during the
normal course of business at each payroll cycle. During 2008, the Company
reported its payroll tax liabilities on a timely basis, however, it failed to
deposit the appropriate withholding amounts. These matters relate
to liabilities associated with the Company’s subsidiaries that were run by
old management, which have been shut down and are classified in discontinued
operations. The Company recognized this issue and, accordingly, contacted
the IRS to make arrangements to pay any taxes due. One such matter has been
resolved with the IRS, and the Company currently estimates the amount
involved in the second matter to be approximately $200,000.  The
Company may be subject to additional penalties and interest from the IRS in
connection with these payroll tax matters.





Michael Clark Escrow
Funds





On
September 29, 2010, the Company, Michael K. Clark, its Chairman of the Board,
and Hinshaw & Culbertson LLP (“Hinshaw”) entered into that certain Escrow
and Stock Purchase Agreement pursuant to which Clark agreed to provide $250,000,
(the “Settlement Funds”) to be held in escrow by Hinshaw.  Those funds
are being provided by Mr. Clark, pursuant to ongoing discussions with the
Securities and Exchange Commission (“SEC”), to facilitate the Company’s effort
and offer to settle pending litigation with the SEC.  The Company has
offered the Settlement Funds to the SEC as part of a settlement offer in the
amount of $300,000, of which $50,000 shall be funded directly by the
Company.  Additionally, pursuant to the agreement, in the event a
settlement is entered with the SEC whereby the Settlement Funds are utilized,
then Clark and the Company will enter into a Stock Purchase Agreement whereby
Clark will receive 4,000,000 shares of Common Stock of the Company in
consideration for the Settlement Funds.





The
Company provides indemnification, to the extent permitted by law, to its
officers, directors, employees and agents for liabilities arising from certain
events or occurrences while the officer, director, employee, or agent is or was
serving at the Company’s request in such capacity.





NOTE
10. COMMON STOCK TRANSACTIONS





During
the nine month period ended September 30, 2010, the Company issued an aggregate
of 49,183,897 shares of Common Stock for cash, settlement of debt, board
compensation, consulting agreements and for services. Of the shares of Common
Stock issued, 15,023,492 shares were issued for cash and 19,750,000 shares, or
40.2% were issued to insiders and affiliates as restricted securities under an
exemption provided by Section 4(2) of the Securities Act of 1933 and/or
Regulation D, Rule 506, promulgated under the Securities Act of 1933. The Common
Stock issued for cash was valued at $0.075 while other issuances were valued at
prices ranging from $0.044 to $0.105 per share, based on the closing market
prices on the date the Board of Directors authorized the
issuances. Subsequent to September 30, 2010, the Company has issued an
aggregate of 5,651,743 shares of Common Stock of which 1,000,000 shares were
issued for employment bonuses, 894,409 shares for the settlement of debt,
424,000 shares for services and 3,333,334 shares for $250,000.





NOTE
11. STOCK OPTIONS AND WARRANTS





STOCK
OPTIONS





During
the three months ended September 30, 2010, the Company issued no
options.  During the nine months ended September 30, 2010, the Company
issued options to acquire 700,000 shares of Common Stock to its former CEO and
director.  The Company recorded $0 and $28,596 of compensation expense
related to these options to acquire Common Stock in the three and nine months
ended September 30, 2010, respectively.





The fair
value of the options granted during the three and nine months ended September
30, 2010 were determined using the Black-Scholes option pricing model. The
option-pricing models require input of subjective assumptions including the
estimated life of the option and the expected volatility of the underlying stock
over the estimated life of the option. The Company uses historical volatility as
a basis for projecting the expected volatility of the underlying stock and
estimate the expected life of the Company’s stock options based upon historical
data.


16




The
Company believes that the valuation technique and the approach utilized to
develop the underlying assumptions are appropriate in calculating the fair value
of its stock option grants. Estimates of fair value are not intended, however,
to predict actual future events or the value ultimately realized by employees
who receive equity awards.




For the
periods indicated, the weighted-average fair value of options and
weighted-average assumptions used were as follows: 1.02% average risk-free
interest rate; 152% expected volatility; three year expected term, and 0%
dividend yield.





