**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, 2006


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*





**GLOBETEL
      COMMUNICATIONS CORP.**


(Exact
      name of small business issuer as specified in its charter)




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




9050
      Pines Blvd., Suite 255


Pembroke
      Pines, FL 33024


(Address
      of principal executive offices)





(954)241-0590


(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
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 filer o
            Accelerated
                filer o
            Non-Accelerated
                filer x





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





As
      of
      August 9, 2006 we had issued and outstanding 108,062,660 shares of common stock.





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




1




**TABLE
        OF CONTENTS**
 
 **PART
                  I - FINANCIAL INFORMATION**
              **Page**Item
                  1. Financial Statements.
              3Item
                  1A. Risk Factors.
              17Item
                  2. Management's Discussion and Analysis of Financial Condition
                  and Results
                  of Operations.
              18Item
                  3. Quantitative and Qualitative Disclosures About Market Risk.
              23Item
                  4. Controls and Procedures.
              23**PART
                  II - OTHER INFORMATION**Item
                  1. Legal Proceedings.
              24Item
                  2. Unregistered Sales of Equity Securities and Use of Proceeds.
              25Item
                  3. Defaults Upon Senior Securities.
              25Item
                  4. Submission of Matters to a Vote of Security Holders.
              25Item
                  5. Other Information.
              26Item
                  6. Exhibits.
              26





2


**Item
      1. Financial Statements** . ****


**GLOBETEL
                  COMMUNICATIONS CORP. AND SUBSIDIARIES**
                ***CONSOLIDATED
                  BALANCE SHEETS******June
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005*****(Unaudited)**
              
              **(Audited)*****ASSETS*****CURRENT
                  ASSETS**Cash
                  and cash equivalents
              
              $
              1,869,411
              
              $
              1,228,180Restricted
                  cash
              
              
              142,000
              
              
              1,122,000Accounts
                  receivable, less allowance for doubtful accounts of $575,409 and
                  $409,100
              
              
              1,575,207
              
              
              371,618Loans
                  to employees
              
              
              -
              
              
              46,068Prepaid
                  expenses
              
              
              959,682
              
              
              184,434Prepaid
                  expenses - related party, ISG Jet, LLC
              
              
              99,480
              
              
              185,960Inventory
              
              
              367,745
              
              
              67,525Deposits
                  on equipment purchase
              
              
              88,993
              
              
              124,993Deferred
                  tax asset, less valuation allowance of $10,937,137 and
                  $9,828,700
              
              
              —
              
              
              —***TOTAL
                  CURRENT ASSETS***
              
              
              **5,102,518**
              
              
              **3,330,778****PROPERTY
                  AND EQUIPMENT, net of accumulated depreciation of $949,527 and
                  $596,958**
              
              
              7,283,525
              
              
              7,028,422**OTHER
                  ASSETS**Intangible
                  assets
              
              
              10,032,550
              
              
              9,907,550Deposits
              
              
              46,172
              
              
              52,322***TOTAL
                  OTHER ASSETS***
              
              
              **10,078,722**
              
              
              **9,959,872*****TOTAL
                  ASSETS***
              
              
              **22,464,765**
              
              
              **20,319,072*****LIABILITIES
                  AND STOCKHOLDERS' EQUITY*****COMMITMENTS
                  AND CONTINGENCIES (NOTE 6)****LIABILITIES****CURRENT
                  LIABILITIES**Accounts
                  payable
              
              
              1,179,432
              
              
              907,208Due
                  to Lexington, Inc. payable in Company stock
              
              
              100,000
              
              
              -Due
                  to related party payable in Company stock - Carrier Services,
                  Inc.
              
              
              204,807
              
              
              901,606Due
                  to former employee payable in Company stock
              
              
              86,790
              
              
              237,600Due
                  to related party payable in Company stock - Hotzone Wireless,
                  Inc.
              
              
              2,211,666
              
              
              2,451,834Accrued
                  expenses and other liabilities
              
              
              455,905
              
              
              643,018Deposits
                  from customers
              
              
              277,024
              
              
              -Related
                  party payables
              
              
              57,500
              
              
              57,500***TOTAL
                  CURRENT LIABILITIES***
              
              
              **4,573,124**
              
              
              **5,198,766****LONG-TERM
                  LIABILITIES**Due
                  to related party payable in Company Stock - Hotzone Wireless,
                  Inc.
              
              
              2,386,667
              
              
              4,708,167***TOTAL
                  LONG-TERM LIABILITIES***
              
              
              **2,386,667**
              
              
              **4,708,167*****TOTAL
                  LIABILITIES***
              
              
              **6,959,791**
              
              
              **9,906,933***See
                accompanying
                notes.*




3




**GLOBETEL
                  COMMUNICATIONS CORP. AND SUBSIDIARIES**
                ***CONSOLIDATED
                  BALANCE SHEETS - Continued******June
                  30,***
              
              ***December
                  31,******2006***
              
              ***2005*****(Unaudited)**
              
              **(Audited)****STOCKHOLDERS'
                  EQUITY**Series
                  A Preferred stock, $.001 par value, 10,000,000 shares authorized;
                  0
                    shares issued and outstanding:
              
              
              —
              
              
              —Series
                  B Preferred stock, $.001 par value, 35,000 shares authorized;
                  0
                    shares issued and outstanding:
              
              
              —
              
              
              —Series
                  C Preferred stock, $.001 par value, 5,000 shares authorized;
                  0
                    shares issued and outstanding:
              
              
              —
              
              
              —Series
                  D Preferred stock, $.001 par value, 5,000 shares authorized;
                  1,000
                    shares issued and outstanding:
              
              
              1
              
              
              1Additional
                  paid-in capital - Series D Preferred stock
              
              
              999,999
              
              
              999,999Common
                    stock, $.00001 par value, 250,000,000 and 150,000,000 shares
                    authorized;
                  106,749,234
                    and 98,192,101 shares issued and outstanding
              
              
              1,068
              
              
              982Additional
                  paid-in capital
              
              
              94,240,167
              
              
              81,570,082Stock
                  subscriptions receivable:Series
                  D Preferred Stock
              
              
              (500,000
              )
              
              (500,000
              )Common
                  Stock
              
              
              (142,135
              )
              
              (44,494
              )Accumulated
                  deficit
              
              
              (79,094,126
              )
              
              (71,614,431
              )***TOTAL
                  STOCKHOLDERS' EQUITY***
              
              
              **15,504,974**
              
              
              **10,412,139*****TOTAL
                  LIABILITIES AND STOCKHOLDERS' EQUITY***
              
              $
              **22,464,765**
              
              **$**
              **20,319,072***See
                accompanying
                notes.*




4





**GLOBETEL
                    COMMUNICATIONS CORP. AND SUBSIDIARIES**
                  ***CONSOLIDATED
                    STATEMENTS OF INCOME (LOSS)***
                  ***(Unaudited)******For
                    the three months Ended***
                
                ***For
                    the six months Ended******June
                    30,***
                
                ***June
                    30,******2006***
                
                ***2005***
                
                ***2006***
                
                ***2005*****REVENUES
                    EARNED**
                
                $
                21,628,623
                
                $
                19,700,531
                
                $
                43,923,348
                
                $
                37,711,175**COST
                    OF REVENUES EARNED**
                
                
                21,223,711
                
                
                19,782,516
                
                
                43,437,214
                
                
                37,066,480***GROSS
                    MARGIN***
                
                
                **404,912**
                
                
                **(81,985**
                **)**
                
                **486,134**
                
                
                **644,695****EXPENSES**Payroll
                    and related taxes
                
                
                1,023,183
                
                
                903,365
                
                
                1,880,927
                
                
                1,473,956Consulting
                    and professional fees
                
                
                420,791
                
                
                3,062,862
                
                
                810,548
                
                
                4,346,320Officers
                    Compensation
                
                
                634,700
                
                
                204,922
                
                
                1,116,442
                
                
                466,034Bad
                    debts
                
                
                83,140
                
                
                289,469
                
                
                166,369
                
                
                383,560Investment
                    banking and financing fees
                
                
                —
                
                
                9,835
                
                
                —
                
                
                449,550Investor
                    and public relations
                
                
                99,561
                
                
                167,867
                
                
                193,712
                
                
                193,597Commissions
                    expense - related party Carrier Services, Inc.
                
                
                —
                
                
                —
                
                
                694
                
                
                724,513Research
                    and development
                
                
                528,371
                
                
                374,535
                
                
                1,052,457
                
                
                818,460Other
                    operating expenses
                
                
                536,915
                
                
                284,168
                
                
                892,248
                
                
                440,148Telephone
                    and communications
                
                
                92,106
                
                
                41,834
                
                
                154,680
                
                
                63,781Travel
                    and related expenses
                
                
                440,584
                
                
                155,086
                
                
                796,870
                
                
                281,266Rents
                
                
                199,103
                
                
                73,292
                
                
                329,126
                
                
                143,251Insurance
                    and employee benefits
                
                
                152,596
                
                
                291,689
                
                
                266,288
                
                
                355,105Depreciation
                    and amortization
                
                
                169,994
                
                
                31,838
                
                
                354,843
                
                
                50,240***TOTAL
                    EXPENSES***
                
                
                **4,381,044**
                
                
                **5,890,762**
                
                
                **8,015,204**
                
                
                **10,189,781*****LOSS
                    BEFORE OTHER INCOME (EXPENSE) AND INCOME
                    TAXES***
                
                
                (3,976,132
                )
                
                (5,972,747
                )
                
                (7,529,070
                )
                
                (9,545,086
                )**OTHER
                    INCOME (EXPENSE)**Interest
                    income
                
                
                7,564
                
                
                15,618
                
                
                50,141
                
                
                21,813Interest
                    expense
                
                
                (766
                )
                
                (200
                )
                
                (766
                )
                
                (34,110
                )***NET
                    OTHER INCOME (EXPENSE)***
                
                
                **6,798**
                
                
                **15,418**
                
                
                **49,375**
                
                
                (12,297
                )***LOSS
                    BEFORE INCOME TAXES***
                
                
                (3,969,334
                )
                
                (5,957,329
                )
                
                (7,479,695
                )
                
                (9,557,383
                )**INCOME
                    TAXES**Provision
                    for income taxes
                
                
                —
                
                
                —
                
                
                —
                
                
                —Tax
                    benefit from utilization of net operating loss
                    carryforward
                
                
                —
                
                
                —
                
                
                —
                
                
                —***TOTAL
                    INCOME TAXES***
                
                
                —
                
                
                —
                
                
                —
                
                
                —***NET
                    LOSS***
                
                **$**
                **(3,969,334**
                **)**
                **$**
                **(5,957,329**
                **)**
                **$**
                **(7,479,695**
                **)**
                **$**
                **(9,557,383**
                **)**WEIGHTED
                    AVERAGE NUMBER OF COMMON SHARES OUTSTANDINGBASIC
                
                
                104,467,980
                
                
                75,003,707
                
                
                102,919,203
                
                
                70,570,901DILUTED
                
                
                104,467,980
                
                
                75,003,707
                
                
                102,919,203
                
                
                70,570,901NET
                    LOSS PER SHAREBASIC
                
                $
                ($0.04
                )
                
                ($0.08
                )
                
                ($0.07
                )
                
                ($0.14
                )DILUTED
                
                
                ($0.04
                )
                
                ($0.08
                )
                
                ($0.07
                )
                
                ($0.14
                )
 
 *See
        accompanying notes.*




5


**GLOBETEL
                  COMMUNICATIONS CORP. AND SUBSIDIARIES**
                ***CONSOLIDATED
                  STATEMENTS OF CASH FLOWS***
                ***(Unaudited)******For
                  the Six Months Ended June 30,******2006***
              
              ***2005*****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  income (loss)
              
              $
              (7,479,695
              )
              $
              (9,557,383
              )**Adjustments
                  to reconcile net loss to net cash used by operating
                  activities:**Depreciation
                  and amortization
              
              
              354,843
              
              
              86,264Bad
                  debt expense
              
              
              166,369
              
              
              (383,560
              )Write-off
                  of obsolete Inventory
              
              
              27,940
              
              
              —Stock
                  option compensation
              
              
              64,109
              
              
              —Common
                  stock options exchanged for services
              
              
              225,170
              
              
              —Common
                  stock exchanged for services
              
              
              23,750
              
              
              3,473,899**(Increase)
                  decrease in assets:**Accounts
                  receivable
              
              
              (1,369,958
              )
              
              1,048,212Restricted
                  cash
              
              
              980,000
              
              
              —Loans
                  to employees
              
              
              46,068
              
              
              5,385Prepaid
                  expenses
              
              
              (775,248
              )
              
              (63,163
              )Prepaid
                  expenses - related party, ISG Jets, LLC
              
              
              86,480
              
              
              —Inventory
              
              
              (328,160
              )
              
              3,000Deposits
              
              
              42,150
              
              
              (1,324
              )**Increase
                  (decrease) in liabilities:**Accounts
                  payable
              
              
              359,707
              
              
              327,475Due
                  to related party - Carrier Services, Inc.
              
