Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

(Mark one)

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

ACT OF 1934

For the quarterly period ended September 30, 2009

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

For the transition period from ____________ to _____________

Commission file number 001-32509

SANSWIRE CORP.

(formerly 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.)

101 NE 3rd Ave, Suite 1500,

Fort Lauderdale, Florida 33301

(Address of principal executive offices)

(954) 332-3759

(Issuer's telephone number)

Indicate by check mark whether registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

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

Yes x No o

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes o No x

As of November 16, 2009, there were 249,115,902 shares of the issuer's common stock issued and outstanding.

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.		3

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.		24

Item 3. Quantitative and Qualitative Disclosures About Market Risk.		27

Item 4. Controls and Procedures.		28

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.		29

Item 1A. Risk Factors.		31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.		31

Item 3. Defaults Upon Senior Securities.		31

Item 4. Submission of Matters to a Vote of Security Holders.		31

Item 5. Other Information.		31

Item 6. Exhibits.		31

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SANSWIRE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	SEPTEMBER 30, 2009			DECEMBER 31, 2008
ASSETS	(Unaudited)			(Restated)
CURRENT ASSETS
Cash and cash equivalents	$	7,692		$	4,809
Inventories		1,110,700			—
Current assets from discontinued operations		6,406			6,406
TOTAL CURRENT ASSETS		1,124,798			11,215
NONCURRENT ASSETS
Intangible assets, net of accumulated amortization of $807,250		2,421,750			—
Investment in joint venture		—			3,229,000
Deposits		11,150			—
TOTAL NONCURRENT ASSETS		2,432,900			3,229,000
TOTAL ASSETS	$	3,557,698		$	3,240,215

LIABILITIES AND STOCKHOLDERS’ DEFICIT

LIABILITIES

CURRENT LIABILITIES
Accounts payable (including $385,357 due to joint venture partner at September 30, 2009)	$	4,874,995		$	3,802,777
Notes and convertible notes payable, net of discount of $0 and $134,423		7,290,280			9,264,732
Accrued expenses and other liabilities (including $2,185,000 due to joint venture partner at September 30, 2009 and December 31, 2008)		3,180,589			3,489,210
Fair value of derivative liabilities		2,633,367			748,244
Current liabilities from discontinued operations		1,387,406			1,387,406
TOTAL LIABILITIES		19,366,637			18,692,369

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' DEFICIT
Series E Preferred stock, $.001 par value, 100,000 shares authorized;
100,000 shares issued and outstanding		100			—
Additional paid-in capital - Series E Preferred stock		625,894			—
Common stock, $.00001 par value, 250,000,000 shares authorized;
248,990,902 and 184,704,015 shares issued and outstanding		2,491			1,848
Additional paid-in capital		118,107,011			109,848,580
Accumulated deficit		(134,544,435	)		(125,302,582	)
TOTAL STOCKHOLDERS' DEFICIT		(15,808,939	)		(15,452,154	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	3,557,698		$	3,240,215

See accompanying notes to condensed consolidated financial statements

SANSWIRE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	THREE MONTHS ENDED						NINE MONTHS ENDED
	SEPTEMBER 30,						SEPTEMBER 30,
	2009			2008 (Restated)			2009			2008 (Restated)

REVENUES	$	—		$	—		$	—		$	—

EXPENSES
Payroll and related taxes		153,687			135,496			404,023			666,531
Consulting fees		719,488			422,768			1,474,117			1,138,796
Officers' and directors' stock based compensation		335,750			97,500			3,246,280			435,000
Amortization		242,175			—			807,250			—
General and administrative		95,460			111,055			341,119			275,059
TOTAL EXPENSES		1,546,560			766,819			6,272,789			2,515,386
LOSS FROM OPERATIONS		(1,546,560	)		(766,819	)		(6,272,789	)		(2,515,386	)
OTHER INCOME (EXPENSE)
Loss on extinguishment of debt		—			—			—			(1,096,650	)
Extinguishment of derivative liabilities		629,563			150,995			629,563			442,529
Change in fair value of derivative liabilities		(378,532	)		600,838			(2,514,686	)		266,179
Interest expense, net		(197,145	)		(418,697	)		(1,083,941	)		(856,218	)
NET OTHER INCOME (EXPENSE)		53,886			333,136			(2,969,064	)		(1,244,160	)
LOSS FROM CONTINUING OPERATIONS		(1,492,674	)		(433,683	)		(9,241,853	)		(3,759,546	)
LOSS FROM DISCONTINUED OPERATIONS		—			—			—			(196	)
NET LOSS	$	(1,492,674	)	$	(433,683	)	$	(9,241,853	)	$	(3,759,742	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
BASIC and DILUTED		226,806,725			155,459,034			206,213,560			133,121,067