Employee
options vest according to the terms of the specific grant and expire
3 years from the date of grant. As of September 30, 2010, all options
issued and outstanding have fully vested. Stock option activity as of September
30, 2010 was as follows:





Number of Options
                    (in shares)
                  
                  
                  Weighted Average
                    Exercise Price
                  
                  
                  Weighted Average
                    Remaining
                    ContractualLife
                    (in years)Outstanding
      at December 31, 2009
                  
                  
                  38,042,499
                  
                  
                  $
                  0.298
                  
                  
                  
                  1.98Options
      Granted
                  
                  
                  700,000
                  
                  
                  
                  0.075
                  
                  
                  
                  2.25Options
      Exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Options
      Expired
                  
                  
                  (12,881,387
                  )
                  
                  
                  (0.171
                  )
                  
                  
                  —Outstanding
      at September 30, 2010
                  
                  
                  25,861,112
                  
                  
                  $
                  0 .065
                  
                  
                  
                  1.68Exercisable
      at September 30, 2010
                  
                  
                  25,861,112
                  
                  
                  $
                  0
      .065
                  
                  
                  
                  1.68





WARRANTS





The
following table summarizes the activity with respect to outstanding stock
purchase warrants for the nine months ended September 30, 2010:





Warrants
                    Class A
                  
                  
                  Warrants
                    Class B
                  
                  
                  Weighted Average
                    Exercise PriceOutstanding
      at December 31, 2009
                  
                  
                  18,933,804
                  
                  
                  
                  15,651,411
                  
                  
                  $
                  0.258Warrants
      Granted
                  
                  
                  7,628,784
                  
                  
                  
                  7,368,257
                  
                  
                  
                  0.252Warrants
      Expired
                  
                  
                  (527,395
                  )
                  
                  
                  (372,465
                  )
                  
                  
                  (0.252
                  )Outstanding
      at September 30, 2010
                  
                  
                  26,035,193
                  
                  
                  
                  22,647,203
                  
                  
                  $
                  0.256





The
aggregate intrinsic value of 25,861,112 options and 26,035,193 Class A and
22,647,203 Class B warrants outstanding and exercisable as of September 30, 2010
was $7,092,613. 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 Stock for the options that were in-the-money as of
September 30, 2010. At September 30, 2010, all warrant shares were
vested. Therefore there is no unamortized cost to be recognized in future
periods.





NOTE
12. PREFERRED STOCK





On
September 30, 2010, the Company entered into agreements with Rocky Mountain
Advisors Corp. (“Rocky”), Jonathan Leinwand (“Leinwand”), and Daniyel Erdberg
(“Erdberg”) (collectively, the “Shareholders”), cancelling the conversion
agreements (the “Conversion Agreements”) previously entered into on May 5, 2009,
with each of the Shareholders.





The
Company and the Shareholders have agreed to cancel the Conversion Agreements and
reinstate the past wages or fees of $185,387, $319,118 and $121,489
(collectively, the “Wages”) owed to Rocky, Leinwand and Erdberg,
respectively.  In connection with the cancellation of the Conversion
Agreements, the Shareholders have agreed to waive their rights to the 29,615,
50,978 and 19,407 shares of Series E Preferred Stock (collectively, the
“Shares”) deliverable to Rocky, Leinwand and Erdberg, respectively, allowing the
Company to cancel the Shares.  As a result of the cancellation, the
Company has cancelled the Shares and agreed to reinstate the Wages as a debt on
the books of the Company.





As of the
date hereof, the Company is obligated to pay the Wages.  The Wages are
a debt obligation arising other than in the ordinary course of business which
constitute a direct financial obligation of the Company.


17


NOTE
13. INCOME TAXES





The
Company has federal and state net operating loss (NOL) carryforwards, which can
be used to offset future earnings. Accordingly, no provision for income taxes is
recorded in the condensed consolidated 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.





NOTE
14. SUBSEQUENT EVENTS





The
Company has evaluated subsequent events from the balance sheet
date.  The following material subsequent event was as
follows:





On
November 10, 2010, Sanswire Corp. entered into a Securities Purchase Agreement
(the “Agreement”) with Glenn D. Estrella, the Company’s Chief Executive Officer
and President, and other investors (who are existing shareholders of the
Company) (the “Additional Investors”)  for the purchase of common
stock of the Company (the “Common Stock”).  Mr. Estrella purchased
1,333,334 shares of Common Stock at a purchase price of $0.075 per share for a
total purchase price of approximately $100,000, which shares are restricted
pursuant to the Securities Act of 1933, as amended, and the rules promulgated
thereunder.  Mr. Estrella also received a Common Stock Purchase
Warrant (the “Warrant”) to purchase an additional 666,667 shares of Common Stock
at a purchase price of $0.21 per share, which warrant expires in three
years.  The Warrant is exercisable on a cashless basis and contains a
standard weighted average anti-dilution protection feature.





Pursuant
to the Agreement, the Company is authorized to sell up to an aggregate of
$1,000,000 of Common Stock and Warrants, $250,000 of which was purchased at the
initial closing on November 10, 2010.  At the initial closing, Mr.
Estrella and the Additional Investors purchased an aggregate of 3,333,334 shares
of Common Stock and Warrants to purchase an aggregate of 1,666,667 shares of
Common Stock.  No underwriting discount or commissions were paid in
connection with the Agreement or the initial closing thereunder.





