ITEM 1. BUSINESS
General
Sanswire Corp. (“Sanswire,” “Globetel”, “we”, “us”, “our”, or the “Company”) is focused on the design, construction and marketing of various aerial vehicles most of which would be capable of carrying payloads that provide persistent surveillance and security solutions at various altitudes. The airships and auxiliary products are intended for end users that include military, defense and government-related entities.
From 2002 to 2007, the Company was involved in the following business sectors: stored value card services; wholesale telecommunications services; voice over IP; wireless broadband; and high altitude airships. These businesses were run through various subsidiaries. The Company discontinued operations in all but the high altitude airship sector.
In 2007, we began focusing exclusively on opportunities through our wholly-owned subsidiary at the time, Sanswire Networks. The opportunities associated with Sanswire Networks were related to the Lighter Than Air (LTA) Unmanned Aerial Vehicle (UAV) market, and we, through the subsidiary, sought to build and run a UAV business that includes low-, mid- and high-altitude, lighter-than-air vehicles intended to provide customers advanced seamless wireless broadband capabilities and surveillance sensor suites.
On September 22, 2008, we effected a name change to Sanswire Corp. in recognition of the entity that contained our sole business focus (See “Recent Developments”). Thus, moving forward, the Company is Sanswire Corp., whose primary business is the design, construction and marketing of a variety of aerial vehicles through a joint venture with TAO Technologies, Stuttgart, Germany, named Sanswire-TAO Corp.
The High Altitude class of prospective airships are generally referred to as HAAs (High Altitude Airships) but have also been called HAPs and HALEs (High Altitude Platforms, High Altitude Long Endurance). They have been designed to be able to keep a station in one location in the Stratosphere, at approximately 65,000 ft for durations of 30 days or more.
Reverse Stock Split
Sanswire is authorized to issue up to 250,000,000 shares of Common Stock, par value $0.00001 per share, (subsequent to a 15-for-1 reverse stock split on May 23, 2005 and subsequent to an increase in the authorized shares from 150,000,000 to 250,000,000 at the shareholder meeting on June 21, 2006) and 10,000,000 shares of Preferred Stock, par value $0.001. The post split share calculation will be used throughout this report, unless noted. On May 3, 2009, the Board of Directors approved the creation of a Series E Preferred Stock. The Company is authorized to issue 10,000,000 shares of preferred stock. 860,000 shares of Preferred Stock has been allocated into different series of issuance and the remaining 9,140,000 shares is a so-called “blank check” preferred, meaning that its terms such as dividends, liquidation and other preferences, are to be fixed by our Board of Directors at the time of issuance. On November 2, 2009, holders of a majority of voting shares of the Company, Sanswire Corp., acted by written consent in lieu of a special meeting of shareholders to an adopt amendment to the articles of incorporation to increase the number of shares of common stock which the Company is authorized to issue from 250,000,000 shares to 500,000,000 shares.
Recent Developments
On October 5, 2007, Sanswire received a “Wells Notice” from the Securities and Exchange Commission (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 the Company’s securities pursuant to Section 12(j) of the Exchange Act.
On November 26, 2007 the SEC announced that it had filed a civil lawsuit against two former employees of Sanswire alleging that Joseph J. Monterosso, former Chief Operating Officer of Sanswire and former president of the Company’s Centerline Communications Subsidiary, and Luis Vargas, an employee of Centerline, engaged in a scheme to create $119 million in revenue that was subsequently reported in the Company’s financial statements as filed with the Commission. Securities and Exchange Commission v. Joseph J. Monterosso and Luis E. Vargas , Civil Action No. 07-61693 (S.D. Fla., filed on November 21, 2007).
On May 2, 2008, the SEC filed a lawsuit in the United States District Court for the Southern District of Florida against Company and three former officers of the Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC alleges, among other things, that the Company recorded $119 million in revenue on the basis of fraudulent invoices created by Joseph Monterosso and Luis Vargas, two individuals formerly employed by the Company who were in charge of its wholesale telecommunications business.
The SEC alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act. The SEC seeks as relief a permanent injunction, civil penalties, and disgorgement with prejudgment interest. The Commission subsequently consolidated this action with another pending action involving former officers of the Company. The Commission has also moved to amend its complaint against the Company to include additional allegations of wrongdoing beginning in 2002, but which does not add any new defendants. The Company has been vigorously defending itself in this action.
Background
We were previously a wholly-owned subsidiary of American Diversified Group, Inc. (“ADGI”). During the period ended July 24, 2002, ADGI’s business activities included (i) sale of telecommunication services primarily involving Internet telephony using VoIP through its Global Transmedia Communications Corporation subsidiary, and (ii) wide area network and local area network services provided through its NCI Telecom, Inc. subsidiary.
When ADGI exchanged all of its outstanding shares of common stock for Sanswire common stock, ADGI became a wholly-owned subsidiary of Sanswire and Sanswire began conducting the business formerly conducted by ADGI.
In 2004, we formed wholly-owned subsidiaries: Sanswire Networks, LLC (“Sanswire-FL”) for our Stratellite project; and Centerline Communications, LLC, (“Centerline” or “CLC”) and its wholly-owned subsidiaries, EQ8, LLC, G Link Solutions, LLC, Volta Communications, LLC, and Lonestar Communications, LLC for the purpose of the recording and managing the sale of wholesale minutes and related network management functions. We have since closed Centerline and its subsidiaries.
In 2004, we acquired a 73.15% interest in Consolidated Global Investments, Ltd. (“CGI”), formerly known as Advantage Telecommunications, Ltd. (“ATC”), an Australian company. CGI was to be utilized in the carrier sales sector of our business and was later to be a licensee of the Sanswire Networks, LLC in Australia. However, we have since sold our shares in CGI back to the Company and no longer have any interest in CGI. Certain shares of Sanswire acquired by CGI were sold by CGI. The Securities and Exchange Commission has questioned the validity of the exemption used for the sale of such shares as more fully discussed below in Item 3 “Legal Proceedings.”
In 2008, we incorporated Sanswire Corp., a Florida corporation and wholly-owned subsidiary, to deal directly with airship opportunities based upon our agreement with TAO Technologies, GmbH. We also incorporated Sanswire-TAO Corp., a Florida corporation that is a 50/50 joint venture with TAO Technologies. The agreements with TAO are discussed below.
On September 22, 2008 we filed a Certificate of Merger with the Secretary of State of the State of Delaware pursuant to which our wholly owned subsidiary, Sanswire Corp., a Delaware corporation, was merged into us. As a result of the filing of the Certificate of Merger, our corporate name was changed from GlobeTel Communications Corp. to Sanswire Corp.
Business of Sanswire
Sanswire Corp. has sharply refined its operating model ─ focusing exclusively on opportunities in Lighter Than Air (LTA) Unmanned Aerial Vehicles (UAV). We seek to build and run a UAV business that includes low-, mid- and high-altitude, lighter-than-air vehicles; adding value to their security, surveillance and broadcasting abilities through the integration of wireless technologies with a wide array of customer payloads. Our long-term objective is to provide commercial and government customers advanced seamless wireless broadband capabilities and surveillance sensor suites utilizing a state of the art High Altitude Airship technology. Building upon this high altitude technology, our near term goal is to penetrate the military/government use market for low to mid altitude unmanned airships. The company is focused on the development and of the STS-111 Lighter than air (LTA) Mid Altitude Long Endurance (MALE) Unmanned Aerial Vehicle (UAV) platform for providing surveillance and reconnaissance capabilities.
Our 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 and HALEs (High Altitude Platforms, High Altitude Long Endurance). They have been designed to be able to keep a station in one location in the Stratosphere, at approximately 65,000 ft for durations of 30 days or more. 65,000 ft is the sweet spot in the stratosphere for optimal wind conditions to keep station using the least amount of power.
STRATELLITE™ The brand name for our HAA offering is the Stratellite™, so named because they offer the functionality of a satellite, but in the stratosphere. This class of airship will consist of several models to suit various purposes. Stratellites™ were conceived to help solve infrastructure issues that plague many parts of the world, including the so called “last mile” (building expensive ground based infrastructure for very low density areas) issues. The Stratellite™ can bring a full range of telecommunications or broadcasting capabilities to any area of the world, accessible to people with customer premise equipment that is inexpensive and available. We are not yet producing the Stratellite.
The Stratellite™ is a high altitude long endurance airship intended to populate “near space” with telecommunications capability. A presence in near space with high tech sensors and communications suites offers enormous potential for both commercial and government applications. Whether hovering at 65,000 feet or flying a variety of mission profiles, the Stratellite offers many of the features of satellites with cost savings, refurbishment ability, and opportunity for regular system upgrades.
There is a great need for information-transmission in the future performed by High Altitude Platforms in various fields;
·
mobile broadband communications
·
emergencies, use in disaster areas
·
marine radio service
·
new traffic engineering systems
·
weather observation
·
water surveillance (pollution)
·
ozone and smog monitoring
·
radiation monitoring (UV and radioactive)
·
astronomic and terrestrial observation
·
documentation of conditions in the upper atmosphere
·
border control, coastal surveillance
·
private communication services e.g. cellular phones
·
transmission of radio- and television programmers etc.
SANSWIRE-TAO
Sanswire first entered into an agreement with TAO Technologies GmbH, Stuttgart, Germany, in 2005. At that time, TAO provided engineering support to the efforts of former subsidiary Sanswire Networks, LLC then working out of facilities in California. In September 2007, the companies reached an agreement in principle to share sales and marketing rights of various aerial vehicles developed and currently owned by TAO. Additionally, upon closing of definitive agreements, TAO transferred to Sanswire-TAO the respective patents and intellectual property rights covering the products, including the AirChain segmented airship.
In November 2007, the Company entered into a Licensing and Technical Cooperation Agreement with TAO. TAO granted to Sanswire an exclusive license for the territories of the US, Canada, Mexico and Chile for the marketing and distribution of airships based upon the technologies patented and developed by TAO. TAO will also provide testing and engineering support for the development of airships to meet the criteria required by Sanswire customers. Sanswire was obligated to provide TAO with engineering orders of at least $1,000,000 per year and certain cash and stock payments on a quarterly basis.
On June 3, 2008, Sanswire and TAO restructured the November 2007 agreement and entered into a new agreement to form a 50/50 US based joint venture to place, among other things, the rights to the TAO intellectual property in US, Canada, and Mexico into the US based JV company to be called Sanswire-TAO. This integration of Sanswire and Stuttgart, Germany-based TAO Technologies Gmbh took place to create various strategic advantages for both companies. Each group entered the relationship with synergistic, yet very distinct core competencies. Sanswire’s business development, its inroads into the U.S. Government review process as well as inroads into overseas markets and other marketing resources complement TAO’s vast airship product research and development ability.
On June 19, 2008, we announced that we had agreed to form and commence operations of Sanswire-TAO Corp., a Florida corporation equally owned by the Company and TAO, for the customized production, marketing and sales of unmanned aerial vehicles for the markets of the United States, Canada and Mexico.
The Sanswire-TAO research and development efforts are centered in Stuttgart, taking advantage of the relationship between TAO and the University of Stuttgart. This relationship provides cost-effective access to aerospace testing facilities including wind tunnels, environmental test chambers, structural testing devices, computer aided design and a legion of aerospace and physics professionals along with their more than 10 years of solar powered airship experience. The Sanswire-TAO joint venture is focused on developing and/or utilizing the following:
(1)
Multiple Airship Platforms - Ranging from short range low altitude platforms to Stratospheric solutions.
(2)
Access to Resources - Through contractual relationships with universities, including their hometown University of Stuttgart.
