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·	International trademark application under the Madrid Protocol for MagicMoney;

·	International trademark application under the Madrid Protocol for GlobeTel;

·	Trademark of GlobeTel in Canada;

·	Trademark of MagicMoney in Canada;

·	Trademark of GlobeTel in Mexico;

·	Trademark of MagicMoney in Mexico;

·	Trademark of GlobeTel in Guatemala;

·	Trademark of MagicMoney in Guatemala;

·	Trademark of MagicMoney in Brazil;

·	Trademark of GlobeTel in Brazil; and

·	Trademark of GlobeTel in Philippines.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, December 31, 2004 (restated) and 2003

 

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES

 

Nature of Operations

 

GlobeTel is engaged in the business of providing telecommunication services, primarily involving Internet telephony using Voice over Internet Protocol ("VoIP") technology and equipment. In addition, our subsidiary, Sanswire, LLC, is developing a National Wireless Broadband Network utilizing high-altitude airships called Stratellites that will be used to provide wireless voice, video, and data services.

 

Organization and Capitalization

 

GlobeTel Communications Corp. ("GlobeTel") was organized in July 2002, under the laws of the State of Delaware. Upon its incorporation, GlobeTel 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. ADGI had two other wholly-owned subsidiaries, Global Transmedia Communications Corporation (“Global”), a Delaware corporation, and NCI Telecom, Inc. (“NCI”), a Missouri corporation.

 

On July 1, 2002, both Global and NCI were merged into ADGI. On July 24, 2002, ADGI stockholders approved a plan of reincorporation for the exchange of all outstanding shares of ADGI for an equal number of shares of GlobeTel. Subsequently, ADGI was merged into GlobeTel, 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 GlobeTel interchangeably.

 

In July 2002, pursuant to the reincorporation, the Company authorized the issuance of up to 1,500,000,000 shares of common stock, par value of $0.00001 per share and up to 10,000,000 shares of preferred stock, par value of $0.001 per share.

 

Basis of Presentation

 

The financial statements include the accounts of GlobeTel Communication Corp. and its wholly-owned subsidiaries, Sanswire, LLC and Centerline Communications, LLC, and its wholly-owned subsidiaries, EQ8, LLC, EnRoute Telecom, LLC, G Link Solutions, LLC, Volta Communications, LLC, and Lonestar Communications, LLC, as well as the accounts GTCC de Mexico, S.A. de C.V, which GlobeTel owns 99% of.

 

All material intercompany balances and transactions were eliminated in the consolidation.

 

Restatement

 

During 2006 and 2007, we performed an internal analysis ("internal analysis") of our previously issued consolidated financial statements for 2004 and 2005. As a result of our internal analysis, we discovered certain errors in those consolidated financial statements. Our 2004 consolidated financial statements and related financial information included herein have been restated. For further details on the nature of the errors and the related effects on our previously issued consolidated financial statements see Note 2—Restatement of Results. Where appropriate, we have identified all balances that have been restated with the notation "restated." Throughout these notes, the term "previously reported" will be used to refer to balances from our previously issued 2004 consolidated financial statements.

 

Reclassifications

 

Certain amounts in the prior year financial statements have been reclassified for comparative purposes to conform to the current year presentation.

 

The Company's consolidated balance sheets reflect, in other assets, "Investment in unconsolidated subsidiary - Consolidated Global Investments, Ltd." (“CGI”) at $352,300 and $302,300 as of December 31, 2004 and 2003, respectively. The financial statements issued for the prior year listed the $302,500 in current assets, included in deposits on equipment. This reclassification in 2004 is a result of the Company's acquisition of 73.15% of CGI's stock.

 

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Cash and Cash Equivalents

 

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

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Trade and other accounts receivable are reported at face value less any provisions for uncollectible accounts considered necessary. Accounts receivable primarily includes trade receivables from customers and, in connections with our Mexico network, Mexican tax refunds receivable. The Company estimates doubtful accounts on an item-to-item basis and includes over-aged accounts as part of allowance for doubtful accounts, which are generally ones that are ninety-days overdue. Bad debt expense for the years ended December 31, 2004 and 2003 were $1,141,534 and $1,409,994, respectively.

