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 June 30, 2009
 OR
 o TRANSITION REPORT
UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
 
 For the
transition period from ____________ to _____________
 
 Commission
file number 0-23532
 
 SANSWIRE
CORP.
 (formerly
Globetel Communications Corp.)
 
 (Exact
name of small business issuer as specified in its charter)
 
 Delaware
                  
                  88-0292161(State
      or other jurisdiction
                  
                  (IRS
      Employer Identification No.)of
      incorporation or organization)
 
 101 NE
3rd
Ave, Suite 1500,
 Fort
Lauderdale, Florida 33301
 (Address
of principal executive offices)
 
 (954)
332-3759
 (Issuer's
telephone number)
 
 Indicate
by check mark whether registrant (1) 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 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, or a non-accelerated filer. See definition of “accelerated
filter and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large
      accelerated filero
              Accelerated
      fileroNon-accelerated
      filer      o
              Smaller
      reporting companyx
 
 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
September 14, 2009, there were 226,070,599 shares of the issuer's common
stock issued and outstanding.
   
 TABLE OF
CONTENTS
  PagePART
      I - FINANCIAL INFORMATIONItem
      1.
                          Financial
      Statements.
                          3Item
      2.
                          Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                          26Item
      3.
                          Quantitative
      and Qualitative Disclosures About Market Risk.
                          31Item
      4.
                          Controls
      and Procedures.
                          31PART
      II - OTHER INFORMATIONItem
      1.
                          Legal
      Proceedings.
                          32Item
      1A.
                          Risk
      Factors.
                          34Item
      2.
                          Unregistered
      Sales of Equity Securities and Use of Proceeds.
                          34Item
      3.
                          Defaults
      Upon Senior Securities.
                          35Item
      4.
                          Submission
      of Matters to a Vote of Security Holders.
                          35Item
      5.
                          Other
      Information.
                          35Item
      6.
                          Exhibits.
                          35
  2
 
 PART
I - FINANCIAL INFORMATION
 
 Item 1. Financial
Statements.
 
 SANSWIRE
CORP.  AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED BALANCE SHEETS
  JUNE
      30,
                                                    2009
                                                  
                                                  
                                                  DECEMBER
      31,
                                                    2008
                                                    (Restated)(Unaudited)ASSETSCURRENT
      ASSETSCash
      and cash equivalents
                                                  
                                                  $
                                                  108,671
                                                  
                                                  
                                                  $
                                                  4,809Inventories
                                                  
                                                  
                                                  1,110,700
                                                  
                                                  
                                                  
                                                  —Current
      assets from discontinued operations
                                                  
                                                  
                                                  6,406
                                                  
                                                  
                                                  
                                                  6,406TOTAL
      CURRENT ASSETS
                                                  
                                                  
                                                  1,225,777
                                                  
                                                  
                                                  
                                                  11,215NONCURRENT
      ASSETSIntangible
      assets, net of accumulated amortization of $565,075
                                                  
                                                  
                                                  2,663,925
                                                  
                                                  
                                                  
                                                  —Investment
      in joint venture
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  3,229,000Deposits
                                                  
                                                  
                                                  5,400
                                                  
                                                  
                                                  
                                                  —TOTAL
      NONCURRENT ASSETS
                                                  
                                                  
                                                  2,669,325
                                                  
                                                  
                                                  
                                                  3,229,000TOTAL
      ASSETS
                                                  
                                                  $
                                                  3,895,102
                                                  
                                                  
                                                  $
                                                  3,240,215LIABILITIES
      AND STOCKHOLDERS’ DEFICITLIABILITIESCURRENT
      LIABILITIESAccounts
      payable  (including $577,400 and zero due to joint venture
      partner at June 30, 2009 and December 31, 2008,
    respectively)
                                                  
                                                  $
                                                  4,206,382
                                                  
                                                  
                                                  $
                                                  3,802,777Notes
      and convertible notes payable, net of discount of $95,707 and
      $134,423
                                                  
                                                  
                                                  9,213,351
                                                  
                                                  
                                                  
                                                  9,264,732Accrued
      expenses and other liabilities (including $2,185,000 due to joint venture
      partner at June 30, 2009 and December 31, 2008)
                                                  
                                                  
                                                  3,088,454
                                                  
                                                  
                                                  
                                                  3,489,210Fair
      value of derivative liabilities
                                                  
                                                  
                                                  2,884,398
                                                  
                                                  
                                                  
                                                  748,244Current
      liabilities from discontinued operations
                                                  
                                                  
                                                  1,387,406
                                                  
                                                  
                                                  
                                                  1,387,406TOTAL
      LIABILITIES
                                                  
                                                  
                                                  20,779,991
                                                  
                                                  
                                                  
                                                  18,692,369COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDERS'
      DEFICITSeries
      E Preferred stock, $.001 par value, 100,000 shares
      authorized;100,000
      shares issued and outstanding
                                                  
                                                  
                                                  100
                                                  
                                                  
                                                  
                                                  —Additional
      paid-in capital - Series E Preferred stock
                                                  
                                                  
                                                  625,894
                                                  
                                                  
                                                  
                                                  —Common
      stock, $.00001 par value, 250,000,000 shares authorized;224,683,775
      and 184,704,015 shares issued and outstanding
                                                  
                                                  
                                                  2,248
                                                  
                                                  
                                                  
                                                  1,848Additional
      paid-in capital
                                                  
                                                  
                                                  115,538,605
                                                  
                                                  
                                                  
                                                  109,848,580Accumulated
      deficit
                                                  
                                                  
                                                  (133,051,736
                                                  )
                                                  
                                                  
                                                  (125,302,582
                                                  )TOTAL
      STOCKHOLDERS' DEFICIT
                                                  
                                                  
                                                  (16,884,889
                                                  )
                                                  
                                                  
                                                  (15,452,154
                                                  )TOTAL
      LIABILITIES AND STOCKHOLDERS’ DEFICIT
                                                  
                                                  $
                                                  3,895,102
                                                  
                                                  
                                                  $
                                                  3,240,215
 
 See
accompanying notes to condensed consolidated financial statements
  3
 SANSWIRE
CORP.  AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (Unaudited)
 
 THREE
      MONTHS ENDED
                                              
                                              
                                              SIX
      MONTHS ENDEDJUNE
      30,
                                              
                                              
                                              JUNE
      30,2009
                                              
                                              
                                              2008
                                              
                                              
                                              2009
                                              
                                              
                                              2008(Restated)
                                              
                                              
                                              
                                              
                                              
                                              (Restated)REVENUES
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —
                                              
                                              
                                              $
                                              —COST
      OF REVENUES
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —GROSS
      MARGIN
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —EXPENSESPayroll
      and related taxes
                                              
                                              
                                              142,902
                                              
                                              
                                              
                                              158,664
                                              
                                              
                                              
                                              260,336
                                              
                                              
                                              
                                              531,035Consulting
      fees
                                              
                                              
                                              661,470
                                              
                                              
                                              
                                              585,298
                                              
                                              
                                              
                                              754,629
                                              
                                              
                                              
                                              716,028Officers'
      and directors' stock based compensation
                                              
                                              
                                              2,900,530
                                              
                                              
                                              
                                              52,500
                                              
                                              
                                              
                                              2,900,530
                                              
                                              
                                              
                                              337,500Amortization
                                              
                                              
                                              565,075
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              565,075
                                              
                                              
                                              
                                              —General
      and administrative
                                              
                                              
                                              124,141
                                              
                                              
                                              
                                              54,211
                                              
                                              
                                              
                                              245,632
                                              
                                              
                                              
                                              164,004TOTAL
      EXPENSES
                                              
                                              
                                              4,394,118
                                              
                                              
                                              
                                              850,673
                                              
                                              
                                              
                                              4,726,202
                                              
                                              
                                              
                                              1,748,567LOSS
      FROM OPERATIONS
                                              
                                              
                                              (4,394,118
                                              )
                                              
                                              
                                              (850,673
                                              )
                                              
                                              
                                              (4,726,202
                                              )
                                              
                                              
                                              (1,748,567
                                              )OTHER
      INCOME (EXPENSE)Loss
      on extinguishment of debt
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (1,096,650
                                              )Extinguishment
      of derivative liabilities
                                              
                                              
                                              —
                                              
                                              
                                              
                                              211,611
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              291,534Change
      in fair value of derivative liabilities
                                              
                                              
                                              (2,206,573
                                              )
                                              
                                              
                                              266,877
                                              
                                              
                                              
                                              (2,136,154
                                              )
                                              
                                              
                                              (334,659
                                              )Interest
      expense, net
                                              
                                              
                                              (698,705
                                              )
                                              
                                              
                                              (227,985
                                              )
                                              
                                              
                                              (886,798
                                              )
                                              
                                              
                                              (437,521
                                              )NET
      OTHER INCOME (EXPENSE)
                                              
                                              
                                              (2,905,278
                                              )
                                              
                                              
                                              250,503
                                              
                                              
                                              
                                              (3,022,952
                                              )
                                              
                                              
                                              (1,577,296
                                              )LOSS
      FROM CONTINUING OPERATIONS
                                              
                                              
                                              (7,299,396
                                              )
                                              
                                              
                                              (600,170
                                              )
                                              
                                              
                                              (7,749,154
                                              )
                                              
                                              
                                              (3,325,863
                                              )GAIN
      (LOSS) FROM DISCONTINUED OPERATIONS
                                              
                                              
                                              —
                                              
                                              
                                              
                                              48
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              (196
                                              )NET
      LOSS
                                              
                                              $
                                              (7,
      299,396
                                              )
                                              
                                              $
                                              (600,122
                                              )
                                              
                                              $
                                              (7,749,154
                                              )
                                              
                                              $
                                              (3,326,059
                                              )WEIGHTED
      AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBASIC
      and DILUTED
                                              
                                              
                                              205,852,582
                                              
                                              
                                              
                                              140,369,224
                                              
                                              
                                              
                                              195,688,165
                                              
                                              
                                              
                                              136,715,497LOSS
      PER SHARE FROM CONTINUING OPERATIONSBASIC
      and DILUTED
                                              
                                              $
                                              (
      0.04
                                              )
                                              
                                              $
                                              (
      0.01
                                              )
                                              
                                              $
                                              (
      0.04
                                              )
                                              
                                              $
                                              (
      0.02
                                              )GAIN/LOSS
      PER SHARE FROM DISCONTINUED OPERATIONSBASIC
      and DILUTED
                                              
                                              
                                              —
                                              
                                              
                                              $
                                              0.00
                                              
                                              
                                              
                                              —
                                              
                                              
                                              $
                                              (
      0.00
                                              )NET
      LOSS PER SHAREBASIC
      and DILUTED
                                              
                                              $
                                              (
      0.04
                                              )
                                              
                                              $
                                              (
      0.01
                                              )
                                              
                                              $
                                              (
      0.04
                                              )
                                              
                                              $
                                              (
      0.02
                                              )
  See
accompanying notes to condensed consolidated financial
statements
  4
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009
 (Unaudited)
 
 COMMON STOCKADDITIONALPAID-INDescription
                  
                  SHARES
                  
                  
                  AMOUNT
                  
                  
                  CAPITALBALANCE,
      DECEMBER 31, 2008 (Restated)
                  
                  
                  184,704,015
                  
                  
                  $
                  1,848
                  
                  
                  $
                  109,848,580Shares
      issued for cash
                  
                  
                  9,704,759
                  
                  
                  
                  97
                  
                  
                  
                  1,018,903Shares
      issued for conversion of notes
                  
                  
                  5,394,655
                  
                  
                  
                  54
                  
                  
                  
                  568,946Fair
      value of shares issued for settlement of debt
                  
                  
                  2,720,346
                  
                  
                  
                  27
                  
                  
                  
                  131,753Fair
      value of shares issued for services
                  
                  
                  21,835,000
                  
                  
                  
                  218
                  
                  
                  
                  1,781,782Shares
      issued for options exercised
                  
                  
                  75,000
                  
                  
                  
                  1
                  
                  
                  
                  (1
                  )Shares
      issued for interest
                  
                  
                  250,000
                  
                  
                  
                  3
                  
                  
                  