(3)
Research and Development - More than a decade of knowledge and experience resulting from significant data gathered from vital airship testing.
(4)
Proprietary Systems - Custom developed systems from the design and modeling of airships to specialized flight control systems.
(5)
Intellectual Property - Patented designs and concepts providing worldwide protection.
(6)
Constructed Airships - Several platforms built for demonstrations
(7)
Testing Facilities - Including aerospace laboratories, assembly and storage hangars, wind tunnels, certified launch and flight facilities, and certified manufacturing and production facilities.
Competitive Business Conditions
We are aware of other companies that are also developing high altitude platforms similar in nature to our Stratellite project. Our competitors, though, may have more resources available to develop their respective products. Even if a properly functioning, commercially viable product is established there can be no assurance that revenues will be achieved from the sales of the Stratellite or other airships or that the costs to produce such revenues will not exceed the revenues or that the project will otherwise be profitable. There can be no assurance that we will be able to successfully achieve the results we anticipate with this project.
Sources and Availability of Hardware and Software
Equipment for the Stratellite, STS-111, SkySat, SAS-51 and the prototypes thereof are custom made for those products and are dependent upon either single or limited number of suppliers for certain goods. Failure of a supplier could cause significant delays in delivery of the airships if another supplier cannot be promptly found.
Sources and Availability of Technical Knowledge and Component Parts
The Sanswire project requires a high level of technological knowledge and adequately functioning component parts and sub-assemblies to continue the project and achieve commercial viability. We have current and contemplated arrangements for supply of both internal and external technical knowledge to provide the intellectual capital to continue with this project. Similarly, we have current and contemplated arrangements for supply required component parts, both internally developed, as well as, outsourced from specialty contractors to provide component parts to continue with this project in the near term.
Dependence on a Few Customers
As discussed below in Item 6, Management Discussion and Analysis and Plan of Operation, we are currently dependent on a limited number of perspective customers.
Trademarks
We have filed for registration of the names “Stratellite” and “Sanswire” under the Madrid Protocol (that includes the United States) and in many non-Madrid Protocol countries.
We have additionally entered into an agreement with TAO Technologies GmbH, with whom Sanswire has collaborated with since 2005. The current agreement provides exclusive licensing and existing and future patent rights for TAO’s airship technologies and allows Sanswire to register the TAO patents in the United States. As soon as the design and engineering for the Stratellite are finalized, we intend to file for patents covering unique design and intellectual property.
Regulatory Matters
The export of the airship products may be subject to United States Department of State restrictions on the transfer of technology. We are currently investigating whether or not the export of the Sanswire products would require export licenses and how the production of these vehicles in Germany through our agreement with TAO Technologies, GmbH would impact this.
During 2007 and 2008, Sanswire and its subsidiaries incurred payroll tax liability during the normal course of business at each payroll cycle. The Company submitted certain withholding tax payments during the first quarter through a payroll processor, ADP. Subsequent thereto, the Company no longer processed its payroll through ADP. During this time, the Company did not file the appropriate tax forms or deposit the appropriate withholding amounts. The Company has recognized this issue and contacted the IRS accordingly to bring its filings up-to-date and pay any taxes due. The Company may be subject to penalties and interest from the IRS.
Number of Total Employees and Number of Full-Time Employees
As of March 31, 2010, we have 4 full-time employees, including our executive officers and employees of our subsidiaries. We do not believe that we will have difficulty in hiring and retaining qualified individuals for our general operations and any technical personnel required for the aerospace projects will primarily be hired overseas to work with the existing TAO personnel.
ITEM 1A.
ITEM 1A. RISK FACTORS
Risks Related to Our Business and Industry
We need to raise a significant amount of additional capital to meet our current and future business requirements and such capital raising may be costly or difficult to obtain and could dilute current stockholders’ ownership interests.
We need to raise $5 million of additional financing in order to meet our cash requirements for the next twelve (12) months and to fully implement our business plan during the next twelve months. The funds would be used to increase manufacturing of our products, expand our research and development efforts, and attract a larger talented sales force. We intend to raise the financing from the sale of common stock in one or more private placements or public offerings and/or from bank financing. We do not have any firm commitments or identified sources of additional capital from third parties or from our officers, directors or shareholders. Although our officers and directors or their affiliates have in the past facilitated capital for us, or provided us with capital, they are not legally bound to do so. There can be no assurance that additional capital will be available to us, or that, if available, it will be on terms satisfactory to us. Any additional financing may involve dilution to our shareholders. If we are unable to raise additional financing on terms satisfactory to us, or at all, we would not be able to fully implement our business plan which would have a materially adverse effect our business and financial position and could cause us to delay, curtail, scale back or forgo some or all of our operations or we could cease to exist.
We have a history of operating and net losses which we anticipate will continue.
We have a history of losses from operations. We anticipate that for the foreseeable future, we will continue to experience losses from operations. We had a net loss from continuing operations of $9,414,507 during fiscal 2009 and a net loss from continuing operations of $4,598,076 during fiscal 2008. We anticipate that our net loss will increase for fiscal 2010.
Our independent auditors have issued a report questioning our ability to continue as a going concern. This report may impair our ability to raise additional financing and adversely affect the price of our common stock.
The report of our independent auditors contained in our financial statements for the years ended December 31, 2009 and 2008 includes a paragraph that explains that we have incurred substantial losses. This report raises substantial doubt about our ability to continue as a going concern. Reports of independent auditors questioning a company’s ability to continue as a going concern are generally viewed unfavorably by analysts and investors. This report may make it difficult for us to raise additional debt or equity financing necessary to continue the development of our airships. We urge potential investors to review this report before making a decision to invest in the Company.
We have material weaknesses in our internal control over financial reporting structure which until remedied, may cause errors in our financial statements that could require a restatement or our filings may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price.
We have identified two material weaknesses in our internal control over financial reporting and cannot assure you that additional material weaknesses will not be identified in the future. If our internal control over financial reporting or disclosure controls and procedures are not effective, there may be errors in our financial statements that could require a restatement or our filings may not be timely and investors may lose confidence in our reported financial information, which could lead to a decline in our stock price.
If we fail to protect our intellectual property rights, our competitors may take advantage of our ideas to compete more effectively with us.
Our proprietary rights are one of the keys to our performance and ability to remain competitive. We rely on a combination of patent, trademark, copyright and trade secret laws in the U.S. and other jurisdictions as well as confidentiality agreements and procedures, non-compete agreements and other contractual provisions to protect our intellectual property, other proprietary rights and our brand. Our intellectual property rights may be challenged, invalidated or circumvented by third parties. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by employees. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S. Litigation may be necessary to enforce our intellectual property rights which could result in substantial costs to us and substantial diversion of management attention. If we do not adequately protect our intellectual property, our competitors could use it to enhance their products. Our inability to adequately protect our intellectual property rights could adversely affect our business and financial condition, and the value of our brand name and other intangible assets.
Risk Related To Ownership of Our Common Stock
There is currently a small market for our common stock, and we expect that any market that does develop will be illiquid and extremely volatile.
As of March 31, 2010, we had approximately twenty two thousand (22,000) shareholders of record, and we had been subject to the reporting requirements of the Exchange Act for at least ninety (90) days. There were shares of our common stock that had been held by non-affiliates for a minimum of one year which could be freely resold under Rule 144, and shares of our common stock that had been held by such persons for a minimum of six months which could be resold under Rule 144 subject to public information requirements for reporting issuers. There were also shares of our common stock that had been held by affiliates for a minimum of six months which could be resold under Rule 144 subject to the volume limitations, manner of sale provisions, public information requirements for reporting issuers and notice requirements.
The market for our common stock is illiquid and subject to wide fluctuations in response to several factors, including, but not limited to:
·
limited numbers of buyers and sellers in the market;
·
actual or anticipated variations in our results of operations;
·
our ability or inability to generate new revenues;
·
increased competition; and
Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance which include stock market fluctuations, general economic, political and overall global market conditions, such as recessions, interest rates or international currency fluctuations. Any and all of these factors, while unrelated directly to us, may adversely affect the market price and liquidity of our common stock.
We have authorized preferred stock which can be designated by our board of directors without shareholder approval.
We have authorized 10,000,000 shares of preferred stock. The shares of preferred stock may be issued from time to time in one or more series, each of which shall have distinctive designation or title as shall be determined by our board of directors prior to the issuance of any shares thereof. The preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as adopted by our board of directors. Because our board of directors is able to designate the powers and preferences of the preferred stock without the vote of the holders of our common stock, the holders of our common stock will have no control over what designations and preferences our preferred stock will have. As a result of this, our board of directors could designate one or more series of preferred stock with superior rights to the rights of the holders of our common stock.
We do not expect to pay dividends for the foreseeable future.
We have not declared or paid, and do not anticipate declaring or paying in the foreseeable future, any cash dividends on our common stock. Our ability to pay dividends is dependent upon, among other things, our future earnings, operating and financial condition, our capital requirements, general business conditions and other pertinent factors, and is subject to the discretion of our board of directors. Accordingly, there is no assurance that any dividends will ever be paid on our common stock.
Investors may face significant restrictions on the resale of our common stock due to federal regulations of penny stock.
Our common stock is subject to the requirements of Rule 15(g)9, promulgated under the Securities Exchange Act as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser’s consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the SEC defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market. In addition, various state securities laws impose restrictions on transferring penny stocks.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
As a smaller reporting company, the Company is not required to include the disclosure in this Item 1B.
ITEM 2.
ITEM 2. PROPERTIES
Sanswire’s corporate offices are now located at 17501 Biscayne Blvd, Aventura, FL 33160. Base rent is $2,900 per month. The lease is for a period of 36 months and terminates on June 30, 2012. We believe our facilities are adequate for our current and near-term needs. Sanswire’s corporate offices were previously located at 101 NE 3 rd Ave., Suite 1500, Fort Lauderdale, FL 33301 which was vacated on December 31, 2009 as the lease expired.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Securities and Exchange Commission
On September 28, 2006, the Company received a formal order of investigation from the SEC. The formal order only named the Company and was not specific to any particular allegations. Through the use of subpoenas, the SEC has requested documentation from certain officers and directors of the Company. In subsequent subpoenas, the SEC has asked for additional documents and information.
On October 5, 2007, Sanswire 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 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 motion to amend is still pending with the Court. On March 23, 2009 the Court granted the SEC’s motion and extended the fact discovery deadline in the case until July 31, 2009. The parties are currently engaged in discovery. The Company has been vigorously defending itself in this action.
Joseph Monterosso
In October 2007, the Company filed a lawsuit in the Circuit Court for Broward County, Florida against Joseph J. Monterosso alleging Libel, Slander and Defamation, Tortuous Interference, Violations of FS § 836.05 (Threats Extortion) and violations of FS §517 (Securities Fraud). Mr. Monterosso has not yet been served with the complaint pending additional information arising from the SEC lawsuit. This action has been dismissed for lack of prosecution but may be refiled by the Company in the future.
Hudson Bay Fund LP et al.
Hudson Bay Fund LP and Hudson Bay Overseas Fund Ltd. filed an action in Supreme Court of the State of New York, New York County against the Company claiming declaratory judgment, specific performance, and breach of contract relating to the warrants it acquired in connection with its investment. The Hudson Bay entities are seeking to reprice the warrants, increase the number of shares they can purchase pursuant to the warrants, certain equitable remedies, and unspecified damages. The Company has retained outside counsel and has filed an answer and affirmative defenses in the case. The Company intends to vigorously defend the action, but the outcome of the action cannot be predicted.