Item
2.  Management's Discussion and Analysis of Financial Condition and
Results of Operations





This
Quarterly Report on Form 10-Q, including this Management’s Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements regarding future events and our future results that
are subject to the safe harbors within the meaning of the Private Securities
Litigation Reform Act of 1995, and created under the Securities Act of 1933 and
the Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts are statements that could be deemed
forward-looking statements.




Certain
statements in this report may contain words such as “anticipates,” “expects,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “could,” “would”
and other similar language and are considered forward looking statements or
information under applicable securities laws. In addition, any information or
statements that refer to expectations, beliefs, plans, projections, objectives,
performance or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking, and based on our
current expectations, estimates, forecasts and projections about the operating
environment, economies and markets in which we operate. Such forward-looking
information or statements are subject to important assumptions, risks and
uncertainties that are difficult to predict, and the actual outcome may be
materially different. Our assumptions, although considered reasonable by us at
the date of this Report, may prove to be inaccurate and consequently our actual
results could differ materially from the expectations set out
herein.




We
undertake no obligation to revise or publicly release the results of any
revisions to these forward-looking information or statements. You should
carefully review documents we file from time to time with the Securities and
Exchange Commission. A number of factors may materially affect our business,
financial condition, operating results and prospects. These factors include but
are not limited to those set forth in our Annual Report on Form 10-K and
elsewhere in this Report. Any one of these factors may cause our actual results
to differ materially from recent results or from our anticipated future results.
You should not rely too heavily on the forward-looking statements contained in
this Quarterly Report on Form 10-Q, because these forward-looking statements are
relevant only as of the date they were made.


18




The
following MD&A is intended to help readers understand the results of our
operation and financial condition, and is provided as a supplement to, and
should be read in conjunction with, our condensed consolidated financial
statements and the accompanying Notes to Condensed Consolidated Financial
Statements (the Notes) under Part I, Item1 of this Quarterly Report on Form
10-Q.




Growth
and percentage comparisons made herein generally refer to the three and nine
months ended September 30, 2010 compared with the three and nine months
ended September 30, 2009, respectively unless otherwise noted.




Where
we say “we”, “us”, “our”, “Sanswire” or “the Company”, we mean Sanswire Corp. or
Sanswire Corp.  and its subsidiaries, as applicable.





THE
COMPANY





Sanswire
Corp. develops, markets and sells autonomous, LTA UAVs capable of carrying
payloads that provide persistent security solutions at low, mid and high
altitudes.  The Company’s airships are designed for use by
government-related and commercial entities that require real-time intelligence,
surveillance and reconnaissance support for military, homeland defense, border
and maritime missions.





From 2002
to 2007, the Company was involved in the following businesses, all of which
operations have been discontinued by the Company except the high altitude
airship business:





·
            stored
      value card services;


·
            wholesale
      telecommunications services;


·
            voice
      over IP;


·
            wireless
      broadband; and


·
            high
      altitude airships.





In 2007,
we began focusing exclusively on the LTA UAV market opportunities through our
wholly-owned subsidiary at the time, Sanswire Networks and in connection
therewith, on September 22, 2008, we effected a name change to Sanswire
Corp.





QUARTERLY
HIGHLIGHTS AND RECENT EVENTS





·
            Completed
      construction and outfitting of a newly built, Company owned, 172,000 cubic
      foot hangar facility in Easton, Maryland to house our STS-111 and SkySat
      LTA UAVs during continued develop, testing, demonstrations and integration
      of systems and payloads.


·
            Began
      the integration with its technical partner, Eastcor Engineering, of
      systems, payloads and specialized intelligence, surveillance and
      reconnaissance related electronic systems, advanced avionics packages and
      telemetry solutions provided to the Company by a defense based systems
      integrator collaborating with the Company, into a newly designed payload
      bay on the STS-111 LTA UAV.


·
            Completed
      initial U.S. based test flights of the Company’s STS-111 LTA UAV using a
      newly developed sensor electronics pod and an internal gas bag arrangement
      under flight tower control provided by Easton Airport in Easton,
      Maryland.


·
            Sponsored
      the High Altitude and Near Space Conference in Colorado Springs, Colorado,
      an industry leading forum focused on the rapid development and growth of
      the near space market supported by major government related and commercial
      entities.  Michael Clark, our Chairman of the Board, gave the
      keynote address to open the conference and the Company was able to
      showcase its technology roadmap in the near space
  market.


·
            Submitted
      an offer of settlement to the SEC to potentially resolve the SEC’s
      outstanding lawsuit against the Company, upon which the Company is
      currently awaiting approval from the SEC, based in part on a $300,000
      payment to the SEC ($250,000 of which was provided to the Company by its
      Chairman of the Board and which is currently in
  escrow).