              
              (106,231
              )
              
              454,922Due
                  to related party payable in Company stock - Hotzone Wireless,
                  Inc.
              
              
              (175,000
              )
              
              —Accrued
                  expenses and other liabilities
              
              
              (187,112
              )
              
              19,916Deposits
                  from customers
              
              
              277,024
              
              
              (32,335
              )***NET
                  CASH USED BY OPERATING ACTIVITIES***
              
              
              **(7,767,794**
              **)**
              ****
              **(4,618,692**
              **)****CASH
                  FLOWS FROM INVESTING ACTIVITIES**Acquisition
                  of property and equipment
              
              
              (609,946
              )
              
              (5,923,437
              )Advances
                  to related party - Hotzone Wireless, Inc.
              
              
              —
              
              
              (21,658
              )Acquisition
                  of Intangible assets
              
              
              (125,000
              )
              
              —Deposit
                  on equipment
              
              
              —
              
              
              (16,000
              )***NET
                  CASH USED BY INVESTING ACTIVITIES***
              
              
              **(734,946**
              **)**
              ****
              **(5,961,095**
              **)****CASH
                  FLOWS FROM FINANCING ACTIVITIES**Sale
                  of preferred stock - Series B
              
              
              —
              
              
              5,085,200Sale
                  of preferred stock - Series D
              
              
              —
              
              
              250,000Sale
                  of common stock and stock warrants
              
              
              2,652,353
              
              
              5,102,152Sale
                  of common stock - exercises of options
              
              
              52,807
              
              
              —Proceeds
                  from loan payable to unconsolidated foreign subsidiary -
                  CGI
              
              
              —
              
              
              1,514,015Proceeds
                  from conversion of stock warrants
              
              
              6,426,295
              
              
              —Proceeds
                  from convertible notes payable
              
              
              —
              
              
              1,800,000Payments
                  on loan payable to unconsolidated foreign subsidiary - CGI
              
              
              —
              
              
              (60,000
              )Payments
                  for letters of credit
              
              
              —
              
              
              (172,000
              )Payments
                  on capital lease financing
              
              
              —
              
              
              (4,604
              )***NET
                  CASH PROVIDED BY FINANCING ACTIVITIES***
              
              
              **9,131,455**
              
              
              **13,514,763**Effects
                  of exchange rate changes on cash
              
              
              12,516
              
              
              —***NET
                  INCREASE IN CASH AND EQUIVALENTS***
              
              
              **641,231**
              
              
              **2,934,976****CASH
                  AND EQUIVALENTS - BEGINNING**
              
              
              1,228,180
              
              
              601,559***CASH
                  AND EQUIVALENTS - ENDING***
              
              **$**
              **1,869,411**
              ****
              **$**
              **3,536,535**
 
 *See
        accompanying notes.*
 
 6
 **GLOBETEL
                    COMMUNICATIONS CORP. AND SUBSIDIARIES**
                  ***CONSOLIDATED
                    STATEMENTS OF CASH FLOWS - continued***
                  ***(Unaudited)******For
                    the Six Months Ended June 30,******2006***
                
                ***2005*****SUPPLEMENTAL
                    DISCLOSURES**Cash
                    paid during the period for:Interest
                
                $
                766
                
                $
                34,110Income
                    taxes
                
                $
                —
                
                $
                —In
                    addition to amounts reflected above, common stock was issued
                    for:Options
                    issued for services
                
                $
                225,170
                
                $
                —Shares
                    issued for services
                
                $
                23,750
                
                $
                3,473,899Shares
                    issued for convertible notes payable
                
                $
                —
                
                $
                1,800,000Shares
                    issued for payment on equipment purchase
                
                $
                —
                
                $
                100,000Conversion
                    of Series A preferred stock to common stock
                
                $
                —
                
                $
                697,500Shares
                    issued as payment due to former employee in Company stock
                
                $
                150,810
                
                $
                —Shares
                    issued as payment for due to related party in Company stock -
                    Hotzone
                    Wireless, Inc.
                
                $
                2,386,667
                
                $
                —Payment
                    of Series B preferred stock subscriptions receivable for
                    equipment
                
                $
                —
                
                $
                4,835,200Non-cash
                    Financing Activities:On
                    July 28, 2004, $1,000,000 of Series D preferred stock was issued.
                    A stock
                    subscription receivable of $500,000 was outstanding as of June
                    30,
                    2006.
 *See
          accompanying notes.*
 
 7


**GLOBETEL
      COMMUNICATIONS CORP. AND SUBSIDIARIES**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (Unaudited)**


**June
      30, 2006**





**NOTE
      1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Interim
      Financial Statements**





The
      accompanying unaudited financial statements reflect all adjustments, which,
      in
      the opinion of management, are necessary for a fair presentation of the
      financial position and the results of operations and cash flows for the interim
      periods presented. All adjustments are of a normal recurring nature. The results
      of operations for the three and six months ended June 30, 2006 are not
      necessarily indicative of the results to be expected for the year ending
      December 31, 2006.





Certain
      financial information and footnote disclosures which are normally included
      in
      financial statements prepared in accordance with accounting principles generally
      accepted in the United States of America, but which are not required for interim
      reporting purposes, have been condensed or omitted. The accounting policies
      followed by the Company are set forth in Note 1 to the Company's consolidated
      financial statements in its annual report on Form 10-K for the year ended
      December 31, 2005. The accompanying financial statements should be read in
      conjunction with the financial statements and notes. However, to assist the
      users of these financial statements, accounting policies for certain significant
      accounts and transactions are repeated below, notwithstanding the absence of
      any
      significant changes in any policies since the last reported period, other than
      as described below in Note 8, “Stock-Based Compensation”.





**Basis
      of Presentation**





The
      financial statements include the accounts of GlobeTel Communications Corp.
      (“Globetel”) and its wholly-owned subsidiaries. All material inter-company
      balances and transactions were eliminated in the consolidation.





**Reclassifications**





Certain
      amounts in the prior year financial statements have been reclassified for
      comparative purposes to conform to the current year presentation. There was
      no
      material changes in classifications made to previously issued financial
      statements.





**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.





**Nature
      of Operations**





GlobeTel
      Communications Corp. (“GlobeTel”) is engaged in the business of providing
      telecommunications and financial services. GlobeTel operates business units
      in
      stored value cards, as a certified MasterCard processor, the sale of Internet
      telephony using Voice over Internet Protocol ("VOIP") technology and equipment,
      and wireless communications both domestically and internationally, including
      Mexico and certain countries in South America, Europe and Asia. In addition,
      our
      subsidiary, Sanswire Networks, LLC, is developing a National Wireless Broadband
      Network utilizing high-altitude airships called Stratellites that will be used
      to provide wireless voice, video, and data services. Through June 30, 2006,
      GlobeTel Wireless, GlobeTel VOIP and Centerline Communications generated
      revenues, however, all of our operations are considered to be of relatively
      equal importance, based on the anticipation of additional future revenue
      producing activities and substantial investment in assets related to all of
      our
      operations.





**Organization
      and Capitalization**





In
      May
      2005, GlobeTel approved a reverse split of shares of common stock on a one
      for
      fifteen (1:15) basis and changed the number of shares authorized to 100,000,000.
      In the Company’s annual shareholders meeting on August 11, 2005, the
      shareholders voted to increase the shares authorized from 100,000,000 to
      150,000,000, and in the Company’s annual shareholders meeting on June 21, 2006,
      the shareholders voted to increase the shares authorized to
      250,000,000.





8





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





The
      American Stock Exchange (“AMEX”) granted approval for the Company to list its
      shares on the exchange and the Company began trading on the AMEX under the
      symbol GTE on May 23, 2005.





On
      July
      19, 2006 the Company received a letter from the AMEX stating that they intended
      to de-list the Company's shares because the Company's press releases were
      "overly promotional", that the Company had not provided all requested
      documentation to AMEX pursuant to a request for information, and that the
      Company or its management had engaged in operations which, in the opinion of
      AMEX, are contrary to the public interest.




On
      July
      25, 2006 the Company announced that it had notified the AMEX of its decision
      to
      appeal the AMEX Staff Determination to de-list with the AMEX’s Listing
      Qualifications Panel. According to the AMEX Company Guide, a hearing will be
      scheduled, to the extent practicable, within 45 days of the Company’s appeal.
      The Company anticipates that its common stock will continue to trade on AMEX
      pending a decision by the Panel. (See Note 11)




**Accounts
      Receivable and Allowance for Doubtful Accounts**





Trade
      and
      other accounts receivable are reported at face value, less any provisions for
      uncollectible accounts considered necessary. Accounts receivable primarily
      includes trade receivables from customers and, in connection with our Mexico
      network, Mexican tax refunds receivable. The Company estimates doubtful accounts
      on an item-to-item basis and includes over-aged accounts as part of allowance
      for doubtful accounts, which are generally accounts that are ninety-days or
      more
      overdue. When accounts are deemed uncollectible, the account receivable is
      charged off and the allowance account is reduced accordingly. Bad debt expense
      for the three months ended June 30, 2006 and 2005 was $83,140 and $289,469
      respectively.





**Inventory**





Inventory
      is recorded at lower-of-cost-or-market, first-in first-out (FIFO) basis.
      Inventory at June 30, 2006 consisted primarily of component parts related to
      the
      Company’s wireless operations, and at December 31, 2005 consisted primarily of
      communications equipment (IP Phones) and component parts related to the
      Company’s wireless operations.





During
      the three and six months ended June 30, 2006, the Company wrote-off $11,940
      and
      $27,940 of IP Phones inventory considered obsolete and charged this amount
      to
      expense.