Wachovia v. GlobeTel
In connection with the operations of Globetel Wireless Europe GmbH and the acquisition of Altvater GmbH, the Company guaranteed a letter of credit in the amount of $600,000. Upon Globetel Wireless Europe GmbH ceasing operations, the letter of credit was drawn upon. The letter of credit was not collateralized. In September 2007, Wachovia filed a lawsuit in Broward County in an attempt to recover the amount through arbitration with the American Arbitration Association. On June 2, 2008, the American Arbitration Association awarded Wachovia $762,902. This liability was previously recorded in the Company’s accounts payable as incurred.
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. Sanswire 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 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.
American Express
American Express Travel Related Services Company, Inc. has filed a lawsuit against the Company and Sanswire Networks LLC (CASE NO: CACE 08-013239, Broward County Florida), seeking to recover a total of $394,919 for unpaid charges on the Companies’ corporate purchasing account. On October 3, 2008, American Express received a final judgment for $404,113. This liability was previously recorded in the Company’s accounts payable as incurred.
Tsunami Communications v. GlobeTel
On March 3, 2006, Civil Action File No. 06A-02368-5 was filed in Superior Court for Gwinnett County Georgia against the Company. A purported shareholder of a company from whom GlobeTel purchased assets is seeking to receive shares of our common stock that they believe 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 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On November 2, 2009, holders of a majority of voting shares of the Company, Sanswire Corp., acted by written consent in lieu of a special meeting of shareholders to an adopt amendment to the articles of incorporation to increase the number of shares of common stock which the Company is authorized to issue from 250,000,000 shares to 500,000,000 shares.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
(a) MARKET PRICE
Effective October 8, 2008 our shares of common stock have been quoted on the Pink Sheets quotation system under the symbol “SNSR” and effective August 7, 2009 our shares of common stock have been quoted on the OTCBB quotation system under the symbol “SNSR”
The following information sets forth the high and low bid price of our common stock during fiscal 2009 and 2008 and was obtained from the National Quotation Bureau. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
(b) HOLDERS
As of the date of this report, there were approximately 22,000 holders of our common stock.
(c) DIVIDENDS
The Company has never paid a dividend and does not anticipate that any dividends will be paid in the foreseeable future.
(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth the information indicated with respect to our compensation plans as of December 31, 2009, under which our common stock is authorized for issuance.
Recent Sales of Unregistered Securities; Use of Proceeds
In February 2009, the Company entered into subscription agreement with 3 accredited investors. The Company sold $140,000 of the Company’s 7% Convertible Debentures, 3-year warrants to purchase 666,667 of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase 444,444 of the Company’s common stock at an exercise price of $0.315. The Debentures are convertible into shares of the Company’s common stock at $.105 per share.
On January 5, February 12, and April 23, 2009, the Company issued a total of 1,096,407 shares of common stock to Mitchell Siegel for the settlement of debts.
During the 1st Quarter 2009, the Company issued 1,750,000 shares of common stock to 2 parties for the settlement of debts.
During the 2nd Quarter 2009, the Company issued 123,939 shares of common stock to a vendor for the settlement of debts.
During the 2nd Quarter 2009, the Company issued 10,785,000 shares of common stock to 5 parties for consulting services.
During the 3rd Quarter 2009, the Company issued 833,333 shares of common stock to a party for consulting services.
During the 4th Quarter 2009, the Company issued 6,316,666 shares of common stock to 3 parties for consulting services.
On June 30, 2009, the Company issued 75,000 shares of common stock to a former employee for exercised options.
During the 1st Quarter 2009, the Company issued 1,238,096 shares of common stock to 3 noteholders for converted notes payable and accrued interest.
During the 2nd Quarter 2009, the Company issued 2,964,737 shares of common stock to 2 noteholders for converted notes payable and accrued interest.
During the 3rd Quarter 2009, the Company issued 21,480,379 shares of common stock to 7 noteholders for converted notes payable and accrued interest.
On June 1 and December 29, 2009, the Company issued a total of 2,500,000 shares of common stock and 2,500,000 options exercisable at $.14 and $.073 per share to the Company’s CFO for signing and performance bonus’ related to an employment agreement.
On May 29 and December 29, 2009, the Company issued a total of 9,000,000 shares of common stock to the Company’s previous CEO for a performance bonus related to an employment agreement.
On May 1, 2009, the Company issued 1,000,000 shares of common stock to an employee for a performance bonus related to an employment agreement.
During the 1st Quarter 2009, the Company issued 952,381 shares of common stock to an accredited investor for stock for cash.
During the 2nd Quarter 2009, the Company issued 8,752,378 shares of common stock to 16 accredited investors for stock for cash. They also received 3-year warrants to purchase 3,138,094 of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase 3,138,094 shares issuable upon conversion of the debenture shares of the Company’s common stock at an exercise price of $0.315.
During the 3rd Quarter 2009, the Company issued 3,185,237 shares of common stock to 16 accredited investors for stock for cash. They also received 3-year warrants to purchase 1,592,618 of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase 1,783,095 of the Company’s common stock at an exercise price of $0.315.
During the 4th Quarter 2009, the Company issued 5,233,018 shares of common stock to 11 accredited investors for stock for cash. They also received 3-year warrants to purchase 2,854,603 of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase 2,854,603 of the Company’s common stock at an exercise price of $0.315.
On May 1 and December 29, 2009, the Company issued a total of 750,000 shares of common stock and 250,000 options exercisable at $.073 per share to Gen. Wayne Jackson for stock for director’s fees.
On May 1, 2009, the Company issued 250,000 shares of common stock to David Christian for stock for director’s fees.
On July 31, 2009, the Company issued 50,000 shares of common stock to William Hotz for stock for director’s fees.
On April 10, 2009, the Company issued 5,305,556 options exercisable at $.08 and $.09 per share to its non-executive employees.
On May 6, 2009, the Company issued 8,311,116 options exercisable at $.045 per share to its non-executive employees.
On December 31, 2009, the Company issued 4,500,000 options exercisable at $.073 per share to its non-executive employees.
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.
On May 5, 2009, the Company entered into a conversion agreement with Rocky Mountain Advisors Corp., a consultant to the Company (“RMAC”), pursuant to which the Company agreed to convert $185,387 in consulting fees owed to RMAC for consulting services performed from October 19, 2007 to April 9, 2009 into 29,615 shares of Series E Preferred Stock.
On May 5, 2009, the Company entered into a conversion agreement with Daniyel Erdberg, the Company’s Vice President of Operations, pursuant to which the Company agreed to convert $121,487.99 in outstanding wages owed to Mr. Erdberg from July 1, 2008 to April 3, 2009 into 19,407 shares of Series E Preferred Stock.
On May 5, 2009, the Company entered into a conversion agreement with Jonathan Leinwand, the former Chief Executive Officer, pursuant to which the Company agreed to convert $ 319,118.85 in outstanding wages owed to Mr. Leinwand from October 17, 2007 to April 3, 2009 into 50,978 shares of Series E Preferred Stock.
During 2010, the Company issued an additional 2,027,160 shares of common stock to 4 accredited investors for stock for cash. They also received 3-year warrants to purchase 1,013,580 of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase 1,013,580 of the Company’s common stock at an exercise price of $0.315.
The above issuances were made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 and Rule 506 promulgated under Regulation D thereunder. The holders of the above securities are accredited investors as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
During the year ended December 31, 2009, the Company and the Affiliated Purchasers (as defined in Rule 10b-18(a)(3)) did not engage in any repurchases of the Company securities.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following tables set forth our selected historical financial data for the periods indicated. The selected statement of operations data for the years ended December 31, 2009 and 2008, and the selected balance sheet data as of December 31, 2009 and 2008, have been derived from our audited financial statements and related notes thereto included elsewhere in this annual report.
The information presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements and the notes thereto included elsewhere in this annual report.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
Twelve months ended December 31, 2009 (“Fiscal 2009” or “2009” or “the current year”) compared to twelve months ended December 31, 2008 (“Fiscal 2008” or “2008” or “the prior year”).
RESULTS OF OPERATIONS
REVENUES. During fiscal 2009 and 2008, we had no gross sales.
OPERATING EXPENSES. Our operating expenses consist primarily of payroll and related taxes, professional and consulting services, expenses for executive and administrative personnel and insurance, investor and public relations, research and development, telephone and communications, facilities expenses, travel and related expenses, and other general corporate expenses. Our operating expenses for fiscal 2009 were $7,570,707 compared to fiscal year 2008 operating expenses of $3,214,345 an increase of $4,356,362 or 136%.
Included in our operating results are employee payroll and related taxes for fiscal 2009 of $554,065 compared to $887,283 in 2008, a decrease of $333,218 or 37.6%. This decrease was due to our continued reduction of our operations, facilities and workforce during 2009.
The overall increase is primarily due to an increase in officers’ and directors’ compensation to $3,744,070 (including non-cash compensation), from $435,000 in the prior year and amortization expenses of $1,049,425 in 2009 due to the amortization of the intangible asset.
During 2008 and 2007, Sanswire and its subsidiaries incurred payroll tax liability during the normal course of business at each payroll cycle. The Company submitted certain withholding tax payments during the first and second quarters of 2007 through a payroll processor, ADP. Subsequent thereto, the Company no longer processed its payroll through ADP. The Company did not file its 2007 tax forms until 2008 but 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 contacted the IRS accordingly 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.
We incurred $1,771,372 of consulting fees, an increase of $356,137 or 25.1% for 2009 compared to $1,415,235 in 2008. This increase is primarily related to contracts for services required to develop and expand our geographical and product markets.
During 2009, we incurred $451,775 of general and administrative expenses as compared to $476,827 during 2008. The $25,052 decrease was due to a continued reduction of expenses related to our operations, facilities and workforce during 2009.
LOSS FROM OPERATIONS. We had an operating loss of ($7,570,707) for fiscal year 2009 as compared to an operating loss of ($3,214,345) for fiscal 2008, primarily due to increased operating expenses as described above, including lower operating costs and reductions of our various programs.
OTHER INCOME (EXPENSE). We had net other expenses totaling ($1,843,800) during fiscal year 2009 compared to ($1,383,731) during fiscal 2008. This variance was due primarily to the non cash charges related to derivatives of ($658,421) during fiscal year 2009 compared to income of $840,339 for fiscal year 2008. Also included are the 2008 non cash charges related to the modifications of our convertible debentures of ($1,096,650) compared to a no activity for 2009.
Interest expense for fiscal year 2009 was $1,185,379 compared to $1,127,420 for the prior year. Interest expense increase was primarily due to a financing charges associated with the Company’s convertible debentures.
LOSS FROM DISCONTINUED OPERATIONS. We had no activity during 2009 compared to a loss of $197 related to our discontinued operations during 2008. See note 2 in the financial statements for more information regarding the discontinued operations.
NET LOSS. We had a net loss of ($9,414,507) in fiscal year 2009 compared to a net loss of ($4,598,273) in fiscal 2008. The increase in net loss is primarily attributable to the increase in the operating expenses as discussed above.
LIQUIDITY AND CAPITAL RESOURCES
ASSETS. At December 31, 2009, we had total assets of $3,742,632 compared to total assets of $3,240,215 as of December 31, 2008.
The current assets at December 31, 2009, were $1,551,908 compared to $11,215 at December 31, 2008. As of December 31, 2009, we had $12 of cash and cash equivalents compared to $4,809 at December 31, 2008.
The Company had $11,150 of deposits as of December 31, 2009 compared to no deposits as of December 31, 2008. The $11,150 relates to payments associated with the Company’s new office space lease.
