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EX-32.1 - World Surveillance Group Inc. | v183883_ex32-1.htm |
EX-31.1 - World Surveillance Group Inc. | v183883_ex31-1.htm |
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 March 31, 2010
OR
o TRANSITION REPORT UNDER
SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the
transition period from ____________ to _____________
Commission
file number 001-32509
SANSWIRE
CORP.
(Exact
name of small business issuer as specified in its charter)
Delaware
|
88-0292161
|
|
(State or other
jurisdiction of incorporation or organization)
|
(IRS Employer
Identification No.)
|
17501
Biscayne Blvd, Suite 430
Aventura,
Florida 33160
(Address
of principal executive offices)
(786)
288-0717
(Issuer's
telephone number)
Indicate
by check mark whether registrant (1) 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 May
7, 2010, there were 283,874,889 shares of the issuer's common stock issued
and outstanding.
TABLE OF CONTENTS | |
PART I - FINANCIAL INFORMATION |
Page
|
Item 1. Financial Statements. |
3
|
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. |
19
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk. |
21
|
Item 4. Controls and Procedures. |
22
|
PART II - OTHER INFORMATION | |
Item 1. Legal Proceedings. |
23
|
Item 1A. Risk Factors. |
24
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
25
|
Item 3. Defaults Upon Senior Securities. |
25
|
Item 4. (REMOVED AND RESERVED) |
25
|
Item 5. Other Information. |
25
|
Item 6. Exhibits. |
25
|
PART
I - FINANCIAL INFORMATION
Item 1. Financial
Statements.
SANSWIRE
CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
MARCH
31,
2010
|
DECEMBER
31,
2009
|
|||||||
ASSETS
|
||||||||
CURRENT
ASSETS
|
||||||||
Cash
and cash equivalents
|
$ | 12,945 | $ | 12 | ||||
Inventories
|
1,545,490 | 1,545,490 | ||||||
Current
assets from discontinued operations
|
6,406 | 6,406 | ||||||
TOTAL
CURRENT ASSETS
|
1,564,841 | 1,551,908 | ||||||
Deposits
|
11,150 | 11,150 | ||||||
Intangible
assets, net of accumulated amortization of $1,291,600
|
1,937,400 | 2,179,574 | ||||||
Investment
in joint venture
|
— | — | ||||||
TOTAL
NONCURRENT ASSETS
|
1,948,550 | 2,190,724 | ||||||
TOTAL
ASSETS
|
$ | 3,513,391 | $ | 3,742,632 | ||||
LIABILITIES
AND STOCKHOLDERS’ DEFICIT
|
||||||||
LIABILITIES
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable (including $352,588 and $396,625 due to joint venture
partner at March 31, 2010 and December 31, 2009)
|
$ | 4,287,132 | $ | 4,220,167 | ||||
Notes
payable
|
7,496,666 | 7,391,718 | ||||||
Accrued
expenses and other liabilities (including $2,185,000 due to joint venture
partner at March 31, 2010 and December 31, 2009)
|
3,401,359 | 3,311,025 | ||||||
Customer
Deposit
|
50,000 | — | ||||||
Derivative
liabilities
|
731,447 | 1,406,665 | ||||||
Current
liabilities from discontinued operations
|
1,387,406 | 1,387,406 | ||||||
TOTAL
LIABILITIES
|
17,354,010 | 17,716,981 | ||||||
COMMITMENTS
AND CONTINGENCIES
|
||||||||
STOCKHOLDERS'
DEFICIT
|
||||||||
Common
stock, $.00001 par value, 500,000,000 shares authorized;
|
||||||||
274,874,889
and 263,040,586 shares issued and outstanding
|
2,750 | 2,631 | ||||||
Additional
paid-in capital
|
120,976,816 | 120,114,115 | ||||||
Series
E Preferred stock, $.001 par value, 100,000 shares
authorized;
|
||||||||
100,000
shares issued and outstanding:
|
100 | 100 | ||||||
Additional
paid-in capital - Series E Preferred stock
|
625,894 | 625,894 | ||||||
Accumulated
deficit
|
(135,446,179 | ) | (134,717,089 | ) | ||||
TOTAL
STOCKHOLDERS' DEFICIT
|
(13,840,619 | ) | (13,974,349 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$ | 3,513,391 | $ | 3,742,632 | ||||
See
accompanying notes to condensed consolidated financial
statements
|
3
SANSWIRE
CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH
31,
(Unaudited)
2010
|
2009
(Restated)
|
|||||||
REVENUES
|
$
|
—
|
$
|
—
|
||||
COST
OF REVENUES
|
—
|
—
|
||||||
GROSS
MARGIN
|
—
|
—
|
||||||
EXPENSES
|
||||||||
Payroll
and related taxes
|
97,293
|
117,434
|
||||||
Consulting
fees
|
433,256
|
93,159
|
||||||
Noncash
officers' and directors' compensation
|
324,546
|
—
|
||||||
Amortization
|
242,175
|
—
|
||||||
General
and administrative
|
63,140
|
121,491
|
||||||
TOTAL
EXPENSES
|
1,160,410
|
332,084
|
||||||
LOSS
FROM OPERATIONS
|
(1,160,410
|
)
|
(332,084
|
)
|
||||
OTHER
INCOME (EXPENSE)
|
||||||||
Interest
expense, net
|
(243,898
|
)
|
(188,091
|
)
|
||||
Change
in fair value of derivative liabilities
|
675,218
|
70,419
|
||||||
NET
OTHER INCOME (EXPENSE)
|
431,320
|
(117,672
|
)
|
|||||
LOSS
FROM CONTINUING OPERATIONS
|
(729,090
|
)
|
(449,756
|
)
|
||||
LOSS
FROM DISCONTINUED OPERATIONS
|
—
|
—
|
||||||
NET
LOSS
|
$
|
(729,090
|
)
|
$
|
(449,756
|
)
|
||
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
|
||||||||
BASIC
and DILUTED
|
264,907,253
|
185,472,412
|
||||||
LOSS
PER SHARE FROM CONTINUING OPERATIONS
|
||||||||
BASIC
and DILUTED
|
$
|
(
0.00
|
)
|
$
|
(
0.00
|
)
|
||
LOSS
PER SHARE FROM DISCONTINUED OPERATIONS
|
||||||||
BASIC
and DILUTED
|
$
|
(
0.00
|
)
|
$
|
(
0.00
|
)
|
||
NET
LOSS PER SHARE
|
||||||||
BASIC
and DILUTED
|
$
|
(
0.00
|
)
|
$
|
(
0.00
|
)
|
See
accompanying notes to condensed consolidated financial statements
4
SANSWIRE
CORP. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR
THE THREE MONTHS ENDED MARCH 31, 2010
(Unaudited)
COMMON
STOCK
|
|||||||||||||
ADDITIONAL
|
|||||||||||||
PAID-IN
|
|||||||||||||
Description
|
SHARES
|
AMOUNT
|
CAPITAL
|
||||||||||
BALANCE,
DECEMBER 31, 2009
|
263,040,586 | $ | 2,631 | $ | 120,114,115 | ||||||||
Shares
issued for cash
|
2,177,160 | 22 | 167,015 | ||||||||||
Shares
issued for settlement of debt
|
4,800,000 | 48 | 336,189 | ||||||||||
Shares
issued for services
|
4,857,143 | 49 | 341,701 | ||||||||||
Cost
of raising capital
|
— | — | (10,800 | ||||||||||
Fair
value of vested options issued for officers’ and directors’
compensation
|
— | — | 28,596 | ||||||||||
Net
loss
|
— | — | — | ||||||||||
BALANCE,
MARCH 31, 2010
|
274,874,889 | $ | 2,750 | $ | 120,976,816 |
(continued)
See
accompanying notes to consolidated financial statements
5
SANSWIRE
CORP. AND SUBSIDIARIES (continued)
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR
THE THREE MONTHS ENDED MARCH 31, 2010
(Unaudited)
SERIES
E PREFERRED STOCK
|
||||||||||||||||||||
ADDITIONAL
|
TOTAL
|
|||||||||||||||||||
PAID-IN
|
ACCUMULATED
|
STOCKHOLDERS'
|
||||||||||||||||||
Description
|
SHARES
|
AMOUNT
|
CAPITAL
|
DEFICIT
|
DEFICIT
|
|||||||||||||||
BALANCE,
DECEMBER 31, 2009
|
100,000 | $ | 100 | $ | 625,894 | $ | (134,717,089 | ) | $ | (13,974,349 | ) | |||||||||
Shares
issued for cash
|
— | — | — | — | 167,037 | |||||||||||||||
Shares