                  9,497Fair
      value of vested options issued for officers’ and directors’
      compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,707,780Warrants
      issued with convertible notes
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  28,060Modification
      of warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  443,305Preferred
      Series E shares issued for accrued expenses
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Preferred
      Series E shares issued for accounts payable
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Net
      loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —BALANCE,
      JUNE 30, 2009
                  
                  
                  224,683,775
                  
                  
                  $
                  2,248
                  
                  
                  $
                  115,538,605
 
 (continued)
 
 See
accompanying notes to consolidated financial statements
  5
  SANSWIRE
CORP.  AND SUBSIDIARIES (continued)
 CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009
 (Unaudited)
 
 SERIES E PREFERRED
    STOCKADDITIONAL
                  
                  
                  
                  
                  
                  TOTALPAID-IN
                  
                  
                  ACCUMULATED
                  
                  
                  STOCKHOLDERS'Description
                  
                  SHARES
                  
                  
                  AMOUNT
                  
                  
                  CAPITAL
                  
                  
                  DEFICIT
                  
                  
                  DEFICITBALANCE,
      DECEMBER 31, 2008(Restated)
                  
                  
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  —
                  
                  
                  $
                  (125,302,582
                  )
                  
                  $
                  (15,452,154
                  )Shares
      issued for cash
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,019,000Shares
      issued for conversion of notes
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  569,000Fair
      value of shares issued for settlement of debt
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  131,780Fair
      value of shares issued for services
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,782,000Shares
      issued for options exercised
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Shares
      issued for interest
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  9,500Fair
      value of vested options issued for officers’ and directors’
      compensation
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  1,707,780Warrants
      issued with convertible notes
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  28,060Modification
      of warrants
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  443,305Preferred
      Series E shares issued for accrued expenses
                  
                  
                  70,385
                  
                  
                  
                  70
                  
                  
                  
                  440,537
                  
                  
                  
                  —
                  
                  
                  
                  440,607Preferred
      Series E shares issued for accounts payable
                  
                  
                  29,615
                  
                  
                  
                  30
                  
                  
                  
                  185,357
                  
                  
                  
                  —
                  
                  
                  
                  185,387Net
      loss
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  (7,749,154
                  )
                  
                  
                  (7,749,154
                  )BALANCE,
      JUNE 30, 2009
                  
                  
                  100,000
                  
                  
                  $
                  100
                  
                  
                  $
                  625,894
                  
                  
                  $
                  (133,051,736
                  )
                  
                  $
                  (16,884,889
                  )
  See
accompanying notes to consolidated financial statements
  6
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR
THE SIX MONTHS ENDED JUNE 30,
 (Unaudited)
  2009
                                    
                                    
                                    2008
                                      (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                                    
                                    $
                                    (7,749,154
                                    )
                                    
                                    $
                                    (3,326,059
                                    )Adjustments
      to reconcile net loss to net cash used by operating
      activities:Amortization
      of debt discount
                                    
                                    
                                    66,776
                                    
                                    
                                    
                                    145,373Amortization
      of intangible asset
                                    
                                    
                                    565,075
                                    
                                    
                                    
                                    —Loss
      on extinguishment of debt
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,096,650Stock
      based compensation
                                    
                                    
                                    1,950,725
                                    
                                    
                                    
                                    167,500Extinguishment
      of derivative liabilities
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (291,534
                                    )Change
      in fair value of derivative liabilities
                                    
                                    
                                    2,136,154
                                    
                                    
                                    
                                    334,659Fair
      value of vested options
                                    
                                    
                                    1,707,780
                                    
                                    
                                    
                                    244,831Interest
      expense added to convertible notes payable
                                    
                                    
                                    280,087
                                    
                                    
                                    
                                    292,025Fair
      value of modification of warrants
                                    
                                    
                                    443,305
                                    
                                    
                                    
                                    —Change
      in operating assets and liabilities:Inventories
                                    
                                    
                                    (1,110,700
                                    )
                                    
                                    
                                    —Assets
      from discontinued operations
                                    
                                    
                                    —
                                    
                                    
                                    
                                    12,272Accounts
      payable
                                    
                                    
                                    602,023
                                    
                                    
                                    
                                    369,476Accrued
      expenses and other liabilities
                                    
                                    
                                    83,602
                                    
                                    
                                    
                                    811,976Liabilities
      from discontinued operations
                                    
                                    
                                    —
                                    
                                    
                                    
                                    25NET
      CASH USED BY OPERATING ACTIVITIES
                                    
                                    
                                    (1,024,327
                                    )
                                    
                                    
                                    (142,806
                                    )CASH
      FLOWS FROM INVESTING ACTIVITIESPayments
      to joint venture
                                    
                                    
                                    —
                                    
                                    
                                    
                                    (385,000
                                    )Deposits
                                    
                                    
                                    (5,400
                                    )
                                    
                                    
                                    —NET
      CASH USED BY INVESTING ACTIVITIES
                                    
                                    
                                    (5,400
                                    )
                                    
                                    
                                    (385,000
                                    )CASH
      FLOWS FROM FINANCING ACTIVITIESPayments
      on notes payable
                                    
                                    
                                    (25,411
                                    )
                                    
                                    
                                    (25,139
                                    )Cash
      overdraft
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,004Proceeds
      from notes and loans payable
                                    
                                    
                                    140,000
                                    
                                    
                                    
                                    520,314Proceeds
      from sale of common stock
                                    
                                    
                                    1,019,000
                                    
                                    
                                    
                                    —NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                                    
                                    
                                    1,133,589
                                    
                                    
                                    
                                    496,179NET
      INCREASE IN CASH AND EQUIVALENTS
                                    
                                    
                                    103,862
                                    
                                    
                                    
                                    (31,627
                                    )CASH
      AND EQUIVALENTS – BEGINNING OF PERIOD
                                    
                                    
                                    4,809
                                    
                                    
                                    
                                    32,278CASH
      AND EQUIVALENTS – END OF PERIOD
                                    
                                    $
                                    108,671
                                    
                                    
                                    $
                                    651SUPPLEMENTAL
      DISCLOSURESCash
      paid during the period for:Interest
                                    
                                    $
                                    2,903
                                    
                                    
                                    $
                                    122NON-CASH
      INVESTING AND FINANCING ACTIVITIES:Common
      stock issued for joint venture
                                    
                                    
                                    —
                                    
                                    
                                    
                                    268,000Common
      stock for accrued expenses
                                    
                                    
                                    43,750
                                    
                                    
                                    
                                    105,220Common
      stock for accounts payable
                                    
                                    
                                    13,031
                                    
                                    
                                    
                                    —Accrued
      expense for joint venture
                                    
                                    
                                    —
                                    
                                    
                                    
                                    659,000Conversion
      of notes payable to common stock
                                    
                                    
                                    484,774
                                    
                                    
                                    
                                    3,600,904Non-cash
      equity-warrant valuation and intrinsic value of beneficial conversion
      associated with convertible notes
                                    
                                    
                                    28,060
                                    
                                    
                                    
                                    151,178Preferred
      stock for accrued expenses
                                    
                                    
                                    440,607
                                    
                                    
                                    
                                    —Preferred
      stock for accounts payable
                                    
                                    
                                    185,387
                                    
                                    
                                    
                                    —
 
 See
accompanying notes to condensed consolidated financial
statements
  7
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 NOTE
1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
 
 NATURE OF
OPERATIONS
 
 From 2002
to 2007, Sanswire Corp. (formerly known as GlobeTel Communications Corp.)
("Sanswire" or the “Company”) was involved in the following business sectors:
stored value card services; wholesale telecommunications services; voice over
IP; wireless broadband; and high altitude airships. These business units
operated through various subsidiaries. The Company has discontinued operations
in all but the high altitude airship sector through the Company’s consolidated
joint venture, Sanswire-TAO (for more information see notes 2 and 6
below).
 
 The
opportunities associated with Sanswire are related to the Lighter Than Air (LTA)
Unmanned Aerial Vehicle (UAV) market. Sanswire seeks to build and run a UAV
business that includes low-, mid- and high-altitude, lighter-than-air vehicles.
Sanswire intends to provide customers seamless wireless broadband capabilities
and surveillance sensor suites utilizing its High Altitude Airship
technology.
 
 Sanswire’s
main products will be airships, which provide a platform to transmit wireless
capabilities from air to ground. The High Altitude class of prospective
airships are generally referred to as HAAs (High Altitude Airships) but have
also been called HAPs and HALEs (High Altitude Platforms, High Altitude Long
Endurance). They have been designed to be able to keep a station in one location
in the Stratosphere, at approximately 65,000 ft for durations of 30 days or
more.
 
 On April
14, 2009, the Company arranged for financing for Sanswire-TAO to construct
its first 34 meter unmanned autonomously controlled mid-altitude airship and
entered into a contract with its joint venture partner TAO Technologies to
construct the airship platform.
 
 On
September 22, 2008 the Company filed a Certificate of Merger with the Secretary
of State of the State of Delaware pursuant to which the wholly owned subsidiary,
Sanswire Corp., a Delaware corporation, was merged into the Company. As a result
of the filing of the Certificate of Merger, the corporate name was changed from
GlobeTel Communications Corp. to Sanswire Corp.
 
 BASIS OF
PRESENTATION
 
 The
accompanying unaudited condensed consolidated financial statements of Sanswire
Corp. and Subsidiaries have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and pursuant to the requirements for reporting on
Form 10-Q and Regulation S-K for scaled disclosures for smaller reporting
companies. Accordingly, they do not include all the information and footnotes
required by accounting principles generally accepted in United States of America
for complete financial statements. However, such information reflects 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.
Results shown for interim periods are not necessarily indicative of the results
to be obtained for a full fiscal year.
 
 The
condensed consolidated balance sheet information as of December 31, 2008 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K filed with the SEC on April 9, 2009. These
interim financial statements should be read in conjunction with that
report (see Note 3).
  The
Company applied the provision of Financial Accounting Standards Board (“FASB”)
Interpretation No. 46R statement. “Consolidation of Variable Interest Entities
(revised December 2003)” (“FIN 46R”) to its investment in
Sanswire-TAO.  Under FIN 46R, a variable interest entity (VIE) is
subject to consolidation if the total equity investment at risk is not
sufficient to permit the entity to finance its activities without additional
subordinated financial support provided by any parties, including equity
holders.  As of June 30, 2009, the Company determined that that
consolidation of Sanswire-TAO was appropriate.  Inter-company accounts
and transactions have been eliminated in consolidation.
  8
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 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. As
reflected in the accompanying condensed consolidated financial statements, the
Company had a net loss of $7,749,154 and used cash in operating activities of
$1,024,327 for the six months ended June 30, 2009, and had a working capital
deficit of $19,554,214 and a stockholders’ deficit of $16,884,889 at June
30, 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 2009.
 
 Additional
cash will still be needed to support operations. Management believes it can
continue to raise capital from various funding sources, which when added to
budgeted sales, will be sufficient to sustain operations at its current
level through December 31, 2009. However, if budgeted sales levels are not
achieved and/or if significant unanticipated expenditures occur, or if it is
unable to obtain the necessary funding, the Company may have to modify its
business plan, reduce or discontinue some of its operations or seek a buyer for
all or part of its assets to continue as a going concern. As of the date of
this report the Company has continued to raise capital to sustain its current
operations which have been reduced since January 1, 2008.  The Company will
need to periodically seek investment to provide cash for operations until such
time that operations provide sufficient cash flow to cover expenditures. (see
also next paragraph)
 
 On May 2,
2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the
United States District Court for the Southern District of Florida against
GlobeTel Communications Corp. (the “Company”) and three former officers of the
Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC
alleges, among other things, that the Company recorded $119 million in revenue
on the basis of fraudulent invoices created by Joseph Monterosso and Luis
Vargas, two individuals formerly employed by the Company who were in charge of
its wholesale telecommunications business.  The SEC alleges that the
Company violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933,
as amended, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 10b-5, 12b-20,
13a-1, 13a-11 and 13a-13 under the Exchange Act. The SEC seeks as relief a
permanent injunction, civil penalties, and disgorgement with prejudgment
interest. The Company intends to vigorously defend itself in this action. The
Staff is also considering recommending that the SEC authorize and institute
proceedings to revoke the registration of Company’s securities pursuant to
Section 12(j) of the Exchange Act (also see note 8).
 