**Concentrations
      of Credit Risk and Economic Dependence**





Financial
      instruments, which potentially subject the Company to a concentration of credit
      risk, are cash and cash equivalents and accounts receivable. The Company
      currently maintains a substantial portion of its day-to-day operating cash
      balances at several financial institutions. As of June 30, 2006 and December
      31,
      2005 the Company had $1,764,618 and $898,701, respectively, in excess of
      federally insured limits.





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





In
      January 2006, investors exercised all of the outstanding 2,727,273 Class A
      Warrants at $2.50 per share for net proceeds of $6,341,148. The Company also
      agreed to issue the investors a total of 1,935,606 new warrants with an exercise
      price of $4.00 per share, and the warrants expire on August 31, 2008.




9




As
      described in Note 7, in April 2006, net proceeds of $1,050,000 were received
      for
      the purchase of 500,000 shares of common stock at $2.10 per share, pursuant
      to a
      Stock Purchase Agreement with Caterham Financial Management, LTD (”Caterham”).





In
      June
      2006, total net proceeds of $2,672,500 were received for advanced purchase
      of a
      total of 1,660,656 shares of common stock at various prices and for warrants
      to
      purchase a total of 1,660,656 shares of common stock at various prices, pursuant
      to a new pending Stock Purchase Agreement with Asia Pacific Capital Corporation.





The
      Company anticipates increased cash flows from 2006 sales activities; however,
      additional cash will still be needed to support operations. Management believes
      it can continue to raise capital from various funding sources, which, when
      added
      to budgeted sales and current working capital, will be sufficient to
      sustain operations at its current level through December 31, 2006. However,
      if budgeted sales levels are not achieved, or if significant unanticipated
      expenditures occur, or if the Company 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 through December 31, 2006.





**NOTE
      2 - ACCOUNTS RECEIVABLE AND SALES - SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
      AND ECONOMIC DEPENDENCE**





As
      of
      June 30, 2006, the Company had approximately 65 customers, of which 6 customers
      accounted for approximately 52% of accounts receivable balance, including one
      customer accounting for $275,700 or 18%.





Sales
      attributable to foreign operations for the three months ended June 30, 2006
      were
      $21,612,923 or approximately 99% of total sales and $43,862,098 or approximately
      99% of total sales for the six months ended June 30, 2006. Revenue is
      attributable to various foreign countries, since calls either originate or
      terminate in these countries. All transactions, other than those of GlobeTel
      Wireless Europe GmbH, a German corporation, were accounted for in U.S. currency,
      and no material gain or loss was recorded on fluctuations in foreign currency.





**NOTE
      3 - INTANGIBLE ASSETS**





**Accounting
      for Intangible Assets**





It
      is the
      Company's policy to test for impairment of intangible assets no less than
      quarterly, or when conditions occur that may indicate an impairment. The
      Company's intangible assets, which consist primarily of intellectual property,
      including technology and know-how, and business relationships, were evaluated
      by
      management initially upon acquisition and, as of June 30, 2006, determined
      to
      have an indefinite useful life and are not subject to amortization.





The
      Company evaluates the remaining useful life of its intangible assets not being
      amortized each reporting period to determine whether events and circumstances
      continue to support an indefinite life. Since, as of the date of this report,
      there are no known legal, regulatory, contractual, competitive, economic, or
      other factors identified by the Company’s management that limit the useful lives
      of the assets, the asset lives continue to be considered indefinite. If and
      when
      an intangible asset is determined to no longer have an indefinite useful life,
      the asset shall then be amortized prospectively over its estimated remaining
      useful life and accounted for in the same manner as other intangibles that
      are
      subject to amortization.





The
      Company tested the intangible assets for impairment, as of June 30, 2006, and
      determined that no adjustments for impairment were required, whereas the
      projected net cash flows to be generated by the intangible assets are
      anticipated to exceed the carrying values of those assets. In evaluating the
      projected net cash flows, management considered existing and pending business
      associations and market opportunities for each of the intangible assets
      discussed below.





The
      Company’s intangible assets, as discussed below, consisted of the following as
      of June 30, 2006:


Hotzone
            
            $
            7,129,550Sanswire
            
            
            2,778,000Lexington
            
            
            125,000Total
            
            $
            10,032,550





**HotZone**





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





In
      June
      2006, the Company issued the first increment of 666,667 shares of the Company’s
      common stock. The balance due to HotZone as of June 30, 2006 is $4,598,333,
      of
      which $2,211,666 is the current portion and $2,386,667 is the long-term portion.





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




10




The
      HotZone WIMAX system will provide radio technology for the wireless
      communications that will cover significant geographical areas. HotZone’s
      associations and opportunities include those with both domestic and foreign
      telecommunications companies, including contracts to install high-speed wireless
      networks in locales in Germany, Mexico, and China. HotZone’s product, technology
      development and marketing activities, regarding this wireless technology, are
      continuing and no other conditions occurred that may indicate an impairment.





**Sanswire**





In
      April
      2004, the Company entered into an agreement (amended in August 2004) to acquire
      certain assets of Sanswire Technologies, Inc. and its subsidiary, Sanswire,
      Inc., a company that was developing a National Wireless Broadband Network
      utilizing high-altitude airships called Stratellites that will be used to
      provide wireless voice, video, and data services. The acquisition was paid
      with
      1,866,667 shares of the Company’s common stock valued at $2,800,000.





The
      purchase was allocated based on the estimated fair market value of the assets
      acquired as follows: (a) equipment - $32,000; and (b) intangible assets -
      $2,768,000, plus an additional $10,000 for certain costs. The assets acquired
      under the Sanswire agreement consist primarily of intellectual property and
      proprietary rights in intellectual property. As of September 30, 2004, the
      Company placed all of the assets into Sanswire Networks, LLC, its Florida-based,
      wholly-owned subsidiary ("Sanswire").





Sanswire’s
      associations and opportunities include those with both the United States and
      foreign governments, and domestic and foreign telecommunications companies.
      The
      Company is receiving U.S. Government support from NASA, the U.S. Air Force
      and
      other branches of the U.S. military, including the utilization of government
      facilities and engineering expertise, and possible direct funding of future
      operational costs. Furthermore, management believes the costs to acquire and
      implement the Sanswire concept of near-space vehicles and related intangibles
      is
      significantly less than would be required to deploy existing technology (e.g.,
      satellites, cell towers, etc.). Sanswire’s research, development, testing of,
      and cooperation with governmental and commercial entities regarding the
      Stratellite technology is continuing, and no other conditions occurred that
      may
      indicate an impairment.





**Lexington**





On
      May
      26, 2006, the Company’s wholly-owned subsidiary, Centerline Communications, LLC
      entered into an agreement to acquire specified assets and contracts of Lexington
      Global Net, LLC (“Lexington”), a telecommunications systems operator located in
      Atlanta, Georgia, with operations in the United States and Latin America,
      primarily in the country of Colombia. The acquisition transaction, which closed
      during the three months ended June 30, 2006, was paid with $25,000 cash and
      $100,000 of the Company's common stock to be paid based on an agreed upon value
      of $1.85 per share for a total of approximately 54,054 shares, to be issued
      in
      increments during a period from 60 to 180 days after the execution of the
      agreement. However, should the market price of the shares delivered decrease
      to
      less than $1.85 per share, one year from the date of execution of the agreement,
      the Company shall make up the difference between the market price and $1.85
      by
      the issuance of additional shares or by payment of said difference in cash
      or a
      combination of cash and stock at the purchaser’s discretion.





The
      assets acquired under the Lexington
      agreement consist of property, rights, interests and other tangible and
      intangible assets, including rights to relationships (contractual and
      non-contractual) with Lexington’s customers and vendors, and certain government
      authorizations. The tangible assets acquired are considered of negligible value,
      and, accordingly, the Company allocated the entire purchase price of $125,000
      to
      the intangible assets acquired.





Management
      anticipates that the associations and opportunities related to the Lexington
      assets will enable the generation of significant, on-going, profitable sales
      of
      telecommunications traffic through numerous customers and vendors.





**NOTE
      4** **-** **INVESTMENT IN AND DISPOSITION OF FORMER UNCONSOLIDATED FOREIGN SUBSIDIARY -
      CGI**





Prior
      to
      December 2005, the Company held a 73.15% interest in Consolidated Global
      Investments, Inc. (“CGI”), an Australian corporation and an unconsolidated
      foreign subsidiary.





In
      December 2005, the parties agreed that: (1) GlobeTel would return all shares
      and
      warrants it held in CGI to CGI, resulting in complete elimination of any
      ownership interest in CGI; (2) GlobeTel would not be required to return a net
      of
      $1,449,509 advanced from CGI; (3) CGI would retain 333,334 shares of GlobeTel
      common stock; and (4) CGI would return to GlobeTel 280,000 shares of GlobeTel
      common stock.




11




As
      of the
      date of this report, a total of 256,666 shares were received from CGI. The
      remaining 23,334 shares due from CGI were to be returned and utilized to satisfy
      the Company’s obligation with Carrier Services, Inc. (“CSI”). However, in lieu
      of receiving the 23,334 shares from CGI, CGI instead paid CSI $23,000 during
      the
      three months ended June 30, 2006 to satisfy this obligation (see Note 5 below).
      Accordingly, no additional amounts or return shares of shares are due from
      CGI
      as of June 30, 2006.





**NOTE
      5 - DUE TO RELATED PARTY - CSI**





During
      2004 and 2005, the Company entered into contractual agreements with CSI pursuant
      to which CSI would be compensated with the issuance of (or combination of the
      issuance of the net proceeds from the sale of) a total of 333,333 shares of
      GlobeTel’s common stock upon achieving certain revenue targets.





Also,
      in
      2005, the Company entered into two asset purchase agreements with CSI to acquire
      telecommunication equipment totaling $837,836. The parties agreed that the
      purchase price for this equipment would be paid with (1) 233,333 shares of
      GlobeTel’s common stock; and (2) $286,136 in cash. In addition, the purchase
      agreement also required GlobeTel to provide $150,000 for the reconstruction
      and
      establishment of a new telecom switch site in Los Angeles, CA. GlobeTel has
      complied with this provision.





Pursuant
      to these agreements, the Company owed CSI a net amount of $901,606 as of
      December 31, 2005, consisting of (1) 336,667 shares of GlobeTel’s common stock;
      and (2) $106,231 in cash.





In
      January 2006, the Company paid CSI the $106,231 in cash and 226,666 shares
      of
      GlobeTel stock were transferred to CSI (from the GlobeTel shares returned by
      CGI; see Note 4 above), and as of March 31, 2006, 110,001 shares, valued at
      $259,875, were owed.





As
      discussed in Note 4 above, during the three months ended June 30, 2006, CSI
      received cash from CGI, in lieu of 23,334 shares owed. Accordingly, as of June
      30, 2006, 86,667 shares, valued at $204,807, were owed to CSI, and are expected
      to be issued by the Company in the near term.





The
      shares owed to CSI as of June 30, 2006 and December 31, 2005 were recorded
      at
      approximately $2.36 per share, based on the weighted-average fair market value
      of the shares on the respective dates the Company became obligated to issue
      the
      shares.





In
      connection with these and other prior contractual arrangements with CSI, for
      the
      six months ended June 30, 2006 and 2005, the Company recorded commission expense
      of $694 and $724,513, respectively, to CSI.




**NOTE
      6 - COMMITMENTS AND CONTINGENCIES**





**Litigation**





See
      Part
      II - Other Information, reference Item 1. under Legal Proceedings.