 

Inventory

 

Inventory is recorded at lower-of-cost-or-market, first-in first-out (“FIFO”) basis. Inventory at December 31, 2004 consists of IP (“Internet Protocol”) phones held for resale.

 

Property and Equipment

 

Property and equipment consists of telecommunications equipment, office furniture and equipment, which are stated at cost. Depreciation is based on the estimated useful lives of the assets, ranging from five years for office furniture and equipment to seven years for telecommunications equipment, using the straight-line method. Expenditures for maintenance and repairs are charged to expense as incurred. Major improvements are capitalized. Gains and losses on disposition of property and equipment are included in income as realized.

 

Revenue Recognition

 

Revenues for voice, data, and other services to end-users are recognized in the month in which the service is provided. Amounts invoiced and collected in advance of services provided are recorded as deferred revenue. Revenues for carrier interconnection and access are recognized in the month in which the service is provided.

 

Sales of telecommunications networks are recognized when the networks are delivered and accepted by the customer. Sales of computer hardware, equipment, and installation are recognized when products are shipped to customers. Provisions for estimated returns and allowances are provided for in the same period the related sales are recorded. Revenues on service contracts are recognized ratably over applicable contract periods. Amounts billed and collected before services are performed are included in deferred revenues.

 

Income Taxes

 

Income taxes are computed under the provisions of the Financial Accounting Standards Board (“FASB”) Statement 109 No. (SFAS 109), Accounting for Income Taxes. SFAS 109 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. Advertising and marketing expense for the years ended December 31, 2004 and 2003, were $19,160 and $105,314, respectively, and are included in "Investor and public relations" in the consolidated statements of income (loss).

 

Fair Value of Financial Instruments

 

Financial instruments, including cash, receivables, securities, 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.

 

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Concentrations of Credit Risk and Economic Dependence

 

Financial instruments, which potentially subject the Company to a concentration of credit risk, are cash and cash equivalents and accounts receivable. The Company currently maintains a substantial portion of its day-to-day operating cash balances at a single financial institution. The Company had cash balances of $601,449 and $224,994 as of December 31, 2004 and 2003, respectively, which are in excess of federally insured limit. As of December 31, 2004 and 2003, the Company had $462,690 and $124,994, respectively, in excess of federally insured limits.

 

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

 

Recently Issued Accounting Pronouncements

 

In April 2003, FASB issued Statements of Financial Accounting Standards No. 149 "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS 149"). SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities". SFAS 149 is generally effective for contracts entered into or modified after June 30, 2003.

 

In May 2003, FASB issued Statements of Financial Accounting Standards No. 150 "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS 150"). SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003.

 

In December 2003, the Financial Accounting Standards Board (“FASB”) issued a revised Interpretation No. 46, "Consolidation of Variable Interest Entities" (“FIN 46R”). FIN 46R addresses consolidation by business enterprises of variable interest entities and significantly changes the consolidation application of consolidation policies to variable interest entities and, thus improves comparability between enterprises engaged in similar activities when those activities are conducted through variable interest entities. The Company does not hold any variable interest entities.

 

In November 2004, the FASB issued Statement No. 151, "Inventory Costs", to amend the guidance in Chapter 4, "Inventory Pricing", of FASB Accounting Research Bulletin ("ARB”) No. 43, "Restatement and Revision of Accounting Research Bulletins", which will become effective for the Company in fiscal year 2006. Statement 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). The Statement requires that those items be recognized as current-period charges. Additionally, Statement 151 requires that allocation of fixed production overhead to the costs of conversion be based on the normal capacity of the production facilities. Management believes that the adoption of SFAS 151 will not affect the Company's financial position or results of operations.

 

In December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets," an amendment to Opinion No. 29, "Accounting for Nonmonetary Transactions." Statement No. 153 eliminates certain differences in the guidance in Opinion No. 29 as compared to the guidance contained in standards issued by the International Accounting Standards Board. The amendment to Opinion No. 29 eliminates the fair value exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. Such an exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in periods beginning after December 16, 2004. Management does not expect adoption of SFAS No. 153 to have any impact on the Company's financial statements.