·
            Hired
      a new Vice President, General Counsel and Secretary of the Company, who
      was a former partner in several large law firms in Boston, Massachusetts
      and who has extensive expertise in public company reporting, operations,
      corporate governance, control procedures and ethics, to work with the
      Company’s Board of Directors and senior management
  team.




19


RESULTS OF OPERATIONS





COMPARISON
OF THREE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





REVENUES.
The Company had no revenue for the three months ended September 30, 2010 and
2009.





OPERATING
EXPENSES. Our operating expenses consist primarily of payroll and related taxes,
professional and consulting services, stock based compensation, research and
development as well as expenses for executive and administrative personnel,
insurance, facilities expenses, travel and related expenses,
amortization and other general corporate expenses. Our operating expenses for
the three month period ended September 30, 2010 were $3,154,443 compared to
$1,546,560 for the three month period ended September 30, 2009 an increase of
$1,607,883 or 104%. The increase was primarily due to a $1,818,837 increase
in research and development including the charge off of previously recognized
work in process related to the Sanswire-Tao joint venture offset in part by a
$217,750 reduction in stock based compensation due to a greater issuance of
shares for employment related milestones during the three months ended September
30, 2009.





LOSS FROM
OPERATIONS. We had an operating loss of $3,154,443 for the three month period
ended September 30, 2010 as compared to $1,546,560 for the three month period
ended September 30, 2009, an increase of $1,607,883 or 104%,  due to the
increased operating expenses as described above.





NET OTHER
INCOME (EXPENSE). We had net other income totaling $241,678 during the three
month period ended September 30, 2010 compared to $53,886 during the three month
period ended September 30, 2009, an increase of $187,792 or 348%. This increase
was due primarily to the non cash charges related to the extinguishment of debt
and the change in the fair value of derivatives.





Interest
expense for the three month period ended September 30, 2010 was $106,807
compared to $197,145 for the three month period ended September 30, 2009, a
decrease of $90,338 or 46%, primarily due to a decrease in notes
payable.





LOSS FROM
DISCONTINUED OPERATIONS. We had a loss of $9,782 in the three month period ended
September 30, 2010 compared to no activity in the three month period ended
September 30, 2009 due to the additional expenses assessed by the IRS related to
withholding taxes. See Note 2 of the Notes to Condensed
Consolidated Financial Statements for more information regarding the
discontinued operations.





NET LOSS.
We had a net loss of $2,922,547 in the three month period ended September 30,
2010 compared to $1,492,674 in the three month period ended September 30, 2009,
an increase of $1,429,873 or 96%. The increase in net loss is primarily
attributable to the increase in the operating expenses as discussed
above.





COMPARISON
OF NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009





REVENUES.
The Company had revenue related to the sale of a 50% interest in the Company’s
SkySAT airship of $250,000 for the nine months ended September 30, 2010 and no
revenue for the nine months ended September 30, 2009.





COST OF
REVENUE. The Company had no cost of sales for the nine months ended September
30, 2010 and 2009.





GROSS
MARGIN. The Company had gross margin related to sale of 50% of the Company’s
SkySAT airship of $250,000 for the nine months ended September 30, 2010 because
there were no cost of sales related thereto and no gross margin for the nine
months ended September 30, 2009 because the Company had no revenue during such
period.





OPERATING
EXPENSES. Our operating expenses consist primarily of payroll and related taxes,
professional and consulting services, stock based compensation, research and
development as well as expenses for executive and administrative personnel,
insurance, facilities expenses, travel and related expenses,
amortization and other general corporate expenses. Our operating expenses
for the nine months ended September 30, 2010 were $6,732,687 compared to
$6,272,789 for the nine months ended September 30, 2009, an increase of
$459,898 or 7%. The increase was primarily due to a $1,968,837 increase in
research and development including the charge off of previously recognized work
in process related to the Sanswire-Tao joint venture offset in part by a
$1,660,734 decrease in stock based compensation due to a greater issuance of
shares for employment related milestones during the three months ended September
30, 2009.


20


LOSS FROM
OPERATIONS. We had an operating loss of $6,482,687 for the nine months ended
September 30, 2010 as compared to $6,272,789 for the nine months ended September
30, 2009, an increase of $209,898 or 3%, primarily due to the increase in
research and development due to the charge off of previously recognized work in
process offset in part by the decrease in noncash stock-based
compensation.





NET OTHER
INCOME (EXPENSE). We had net other expenses totaling $1,238,163 during the nine
months ended September 30, 2010 compared to $2,969,064 for the nine months ended
September 30, 2009, a decrease of $1,730,901 or 58%. This decrease was due
primarily to the non cash charges related to the extinguishment of debt and the
change in the fair value of derivatives.





Interest
expense for the nine months ended September 30, 2010 was $456,153 compared to
$1,083,941 for the nine months ended September 30, 2009 a decrease of $627,788
or 58%, primarily due to a decrease in notes payable.