issued for settlement of debt
|
— | — | — | — | 336,237 | |||||||||||||||
Shares
issued for services
|
— | — | — | — | 341,750 | |||||||||||||||
Cost
of raising capital
|
— | — | — | — | (10,800 | ) | ||||||||||||||
Fair
value of vested options issued for officers’ and directors’
compensation
|
— | — | — | — | 28,596 | |||||||||||||||
Net
loss
|
— | — | — | (729,090 | ) | (729,090 | ) | |||||||||||||
BALANCE,
MARCH 31, 2010
|
100,000 | $ | 100 | $ | 625,894 | $ | (135,446,179 | ) | $ | (13,840,619 | ) |
See
accompanying notes to consolidated financial statements
6
SANSWIRE
CORP. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31,
(Unaudited)
2010
|
2009
(Restated)
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
Net
loss
|
$
|
(729,090
|
)
|
$
|
(449,756
|
)
|
||
Adjustments
to reconcile net loss to net cash used by operating
activities:
|
||||||||
Amortization
of debt discount
|
—
|
34,009
|
||||||
Amortization
of intangible asset
|
242,175
|
—
|
||||||
Stock
based compensation
|
341,750
|
84,500
|
||||||
Cost
of raising capital
|
(10,800
|
)
|
—
|
|||||
Fair
value of vested options
|
28,596
|
—
|
||||||
Interest
expense on convertible notes payable
|
104,948
|
142,313
|
||||||
Change
in fair value of derivative liabilities
|
(675,218
|
)
|
(70,419
|
)
|
||||
Increase
in liabilities:
|
||||||||
Accounts
payable
|
403,201
|
21,976
|
||||||
Accrued
expenses and other liabilities
|
90,334
|
96,153
|
||||||
Customer
deposits
|
50,000
|
—
|
||||||
NET
CASH USED IN OPERATING ACTIVITIES
|
(154,104
|
)
|
(141,224
|
)
|
||||
CASH
FLOWS FROM INVESTING ACTIVITIES
|
||||||||
NET
CASH USED IN INVESTING ACTIVITIES
|
—
|
—
|
||||||
CASH
FLOWS FROM FINANCING ACTIVITIES
|
||||||||
Proceeds
from notes and loans payable
|
—
|
140,000
|
||||||
Proceeds
from sale of common stock
|
167,037
|
100,000
|
||||||
NET
CASH PROVIDED BY FINANCING ACTIVITIES
|
167,037
|
240,000
|
||||||
NET
INCREASE IN CASH AND EQUIVALENTS
|
12,933
|
98,776
|
||||||
CASH
AND EQUIVALENTS – BEGINNING OF PERIOD
|
12
|
4,809
|
||||||
CASH
AND EQUIVALENTS – ENDING OF PERIOD
|
$
|
12,945
|
$
|
103,585
|
||||
SUPPLEMENTAL
DISCLOSURES
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$
|
—
|
$
|
122
|
||||
NON-CASH
INVESTING AND FINANCING ACTIVITIES:
|
||||||||
Shares
issued for accounts payable
|
336,237
|
—
|
||||||
Shares
for accrued expenses
|
—
|
29,167
|
||||||
Conversion
of notes payable to common stock
|
—
|
75,438
|
||||||
Non-cash
equity-warrant valuation and intrinsic value of beneficial conversion
associated with convertible notes
|
—
|
84,601
|
See
accompanying notes to condensed consolidated financial statements
7
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.
·
|
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.
The
opportunities associated with Sanswire are related to the Lighter Than Air (LTA)
Unmanned Aerial Vehicle (UAV) market. Sanswire seeks to build and run a UAV
business that includes low-, mid- and high-altitude, lighter-than-air vehicles.
Sanswire intends to provide customers surveillance sensor suites and advanced
seamless wireless broadband capabilities utilizing its High Altitude Airship
technology.
Sanswire’s
main products are airships, which provide a platform to transmit wireless
capabilities from air to ground. The High Altitude class of
prospective airships are generally referred to as HAAs (High Altitude Airships)
but have also been called HAPs (High Altitude Platform) and HALEs (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 feet for durations
of 30 days or more. The Company is focused on the development
and construction of the STS-111 Lighter than air (LTA) Mid Altitude Long
Endurance (MALE) Unmanned Aerial Vehicle (UAV) platform for providing
surveillance and reconnaissance capabilities.
BASIS OF
PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Sanswire
Corp. and Subsidiaries have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and pursuant to the requirements for reporting on
Form 10-Q and Regulation S-X 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, 2009 was
derived from the audited consolidated financial statements included in the
Company's Annual Report on Form 10-K filed with the SEC on April 2, 2010. 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 $729,090 and used cash in operating activities of
$154,104 for the three months ended March 31, 2010, and had a working capital
deficit of $15,789,169 and a stockholders’ deficit of $13,840,619 at March
31, 2010. 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 2010.
8
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,
2010. 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. 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 9).
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.
FOREIGN
CURRENCY TRANSACTIONS
The
currency of the primary economic environment in which the operations of the
Company are conducted is the United States Dollar (“dollar”). Accordingly, the
Company and its subsidiaries use the dollar as their functional currency. All
exchange gains and losses denominated in non-dollar currencies are presented on
a net basis in operating expense in the consolidated statement of operations
when they arise. Foreign currency gains for the periods ended March 31, 2010 and
2009 were immaterial.
REVENUE
RECOGNITION
The
Company recognized no revenue in the periods ended March 31, 2010 and 2009 since
it is developing its unmanned aerial systems.
INVENTORIES
Inventories
consist of work in progress related to the Company's consolidated joint venture
Sanswire-TAO.
INCOME
TAXES
Income
taxes are computed under the provisions of the Financial Accounting Standards
Board (FASB) ASC 740, “Accounting for Income Taxes”. ASC 740
specifies the use of 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.
9
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 that reflect the degree of
subjectivity necessary to determine measurements, 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 March 31, 2010 (unaudited):
Fair
Value Measurements at March 31, 2010
|
||||||||||||||||
Total
Carrying Value at
March
31, 2010
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
|||||||||||||
Cash
and cash equivalents
|
$
|
12,945
|
$
|
12,945
|
$
|
—
|
$
|
—
|
||||||||
Derivative
liabilities
|
731,447
|
—
|
—
|
731,447
|
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 ended March 31, 2010.
FAIR
VALUE OF FINANCIAL INSTRUMENTS
Financial
instruments, including cash, deposits, accounts payable and notes payable are
carried at amounts which reasonably approximate their fair value due to the
short-term nature of these amounts or due to variable rates of interest which
are consistent with market rates.