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004) "Share-Based Payments", which is a revision of SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, "Statement of Cash Flows". Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. The new standard will be effective for the Company in the first interim or annual reporting period beginning after December 15, 2005. The Company expects the adoption of this standard will have a material impact on its financial statements assuming employee stock options are granted in the future.

 

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The adoptions of these new pronouncements have not and, other than as noted above, are not expected to have a material effect on the Company's consolidated financial position or results of operations.

 

Use of Estimates

 

 

Net Loss Per Common Share

 

Basic 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 net loss is computed by dividing the net loss by the weighted average number of common shares outstanding during each period. Following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the year ended December 31, 2004 (restated):

 

		Income			Shares			Per-Share
		(Numerator)			(Denominator)			Amount
Basic Net Loss per Share:
Income (loss) available to
common stockholders		$	(15,944,869	)		748,388,269		$	(.02	)
Effect of Dilutive Convertible
Preferred Stock and Options			--			2,251,631
Diluted Net Income (loss) per Share:
Income (loss) available to common
stockholders plus, assumed
Conversions and exercises		$	(15,944,869	)		750,639,900		$	(.02	)

 

Available stock options at December 31, 2003, were anti-dilutive and therefore were excluded from the net income (loss) per common share calculation.

 

Impairment of Long-Lived Assets

 

The Company follows FASB Statement No. 144 (“SFAS 144”), "Accounting for the Impairment of Long-Lived Assets." SFAS 144 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

 

The Company accounts for its stock-based compensation arrangements with employees in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related interpretations. As such, compensation expense under fixed term option plans is recorded at the date of grant only to the extent that the market value of the underlying stock at the date of grant exceeds the exercise price. In accordance with SFAS No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), since the Company has continued to apply the principles of APB 25 to employee stock compensation, pro forma loss and pro forma loss per share information has been presented as if the options had been valued at their fair values. The Company recognizes compensation expense for stock options, common stock and other equity instruments issued to non-employees for services received based upon the fair value of the services or equity instruments issued, whichever is more reliably determined. Stock compensation expense is recognized as the stock option is earned, which is generally over the vesting period of the underlying option.

 

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In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation". This statement amends SFAS 123. SFAS 148 provides alternative methods of transition for companies that voluntarily change to the fair value-based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based compensation and the effect of the method used on reported results.

 

In March 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation." ("FIN 44") The Company adopted FIN 44, effective July 1, 2000, with respect to certain provisions applicable to new awards, option repricings, and changes in grantee status. FIN 44 addresses practice issues related to the application of APB 25. The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of SFAS 123 and SFAS 148 and EITF No. 96-18, "Accounting for Equity Instruments that are issued to Other Than Employees for Acquiring or in Conjunction with Selling, Goods or Services". The measurement date used is the earlier of either the performance commitment date or the date at which the equity instrument holder's performance is complete.

 

		2004
		(restated)			2003
Net loss for the year - as reported		$	(15,944,869	)	$	(6,202,526	)
Add: Total stock-based			5,828,833		$	310,000
compensation expense included in
net loss, as reported determined
under APB 25, net of related tax
effects
Deduct: Total stock-based			(5,323,319	)	$	(210,800	)
compensation expense determined
under fair value based method for
all awards, net of related tax
effects
Net loss for the year - pro forma		$	(15,439,355	)	$	(6,103,326	)
Basic net loss per share - as
reported		$	(0.02	)	$	(0.01	)
Basic net loss per share - pro forma		$	(0.02	)	$	(0.01	)
Weighted average fair value of
options granted during the year		$	0.04		$	0.01

 

		2004			2003
		(restated)
Expected dividend yield			--			--
Expected stock price volatility			300	%		150	%
Risk-free interest rate			2.0	%		2.0	%
Expected life of options			2 years			3 years
Block discount applied			--			--

 

In December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. Effective for the years on or after December 15, 2005, the Company will recognize all share-based payments to employees, including grants of employee stock options, in the statement of operations based on their fair values.

 

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NOTE 2. RESTATEMENT OF RESULTS

 

We have determined that, in certain cases, we misinterpreted or misapplied Generally Accepted Accounting Principles (“GAAP”) in our 2004 consolidated financial statements and, accordingly, we have restated our consolidated financial statements for the period ended December 31, 2004.