LOSS FROM
DISCONTINUED OPERATIONS. We had a loss of $9,782 in the nine month period ended
September 30, 2010 compared to no activity in the nine month period ended
September 30, 2009 due to the additional expenses assessed by the IRS
related to withholding taxes. See Note 2 of the Notes to Condensed
Consolidated Financial Statements for more information regarding the
discontinued operations.





NET LOSS.
We had a net loss of $7,730,632 for the nine months ended September 30,
2010 compared to $9,241,853 in the nine months ended September 30, 2009, a
decrease of $1,511,221 or 16%. The decrease in net loss is primarily
attributable to the decrease in the non cash charges related to the change in
the fair value of derivatives as well as other changes discussed
above.





LIQUIDITY
AND CAPITAL RESOURCES





ASSETS.
Historically, the Company has funded its operations and capital expenditures
through the sale of stock and notes.  Current assets at September 30,
2010, were $165,522 compared to $1,551,908 at December 31, 2009, a decrease
of $1,386,386, which at September 30, 2010 were primarily comprised of $109,116
in cash and cash equivalents and $50,000 in accounts receivable.  The
decrease in current assets was primarily due to the charge off of $1,545,490 of
inventory as a result of the Company determining that the associated work in
process will be utilized for testing and information gathering rather than being
sold, offset by an increase of $109,104 in cash and cash
equivalents.  At September 30, 2010, the Company had total assets of
$1,642,417 compared to total assets of $3,742,632 as of December 31,
2009, a decrease of $2,110,215, primarily as a result of the $1,386,286
decrease in current assets and a $726,524 decrease in intangible assets due to
its scheduled amortization.





LIABILITIES.
At September 30, 2010, the Company had total liabilities of $20,421,824 compared
to total liabilities of $17,716,981 as of December 31, 2009, an increase of
$2,704,843, principally due to an $843,083 increase in accrued expenses, which
included the cancellation of the shares of Series E Preferred Stock, the
$798,798 increase associated with the derivative liabilities (see Note 8 of the
Notes to Condensed Consolidated Financial Statements) and a $769,595 increase in
accounts payable.





CASH
FLOWS. Our cash used in operating activities in the nine months ended September
30, 2010 was $985,413 compared to $1,454,006 for the comparative prior year
period, a decrease of $468,593. The decrease was primarily due to the changes in
our current assets and liabilities, offset by increased operating expenses. The
decrease in non-cash adjustments was primarily the result of decreases of the
fair values of vested options, derivative liabilities, and warrants. The
remaining change in non-cash adjustments related to miscellaneous items. The
decrease in operating assets and increase in liabilities was primarily due to a
$1,545,490 decrease in inventories as a result of the Company determining that
the associated work in process will be utilized for testing and information
gathering rather than being sold and the cancellation of the shares of Preferred
Stock and associated addition of $625,994 to accounts payable and accrued
expenses.





Net cash
used in investing activities increased to $12,695 for the nine months ended
September 30, 2010 from $11,150 for the nine months ended September 30, 2009, a
$1,545 increase due to increased deposits.





Net cash
provided by financing activities during the nine months ended September 30, 2010
was $1,107,212 from the proceeds of the sale of Common Stock, as compared to
$1,468,039 for the nine months ended September 30, 2009, a decrease of
$360,827.  The decrease was primarily attributable to a decrease in
stock sales and proceeds from notes payable.


21




The
accompanying condensed consolidated 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.
However, as reflected in the accompanying condensed consolidated financial
statements, the Company had a net loss of $7,730,632 and used cash in operating
activities of $985,413 for the nine months ended September 30, 2010, and had a
working capital deficit of $20,256,302 and a stockholders’ deficit of
$18,779,407 at September 30, 2010. The Company had an accumulated deficit
of $142,447,721 at September 30, 2010 compared to $134,717,089 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 and
implement its business plan. The condensed consolidated financial statements do
not include any adjustments that might be necessary if the Company is unable to
continue as a going concern. The Company anticipates that a net loss will
continue for the balance of fiscal year 2010.





Additional
cash will be needed to support the Company’s ongoing operations until such time
that operations provide sufficient cash flow to cover expenditures. The Company
believes it will be able to continue to raise capital through Common Stock sales
and from governmental grants in such amounts sufficient to sustain operations at
their current level through at least December 31, 2010.  If the
Company is able to raise additional funds through the issuance of equity
securities, substantial dilution to existing shareholders may
result.  Subsequent to September 30, 2010, the Company has raised
$250,000.  However, if significant unanticipated expenditures occur or if
the Company is unable to obtain the necessary additional funding on favorable
terms or at all, the Company may have to modify its business plan, reduce,
delay, or discontinue some of its operations or seek a buyer for all or a
portion of its assets to continue as a going concern.


.