We had $6,406 of current assets from discontinued operations as of December 31, 2009 and 2008. See note 2 in the financial statements for more information regarding the discontinued operations.
LIABILITIES. At December 31, 2009, we had total liabilities of $17,716,981 compared to total liabilities of $18,692,369 as of December 31, 2008.
The current liabilities at December 31, 2009 were $17,716,981 compared to $18,692,369 at December 31, 2008, a decrease of $975,388. The decrease is principally due to the decrease in notes payable of $1,873,014 (see note 7 of the financial statements), the increase in accounts payable of $417,390, and the decrease in accrued expenses of $178,185 and the increase in derivative liabilities of $658,421.
CASH FLOWS. Our cash used in operating activities was $1,990,590 compared to $909,608 for the prior year. The increase was primarily due to the increased level of operations and operating activities and changes in our current assets and liabilities.
During 2009, there was $11,150 used in investing activities which was a deposit on a new office lease compared to $385,000 in 2008 used in investing activities which was a payment on the Sanswire-Tao joint venture.
Net cash provided by financing activities was $1,996,943 in 2009 principally from the sales of the Company’s common stock, as compared to $1,267,139 in the prior year.
The accompanying 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 financial statements, the Company had a net loss of $9,414,507 and a negative cash flow from operations of $1,990,590 for the year ended December 31, 2009, and had a working capital deficiency of $16,165,073 and a stockholders’ deficit of $13,974,349 at December 31, 2009. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds to develop and implement a successful business plan. The Company has a business plan which, if successful, will allow the Company to sell unmanned aerial systems for a profit, which in turn will reduce the dependency of raising additional funds from outside sources. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Throughout 2009 and continuing into 2010, the Company has been dependent upon monthly funding from its existing debt holders. Funding decisions have typically not extended beyond thirty days at any given time, and the Company does not currently have a defined funding source. Funding delays and uncertainties have seriously damaged vendor relationships, new product development and revenues. In the absence of continued monthly funding by its current debt holders, the Company would not have sufficient funds to continue its operations. There is no assurance that additional funding from the current debt holders will be available or available on terms and conditions acceptable to the Company.
During 2010, the Company has subsequently raised approximately $132,000 from investors; however this is not adequate funding to cover the estimated working capital deficit of approximately $16.2 million or the net loss for 2009 of approximately $9.4 million. The Company is currently working to secure additional funding for its current operations as well as for the payments associated with the Company’s joint venture.
As reflected in the accompanying financial statements, for the year ended December 31, 2009 we had a net loss of ($9,414,507) compared to a 2008 net loss of ($4,598,273). Consequently, there is an accumulated deficit of ($134,717,089) at December 31, 2009 compared to ($125,302,582) at December 31, 2008.
CRITICAL ACCOUNTING POLICIES
REGISTRATION RIGHTS
In connection with the sale of debt or equity instruments, the Company may enter into Registration Rights Agreements. Generally, these Agreements require the Company to file registration statements with the Securities and Exchange Commission to register common shares that may be issued on conversion of debt or preferred stock, to permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of outstanding options or warrants.
These Agreements usually require us to pay penalties for any time delay in filing the required registration statements, or in the registration statements becoming effective, beyond dates specified in the Agreement. These penalties are usually expressed as a fixed percentage, per month, of the original amount the Company received on issuance of the debt or preferred stock, common shares, options or warrants. The Company accounts for these penalties when it is probable that a penalty will be incurred. At December 31, 2009, the Company has no registration rights agreement requiring penalties to be recorded.
REVENUE RECOGNITION
The Company recognized no revenue in the years 2009 and 2008 since it is developing its unmanned aerial systems.
STOCK-BASED COMPENSATION
We account for stock-based compensation under the provisions of ASC 718-10 and ASC 505-50 “Stock Compensation and Equity Based Payments to Non-Employees.” ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statement of Operations.
We are using the Black-Scholes option-pricing model as its method of valuation for share-based awards. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.
Stock-based compensation expense recognized under ASC 718 for the years ended December 31, 2009 and 2008 were $3,744,000 and $435,000, respectively.
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-Merton 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.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2009, the Financial Accounting Standards Board (“FASB”) issued a staff position that amends and clarifies the new business combination standard, to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The Company does not expect the adoption of this staff position to have a material impact on its financial condition and results of operations.
In April 2009, the FASB issued a staff position requiring disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This staff position also requires those disclosures in summarized financial information at interim reporting periods. The Company adopted this staff position in its second quarter ended June 30, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2009, the FASB issued a staff position which amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The Company adopted this staff position in its second quarter ended June 30, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2009, the FASB issued a staff position which provides additional guidance for estimating fair value in accordance with the new business combination standard when the volume and level of activity for the asset or liability have significantly decreased. This staff position also includes guidance on identifying circumstances that indicate a transaction is not orderly. The Company does not expect the adoption of this staff position to have a material impact on its financial condition and results of operations.
In May 2009, the FASB issued new guidance on subsequent events which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date-that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the guidance in the quarter ended June 30, 2009 and the statement did not have a material impact on our consolidated results of operation and financial position.
In June 2009, the FASB issued the standard that established the FASB Accounting Standards Codification (the “Codification”). The Codification will become the source of authoritative United States generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. The Company adopted the standard in the quarter ended September 30, 2009. Other than the manner in which accounting guidance is referenced in its financial reporting, the adoption of the Codification had no impact on the Company’s financial position, results of operations or cash flows.
In August 2009, the FASB issued guidance which provides clarification for the fair value measurement of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available. This guidance is effective for interim periods beginning after August 28, 2009. The Company adopted this guidance in the quarter ended September 30, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (early adoption is permitted), modify the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable. The Company does not expect the adoption of this staff position to have a material impact on its financial condition and results of operations.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As a smaller reporting company, the Company is not required to include the disclosure under this Item 7A.
ITEM 8.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders of
Sanswire Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of Sanswire Corp. and subsidiaries (the “Company”), as of December 31, 2009 and the related consolidated statements of operations, cash flows and stockholders’ deficit for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sanswire Corp. and subsidiaries as of December 31, 2009 and the consolidated results of their of operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has experiences significant losses and negative cash flows, resulting in decreased capital and increased accumulated deficits. These conditions raise substantial doubt about its ability to continue as a going concern. In addition, 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 has advised that it intends to vigorously defend itself in this action. The SEC lawsuit states that 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. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management’s plans regarding those matters are described in Note 10.
/s/ Rosen Seymour Shapss Martin & Company LLP
CERTIFIED PUBLIC ACCOUNTANTS
New York, New York
March 31,
To the Board of Directors and Stockholders of:
Sanswire Corp. (formerly known as GlobeTel Communications Corp.) and Subsidiaries
We have audited the accompanying consolidated balance sheet of Sanswire Corp. (formerly known as GlobeTel Communications Corp.) and Subsidiaries (the “Company”), as of December 31, 2008 (as restated) and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
We were not engaged to examine management’s assertion about the effectiveness of Sanswire Corp. (formerly known as GlobeTel Communications Corp.) and Subsidiaries’ internal control over financial reporting as of December 31, 2008 included in the Company’s Item 9A “Controls and Procedures” in the Annual Report on Form 10-K and, accordingly, we do not express an opinion thereon.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Sanswire Corp. (formerly known as GlobeTel Communications Corp.) and Subsidiaries as of December 31, 2008 (as restated) and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has experienced net losses and negative cash flows from operations and expects such losses to continue. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As described in Note 4 “Restatement of Financial Statements” to the financial statements, the Company has restated its 2008 financial statements.
As discussed in Note 1, 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 has advised that it intends to vigorously defend itself in this action. The SEC lawsuit states that 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. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Weinberg & Company, P.A.
Boca Raton, Florida
March 30, 2009, except for Note 4 and 7, as to which the date is September 8,
SANSWIRE CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
See accompanying notes to consolidated financial statements
SANSWIRE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
See accompanying notes to consolidated financial statements
SANSWIRE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (as Restated)
(continued)
See accompanying notes to consolidated financial statements
SANSWIRE CORP. AND SUBSIDIARIES (continued)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (as Restated)
See accompanying notes to consolidated financial statements
SANSWIRE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
See accompanying notes to consolidated financial statements
SANSWIRE CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2009 AND 2008
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
NATURE OF OPERATIONS
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 and HALEs (High Altitude Platforms, High Altitude Long Endurance). They have been designed to be able to keep a station in one location in the Stratosphere, at approximately 65,000 ft for durations of 30 days or more. 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 survelliance and reconnaissance capabilities.
ORGANIZATION AND CAPITALIZATION
The Company was organized in July 2002, under the laws of the State of Delaware. Upon its incorporation, Sanswire was a wholly-owned subsidiary of American Diversified Group, Inc. (ADGI). ADGI was organized January 16, 1979, under the laws of the State of Nevada. Subsequently, ADGI was merged into the Company, which is now conducting the business formerly conducted by ADGI and its subsidiaries, and all references to ADGI in these financial statements now apply to Sanswire interchangeably.
In May 2005, the Company approved a reverse split of shares of common stock on a one for fifteen (1:15) basis and changed the number of shares authorized to 100,000,000. In the Company’s annual shareholders meeting on August 1, 2005, the shareholders voted to increase the shares authorized from 100,000,000 to 150,000,000. Common stock amounts in this report have accounted for the reverse stock split retroactively, unless otherwise noted.
In the Company’s annual shareholders meeting on June 21, 2006, the shareholders voted to increase the shares authorized from 150,000,000 to 250,000,000.
On November 2, 2009, holders of a majority of voting shares of the Company, Sanswire Corp., acted by written consent in lieu of a special meeting of shareholders to an adopt amendment to the articles of incorporation to increase the number of shares of common stock which the Company is authorized to issue from 250,000,000 shares to 500,000,000 shares.
On May 3, 2009, the Board of Directors approved the creation of a Series E Preferred Stock. The Company is authorized to issue 10,000,000 shares of preferred stock. As of December 31, 2009, 100,000 shares of preferred stock was issued and outstanding. The rights, preferences, and provisions of the remaining authorized shares would be determined, at the discretion of the Board of Directors, at the time of issuance.
BASIS OF PRESENTATION
The consolidated financial statements of the Company include the accounts of its subsidiaries. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America. The consolidated financial statements presented reflect entries necessary for the fair presentation of the Consolidated Statements of Operations for the years ended December 31, 2009 and 2008, Consolidated Balance Sheets as of December 31, 2009 and 2008 and Consolidated Statements of Cash Flows for the years ended December 31, 2009 and 2008. All entries required for the fair presentation of the financial statements are of a normal recurring nature. Intercompany transactions and balances are eliminated upon consolidation.