 

As discussed more fully below, the restatements involve, among other matters, revenue recognition issues related to reporting gross revenue versus net as per EITF Issue 99-19. In making these restatements, we have performed an internal analysis of our accounting policies, practices, procedures and disclosures for the affected periods.

 

 

NOTE 5. PROPERTY AND EQUIPMENT

 

Property and equipment consisted of the following:

		2004			2003
Telecommunications equipment		$	549,779		$	706,892
Office furniture and equipment			165,979			154,169
			715,758			861,061
Accumulated depreciation			(270,002	)		(424,686	)
Property and equipment,
net book value		$	445,756		$	436,375

 

Total depreciation expense for the years ended December 31, 2004 and 2003, amounted to $170,021 and $227,200, respectively. Included in cost of sales is $116,435 in 2004 and $182,774 in 2003.

 

NOTE 6 - INVESTMENT IN UNCONSOLIDATED FOREIGN SUBSIDIARY

 

In September 2003, the Company entered into an agreement with Advantage Telecommunications Ltd. (“ATC”), n/k/a Consolidated Global Investments, Ltd. (“CGI”) an Australian telecommunications corporation where, for a strategic investment of $1.2 million, the Company would own up to 50% of the stock of ATC, and would have control of the board of directors of ATC. ATC had operations in England and Hong Kong and had points of presence in over 15 countries. The agreement was subsequently modified to where our investment of $1.2 million would be for purchase of the ATC's telecommunication equipment and network operations in Hong Kong and England. Subsequently, ATC deconsolidated its subsidiaries and suspended operations.

 

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As of December 31, 2003, the Company had remitted $302,300 to ATC and ATC's assignee. The Company remitted an additional $25,000 in February and $25,000 in March 2004 for a total of $352,300 and as of December 31, 2004 as partial payment towards the completion of the transaction.

 

Pursuant to additional modifications of the agreement, the Company issued 16,500,000 restricted shares of the Company's common stock to ATC to complete the transaction as follows: (a) 10,000,000 shares, valued at $847,700, were issued to bring the investment balance to $1.2 million, and (b) an additional 6,500,000 shares, valued at $520,000 were issued to bring the investment balance to $1,720,000. These amounts were agreed to by the Company and ATC.

 

The investment was structured by the parties and recorded by ATC as a secured convertible note payable to the Company, bearing interest at a rate of 12%, convertible, at the option of the Company, at a conversion rate of AUD$ 0.005 per share. However, as agreed by the parties, neither the Company nor ATC received or paid, respectively, nor accrued such interest.

 

In May 2004, Advantage Telecommunications Ltd. changed its name to Consolidated Global Investments, Ltd. (“CGI”) and all reports and filings are now under the name of Consolidated Global Investments, Ltd.

 

On June 30, 2004, the Company exercised its option to convert the note and was issued 467,327,745 shares of CGI stock. In addition, the Company took an assignment from CGI of a note payable to a CGI bank creditor in the amount of approximately AUD$ 750,000 (US $518,000) for a purchase price of 3,500,000 restricted shares of the Company's stock, in full payment of the balance due. Pursuant to an agreement between the Company and CGI, the Company converted the balance to CGI shares, at a conversion rate of AUD$.005 and on June 30, 2004, the Company was issued 147,968,635 shares of CGI stock.

 

As a result of the conversions, the Company held a total of 615,296,380 shares representing an ownership interest in CGI of 73.15%. In addition, as a result of and pursuant to the terms of conversion, the Company received options to acquire an additional 467,327,809 shares by June 30, 2007, at AUD$ 0.005 per share.

 

Notwithstanding the Company's 73.15% ownership interest and control of CGI's Board of Directors, the Company has not consolidated CGI into its accounts, whereas CGI is a foreign subsidiary of the Company, with no current operations. Furthermore, the primary asset of CGI as of December 31, 2004, consists of the 16.5 million shares of the Company's stock. Such consolidation is not required by generally accepted accounting principles in the United States.

 

The Company's stock issuances described above were recorded at par value, and the carrying value of the Company's investment in the unconsolidated foreign subsidiary is $352,000, representing the sum of cash advanced by the Company to CGI through December 31, 2004.