Off-Balance
Sheet Arrangements




We do not
enter into off-balance sheet financing as a matter of practice except for the
use of operating leases for office space, computer equipment, and vehicles. None
of the operating leases described in the previous sentence has, or potentially
may have, a material current or future effect on our financial condition,
revenue, expenses, results of operations, liquidity, capital expenditures or
capital resources. In accordance with U.S. GAAP, neither the lease liability nor
the underlying asset is carried on the balance sheet, as the terms of the leases
do not meet the criteria for capitalization.





Critical
Accounting Policies and Use of Estimates





Estimates





The
preparation of our condensed consolidated financial statements in accordance
with U.S. GAAP requires us to make certain estimates, judgments and assumptions
that affect the reported amounts of assets and liabilities as of the date
of the financial statements, the reported amounts and classification of revenues
and expense during the periods presented, and the disclosure of contingent
assets and liabilities.  We evaluate our estimates and assumptions on an
ongoing basis. We base our estimates on historical experience and various other
assumptions that we believe to be reasonable under the circumstances and at that
time, the results of which form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.




Please
refer to our MD&A contained in Part II, Item 7 of our Annual Report on
Form 10-K for our fiscal year ended December 31, 2009 for a more complete
discussion of our critical accounting policies and estimates.





Recent
Accounting Pronouncements





There are
no recently issued accounting pronouncements that are yet effective that we
believe will have a material effect on our financial
statements.


22





Item
4.  Controls and Procedures





Evaluation
of Disclosure Controls and Procedures





As of the
end of the period covered by this Quarterly Report on Form 10-Q, our management,
with the participation of the Chief Executive Officer/Chief Financial Officer,
performed an evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures as defined in Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In
designing, evaluating and implementing 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, no matter how well conceived and operated, including the limitations
of resources, 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 in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures are also based in part upon certain assumptions about the likelihood
of future events, and we cannot be certain that any design will succeed in
achieving its stated goals under all potential future
conditions.  Moreover, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.  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 our management’s evaluation,
the Company concluded that as of September 30, 2010, 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
and that material information is accumulated and communicated to our management,
including the Chief Executive Officer/Chief Financial Officer, as appropriate to
allow timely decisions regarding disclosure, due to the material weakness and
deficiencies set forth below.  Notwithstanding the material weakness
and deficiencies described below, our management, based upon the work performed
during the restatement process and other reviews and additional analysis
undertaken and performed by management, has concluded that the Company’s
condensed consolidated financial statements for the periods covered by and
included in this Quarterly Report on Form 10-Q are fairly stated in all material
respects in accordance with U.S. GAAP for each of the periods presented
herein.





Material
Weakness and Control Deficiencies





A
material weakness is a control deficiency, or a combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the annual or interim consolidated financial statements will not
be prevented or detected on a timely basis.





Our
management identified the following material weakness in our internal control
over financial reporting as of September 3, 2009.  The Company did not
maintain an effective controls over its accoounting for derivatives and
determined that it had not properly accounted for various derivative liabilities
resulting in a required restatement of our financial statements.  The
Company concluded that an accounting error had been made in relation to the
recording of derivative liabilities related to the conversion feature and
associated warrants issued with convertible notes. U.S. GAAP 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
and March 31, 2009 have been restated to reflect the proper accounting treatment
for such derivative liabilities.





As a result of the Company’s
evaluations, it has taken, and is continuing to take steps to correct such
weakness and control deficiencies in our disclosure controls and procedures and
internal controls over financial reporting.  In June 2010, the Company
hired a new Chairman of the Board and a new Chief Executive
Officer.  In October 2010, the Company hired a new Vice President,
General Counsel and Secretary with experience in public company reporting and
corporate governance.  Currently our Chief Executive Officer is also
acting as our Chief Financial Officer, although the Company has hired a
consultant, the former CFO of the Company, to assist the Company in the
accounting function and in the preparation of our financial statements and our
SEC reports until we are able to hire a new Chief Financial
Officer.  We have begun the search for a new CFO and hope to hire an
experienced CFO within the next 90 days.


23


In
addition, we have begun and intend to continue to implement certain new policies
and procedures to improve the control environment and to implement controls and
procedures that will ensure the integrity of our financial statement and
disclosure preparation processes, such as:





a.    Seeking
to recruit additional board members independent of management, including a
person who qualifies as an Audit Committee Financial Expert;





b.
   Establishing separate committees of the Board of Directors,
including an audit committee, each with charters that set forth their powers and
authority, and which grant such committees, among other things, authority to
retain counsel and special or expert advisors of their own choice;





c.
            Upon
      adequate funding, hiring additional staff, including accounting personnel,
      leading to more segregation of duties and enhanced accounting, reporting
      and oversight to enable a better control
  environment;





d.
            Upon
      adequate funding, implementing accounting and other systems designed to
      enable a better control environment;
and





e.
            Establishing
      a Disclosure Committee responsible for considering the materiality of
      information and determining disclosure obligations on a timely
      basis.