The Company applied the provision of Financial Accounting Standards Board (“FASB”) ASC 810 “Consolidation of Variable Interest Entities (revised December 2003)” (“ASC 810”) 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 December 31, 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 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 financial statements, the Company had a net loss of $9,414,507 and a negative cash flow from operations of $1,990,590 for the year ended December 31, 2009, and had a working capital deficiency of $16,165,073 and a stockholders’ deficit of $13,974,349 at December 31, 2009. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds to develop and implement a successful business plan. The Company has a business plan which, if successful, will allow the Company to sell unmanned aerial systems for a profit, which in turn will reduce the dependency of raising additional funds from outside sources. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Additional cash will still be needed to support operations. Management believes it can continue to raise capital from various funding sources, which when added to current working capital, will be sufficient to sustain operations at its current level through December 31, 2010. However, if the Company’s plans are not achieved and/or if significant unanticipated events occur, or if it is unable to obtain the necessary funding, the Company may have to modify its business plan, reduce or discontinue some of its operations or seek a buyer for all or part of its assets to continue as a going concern. As of the date of this report the Company has continued to raise capital to sustain its current operations which have been reduced since January 1, 2008. The Company will need to periodically seek investment to provide cash for operations until such time that operations provide sufficient cash flow to cover expenditures. (see also next paragraph)
On May 2, 2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the United States District Court for the Southern District of Florida against GlobeTel Communications Corp. (the “Company”) and three former officers of the Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC alleges, among other things, that the Company recorded $119 million in revenue on the basis of fraudulent invoices created by Joseph Monterosso and Luis Vargas, two individuals formerly employed by the Company who were in charge of its wholesale telecommunications business. The SEC alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act. The SEC seeks as relief a permanent injunction, civil penalties, and disgorgement with prejudgment interest. The Company intends to vigorously defend itself in this action. The staff is also considering recommending that the SEC authorize and institute proceedings to revoke the registration of Company’s securities pursuant to Section 12(j) of the Exchange Act. (See Note 10)
CASH AND CASH EQUIVALENTS
The Company considers highly liquid debt instruments with an original maturity of three months or less at the date of purchase to be cash equivalents.
VALUATION HIERARCHY
FASB ASC 820, “Fair Value Measurements”, establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.
The following table lists the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2009:
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 year ended December 31, 2009.
REGISTRATION RIGHTS
In connection with the sale of debt or equity instruments, the Company may enter into Registration Rights Agreements. Generally, these Agreements require the Company to file registration statements with the Securities and Exchange Commission to register common shares that may be issued on conversion of debt or preferred stock, to permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of outstanding options or warrants.
These Agreements usually require us to pay penalties for any time delay in filing the required registration statements, or in the registration statements becoming effective, beyond dates specified in the Agreement. These penalties are usually expressed as a fixed percentage, per month, of the original amount the Company received on issuance of the debt or preferred stock, common shares, options or warrants. The Company accounts for these penalties when it is probable that a penalty will be incurred. At December 31, 2009, the Company has no registration rights agreement requiring penalties to be recorded.
REVENUE RECOGNITION
The Company recognized no revenue in the years 2009 and 2008 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 is an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of the difference in events that have been recognized in the Company’s financial statements compared to the tax returns.
ADVERTISING AND MARKETING COSTS
Advertising and marketing costs are charged to operations in the period incurred. There was no advertising and marketing expense for the years ended December 31, 2009 and 2008.
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.
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 years ended December 31, 2009 and 2008 were immaterial.
USE OF ESTIMATES
The process of preparing financial statements in conformity with generally accepted accounting principles in the United States requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
BASIC AND DILUTED NET LOSS PER COMMON SHARE
Basic and diluted net loss per common share has been computed based upon the weighted average number of shares of common stock outstanding during each period. The basic and diluted net loss is computed by dividing the net loss by the weighted average number of common shares outstanding during each period. In periods where losses are reported, the weighted average number of common shares outstanding excludes common stock equivalents because their inclusion would be anti-dilutive. If all outstanding options, warrants and convertible shares were to be converted or exercised as of December 31, 2009, the shares outstanding would be 341,630,205. As of March 30, 2010, the Company had 267,040,586 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.
STOCK-BASED COMPENSATION
We account for stock-based compensation under the provisions of ASC 718-10 and ASC 505-50 “Stock Compensation and Equity Based Payments to Non-Employees.” ASC 718 requires companies to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our Consolidated Statement of Operations.
We are using the Black-Scholes option-pricing model as its method of valuation for share-based awards. Our determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and certain other market variables such as the risk free interest rate.
Stock-based compensation expense recognized under ASC 718 for the years ended December 31, 2009 and 2008 were $3,744,070 and $435,000, respectively.
The Company’s determination of fair value of share-based payment awards to employees and directors on the date of grant uses the Black-Scholes model, which is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors.
The Company accounts for stock option and warrant grants issued to non-employees for goods and services using the guidance of ASC 718 and ASC 505 “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services,” whereby the fair value of such option and warrant grants is determined using the Black-Scholes option pricing model at the earlier of the date at which the non-employee’s performance is completed or a performance commitment is reached.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In April 2009, the Financial Accounting Standards Board (“FASB”) issued a staff position that amends and clarifies the new business combination standard, to address application issues on initial recognition and measurement, subsequent measurement and accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. The Company does not expect the adoption of this staff position to have a material impact on its financial condition and results of operations.
In April 2009, the FASB issued a staff position requiring disclosures about fair value of financial instruments for interim reporting periods as well as in annual financial statements. This staff position also requires those disclosures in summarized financial information at interim reporting periods. The Company adopted this staff position in its second quarter ended June 30, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2009, the FASB issued a staff position which amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. The Company adopted this staff position in its second quarter ended June 30, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In April 2009, the FASB issued a staff position which provides additional guidance for estimating fair value in accordance with the new business combination standard when the volume and level of activity for the asset or liability have significantly decreased. This staff position also includes guidance on identifying circumstances that indicate a transaction is not orderly. The Company does not expect the adoption of this staff position to have a material impact on its financial condition and results of operations.
In May 2009, the FASB issued new guidance on subsequent events which established general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that date-that is, whether that date represents the date the financial statements were issued or were available to be issued. The Company adopted the guidance in the quarter ended June 30, 2009 and the statement did not have a material impact on our consolidated results of operation and financial position.
In June 2009, the FASB issued the standard that established the FASB Accounting Standards Codification (the “Codification”). The Codification will become the source of authoritative United States generally accepted accounting principles (“GAAP”) recognized by the FASB to be applied by nongovernmental entities. All other non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative. The Company adopted the standard in the quarter ended September 30, 2009. Other than the manner in which accounting guidance is referenced in its financial reporting, the adoption of the Codification had no impact on the Company’s financial position, results of operations or cash flows.
In August 2009, the FASB issued guidance which provides clarification for the fair value measurement of liabilities in circumstances in which a quoted price in an active market for an identical liability is not available. This guidance is effective for interim periods beginning after August 28, 2009. The Company adopted this guidance in the quarter ended September 30, 2009. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.
In October 2009, the FASB issued amendments to the accounting and disclosure for revenue recognition. These amendments, effective for fiscal years beginning on or after June 15, 2010 (early adoption is permitted), modify the criteria for recognizing revenue in multiple element arrangements and the scope of what constitutes a non-software deliverable. The Company does not expect the adoption of this staff position to have a material impact on its financial condition and results of operations.
NOTE 2. DISCONTINUED OPERATIONS
The Company decided to close several of its operations and has presented certain activities as discontinued operations as of and for the years ended December 31, 2009 and 2008.
The loss on the Company’s consolidated statements of operations for the years ended December 31, 2009 and 2008 is summarized as follows:
The Company incurred the following losses from discontinued operations for the year ended December 31, 2008:
The Company had the following assets and liabilities from its discontinued operations on its consolidated balance sheet as of December 31, 2009 and 2008:
NOTE 3. JOINT VENTURE AND INTANGIBLE ASSETS
On June 3, 2008 Sanswire and TAO Technologies Gmbh (“TAO”) with support from Professor Bernard Kroplin (“Kroplin”) restructured the November 2007 agreement and entered into a new agreement to form a 50/50 US based joint venture to place, among other things, the license rights to the TAO intellectual property in US, Canada, and Mexico into the US-based joint venture company to be called Sanswire-TAO that was to be owned equally by TAO and Sanswire Corp. Additionally, Sanswire-TAO would register the patents and the intellectual property of TAO in the United States for the exclusive use of Sanswire-TAO. The intellectual property includes, but is not limited to an existing patent as well as any updates to that patent. This integration of Sanswire and Stuttgart, Germany-based TAO took place to create various strategic advantages for both companies. Each group entered the relationship with synergistic, yet very distinct core competencies. Sanswire’s business development, its inroads into the U.S. Government review process as well as inroads into overseas markets and other marketing resources complement TAO’s vast airship product research and development ability. In addition the joint venture has an exclusive agreement with TAO that may require additional payments in the future.
On June 3, 2008, the Company reclassified the transaction as the purchase of assets and recognized a $3,229,000 Intangible Asset related to the intellectual property, including existing patent. The $391,000 paid during 2007 was applied as payment towards the investment. During 2008, the Company paid an additional $653,000 for the investment, made up of $385,000 in cash and the issuance of 2,680,000 shares of the Company’s common stock valued at $268,000. After application of the 2007 deposit of $391,000 and the 2008 payments of $653,000, the balance of $2,185,000 due for the investment is included in accrued expenses as of December 31, 2009 (see Note 6).
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 4. 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 December 31, 2008 financial statements in relation to the recording of derivative liabilities related to the conversion feature and associated warrants issued with convertible notes during 2008. As a result, the Company’s consolidated financial statements for the year ended December 31, 2008 have been amended and restated.
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 December 31, 2008 consolidated financial statements in relation to the provisions of FASB ASC 815, “Accounting for Derivative Financial Instruments and Hedging Activities” and the recording of certain warrants and the beneficial conversion feature of the Company’s convertible notes payable. In accordance with ASC 815, the fair value of certain of the Company’s options and warrants and the embedded conversion feature of the Company’s convertible notes payable, have been re-characterized as derivative liabilities effective January 1, 2007. ASC 815 requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in value reported in the statement of operations. As a result, the Company’s consolidated financial statements as of December 31, 2008 have been restated.
The effects of the restatement on the Company’s consolidated financial statements for the year ended December 31, 2008 is shown below (note: see table of adjustment descriptions at end of this section):
Description of adjustments:
(1)
To record $748,244 increase to derivative liability, $531,756 decrease to accumulated deficit for prior period recognition of derivative liability, and $1,280,000 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 $375,166 decrease in derivative liability for the year ended December 31, 2008.
(3)
To record $465,173 decrease from the extinguishment of derivative liabilities for the year ended December 31, 2008.
(4)
Effect on Earnings per share of restatements
NOTE 5. INVENTORIES
Inventories as of December 31, 2009 and 2008 consisted of the following:
NOTE 6. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following:
NOTE 7. NOTES AND CONVERTIBLE NOTES PAYABLE
(A) NOTES PAYABLE
Notes payable are made up of two separate notes.
From February 2007 to October 2007, the Company received a total of $641,812 from the first note. During January 2008, the Company received a total of $7,673. As of December 31, 2009 and 2008, a balance of $4,997,130 remains through an unsecured promissory note with no formal terms of repayment. The Company has accrued interest at a rate of 7% per annum, which totals $1,162,544 from inception to December 31, 2009.
During 2008 and 2009, the Company received no additional funding related to the second note. In January 2008, the note holder converted $150,000 of the loans to 1,428,571 shares of common stock. As of December 31, 2009 and 2008, a balance of $999,900 remains through an unsecured promissory note with no formal terms of repayment. The Company has accrued interest at a rate of 7% per annum, which totals $232,144 from inception to December 31, 2009.
Interest expense on these notes totaled $405,753 for each of the years ended December 31, 2009 and 2008, respectively.
(B) CONVERTIBLE NOTES PAYABLE
Effective January 16, 2008, the Company entered into a forbearance agreement with certain note holders that were issued in 2006. This agreement changed their conversion price to the lesser of $.20 or 70% of the volume weighted average price for the 10 days prior to conversion.
In January 2008, the Company issued certificates of adjustment for certain convertible notes issued in September 2006 to reduce the conversion prices from $0.196 to $.105 per share. The modification was deemed an extinguishment of debt, with a loss of $293,817 recorded in January 2008.