 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.
 
 REGISTRATION
RIGHTS
 
 In
connection with the sale of debt or equity instruments, the Company may enter
into Registration Rights Agreements. Generally, these Agreements require the
Company to file registration statements with the Securities and Exchange
Commission to register common shares that may be issued on conversion of debt or
preferred stock, to permit re-sale of common shares previously sold under an
exemption from registration or to register common shares that may be issued on
exercise of outstanding options or warrants.
  9
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNADUITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 These
Agreements usually require the Company to pay penalties for any time delay in
filing the required registration statements, or in the registration statements
becoming effective, beyond dates specified in the Agreement. These penalties are
usually expressed as a fixed percentage, per month, of the original amount the
Company received on issuance of the debt or preferred stock, common shares,
options or warrants. The Company accounts for these penalties when it is
probable that a penalty will be incurred. At June 30, 2009 the Company has no
registration rights agreement requiring penalties to be recorded.
 
 INCOME
TAXES
 
 Income
taxes are computed under the provisions of the Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
“Accounting for Income Taxes”.  SFAS No. 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of the difference in events that have
been recognized in the Company's financial statements compared to the tax
returns.
 
 VALUATION
HIERARCHY
 
 SFAS No.
157, “Fair Value Measurements”, establishes a valuation hierarchy for disclosure
of the inputs to valuation used to measure fair value. This hierarchy
prioritizes the inputs into three broad levels as follows.  Level 1
inputs are quoted prices (unadjusted) in active markets for identical
assets or liabilities.  Level 2 inputs are quoted prices for similar
assets and liabilities in active markets or inputs that are observable for the
asset or liability, either directly or indirectly through market corroboration,
for substantially the full term of the financial instrument.  Level 3
inputs are unobservable inputs based on the Company’s own assumptions used to
measure assets and liabilities at fair value.  A financial asset or
liability’s classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
 
 The
following table provides the assets and liabilities carried at fair value
measured on a recurring basis as of June 30, 2009 (unaudited):
 
 Fair
      Value Measurements at June 30, 2009Total
      Carrying
                    Value
      at
                    June
      30, 2009
                  
                  
                  (Level
      1)
                  
                  
                  (Level
      2)
                  
                  
                  (Level
      3)Cash
      and cash equivalents
                  
                  $
                  108,671
                  
                  
                  $
                  108,671
                  
                  
                  $
                  —
                  
                  
                  $
                  —Derivative
      liabilities
                  
                  
                  2,884,398
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  2,884,398
 
 The
derivative liabilities are measured at fair value using quoted market prices and
estimated volatility factors, and are classified within Level 3 of the valuation
hierarchy. There were no changes in the valuation techniques during the three or
six months ended June 30, 2009.
 
 FAIR
VALUE OF FINANCIAL INSTRUMENTS
 
 Financial
instruments, including cash, accounts payable, accrued expenses and notes
payable are carried at amounts which reasonably approximate their fair value due
to the short-term nature of these amounts or due to variable rates of interest
which are consistent with market rates.
 
 USE OF
ESTIMATES
 
 The
process of preparing financial statements in conformity with generally accepted
accounting principles in the United States requires the use of estimates and
assumptions regarding certain types of assets, liabilities, revenues, and
expenses. Such estimates primarily relate to unsettled transactions and events
as of the date of the financial statements. Accordingly, upon settlement, actual
results may differ from estimated amounts.
  10
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 BASIC AND
DILUTED NET LOSS PER COMMON SHARE
 
 Basic and
diluted net loss per common share has been computed based upon the weighted
average number of shares of common stock outstanding during each period. The
basic and diluted net loss is computed by dividing the net loss by the weighted
average number of common shares outstanding during each period. In periods where
losses are reported, the weighted average number of common shares outstanding
excludes common stock equivalents because their inclusion would be
anti-dilutive. If all outstanding options, warrants and convertible shares were
to be converted or exercised as of June 30, 2009, the shares outstanding would
be 307,750,236.   The Company's Articles of Incorporation
currently allow for issuance of a maximum of 250,000,000 shares of common stock.
As of  September 4, 2009, the Company has approximately 226,070,599
shares outstanding, leaving an unissued balance of authorized shares that is not
sufficient to service the maximum requirements of all of its convertible
securities. In the event we are unable to obtain an increase in our authorized
common stock, we will be required to repay the various convertible debentures
that we have issued and we will be subject to penalties associated with such
failure to deliver shares of common stock upon conversion of the debentures as
well as prepayment penalties. In addition, if we are unable to deliver shares of
common stock upon exercise of various derivative securities, such holders may
commence litigation against the Company.
 
 IMPAIRMENT
OF LONG-LIVED ASSETS
 
 The
Company follows FASB Statement No. 144 (SFAS 144), "Accounting for the
Impairment of Long-Lived Assets." SFAS 144 requires that long-lived assets to be
held and used are reviewed for impairment whenever events or changes in
circumstances indicate that the related carrying amount may not be recoverable.
When required, impairment losses on assets to be held and used are recognized
based on the fair value of the asset. Long-lived assets to be disposed of, if
any, are reported at the lower of carrying amount or fair value less cost to
sell.
 
 INTANGIBLE
ASSETS
 
 Intangible
assets are related to the Company's consolidated joint venture Sanswire-TAO (see
Note 6).  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.
 
 DERIVATIVE
FINANCIAL INSTRUMENTS
 
 The
Company does not use derivative instruments to hedge exposures to cash flow,
market or foreign currency risks.  The Company evaluates all of its
financial instruments to determine if such instruments are derivatives or
contain features that qualify as embedded derivatives.  For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value and is then re-valued at each
reporting date, with changes in the fair value reported in the condensed
consolidated statements of operations.  For stock-based derivative
financial instruments, the Company uses the Black-Scholes 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.
  11
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 STOCK-BASED
COMPENSATION
 
 The
Company periodically issues stock options and warrants to employees and
non-employees in non-capital raising transactions for services and for financing
costs. The Company accounts for stock option and warrant grants issued and
vesting to employees using SFAS No. 123R effective January 1, 2006, and for all
share-based payments granted based on the requirements of SFAS No. 123R. The
Company accounts for stock option and warrant grants issued and vesting to
non-employees in accordance with EITF No. 96-18: "Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services” and EITF 00-18 “Accounting
Recognition for Certain Transactions involving Equity Instruments Granted to
Other Than Employees” whereas the value of the stock compensation is based upon
the measurement date as determined at either a) the date at which a performance
commitment is reached, or b) at the date at which the necessary performance to
earn the equity instruments is complete.
 
 RECENT ACCOUNTING
PRONOUNCEMENTS
  FSP
FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments
 
 In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments in the financial statements. The most
significant change the FSP brings is a revision to the amount of
other-than-temporary loss of a debt security recorded in earnings. FSP FAS 115-2
and FAS 124-2 is effective for interim and annual reporting periods ending after
June 15, 2009. The Company has adopted this standard effective April 1, 2009 and
the Company’s adoption of FAS 115-2 and 124-2 did not have a material impact on
its condensed consolidated financial statements.
 
 FSP FAS No. 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly
 
 In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP
provides additional guidance for estimating fair value in accordance with FASB
Statement No. 157, Fair Value
Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. FSP FAS 157-4 is effective for interim and
annual reporting periods ending after June 15, 2009, and is applied
prospectively. The Company has adopted this standard effective April 1, 2009 and
the Company’s adoption of SFAS 157-4 did not have a material impact on its
condensed consolidated financial statements.
  FAS No. 107-1 and APB No. 28-1,Interim
Disclosures about Fair Value of Financial Instruments
 
 In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is
effective for interim and annual reporting periods ending after June 15, 2009.
The Company has adopted this standard effective April 1, 2009 and the Company’s
adoption of FAS 107-1 and APB 28-1 did not have a material impact on its
condensed consolidated financial statements.
  12
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.
 
 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 June 30, 2009 and December 31, 2008.
 
 The
Company had the following assets and liabilities from its discontinued
operations on its consolidated balance sheet as of June 30, 2009 (unaudited) and
December 31, 2008:
 
 JUNE
      30 2009 (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
                            
                            
                            
                            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
  DECEMBER
      31, 2008
                              
                              Telecom
                              
                              
                              GlobeTel
      Wireless
                              
                              
                              TotalCash
                              
                              $
                              6,406
                              
                              
                              $
                              —
                              
                              
                              $
                              6,406Total
      assets
                              
                              $
                              6,406
                              
                              
                              $
                              —
                              
                              
                              $
                              6,406Accounts
      payable
                              
                              
                              140,116
                              
                              
                              
                              1,216,208
                              
                              
                              
                              1,356,324Accrued
      liabilities
                              
                              
                              9,605
                              
                              
                              
                              21,477
                              
                              
                              
                              31,082Total
      current liabilities
                              
                              
                              149,721
                              
                              
                              
                              1,237,685
                              
                              
                              
                              1,387,406Net
      liabilities of discontinued operations
                              
                              $
                              143,315
                              
                              
                              $
                              1,237,685
                              
                              
                              $
                              1,381,000
  NOTE
3. RESTATEMENT OF FINANCIAL STATEMENTS
  On
September 4, 2009, the Company concluded, with the concurrence of the Company’s
Board of Directors, that an accounting error had been made in the Company’s
historical June 30 and December 31, 2008 consolidated financial statements in
relation to the provisions of EITF 00-19, "Accounting for Derivative Financial
Instruments Indexed to a Company's Own Stock” and the recording of certain
warrants and the beneficial conversion feature of the Company’s convertible
notes payable.   In accordance with EITF 00-19, the fair value of
certain of the Company’s options and warrants and the embedded conversion
feature of the Company’s convertible notes payable, have been re-characterized
as derivative liabilities effective January 1, 2007.  SFAS 133,
“Accounting for Derivative Instruments and Hedging Activities,” 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 unaudited condensed
consolidated financial statements for the three and six months ended June 30,
2008 and audited condensed consolidated financial statements as of December 31,
2008 have been restated.
 13
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 The
effects of the restatement on the Company’s condensed consolidated financial
statements for the three and six months ended June 30, 2008 and as of December
31, 2008 are shown below (note: see table of adjustment descriptions at end of
this section):
 
 December
      31, 2008Account
                  
                  (As
      Initially
                    Reported)
                  
                  
                  (Adjustment)
                  
                  
                  (As
      Restated)Current
      AssetsCash
                  
                  $
                  4,809
                  
                  
                  $
                  —
                  
                  
                  $
                  4,809Current
      assets from discontinued operations
                  
                  
                  6,406
                  
                  
                  
                  —
                  
                  
                  
                  6,406Total
      current assets
                  
                  
                  11,215
                  
                  
                  
                  —
                  
                  
                  
                  11,215Investment
      in joint venture
                  
                  
                  3,229,000
                  
                  
                  
                  —
                  
                  
                  
                  3,229,000Total
      Assets
                  
                  $
                  3,240,215
                  
                  
                  $
                  —
                  
                  
                  $
                  3,240,215Liabilities
      and shareholders’ deficitCurrent
      liabilitiesAccounts
      payable
                  
                  $
                  3,802,777
                  
                  
                  $
                  —
                  
                  
                  $
                  3,802,777Notes
      and notes payable, net of discount of $134,423
                  
                  
                  9,264,732
                  
                  
                  
                  —
                  
                  
                  
                  9,264,732Accrued
      expenses and other liabilities
                  
                  
                  3,489,210
                  
                  
                  
                  —
                  
                  
                  
                  3,489,210Derivative
      liabilities
                  
                  
                  —
                  
                  
                  
                  748,244
                  1
                  
                  
                  748,244Current
      liabilities from discontinued operations
                  
                  
                  1,387,406
                  
                  
                  
                  —
                  
                  
                  
                  1,387,406Total
      current liabilities
                  
                  
                  17,944,125
                  
                  
                  
                  748,244
                  
                  
                  
                  18,692,369EquityCommon
      stock
                  
                  
                  1,848
                  
                  
                  
                  —
                  
                  
                  