Changes
in Internal Control Over Financial Reporting





Except as
set forth above, as a result of the evaluation completed by the Company’s
management including its Chief Executive/Financial Officer, our management has
concluded that there have been no changes in our internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
during the quarter ended September 30, 2010 that have materially affected, or
are reasonably likely to materially affect, our internal control over financial
reporting.





PART
II - OTHER INFORMATION




Item
1.  Legal Proceedings





In the
ordinary conduct of business, the Company is subject to periodic lawsuits,
investigations and litigation claims, which the Company accrues for where
appropriate. The Company cannot predict with certainty the ultimate resolution
of such lawsuits, investigations and claims asserted against it.  As
of September 30, 2010, the Company had the following material
contingencies:





Securities and Exchange
Commission





On May 2,
2008, the SEC filed a lawsuit in the United States District Court for the
Southern District of Florida against GlobeTel Communications Corp. 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
such amendment did not add any new defendants. The Company has been vigorously
defending itself in this action and in August/September 2010 the Company’s newly
elected Chairman of the Board, Michael Clark, and its Chief Executive Officer,
Glenn Estrella, met with representatives of the SEC to discuss a possible
resolution of the matter.  Pursuant to those discussions, the Company
has submitted an offer of settlement and is awaiting approval from the SEC of
the proposal.


24





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 plaintiffs filed a Summary Judgment Motion on which the parties are
waiting for a ruling from the Court.  The Company intends to
vigorously defend the action, but the outcome of the action cannot be
predicted.





Former
Consultants





Two
lawsuits filed by Matthew Milo and Joseph Quattrocchi were concluded through a
dismissal of all claims against the Company with the exception of one on which a
judgment on a promissory note was entered against the Company in the amount of
approximately $15,000.





Tsunami Communications v.
GlobeTel





On March
3, 2006, Civil Action File No. 06-A-02368-5 was filed in Superior Court for
Gwinnett County Georgia by Tsunami Communications and several of its former
shareholders.  The Company asserted affirmative defenses and a trial
was held in November 2009. By Order of the Court entered on September 2, 2010, a
judgment was entered against Globetel and several other co-defendants for the
breach by Sanswire Technologies, Inc. (“ST”) (a then unrelated party) of its
asset purchase agreement with the plaintiff Tsunami based on a deemed de facto
merger resulting from a subsequent asset purchase agreement between ST and
Globetel.  As damages, Globetel was ordered to issue 530,015 shares of
Common Stock to former shareholders of Tsunami and pay $229,180 to a former
Tsunami shareholder with respect to two outstanding promissory
notes.  The Court in its Order left open the issue of any award for
attorneys fees for a later hearing.





Subsequent
to the Order, the plaintiffs have filed a Motion for Reconsideration asking the
Court to reconsider its decision to deny several of the plaintiffs’
claims.  In addition, plaintiffs are requesting the Court to
reconsider and substantially increase the award of damages.  The
Company is continuing to vigorously defend itself in this matter.





Peter
Khoury





Former
Company CEO Peter Khoury has filed an arbitration against the Company asserting
claims for payment of amounts claimed to be due in connection with his services
provided to the Company.  The Company intends to review and respond to
the allegations and defend itself vigorously in this matter.





The DeCarlo
Group





A demand
has been received from the DeCarlo Group for over $400,000 claimed in connection
with CFO and accounting services they assert they rendered to the
Company.  The Company intends to review and respond to the allegations
and defend itself vigorously in this matter.





IRS





During
each of the three month periods ended September 30, 2010 and 2009, Sanswire
incurred and reported to the Internal Revenue Service (“IRS”) payroll tax
liabilities (and deposited the appropriate withholding amounts) during the
normal course of business at each payroll cycle. During 2008, the Company
reported its payroll tax liabilities on a timely basis, however, it failed to
deposit the appropriate withholding amounts. These matters relate
to liabilities associated with the Company’s subsidiaries that were run by
old management, which have been shut down and are classified in discontinued
operations. The Company recognized this issue and, accordingly, contacted
the IRS to make arrangements to pay any taxes due. One such matter has been
resolved with the IRS, and the Company currently estimates the amount
involved in the second matter to be approximately $200,000.  The
Company may be subject to additional penalties and interest from the IRS in
connection with these payroll tax matters.