**Leases
      and Rents**





As
      of
      June 30, 2006, the Company had leased offices and facilities in various
      locations in California, Florida and Germany. In June 2006, the Company took
      occupancy of additional office space at its corporate offices in Pembroke Pines,
      Florida, with an additional rent obligation of approximately $7,500 per month.
      Rent expense for the three months ended June 30, 2006 and 2005 was $199,103
      and
      $73,292, respectively.





**Network
      Installation Agreement**





On
      June
      7, 2006, the Company entered into an Initial Network Installation Agreement
      with
      VPN de Mexico, S.A. de C.V. (“VPN”) exclusively for the purposes of setting
      forth the terms whereby GlobeTel Wireless will install an initial wireless
      broadband network in Mexico utilizing its HotZone Wireless technology. GlobeTel
      will install an Initial Test Network in an area not to exceed 10 sq. km. VPN
      has
      paid a $225,000 deposit to GlobeTel as 50% of the initial cost of the network.
      Once the initial test area has been installed and deployed, VPN will evaluate
      the network and, upon acceptance, will pay the balance due of $225,000, which
      is
      anticipated to occur during the three months ended September 30, 2006. In the
      event VPN determines that the network does not operate in accordance with its
      expectations, then the $225,000 deposit will be returned to VPN by the
      Company.





Upon
      the
      acceptance of the initial test area, VPN and the Company intend to proceed
      with
      the agreement’s joint venture arrangement, which provides that VPN will pay
      $5,000,000 to the joint venture for the next stage of implementation, which
      will
      call for an installed area of no more than 100 sq. km. The same payment terms
      will apply whereby VPN will pay a 50% into the joint venture with the balance
      due at completion and acceptance of this stage.




12




Since
      the
      joint venture arrangements are contingent upon VPN’s acceptance of the initial
      network and other factors, there can be no assurance that the anticipated
      revenues will be realized.





**NOTE
      7 - STOCKHOLDERS' EQUITY**





**Sales
      of Common Stock and Stock Warrants**





On
      April
      27, 2006 the Company entered into an agreement with Caterham Financial
      Management, LTD (“Caterham”) and received $1,050,000 for 500,000 shares of GTE
      common stock at $2.10 per share, in accordance with a Securities Purchase
      agreement executed with Caterham. The agreement stipulated that, before June
      25,
      2006, Caterham will purchase from the Company an additional 1,500,000 shares
      of
      GTE stock at 84% of the market price, but not less than $2.00 per share.
      However, should the market price fall under $2.25 per share, then Caterham
      would
      not be obligated to make the purchase. Since the market price did in fact fall
      under $2.25 per share before June 25, 2006, Caterham did not purchase the
      additional shares as stipulated in the agreement.





Asia
      Pacific Capital Corporation, advanced funds in anticipation of entering into
      a
      new Securities Purchase agreement with the Company. As of June 30, 2006, and
      as
      of the date of this report, the Company has not finalized the agreement with
      the
      investors. However, whereas the related proceeds were received prior to June
      30,
      2006, and the Company and the investors have agreed on the anticipated terms
      of
      the agreement, as set forth below, the Company has recorded the transactions
      in
      the period ended June 30, 2006.





The
      new
      Securities Purchase agreement will provide for the investors to purchase up
      to
      4,500,000 shares of the Company’s common stock. Pursuant to the first closing
      provision of the contemplated agreement, the Company received $1,077,500 for
      1,102,302 shares of the Company’s common stock at $0.9775 per share, based on
      85% of the then market price of $1.15 per share, as stipulated. At the same
      time, the Company received $57,500 for the purchase of Stock Warrants for an
      additional 1,102,302 shares of the Company’s common stock.





Pursuant
      to the second closing provision of the contemplated agreement, the Company
      received $524,853 for 558,354 shares of the Company’s common stock at $0.94 per
      share, based on 85% of the then market price of $1.11 per share, as stipulated.
      At the same time, the Company received $27,647 for the purchase of Stock
      Warrants for an additional 558,354 shares of the Company’s common
      stock.





The
      Stock
      Warrants are expected to be exercisable based on incremental purchase prices
      ranging from 125% to 200% of the market price of the underlying shares on the
      respective original dates of issuance and will expire within a three year
      period. As of the date of this report, none of the Stock Warrants were
      exercised.





Broker
      fees of $65,000 were paid in connection with the above June 2006 transactions
      and charged against Additional Paid-In Capital. Based on the above referenced
      transactions, the Company received a net of $2,672,500 during the three months
      and six months ended June 30, 2006.





**Preferred
      Stock - Series D**





On
      July
      28, 2004, the Company agreed to sell 1,000 shares of Series D Preferred Stock
      of
      GlobeTel Communications Corp. ("Series D Preferred Stock") to Mitchell A.
      Siegel, former Chief Operating Officer and current Vice President of the
      Company. The Company intended to use the $1 million investment for working
      capital and purchase of equipment necessary to expand the Company's stored
      value
      card programs. The Certificate of Designations for the Series D Preferred Stock
      was filed with the State of Delaware on July 30, 2004.





Mr.
      Siegel agreed to pay the $1 million for the 1,000 shares of Series D Preferred
      Stock to the Company in four (4) equal quarterly installments beginning August
      2004. The agreement was subsequently modified for the installment period to
      be
      semi-annual and to begin in October 2004, and further modified to defer 50%
      of
      the payment for the shares until March 31, 2007. Mr. Siegel has remitted the
      initial $500,000 due to-date under the modified agreement.





Provided
      that the preferred shares have not been converted, the holders of the Series
      D
      Preferred Stock will vote on an as-converted-to-common basis on any matter
      submitted for a vote of stockholders during the period of three years from
      the
      first closing date.




13




Beginning
      on the second anniversary of the first closing date and for a period of one
      year
      thereafter, the Series D Preferred Stock is convertible, in minimum increments
      of 100 shares, into that number of shares of Company common stock that equals
      2%
      of all common shares issued and outstanding on the conversion date. On the
      third
      anniversary of the first closing date, all shares of Series D Preferred Stock
      not previously converted will automatically be converted into Company common
      stock. Except for the aforementioned voting rights and conversion rights, each
      share of Series D Preferred Stock shall have rights that are identical to that
      of the Company's common stock.





As
      of the
      date of this report, none of the Series D Preferred shares have been converted
      into shares of the Company's common stock.





**NOTE
      8 - STOCK-BASED COMPENSATION**





**Accounting
      Policies**





On
      January 1, 2006, the Company adopted Statement of Financial Accounting Standards
      No. 123 (Revised 2004), Share-Based Payments, SFAS 123(R), which requires the
      measurement and recognition of compensation expense for all share-based payment
      awards made to employees and directors, including employee stock options, based
      on estimated fair values. SFAS 123(R) supersedes the Company’s previous
      accounting under Accounting Principles Board Opinion No. 25, Accounting for
      Stock Issued to Employees (APB 25) and related interpretations, applied for
      periods through December 31, 2005. In March 2005, the Securities and Exchange
      Commission issued Staff Accounting Bulletin No. 107 (SAB 107) relating to SFAS
      123(R). The Company has applied the provision of SAB 107 in its adoption of
      SFAS
      123(R).





The
      Company adopted SFAS 123(R) using the modified prospective application
      transition method, which requires the application of the accounting standard
      as
      of January 1, 2006, the first date of the Company’s fiscal year. The Company’s
      consolidated financial statements as of and for the three and six months ended
      June 30, 2006 reflect the impact of SFAS 123(R). In accordance with the modified
      prospective method, the Company’s consolidated financial statements for prior
      periods have not been restated to reflect, and do not include, the impact of
      SFAS 123(R).





SFAS
      123(R) requires companies to estimate the fair value of share-based payment
      awards on the date of the grant using an option-pricing model. The value of
      the
      portion of the award that is ultimately expected to vest is recognized as
      expenses over the requisite service periods in the Company’s consolidated
      statements of income (loss). Prior to the adoption of SFAS 123(R), the Company
      accounted for stock-based awards to employees and directors using the intrinsic
      value method in accordance with APB 25, as allowed under SFAS No. 123,
      Accounting for Stock-Based Compensation, (SFAS 123). Under the intrinsic value
      method, compensation expense under fixed term option plans was recorded at
      the
      date of grant only to the extent that the market value of the underlying stock
      at the date of grant exceeded the exercise price. Accordingly, for those stock
      options granted for which the exercise price equaled the fair market value
      of
      the underlying stock at the date of grant, no expense was recorded.





Stock-based
      compensation expense recognized during the period is based on the value of
      the
      portion of share-based payment awards that is ultimately expected to vest during
      the period.  Stock-based compensation expense for the three and six months
      ended June 30, 2006 included $32,055 and $64,109, respectively, for compensation
      expense for share-based payment awards granted prior to, but not vested as
      of
      December 31, 2005.  Such stock-based compensation is based on the grant
      date fair value estimated in accordance with the pro forma provisions of SFAS
      123.  Compensation expense for share-based payment awards granted
      subsequent to December 31, 2005 are based on the grant date fair value estimated
      in accordance with the provisions of SFAS 123(R).





In
      conjunction with the adoption of SFAS 123(R), the Company adopted the
      straight-line single option method of attributing the value of stock-based
      compensation expense. As stock-based compensation expense is recognized during
      the period is based on awards ultimately expected to vest, it is subject to
      reduction for estimated forfeitures. SFAS 123(R) requires forfeitures to be
      estimated at the time of grant and revised, if necessary, in subsequent periods
      if actual forfeitures differ from those estimates. As of and for the three
      and
      six months ended June 30, 2006, there were no material amounts subject to
      forfeiture. The Company has not accelerated vesting terms of its
      out-of-the-money stock options, or made any other significant changes, prior
      to
      adopting FASB 123(R), Share-Based Payments.





The
      Company recognizes compensation expense paid with common stock and other equity
      instruments issued for assets and services received based upon the fair value
      of
      the assets/services or the equity instruments issued, whichever is more readily
      determined.





As
      of the
      date of this report the Company has not adopted a method to account for the
      tax
      effects of stock-based compensation pursuant to SFAS 123(R) and related
      interpretations. However, whereas the Company has substantial net operating
      losses to offset future taxable income and its current deferred tax asset is
      completely reduced by the valuation allowance, no material tax effects are
      anticipated.




14


**Option-Pricing
      Model**





Upon
      adoption of SFAS 123(R), the Company adopted the Black-Scholes option-pricing
      model, which was previously used for the Company’s pro forma information
      required under SFAS 123, as presented in annual financial statements. The
      Company’s determination of the fair value of share-based payments is effected by
      the Company’s stock price as well as assumptions regarding the number of highly
      complex and subjective variables. For the periods presented in this report,
      the
      variables used in computing the fair-value of share-based payments under
      Black-Scholes option-pricing model, which are substantially the same as those
      used for pro-forma reporting purposes used in the prior year’s financial
      statements, were based on the following assumptions:


Expected dividend yield
            0%Expected stock price
              volatility
            50%Risk-free interest rate
            5.0%Expected life of options
            1.5 years





The
      dividend yield assumption is based on the Company’s history and expectation of
      dividend payouts. The Company has never paid a dividend and does not anticipate
      paying any dividends in the foreseeable future. The Company used the same
      estimated stock price volatility for the current period as used in the
      historical pro forma information included in its prior annual financial
      statements, in accordance with SFAS 123. The risk-free interest rate assumption
      is based on upon observed interest rates appropriate for the term of the
      Company’s stock options. The expected life of options represents the estimated
      weighted-average period the stock options are expected to remain outstanding,
      based on the Company’s prior experience with the exercise of its stock
      options.