During 2008, $1,200,000 of principal and interest was converted into approximately 23.4 million shares of Company common stock.
During 2009, $80,000 of principal and interest was converted into 1,047,619 million shares of Company common stock.
(C) CONVERTIBLE PROMISSORY NOTES
On February 17, 2009, the Company entered into subscription agreements with accredited investors. The Company sold $110,000 of the Company’s 7% Convertible Debentures, 3-year warrants to purchase a number of shares equal to 50% of the number of shares issuable upon conversion of the debenture of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase a number of shares equal to 50% of the number of shares issuable upon conversion of the debenture shares of the Company’s common stock at an exercise price of $0.315. The Debentures are convertible into shares of the Company’s common stock at $.105 per share.
The Company determined that the total fair value of the warrants was $21,365 based upon the relative value of the Black Scholes valuation of the warrants and the underlying debt amount. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate ranging from 1.31% to 1.40%, expected volatility of 169.01% and an expected term of the warrants of 3 years. The initial calculated fair value of warrants of $21,365 was reflected by the Company as a valuation discount and an offset to the carrying value of the Notes, and is being amortized by the straight line method over the term of the Notes. As of December 31, 2009, the Company amortized $21,365 of the valuation discount, which is reflected as interest expense in the Company’s consolidated statements of operations. During the year ended December 31, 2009, all principal and interest has been converted as part of an overall conversion request that includes all outstanding notes from this note holder. On September 30, 2009, the balance of $1,633,869 of principal and $199,648 of interest were converted into 17,462,080 shares of Company common stock.
On April 29, 2009, the Company agreed to extend the expiration of certain warrants associated with the notes. A charge of $399,707 was recorded for the change in the fair value of the warrants at the time of modification.
On February 17, 2009, the Company entered into subscription agreement with an accredited investor. The Company sold $30,000 of the Company’s 7% Convertible Debentures, 3-year warrants to purchase a number of shares equal to 50% of the number of shares issuable upon conversion of the debenture of the Company’s common stock at an exercise price of $0.21, and three-year warrants to purchase a number of shares equal to 50% of the number of shares issuable upon conversion of the debenture shares of the Company’s common stock at an exercise price of $0.315. The Debentures are convertible into shares of the Company’s common stock at $.105 per share pursuant to the following terms.
The Company determined that the total fair value of the warrants was $4,865 based upon the relative value of the Black Scholes valuation of the warrants and the underlying debt amount. For the Black Scholes calculation, the Company assumed no dividend yield, a risk free interest rate of 1.22%, expected volatility of 169.01% and an expected term of the warrants of 3 years. The initial calculated fair value of warrants of $4,865 was reflected by the Company as a valuation discount and offset to the carrying value of the Notes, and is being amortized by the straight line method over the term of the Notes. As of December 31, 2009, the Company amortized $4,865 of the valuation discount, which is reflected as interest expense in the Company’s consolidated statements of operations. During the year ended December 31, 2009, all principal and interest has been converted as part of an overall conversion request that includes all outstanding notes from this note holder. On September 30, 2009, the balance of $130,000 of principal and $10,558 of interest were converted into 1,338,651 shares of Company common stock.
On April 29, 2009, the Company agreed to extend the expiration of certain warrants associated with the notes. A charge of $41,121 was recorded for the change in the fair value of the warrants at the time of modification.
During 2009, the Company made payments totaling $42,630 to reduce a previously entered into note. On September 30, 2009, the balance of $119,836 of principal and $9,084 of interest were converted into 1,227,810 shares of Company common stock.
In October 2008, the Company entered into a new financing agreement for a convertible promissory note payable totaling $25,000. On February 11, 2009, $25,438 of principal and interest was converted into 238,096 shares of the Company’s common stock.
During May 2009, the Company converted a previously entered into note totaling $290,000 of principal and $5,921 of interest into 2,447,790 shares of Company common stock.
In September 2008, the Company entered into a new financing agreement for a convertible promissory note payable totaling $50,000. On February 12, 2009, the Company issued 250,000 shares, valued at $9,500, as a penalty to extend the maturity to an unspecified date. On March 30, 2009, the investor foreclosed on its lien and security interest based on the previously entered into pledge agreement. The note was secured by 1,000,000 shares of common stock of the Company held by the Company’s CEO. As a result, the holder acknowledged that by virtue of its ownership of the shares, the note was deemed satisfied in full.
On April 17, 2009, the Company entered into an amendment to the Subscription Agreement, dated September 17, 2008 pursuant to which the Company agreed (i) to extend the expiration date of both the Series A Warrant and Series B Warrant issued from October 15, 2010 to December 31, 2010 and (ii) extend the final date that the holder may make up to two additional purchases of the Company’s securities, from October 15, 2008 and December 15, 2008, respectively, until December 31, 2010 and December 31, 2010, respectively. A charge of $2,477 was recorded for the change in the fair value of the warrants at the time of modification.
In 2008, the Company entered into $1,234,606 in financing agreements which are convertible into common stock of the Company at $.105 per share, due two years from inception, accrue interest at a rate of 7% per annum and were issued Class A and Class B warrants. The Class A and B warrants are exercisable for a purchase price of $.21 and $.315, respectively. The warrants have a 2 year term.
The Company originally accounted for the fair value of the conversion feature and the fair value of the warrants based upon the relative value of the Black Scholes Merton valuation of the warrants and the underlying debt amount. Subsequently, the Company’s identified them as embedded derivatives due to price resets relating to the 2008 convertible notes. The accounting treatment of derivative financial instruments requires that the Company record fair value of the derivatives as of the inception date of the related convertible notes up to the proceeds amount and to fair value as of each subsequent balance sheet date. At the inception of the 2008 convertible notes, the Company determined the fair value of the embedded derivative to be $487,883. In addition, the Company determined the fair value of derivative related to warrants issued with the 2008 notes to be $205,172. The Company recorded a discount of $190,124 for the 2008 notes, which is being amortized by the effective interest method over the term of the Notes.
For the years ended December 31, 2009 and December 31, 2008, the Company amortized $157,548 and $114,238, respectively of the valuation discount.
The fair value of the embedded derivative was determined using a probability weighted Black Scholes Merton option pricing model based on the following assumptions: dividend yield: -0-%, volatility 28 - 167%, risk free rate: .11 - 1.00%, expected term: .01 - 2.74 years.
NOTE 8. DERIVATIVE LIABILITIES
In 2007, the Company adopted FASB ASC 815 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock” and FASB ASC 815 “Accounting for Derivative Instruments and Hedging Activities,” as amended by FASB ASC 815 “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of FASB ASC 815,” collectively referred to as FASB ASC 815. FASB ASC 815 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income.
The derivative liabilities were valued using the Black-Scholes option pricing model and the following assumptions:
The risk-free interest rate was based on rates established by the Federal Reserve. In 2009, the Company’s expected volatility was based upon the historical volatility for its common stock. The expected life of the Debentures’ conversion option was based on the maturity of the Debentures and the expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.
NOTE 9. AGREEMENTS
AGREEMENTS
Several agreements, letters of intent, and memorandums of understanding regarding the Sanswire project were entered into during 2009 and 2008 and through the date of this report, none of which require the recording of any assets, liabilities, revenues or expenses.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Securities and Exchange Commission
On September 28, 2006, the Company received a formal order of investigation from the SEC. The formal order only named the Company and was not specific to any particular allegations. Through the use of subpoenas, the SEC has requested documentation from certain officers and directors of the Company. In subsequent subpoenas, the SEC has asked for additional documents and information.
On October 5, 2007, the Company received a “Wells Notice” from the SEC in connection with the SEC’s ongoing investigation of the Company. The Wells Notice provides notification that the staff of the SEC intends to recommend to the Commission that it bring a civil action against the Company for possible violations of the securities laws including violations of Sections 5 and 17(a) of the Securities Act of 1933; Sections 10(b), 13(a), and 13(b)(2)(A) & (B) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder; and seeking as relief a permanent injunction, civil penalties, and disgorgement with prejudgment interest. The staff is also considering recommending that the SEC authorize and institute proceedings to revoke the registration of Company’s securities pursuant to Section 12(j) of the Exchange Act.
On May 2, 2008, the Securities and Exchange Commission (“SEC”) filed a lawsuit in the United States District Court for the Southern District of Florida against GlobeTel Communications Corp. (the “Company”) and three former officers of the Company, Timothy J. Huff, Thomas Y. Jimenez and Lawrence E. Lynch. The SEC alleges, among other things, that the Company recorded $119 million in revenue on the basis of fraudulent invoices created by Joseph Monterosso and Luis Vargas, two individuals formerly employed by the Company who were in charge of its wholesale telecommunications business.
The SEC alleges that the Company violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, as amended, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Rules 10b-5, 12b-20, 13a-1, 13a-11 and 13a-13 under the Exchange Act. The SEC seeks as relief a permanent injunction, civil penalties, and disgorgement with prejudgment interest. The Commission subsequently consolidated this action with another pending action involving former officers of the Company. The Commission has also moved to amend its complaint against the Company to include additional allegations of wrongdoing beginning in 2002, but which does not add any new defendants. The Company has been vigorously defending itself in this action. The trial of this matter has been set for October 2010.
Joseph Monterosso
In October 2007, the Company filed a lawsuit in the Circuit Court for Broward County, Florida against Joseph J. Monterosso alleging Libel, Slander and Defamation, Tortuous Interference, Violations of FS § 836.05 (Threats Extortion) and violations of FS §517 (Securities Fraud). Mr. Monterosso has not yet been served with the complaint pending additional information arising from the SEC lawsuit. This action has been dismissed for lack of prosecution but may be refiled by the Company in the future.
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.
Wachovia v. GlobeTel
In connection with the operations of Globetel Wireless Europe GmbH and the acquisition of Altvater GmbH, the Company guaranteed a letter of credit in the amount of $600,000. Upon Globetel Wireless Europe GmbH ceasing operations, the letter of credit was drawn upon. The letter of credit was not collateralized. In September 2007, Wachovia filed a lawsuit in Broward County in an attempt to recover the amount through arbitration with the American Arbitration Association. On June 2, 2008, the American Arbitration Association awarded Wachovia $762,902. This liability was previously recorded in the Company’s accounts payable as incurred.
Richard Stevens v. GlobeTel
The Company and its directors were sued in the case RICHARD STEVENS vs. GLOBETEL COMMUNICATIONS CORP., et al. Case No.: 06-cv 21071. The original allegations of the complaint were that the Company’s proposed transaction to build wireless networks in Russia was a sham. The amended complaint alleged that the transaction was not a sham, but that the Company refused to accept payment of $300 million. Recently, the officers and directors with the exception of Timothy Huff have been dismissed from the case.
In February 2008, the Company and the Plaintiff reached a settlement in principle that has been filed with the Court for approval. Under the terms of the proposed settlement agreement in the class action, the Company’s D&O insurance carrier will make a cash payment to the class of $2,300,000, less up to $100,000 for potential counsel fees and expenses. All claims in the class action will be dismissed with prejudice. The US District Court for the Southern District of Florida has approved the settlements reached in its pending securities class action and a shareholder derivative action on February 4, 2008.
Derivative Action
On July 10, 2006, a derivative action was filed against the officers and directors of the Company alleging that they have not acted in the best interest of the Company or the shareholders and alleged that the transaction to install wireless networks in Russia was a sham. The lawsuit is pending in the Federal District Court for the Southern District of Florida (Civil Case No. 06-60923). The Company believes that the suits are without merit and will vigorously defend against it. The Company has hired outside counsel to defend it in this action. The Company and the Plaintiff have reached an agreement in principle to settle this action and have submitted such settlement with the Court for its approval. Under the terms of the settlement, Company’s D&O insurance carrier will pay $60,000 in attorneys’ fees to plaintiff’s counsel, the Company will implement or maintain certain corporate governance changes, and all claims will be dismissed with prejudice.
