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

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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

 

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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

 

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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

 

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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

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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.

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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.

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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.

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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

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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

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		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

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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.  

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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.

 

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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.

 

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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

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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.

 

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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.

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.

 

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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.
		By: /s/ Thomas Seifert
		Name: Thomas Seifert, Title: Principal Executive Officer, Chief Financial Officer and Director

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