LOSS PER SHARE FROM CONTINUING OPERATIONS
BASIC and DILUTED	$	( 0.01	)	$	( 0.00	)	$	( 0.04	)	$	( 0.03	)
LOSS PER SHARE FROM DISCONTINUED OPERATIONS
BASIC and DILUTED		—			—			—		$	( 0.00	)
NET LOSS PER SHARE
BASIC and DILUTED	$	( 0.01	)	$	( 0.00	)	$	( 0.04	)	$	( 0.03	)

See accompanying notes to condensed consolidated financial statements

SANSWIRE CORP. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(Unaudited)

	COMMON STOCK
					ADDITIONAL
					PAID-IN
Description	SHARES		AMOUNT		CAPITAL

BALANCE, DECEMBER 31, 2008 (Restated)		184,704,015	$	1,848	$	109,848,580
Shares issued for cash		12,889,996		129		1,353,321
Shares issued for conversion of notes		25,683,212		257		2,702,942
Shares issued for settlement of debt		2,720,346		27		131,753
Shares issued for services		22,668,333		226		1,881,774
Shares issued for options exercised		75,000		1		(1	)
Shares issued for interest		250,000		3		9,497
Fair value of vested options issued for officers’ and directors’ compensation		—		—		1,707,780
Warrants issued with convertible notes		—		—		28,060
Modification of warrants		—		—		443,305
Preferred Series E shares issued for accrued expenses		—		—		—
Preferred Series E shares issued for accounts payable		—		—		—
Net loss		—		—		—
BALANCE, SEPTEMBER 30, 2009		248,990,902	$	2,491	$	118,107,011

(continued)

See accompanying notes to consolidated financial statements

SANSWIRE CORP. AND SUBSIDIARIES (continued)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009

(Unaudited)

	SERIES E PREFERRED STOCK
			ADDITIONAL							TOTAL
			PAID-IN				ACCUMULATED			STOCKHOLDERS'
Description	SHARES		AMOUNT		CAPITAL		DEFICIT			DEFICIT
BALANCE, DECEMBER 31, 2008 (Restated)		—	$	—	$	—	$	(125,302,582	)	$	(15,452,154	)
Shares issued for cash		—		—		—		—			1,353,450
Shares issued for conversion of notes		—		—		—		—			2,703,199
Shares issued for settlement of debt		—		—		—		—			131,780
Shares issued for services		—		—		—		—			1,882,000
Shares issued for options exercised		—		—		—		—			—
Shares issued for interest		—		—		—		—			9,500
Fair value of vested options issued for officers’ and directors’ compensation		—		—		—		—			1,707,780
Warrants issued with convertible notes		—		—		—		—			28,060
Modification of warrants		—		—		—		—			443,305
Preferred Series E shares issued for accrued expenses		70,385		70		440,537		—			440,607
Preferred Series E shares issued for accounts payable		29,615		30		185,357		—			185,387
Net loss		—		—		—		(9,241,853	)		(9,241,853	)
BALANCE, SEPTEMBER 30, 2009		100,000	$	100	$	625,894	$	(134,544,435	)	$	(15,808,939	)

See accompanying notes to consolidated financial statements

SANSWIRE CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30,

(Unaudited)

	2009			2008 (Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(9,241,853	)	$	(3,759,742	)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization of debt discount		176,465			207,514
Amortization of intangible asset		807,250			—
Loss on extinguishment of debt		—			1,096,650
Stock based compensation		2,050,726			391,444
Extinguishment of derivative liabilities		—			(266,179	)
Change in fair value of derivative liabilities		1,885,123			(442,529	)
Fair value of vested options		1,707,780			244,831
Accrued interest expense on convertible notes payable		381,526			421,502
Common stock exchanged for interest and financing costs		—			227,080
Fair value of modification of warrants		443,305			—
Change in operating assets and liabilities:
Inventories		(1,110,700	)		—
Assets from discontinued operations		—			12,272
Accounts payable		1,270,636			555,192
Accrued expenses and other liabilities		175,736			914,204
Liabilities from discontinued operations		—			25
NET CASH USED IN OPERATING ACTIVITIES		(1,454,006	)		(397,736	)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments to joint venture		—			(385,000	)
Deposits		(11,150	)		—
NET CASH USED IN INVESTING ACTIVITIES		(11,150	)		(385,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable		(25,411	)		(25,139	)
Proceeds from notes and loans payable		140,000			782,279
Proceeds from sale of common stock		1,353,450			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,468,039			757,140
NET CHANGE IN CASH AND EQUIVALENTS		2,883			(25,596	)
CASH AND EQUIVALENTS – BEGINNING OF PERIOD		4,809			32,278
CASH AND EQUIVALENTS – END OF PERIOD	$	7,692		$	6,682
SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest	$	2,903		$	122
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued for joint venture		—			268,000
Common stock for accrued expenses		43,750			148,970
Common stock for accounts payable		13,031			—
Accrued expense for joint venture		—			659,000
Conversion of notes payable to common stock		2,618,973			4,137,442
Non-cash equity-warrant valuation and intrinsic value of beneficial conversion associated with convertible notes		28,060			194,080
Preferred stock for accrued expenses		440,607			—
Preferred stock for accounts payable		185,387			—