Mitchell Siegel v. GlobeTel
On February 2, 2007, the Company was sued in the Circuit Court for Broward County, Florida entitled Mitchell Siegel v. GlobeTel Communications Corp. Case no. 0702456 (“the Siegel Lawsuit”). In this action, Siegel sued the Company for breach of contract in regards to a Key Executive Employment Agreement. On February 15, 2008, both parties entered into a settlement agreement whereas Mr. Siegel would receive $175,000 worth of stock, payable over 12 months, and 50% of the gross proceeds, up to a total amount of $300,000, received from an October 2006 agreement. During 2009, the Company paid the remaining $43,750 in the Company’s common stock.
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.
Former Consultants
The Company is a defendant in two lawsuits filed by Matthew Milo and Joseph Quattrocchi, two former consultants, filed in the Supreme Court of the State of New York (Richmond County, Case no. 12119/00 and 12118/00). These matters were subsequently consolidated as a result of an Order of the court and now bear the singular index number 12118/00. The original lawsuits were for breach of contract. The complaint demands the delivery of 10,000,000 pre split shares of ADGI stock to Milo and 10,000,000 to Quattrocchi. The Company was entered into the action as ADGI was the predecessor of the Company. The suit also requests an accounting for the sales generated by the consultants and attorneys fees and costs for the action.
The lawsuits relate to consulting services that were provided by Mr. Milo and Mr. Quattrocchi and a $50,000 loan advanced by these individuals, dated May 14, 1997, of which $35,000 has been repaid.
The Company entered into an agreement with Mr. Milo and Mr. Quattrocchi as consultants on June 25, 1998. The agreement was amended on August 15, 1998. On November 30, 1998, both Mr. Milo and Mr. Quattrocchi resigned from their positions as consultants to the Company without fulfilling all of their obligations under their consulting agreement. The Company issued 3 million pre split shares each to Mr. Milo and Mr. Quattrocchi as consideration under the consulting agreement. The Company has taken the position that Mr. Milo and Mr. Quattrocchi received compensation in excess of the value of the services that they provided and the amounts that they advanced as loans.
Mr. Milo and Mr. Quattrocchi disagreed with the Company’s position and commenced action against us that is pending in the Supreme Court of the State of New York. Mr. Milo and Mr. Quattrocchi claim that they are entitled to an additional 24,526,000 pre split shares of common stock as damages under the consulting agreement and to the repayment of the loan balance. The Company believes that it has meritorious defenses to the Milo and Quattrocchi action, and the Company has counterclaims against Mr. Milo and Mr. Quattrocchi.
With regard to the issues related to original index number 12119/00, as a result of a summary judgment motion, the plaintiffs were granted a judgment in the sum of $15,000. The rest of the plaintiff’s motion was denied. The court did not order the delivery of 24,526,000 pre split shares of ADGI common stock as the decision on that would be reserved to time of trial.
An Answer and Counterclaim had been interposed on both of these actions. The Answer denies many of the allegations in the complaint and is comprised of eleven affirmative defenses and five counterclaims alleging damages in the sum of $1,000,000. The counterclaims in various forms involve breach of contract and breach of fiduciary duty by the plaintiffs.
For the most part, the summary judgment motions that plaintiffs brought clearly stated that their theories of recovery and the documents that they will rely on in prosecuting the action. The case was assigned to a judicial hearing officer and there was one week of trial. The trial has been since adjourned with no further trial dates having been set.
It is still difficult to evaluate the likelihood of an unfavorable outcome at this time in light of the fact that there has been no testimony with regard to the actions. However, the plaintiffs have prevailed with regard to their claim of $15,000 as a result of the lawsuit bearing the original index Number 12119/00.
This case went before a Judicial Hearing Officer on July 6 and 7, 2006. No resolution occurred during the July hearing and the Judicial Hearing Officer has asked for written statements of facts and law. The outcome cannot be projected with any certainty. However, the Company does not believe that it will be materially adversely affected by the outcome of the proceeding. The Company has not been informed of any further developments since the hearing.
Trimax Wireless
On April 6, 2009, the Company entered into a settlement agreement with Ulrich Altvater, a former employee, and his company, Trimax Wireless. As per the terms of the settlement, Mr. Altvater will return 1,640,000 shares of the Company’s common stock and certain equipment that was held by Trimax Wireless. The Company has received the shares and certain equipment pursuant to the settlement and the matter has been dismissed.
American Express
American Express Travel Related Services Company, Inc. has filed a lawsuit against the Company and Sanswire Networks LLC (CASE NO: CACE 08-013239, Broward County Florida), seeking to recover a total of $394,919 for unpaid charges on the Companies’ corporate purchasing account. On October 3, 2008, American Express received a final judgment for $404,113. This liability was previously recorded in the Company’s accounts payable as incurred.
Leases and Rents
Sanswire’s corporate offices are now located at 17501 Biscayne Blvd, Aventura, FL 33160. Base rent is $2,900 per month. The lease is for a period of 36 months and terminates on June 30, 2012. We believe our facilities are adequate for our current and near-term needs. Sanswire’s corporate offices were previously located at 101 NE 3 rd Ave., Suite 1500, Fort Lauderdale, FL 33301 which were vacated on December 31, 2009 as the lease expired.
Rent expense for 2009 and 2008 were $23,498 and $42,431, respectively.
Estimated future minimum rental payments and lease payments on noncancelable operating leases as of December 31, 2009 were as follows:
NOTE 11. INCOME TAXES
Deferred income taxes and benefits for 2009 and 2008 are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes. The tax effects (computed at 15%) of these temporary differences and carry-forwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:
A reconciliation of income benefit provided at the federal statutory rate of 15% to income tax benefit is as follows:
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.
At the end of 2009, the Company had net operating loss carry-forwards (including those of its successor due to accounting for the reincorporation as an “F” reorganization under the Internal Revenue Code) of approximately $81,429,083, which expire at various dates through 2021.
NOTE 12. COMMON STOCK TRANSACTIONS
During the year ended December 31, 2009, the Company issued the following shares of common stock:
During the year ended December 31, 2008, the Company issued the following shares of common stock:
The valuation amounts of the above common stock transactions are based on the amounts that common stock and related additional paid-capital were increased (decreased) upon recording of each transaction. For exercises of stock options, no values are indicated, whereas the options were valued and the additional paid-in capital account was increased upon the original issuance (grant) of the options and no additional charges were recorded upon exercise of the options. For conversions of preferred stock, the valuation indicated is the recorded amount of the preferred stock upon original issuance of the preferred shares, which amount was reclassified to common stock and related additional paid-in capital upon conversion. Where preferred stock was originally issued for broker’s fees (instead of cash) and, accordingly, no monetary compensation was received or recorded by the Company for the preferred shares issued, the listed common stock valuation is also zero.
For other issuances of shares during the periods described above, the Company-issued restricted shares (Rule 144) of its common stock to consultants and officers for services to the Company. Through December 31, 2004, issuance of restricted shares (Rule 144) were valued, due to limitations in current marketability, by the Company based upon half of the average bid and asked price of the Company’s shares on the date of issuance, unless the services provided were valued at another amount as agreed upon between the parties.
In August 2008, the Company issued an additional 800,000 contingent shares to a vendor that will be returned to the Company when the amounts due the vendor are paid. The Company has accounted for them as forfeitable shares as they believe they will be returned under the agreement in 2009. They are not considered outstanding for Earnings per share purposes and the liability remains recorded.
NOTE 13. STOCK OPTIONS AND WARRANTS
During the year ended December 31, 2009, the Company issued the following fully vested options to acquire Common stock:
During the year ended December 31, 2008, the Company issued the following fully vested options to acquire Common stock:
See below for more information regarding vesting term and exercise prices.
All options are fully vested and thus there is no future compensation.
The above scheduled stock options were recorded at fair market value under ASC 718 (see Note 1 above). The fair value of the options at the time of issuance was determined using the Black-Scholes option-pricing model with the following assumptions:
STOCK OPTIONS
Employee options vest according to the terms of the specific grant and expire from 3 to 5 years from date of grant. As of December 31, 2009, all options issued and outstanding have fully vested and thus there was no deferred compensation, Stock option activity for the years ended December 31, 2009 and 2008 was as follows:
The following table summarizes information about stock options outstanding as of December 31, 2009:
WARRANTS
During 2008, the Company entered into financing agreements for convertible promissory notes payable whereby these investors were issued Class A and Class B warrants. The Class A and B warrants are exercisable for a purchase price of $.21 and $.315, respectively. The warrants have a 2 year term.
During 2009, the Company entered into financing agreements for convertible promissory notes payable as well as stock subscription agreements whereby these investors were issued Class A and Class B warrants. The Class A and B warrants are exercisable for a purchase price of $.21 and $.315, respectively. The warrants have a 2 year term.
The following table summarizes certain information about the Company’s stock warrants.
The fair value of the warrants issued during 2009 was determined using the Black-Scholes option-pricing model with the following assumptions:
The aggregate intrinsic value of 38,042,499 options and 18,933,804 Class A and 15,651,411 Class B warrants outstanding and exercisable as of December 31, 2009 was $5,301,823. 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 December 31, 2009. At December 31, 2009, all warrant shares were vested. Therefore there is no unamortized cost to be recognized in future periods.
NOTE 14. 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 December 31, 2009, the Company has 100,000 shares of Series E Preferred Stock outstanding.
NOTE 15. SUBSEQUENT EVENTS
The Company has evaluated subsequent events from the balance sheet date. The following are material subsequent events:
On February 8, 2010, the Company received an executed Mutual Release and Settlement Agreement from David A. Christian (“Christian”), pursuant to which Christian resigned as Chief Executive Officer of the Company. The Christian Agreement provided for the resolution and settlement of all issues relating to the employment of Christian by the Company, provides a mutual release between the parties as well as the following:
·
the Company agreed to issue Christian 4,000,000 shares of common stock of the Company;
·
the Company agreed to issue to Christian an option to purchase 500,000 shares of common stock of the Company at an exercise price of $0.075 per share;
·
the Company agreed to pay Christian Fifteen Thousand Dollars ($15,000) in cash as settlement of all accrued and unpaid expenses; and
·
the Company agreed to issue Christian 250,000 shares with regard to his original contract to serve on the Board of Directors.
On February 8, 2010, the Company received an executed Mutual Release and Settlement Agreement between the Company and William J. Hotz (“Hotz”), Hotz resigned as a Director of the Company. The Hotz Agreement provided for the resolution and settlement of all issues relating to the employment of Hotz by the Company, including but not limited to a provision whereby the Company will pay to Hotz:
·
1,000,000 shares of common stock of the Company;
·
Options to purchase 200,000 shares of common stock of the Company at an exercise price of $0.075 per share; and
·
Ten Thousand Dollars ($10,000) in cash as settlement of all accrued and unpaid salary, benefits, bonuses, expenses and/or other remuneration.
In January 2010, the Company satisfied the judgment with Delma Pembroke Pines in exchange for the issuance of 4,000,000 shares of our common stock to be issued to Star Capital Funding LLC. Delma Pembroke Pines sued the Company for passed due and unpaid rents on its former offices located in Pembroke Pines. On August 17, 2007, Delma obtained a judgment however the company has been unable to make any payments towards the settlement. Delma subsequently sold the judgment to Star Capital Funding LLC.