 

As of December 31, 2004, CGI's shares were not trading on the Australian Stock Exchange, or any other exchange. However, CGI expects the shares to be relisted in the near-term. The Company intends to make CGI into an operating company, with operations in Telecommunications and Sanswire projects, expanding the Company's presence in the Asian market, and resulting in the marketability of CGI's stock and potential income from the subsidiary. Upon the occurrence of such events, the Company may adjust the carrying value of and/or consolidate the subsidiary in accordance with generally accepted accounting principles used in the United States.

 

In addition, the Company has agreed with the Liquidator of CGI's former UK subsidiary to acquire telecommunication equipment owned by that former subsidiary valued by the Company at $128,210.

 

NOTE 7 - ASSET ACQUISITION - SANSWIRE

 

Asset Purchase Agreement -Sanswire Technologies, Inc.

 

In March 2004, the Company entered into a binding letter of intent to purchase certain assets of Sanswire Technologies, Inc. and its subsidiary, Sanswire, Inc. (collectively, "Sanswire"), a company that is developing a National Wireless Broadband Network utilizing high-altitude airships called Stratellites that will be used to provide wireless voice, video, and data services. The definitive purchase agreement was signed and effective on April 15, 2004.

 

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Asset Purchase Agreement - Stratodyne, Inc. (restated)

 

The Company entered into a purchase agreement, effective August 23, 2004, with Sanswire, Stratodyne, Inc. and its principal shareholder, Vern Koenig, for certain assets of Stratodyne and under substantially the same terms, conditions and consideration as the original Sanswire purchase agreement. The "Stratodyne" agreement supplements the original "Sanswire" agreement. Stratodyne was the primary contractor for Sanswire.

 

The assets acquired under the Sanswire and Stratodyne agreements consist primarily of intellectual property and proprietary rights in intellectual property. The Stratellite is similar to a satellite, but it is stationed in the stratosphere rather than in orbit. As of September 30, 2004, the Company had placed all of Sanswire's and Stratodyne's assets into Sanswire Networks, LLC, its Florida-based, wholly-owned subsidiary ("Sanswire-FL").

 

As consideration for the purchase, the Company issued 28 million shares of its common stock to Sanswire. In November 2004 all the final documents were delivered and the relationship was consummated. In September 2004, pursuant to the Stratodyne agreement, 2 million shares of the Company's common stock were issued directly to Stratodyne's principal shareholder. These shares are included in the 28 million shares originally issued to Sanswire, and, accordingly, the Sanswire shareholders will retain only 26 million shares issued and return 2 million of the previously issued shares to the Company. On February 5, 2005 GlobeTel filed a registration statement to register shares associated with these agreements.

 

Contingent Consideration

 

In accordance with the Sanswire agreement, an additional 200 million shares were to be issued pursuant to the terms and conditions of the "successful commercial launch" of a commercial communications platform aboard an airship developed by Sanswire and Stratodyne by the December 31, 2005 closing date. The Stratodyne agreement provides that 50 million of the 200 million additional shares will be issued to Stratodyne or its assignee(s) and the remaining 150 million shares to Sanswire Technologies, Inc.

 

For purposes of the Sanswire purchase agreement, a "successful commercial launch" was to be deemed to have occurred if all the conditions in the agreement have been satisfied and all other conditions deemed material by GlobeTel are satisfied, as determined by GlobeTel in its sole discretion. A "successful commercial launch" will occur if (i) an airship (dirigible) is flown for a period of 90 consecutive days at an approximate altitude of 70,000 feet, without technical difficulty, (ii) a customer is able to receive both voice and Internet services at the same time when it uses the "Stratellite service", at a customer-premises equipment (“CPE”) cost of approximately $100, and (iii) at least 250,000 paying customers must be able to use the Stratellite service based on agreed upon engineering specifications. For these purposes, it is also assumed that the cost of each airship used in the Stratellite service will not exceed $3 million, the cost of each tracking earth station will not exceed $7 million and that each earth station (if more than one) will have the ability to cover several deployed airships at one time. If the cost of any airship or earth station exceeds $3 million or $7 million, respectively, at the time that the "commercial launch" is being implemented, the project will not be deemed to be commercially viable and a "successful commercial launch" will not have occurred.