USE OF
ESTIMATES
The
process of preparing financial statements in conformity with 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
used in the diluted net loss per share calculation 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
March 31, 2010, the shares outstanding would be 349,343,125. As
of May 7, 2010, we had 283,874,889 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.
10
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.
Stock-based compensation expense recognized under ASC 718 for the periods ended
March 31, 2010 and 2009 were $341,750 and $84,500, respectively.
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 March 31, 2010.
The
Company had the following assets and liabilities from its discontinued
operations on its consolidated balance sheet as of March 31, 2010 (unaudited)
and December 31, 2009:
MARCH
31, 2010 (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 |
11
DECEMBER
31, 2009
|
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 March 31, 2009 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 ended March 31, 2009 have
been restated.
The
effects of the restatement on the Company’s condensed consolidated
financial statements for the three months ended March 31, 2009 are shown
below (note: see table of adjustment descriptions at end of this
section):
|
March
31, 2009 (Unaudited)
|
||||||||||||
Account
|
(As
Previously Reported)
|
(Adjustment)
|
(As
Restated)
|
|||||||||
Current
Assets
|
||||||||||||
Cash
|
$
|
103,585
|
$
|
—
|
$
|
103,585
|
||||||
Current
assets from discontinued operations
|
6,406
|
—
|
6,406
|
|||||||||
Total
current assets
|
109,991
|
—
|
109,991
|
|||||||||
Investment
in joint venture
|
3,229,000
|
—
|
3,229,000
|
|||||||||
Total
Assets
|
$
|
3,338,991
|
$
|
—
|
$
|
3,338,991
|
||||||
Liabilities
and Stockholders’ Deficit
|
||||||||||||
Current
liabilities
|
||||||||||||
Accounts
payable
|
$
|
3,824,753
|
$
|
—
|
$
|
3,824,753
|
||||||
Notes
and notes payable, net of discount of $303,056 and
$126,072
|
9,300,573
|
176,984
|
2
|
9,477,557
|
||||||||
Accrued
expenses and other liabilities
|
3,556,196
|
—
|
3,556,196
|
|||||||||
Derivative
liabilities
|
677,825
|
677,825
|
||||||||||
Current
liabilities from discontinued operations
|
1,387,407
|
—
|
1,387,407
|
|||||||||
Total
current liabilities
|
18,746,754
|
176,984
|
18,923,738
|
|||||||||
Stockholders’
Deficit
|
||||||||||||
Common
stock
|
1,894
|
—
|
1,894
|
|||||||||
Additional
paid-in capital
|
111,294,864
|
(1,129,166
|
) 1
|
110,165,698
|
||||||||
Accumulated
deficit
|
(126,704,521
|
)
|
952,182
|
1,2
|
(125,752,339
|
)
|
||||||
Total
Stockholders’ Deficit
|
(15,407,763
|
)
|
(176,984
|
)
|
(15,584,747
|
)
|
||||||
Total
Liabilities and Stockholders’ Deficit
|
$
|
3,338,991
|
$
|
—
|
$
|
3,338,991
|
12
Three
Months Ended March 31, 2009 (Unaudited)
|
||||||||||||
Account
|
(As
Previously Reported)
|
(Adjustment)
|
(As
Restated)
|
|||||||||
Revenue
|
$
|
—
|
$
|
—
|
$
|
—
|
||||||
Cost
of revenues
|
—
|
—
|
—
|
|||||||||
Gross
margin
|
—
|
—
|
—
|
|||||||||
Payroll
and related taxes
|
(117,434
|
)
|
—
|
(117,434
|
)
|
|||||||
Consulting
fees
|
(93,159
|
)
|
—
|
(93,159
|
)
|
|||||||
General
and administrative expenses
|
(121,491
|
)
|
—
|
(121,491
|
)
|
|||||||
Loss
from operations
|
(332,084
|
)
|
—
|
(332,084
|
)
|
|||||||
Interest
expense
|
(391,688
|
)
|
203,597
|
3
|
(188,091
|
)
|
||||||
Change
in fair value of warrants and conversion feature
|
70,419
|
—
|
70,419
|
|||||||||
Net
other expense
|
(321,269
|
)
|
203,597
|
(117,672
|
)
|
|||||||
Loss
from continuing operations
|
(653,353
|
)
|
203,597
|
(449,756
|
)
|
|||||||
Loss
from discontinued operations
|
—
|
—
|
—
|
|||||||||
Net
loss
|
$
|
(653,353
|
)
|
$
|
203,597
|
$
|
(449,756
|
)
|
||||
Net
loss per share from continuing operations, basic and
diluted
|
$
|
(0.00
|
)
|
0.00
|
(0.00
|
)
|
||||||
Net
loss per share from discontinuing operations, basic and
diluted
|
$
|
(0.00
|
)
|
—
|
$
|
(0.00
|
)
|
|||||
Weighted
average shares outstanding, basic and diluted
|
185,472,412
|
185,472,412
|
Three
Months Ended March 31, 2009 (Unaudited)
|
||||||||||||
(As
Previously Reported)
|
(Adjustment)
|
(As
Restated)
|
||||||||||
Cash
flow from operating activities:
|
||||||||||||
Net
loss
|
$
|
(653,353
|
)
|
$
|
203,597
|
$
|
(449,756
|
)
|
||||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||||||
Amortization
of debt discount
|
240,007
|
(205,998
|
) 3
|
34,009
|
||||||||
Stock
based compensation
|
84,500
|
—
|
84,500
|
|||||||||
Fair
value of vested options
|
—
|
—
|
—
|
|||||||||
Change
in fair value of derivative liability
|
(70,419
|
)
|
—
|
(70,419
|
)
|
|||||||
Extinguishment
of derivative liability
|
—
|
—
|
—
|
|||||||||
Interest
expense on convertible notes payable
|
139,912
|
2,401
|
3
|
142,313
|
||||||||
Decrease
in assets:
|
||||||||||||
Decrease
in assets relating to discontinued operations
|
—
|
—
|
—
|
|||||||||
Increase
in liabilities:
|
||||||||||||
Accounts
payable
|
21,976
|
—
|
21,976
|
|||||||||
Accrued
expenses and other liabilities
|
96,153
|
—
|
96,153
|
|||||||||
Increase
in liabilities relating to discontinued operations
|
—
|
—
|
—
|
|||||||||
Net
cash used in operating activities
|
(141,224
|
) )
|
—
|
(141,224
|
)
|
|||||||
Cash
flows from investing activities:
|
||||||||||||
Net
cash used in investing activities
|
—
|
—
|
—
|
|||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from notes and loans payable
|
140,000
|
—
|
140,000
|
|||||||||
Proceeds
from sale of common stock
|
100,000
|
—
|
100,000
|
|||||||||
Net
cash provided by financing activities
|
240,000
|
—
|
240,000
|
|||||||||
Net
increase in cash and cash equivalents
|
98,776
|
—
|
98,776
|
|||||||||
Cash
and cash equivalents, beginning of period
|
4,809
|
—
|
4,809
|
|||||||||
Cash
and cash equivalents, end of period
|
$
|
103,585
|
$
|
—
|
$
|
103,585
|
||||||
13
Description
of adjustments:
(1)
|
To
record $952,182 decrease to accumulated deficit for prior period
recognition of derivative liability, and $1,129,166 decrease to additional
paid in capital for cumulative effect of correction of accounting for
warrants and conversion feature of convertible notes as derivative
liabilities.