                  1,848Additional
      paid-in capital
                  
                  
                  111,128,580
                  
                  
                  
                  (1,280,000
                  ) 1
                  
                  
                  109,848,580Accumulated
      deficit
                  
                  
                  (125,834,338
                  )
                  
                  
                  531,756
                  1
                  
                  
                  (125,302,582
                  )Total
      stockholders’ deficit
                  
                  
                  (14,703,910
                  )
                  
                  
                  (748,244
                  )
                  
                  
                  (15,452,154
                  )Total
      liabilities and deficit
                  
                  $
                  3,240,215
                  
                  
                  $
                  —
                  
                  
                  $
                  3,240,215
  14
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
  Six
      Months Ended June 30, 2008 (Unaudited)Account
                    
                    (As
      Initially
                      Reported)
                    
                    
                    (Adjustment)
                    
                    
                    (As
      Restated)Revenue
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Cost
      of revenues
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Gross
      margin
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Payroll
      and related taxes
                    
                    
                    (531,035
                    )
                    
                    
                    —
                    
                    
                    
                    (531,035
                    )Consulting
      fees
                    
                    
                    (716,028
                    )
                    
                    
                    —
                    
                    
                    
                    (716,028
                    )Noncash
      officers’ and directors’ compensation
                    
                    
                    (337,500
                    )
                    
                    
                    —
                    
                    
                    
                    (337,500
                    )General
      and administrative expenses
                    
                    
                    (164,004
                    )
                    
                    
                    —
                    
                    
                    
                    (164,004
                    )Loss
      from operations
                    
                    
                    (1,748,567
                    )
                    
                    
                    —
                    
                    
                    
                    (1,748,567
                    )Loss
      on extinguishment of debt
                    
                    
                    (1,096,650
                    )
                    
                    
                    —
                    
                    
                    
                    (1,096,650
                    )Interest
      expense
                    
                    
                    (544,955
                    )
                    
                    
                    107,434
                    4
                    
                    
                    (437,521
                    )Extinguishment
      of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    291,534
                    3
                    
                    
                    291,534Change
      in fair value of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    (334,659
                    ) 2
                    
                    
                    (334,659
                    )Net
      other expense
                    
                    
                    (1,641,605
                    )
                    
                    
                    64,309
                    
                    
                    
                    (1,577,296
                    )Loss
      from continuing operations
                    
                    
                    (3,390,172
                    )
                    
                    
                    64,309
                    
                    
                    
                    (3,325,863
                    )Loss
      from discontinued operations
                    
                    
                    (196
                    )
                    
                    
                    —
                    
                    
                    
                    (196
                    )Net
      loss
                    
                    $
                    (3,390,368
                    )
                    
                    $
                    64,309
                    
                    
                    $
                    (3,326,059
                    )Net
      loss per share from continuing operations, basic and
    diluted
                    
                    $
                    (0.02
                    )
                    
                    $
                    (0.00
                    )
                    
                    $
                    (0.02
                    )Net
      loss per share from discontinuing operations, basic and
      diluted
                    
                    $
                    (0.00
                    )
                    
                    $
                    —
                    
                    
                    $
                    (0.00
                    )Weighted
      average shares outstanding, basic and diluted
                    
                    
                    136,715,497
                    
                    
                    
                    
                    
                    
                    
                    136,715,497
  Three
      Months Ended June 30, 2008 (Unaudited)Account
                    
                    (As
      Initially
                      Reported)
                    
                    
                    (Adjustment)
                    
                    
                    (As
      Restated)Revenue
                    
                    $
                    —
                    
                    
                    $
                    —
                    
                    
                    $
                    —Cost
      of revenues
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Gross
      margin
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Payroll
      and related taxes
                    
                    
                    (158,664
                    )
                    
                    
                    —
                    
                    
                    
                    (158,664
                    )Consulting
      fees
                    
                    
                    (585,298
                    )
                    
                    
                    —
                    
                    
                    
                    (585,298
                    )Noncash
      officers’ and directors’ compensation
                    
                    
                    (52,500
                    )
                    
                    
                    —
                    
                    
                    
                    (52,500
                    )General
      and administrative expenses
                    
                    
                    (54,211
                    )
                    
                    
                    —
                    
                    
                    
                    (54,211
                    )Loss
      from operations
                    
                    
                    (850,673
                    )
                    
                    
                    —
                    
                    
                    
                    (850,673
                    )Interest
      expense
                    
                    
                    (166,501
                    )
                    
                    
                    (61,484
                    ) 7
                    
                    
                    (227,985
                    )Extinguishment
      of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    211,611
                    6
                    
                    
                    211,611Change
      in fair value of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    266,877
                    5
                    
                    
                    266,877Net
      other expense
                    
                    
                    (166,501
                    )
                    
                    
                    417,004
                    
                    
                    
                    250,503Loss
      from continuing operations
                    
                    
                    (1,017,174
                    )
                    
                    
                    417,004
                    
                    
                    
                    (600,170
                    )Gain
      from discontinued operations
                    
                    
                    48
                    
                    
                    
                    —
                    
                    
                    
                    48Net
      loss
                    
                    $
                    (1,017,126
                    )
                    
                    $
                    417,004
                    
                    
                    $
                    (600,122
                    )Net
      loss per share from continuing operations, basic and
    diluted
                    
                    $
                    (0.01
                    )
                    
                    $
                    0.00
                    
                    
                    $
                    (0.01
                    )Net
      loss per share from discontinuing operations, basic and
      diluted
                    
                    $
                    (0.00
                    )
                    
                    $
                    —
                    
                    
                    $
                    (0.00
                    )Weighted
      average shares outstanding, basic and diluted
                    
                    
                    140,369,224
                    
                    
                    
                    
                    
                    
                    
                    140,369,224
  15
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 Six
      Months Ended June 30, 2008 (Unaudited)(As
      Initially
                      Reported)
                    
                    
                    (Adjustment)
                    
                    
                    (As
      Restated)Cash
      flow from operating activities:Net
      loss
                    
                    $
                    (3,390,368
                    )
                    
                    $
                    64,309
                    
                    
                    $
                    (3,326,059
                    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Amortization
      of debt discount
                    
                    
                    145,373
                    
                    
                    
                    —
                    
                    
                    
                    145,373Loss
      on extinguishment of debt
                    
                    
                    1,096,650
                    
                    
                    
                    —
                    
                    
                    
                    1,096,650Stock
      based compensation
                    
                    
                    167,500
                    
                    
                    
                    —
                    
                    
                    
                    167,500Fair
      value of vested options
                    
                    
                    244,831
                    
                    
                    
                    —
                    
                    
                    
                    244,831Change
      in fair value of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    334,659
                    2
                    
                    
                    334,659Extinguishment
      of derivative liabilities
                    
                    
                    —
                    
                    
                    
                    (291,534
                    )
      3
                    
                    
                    (291,534
                    )Interest
      expense on convertible notes payable
                    
                    
                    292,025
                    
                    
                    
                    —
                    
                    
                    
                    292,025Derivative
      obligation expense
                    
                    
                    107,434
                    
                    
                    
                    (107,434
                    )
      4
                    
                    
                    —Decrease
      in assets:Decrease
      in assets relating to discontinued operations
                    
                    
                    12,272
                    
                    
                    
                    —
                    
                    
                    
                    12,272Increase
      in liabilities:Accounts
      payable
                    
                    
                    369,476
                    
                    
                    
                    —
                    
                    
                    
                    369,476Accrued
      expenses and other liabilities
                    
                    
                    811,976
                    
                    
                    
                    —
                    
                    
                    
                    811,976Increase
      in liabilities relating to discontinued operations
                    
                    
                    25
                    
                    
                    
                    —
                    
                    
                    
                    25Net
      cash used in operating activities
                    
                    
                    (142,806
                    )
                    
                    
                    —
                    
                    
                    
                    (142,806
                    )Cash
      flows from investing activities:Payment
      on joint venture
                    
                    
                    (385,000
                    )
                    
                    
                    —
                    
                    
                    
                    (385,000
                    )Net
      cash used in investing activities
                    
                    
                    (385,000
                    )
                    
                    
                    —
                    
                    
                    
                    (385,000
                    )Cash
      flows from financing activities:Payments
      on notes payable
                    
                    
                    (25,139
                    )
                    
                    
                    —
                    
                    
                    
                    (25,139
                    )Proceeds
      from notes and loans payable
                    
                    
                    520,314
                    
                    
                    
                    —
                    
                    
                    
                    520,314Bank
      overdraft
                    
                    
                    1,004
                    
                    
                    
                    
                    
                    
                    
                    1,004Net
      cash provided by financing activities
                    
                    
                    496,179
                    
                    
                    
                    —
                    
                    
                    
                    496,179Net
      decrease in cash and cash equivalents
                    
                    
                    (31,627
                    )
                    
                    
                    —
                    
                    
                    
                    (31,627
                    )Cash
      and cash equivalents, beginning of period
                    
                    
                    32,278
                    
                    
                    
                    —
                    
                    
                    
                    32,278Cash
      and cash equivalents, end of period
                    
                    $
                    651
                    
                    
                    $
                    —
                    
                    
                    $
                    651
 
 Description
of adjustments:
  (1)
              To
      record $1,524,274 increase to derivative liability, $244,274 decrease to
      accumulated deficit for prior period recognition of derivative liability,
      and $1,280,000 decrease to additional paid in capital upon adoption of
      EITF 00-19.
 (2)
              To
      record $601,536 increase in derivative liability for the six months ended
      June 30, 2008.
 (3)
              To
      record $79,923 decrease from the extinguishment of derivative liabilities
      for the six months ended June 30,
2008.
 (4)
              To
      reclass $168,918 from interest expense to change in derivative liability
      for the six months ended June 30,
2008.
 (5)
              To
      record $266,877 increase in derivative liability for the three months
      ended June 30, 2008.
 (6)
              To
      record $211,611 decrease from the extinguishment of derivative liabilities
      for the three months ended June 30,
2008.
 (7)
              To
      reclass $61,484 from interest expense to change in derivative liability
      for the three months ended June 30,
2008.
  16
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 NOTE
4. NOTES AND CONVERTIBLE NOTES PAYABLE
 
 June
      30,
                          
                          
                          December
      31,2009
                          
                          
                          2008(Unaudited)(A)
      Notes payable
                          
                          $
                          5,997,030
                          
                          
                          $
                          5,997,030(B)
      Convertible notes payable
                          
                          
                          —
                          
                          
                          
                          80,000(C)
      Convertible promissory notes, net of unamortized discount of $95,707 and
      $134,423
                          
                          
                          1,805,218
                          
                          
                          
                          2,016,913Total
                          
                          
                          7,802,248
                          
                          
                          
                          8,093,943Accrued
      Interest
                          
                          
                          1,411,103
                          
                          
                          
                          1,170,789Total
                          
                          $
                          9,213,351
                          
                          
                          $
                          9,264,732
 
 (A) NOTES
PAYABLE
 
 Notes
payable are made up of two separate notes.
 
 As of
June 30, 2009, a balance of $4,997,130 remains through an unsecured promissory
note with no formal terms of repayment on the first note.  The Company has
accrued interest at a rate of 7% per annum, which totals $994,664 as of June 30,
2009.
 
 As of
June 30, 2009, a balance of $999,900 remains through an unsecured promissory
note with no formal terms of repayment on the second note.  The Company has
accrued interest at a rate of 7% per annum, which totals $197,148 as of June 30,
2009.
 
 (B)
CONVERTIBLE NOTES PAYABLE
 
 During
May 2009, the balance of $80,000 in principal and $33,416 in interest were
converted into 1,127,907 shares of Company common stock.  In addition,
the Company issued 580,862 shares in settlement of any penalties associated with
the remaining notes.
 
 (C)
CONVERTIBLE PROMISSORY NOTES
 
 On
February 17, 2009, the Company entered into subscription agreements with
accredited investors. The Company sold $110,000 of the Company’s 7% Convertible
Debentures, 3-year warrants to purchase a number of shares equal to 50% of the
number of shares issuable upon conversion of the debenture of the Company’s
common stock at an exercise price of $0.21, and three-year warrants to purchase
a number of shares equal to 50% of the number of shares issuable upon conversion
of the debenture shares of the Company’s common stock at an exercise price of
$0.315. The Debentures are convertible into shares of the Company’s common stock
at $.105 per share pursuant to the following terms.
 