 

The Stratodyne agreement modified the definition of a "successful" commercial launch by eliminating the CPE cost provisions described in (ii) above, and eliminated all of the provisions of (iii) above, except that it is assumed that the cost of each airship used in the Stratellite service will not exceed $3 million. The other provisions above remain the same in the Stratodyne agreement.

 

Accounting for Purchase Price (restated)

 

The purchase price for the assets acquired was $2,800,000, based on a value of $ .10 per share for the 28 million Company shares issued in the transaction. The Company allocated the purchase price based on the estimated fair market value of the asset acquired as follows: (a) Sanswire equipment - $32,000; and (b) Sanswire and Stratodyne research and development expense - $2,768,000. In addition, the Company recorded an additional $10,000 to the purchase price to account for estimated cost of issuing and registering the shares for public sale in connection with this transaction. Sanswire-FL's assets, liabilities, results of operations and cash flows are consolidated in these financial statements.

 

Since it is presently unknown whether or not Sanswire and Stratodyne will achieve the above referenced results required to be entitled to the contingent consideration, no amount for such contingent consideration was recorded as a liability or included in the allocation of the purchase price. The Company will record the 200 million contingent shares at fair value upon issuance of the shares or at such time that the Company may determine that the issuance of the shares is probable and the value ascribable to the shares is estimable.

 

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Previously the Company reported the transaction with intangible assets that included technology-based, marketing-related, and contract-related assets. The Company determined that the intangible assets have an indefinite life, and, accordingly, was not subject to amortization. Instead, the Company would test the asset for impairment at each reporting period, and upon the occurrence of any significant event that may affect the carrying value of the assets. The Company tested the assets for impairment and determined that no impairment existed and no adjustment to the carrying value was required as of December 31, 2004. As noted in Note 2 - Restatements, the Company has adjusted the transaction to not include any intangible assets and instead chose to charge the $2,778,000 as a research and development expense in 2004.

 

The results of operations Sanswire-FL for the year ended December 31, 2004, which are consolidated in the Company's results of operations, included expenses of $746,826 with no sales or costs of sales.

 

Stratellite Build-Out Memorandum of Agreement (“MOA”) and Advances to Sanswire

 

An MOA between the Company and Mr. Koenig dated August 23, 2004, stated the following: Mr. Koenig agreed to resume and expedite the build-out of the prototype of the Stratellite; the Stratellite is a proprietary technology acquired by the Company as part of the asset purchase agreement with Sanswire; when completed, the prototype will be used for demonstration and testing for commercial use; the original expected completion of the build-out agreement was January 15, 2005; the Company agreed to provide funding to complete the build-out process of the Stratellite prototype; and the Company provided a total of $200,000.

 

The Company has provided amounts to or on behalf of Sanswire-FL in excess of the above amounts, including approximately $600,000 through December 31, 2004, and at total of approximately $1,000,000 through the date of this report.

 

Employment Agreements

 

In connection with the Sanswire asset purchase agreement, the Company also entered into three-year employment agreements with five former Sanswire Technology, Inc. executives. Michael Molen, Jairo Rivera, Brian Keith, Keith Sistrunk and Jane Molen were to serve as the Chief Executive Officer, Chief Financial Officer; Chief Operating Officer, Chief Technology Officer and Comptroller of Sanswire-FL, respectively. Mr. Molen was to receive an earn-out based on value of Sanswire-FL compared to the Company (exclusive of Sanswire-FL). If the value of Sanswire-FL was less than 24% of the value of the Company, Mr. Molen would be entitled to receive stock equal to 10% of GlobeTel common stock outstanding on the date of valuation. Mr. Molen had the right to select the valuation date and a mutually agreeable third party will evaluate the value of Sanswire-FL compared to GlobeTel.

 

As of September 30, 2004, the Company decided to restructure the operations of Sanswire, LLC and eliminate redundant positions. As a result, Mr. Molen has accepted the appointment as Chairman of Sanswire, LLC and a member of GlobeTel's Board of Directors and stepped down as CEO of Sanswire, LLC. The Company closed the Sanswire, Inc. offices in Atlanta and Mr. Sistrunk and Ms. Molen have separated from the Company.