ITEM 9
ITEM 9 CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
On October 19, 2009 (the “Dismissal Date”), the Company dismissed Weinberg & Co., as its independent certifying accountant. The Company’s Board of Directors approved of the dismissal on October 20, 2009. There were no disputes or disagreements between Weinberg & Co. and the Company during the previous two fiscal years. Except for the provision of a “Going Concern” opinion, the reports of Weinberg & Co. on the Company’s financial statements for the years ended December 31, 2008 and 2007 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.
During the years ended December 31, 2008 and 2007, and through the Dismissal Date, the Company has not had any disagreements with Weinberg & Co. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to Weinberg & Co.’s satisfaction, would have caused them to make reference to the subject matter of the disagreement in connection with its report.
During the years ended December 31, 2008 and 2007, and through the Dismissal Date, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Weinberg & Co. with a copy of the Current Report on Form 8-K disclosing the dismissal prior to its filing with the Securities and Exchange Commission (“SEC”) and requested that Weinberg & Co. furnish the Company with a letter addressed to the SEC stating whether it agrees with the above statements and, if it does not agree, the respects in which it does not agree. A copy of the letter from Weinberg & Co. was attached as Exhibit 16.1 to the Form 8-K.
On October 20, 2009, the Company engaged Rosen Seymour Shapss Martin & Company Llp (“RSSM”), as its independent registered public accounting firm, to audit the Company’s financial statements. The decision to engage RSSM was approved by the Company’s Board of Directors at a Board meeting called for such purpose.
During the Company’s two most recent fiscal years and through the date of the engagement of RSSM, the Company did not consult with RSSM regarding either (1) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, or (2) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K) or a reportable event (as defined in Item 304(a)(1)(v) of Regulation S-K).
Prior to the engagement of RSSM, RSSM did not provide the Company with any written or oral advice that RSSM concluded was an important factor considered by the Company in reaching any decision as to any accounting, auditing or financial reporting issue.
ITEM 9A
ITEM 9A (T) 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 December 31, 2009. 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 December 31, 2009, the Company’s disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, except for the establishment of the audit committee as contemplated below.
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 include restating our financial statements for March 31, June 30, September 30 and December 31, 2008 as well as March 31, 2009.
Changes in Internal Control Over Financial Reporting
Except as set forth above, there have been no changes in our internal control over financial reporting that occurred during the year ended December 31, 2009 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal control over financial reporting in accordance with Exchange Act Rule 13a-15. With the participation of our principal executive officer and chief financial officer, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009 based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our internal control over financial reporting was not effective as of December 31, 2009, based on those criteria due to the material weaknesses as outlined above. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected.
This annual report does not include an attestation report of the Company’s registered accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
BOARD APPOINTMENTS AND RESIGNATIONS
On August 6, 2009, Jonathan Leinwand resigned as a director and Chief Executive Officer of the Company and Przemyslaw Kostro resigned as a director of the Company.
On February 8, 2010, David A. Christian resigned as Chief Executive Officer of the Company.
On February 8, 2010, William J. Hotz resigned as a director of the Company.
On February 10, 2010, Thomas Seifert, the Company’s Chief Financial Officer, was appointed to the Board of Directors.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
As of March 31, 2010, the officers and directors of the Corporation are:
All directors hold office until the next annual meeting of our stockholders and until their successors have been elected and shall qualify. Officers serve at the discretion of our Board of Directors.
Thomas Seifert
Mr. Seifert has served as a consultant to the Company since April 2007 and has more than thirteen years experience in financial management. Prior to joining the Company, Mr. Seifert served five years as Chief Financial Officer of Globalnet Corporation, a public telecommunications company. Past positions include Chief Financial Officer of 2Sendit.com, Controller for Integrated Telephony Products and Controller for Mountain Vacations.
Maj. Gen. Wayne P. Jackson (USA-Ret.)
During his military career, General Jackson served in various overseas theaters of operations and in a variety of assignments. He has commanded Aviation, Civil Affairs, Infantry, Military Intelligence, Signal Corps and Special Forces units, as well as two General Office Commands and also as the Director of Counter Intelligence and Security, Headquarters Department of the Army. In addition, General Jackson also served as Chief, Division of Probation Administrative Office of the United States Court, Washington, D.C.
General Jackson earned a B.A. and M.A. in Psychology at the University of Tulsa, and performed other post-graduate work at the Illinois Institute of Technology and at the University of Southern California. His military education includes the basic and advanced Officers Course at the Signal and Military Intelligence schools, advanced courses at the Civil Affairs and Infantry schools, as well as coursework at the US Army Command and General Staff College and the US Army War College.
(B) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires that our officers and directors, and persons who own more that ten percent of a registered class of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and with any exchange on which the Company’s securities are traded. Officers, directors and persons owning more than ten percent of such securities are required by Commission regulation to file with the Commission and furnish the Company with copies of all reports required under Section 16(a) of the Exchange Act. Based solely upon our review, we believe that all reports required under Section 16(a) of the Exchange Act were made.
Code of Ethics
Due to our limited resources, we have not adopted a code of ethics. We intend to adopt a Code of Ethics during the coming year.
Audit Committee Financial Expert
We do not have an audit committee financial expert because the Company has been unable to appoint such a qualified person during the period when the Company has been restating its financial statements and becoming current with its financial statements.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth information regarding compensation paid to our principal executive officer, principal financial officer, and our highest paid executive officer, all of whose total annual salary and bonus for the years ended December 31, 2009, and 2008.
OUTSTANDING EQUITY AWARDS
The following table sets forth information with respect to the outstanding equity awards of our principal executive officers and principal financial officer during 2009, and each person who served as an executive officer of the Company as of December 31, 2009:
COMPENSATION OF DIRECTORS
The following table summarizes the compensation for our non-employee board of directors for the fiscal years ended December 31, 2009 and 2008:
Compensation paid to Directors who are also officers of the Company is reflected in Item 10. Executive Compensation. We maintain a policy of compensating our directors using cash and stock options. Currently, the Company determines Board compensation on an individual basis. Employee members of the Board do not receive additional compensation for their service on the Board.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Common Stock
As of March 30, 2010, there were 267,040,586 common shares issued and outstanding. The table below sets forth the share ownership of our executive officers and directors, individually and as a group. No other person is the beneficial owner of more than 5% of our issued and outstanding common shares
(1) Based on 267,040,586 shares issued and outstanding on March 30, 2010.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Certain Relationships and Related Transactions
On June 1 and December 29, 2009, the Company issued a total of 2,500,000 shares of common stock and 2,500,000 options exercisable at $.14 and $.073 per share to the Company’s CFO for signing and performance bonus’ related to an employment agreement.
On May 29 and December 29, 2009, the Company issued a total of 9,000,000 shares of common stock and 7,555,556 options exercisable at $.045 and $.073 per share to the Company’s previous CEO for a performance bonus related to an employment agreement.
On May 1 and December 29, 2009, the Company issued a total of 750,000 shares of common stock and 250,000 options exercisable at $.073 per share to Gen. Wayne Jackson for stock for directors fees.
On May 1, 2009, the Company issued 250,000 shares of common stock to David Christian for stock for directors fees.
On July 31, 2009, the Company issued 50,000 shares of common stock to William Hotz for stock for directors fees.
On May 5, 2009, the Company entered into a conversion agreement with Rocky Mountain Advisors Corp., a consultant to the Company (“RMAC”), pursuant to which the Company agreed to convert $185,387 in consulting fees owed to RMAC for consulting services performed from October 19, 2007 to April 9, 2009 into 29,615 shares of Series E Preferred Stock.
On May 5, 2009, the Company entered into a conversion agreement with Jonathan Leinwand, the former Chief Executive Officer, pursuant to which the Company agreed to convert $ 319,118.85 in outstanding wages owed to Mr. Leinwand from October 17, 2007 to April 3, 2009 into 50,978 shares of Series E Preferred Stock.
Director Independence
General Jackson is independent as that term in defined under section 301 of the Sarbanes-Oxley Act of 2002.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The following table summarizes the fees for Rosen Seymour Shapss Martin & Company LLP and Weinberg & Company, P.A. services rendered to the Company during 2009 and 2008.
(1)
This category consists of fees for the audit of our annual financial statements included in the Company’s annual report on Form 10-KSB and review of the financial statements included in the Company’s quarterly reports on Form 10-QSB. This category also includes additional audit work on restatements including reports for prior periods. This category also includes advice on audit and accounting matters that arose during, or as a result of, the audit or the review of interim financial statements, statutory audits required by non-U.S. jurisdictions and the preparation of an annual “management letter” on internal control matters.
(2)
Represents services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements for those fiscal years, aggregate fees charged for assurance and related services that are reasonably related to the performance of the audit and are not reported as audit fees. These services include consultations regarding Sarbanes-Oxley Act requirements, various SEC filings and the implementation of new accounting requirements.
(3)
Represents aggregate fees charged for professional services for tax compliance and preparation, tax consulting and advice, and tax planning.
(4)
Represents aggregate fees charged for products and services other than those services previously reported.
ITEM 15.
ITEM 15. 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
3.1
Certificate of Designations for the Series E Preferred Stock of the Company previously filed on Form 8-K on May 8, 2009
4.1
Form of Subscription Agreement between the Company and the Investors previously filed on Form 8-K dated February 24, 2009
4.2
7% Convertible Debenture previously filed on Form 8-K dated February 24,
4.2
Form of Class A Warrant previously filed on Form 8-K dated February 24,
4.3
Form of Class B Warrant previously filed on Form 8-K dated February 24,
10.1
Credit Facility Agreement, dated April 15, 2009, by and between Sanswire Corp. and Global Telesat Corp. previously filed on Form 8-K on April 21,
10.2
Assignment and Assumption Agreement, dated April 15, 2009, by and between Sanswire Corp., Global Telesat Corp. and International Legal Consultants previously filed on Form 8-K on April 21, 2009
10.3
Services Agreement, dated April 15, 2009, by and between Sanswire Corp. and Global Telesat Corp. previously filed on Form 8-K on April 21,
10.4
Amendment to the Subscription Agreement, dated September 17, 2008, by and between Sanswire Corp. and Global Telesat Corp., dated April 17, 2009 previously filed on Form 8-K on April 21, 2009
10.5
Loan Termination Agreement, dated April 17, 2009, by and among Sanswire Corp., Jonathan D. Leinwand and Global Telesat Corp. previously filed on Form 8-K on April 21, 2009
10.6
Subscription Agreement, dated April 17, 2009, by and between Sanswire Corp. and Global Telesat Corp. previously filed on Form 8-K on April 21,
10.7
Subscription Agreement, dated April 18, 2009 previously filed on Form 8-K on April 21,
10.8
Employment Agreement, effective March 1, 2008, by and between the Company and Jonathan Leinwand previously filed on Form 8-K dated May 5,
10.9
Conversion Agreement, dated May 5, 2009, by and between Sanswire Corp and Rocky Mountain Advisors Corp. previously filed on Form 8-K dated May 8,
10.10
Conversion Agreement, dated May 5, 2009, by and between Sanswire Corp and Daniyel Erdberg previously filed on Form 8-K dated May 8, 2009
10.11
Conversion Agreement, dated May 5, 2009, by and between Sanswire Corp and Jonathan Leinwand previously filed on Form 8-K dated May 8, 2009
10.12
Employment Agreement, effective June 1, 2009, by and between the Company and Thomas Seifert previously filed on Form 8-K dated June 5,
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
In accordance with the requirements of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.