 The
Company determined that the total fair value of the warrants was $22,252 based
upon the relative value of the Black Scholes valuation of the warrants and the
underlying debt amount.  For the Black Scholes calculation, the
Company assumed no dividend yield, a risk free interest rate ranging from 1.31%
to 1.40%, expected volatility of 169.01% and an expected term of the warrants of
3 years.  The initial calculated fair value of warrants of $22,252 was
reflected by the Company as a valuation discount and an offset to the carrying
value of the Notes, and is being amortized by the straight line method over the
term of the Notes. As of June 30, 2009, the Company amortized $3,090 of the
valuation discount, which is reflected as interest expense in the Company’s
consolidated statements of operations.  During the 2nd quarter
2009, no principal or interest had been converted however the Company has
received a conversion request for the complete conversion at $.105 per
share.
 
 On April
29, 2009 the Company agreed to extend the expiration of certain warrants
associated with the notes.  A charge of $399,707 was recorded for the
change in the fair value of the warrants at the time of
modification.  As of June 30, 2009, a balance of $1,633,869 remains
outstanding on the convertible notes payable. The Company has accrued interest
at a rate of 7% per annum, which totals $199,648 as of June 30,
2009.
  17
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 On
February 17, 2009, the Company entered into subscription agreement with an
accredited investor. The Company sold $30,000 of the Company’s 7% Convertible
Debentures, 3-year warrants to purchase a number of shares equal to 50% of the
number of shares issuable upon conversion of the debenture of the Company’s
common stock at an exercise price of $0.21, and three-year warrants to purchase
a number of shares equal to 50% of the number of shares issuable upon conversion
of the debenture shares of the Company’s common stock at an exercise price of
$0.315. The Debentures are convertible into shares of the Company’s common stock
at $.105 per share pursuant to the following terms.
 
 The
Company determined that the total fair value of the warrants was $5,807 based
upon the relative value of the Black Scholes valuation of the warrants and the
underlying debt amount.  For the Black Scholes calculation, the
Company assumed no dividend yield, a risk free interest rate of 1.22%, expected
volatility of 169.01% and an expected term of the warrants of 3
years.  The initial calculated fair value of warrants of $5,807 was
reflected by the Company as a valuation discount and offset to the carrying
value of the Notes, and is being amortized by the straight line method over the
term of the Notes. As of June 30, 2009, the Company amortized $1,613 of the
valuation discount, which is reflected as interest expense in the Company’s
consolidated statements of operations.  During the 2nd quarter
2009, no principal or interest had been converted however the Company has
received a conversion request for the complete conversion at $.105 per
share.
 
 On April
29, 2009 the Company agreed to extend the expiration of certain warrants
associated with the notes.  A charge of $41,121 was recorded for the
change in the fair value of the warrants at the time of modification. As of June
30, 2009, a balance of $130,000 remains outstanding on convertible notes
payable.  The Company has accrued interest at a rate of 7% per annum, which
totals $10,558 as of June 30, 2009.
 
 During
June 2009, the Company made payments totaling $25,411 to reduce a previously
entered into note. As of June 30, 2009, a balance of $137,055 remains
outstanding on the convertible notes payable.  The Company has accrued
interest at a rate of 7% per annum, which totals $9,084 as of June 30,
2009.
 
 In
October 2008, the Company entered into a new financing agreement for a
convertible promissory note payable totaling $25,000.  On February 11,
2009, $25,438 in principal and interest was converted into 238,096 shares of the
Company’s common stock.
 
 During
May 2009, the Company converted a previously entered into note totaling $290,000
in principal and $5,921 in interest into 2,447,790 shares of Company common
stock.
 
 In
September 2008, the Company entered into a new financing agreement for
convertible promissory note payable totaling $50,000. On February 12, 2009, the
Company issued 250,000 shares, valued at $9,500, as a penalty to extend the
maturity to an unspecified date. On March 30, 2009, the investor foreclosed on
its lien and security interest based on the previously entered into pledge
agreement.  The note was secured by 1,000,000 shares of common stock
of the Company held by the Company’s CEO.  As a result, the holder
acknowledged that by virtue of its ownership of the shares, the note was deemed
satisfied in full.
 
 On April
17, 2009, the Company entered into an amendment to the Subscription Agreement,
dated September 17, 2008 pursuant to which the Company agreed (i) to extend the
expiration date of both the Series A Warrant and Series B Warrant issued from
October 15, 2010 to December 31, 2010 and (ii) extend the final date that the
holder may make up to two additional purchases of the Company’s securities, from
October 15, 2008 and December 15, 2008, respectively, until December 31, 2010
and December 31, 2010, respectively.  A charge of $2,477 was recorded
for the change in the fair value of the warrants at the time of
modification.
  18
 
 SANSWIRE
CORP. AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 NOTE
5.  INVENTORIES
 
 Inventories
are related to the Company's consolidated joint venture Sanswire-TAO (see Note
6).  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:
 
 June
      30, 2009
                    (unaudited)
                  
                  
                  December
      31,
                    2008Work
      in process
                  
                  $
                  1,110,700
                  
                  
                  $
                  —Total
      inventories
                  
                  
                  1,110,700
                  
                  
                  
                  —
 
 NOTE
6.  JOINT VENTURE AND INTANGIBLE ASSETS
 
 On June
3, 2008, the Company restructured a previous agreement with TAO Technologies
GmbH and Professor Bernd Kroplin. The new agreement called for the establishment
of a new 50/50 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 Kroplin to transfer the patents and intellectual property of
TAO Technologies and Kroplin in the United States to Sanswire-TAO for a payment
of $3,229,000.  A remaining balance of $2,185,000 due for the investment is
included in accrued expenses as of June 30, 2009.
 
 The
Company applied the provision of Financial Accounting Standards Board (“FASB”)
Interpretation No. 46R statement. “Consolidation of Variable Interest Entities
(revised December 2003)” (“FIN 46R”) to its investment in
Sanswire-TAO.  Under FIN 46R, a variable interest entity (VIE) is
subject to consolidation if the total equity investment at risk is not
sufficient to permit the entity to finance its activities without additional
subordinated financial support provided by any parties, including equity
holders.  On April 14, 2009, the Company arranged for financing for
Sanswire-TAO to construct its first 34 meter unmanned autonomously
controlled mid-altitude airship and entered into a contract with TAO
Technologies to construct the airship platform.  As of June 30, 2009,
the Company determined that consolidation of Sanswire-TAO was
appropriate.  In April, 2009, Sanswire-TAO entered into a credit
facility agreement and services agreement (see Note 8)
 
 The
estimated useful life of the patents and intellectual property is estimated to
be 3 years and is being amortized on a straight-line basis. Amortization
expense for the three months ended June 30, 2009 was $565,075. These assets will
be tested for impairment annually or if certain circumstances indicate a
possible impairment may exist in accordance with SFAS 142, Goodwill and Other
Intangible Assets. The carrying value of these assets will be assessed at least
annually and an impairment charge will be recorded if appropriate.  As
of June 30, 2009 there was no impairment.
 
 NOTE 7.  DERIVATIVE
LIABILITIES
 
 In 2007,
the Company adopted EITF Issue No. 00-19: “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”
and SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS No. 138 "Accounting for Certain Derivative
Instruments and Certain Hedging Activities, an amendment of FASB Statement No.
133,"  collectively referred to as SFAS No. 133. SFAS No. 133 requires
that all derivative instruments be recorded on the balance sheet at fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income.
  19
  SANSWIRE
CORP.  AND SUBSIDIARIES
 NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008
 
 The
derivative liabilities were valued using the Black-Scholes option pricing model
and the following assumptions:
  June 30, 2009
                    
                    
                    January 1, 2009Conversion
      feature:Risk-free
      interest rate
                    
                    
                    0.19 – 1.11
                    %
                    
                    
                    0.27
      – 0.76
                    %Expected
      volatility
                    
                    
                    54 – 157
                    %
                    
                    
                    118
      - 134
                    %Expected
      life (in years)
                    
                    
                    0.14 – 1.62
                    
                    
                    
                    0.33
      - 1.76Expected
      dividend yield
                    
                    
                    —
                    
                    
                    
                    —Warrants:Risk-free
      interest rate
                    
                    
                    0.35 – 1.64
                    %
                    
                    
                    0.11
      – 1.00
                    %Expected
      volatility
                    
                    
                    69 - 179
                    %
                    
                    
                    28
      - 167
                    %Expected
      life (in years)
                    
                    
                    0.37 – 2.91
                    
                    
                    
                    0.01
      – 2.74Expected
      dividend yield
                    
                    
                    —
                    
                    
                    
                    —Fair
      value:Conversion
      feature
                    
                    $
                    629,563
                    
                    
                    $
                    495,805Warrants
                    
                    $
                    2,254,835
                    
                    
                    $
                    252,439
  The
risk-free interest rate was based on rates established by the Federal
Reserve.  In 2009, the Company’s expected volatility was based upon
the historical volatility for its common stock.  The expected life of
the Debentures’ conversion option was based on the maturity of the Debentures
and the expected life of the warrants was determined by the expiration date of
the warrants.  The expected dividend yield was based upon the fact
that the Company has not historically paid dividends, and does not expect to pay
dividends in the future.
 
 NOTE
8. COMMITMENTS AND CONTINGENCIES
 
 Securities and Exchange
Commission
 
 On
September 28, 2006, the Company received a formal order of investigation from
the SEC. The formal order only named the Company and was not specific to any
particular allegations. Through the use of subpoenas, the SEC has requested
documentation from certain officers and directors of the Company. In subsequent
subpoenas, the SEC has asked for additional documents and
information.
 
 On
October 5, 2007, the Company received a "Wells Notice" from the SEC in
connection with the SEC’s ongoing investigation of the Company. The Wells Notice
provides notification that the staff of the SEC intends to recommend to the
Commission that it bring a civil action against the Company for possible
violations of the securities laws including violations of Sections 5 and 17(a)
of the Securities Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B)
of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20,
13a-1, 13a-11, and 13a-13 thereunder; and seeking as relief a permanent
injunction, civil penalties, and disgorgement with prejudgment interest. The
Staff is also considering recommending that the SEC authorize and institute
proceedings to revoke the registration of Company’s securities pursuant to
Section 12(j) of the Exchange Act.
 
 On May 2,
2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the
United States District Court for the Southern District of Florida against
GlobeTel Communications Corp. (the “Company”) and three former officers of the
Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC
alleges, among other things, that the Company recorded $119 million in revenue
on the basis of fraudulent invoices created by Joseph Monterosso and Luis
Vargas, two individuals formerly employed by the Company who were in charge of
its wholesale telecommunications business.
  20





SANSWIRE
CORP. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008





The SEC
alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
The SEC seeks as relief a permanent injunction, civil penalties, and
disgorgement with prejudgment interest. The Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, but
which does not add any new defendants. The Company has been vigorously defending
itself in this action.





Hudson Bay Fund LP et
al.





Hudson
Bay Fund LP and Hudson Bay Overseas Fund Ltd. filed an action against the
Company relating to the warrants attached to a Subscription Agreement between
those entities and the Company. The Hudson Bay entities are seeking to reprice
the warrants, increase the number of shares they can purchase pursuant to the
warrants, certain equitable remedies, and unspecified damages. The Company has
retained outside counsel and has filed an answer and affirmative defenses in the
case. The Company intends to vigorously defend the action, but the outcome of
the action cannot be predicted.





Former
Consultants





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


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





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





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





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





An Answer
and Counterclaim had been interposed on both of these actions. The Answer denies
many of the allegations in the complaint and is comprised of eleven affirmative
defenses and five counterclaims alleging damages in the sum of $1,000,000. The
counterclaims in various forms involve breach of contract and breach of
fiduciary duty by the plaintiffs.  For the most part, the summary
judgment motions that plaintiffs brought clearly stated that their theories of
recovery and the documents that they will rely on in prosecuting the action. The
case was assigned to a judicial hearing officer and there was one week of trial.
The trial has been since adjourned with no further trial dates having been
set.