**Accuracy
      of Fair Value Estimates**





Option-pricing
      models were developed for use in estimating the value of traded options that
      have no vesting or hedging restrictions and are fully transferable. The Company
      has never had any traded options, nor does it anticipate having any traded
      options in the foreseeable future. Because the Company’s stock options have
      certain characteristics that are significantly different from traded options,
      and because changes in the subjective assumptions can materially affect the
      estimated value, in management’s opinion, the existing valuation models may not
      provide an accurate measure of the fair value of the Company’s stock options.
      Although the fair value of stock options is determined in accordance with SFAS
      123(R) and SAB 107 using an option-pricing model, the value may not be
      indicative of the fair value observed in a willing buyer/willing seller market
      transaction.





**Stock-Based
      Compensation Expense**





Stock-based
      compensation expense for the three months ended June 30, 2006 included $124,284,
      consisting of $26,350 for directors’ fees, which is included in other operating
      expenses, and $97,934 for the Chairman of the Board, which is included in
      officers’ compensation. Stock-based compensation expense for the six months
      ended June 30, 2006 included $275,271, consisting of $59,001 for directors’
fees, which is included in other operating expenses, and $216,270 for the
      Chairman of the Board, which is included in officers’ compensation. In addition,
      stock-based compensation expense for awards granted prior to, but not vested
      as
      of, December 31, 2005 of $32,055 and $64,109, respectively, was recorded for
      the
      three and six months ended June 30, 2006. Officers’ compensation, employee
      compensation and directors’ fees for the three months ended June 30, 2006 were
      $19,203, $11,521 and $1,331, while these amounts for the six month period were
      $38,405, $23,042 and $2,662, respectively.





**Directors’
      Compensation for Services**





During
      the three months ended June 30, 2006, the Company accrued Director’s
      compensation of $43,333 in cash and 17,906 in shares valued at $21,667 ($1.21
      per share) and 10,000 shares of stock options valued at $4,683 ($0.4683 per
      share) for committee Chairman/members. For the six months ended June 30, 2006,
      the Company recorded director’s compensation of a total of $90,833 in cash and a
      total of 28,232 shares valued at $45,417 and a total 20,000 shares of stock
      options valued at $13,584 for committee Chairman/members.





The
      fair
      value of each option granted is estimated on the date of the grant using the
      Black-Scholes option-pricing model, as explained above, and the above options
      all had terms of three years and were fully vested at the grant date.





During
      the three and six months ended June 30, 2006, the Chairman of the GlobeTel
      Board
      of Directors was awarded 123,967 and 273,760 shares of stock options,
      respectively, valued at $97,934 and $216,270, respectively, ($0.79 per share,
      based on intrinsic value, with  a fair
      market value of $2.00 per share on the grant date, less exercise price of $1.21
      per share). The recorded value of the options awarded was computed as of the
      date of the grant (November 11, 2005, per prior agreement) using
      the intrinsic value
      method per APB 25, as explained in Note 1 above ( whereas
      the options
      were granted prior to January 1, 2006), and the above options have terms
      of
      three years and are
      recognized as the related services are rendered.




15




**Stock
      Options Exercised**





During
      the three months ended June 30, 2006, 34,873 options shares were exercised
      and
      issued (net of shares used to pay for “cashless options”) for payments of cash
      and stock subscriptions receivable of $14,459. The shares were issued to current
      and former employees for options granted, primarily pursuant to the 2004
      Employee Stock Options Bonus Plan. No expense for any of the above option shares
      issued was recorded, whereas the options were expensed when granted and vested
      in prior years.





**NOTE
      9 - EARNINGS (LOSS) PER SHARE**





Basic
      net
      loss per share is computed by dividing net loss attributable to common
      stockholders by the weighted average number of shares of common stock
      outstanding during the period. Diluted net loss per share takes into
      consideration shares of common stock outstanding (computed under basic loss
      per
      share) and potentially dilutive shares of common stock. 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.





**NOTE
      10 - SEGMENT INFORMATION**





The
      accounting policies of the segments are the same as those described in the
      summary of significant accounting policies. All inter-segment sales prices
      are
      market based. The Company evaluates performance based on operations of the
      respective business units, segregated into telecommunications services
      (“Telecom”), (includes international wholesale carrier traffic, networks and
      prepaid calling services), the Sanswire Stratellite project (“Sanswire”),
      wireless communications services (“Wireless”) and Voice over Internet Protocol
      ("VOIP") (includes Internet telephony and store value services). The "Corporate"
      column includes expenses incurred by and net other income realized by the parent
      corporation, GlobeTel, including corporate operating expenses, not specifically
      allocated to an operating segment. Segment information for the current and
      prior
      period is as follows:




**FOR
        THE SIX MONTHS ENDED JUNE 30, 2006 and 2005**
 **2006**
              
              **Telecom**
              
              **Sanswire**
              
              **Wireless**
              
              **VOIP**
              
              **Corporate**
              
              **Totals**Revenues
                  Earned
              
              $
              43,847,167
              
              $
              —
              
              $
              30,131
              
              $
              46,050
              
              $
              —
              
              $
              43,923,348Cost
                  of Revenue Earned
              
              
              43,361,482
              
              
              —
              
              
              16,396
              
              
              59,336
              
              
              —
              
              
              43,437,214***Gross
                  Margin(Loss)***
              
              
              ***485,685***
              
              
              ***—***
              
              
              ***13,735***
              
              
              ***(13,286***
              ***)***
              
              ***—***
              
              
              ***486,134***Expenses
              
              
              850,858
              
              
              1,980,055
              
              
              1,112,832
              
              
              721,278
              
              
              3,350,181
              
              
              8,015,204**Loss
                  Before Other Income (Expense) and Income Taxes**
              
              
              **(365,173**
              **)**
              ****
              **(1,980,055**
              **)**
              ****
              **(1,099,097**
              **)**
              ****
              **(734,564**
              **)**
              ****
              **(3,350,181**
              **)**
              ****
              **(7,529,070**
              )Other
                  Income (Expense)
              
              
              1,012
              
              
              —
              
              
              11,064
              
              
              —
              
              
              37,299
              
              
              49,375**Loss
                  Before Income Taxes**
              
              
              **(364,161**
              **)**
              ****
              **(1,980,055**
              **)**
              ****
              **(1,088,033**
              **)**
              ****
              **(734,564**
              **)**
              ****
              **(3,312,882**
              **)**
              ****
              **(7,479,695**
              **)**Income
                  Taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —**Net
                  Loss**
              
              
              **(364,161**
              **)**
              ****
              **(1,980,055**
              **)**
              ****
              **(1,088,033**
              **)**
              ****
              **(734,564**
              **)**
              ****
              **(3,312,882**
              **)**
              ****
              **(7,479,695**
              **)**
 **2005**
              
              **Telecom**
              
              **Sanswire**
              
              **Wireless**
              
              **VOIP**
              
              **Corporate**
              
              **Totals**Revenues
                  Earned
              
              $
              37,711,174
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              37,711,174Cost
                  of Revenue Earned
              
              
              37,066,479
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              37,066,479***Gross
                  Margin(Loss)***
              
              
              ***644,695***
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              ***644,695***Expenses
              
              
              1,123,225
              
              
              2,472,640
              
              
              —
              
              
              —
              
              
              6,593,916
              
              
              10,189,781**Loss
                  Before Other Income (Expense) and Income Taxes**
              
              
              **(478,530**
              **)**
              ****
              **(2,472,640**
              **)**
              
              —
              
              
              —
              
              
              **(6,593,916**
              **)**
              ****
              **(9,545,086**
              **)**Other
                  Income (Expense)
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              (12,297
              )
              
              (12,297
              )**Loss
                  Before Income Taxes**
              
              
              **(478,530**
              **)**
              ****
              **(2,472,640**
              **)**
              
              **—**
              
              
              **—**
              
              
              **(6,606,213**
              **)**
              ****
              **(9,557,383**
              **)**Income
                  Taxes
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —**Net
                  Loss**
              
              **$**
              **(478,530**
              **)**
              **$**
              **(2,472,640**
              **)**
              **$**
              **—**
              
              $
              —
              
              **$**
              **(6,606,213**
              **)**
              **$**
              **(9,557,383**
              **)**


**NOTE
      11****-****SUBSEQUENT EVENTS**





**American
      Stock Exchange Listing**





On
      July
      19, 2006 the Company received a letter from the AMEX stating that it intended
      to
      de-list the Company's shares because the Company's press releases were "overly
      promotional", that the Company had not provided all requested documentation
      to
      AMEX pursuant to a request for information, and that the Company or its
      management had engaged in operations, which, in the opinion of the AMEX, are
      contrary to the public interest.




16




On
      July
      25, 2006 the Company announced that it had notified the AMEX of its decision
      to
      appeal the AMEX Staff Determination to de-list with the AMEX’s Listing
      Qualifications Panel. According to the AMEX Company Guide, a hearing will be
      scheduled, to the extent practicable, within 45 days of the Company’s appeal.
      The Company anticipates that its common stock will continue to trade on AMEX
      pending a decision by the Panel.




There
      can
      be no assurance that the Company will be successful in its efforts to remain
      on
      the AMEX, in which case the Company expects that its common stock would trade
      on
      the over-the-counter bulletin board.




**Item
      1A. Risk Factors**





**Forward-Looking
      Statements**





Certain
      information included in this Form 10-Q and other materials filed or to be filed
      by GlobeTel Communications Corp. ("GlobeTel," "we" "us" or "our") with the
      Securities and Exchange Commission as well as information included in oral
      or
      written statements made from time to time by us, may contain forward-looking
      statements about our current and expected performance trends, business plans,
      goals and objectives, expectations, intentions, assumptions and statements
      concerning other matters that are not historical facts. These statements may
      be
      contained in our filings with the Securities and Exchange Commission, in our
      press releases, in other written communications, and in oral statements made
      by
      or with the approval of one of our authorized officers. Words or phrases such
      as
      "believe", "plan", "will likely result", "expect", "intend", "will continue",
      "is anticipated", "estimate", "project", "may", "could", "would", "should"
      and
      similar expressions are intended to identify forward-looking statements. These
      statements, and any other statements that are not historical facts, are
      forward-looking statements within the meaning of the Private Securities
      Litigation Reform Act of 1995, 15 U.S.C.A. Sections 77Z-2 and 78U-5 (SUPP.
      1996), as codified in Section 27A of the Securities Act of 1933 and Section
      21E
      of the Securities Exchange Act of 1934, as amended from time to time (the
      "Act").





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





Although
      we believe that the assumptions underlying forward-looking statements are
      reasonable, any of the assumptions could be incorrect, and there can be no
      assurance that forward-looking statements will prove to be accurate.
      Forward-looking statements speak only as of the date on which they are made.
      We
      do not undertake any obligation to modify or revise any forward-looking
      statement to take into account or otherwise reflect subsequent events, or
      circumstances arising after the date that the forward-looking statement was
      made.





In
      connection with the "safe harbor" provisions of the Act, we are filing the
      following summary to identify important factors, risks and uncertainties that
      could cause our actual results to differ materially from those projected in
      forward-looking statements made by us, or on our behalf. These cautionary
      statements are to be used as a reference in connection with any forward-looking
      statements. The factors, risks and uncertainties identified in these cautionary
      statements are in addition to those contained in any other cautionary
      statements, written or oral, which may be made or otherwise addressed in
      connection with a forward-looking statement or contained in any of our
      subsequent filings with the Securities and Exchange Commission. Because of
      these
      factors, risks and uncertainties, we caution against placing undue reliance
      on
      forward-looking statements.