See accompanying notes to condensed consolidated financial statements

SANSWIRE CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

NATURE OF OPERATIONS

From 2002 to 2007, Sanswire Corp. (formerly known as GlobeTel Communications Corp.) ("Sanswire" or the “Company”) was involved in the following business sectors: stored value card services; wholesale telecommunications services; voice over IP; wireless broadband; and high altitude airships. These business units operated through various subsidiaries. The Company has discontinued operations in all but the high altitude airship sector that is conducted through the Company’s consolidated joint venture, Sanswire-TAO (for more information see notes 2 and 6 below).

The opportunities associated with Sanswire are related to the Lighter Than Air (LTA) Unmanned Aerial Vehicle (UAV) market. Sanswire seeks to build and run a UAV business that includes low-, mid- and high-altitude, lighter-than-air vehicles. Sanswire intends to provide customers seamless wireless broadband capabilities and surveillance sensor suites utilizing its High Altitude Airship technology.

Sanswire’s main products will be airships, which provide a platform to transmit wireless capabilities from air to ground. The High Altitude class of prospective airships are generally referred to as HAAs (High Altitude Airships) but have also been called HAPs and HALEs (High Altitude Platforms, High Altitude Long Endurance). They have been designed to be able to keep a station in one location in the stratosphere, at approximately 65,000 ft for durations of 30 days or more.

On April 14, 2009, the Company arranged for financing for Sanswire-TAO to construct its first 34 meter unmanned autonomously controlled mid-altitude airship and entered into a contract with its joint venture partner TAO Technologies to construct the airship platform.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements of Sanswire Corp. and Subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Regulation SX for scaled disclosures for smaller reporting companies. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in United States of America for complete financial statements. However, such information reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the consolidated financial position and the consolidated results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year.

The condensed consolidated balance sheet information as of December 31, 2008 was derived from the audited consolidated financial statements included in the Company's Annual Report on Form 10-KA filed with the SEC on September 22, 2009. These interim financial statements should be read in conjunction with that report.

The Company applied the provision of Financial Accounting Standards Board (“FASB”) ASC 810-10. “Consolidation of Variable Interest Entities (revised December 2003)” (“FIN 46R”) to its investment in Sanswire-TAO. Under ASC 810, a variable interest entity (VIE) is subject to consolidation if the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders. As of September 30, 2009, the Company determined that that consolidation of Sanswire-TAO was appropriate. Inter-company accounts and transactions have been eliminated in consolidation.

GOING CONCERN

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying condensed consolidated financial statements, the Company had a net loss of $9,241,853 and used cash in operating activities of $1,454,006 for the nine months ended September 30, 2009, and had a working capital deficit of $18,241,839 and a stockholders’ deficit of $15,808,939 at September 30, 2009. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company anticipates that a net loss will continue for the balance of 2009.

Additional cash will still be needed to support operations. Management believes it can continue to raise capital from various funding sources, which will be sufficient to sustain operations at its current level through December 31, 2009. However, if budgeted sales levels are not achieved and/or if significant unanticipated expenditures occur, or if it is unable to obtain the necessary funding, the Company may have to modify its business plan, reduce or discontinue some of its operations or seek a buyer for all or part of its assets to continue as a going concern. As of the date of this report the Company has continued to raise capital to sustain its current operations which have been reduced since January 1, 2008. The Company will need to periodically seek investment to provide cash for operations until such time that operations provide sufficient cash flow to cover expenditures.