|
(2)
|
To
record $176,984 decrease in note discount for the three months ended March
31, 2009.
|
(3)
|
To
record $203,597 decrease in interest expense for the three ended March 31,
2009.
|
NOTE
4. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued
expenses and other liabilities consisted of the following:
March
31,
2010
|
December
31,
2009
|
|||||||
Payroll
liabilities
|
$ | 1,097,413 | $ | 1,007,079 | ||||
Professional
fees
|
118,946 | 118,946 | ||||||
Due
to Joint Venture Partner
|
2,185,000 | 2,185,000 | ||||||
ACCRUED
EXPENSES AND OTHER LIABILITIES
|
$ | 3,401,359 | $ | 3,311,025 |
NOTE
5. NOTES PAYABLE
March
31,
2010
|
December
31,
2009
|
|||||||
Notes
payable
|
$ | 5,997,030 | $ | 5,997,030 | ||||
Accrued
interest
|
1,499,636 | 1,394,688 | ||||||
NOTES
PAYABLE
|
$ | 7,496,666 | $ | 7,391,718 |
NOTES
PAYABLE
Notes
payable are made up of two separate notes.
As of
March 31, 2010, a balance of $4,997,130 remains through an unsecured promissory
note with no formal terms of repayment on the first note. The Company has
accrued interest at a rate of 7% per annum, which totals $1,249,994 from
inception to March 31, 2010.
As of
March 31, 2010, a balance of $999,900 remains through an unsecured promissory
note with no formal terms of repayment on the second note. The Company has
accrued interest at a rate of 7% per annum, which totals $249,642 from inception
to March 31, 2010.
NOTE
6. INVENTORIES
Inventories
are related to the Company's consolidated joint venture Sanswire-TAO (see Note
6). Inventories are stated at the lower of cost or market. Cost is
determined principally on a first-in-first-out average cost
basis. Inventories consist of the following at:
March
31,
2010
(unaudited)
|
December
31,
2009
|
|||||||
Work
in process
|
$
|
1,545,490
|
$
|
1,545,490
|
||||
Total
inventories
|
1,545,490
|
1,545,490
|
NOTE
7. JOINT VENTURE AND INTANGIBLE ASSETS
On June
3, 2008, the Company restructured a previous agreement with TAO Technologies
GmbH and Professor Bernd Kroplin. The new agreement called for the establishment
of a new 50/50 US-based joint venture company to be called Sanswire-TAO that was
to be owned equally by TAO and Sanswire Corp., through its wholly-owned
subsidiary Sanswire Corp.—Florida. The agreement required TAO
Technologies and Kroplin to transfer the patents and intellectual property of
TAO Technologies and Kroplin in the United States to Sanswire-TAO for a payment
of $3,229,000.
14
On June
3, 2008, the Company accounted for the transaction as a purchase of assets and
recognized a $3,229,000 Intangible Asset related to the intellectual property,
including existing patents. The Company has made cash and stock payments of
$1,044,000 through March 31, 2010 and the remaining balance of $2,185,000 due
for the investment is included in accrued expenses as of March 31, 2010 and
December 31, 2009.
The
Company determined that the intangible assets have a definite life equal to the
remaining life of the patent, which was through March 3, 2012, and accordingly,
is subject to amortization using that life or 40 months, which is $80,725 per
month. During the normal process of testing for an intangible impairment, the
Company updated its ASC 360 analysis as of the end of December 2009 and
determined there were no cash flows associated with the Company’s intangible
assets. The Company has determined that the appropriate method of
determining if any impairment was necessary was the stated value for the
intangible assets.
NOTE 8. DERIVATIVE
LIABILITIES
Derivative
instruments are recorded on the balance sheet at fair value. Changes in the fair
value of derivatives are recorded each period in current earnings or other
comprehensive income.
The fair
value of derivative liabilities was determined using the Black-Scholes option
pricing model with the following assumptions:
March
31,
2010
|
December
31,
2009
|
|||||||
Warrants:
|
||||||||
Risk-free
interest rate
|
0.24
– 1.60
|
%
|
0.14
– 1.45
|
%
|
||||
Expected
volatility
|
29
- 169
|
%
|
10
- 168
|
%
|
||||
Expected
life (in years)
|
0.42
– 2.92
|
0.08
– 2.92
|
||||||
Expected
dividend yield
|
—
|
—
|
||||||
Fair
value:
|
||||||||
Warrants
|
$
|
731,447
|
$
|
1,406,665
|
The
risk-free interest rate was based on rates established by the Federal
Reserve. In 2009, the Company’s expected volatility was based upon
the historical volatility for its common stock. The expected life of
the warrants was determined by the expiration date of the
warrants. The expected dividend yield was based upon the fact that
the Company has not historically paid dividends, and does not expect to pay
dividends in the future.
NOTE
9. CONTINGENCIES
In the
ordinary conduct of our business, the Company is subject to periodic lawsuits,
investigations and claims. Although the Company cannot predict with certainty
the ultimate resolution of lawsuits, investigations and claims asserted against
us, the Company does not believe that any currently pending legal proceeding or
proceedings to which we are a party or of which any of our property is subject
will have a material adverse effect on our business, results of operations, cash
flows or financial condition. As of March 31, 2010, the Company had the
following material contingencies:
Securities and Exchange
Commission
On
September 28, 2006, the Company received a formal order of investigation from
the Securities and Exchange Commission (“SEC”). The formal order only named the
Company and was not specific to any particular allegations. Through the use of
subpoenas, the SEC has requested documentation from certain officers and
directors of the Company. In subsequent subpoenas, the SEC has asked for
additional documents and information.
On
October 5, 2007, the Company received a "Wells Notice" from the SEC in
connection with the SEC’s ongoing investigation of the Company. The Wells Notice
provides notification that the staff of the SEC intends to recommend to the
Commission that it bring a civil action against the Company for possible
violations of the securities laws including violations of Sections 5 and 17(a)
of the Securities Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B)
of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20,
13a-1, 13a-11, and 13a-13 thereunder; and seeking as relief a permanent
injunction, civil penalties, and disgorgement with prejudgment interest. The
Staff is also considering recommending that the SEC authorize and institute
proceedings to revoke the registration of Company’s securities pursuant to
Section 12(j) of the Exchange Act.
15
On May 2,
2008, the SEC filed a lawsuit in the United States District Court for the
Southern District of Florida against GlobeTel Communications Corp. and three
former officers of the Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence
E. Lynch. The SEC alleges, among other things, that the Company recorded $119
million in revenue on the basis of fraudulent invoices created by Joseph
Monterosso and Luis Vargas, two individuals formerly employed by the Company who
were in charge of its wholesale telecommunications business.
The SEC
alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
The SEC seeks as relief a permanent injunction, civil penalties, and
disgorgement with prejudgment interest. The Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, but
such amendment did not add any new defendants. The Company has been vigorously
defending itself in this action.
Hudson Bay Fund LP et
al.
Hudson
Bay Fund LP and Hudson Bay Overseas Fund Ltd. filed an action against the
Company relating to the warrants attached to a Subscription Agreement between
those entities and the Company. The Hudson Bay entities are seeking to reprice
the warrants, increase the number of shares they can purchase pursuant to the
warrants, certain equitable remedies, and unspecified damages. The Company has
retained outside counsel and has filed an answer and affirmative defenses in the
case. The Company intends to vigorously defend the action, but the outcome of
the action cannot be predicted.