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





The
      following risk factors may affect our operating results and the environment
      within which we conduct our business. If our projections and estimates regarding
      these factors differ materially from what actually occurs, our actual results
      could vary significantly from any results expressed or implied by
      forward-looking statements. These risk factors include, but are not limited
      to:





·
            Changes
                in general economic, demographic, geopolitical or public safety conditions
                which affect consumer behavior and spending, including the ongoing
                ramifications of the September 11, 2001 terrorist attacks and the
                governmental response to those attacks, including the armed conflict
                in
                Iraq or other potential countries;






17




·
            Increasing
                competition in the VOIP segment of the telecommunications industry;


·
            Adverse
                Internet conditions which impact customer traffic on our Company's
                networks in general and which cause the temporary underutilization
                of
                available bandwidth;


·
            Various
                factors which increase the cost to develop and/or affect the number
                and
                timing of the openings of new networks, including factors under the
                influence and control of government agencies and others;


·
            Fluctuations
                in the availability and/or cost of local minutes or other resources
                necessary to successfully operate our Company's networks;


·
            Our
                Company's ability to raise prices sufficiently to offset cost increases,
                including increased costs for local minutes;


·
            The
                feasibility and commercial viability of our Stratellite project;
                related
                contemplated funding from third parties to finance the project, and
                necessary cooperation with various military and non-military agencies
                of
                the United States government, and similar agencies of foreign government
                and telecommunication companies;


·
            Depth
                of management and technical expertise and source of intellectual
                and
                technological resources;


·
            Adverse
                publicity about us and our business;


·
            Our
                current dependence on affiliates in our overseas markets;


·
            The
                rate of growth of general and administrative expenses associated
                with
                building a strengthened corporate infrastructure to support our Company's
                growing operations;


·
            Political
                and economic risks of doing business outside the United States, relations
                between our Company and its employees; legal claims and litigation
                against
                the Company;


·
            The
                availability, amount, type, and cost of capital for the Company and
                the
                deployment of such capital, including the amounts of planned capital
                expenditures;


·
            Changes
                in, or any failure to comply with, governmental regulations; the
                amount
                of, and any changes to, tax rates and the success of various initiatives
                to minimize taxes; and other risks and uncertainties referenced in
                this
                Quarterly Report on Form 10-Q. ·
            The Company has lacked profitable operations for
              the past
              3 years.




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


**General**




**Money
      Remittance Service Program with Travelex**




On
      April
      17, 2006, we announced that we launched our money remittance service program
      offered in conjunction with Travelex Currency Services, Inc. Our technology
      has
      been deployed to enable remittance functions through Fidelity Express, a
      national leader in money order generation and walk-in bill payment solutions
      with a growing merchant base of more than 5,000 locations in 22 states. Fidelity
      Express accepts payments through authorized retailers, primarily supermarkets
      and convenience stores.





**GlobeTel
      Wireless, Russian Joint Venture Agreement**





On
      May 9,
      2006, the Company announced that it had terminated its agreement with LLC
      Internafta (“Internafta”), due to Internafta’s failure to pay the initial funds
      due under the parties’ agreement.




**VozBrazil**




On
      May 15,
      2006, we announced the launch of VozBrasil(TM), a service which will allow
      Brazilians to call their friends, relatives and business associates in the
      U.S.
      through a local number, at local rates, without the need for broadband internet
      access or any special equipment.




**VOIP
      Voice Platform in Brazil - iLigue.com.br**




On
      May
      31, 2006, we announced that our newly-launched, customized, VOIP-based
      communications network for Brazil offers Brazilian telecom customers an
      unparalleled level of flexibility and cost-efficiency, whether calling next
      door
      or around the world.




Following
      the introduction of VozBrasil.com, a VOIP network designed specifically for
      Brazilians living in the United States, iLigue(TM) was rolled out in conjunction
      with our Brazilian partners -- first in the northeastern region of Brazil,
      then
      continuously throughout the remainder of the country. This flexible
      communications network allows Brazilian residents to obtain a telephone number
      in Brazil, the U.S. or in any other country without the need for either
      broadband Internet access or special equipment.




18





The
      service allows Brazilians to obtain a U.S. phone number that, when called,
      will
      forward those calls to their local phone number in Brazil -- all at low VOIP
      rates. This is the first of many services that will allow people across the
      globe to attach U.S. phone numbers -- and thereby forward local U.S. calls
      -- to
      their local phone numbers in their own countries.




**Wireless
      Pilot Testing Worldwide**




On
      June
      16, 2006, we announced that our GlobeTel Wireless Division is working to develop
      and install advanced communications resources in diverse regions of the world,
      led by the testing of its HotZone 4010 terrestrial-based wireless technology.
      The HotZone pilots are the required building blocks from which complete networks
      will be constructed.




In
      addition to the recently disclosed U.S. government pilot/test currently underway
      in California where the U.S. Forest Service is evaluating HotZone 4010's
      effectiveness in alerting and preventing forest fires, GlobeTel Wireless has
      pilots either in progress, concluded or in the advanced planning stages in
      China, Ghana, Republic of the Congo, Japan, Germany, and a second pilot in
      Mexico for Grupo IUSA, one of Mexico's largest industrial conglomerates.




**Delay
      of Sanswire II Flight Test - T** **esting
      Window Extended to Later Date**




On
      July
      17, 2006, we announced that our wholly-owned subsidiary, Sanswire Networks
      LLC,
      had announced a short delay in launching the test flights of Sanswire II due
      to
      a manufacturing defect which has been discovered on several of the carbon-fiber
      parts of the airship. Sanswire has recently received these remaining components
      (known as "Taco Shells") from the manufacturer and, after a rigorous quality
      assurance inspection by Sanswire's QI Officer, discovered that they do not
      meet
      the minimum performance standards established by our aerospace engineers. In
      addition to the defects found in the carbon-fiber fin spars and fin assembly,
      the cross-brace structural support for the fins has also been delayed from
      our
      German supplier. As a result of these unexpected component failures, these
      parts
      are being re-manufactured by the supplier and those replacements are arriving
      in
      Palmdale, CA around the last week of July and mid-August. These component delays
      will now, assuming no further delays, push the new launch window to between
      the
      20th and the 30th of August.




**US
      Air Force Approves Statement of Capability for Sanswire Flight
      Testing**




On
      July
      20, 2006, we announced that our wholly-owned subsidiary, Sanswire Networks
      LLC,
      has been granted a Statement of Capability (“SOC”) by the Air Force Flight Test
      Center (“AFFTC”) of the United States Air Force, permitting Sanswire to flight
      test its Sanswire II high altitude airship technology demonstrator. Sanswire
      began to seek approval for the SOC in February of this year. NASA's Dryden
      Flight Research Center, also located at Edwards Air Force Base, will provide
      meteorological services to the Air Force Flight Test Center in support of
      Sanswire's flight test effort. The flight tests will occur at Edwards Air Force
      Base in California's high desert. It is planned that flight tests may extend
      through the fourth quarter of 2006. The Sanswire airship is scheduled to fly
      several test sorties at Edwards Air Force Base Range after the successful
      completion of tethered flights .


**Results
      of Operations** ****





**Three
      months ended June 30, 2006, ("2006" or "the current period") compared to the
      three months ended June 30, 2005 ("2005" or "the prior
      period").**





Revenues
      earned. During the current period, our gross revenues were $21,628,623
      representing an increase of 10% as compared to the prior period, when our gross
      revenues were $19,700,531. Our revenues increased primarily due to revenues
      from
      our subsidiary, Centerline and its subsidiaries, which recorded consolidated
      revenues of $21,570,703 , or 99% of total revenues, consisting primarily of
      wholesale traffic revenues (telecommunications minutes). The remaining $57,920
      of revenues was derived from sales of from our IP Phone products and services,
      Wireless products and services and from our Store Value Card program.





Cost
      of
      revenues earned. Our cost of revenues earned consists primarily of the wholesale
      cost of buying bandwidth purchased by us for resale, collocations costs,
      technical services, wages, equipment leases, and the costs of telecommunications
      equipment. These costs were $21,223,711 for the current year, compared to
      $19,782,516 for the prior period. Our goal is to replace non-margin generated
      traffic in the short-term with margin generated traffic. We are currently
      working to establish additional direct routes, while continuing to increase
      sales and accordingly, its customer base. The remainder of the cost of revenues
      earned was derived from cost of selling our IP Phone products and services,
      Wireless products and services and our Store Value Card program.




19




Gross
      Margin. Our gross margin was $404,912 or 1.9% of total revenues for the current
      period, compared to ($81,985) or -0.4% of total revenues in the prior period,
      an
      increase of $486,897 or 594%. $373,536 of the increase was due primarily to
      higher margin on resale of wholesale minutes as compared to the related cost
      of
      the minutes to terminate. We expect to derive more margins in the future as
      our
      wholesale traffic business experiences incremental growth. The remaining $31,376
      of gross margin was attributed to our Wireless division, IP Phone products
      and
      services and our Store value Card program.





Operating
      Expenses. Our operating expenses for the current period were $4,381,044 compared
      to prior period operating expenses of $5,890,762, a decrease of $1,509,718
      or
      -26%. The decrease is primarily due to the following:





Employee
      payroll and related taxes for the current period were $1,023,183 compared to
      $903,365, an increase of $119,818 or 13%. Our payroll costs and related taxes
      remain relatively stable as compared to the last period as we utilized most
      of
      our current labor force efforts towards the launching of our new products and
      services, including our Stored Value Program, IP Phone and Wireless division
      throughout international markets.





Consulting
      and professional fees decreased to $420,791 from $3,062,862 due primarily to
      a
      reduction in non-cash compensation to $27,681 from $2,367,500 which was related
      to professional fees incurred in maintaining and expanding a public company,
      including our move to the AMEX during the prior year. There was also a $302,252
      decrease in expenses related to project and market development expenses as
      we
      began launching new products during 2006.





Officers’
      Compensation increased to $634,700 from $204,922, an increase of $429,778 or
      210%. This is due to compensation for various executive positions that did
      not
      exist during the prior period. The variances pertain primarily to positions
      for
      Legal Counsel, Senior VP of Corporate Finance and, to the new Chairman of the
      Board.





Bad
      debt
      expense decreased to $83,140 in the current period as compared to $289,469
      in
      the prior period, a decrease of $206,329. The decrease is due to the company’s
      efforts to maintain customer trade accounts current.





Research
      and development costs increased to $528,371 for the current period as compared
      to $374,535 in the prior period, an increase of $153,836 or 41%. This is due
      primarily to the development of our Sanswire project - development of the
      Stratellite. This increase is due primarily to the costs related to the floating
      of Sanswire II Technology Demonstrator Airship along with the initial testing
      phases. The remaining variance relates to research and development costs
      incurred by our Wireless division.





Travel
      and related expenses increased to $440,584 from $155,086, an increase of
      $285,498 or 184%. This is due primarily to additional travel costs incurred
      for
      various projects commencing during the current period, such as Internafta,
      VPN
      Mexico and our Store Value Program in India. These projects did not exist during
      the prior period.





Rent
      expense increased to $199,103 for the current period as compared to $73,292
      for
      the prior period, an increase of $125,811 or 172%. This variance is due to
      additional facilities being utilized by the company based on expansion of our
      business products and services. (See Note 6 on Commitments and
      Contingencies).