25





Michael Clark Escrow
Funds





On
September 29, 2010, the Company, Michael K. Clark, its Chairman of the Board,
and Hinshaw & Culbertson LLP (“Hinshaw”) entered into that certain Escrow
and Stock Purchase Agreement pursuant to which Clark agreed to provide $250,000,
(the “Settlement Funds”) to be held in escrow by Hinshaw.  Those funds
are being provided by Mr. Clark, pursuant to ongoing discussions with the
Securities and Exchange Commission (“SEC”), to facilitate the Company’s effort
and offer to settle pending litigation with the SEC.  The Company has
offered the Settlement Funds to the SEC as part of a settlement offer in the
amount of $300,000, of which $50,000 shall be funded directly by the
Company.  Additionally, pursuant to the agreement, in the event a
settlement is entered with the SEC whereby the Settlement Funds are utilized,
then Clark and the Company will enter into a Stock Purchase Agreement whereby
Clark will receive 4,000,000 shares of Common Stock of the Company in
consideration for the Settlement Funds.





The
Company provides indemnification, to the extent permitted by law, to its
officers, directors, employees and agents for liabilities arising from certain
events or occurrences while the officer, director, employee, or agent is or was
serving at the Company’s request in such capacity.





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





During
the three month period ended September 30, 2010, the Company issued an aggregate
of 9,298,065 shares of Common Stock for cash, the settlement of debt, board
compensation, consulting agreements and for services to investors, board
members, consultants and partners. Of the shares of Common Stock issued,
8,579,665 shares were issued for cash valued at $0.075, or $643,475 and 250,000
shares, or 2.7% were issued to insiders and affiliates as restricted securities
under an exemption provided by Section 4(2) of the Securities Act of 1933 and/or
Regulation D, Rule 506, promulgated under the Securities Act of 1933. The Common
Stock issued for cash was valued $0.075 while other issuances were valued at
prices ranging from $0.075 to $0.08 per share, based on the closing market
prices on the date the Board of Directors authorized the
issuances. Subsequent to September 30, 2010, the Company has issued an
aggregate of 5,651,743 shares of Common Stock of which 1,000,000 shares were
issued for employment bonuses, 894,409 shares for the settlement of debt,
424,000 shares for services and 3,333,334 shares for $250,000.





The above
securities were offered and issued in private placement transactions made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under
the Securities Act.  The investors are accredited investors as defined
in Rule 501 of Regulation D promulgated under the Securities Act.  In
certain issuances of Common Stock for cash, the Company paid a placement agent a
fee of ten percent (10%) of the aggregate capital raised.





Item
6.  Exhibits





Exhibits
            
            Description31.1
            
            Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
            
            Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.10.1
            
            Escrow
      and Stock Purchase Agreement, dated September 29, 2010, by and between
      Sanswire Corp., Michael K. Clark and Hinshaw & Culbertson LLP
      (1)10.2
            
            Agreement,
      dated September 30, 2010, by and between Sanswire Corp. and Rocky Mountain
      Advisors Corp.  (2)10.3
            
            Agreement,
      dated September 30, 2010, by and between Sanswire Corp. and Jonathan
      Leinwand (2)10.4
            
            Agreement,
      dated September 30, 2010, by and between Sanswire Corp. and Daniyel
      Erdberg (2)10.5
            
            Employment
      Agreement, dated October 6, 2010, by and between Sanswire Corp. and
      Barbara Johnson





(1)
            Incorporated
      by reference to the Current Report on Form 8-K filed with the Securities
      and Exchange Commission on September 30,
2010.


(2)
            Incorporated
      by reference to the Current Report on Form 8-K Current Report filed with
      the Securities and Exchange Commission on October 12,
  2010.


26


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.




Dated:
November 12, 2010





SANSWIRECORP.By:/s/GlennD.EstrellaName: Glenn D. Estrella
                Title: Chief Executive Officer, President, Chief Financial
                Officer and Treasurer (Principal Executive, Financial and
                Accounting Officer)


27




Index
to Exhibits





Number
              
              Description31.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to
      Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
              
              Certification
      of the Chief Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002.10.1
              
              Escrow
      and Stock Purchase Agreement, dated September 29, 2010, by and between
      Sanswire Corp., Michael K. Clark and Hinshaw & Culbertson LLP
      (1)10.2
              
              Agreement,
      dated September 30, 2010, by and between Sanswire Corp. and Rocky Mountain
      Advisors Corp.  (2)10.3
              
              Agreement,
      dated September 30, 2010, by and between Sanswire Corp. and Jonathan
      Leinwand (2)10.4
              
              Agreement,
      dated September 30, 2010, by and between Sanswire Corp. and Daniyel
      Erdberg (2)10.5
              
              Employment
      Agreement, dated October 6, 2010, by and between Sanswire Corp. and
      Barbara Johnson





(1)
            Incorporated
      by reference to the Current Report on Form 8-K filed with the Securities
      and Exchange Commission on September 30,
2010.


(2)
            Incorporated
      by reference to the Current Report on Form 8-K Current Report filed with
      the Securities and Exchange Commission on October 12,
  2010.