Former
Consultants
The
Company is a defendant in two lawsuits filed by Matthew Milo and Joseph
Quattrocchi, two former consultants, filed in the Supreme Court of the State of
New York (Richmond County, Case no. 12119/00 and 12118/00). These matters were
subsequently consolidated as a result of an Order of the court and now bear the
singular index number 12118/00. The original lawsuits were for breach of
contract. The complaint demands the delivery of 10,000,000 pre split shares of
ADGI stock to Milo and 10,000,000 to Quattrocchi. The Company was entered into
the action as ADGI was the predecessor of the Company. The suit also requests an
accounting for the sales generated by the consultants and attorneys fees and
costs for the action.
The
lawsuits relate to consulting services that were provided by Mr. Milo and Mr.
Quattrocchi and a $50,000 loan advanced by these individuals, dated May 14,
1997, of which $35,000 has been repaid.
The
Company entered into an agreement with Mr. Milo and Mr. Quattrocchi as
consultants on June 25, 1998. The agreement was amended on August 15, 1998. On
November 30, 1998, both Mr. Milo and Mr. Quattrocchi resigned from their
positions as consultants to the Company without fulfilling all of their
obligations under their consulting agreement. The Company issued 3 million pre
split shares each to Mr. Milo and Mr. Quattrocchi as consideration under the
consulting agreement. The Company has taken the position that Mr. Milo and Mr.
Quattrocchi received compensation in excess of the value of the services that
they provided and the amounts that they advanced as loans.
Mr. Milo
and Mr. Quattrocchi disagreed with the Company’s position and commenced action
against us that is pending in the Supreme Court of the State of New York. Mr.
Milo and Mr. Quattrocchi claim that they are entitled to an additional
24,526,000 pre split shares of common stock as damages under the consulting
agreement and to the repayment of the loan balance. The Company believes that it
has meritorious defenses to the Milo and Quattrocchi action, and the Company has
counterclaims against Mr. Milo and Mr. Quattrocchi.
With
regard to the issues related to original index number 12119/00, as a result of a
summary judgment motion, the plaintiffs were granted a judgment in the sum of
$15,000. The rest of the plaintiff's motion was denied. The court did not order
the delivery of 24,526,000 pre split shares of ADGI common stock as the decision
on that would be reserved to time of trial.
An Answer
and Counterclaim had been interposed on both of these actions. The Answer denies
many of the allegations in the complaint and is comprised of eleven affirmative
defenses and five counterclaims alleging damages in the sum of $1,000,000. The
counterclaims in various forms involve breach of contract and breach of
fiduciary duty by the plaintiffs. For the most part, the summary
judgment motions that plaintiffs brought clearly stated that their theories of
recovery and the documents that they will rely on in prosecuting the action. The
case was assigned to a judicial hearing officer and there was one week of trial.
The trial has been since adjourned with no further trial dates having been
set.
16
It is
still difficult to evaluate the likelihood of an unfavorable outcome at this
time in light of the fact that there has been no testimony with regard to the
actions. However, the plaintiffs have prevailed with regard to their claim of
$15,000 as a result of the lawsuit bearing the original index Number
12119/00.
This case
went before a Judicial Hearing Officer on July 6 and 7, 2006. No resolution
occurred during the July hearing and the Judicial Hearing Officer has asked for
written statements of facts and law. The outcome cannot be projected with any
certainty. However, the Company does not believe that it will be
materially adversely affected by the outcome of the proceeding. The Company has
not been informed of any further developments since the hearing.
Tsunami Communications v.
GlobeTel
On March
3, 2006, Civil Action File No. 06A-02368-5 was filed in Superior Court for
Gwinnett County Georgia. A purported shareholder of a company from
whom GlobeTel purchased assets is seeking to receive shares of our common stock
that they believe that they are entitled to as their pro-rata share of shares
paid for the asset. We have asserted affirmative defenses and the trial of this
matter was held in November 2009. We are waiting for a ruling from the
Court.
NOTE
10. COMMON STOCK TRANSACTIONS
During
the three month period ended March 31, 2010, the Company issued an aggregate of
11,834,303 shares of common stock for cash, debt, board compensation, and
consulting agreements. Of the shares issued, 250,000 shares, or 2.1% were issued
to insiders and affiliates as restricted securities under an exemption provide
by Section 4(2) of the Securities Act of 1933 and/or Regulation D, Rule 506,
promulgated under the Securities Act of 1933. The common stock issued was valued
at prices ranging from $0.05 to $0.105 per share, based on the closing market
prices on the date the board of directors authorized the
issuances. Subsequent to March 31, 2010, the Company issued an aggregate of
9,000,000 shares of common stock primarily for employees converting past due
salaries.
NOTE
11. STOCK OPTIONS AND WARRANTS
STOCK
OPTIONS
During
the three months ended March 31, 2010, the Company issued 700,000 options to
acquire common stock to its former CEO and Board member. The Company
recorded $28,596 of compensation expense related to these options to acquire
common stock in the three months ended March 31, 2010,
respectively.
The fair
value of grants issued in the three ended March 31, 2010 were determined using
the Black-Scholes option pricing model with the following assumptions: 1.02%
average risk-free interest rate; 152% expected volatility; three year expected
term, and 0% dividend yield.
Employee
options vest according to the terms of the specific grant and expire from 2 to
3 years from date of grant. As of March 31, 2010, all options issued and
outstanding have fully vested. Stock option activity as of March 31, 2010 was as
follows:
Number
of Options
(in
shares)
|
Weighted
Average Exercise Price
|
|||||||
Outstanding
at December 31, 2009
|
38,042,499 | $ | .298 | |||||
Options
Granted
|
700,000 | .075 | ||||||
Options
Exercised
|
— | — | ||||||
Options
Cancelled
|
(500,000 | ) | .290 | |||||
Outstanding
at March 31, 2010
|
38,242,499 | $ | .294 |
The
following table summarizes information about stock options outstanding as of
March 31, 2010:
Options Outstanding
|
Options Exercisable
|
|||||||||||||
Range of Exercise
Prices
|
Number of
Shares
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contractual
Life (in years)
|
Number of
Shares
|
Weighted Average
Exercise Price
|
|||||||||
$
|
0.045 to $0.36
|
38,242,499
|
$
|
0.294
|
1.71
|
38,242,499
|
$
|
0.294
|
||||||
38,242,499
|
38,242,499
|
17
WARRANTS
The
following table summarizes certain information about the Company’s stock
purchase warrants.
Warrants
Class
A
|
Warrants
Class
B
|
Weighted
Average Exercise Price
|
||||||||||
Outstanding
at December 31, 2009
|
18,933,804 | 15,651,411 | $ | 0.258 | ||||||||
Warrants
Granted
|
882,867 | 882,867 | 0.252 | |||||||||
Warrants
Expired
|
(62,606 | ) | (62,606 | ) | (0.252 | ) | ||||||
Outstanding
at March 31, 2010
|
19,754,065 | 16,471,672 | $ | 0.259 |
The
aggregate intrinsic value of 38,242,499 options and 19,754,065 Class A and
16,471,672 Class B warrants outstanding and exercisable as of March 31, 2010 was
$15,058,551. The aggregate intrinsic value for the options is calculated as the
difference between the price of the underlying awards and quoted price of the
Company’s common shares for the options that were in-the-money as of March 31,
2010. At March 31, 2010, all warrant shares were vested. Therefore
there is no unamortized cost to be recognized in future
periods.