On May 2, 2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the United States District Court for the Southern District of Florida against GlobeTel Communications Corp. (the “Company”) and three former officers of the Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC alleges, among other things, that the Company recorded $119 million in revenue on the basis of fraudulent invoices created by Joseph Monterosso and Luis Vargas, two individuals formerly employed by the Company who were in charge of its wholesale telecommunications business. The SEC alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act. The SEC seeks as relief a permanent injunction, civil penalties, and disgorgement with prejudgment interest. The Company intends to vigorously defend itself in this action. The Staff is also considering recommending that the SEC authorize and institute proceedings to revoke the registration of Company’s securities pursuant to Section 12(j) of the Exchange Act (also see note 8).

CASH AND CASH EQUIVALENTS

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

REGISTRATION RIGHTS

At September 30, 2009 the Company has no registration rights agreement requiring penalties to be recorded.

INCOME TAXES

Income taxes are computed under the provisions of the Financial Accounting Standards Board (FASB) ASC 740, “Accounting for Income Taxes”. ASC 740 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the difference in events that have been recognized in the Company's financial statements compared to the tax returns.

VALUATION HIERARCHY

FASB ASC 820, “Fair Value Measurements”, establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2009 (unaudited):

	Total Carrying Value at September		Fair Value Measurements at September 30, 2009
	30, 2009		(Level 1)		(Level 2)		(Level 3)

Cash and cash equivalents	$	7,692	$	7,692	$	—	$	—
Derivative liabilities		2,633,367		—		—		2,633,367

The derivative liabilities are measured at fair value using quoted market prices and estimated volatility factors, and are classified within Level 3 of the valuation hierarchy. There were no changes in the valuation techniques during the three or nine months ended September 30, 2009.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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

USE OF ESTIMATES

The process of preparing financial statements in conformity with generally accepted accounting principles in the United States requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.

BASIC AND DILUTED NET LOSS PER COMMON SHARE

Basic and diluted net loss per common share has been computed based upon the weighted average number of shares of common stock outstanding during each period. The basic and diluted net loss is computed by dividing the net loss by the weighted average number of common shares outstanding during each period. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. If all outstanding options, warrants and convertible shares were to be converted or exercised as of September 30, 2009, the shares outstanding would be 315,088,127. The Company's Articles of Incorporation currently allow for issuance of a maximum of 250,000,000 shares of common stock. On November 2, 2009, holders of a majority of our voting shares of our company, Sanswire Corp., acted by written consent in lieu of a special meeting of shareholders to an adopt amendment to our articles of incorporation to increase the number of shares of common stock which we are authorized to issue from 250,000,000 shares to 500,000,000 shares. As of November 2, 2009, we had 249,115,902 shares of our common stock outstanding. The Company is obligated under various existing agreements, options and warrants to issue additional shares of our common stock.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows FASB ASC 360, "Accounting for the Impairment of Long-Lived Assets." ASC 360 requires that long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the related carrying amount may not be recoverable. When required, impairment losses on assets to be held and used are recognized based on the fair value of the asset. Long-lived assets to be disposed of, if any, are reported at the lower of carrying amount or fair value less cost to sell.

INTANGIBLE ASSETS

Intangible assets are related to the Company's consolidated joint venture Sanswire-TAO (see Note 6). Intangible assets with finite lives are amortized over their estimated useful lives, which are three years for patents and intellectual property. In addition to amortization, intangible assets are tested at least annually for impairment, or whenever events or changes in circumstances indicate that the carrying amount should be assessed. An asset is considered impaired if its carrying amount exceeds the future net cash flow the asset is expected to generate. If an asset is considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds its fair value. The Company generally measures fair value by considering sales prices for similar assets or by discounting estimated future net cash flows from such assets using a discount rate reflecting the Company's average cost of capital.

DERIVATIVE FINANCIAL INSTRUMENTS

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

STOCK-BASED COMPENSATION

The Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for stock option and warrant grants issued and vesting to employees using ASC 718 effective January 1, 2006, and for all share-based payments granted based on the requirements of ASC 718. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance with ASC 505: "Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and ASC 505 “Accounting Recognition for Certain Transactions involving Equity Instruments Granted to Other Than Employees” whereas the value of the stock compensation is based upon the measurement date as determined at either a) the date at which a performance commitment is reached, or b) at the date at which the necessary performance to earn the equity instruments is complete.

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2009, the FASB issued additional application guidance and enhanced disclosures regarding fair value measurements and impairment of securities. The guidance includes how to determine the fair value of assets and liabilities when the volume and level of activity for the asset or liability has significantly decreased. Enhanced disclosure requirements include the following: 1) interim disclosures regarding the fair values of financial instruments that are not currently reflected on the balance sheet at fair value; and 2) disclosure on the methods and significant assumptions used to estimate the fair value of financial instruments on an interim basis as well as changes of the methods and significant assumptions from prior periods. We adopted the additional guidance and disclosure requirements as of our third quarter ended September 30, 2009. The adoption did not have a material effect on our financial condition or results of operations.