 

In connection with the Stratodyne agreement, the Company entered into a three-year key employment agreement with Vernon Koenig, Stratodyne's principal shareholder, to perform services including, but not limited to, telecommunications services and other services that Mr. Koenig serves as Sanswire-FL's Chief Design Engineer, and is responsible for development of the Stratellite. Mr. Koenig will receive a salary of no less than $75,000 per year, plus grants of stock options based on performance evaluations given annually by the Company.

 

Independent Contractor Agreement

 

In September 2004, the Company entered into an agreement with Hotzone Wireless, LLC, a service provider for consulting/engineering services related to the Sanswire Stratellite project. The non-exclusive service provider will provide engineering / consulting services, transmission equipment, and installation and testing of equipment.

 

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The term of the agreement is for six (6) months and shall automatically renew for additional one (1) year terms after the initial term unless terminated by either party. As initial compensation, Company will pay the service provider $10,000 per month.

 

NOTE 8 - CENTERLINE COMMUNICATIONS, LLC.

 

Centerline Communications, LLC.

 

On June 30, 2004, the Company entered into an operating agreement with Carrier Services, Inc. ("CSI") a Nevada corporation, also a telecommunications company to operate Centerline Communications, LLC, a wholly-owned subsidiary of the Company.

 

The purposes of Centerline and its subsidiaries are to build telecommunications revenue and client base, utilizing each party's network and financial resources and to engage in any other business or activity that is necessary and proper to accomplish the above purposes.

 

Pursuant to the agreement, the Company is responsible for all costs associated with the operation and maintenance of the Prepaid Calling Card Platform, all expenses related to funding, staffing, technical support, customer service, equipment, and credit facilities. CSI is responsible for all costs and responsibilities associated with operation of the termination network, providing network facilities for the termination of carrier traffic, administer and operate the termination network, including subscriber accounts and tracking of minutes, all training and salary expenses of its sales personnel, all marketing expenses connected with the sale of the calling services and all other organizations related expense in any foreign base operation in which the LLC is operating.

 

The agreement provided for minimum selling requirements of $50 million per year for the LLC. This revenue must be profitable. If the LLC brought in $50 million at the end of the first year of operation, CSI will receive $1 million of the company's publicly traded stock. If CSI repeats the $50 million in profitable revenue in year two, CSI would receive another $1 million of the company's publicly traded stock. The initial term of the agreement was for two years and automatically renewable for another two years.

 

The parties subsequently modified the agreement to provide for minimum selling requirements of $25 million for the LLC. This revenue must be profitable. Upon the LLC achieving in $25 million in profitable revenues, CSI will receive 5 million shares of the company's publicly traded stock.

 

Due To / From CSI

 

The required revenues were achieved in January 2005 and CSI became entitled to the 5 million shares. As of December 31, 2004, the Company recorded $404,707 due to CSI, computed by applying a ratio, based on the revenues achieved through December 2004 (approximately $18.4 million) compared to the required $25 million, to the number of shares to be issued recorded at a price $ .11 per share, the closing market value of the Company's stock as of December 31, 2004.

 

CSI owed the Company a total of $401,723 as of December 31, 2004, consisting of the amounts due for accounts receivable collected by CSI on behalf of the LLC and for accounts receivable, pre-paid expenses and accounts payable assumed by CSI, and payments made by the Company on behalf of CSI, net of any payments made by CSI on behalf of the Company.

 

The Company offset the $404,707 due to CSI against the $401,723 due from CSI, to result in a net amount due to CSI of $3,024 as of December 31, 2004, which is included in accounts payable.

 

In February 2005 the Company issued approximately 1.32 million shares to CSI, which the Company sold on CSI's behalf, resulting in net proceeds of approximately $517,000, of which $100,000 was paid to CSI and the remaining $417,000 is currently held by the Company to collateralize the amounts due to the Company from CSI.

 

The Company and CSI mutually decided to conclude and restructure their joint business operations as of February 6, 2005. Upon completion of the parties reconciling and agreeing upon the final amount due from CSI, CSI and the Company agreed that the remaining amount due to CSI will be paid by the Company with remaining 133,334 (2 million pre-split) shares due to CSI, and the parties entered into new agreements.