Insurance
      and employee benefits decreased to $152,596 from $291,689, a decrease of
      $139,093 or -48%. The decrease is due to implementation of a new employee health
      insurance plan for 2006. The new health insurance plan provides quality benefits
      and is less expensive for the Company.





Depreciation
      and amortization increased to $169,994 from $31,838, an increase of $138,156
      or
      434%. The is principally due to depreciation on new Telecom equipment purchased
      for our subsidiary Centerline Communications, fixed assets attributed to our
      new
      subsidiary Globetel Wireless Europe, Gmbh which did not exist during the prior
      period and computer software and hardware attributed to our new accounting
      system.





Income
      (Loss) from Operations. We had an operating loss of ($3,976,132) for the current
      period as compared to an operating loss of ($5,972,747) for the prior period.
      Our operating loss decreased as compared to prior years. We expect that we
      will
      have higher operating costs as we increase our staffing and continue expanding
      operations, programs, projects and operating costs as it relates to the expected
      increase in revenues, related to our subsidiaries.





Other
      Income (Expense). We had net other income totaling $6,798 during the current
      period compared to other income of $15,418 in the prior period. The variance
      is
      due to reduction in interest income earned based on lower balances of
      interest bearing cash accounts.





Net
      Income (Loss). We had a net loss of ($3,969,334) in the current period compared
      to a net loss of ($5,957,329) in the prior period. The net loss is primarily
      attributable to operating costs (as discussed above) in excess of gross margins.





20





**Six
      months ended June 30, 2006, ("2006" or "the current period") compared to the
      six
      months ended June 30, 2005 ("2005" or "the prior period").**





Revenues
      earned. During the current period, our gross revenues were $43,923,348
      representing an increase of 17% over the prior period when our gross revenues
      were $37,711,175. Our revenues increased primarily due to revenues from our
      subsidiary, Centerline and its subsidiaries, which recorded consolidated
      revenues of $43,847,167, or 99% of total revenues, consisting primarily of
      wholesale traffic revenues (telecommunications minutes). The remaining $76,181
      of revenues was derived from sales of IP Phones, Wireless products and services
      and our Store Value Card program.





Cost
      of
      revenues earned. Our cost of sales consists primarily of the increased wholesale
      cost of buying bandwidth purchased by us for resale, collocations costs,
      technical services, wages, equipment leases, and the costs of telecommunications
      equipment. We had cost of sales of $43,437,214 for the current year, compared
      to
      $37,066,480 for the prior period, an increase of 6,370,734 or 17%. This is
      due
      principally to our increase in the volume of minutes purchased.





Gross
      Margin. Our gross margin was $486,134 or 1.1% of total revenues for the current
      period, compared to $644,695 or 1.7% of total revenues in the prior period,
      a
      decrease of $158,561 or -25%. The decrease is primarily due to the fact that
      there was lower margin on resale of wholesale minutes related to the increased
      cost of the minutes to terminate. In addition, we discontinued terminating
      minutes to one of our Philippine customers which generated high margins for
      us
      in the prior year. We expect to derive higher margins in the future as our
      wholesale traffic business experiences incremental growth. Our goal is to
      replace non-margin generating traffic in the short-term with margin generated
      traffic. We are currently working to establish additional direct routes, while
      continuing to increase sales and accordingly, its customer base.





Operating
      Expenses. Our operating expenses for the current period were $8,015,204 compared
      to prior period operating expenses of $10,189,781 a decrease of $2,174,577
      or
      -21%. The decrease is primarily due to the following:





Employee
      payroll and related taxes for the current period were $1,880,927 compared to
      $1,473,956, an increase of $406,971 or 28%. This increase was due to final
      expansion of our operations, facilities and workforce, related to additional
      services required to launch our new product and services to global markets.
      These products and services included the Stored Value Program, our Sanswire
      Project and our Wireless division. As of June 30, 2006, our employee headcount
      increased to 75 from 45 at June 30, 2005.





Consulting
      and professional fees decreased to $810,548 from $4,346,320, a decrease of
      $3,535,772, due primarily to a reduction in non-cash compensation to $61,663
      from $2,232,700 which was related to professional fees incurred in maintaining
      and expanding a public company, including our move to the AMEX during the prior
      year. There was also a $1,364,735 decrease in expenses related to project and
      market development expenses as we began launching new products during 2006.





Officers
      Compensation increased to $1,116,442 from $466,034, an increase of $650,408
      or
      140%. This is due to compensation for various executive positions that did
      not
      exist during the prior period. This is due to compensation for various executive
      positions that did not exist during the prior period. The variances pertain
      primarily to positions for Legal Counsel, Senior VP of Corporate Finance and,
      to
      the new Chairman of the Board.





Investment
      banking and financing fees decreased to $0 in the current period as compared
      to
      $449,550 for 2005, as this amount related to obtaining funding of approximately
      $4.8 million during the six months ended June 30, 2005.





We
      incurred $694 of sales commissions to CSI for our Centerline operations during
      the current period, compared to $724,513 in the prior year. This variance is
      due
      to commission payments for revenue milestones that were achieved during fiscal
      year 2005. See Note 5 to financial statements regarding amounts due to CSI.





We
      incurred $1,052,457 of research and development costs as of the current period
      as compared to $818,460 for the prior period, an increase of $233,997 or 29%.
      These costs relate primarily to our Sanswire project - development of the
      Stratellite. $1,044,447 of these costs relate to the successful floating of
      Sanswire II Technology Demonstrator Airship along with the initial testing
      phases. The remainder of the costs related to the development of Wireless
      products and services.





Travel
      and related expenses increased to $796,870 from $281,266, an increase of
      $515,604 or 183%. This is due primarily to additional travel costs incurred
      for
      various projects commencing during the current period, such as Internafta,
      VPN
      Mexico and India. These projects did not exist during the prior
      period.




21





Insurance
      and employee benefits decreased to $266,288 from $355,105, a decrease of $88,817
      or -25%. The overall variance is due to implementation of a new employee health
      insurance plan for 2006 which generated a decrease in health insurance as
      compared to the prior period. The new health insurance plan provides quality
      benefits and is less expensive for the company. The variance was also attributed
      to an increase in new insurance policies established for Property, Directors
      & Officers Liability and Workers Compensation.





Depreciation
      and amortization increased to $354,843 from $50,240, an increase of $304,603
      or
      606%. The is principally due to depreciation on new Telecom equipment purchased
      for our subsidiary Centerline Communications, fixed assets attributed to our
      new
      subsidiary Globetel Wireless Europe, Gmbh which did not exist during the prior
      period and computer software and hardware attributed to our new accounting
      system.





Income
      (Loss) from Operations. We had an operating loss of ($7,529,070) for the current
      period as compared to an operating loss of ($9,545,086) for the prior period.
      Our operating loss decreased as compared to prior years. We expect that we
      will
      have higher operating costs as we increase our staffing and continue expanding
      operations, programs, projects and operating costs as it relates to the expected
      increase in revenues, related to our subsidiaries.





Other
      Income (Expense). We had net other income totaling $49,375 during the current
      period compared to other expense of ($12,297) in the prior period. The variance
      is due to elimination of debt in the current year.





Net
      Income (Loss). We had a net loss of ($7,479,695) in the current period compared
      to a net loss of ($9,557,383) in the prior period. The net loss is primarily
      attributable to the decrease in gross margin and operating expenses in excess
      of
      gross margin (as discussed above).





**Liquidity
      and Capital Resources**





Assets.
      At June 30, 2006, we had total assets of $22,464,765 compared to total assets
      of
      $20,319,072 as of December 31, 2005.





The
      current assets at June 30, 2006, were $5,102,518, compared to $3,330,778 at
      December 31, 2005. As of June 30, 2005, we had $1,869,411 of cash and cash
      equivalents compared to $1,228,180 as of December 31, 2005. The increase in
      cash
      and cash equivalents is primarily related to the funding from the conversion
      of
      stock warrants during the current period.





The
      Company had restricted cash of $142,000 as of June 30, 2006 representing
      security r ental
      deposit for Los Angeles World Airport related to the Palmdale Hanger occupied
      by
      Sanswire Networks, LLC in the amount of $72,000 and for various wholesale
      carriers in the amount of $70,000. $1,122,000 in Letters of Credit to vendors
      existed as of December 31, 2005. The Company anticipates replacing this security
      with its restricted stock within the next operating cycle.





Our
      net
      accounts receivable were $1,575,207 as of June 30, 2006, compared to $371,618
      as
      of December 31, 2005. As of June 30, 2006, the Company had approximately 65
      customers of which 6 customers accounted for approximately 52% of accounts
      receivable balance, including one customer accounting for $275,700 or 18%.
      As of
      June 30, 2006, we have increased our allowance for doubtful accounts by
      $166,309.





Other
      current assets included primarily, as of June 30, 2006, $99,480 in prepayment
      to
      a related party, ISG Jet, LLC compared to $185,960 as of December 31, 2005;
      $606,334 in prepaid expenses related to prepaid minutes with carriers, compared
      to $184,434 at December 31, 2005; $367,745 of inventory related to components
      for our wireless operations compared to $67,525 as of December 31, 2005 and
      deposits on equipment purchases of $88,993 compared to $124,993 as of December
      31, 2005.





We
      had
      other assets totaling $10,078,722 as of June 30, 2006 compared to $9,959,872
      as
      of December 31, 2005. The increase is due principally to $125,000 acquisition
      of
      property, rights, interests and other tangible and intangible assets acquired
      from Lexington Global Net, LLC which was done on May 26, 2006 (see Note 3).
      The
      remaining balances are primarily related to the intangible assets associated
      with the acquisition of Sanswire Networks and Hotzone Wireless acquisitions.
      The
      Hotzone Wireless acquisition was made during fiscal year 2005, while the
      Sanswire Networks acquisition was made during fiscal year 2004.





Liabilities.
      At June 30, 2006, we had total liabilities of $6,959,791 compared to total
      liabilities of $9,906,933 as of December 31, 2005.




22




The
      current liabilities at June, 30, 2006 were $4,573,124 compared to $5,198,766
      at
      December 31, 2005, a decrease of $625,642. The variance is attributed primarily
      to reduction in the due to related payable to CSI (see Note 4) to $204,807
      from
      $901,606, a $150,810 reduction (paid in stock) in the amounts due to former
      employee to $86,790 from $237,600, an increase of $277,024 representing a
      $225,000 deposit from a customer VPN Mexico for a Wireless services in Mexico
      (see Note 6) and deposits from Telecom customers, classified as deferred
      revenues. An additional variance included is a liability to Lexington Global
      Net, LLC for $100,000 (see Note 3) which was incurred during the three months
      ended June 30, 2006.





Cash
      Flows. Our cash used in operating activities was ($7,767,794) for the current
      period, compared to ($4,618,692) for the prior period. The increase was
      primarily due to the increased level of operations and operating activities
      and
      changes in our current assets and liabilities.





Our
      cash
      used in investing activities was ($734,946) as compared to ($5,961,095) in
      the
      prior period, which was mainly due to less property and equipment acquisitions
      as our telecommunication program is currently operational as compared to
      acquisition and expansion of new telecommunications equipment in the prior
      period. In addition, the Company used cash to acquire the intangible asset
      related to Lexington Global Net, LLC (see Note 3).