21




SANSWIRE
CORP. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008





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


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





Joseph
Monterosso





In
October 2007 the Company filed a lawsuit in the Circuit Court for Broward
County, Florida against Joseph J. Monterosso alleging Libel, Slander and
Defamation, Tortuous Interference, Violations of FS § 836.05 (Threats Extortion)  and violations of FS §517
(Securities Fraud).Mr.
Monterosso has not yet been served with the complaintpending additional information arising
from the SEC lawsuit.This action has been
dismissed for lack of prosecution but may be refilled by the Company in the
future.





Mitchell Siegel v.
GlobeTel





On
February 2, 2007, The Company was sued in the Circuit Court for Broward County,
Florida entitled Mitchell Siegel v. GlobeTel Communications Corp. , Case no.
0702456 (“the Siegel Lawsuit”). In this action, Siegel sued the Company for
breach of contract in regards to a Key Executive Employment
Agreement.  On February 15, 2008, both parties entered into a
settlement agreement whereas Mr. Siegel would receive $175,000 worth of stock,
payable over 12 months, and 50% of the gross proceeds, up to a total amount of
$300,000, received from an October 2006 agreement. During 2009, the Company paid
the remaining $43,750 in the Company’s common stock.





Trimax
Wireless





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





Leinwand Employment
Agreement (see Note 13)





On May 3,
2009, the Board of Directors of the Company ratified an employment agreement
(effective March 1, 2008) by and between the Company and Mr. Jonathan Leinwand,
whereby Mr. Leinwand was appointed as Chief Executive Officer and General
Counsel of the Company.  The Employment Agreement has an initial term
of one year from the Effective Date and will automatically renew for consecutive
one year terms until such time that the Employment Agreement is terminated upon
mutual agreement between the parties upon 30 days written notice or upon
termination for cause. Pursuant to the Employment Agreement, Mr. Leinwand is to
receive an annual base salary of $250,000 per year, subject review by the Board
of Directors on an annual basis. Executive was provided a signing bonus of
2,000,000 shares of the Company’s common stock upon execution of the Employment
Agreement and will also be entitled to receive an annual bonus in the form of
cash and/or equity compensation in amount equal to up to one hundred and fifty
percent (150%) of Employee’s Base Salary.  Executive shall also be
entitled to receive additional equity compensation in the amounts and upon
completion of the following milestones as set forth below: (1) 2,000,000 shares
upon the filing of the Company’s restated Annual Report on Form 10-K for the
fiscal year ended December 31, 2005 and the fiscal year ended December 31, 2004;
(2) 2,000,000 shares upon the filing of the Company’s Annual Report on Form 10-K
for the fiscal year December 31, 2007 and the fiscal year ended December 31,
2006; (3) 1,000,000 shares upon the Company’s quotation for trading on the
Over-the-Counter Bulletin Board; (4) 2,000,000 shares upon the Company entering
into an agreement that results in revenue for the Company in either the form of
funds for research and development from an
established defense contractor or government agency or the sale of an airship or
revenues from other projects in excess of $250,000; (5) 2,000,000 shares upon
the closing of financing of at least $1,000,000 in gross proceeds, in the
aggregate, commencing from the date of initial appointment as CEO on September
10, 2007; and (6) 2,000,000 shares upon the Company’s market cap reaching
$50,000,000.  Executive is entitled to participate in any and all
benefit plans, from time to time, in effect for senior management, along with
vacation, sick and holiday pay in accordance with the Company’s policies
established and in effect from time to time. Executive’s employment with the
Company may be terminated at any time, with or without cause or good reason. In
the event that Executive’s employment is terminated by the Company prior to the
end of the Employment Agreement for any reason except malfeasance, fraud, or
gross negligence then Executive shall be entitled to payment of salary, benefits
and bonus for the three  (3) months following such termination and
shall be entitled to a pro-rata bonus for the term thereunder. To the extent
permitted by law, the Company also agreed to indemnify Executive against any
claim or liability and will hold Executive harmless from and pay any expenses
(including, without limitation, legal fees and court costs), judgments, fines,
penalties, settlements and other amounts arising out of or in connection with
any act or omission of the Executive performed or made in good faith on behalf
of the Company pursuant to the Employment Agreement, regardless of
negligence.  Though Mr. Leinwand resigned as CEO and director on
August 6, 2009, the agreement still remains in effect.


22





SANSWIRE
CORP.AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008




On May 5,
2009, the Company entered into a conversion agreement with Jonathan Leinwand,
pursuant to which the Company agreed to convert $319,119 in outstanding wages
accrued from this agreement from October 17, 2007 to April 3, 2009 into 50,978
shares of Series E Preferred Stock.




Seifert Employment
Agreement





On June
1, 2009, the Board of Directors of Sanswire Corp. appointed Thomas Seifert as a
Chief Financial Officer of the Company (“Executive”).  There is no
understanding or arrangement between Mr. Seifert and any other person pursuant
to which Mr. Seifert was selected as a Chief Financial Officer.  On
June 1, 2009 the Company and Executive entered into that certain employment
agreement whereby Executive was appointed as Chief Financial Officer of the
Company.  The Employment Agreement has an initial term of three years
from the Effective Date and will automatically renew for consecutive one year
terms until such time that the Employment Agreement is terminated unless
otherwise terminated by either party upon 10 days written notice or upon
termination for cause. Pursuant to the Employment Agreement, Executive is to
receive an annual base salary of $200,000 per year, subject review by the Board
of Directors on an annual basis. Upon execution of the Employment Agreement,
Executive was awarded a signing bonus of 1,500,000 shares of the Company’s
common stock, $0.00001 par value and an option to purchase 500,000 shares of the
Common Stock of the Company at an exercise price equal to $.14 per
share.  Executive will also be entitled to receive an annual bonus in
the form of cash and/or equity compensation in amount equal to up to one hundred
and fifty percent (150%) of Employee’s Base Salary.  Executive shall
also be entitled to receive additional equity compensation in the amounts and
upon completion of the following milestones as set forth below: (1) 1,000,000
shares upon the Company commencing trading on the OTCBB; (2) 1,000,000 shares
upon the Company commencing trading on a national trading market; (3) 1,000,000
shares upon the Company successfully filing timely SEC reports for a period of
12 consecutive months; (4) 1,000,000 shares upon the closing of financing of at
least $2,000,000 in gross proceeds, in the aggregate, commencing from the date
of initial appoint as CFO on June 1, 2009; (5) 1,000,000 shares upon the
Company’s market cap reaching $75,000,000; and (6) 1,000,000 shares upon the
Company’s market cap reaching $125,000,000.  Executive is entitled to
participate in any and all benefit plans, from time to time, in effect for
senior management, along with vacation, sick and holiday pay in accordance with
the Company’s policies established and in effect from time to time. Executive’s
employment with the Company may be terminated at any time, with or without cause
or good reason. In the event that Executive’s employment is terminated by the
Company prior to the end of the Employment Agreement for any reason except cause
then Executive shall be entitled to payment of salary, benefits and bonus for
the twelve (12) months following such termination and shall be entitled to a
pro-rata bonus for the term thereunder.  To the extent permitted by
law, the Company also agreed to indemnify Executive against any claim or
liability and will hold Executive harmless from and pay any expenses (including,
without limitation, legal fees and court costs), judgments, fines, penalties,
settlements and other amounts arising out of or in connection with any act or
omission of the Executive performed or made in good faith on behalf of the
Company pursuant to the Employment Agreement, regardless of negligence or
personal responsibility or other.


23





SANSWIRE
CORP. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008





Joint Venture April 2009
Credit Facility





On April
15, 2009, Sanswire-Tao Corp. entered into a credit facility agreement pursuant
to which a private investor agreed to lend up to an aggregate principal amount
of $1,132,800 until the earlier of (i) December 31, 2009 or (ii) until the
holder loans Sanswire Tao Corp. the full amount.  Any loan made under
the Credit Facility Agreement shall mature and become due and payable, in full,
together with all accrued but unpaid interest thereon, on the later of (i)
December 31, 2011 or (ii) the date the Company receives the proceeds from its
customers from the sale of its first 34 meter unmanned autonomously controlled
mid-altitude airship (the “STS-111”).  As consideration for entering
into the Credit Facility Agreement, Sanswire-Tao agreed to pay an amount equal
to fifty percent (50%) of the STS-111 Net Sale Proceeds, when, and if the
Company receives such proceeds.  For purposes of the Credit Facility
Agreement, the term “STS-111 Net Sale Proceeds” shall mean the actual proceeds
received by STC for the sale of the first STS-111 minus the actual cost of
construction. On April 15, 2009, Sanswire-Tao entered into an assignment and
assumption agreement  pursuant to which the holder assigned all of its
rights, title and interest in and to the Credit Facility Agreement to a third
party.





Joint Venture April 2009
Services Agreement





On April
15, 2009, the Company entered into a services agreement (the “2009 Services
Agreement”) to engage a vendor to provide various, design, marketing and other
services and assistance to the Company in connection with the development the
STS-111.  The initial term of the 2009 Services Agreement shall be
until the earlier of (i) the completion of the all of the services to be
provided by the vendor in accordance with the 2009 Services Agreement or (ii)
December 31, 2010.  In consideration for the services to be provided
by the vendor in accordance with the 2009 Services Agreement, the Company will
issue an aggregate amount of 12,500,000 shares of the Company’s common stock to
be issued in accordance with the following schedule: (i) 7,500,000 shares of
common stock to be issued upon execution of the 2009 Services Agreement (ii)
833,335 shares of the Company’s common stock to be issued on May 1, 2009 and
(iii) 833,333 shares of the Company’s common stock to be issued on the first day
of each month beginning on June 1, 2009 and continuing until October 1,
2009.  On April 30, 2009, the Company issued 7,500,000 shares in
accordance with the agreement.





NOTE
9. COMMON STOCK TRANSACTIONS





During thesixmonth period endedJune, 2009, the Company issued an aggregate of39,979,760shares of common stock forcash, debt,board compensation, and consulting
agreements including 1,000,000 shares for the replacement of shares lost when an
investorforeclosed on its lien and security interest based on the
previously entered into pledge agreement.Of thesharesissued,12,050,000shares, or30.1% were issued to insiders and affiliates
as restricted securities and in accordance with SEC Rule 144. The common stock
issued was valued at prices ranging from $0.038to $0.14per share, based on the closing market
prices on the date the board of directors authorized the issuances.Subsequent to June 30, 2009, the Company
issued an aggregate of 1,386,824 shares of common stock for cash and previously
entered into agreements.





NOTE
10. STOCK OPTIONS AND WARRANTS





STOCK
OPTIONS





During
the six months ended June 30, 2009, the Company issued 19,672,222 options to
acquire common stock.  The Company recorded $1,707,780 of compensation
expense related to these options to acquire common stock in the three and six
months ended June 30, 2009.





The fair
value of grants issued in the three and six months ended June 30, 2009 were
determined using a Black-Scholes option pricing model with the following
assumptions: 1.5% average risk-free interest rate; 184% expected volatility;
three year expected term, and 0% dividend yield.


24





SANSWIRE
CORP. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008





Employee
options vest according to the terms of the specific grant and expire from 3 to
5 years from date of grant. As of June 30, 2009, all options issued and
outstanding have fully vested. Stock option activity as of June 30, 2009 was as
follows:





Number of Options
                    (in shares)
                  
                  
                  Weighted Average
                    Exercise PriceOutstanding
      at December 31, 2008
                  
                  
                  15,982,752
                  
                  
                  $
                  .350Options
      Granted
                  
                  
                  19,672,222
                  
                  
                  
                  .059Options
      Exercised
                  
                  
                  (250,000
                  )
                  
                  
                  .105Options
      Cancelled
                  
                  
                  —
                  
                  
                  
                  —Outstanding
      at June 30, 2009
                  
                  
                  35,404,974
                  
                  
                  $
                  .190





The following table summarizes
information about stock options outstanding as ofJune 30, 2009:





Options Outstanding
                      
                      
                      Options ExercisableRange of Exercise
                        Prices
                      
                      Number of
                        Shares
                      
                      
                      Weighted Average
                        Exercise Price
                      
                      
                      Weighted Average
                        Remaining Contractual
                        Life (in years)
                      
                      
                      Number of
                        Shares
                      
                      
                      Weighted Average
                        Exercise Price$
                      0.045 to $0.37
                      
                      
                      35,404,974
                      
                      
                      $
                      0.19
                      
                      
                      
                      1.83
                      
                      
                      
                      35,404,974
                      
                      
                      $
                      0.1935,404,974
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      
                      35,404,974





WARRANTS





The following table summarizes certain
information about the Company’s stock purchase warrants (including the warrants
discussed innote4).