NOTE
12. PREFERRED STOCK
On May 3,
2009, the Board of Directors approved the creation of a Series E Preferred
Stock. The terms of the Series E Preferred Stock were subsequently
amended on May 14, 2009. The Series E Preferred Stock, as amended, does not pay
dividends but each holder of Series E Preferred Stock shall be entitled to 21.5
votes for each share of common stock that the Series E Preferred Stock shall be
convertible into. The Series E Preferred Stock, as amended, has a
conversion price of $0.105 and a stated value of $6.26. Each share of
Series E Preferred Stock is convertible, at the option of the holder, into such
number of shares of common stock of the Company as determined by dividing the
Stated Value by the Conversion Price. The Series E Preferred Stock
has no liquidation preference. The Company also cancelled all the
authorized shares associated with the Series A, B, C, and D of Preferred
Stock.
As of
March 31, 2010, the Company has 100,000 shares of Series E Preferred Stock
outstanding.
NOTE
13. INCOME TAXES
The
Company has accumulated net operating losses, which can be used to offset future
earnings. Accordingly, no provision for income taxes is recorded in the
financial statements. A deferred tax asset for the future benefits of net
operating losses and other differences is offset by a 100% valuation allowance
due to the uncertainty of the Company's ability to utilize the losses. These net
operating losses begin to expire in the year 2021.
NOTE
14. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from the balance sheet
date. The following are material subsequent events:
GTC
Agreement
On April
20, 2010, the Company and Global Telesat Corp. (“GTC”) entered into an agreement
whereby GTC purchased a 50% interest in the Company’s SkySat Mid Altitude,
Lighter than Air (LTA), Unmanned Aerial Vehicle (UAV) platform. The
Company is required to utilize the Purchase Price to complete the requisite
development work so that the Airship may be tested and demonstrated to potential
customers.
The
Company has agreed immediately to deliver the current Airship to a destination
and facility designated by GTC. Within three days of delivery of the
Airship, GTC is required to pay 1/5th of the
purchase price with additional payments of an equal amount each at 30-day
intervals. The Company received a deposit of $50,000 on March 25, 2010 which was
recorded as a customer deposit as of March 31, 2010. The Company has granted to
GTC, upon the payment in full of the Purchase Price, a first lien and security
interest in the Airship and all remedies of a secured creditor under the Uniform
Commercial Code.
The
Company granted GTC the option to acquire the remaining 50% of the Airship for
an amount equal to 3 times the amount paid for the initial 50% interest (the
“Option Price”). Upon exercising such option, GTC will be required to
pay 1/3 of the option price within ten business days and two additional payments
1/3 each at 30-day intervals.
18
Item
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-looking
Information
This
quarterly report contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. These statements relate to future
events or to our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions. Actual events or results may
differ materially. There are a number of factors that could cause our actual
results to differ materially from those indicated by such forward-looking
statements. See our annual report on Form 10-K for the year ended December 31,
2009.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements. Moreover, we do not assume responsibility for the accuracy and
completeness of such forward-looking statements. We are under no duty to update
any of the forward-looking statements after the date of this report to conform
such statements to actual results.
General
Sanswire
Corp. ("Sanswire," "Globetel", “we”, “us”, “our”, or the “Company”) is focused
on the design, construction and marketing of various aerial vehicles most of
which would be capable of carrying payloads that provide persistent surveillance
and security solutions at various altitudes. The airships and auxiliary products
are intended for end users that include military, defense and government-related
entities.
From 2002
to 2007, the Company was involved in the following business sectors: stored
value card services; wholesale telecommunications services; voice over IP;
wireless broadband; and high altitude airships. These businesses were run
through various subsidiaries. The Company discontinued operations in all but the
high altitude airship sector.
·
|
stored
value card services;
|
·
|
wholesale
telecommunications services;
|
·
|
voice
over IP;
|
·
|
wireless
broadband; and
|
·
|
high
altitude airships.
|
These
businesses were run through various subsidiaries. The Company discontinued
operations in all but the high altitude airship sector.
In 2007,
we began focusing exclusively on opportunities through our wholly-owned
subsidiary at the time, Sanswire Networks. The opportunities associated with
Sanswire Networks were related to the Lighter Than Air (LTA) Unmanned Aerial
Vehicle (UAV) market, and we, through the subsidiary, sought to build and run a
UAV business that includes low-, mid- and high-altitude, lighter-than-air
vehicles intended to provide customers advanced seamless wireless broadband
capabilities and surveillance sensor suites.
On
September 22, 2008, we effected a name change to Sanswire Corp. in recognition
of the entity that contained our sole business focus. Thus, moving forward from
September 22, 2008, the Company is Sanswire Corp., whose primary business is the
design, construction and marketing of a variety of aerial vehicles through a
joint venture with TAO Technologies, Stuttgart, Germany, named Sanswire-TAO
Corp.
The High
Altitude class of prospective airships are generally referred to as HAAs
(High Altitude Airships) but have also been called HAPs (High Altitude Platform)
and HALEs (High Altitude Long Endurance). They have been designed to be able to
keep a station in one location in the Stratosphere, at approximately 65,000 ft
for durations of 30 days or more.
RESULTS
OF OPERATIONS
The
following discussion and analysis summarizes the results of operations of the
Company for the three month period ended March 31, 2010 and
2009.
COMPARISON
OF THREE MONTHS ENDED MARCH 31, 2010 AND 2009
REVENUES.
The Company had no revenue in either of the three months ended March 31, 2010 or
2009.
19
OPERATING
EXPENSES. Our operating expenses consist primarily of payroll and related taxes,
professional and consulting services, expenses for executive and administrative
personnel and insurance, telephone and communications,
facilities expenses, travel and related expenses, and other general
corporate expenses. Our operating expenses for the three month period ended
March 31, 2010 were $1,160,410 compared to the three month period ended March
31, 2009 which had operating expenses of $332,084 an increase of $828,326
or 249.4%. The increase was primarily due to a $340,097 increase in
consulting fees, $324,546 for noncash compensation for previous board members
and $242,175 for amortization of intangible assets.
During
each of the three month periods ended March 31, 2010 and 2009, Sanswire and its
subsidiaries incurred payroll tax liabilities during the normal course of
business at each payroll cycle. During 2008 the Company has reported its payroll
tax liabilities on a timely basis, however the Company failed to deposit the
appropriate withholding amounts. The Company has recognized this issue and
accordingly, contacted the IRS to make arrangement to pay any taxes
due, which is currently estimated to be at least $200,000 including liabilities
associated with the Company’s subsidiaries that are classified in discontinued
operations. The Company may be subject to penalties and interest from the
IRS.
LOSS FROM
OPERATIONS. We had an operating loss of $1,160,410 for the three month period
ended March 31, 2010 as compared to an operating loss of $332,084 for the three
month period ended March 31, 2009, primarily due to increased operating expenses
as described above.
OTHER
INCOME (EXPENSE). We had net other income totaling $431,320 during the three
month period ended March 31, 2010 compared to net other expense of $117,672
during the three month period ended March 31, 2009. This variance was due
primarily to the non cash charges related to the change in the fair value of
derivatives.
Interest
expense for the three month period ended March 31, 2010 was $243,898 compared to
$188,091 for the three month period ended March 31, 2009. Interest expense
increase was primarily due to an increase in non cash charges related to
the beneficial conversion feature of the Company’s common stock used for the
settlement of debt.
LOSS FROM
DISCONTINUED OPERATIONS. During the three month periods ended March 31,
2010 and 2009, we had no activity related to our discontinued operations.
See note 2 in the financial statements for more information regarding the
discontinued operations.
NET LOSS.
We had a net loss of $729,090 in the three month period ended March 31, 2010
compared to $449,756 in the three month period ended March 31, 2009. The
increase in net loss is primarily attributable to the increase in the operating
expenses as discussed above.