In May 2009, the FASB issued its pronouncement regarding subsequent events which provides guidance to establish general standards of accounting for, and disclosures of, events that occur after the balance sheet date but before financial statements are issued or are available to be issued. In connection with preparation of the consolidated financial statements, we evaluated subsequent events after the balance sheet date of September 30, 2009 through November 12, 2009, the date the financial statements were issued.

In June 2009, the FASB approved the FASB Accounting Standards Codification (“the Codification”) as the single source of authoritative nongovernmental GAAP. All existing accounting standard documents, such as the FASB, American Institute of Certified Public Accountants, Emerging Issues Task Force and other related literature, excluding guidance from the SEC, have been superseded by the Codification. All non-grandfathered, non-SEC accounting literature not included in the Codification has become non-authoritative. The Codification does not change GAAP, but instead introduces a new structure that combines all authoritative standards into a comprehensive, topically organized online database. The Codification is effective for our September 30, 2009 financial statements and impacts financial statement disclosures as all references to authoritative accounting literature are referenced in accordance with the Codification.

NOTE 2. DISCONTINUED OPERATIONS

The Company decided to close several of its operations relating to its telecom and wireless activities during 2007 and has presented certain activities as discontinued operations as of September 30, 2009 and December 31, 2008.

The Company had the following assets and liabilities from its discontinued operations on its consolidated balance sheet as of September 30, 2009 (unaudited) and December 31, 2008:

SEPTEMBER 30 2009 (Unaudited)	Telecom		GlobeTel Wireless		Total
Cash	$	6,406	$	—	$	6,406
Total assets	$	6,406	$	—	$	6,406

Accounts payable		140,116		1,216,208		1,356,324
Accrued liabilities		9,605		21,477		31,082
Total current liabilities		149,721		1,237,685		1,387,406

Net liabilities of discontinued operations	$	143,315	$	1,237,685	$	1,381,000

DECEMBER 31, 2008	Telecom		GlobeTel Wireless		Total
Cash	$	6,406	$	—	$	6,406
Total assets	$	6,406	$	—	$	6,406

Accounts payable		140,116		1,216,208		1,356,324
Accrued liabilities		9,605		21,477		31,082
Total current liabilities		149,721		1,237,685		1,387,406

Net liabilities of discontinued operations	$	143,315	$	1,237,685	$	1,381,000

NOTE 3. RESTATEMENT OF FINANCIAL STATEMENTS

On September 4, 2009, the Company concluded, with the concurrence of the Company’s Board of Directors, that an accounting error had been made in the Company’s historical September 30, and December 31, 2008 consolidated financial statements in relation to the provisions of FASB ASC 815, "Accounting for Derivative Financial Instruments and Hedging Activities” and the recording of certain warrants and the beneficial conversion feature of the Company’s convertible notes payable. In accordance with ASC 815, the fair value of certain of the Company’s options and warrants and the embedded conversion feature of the Company’s convertible notes payable, have been re-characterized as derivative liabilities effective January 1, 2007. ASC 815 requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations. As a result, the Company’s unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2008 and audited condensed consolidated financial statements as of December 31, 2008 have been restated.

The effects of the restatement on the Company’s condensed consolidated financial statements for the three and nine months ended September 30, 2008 and as of December 31, 2008 are shown below (note: see table of adjustment descriptions at end of this section):

	December 31, 2008
Account	(As Initially Reported)		(Adjustment)			(As Restated)
Current Assets
Cash	$	4,809	$	—		$	4,809
Current assets from discontinued operations		6,406		—			6,406
Total current assets		11,215		—			11,215
Investment in joint venture		3,229,000		—			3,229,000
Total Assets	$	3,240,215	$	—		$	3,240,215
Liabilities and Stockholders’ Deficit
Current liabilities
Accounts payable	$	3,802,777	$	—		$	3,802,777
Notes and notes payable, net of discount of $134,423		9,264,732		—			9,264,732
Accrued expenses and other liabilities		3,489,210		—			3,489,210
Derivative liabilities		—		748,244	(1)		748,244
Current liabilities from discontinued operations		1,387,406		—			1,387,406
Total Current Liabilities		17,944,125		748,244			18,692,369
Stockholders’ Deficit