Warrants
                    Class A
                  
                  
                  Warrants
                    Class B
                  
                  
                  Weighted Average
                    Exercise PriceOutstanding
      at December 31, 2008
                  
                  
                  13,987,204
                  
                  
                  
                  9,634,763
                  
                  
                  $
                  0.253Warrants
      Granted
                  
                  
                  2,852,380
                  
                  
                  
                  2,630,157
                  
                  
                  
                  0.252Warrants
      Expired
                  
                  
                  3,305,382
                  
                  
                  
                  2,203,588
                  
                  
                  
                  0.252Outstanding
      at June 30, 2009
                  
                  
                  13,534,202
                  
                  
                  
                  10,061,332
                  
                  
                  $
                  0.253





The aggregate intrinsic value of35,404,974options and13,534,202 Class A
and 10,061,332 Class B warrants
outstanding and exercisable as ofJune 30, 2009 was $5,321,551. The aggregate intrinsic value for the
options is calculated as the difference between the price of the underlying
awards and quoted price of the Company’s common shares for the options that were
in-the-money as ofJune
30, 2009.
AtJune 30, 2009, all options shares and warrant
shares were vested, and there is no unamortized cost to be recognized in future
periods.





NOTE
11. PREFERRED STOCK





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


25





SANSWIRE
CORP. AND SUBSIDIARIES


NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


FOR
THE SIX MONTHS ENDED JUNE 30, 2009 AND 2008





On May 5,
2009, the Company entered into a conversion agreement with Rocky Mountain
Advisors Corp., a consultant to the Company (“RMAC”) and owned by the Company’s
Chief Financial Officer, Thomas Seifert, pursuant to which the Company agreed to
convert $185,387 in consulting fees owed to RMAC for consulting services
performed from October 19, 2007 to April 9, 2009 into 29,615 shares of Series E
Preferred Stock, par value $0.001 per share.





On May 5,
2009, the Company entered into a conversion agreement with Daniyel Erdberg, the
Vice President of Operations, pursuant to which the Company agreed to convert
$121,488 in outstanding wages accrued from July 1, 2008 to April 3, 2009 into
19,407 shares of Series E Preferred Stock.





On May 5,
2009, the Company entered into a conversion agreement with Jonathan Leinwand,
the Chief Executive Officer, pursuant to which the Company agreed to convert $
319,119 in outstanding wages owed accrued from October 17, 2007 to April 3, 2009
into 50,978 shares of Series E Preferred Stock.





The
preferred stock was valued based on the amount forgiven by related parties as
capital contribution.





NOTE
12. INCOME TAXES





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





NOTE
13. SUBSEQUENT EVENTS





Resignation and Appointment
of Chief Executive Office and  Board of Director
Members





On August
6, 2009, the Board of Directors appointed Captain David A. Christian (USA-Ret.),
the Chairman of the Board of Directors, as the Chief Executive Officer of the
Company.  In addition, at the Board of Directors meeting, Jonathan
Leinwand resigned as a director and Chief Executive Officer of the Company and
Przemyslaw Kostro resigned as a director of the Company.  As Chairman
of the Board of Directors, Mr. Christian receives $5,000 per quarter in cash
compensation and 250,000 shares of common stock per quarter during his tenure as
a director. On April 30, 2009, the Company issued 250,000 shares in accordance
with the agreement.  The Company and Mr. Christian are currently
negotiating the terms of Mr. Christian’s employment
agreement.





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





Forward-looking
Information





This quarterly report contains
forward-looking statements. For this purpose, any statements contained herein
that are not statements of historical fact may be deemed to be forward-looking
statements. These statements relate to future events or to our future financial
performance. In some cases, you can identify forward-looking statements by
terminology such as "may," "will," "should," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential" or "continue" or the negative
of such terms or other comparable terminology. These statements are only
predictions. Actual events or results may differ materially. There are a number
of factors that could cause our actual results to differ materially from those
indicated by such forward-looking statements. See our annual report on Form 10-K
for the year endedDecember 31, 2008.





Although we believe that the
expectations reflected in the forward-looking statements are reasonable, we
cannot guarantee future results, levels of activity, performance, or
achievements. Moreover, we do not assume responsibility for the accuracy and
completeness of such forward-looking statements. We are under no duty to update
any of the forward-looking statements after the date of this report to conform
such statements to actual results.


26





General





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





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





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





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





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





RESULTS OF
OPERATIONS





The following discussion and analysis
summarizes the results of operations of the Company for the threeand sixmonth periods endedJune 30, 2009and 2008.





COMPARISON OF THREE MONTHS ENDED JUNE,
2009 AND 2008





REVENUES.The Company had no revenue for the three
months ended June 30, 2009 and 2008.





COST OF SALES.The Company had no cost of sales for the
three months ended June 30, 2009 and 2008.





GROSS MARGIN.The Company had no gross margin for the
three months ended June 30, 2009 and 2008.





OPERATING EXPENSES. Our operating
expenses consist primarily of payroll and related taxes, professional and
consulting services, expenses for executive and administrative personnel and
insurance,  telephone and communications, facilitiesexpenses, travel and related expenses,
and other general corporate expenses. Our operating expenses forthe three month period ended June 30,
2009were $4,394,118compared tothe three month period ended June 30,
2008 which hadoperating
expenses of $850,673aincrease of $3,543,445or416.5%.Theincrease wasprimarilydue tocharges associated with stock and
employee stock options issuances.





Duringthe three month period ended June, 2009
and 2008,Sanswireand its
subsidiaries incurred payroll tax liability during the normal course of business
at each payroll cycle.During 2009 and 2008, the Company has
reported its payroll tax liabilities on a timely basis, however the Company
failed to deposit theappropriate withholding
amountsduring
2008.For 2009, the Company has engaged a
third party to process its payroll information, including appropriate payroll
taxes and has thus has been timely and is current in its payroll tax payments.
In addition, theCompany has recognizedits past issueand contacted the IRS accordingly to
make arrangement to pay any taxes due, which is currently estimated to be at
least $200,000including liabilities associated with
the Company’s subsidiaries that are classified in discontinued
operations. The Company may
be subject to penalties and interest from the IRS.


27





LOSS FROM OPERATIONS. We had an
operating loss of $4,394,118forthe three month period ended June 30,2009as compared to an operating loss of$850,673forthe three month period ended June
30,2008, primarily due tocharges associated with stock and
employee option issuancesas described above, including lower operating costs and reductions of our
various programs.





OTHER INCOME (EXPENSE). We had net other
expenses totaling $2,905,278duringthe three month period ended June 30,2009compared toother income of$250,503forthe three month period ended June
30,2008. This variance was due primarily to thenon cash charges related to
the modifications of warrants of$443,305 and non cash charges related to
derivatives of $2,206,573 during 2009.




Interest expense forthe three month period ended June 30,2009was $698,705compared to $227,985 forthe three month period ended June 30,
2008. Interest expenseincrease was primarily due toan increase innon cash charges related tothe Company’s convertible
debentures.





LOSS FROM DISCONTINUED OPERATIONS.
Duringthe three month
period ended June 30,2009we hadno activityrelated to our discontinued operations
compared toa gain
of$48duringthe three month period ended June 30,2008. See note 2 in the financial statements
for more information regarding the discontinued operations.





NET LOSS. We had a net loss of$7,299,396inthe three month period ended June 30,2009compared to$600,122inthe three month period ended June 30,2008. Theincrease in net loss is primarily
attributable to theincrease in the operating expenses as
discussed above.





COMPARISON OF SIX MONTHS ENDED JUNE,
2009 AND 2008





REVENUES.The Company had no revenue for the six
months ended June 30, 2009 and 2008.





COST OF SALES.The Company had no cost of sales for the
six months ended June 30, 2009 and 2008.





GROSS MARGIN.The Company had no gross margin for the
six months ended June 30, 2009 and 2008.





OPERATING EXPENSES. Our operating
expenses consist primarily of payroll and related taxes, professional and
consulting services, expenses for executive and administrative personnel and
insurance,  telephone and communications, facilitiesexpenses, travel and related expenses,
and other general corporate expenses. Our operating expenses forthe six month period ended June 30, 2009were $4,726,202compared tothe six month period ended June 30, 2008
which hadoperating
expenses of $1,748,567anincrease of $2,977,635or170.3%.Theincrease wasprimarilydue tocharges associated
 with stock and
employee stock options issuances.





Duringthe six month period ended June, 2009
and 2008,Sanswireand its
subsidiaries incurred payroll tax liability during the normal course of business
at each payroll cycle.During 2009 and 2008, the Company has
reported its payroll tax liabilities on a timely basis, however the Company
failed to deposit theappropriate withholding
amountsduring
2008.For 2009, the Company has engaged a
third party to process its payroll information, including appropriate payroll
taxes and has thus has been timely and is current in its payroll tax payments.
In addition, theCompany has recognizedits past issueand contacted the IRS accordingly to
make arrangement to pay any taxes due, which is currently estimated to be at
least $200,000including liabilities associated with
the Company’s subsidiaries that are classified in discontinued
operations. The Company may
be subject to penalties and interest from the IRS.





LOSS FROM OPERATIONS. We had an
operating loss of $4,726,202forthe six month period ended June 30,2009as compared to an operating loss of$1,748,567forthe six month period ended June
30,2008, primarily due tocharges associated with stock and
employee option issuancesas described above, including lower operating costs and reductions of our
various programs.





OTHER INCOME (EXPENSE). We had net other
expenses totaling $3,022,950duringthe six month period ended June 30,2009compared to$1,577,296forthe six month period ended June
30,2008. This variance was due primarily to thenon cash charges related to
the modifications of warrants of$443,305 and non cash charges related to
derivatives of $2,136,154 during 2009 compared to the non cash charges related
to the modifications of our convertible debentures of$1,096,650 in
2008.


28





Interest expense forthe six month period ended June 30,2009was $886,796compared to $437,521 forthe six month period ended June 30,
2008. Interest expenseincrease was primarily due toan increase innon cash charges related tothe Company’s convertible
debentures.





LOSS FROM DISCONTINUED OPERATIONS.
Duringthe six month period
ended June 30,2009we hadno activityrelated to our discontinued operations
compared toa loss
of$196duringthe six month period ended June 30,2008. See note 2 in the financial statements
for more information regarding the discontinued operations.





NET LOSS. We had a net loss of$7,749,154inthe six month period ended June 30,2009compared to$3,326,059inthe six month period ended June 30,2008. Theincrease in net loss is primarily
attributable to theincrease in the operating expenses as
discussed above.





LIQUIDITY AND CAPITAL
RESOURCES





ASSETS. AtJune 30, 2009,the Companyhad total assets of $3,895,102compared to total assets of
$3,240,215as of December 31, 2008.





The current assets atJune 30, 2009, were $1,225,777 compared to $11,215at December 31, 2008 which were comprised of$108,671 incash and cash equivalentsand $1,110,700 in work in
process/inventory.





The Company had$2,663,925 in intangible
assetsas ofJune 30, 2009compared to none as ofDecember 31, 2008.





LIABILITIES. AtJune 30, 2009,the Companyhad total liabilities of
$20,779,991 compared to
total liabilities of $18,692,369as of December 31, 2008.The increase of $2,087,622 wasprincipally due to$2,136,154 in changes associated with
the derivative liabilities(see note7of the financial
statements.)





CASH FLOWS. Our cash used in operating
activities was $1,024,327compared to $142,806for thecomparative period. Theincrease was primarily due to theincreased level of operations and
operating activities and changes in our current assets and
liabilities.





Net cash provided by financing
activities was $1,133,589principally fromthe proceeds of the sale of common
stock, as compared to
$496,179for the six months ended June 30,
2008.