ASSETS.
At March 31, 2010, the Company had total assets of $3,513,391 compared to total
assets of $3,742,632 as of December 31, 2009.
Current
assets at March 31, 2010, were $1,564,841 compared to $1,551,908 at December 31,
2009 which were comprised of $12,945 in cash and cash equivalents and
$1,545,490 in work in process/inventory.
The
Company had $1,937,400 in intangible assets as of March 31, 2010 compared to
$2,179,574 as of December 31, 2009.
LIABILITIES.
At March 31, 2010, the Company had total liabilities of $17,354,010 compared to
total liabilities of $17,716,981 as of December 31, 2009. The decrease of
$362,971 was principally due to $675,218 in changes associated with the
derivative liabilities (see note 7 of the financial statements.)
CASH
FLOWS. Our cash used in operating activities in the three months ended March 31,
2010 was $154,104 compared to $141,224 for the comparative prior year period.
The increase was primarily due to the increased level of operations and
operating activities and changes in our current assets and
liabilities.
Net cash
provided by financing activities during the three months ended March 31, 2010
was $167,037 principally from the proceeds of the sale of common stock, as
compared to $240,000 for the three months ended March 31,
2009.
20
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 $729,090 and used cash in operating activities of
$154,104 for the three months ended March 31, 2010, and had a working capital
deficit of $15,789,169 and a stockholders’ deficit of $13,840,619 at March
31, 2010. 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 net
losses will continue for the balance of 2010.
Additional
cash will still be needed to support operations. There is no guarantee that we
will be able to continue to raise capital from existing funding sources, which
will be sufficient to sustain operations at its current level through December
31, 2010. Further, if budgeted sales levels are not achieved, 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. The
Company will need to periodically seek new capital investment to provide cash
for operations until such time that operations provide sufficient cash flow to
cover expenditures.
Subsequent
to March 31, 2010, the Company has raised no money from investors; additionally
there is not adequate funding to cover the Company’s working capital deficit or
the operating loss for the three month period ended March 31, 2010 of
approximately $729,090.
As
reflected in the accompanying financial statements, during the three month
period ended March 31, 2010 we had a net loss of $729,090 compared to a net loss
of $449,756 during the three month period ended March 31, 2009. Consequently,
there is an accumulated deficit of $135,446,179 at March 31,
2010 compared to $134,717,089 at December 31, 2009.
Critical
Accounting Policies and Use of Estimates
Estimates
The
preparation of condensed consolidated financial statements requires us to make
certain estimates and assumptions that affect the reported amounts of assets and
liabilities, the reported amounts and classification of expense, and the
disclosure of contingent assets and liabilities. We evaluate our estimates and
assumptions on an ongoing basis. We base our estimates on historical experience
and various other assumptions that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
Accounting
for stock options
We
believe that it is important for investors to be aware that there is a high
degree of subjectivity involved in estimating the fair value of stock-based
compensation, that the expenses recorded for stock-based compensation in the
Company’s financial statements may differ significantly from the actual value
(if any) realized by the recipients of the stock awards, and that the expenses
recorded for stock-based compensation will not result in cash payments from the
Company.
Recent
Accounting Pronouncements
There are
no recently issued accounting pronouncements that are yet effective that we
believe will have a material effect on our financial statements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
As a
“smaller reporting company” as defined by Regulation S-K, the Company is not
required to provide information required by this Item.
21
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 of Thomas Seifert, the Company’s Principal Executive Officer
and/or Chief Financial Officer (the “Reviewing Officers”), of the
effectiveness of the Company's disclosure controls and procedures as of March
31, 2010. In designing and evaluating the Company's disclosure controls and
procedures, the Company and its management recognize that there are inherent
limitations to the effectiveness of any system of disclosure controls and
procedures, including the possibility of human error and the circumvention or
overriding of the controls and procedures. Accordingly, even effective
disclosure controls and procedures can only provide reasonable assurance of
achieving their desired control objectives. Additionally, in evaluating and
implementing possible controls and procedures, the Company's management was
required to apply its reasonable judgment. Furthermore, in the course of this
evaluation, management considered certain internal control areas, including
those discussed below, in which we have made and are continuing to make changes
to improve and enhance controls. Based upon the required evaluation, the
Reviewing Officers concluded that as of March 31, 2010, the Company's disclosure
controls and procedures were not effective to ensure that information required
to be disclosed by the Company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission's rules and
forms.
Material
Weaknesses
Initially,
on May 4, 2007, the Company determined that the Company had ineffective
controls over revenue recognition. On September 3, 2009, the
Company then also determined that it has not properly accounted for various
derivative liabilities resulting in this restatement.
We have
categorized our efforts to address our material weaknesses into two
phases. In the first phase of the program, already completed as of
September 30, 2007, we hired consultants and accounting consultants to review
our financial statements and prepare the restatement of our financial
statements. Our remediation measures relating to revenue recognition
include a review by management of revenue items other than normal sales and also
the discontinuation of the operations of our Centerline Communications LLC
subsidiary for which we had previously restated revenue.
In the
second phase of the program, we have commenced to and continue to implement
certain new policies and procedures such as:
a.
|
Seeking
to recruit board members independent of
management;
|
b.
|
Granting
Board committees standing authority to retain counsel and special or
expert advisors of their own
choice;
|
c.
|
Seeking
outside review of acquisition
transactions
|
d.
|
Establishment
of an audit committee
|
e.
|
Upon
adequate funding, hiring additional staff leading to the segregation of
duties to enable a better control
environment
|
Our
remediation efforts in light of the improper accounting of our derivative
liabilities included restating our financial statements for March 31,
2009.
Changes
in Internal Control Over Financial Reporting
Except as
set forth above, there have been no changes in our internal control over
financial reporting that occurred during the Quarter that have materially
affected or are reasonably likely to materially affect our internal control over
financial reporting.
22
PART
II - OTHER INFORMATION
Item
1. Legal Proceedings
In the
ordinary conduct of our business, the Company is subject to periodic lawsuits,
investigations and claims. Although the Company cannot predict with certainty
the ultimate resolution of lawsuits, investigations and claims asserted against
us, the Company does not believe that any currently pending legal proceeding or
proceedings to which we are a party or of which any of our property is subject
will have a material adverse effect on our business, results of operations, cash
flows or financial condition. As of March 31, 2010, the Company had the
following material contingencies:
Securities and Exchange
Commission
On
September 28, 2006, the Company received a formal order of investigation from
the SEC. The formal order only named the Company and was not specific to any
particular allegations. Through the use of subpoenas, the SEC has requested
documentation from certain officers and directors of the Company. In subsequent
subpoenas, the SEC has asked for additional documents and
information.
On
October 5, 2007, the Company received a "Wells Notice" from the SEC in
connection with the SEC’s ongoing investigation of the Company. The Wells Notice
provides notification that the staff of the SEC intends to recommend to the
Commission that it bring a civil action against the Company for possible
violations of the securities laws including violations of Sections 5 and 17(a)
of the Securities Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B)
of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20,
13a-1, 13a-11, and 13a-13 thereunder; and seeking as relief a permanent
injunction, civil penalties, and disgorgement with prejudgment interest. The
Staff is also considering recommending that the SEC authorize and institute
proceedings to revoke the registration of Company’s securities pursuant to
Section 12(j) of the Exchange Act.
On May 2,
2008, the SEC filed a lawsuit in the United States District Court for the
Southern District of Florida against the Company and three former officers of
the Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC
alleges, among other things, that the Company recorded $119 million in revenue
on the basis of fraudulent invoices created by Joseph Monterosso and Luis
Vargas, two individuals formerly employed by the Company who were in charge of
its wholesale telecommunications business.