Net
      cash
      provided by financing activities was $9,131,455 compared to 13,514,763 due
      principally from proceeds from the sale of common stock of $2,652,353 in the
      current period as compared to $5,102,152 in the prior period plus conversion
      of
      stock warrants, netting $6,341,148 (net of broker fees of $477,032, which was
      charged against Additional Paid-in Capital) for the current period, compared
      to
      $0 in the prior period, when we received proceeds of approximately $7,135,200
      from proceeds for sales of preferred stock, convertible notes payables and
      proceeds from our former unconsolidated foreign subsidiary.





As
      detailed in the financial statements, we have stock subscriptions receivable
      for
      preferred shares that will raise a total of approximately $500,000 in cash
      prior
      to the end of the three months ending March 31, 2007, primarily in the form
      of
      financing provided by Series D preferred shareholders. In addition,
      we anticipate increased cash flows from 2006 sales activities; however, additional
      cash will still be needed to support operations. Management believes it can
      continue to raise capital from various funding sources, which when added to
      budgeted sales and current working capital, will be sufficient to sustain
      operations at its current level through December 31, 2006.  However, if
      budgeted sales levels are not achieved, or if significant unanticipated
      expenditures occur, or if the Company 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 through December 31, 2006.





As
      reflected in the accompanying financial statements, during the period ended
      June
      30, 2006, we had a net loss of ($7,479,695) compared to a net loss of
      ($9,557,383) during the prior period. Consequently, there is an accumulated
      deficit of ($79,094,126) at June 30, 2006, compared to ($71,614,431) at December
      31, 2005.




**Item
      3. Quantitative and Qualitative Disclosures About Market Risk**





Not
      applicable.





**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 the Company's management, including
      the Chief Executive Officer and President and the Chief Financial Officer,
      of
      the effectiveness of the Company's disclosure controls and procedures as of
      June
      30, 2006. In designing and evaluating the Company's disclosure controls and
      procedures, the Company and its management recognize that there are inherent
      limitations to the effectiveness of any system of disclosure controls and
      procedures, including the possibility of human error and the circumvention
      or
      overriding of the controls and procedures. Accordingly, even effective
      disclosure controls and procedures can only provide reasonable assurance of
      achieving their desired control objectives. Additionally, in evaluating and
      implementing possible controls and procedures, the Company's management was
      required to apply its reasonable judgment. Furthermore, in the course of this
      evaluation, management considered certain internal control areas, including
      those discussed below, in which we have made and are continuing to make changes
      to improve and enhance controls. Based upon the required evaluation, the Chief
      Executive Officer and the Chief Financial Officer concluded that as of June
      30,
      2006, the Company's disclosure controls and procedures were effective (at the
      "reasonable assurance" level mentioned above) 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.




23





From
      time
      to time, the Company and its management have conducted and will continue to
      conduct further reviews and, from time to time, put in place additional
      documentation about the Company's disclosure controls and procedures, as well
      as
      its internal control over financial reporting. The Company may, from time to
      time, make changes aimed at enhancing their effectiveness, as well as changes
      aimed at ensuring that the Company's systems evolve with, and meet the needs
      of,
      the Company's business. These changes may include changes necessary or desirable
      to address recommendations of the Company's management, its counsel and/or
      its
      independent auditors, including any recommendations of its independent auditors
      arising out of their audits and reviews of the Company's financial statements.
      These changes may include changes to the Company's own systems, as well as
      to
      the systems of businesses that the Company has acquired or that the Company
      may
      acquire in the future and will, if made, be intended to enhance the
      effectiveness of the Company's controls and procedures. The Company is also
      continually striving to improve its management and operational efficiency and
      the Company expects that its efforts in that regard will, from time to time,
      directly or indirectly affect the Company's disclosure controls and procedures,
      as well as the Company's internal control over financial reporting.





For
      the
      year ended December 31, 2005, the Company's independent public accountants,
      Dohan and Company, CPA's, P.A. ("Dohan") advised management and the Board of
      Directors that in connection with its audit of the Company's consolidated
      financial statements for the year ended December 31, 2005, it had noted no
      matters involving the Company’s internal control and operation that it
      considered to be reportable conditions under standards established by the
      American Institute of Certified Public Accountants. Reportable conditions are
      matters coming to an independent public accountant’s attention that, in their
      judgment, relate to significant deficiencies in the design or operation of
      internal control and could adversely affect the organization's ability to
      record, process, summarize, and report financial data consistent with the
      assertions of management in the financial statements. Further, a material
      weakness is a reportable condition in which the design or operation of one
      or
      more internal control components does not reduce to a relatively low level
      the
      risk that errors or fraud in amounts that would be material in relation to
      the
      financial statements being audited may occur and not be detected within a timely
      period by employees in the normal course of performing their assigned functions.





Although
      the independent auditors did not report any material weaknesses in internal
      controls, as noted above, the Company has made and is continuing to make changes
      in its controls and procedures, including its internal control over financial
      reporting, aimed at enhancing their effectiveness and ensuring that the
      Company's systems evolve with, and meet the needs of, the Company's business.
      As
      further noted above, the Company is also continually striving to improve its
      management and operational efficiency and the Company expects that its efforts
      in that regard will from time to time directly or indirectly affect the
      Company's controls and procedures, including its internal control over financial
      reporting.





**Changes
      in Internal Control over Financial Reporting**





There
      have been no significant changes in the Company's internal controls or in other
      factors that could significantly affect internal controls subsequent to the
      date
      of the evaluation. The Company has established a financial reporting controls
      committee, which meets quarterly to address corporate financial issues and
      has
      implemented a new accounting system. Furthermore, we have restructured
      departmental responsibilities.




**PART
      II - OTHER INFORMATION**





**Item
      1. Legal Proceedings**





**Class
      Action Lawsuit**





On
      April
      28, 2006, the law firm of Sarraf Gentile LLP commenced a securities class action
      lawsuit on behalf of those investors who acquired the securities of GlobeTel
      Communications Corp. during the period December 30, 2005 to April 11, 2006.
       Subsequently, two additional investors commenced securities fraud class
      action against GlobeTel Communications alleging the same cause of action, namely
      that the Company’s transaction to install wireless networks in Russia was a
“sham.” All lawsuits are pending in the United States District Court for the
      Southern District of Florida and names as defendants GlobeTel and certain of
      its
      top ranking executives. The Company believes that the suits are without merit
      and will vigorously defend against it. The Company has hired outside counsel
      to
      defend it in this action.





**Derivative
      Action**





On
      July
      10, 2006 a derivative action was filed against the officers and directors of
      GlobeTel alleging that they have not acted in the best interest of the Company
      or the shareholders and alleged that the transaction to install wireless
      networks in Russia was a “sham.” The lawsuit is pending in the Federal District
      Court for the Southern District of Florida (Civil Case No. 06-60923). The
      Company believes that the suits are without merit and will vigorously defend
      against it. The Company has hired outside counsel to defend it in this action.
      It is the Company’s understanding that this action will not be advanced until
      the Court in the Class Action Litigation has ruled on the Company’s anticipated
      Motion to Dismiss in that action.




24




**Former
      Consultants Litigation**





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





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





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 scheduled
      a
      continuance of the hearing for September 2006. 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.





**Caribou
      Arbitration Proceeding**





Caribou
      Investments had purchased $250,000 of Series C Preference Shares under a
      contract for the purchase of $1 million in Series C Preference Shares. After
      making the first investment, Caribou failed to make its subsequent investments
      under the Subscription Agreement. Pursuant to the Agreement the Company was
      allowed to force the conversion of the shares, which it subsequently did.
      Caribou filed an arbitration claim with the American Arbitration Association
      pursuant to the terms of the Agreement claiming that the date of conversion
      should have been earlier, and that by converting on a later date, Caribou got
      fewer shares then it was entitled. Additionally, Cairbou claims that shares
      were
      to be free trading. Caribou is seeking more than $700,000 in damages. The
      Company disputes the allegations of the claim and is vigorously defending it.
      The final hearing before the arbitrators is set for mid-November
      2006.




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





As
      described in Part I, Item 1., Financial Information, Note 7, in April 2006,
      $1,050,000 was received for the purchase of 500,000 shares of common stock
      at
      $2.10 per share, and in June 2006, a total of $2,672,500, net of expenses,
      was
      received for the purchase of a total of 1,660,656 shares of common stock at
      various prices and for warrants to purchase a total of 1,660,656 shares of
      common stock at various prices. As of the date of this report, none of the
      stock
      warrants have been exercised by the purchaser, nor have the shares been
      physically issued to the purchaser of the June placement, pending the signing
      of
      a definitive agreement. The proceeds were used primarily for working capital
      needs.





**Item
      3. Defaults upon Senior Securities**





None





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





**Annual
      Meeting**





On
      June
      22, 2006 by written consent of the majority vote of its shares at the Company's
      annual meeting, the recommended slate of directors was ratified by shareholders,
      including J. Randolph Dumas, Chairman, Timothy Huff, Jonathan Leinwand, Dorian
      Klein, Michael Castellano, and Ambassador Ferdinando Salleo. Each director
      received approximately 88% of all votes cast.




The
      proposal to ratify Dohan & Co. as the Company's auditors for the fiscal year
      2006 passed with 82,654,596 votes, or 89% of all votes cast. The proposal to
      increase authorized shares to 250 million from 150 million passed with
      75,883,483 votes, or 82% of all votes cast.




There
      were no other matters brought to a vote of security holders during the quarter
      ended June 30, 2006.




25




**Item
      5. Other Information**





**Officers
      and Directors Appointments / Resignations**




On
      April
      10, we announced that Thomas Jimenez has retired as Chief Financial Officer
      of
      GlobeTel Communications Corp. (Mr. Jimenez had no disputes with the Company)
      and
      Lawrence E. Lynch has been named Chief Financial Officer.





On
      May
      16, 2006 we announced that His Excellency Ferdinando Salleo, who served as
      Italian ambassador to the United States from 1995 until 2003, has joined our
      Board of Directors.





**Item
      6. Exhibits**





(a)
      Exhibits:





Exhibit No. Document Description31.1 Exhibit is filed as an exhibit
              hereto -
              Certification of the Chief Executive Officer, pursuant to Section 302
              of
              the Sarbanes-Oxley Act of 200231.2 Exhibit is filed as an exhibit
              hereto -
              Certification of the Chief Financial Officer, pursuant to Section 302
              of
              the Sarbanes-Oxley Act of 200232.1 Exhibit is filed as an exhibit
              hereto -
              Certification of the Chief Executive Officer pursuant to 18 U.S.C.
Section
              1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of 200232.2 Exhibit is filed as an exhibit
              hereto -
              Certification of the Chief Financial Officer pursuant to 18 U.S.C.
Section
              1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
              of 2002





(b)
      Form
      8-K.





None




26





**SIGNATURES**





In
      accordance with the requirements of Section 13 or 15(d) of the Securities
      Exchange Act of 1934, the registrant has caused this report to be signed on
      its
      behalf by the undersigned, thereunto duly authorized.





**GLOBETEL
      COMMUNICATIONS CORP.**





**Registrant**





*/s/
                Timothy Huff*
              *Name:
                Timothy Huff*
              *Title:
                Chief Executive Officer and Director*
              *Date:
                August 14th, 2006*
              
              
              */s/
                Lawrence E. Lynch*
              *Name:
                Lawrence E. Lynch*
              *Title:
                Chief Financial Officer*
              *Date
                August 14**th**,
                2006*





27