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. As
reflected in the accompanying condensed consolidated financial statements, the
Company had a net loss of $7,749,154 and a negative cash flow from operations of
$1,024,327 for the six months ended June 30, 2009, and had a working capital
deficit of $19,554,214and a stockholders’ deficit
of $16,884,889 at June 30, 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 2009.





Throughout2008and continuing into 2009, the Company has been dependent upon
monthly funding from its existing debt holders. Funding decisions have typically
not extended beyond thirty days at any given time, and the Company does not
currently have a defined funding source. Funding delays and uncertainties have
seriously damaged vendor relationships, new product development and revenues. In
the absence of continued monthly funding by its current debt holders, the
Company would have insufficient funds to continue operations. There is no
assurance that additional funding from the current debt holders will be
available or available on terms and conditions acceptable to the
Company.





Subsequent to June 30, 2009, the Company has raised$184,450from investors;
however this is not adequate funding to cover theCompany’sworking capital deficit or theoperatingloss forthe three month period ended June
30,2009of approximately
$4,394,118.


29





As reflected in the accompanying
financial statements,
during the three month period ended June 30,2009we had a net loss of $7,299,396
compared to a net loss of$600,122duringthe three month period ended June 30,2008. Consequently, there is an accumulated deficit of$133,051,735atJune 30, 2009 compared to $125,302,582at December 31, 2008.





The
Company's Articles of Incorporation currently allow for issuance of a maximum of
250,000,000 shares of common stock. As of September 4, 2009, the Company has
approximately 226,070,599 shares outstanding, leaving an unissued balance of
authorized shares that is not sufficient to service the maximum requirements of
all of its convertible securities. In the event we are unable to obtain an
increase in our authorized common stock, we will be required to repay the
various convertible debentures that we have issued and we will be subject to
penalties associated with such failure to deliver shares of common stock upon
conversion of the debentures as well as prepayment penalties. In addition, if we
are unable to deliver shares of common stock upon exercise of various derivative
securities, such holders may commence litigation against the
Company.





Critical Accounting Policies and Use of
Estimates





Estimates





The preparation ofcondensedconsolidated financial statements
requires us to make certain estimates and assumptions that affect the reported
amounts of assets and liabilities, the reported amounts and classification of
expense, 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, 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.





Accounting for stock
options





We believe that it is important for
investors to be aware that there is a high degree of subjectivity involved in
estimating the fair value of stock-based compensation, that the expenses
recorded for stock-based compensation in the Company’s financial statements may
differ significantly from the actual value (if any) realized by the recipients
of the stock awards, and that the expenses recorded for stock-based compensation
will not result in cash payments from the Company.





Recent Accounting
pronouncements





FSP
FAS No. 115-2 and FAS No. 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments





In April
2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of
Other-Than-Temporary Impairments. This FSP amends the
other-than-temporary impairment guidance for debt securities to make the
guidance more operational and to improve the presentation and disclosure of
other-than-temporary impairments in the financial statements. The most
significant change the FSP brings is a revision to the amount of
other-than-temporary loss of a debt security recorded in earnings. FSP FAS 115-2
and FAS 124-2 is effective for interim and annual reporting periods ending after
June 15, 2009. The Company has adopted this standard effective April 1, 2009 and
the Company’s adoption of FAS 115-2 and 124-2 did not have a material impact on
its condensed consolidated financial statements.





FSP FAS No. 157-4, Determining Fair
Value When the Volume and Level of Activity for the Asset or Liability Have
Significantly Decreased and Identifying Transactions That Are Not
Orderly





In April
2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly. This FSP
provides additional guidance for estimating fair value in accordance with FASB
Statement No. 157, Fair Value
Measurements, when the volume and level of activity for the asset or
liability have significantly decreased. This FSP also includes guidance on
identifying circumstances that indicate a transaction is not orderly. This FSP
emphasizes that even if there has been a significant decrease in the volume and
level of activity for the asset or liability and regardless of the valuation
technique(s) used, the objective of a fair value measurement remains the same.
Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction (that is, not a forced
liquidation or distressed sale) between market participants at the measurement
date under current market conditions. FSP FAS 157-4 is effective for interim and
annual reporting periods ending after June 15, 2009, and is applied
prospectively. The Company has adopted this standard effective April 1, 2009 and
the Company’s adoption of SFAS 157-4 did not have a material impact on its
condensed consolidated financial statements.


30




FAS No. 107-1 and APB No. 28-1,Interim
Disclosures about Fair Value of Financial Instruments





In April
2009, the FASB issued FSP FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value
of Financial Instruments. This FSP amends FASB Statement No. 107, Disclosures about Fair Value of
Financial Instruments, to require disclosures about fair value of
financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. This FSP also amends APB Opinion No.
28, Interim Financial
Reporting, to require those disclosures in summarized financial
information at interim reporting periods. FSP FAS 107-1 and APB 28-1 is
effective for interim and annual reporting periods ending after June 15, 2009.
The Company has adopted this standard effective April 1, 2009 and the Company’s
adoption of FAS 107-1 and APB 28-1 did not have a material impact on its
condensed consolidated financial statements.





Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not or are not believed by
management to have a material impact on the Company's present or future
consolidated financial statements.





Item 3.  Quantitative and
Qualitative Disclosures About Market Risk





As a
“smaller reporting company” as defined by Regulation S-K, the Company is not
required to provide information required by this Item.





Item 4.  Controls and
Procedures





Evaluation of Disclosure Controls and
Procedures





As required by Rule 13a-15 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
carried out an evaluation under the supervision and with the participation of
Jonathan Leinwand, the Company’s Chief Executive Officer and Chief Financial
Officer (the “Reviewing Officers”), of the effectiveness of the Company's
disclosure controls and procedures as ofJune 30, 2009 (the “Quarter”). In designing and
evaluating the Company's disclosure controls and procedures, the Company and its
management recognize that there are inherent limitations to the effectiveness of
any system of disclosure controls and procedures, including the possibility of
human error and the circumvention or overriding of the controls and procedures.
Accordingly, even effective disclosure controls and procedures can only provide
reasonable assurance of achieving their desired control objectives.
Additionally, in evaluating and implementing possible controls and procedures,
the Company's management was required to apply its reasonable judgment.
Furthermore, in the course of this evaluation, management considered certain
internal control areas, including those discussed below, in which we have made
and are continuing to make changes to improve and enhance controls. Based upon
the required evaluation, the Reviewing Officers concluded that as of the end of
the Quarter, the Company's disclosure controls and procedures were not effective
to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms, except for the establishment of the audit
committee as contemplated below.





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





We have categorized our efforts to
address our material weaknesses into two phases.  In the first phase
of the program, already completed as of September 30, 2007, we hired consultants
and accounting consultants to review our financial statements and prepare the
restatement of our financial statements.  Our remediation measures
relating to revenue recognition include a review by management of revenue items
other than normal sales and also the discontinuation of the operations of our
Centerline Communications LLC subsidiary for which we had previously restated
revenue.


31





In the second phase of the program, we
have commenced to and continue to implement certain new policies and procedures
such as:





a.    Seeking to recruit board
members independent of management;





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





c.
            Seeking outside review of
      acquisition transactions





d.
            Establishment
      of an audit committee





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




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




Changes in Internal Control Over
Financial Reporting





Except as set forth above, there have
been no changes in our internal control over financial reporting that occurred
during the Quarter 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





Securities and Exchange
Commission





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





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





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





The SEC
alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
The SEC seeks as relief a permanent injunction, civil penalties, and
disgorgement with prejudgment interest. The Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, but
which does not add any new defendants. The Company has been vigorously defending
itself in this action.


32





Hudson Bay Fund LP et
al.





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




Former
Consultants





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





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





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





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





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





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





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





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


33


Joseph
Monterosso





In
October 2007 the Company filed a lawsuit in the Circuit Court for Broward
County, Florida against Joseph J. Monterosso alleging Libel, Slander and
Defamation, Tortuous Interference, Violations of FS § 836.05 (Threats Extortion)  and violations of FS §517
(Securities Fraud).Mr.
Monterosso has not yet been served with the complaintpending additional information arising
from the SEC lawsuit.This action has been
dismissed for lack of prosecution but may be refilled by the Company in the
future.





Mitchell Siegel v.
GlobeTel





On
February 2, 2007, GlobeTel was sued in the Circuit Court for Broward County,
Florida entitled Mitchell Siegel v. GlobeTel Communications Corp. , Case no.
0702456 (“the Siegel Lawsuit”). In this action, Siegel sued the Company for
breach of contract in regards to a Key Executive Employment
Agreement.  On February 15, 2008, both parties entered into a
settlement agreement whereas Mr. Siegel would receive $175,000 worth of stock,
payable over 12 months, and 50% of the gross proceeds, up to a total amount of
$300,000, received from an October 2006 agreement. During 2008, the Company paid
$131,250 in the Company’s common stock associated with the settlement agreement.
During 2009, the Company paid the remaining $43,750 in the Company’s common
stock.





Trimax
Wireless





On July
3, 2007 the Company filed suit against its former employee Ulrich Altvater and
his company Trimax Wireless seeking the return of certain equipment held at the
former GlobeTel Wireless offices and for the return of $175,000 lent to Altvater
by the Company. The replevin action against Trimax was dismissed on the basis of
venue. In August 2007, Altvater and Trimax filed suit against the Company
alleging, defamation, conversion, breach of contract and seeking injunctive
relief.  On April 6, 2009, the parties entered into a settlement
agreement.  As per the terms of the settlement, Mr. Altvater will
return 1,640,000 shares of the Company’s common stock and certain equipment that
was held by Mr. Altvater’s company, Trimax Wireless.





Item
1A.  Risk Factors





As a
“smaller reporting company” as defined by Regulation S-K, the Company is not
required to provide information required by this Item.





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





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





On May 5,
2009, the Company entered into a conversion agreement with Rocky Mountain
Advisors Corp., a consultant to the Company (“RMAC”), pursuant to which the
Company agreed to convert $185,387 in consulting fees owed to RMAC for
consulting services performed from October 19, 2007 to April 9, 2009 into 29,615
shares of Series E Preferred Stock, par value $0.001 per share.





On May 5,
2009, the Company entered into a conversion agreement with Daniyel Erdberg, the
Company’s Vice President of Operations, pursuant to which the Company agreed to
convert $121,488 in outstanding wages owed to Mr. Erdberg from July 1, 2008 to
April 3, 2009 into 19,407 shares of Series E Preferred Stock.





On May 5,
2009, the Company entered into a conversion agreement with Jonathan Leinwand,
the former Chief Executive Officer, pursuant to which the Company agreed to
convert $ 319,119 in outstanding wages owed to Mr. Leinwand from October 17,
2007 to April 3, 2009 into 50,978 shares of Series E Preferred
Stock.


34





The above
securities were issued pursuant to an exemption under Section 4(2) of the
Securities Act of 1933.





Item 3.  Defaults Upon Senior
Securities





None.




Item 4.  Submission of Matters
to a Vote of Security Holders





None.





Item 5.  Other
Information





None.





Item
6.  Exhibits





Exhibit 3.1
                
                Amendment No. 1 to the Series E
      Certificate of DesignationExhibit 31.1
                
                Certification of the Chief
      Executive Officer pursuant to Section 302 of theSarbanes-Oxley Act of
      2002Exhibit 31.2
                
                Certification of the Chief
      Financial Officer pursuant to Section 302 of theSarbanes-Oxley Act of
      2002Exhibit 32.1
                
                Certification of the Chief
      Executive Officer pursuant to U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of 2002Exhibit 32.1
                
                Certification of the Chief
      Financial Officer pursuant to U.S.C. Section 1350 as adopted pursuant to
      Section 906 of the Sarbanes-Oxley Act of
  2002


35





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:September 14, 2009




SANSWIRE
      CORP.By:
              /s/ David A.
      ChristianDavid A. Christian, Chief
      Executive Officer
                and Chairman of the Board of
      Directors
                (Principal Executive
      Officer)SANSWIRE
    CORP.By:
              /s/ Thomas
      SeifertThomas Seifert, Chief Financial
      Officer
                (Principal Accounting and
      Financial Officer)