The SEC
alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the
Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and
13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act.
The SEC seeks as relief a permanent injunction, civil penalties, and
disgorgement with prejudgment interest. The Commission subsequently consolidated
this action with another pending action involving former officers of the
Company. The Commission has also moved to amend its complaint against the
Company to include additional allegations of wrongdoing beginning in 2002, which
such amendment does not add any new defendants. The Company has been vigorously
defending itself in this action.
Hudson Bay Fund LP et
al.
Hudson
Bay Fund LP and Hudson Bay Overseas Fund Ltd. filed an action in Supreme Court
of the State of New York, New York County (Case No. 650366/09 against the
Company claiming declaratory judgment, specific performance, and breach of
contract relating to the warrants it acquired in connection with its
investment. The Hudson Bay entities are seeking to reprice the
warrants, increase the number of shares they can purchase pursuant to the
warrants, certain equitable remedies, and unspecified damages. The Company has
retained outside counsel and has filed an answer and affirmative defenses in the
case. The Company intends to vigorously defend the action, but the outcome of
the action cannot be predicted.
Former
Consultants
The
Company is a defendant in two lawsuits filed by Matthew Milo and Joseph
Quattrocchi, two former consultants, filed in the Supreme Court of the State of
New York (Richmond County, Case no. 12119/00 and 12118/00). These matters were
subsequently consolidated as a result of an Order of the court and now bear the
singular index number 12118/00. The original lawsuits were for breach of
contract. The complaint demands the delivery of 10,000,000 pre split shares of
ADGI stock to Milo and 10,000,000 to Quattrocchi. The
23
Company
was entered into the action as ADGI was the predecessor of the Company. The suit
also requests an accounting for the sales generated by the consultants and
attorneys fees and costs for the action.
The
lawsuits relate to consulting services that were provided by Mr. Milo and Mr.
Quattrocchi and a $50,000 loan advanced by these individuals, dated May 14,
1997, of which $35,000 has been repaid.
The
Company entered into an agreement with Mr. Milo and Mr. Quattrocchi as
consultants on June 25, 1998. The agreement was amended on August 15, 1998. On
November 30, 1998, both Mr. Milo and Mr. Quattrocchi resigned from their
positions as consultants to the Company without fulfilling all of their
obligations under their consulting agreement. The Company issued 3 million pre
split shares each to Mr. Milo and Mr. Quattrocchi as consideration under the
consulting agreement. The Company has taken the position that Mr. Milo and Mr.
Quattrocchi received compensation in excess of the value of the services that
they provided and the amounts that they advanced as loans.
Mr. Milo
and Mr. Quattrocchi disagreed with the Company’s position and commenced action
against us that is pending in the Supreme Court of the State of New York. Mr.
Milo and Mr. Quattrocchi claim that they are entitled to an additional
24,526,000 pre split shares of common stock as damages under the consulting
agreement and to the repayment of the loan balance. The Company believes that it
has meritorious defenses to the Milo and Quattrocchi action, and the Company has
counterclaims against Mr. Milo and Mr. Quattrocchi.
With
regard to the issues related to original index number 12119/00, as a result of a
summary judgment motion, the plaintiffs were granted a judgment in the sum of
$15,000. The rest of the plaintiff's motion was denied. The court did not order
the delivery of 24,526,000 pre split shares of ADGI common stock as the decision
on that would be reserved to time of trial.
An Answer
and Counterclaim had been interposed on both of these actions. The Answer denies
many of the allegations in the complaint and is comprised of eleven affirmative
defenses and five counterclaims alleging damages in the sum of $1,000,000. The
counterclaims in various forms involve breach of contract and breach of
fiduciary duty by the plaintiffs.
For the
most part, the summary judgment motions that plaintiffs brought clearly stated
that their theories of recovery and the documents that they will rely on in
prosecuting the action. The case was assigned to a judicial hearing officer and
there was one week of trial. The trial has been since adjourned with no further
trial dates having been set.
It is
still difficult to evaluate the likelihood of an unfavorable outcome at this
time in light of the fact that there has been no testimony with regard to the
actions. However, the plaintiffs have prevailed with regard to their claim of
$15,000 as a result of the lawsuit bearing the original index Number
12119/00.
This case
went before a Judicial Hearing Officer on July 6 and 7, 2006. No resolution
occurred during the July hearing and the Judicial Hearing Officer has asked for
written statements of facts and law. The outcome cannot be projected with any
certainty. However, the Company does not believe that it will be
materially adversely affected by the outcome of the proceeding. The Company has
not been informed of any further developments since the hearing.
Tsunami Communications v.
GlobeTel
On March
3, 2006, Civil Action File No. 06A-02368-5 was filed in Superior Court for
Gwinnett County Georgia. A purported shareholder of a company from
whom GlobeTel purchased assets is seeking to receive shares of our common stock
that they believe that they are entitled to as their pro-rata share of shares
paid for the asset. We have asserted affirmative defenses and the trial of this
matter was held in November 2009. We are waiting for a ruling from the
Court.
Item
1A. Risk Factors
As a
“smaller reporting company” as defined by Regulation S-K, the Company is not
required to provide information required by this Item.
24
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
During
the three month period ended March 31, 2010, the Company issued an aggregate of
11,834,303 shares of common stock for cash, debt, board compensation, and
consulting agreements. Of the shares issued, 250,000 shares, or 2.1% were issued
to insiders and affiliates as restricted securities. The common stock issued was
valued at prices ranging from $0.05 to $0.105 per share, based on the closing
market prices on the date the board of directors authorized the
issuances. Subsequent to March 31, 2010, the Company issued an aggregate of
9,000,000 shares of common stock primarily for employees converting past due
salaries.
During
the three months ended March 31, 2010, the Company issued 700,000 options to
acquire common stock to its former CEO and Board member.
The above
securities were offered and issued in a private placement transaction made in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act of 1933 (the “Securities Act”) and/or Rule 506 promulgated under
the Securities Act. The shareholders are accredited investors as
defined in Rule 501 of Regulation D promulgated under the Securities
Act.
Item
3. Defaults Upon Senior Securities
None.
Item
4. REMOVED
AND RESERVED
Not
applicable.
Item
5. Other Information
None.
Item
6. Exhibits
Exhibit 31.1
|
Certification
of the Principal Executive Officer and Chief Financial Officer pursuant to
Section 302 of the
Sarbanes-Oxley
Act of 2002
|
Exhibit 32.1
|
Certification
of the Principal Executive Officer and Chief Financial Officer pursuant to
U.S.C. Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
10.1
|
Mutual
Release and Separation Agreement, by and between Sanswire Corp. and David
A. Christian (1)
|
10.2
|
Mutual
Release and Separation Agreement, by and between Sanswire Corp. and
William J. Hotz (1)
|
10.3
|
Purchase
Agreement, dated April 20, 2010, by and between Sanswire Corp. and Global
Telesat Corp. (2)
|
(1)
|
Incorporated
by reference to the Form 8-K Current Report filed with the Securities and
Exchange Commission on February 12,
2010.
|
(2)
|
Incorporated
by reference to the Form 8-K Current Report filed with the Securities and
Exchange Commission on April 27,
2010.
|
25
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated:
May 7, 2010
SANSWIRE
CORP.
|
||
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By:
/s/ Thomas Seifert
|
|
Name:
Thomas Seifert,
Title:
Principal Executive Officer, Chief Financial Officer and
Director
|