 

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In addition, the Company agreed to issue a total 66,667 (1 million pre-split) additional shares to CSI for additional revenues of approximately $10 million generated during the three months ended March 31, 2005. Commissions in the amount of $162,335 were recorded, based on the value of the Company’s free-trading stock on the dates of issuance of the shares.

 

The Company entered into two asset purchase agreements with CSI to acquire telecommunication equipment totaling $837,836. The parties agreed that the purchase price for this equipment would be paid with (1) 233,333 (3,500,000 pre-split) shares of GlobeTel’s common stock; and (2) $286,136 in cash. In addition, the purchase agreement also required GlobeTel to provide $150,000 for the reconstruction and establishment of a new telecom switch site in Los Angeles, CA. GlobeTel has complied with this provision.

 

The Company also acquired from CSI additional telecommunications equipment valued at $58,206 and paid with 38,730 (580,950 pre-split) shares of GlobeTel’s common stock.

 

As partial payment for the above shares, in December 2005, the Company received $111,325 from proceeds of the sales of 30,000 (450,000 pre-split) shares of the Company’s common stock which was sold by CGI and advanced to GlobeTel (see Note 6 above), which was in turn paid to CSI.

 

Based on the above transactions, as of December 31, 2005 the balance owed to CSI includes (1) 336,667 (5,050,000 pre-split) shares of GlobeTel common stock; and (2) $106,231, related to the asset purchase agreements.

 

Subsequent to December 31, 2005, and as of the date of this report, the $106,231 cash balance was paid in full, and 226,666 (3,400,000 pre-split) shares of GlobeTel stock were transferred to CSI (from the GlobeTel shares due to be returned by CGI) GlobeTel and CSI subsequently settled all amounts due by entering into a debt conversion agreement in February 2007 whereby GlobeTel issued to CSI 1,846,542 shares of GlobeTel common stock.

 

"Partner Incentive and Financing Agreements"

 

The Company uses the term "partner" in a sense different than the strict legal definition. Herein, the term "partner" is equivalent to "business associate." The Company, Centerline and its subsidiaries entered in "Partner Incentive and Financing Agreements" with various parties ("Partners") in the business of providing the transmission of wholesale voice and/or data communications services to domestic and international destinations utilizing a proprietary call processing platform, technologies, software and other equipment ("Calling Services") to produce profitable revenues utilizing the Calling Services of the partners for an initial term of two (2) years.

 

The "Partners" shall be compensated on a semi-annual basis with a grant of equity and cash commissions. These grant and commissions will be paid out by Centerline, utilizing cash generated by the operations and stock given by the Company as part of the original agreement between CSI and the Company.

 

Six (6) months after the date of the agreement, "Partner" will be granted an option to purchase shares of publicly traded common stock of the Company ("Shares"). The grant shall be calculated pursuant to the terms of the "Partner's" stock option agreement, which is based on a predetermined stock strike price for the first six months of operation, and the formula used for the remaining three periods shall be 75% of the stock price at the grant date. Vested shares would be exercisable by "Partner" every six (6) months during the term of the agreement and for a period of thirty (30) days following the termination of this agreement.

 

The amount of the stock grant is calculated as follows:

 

For each $1,000,000 of revenue generated in a 12-month period, "Partner" shall be entitled to an option for a grant of 25,000 shares of common stock of GTEL. For each additional $1,000,000 revenues generated after the first $5,000,000, "Partner" shall be entitled to an option for a grant of 50,000 shares of common stock of GTEL. In the event that revenues exceed $10,000,000 in the 12-month period, "Partner" shall receive additional options for a grant of 20,000 shares of common stock of GTEL for each additional $1,000,000 of revenue generated in excess of $10,000,000.

 

The agreement provides for cash incentive bonuses based on revenues generated pursuant to the parties' agreements. This grant is in addition to the stock option grant described above. So long as the "Partner" continues to produce profitable Calling Services revenues during the term of the agreement, and the "Partner" is not in breach of the parties' agreements, the cash bonus earned shall be paid as follows:

 

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For each $1,000,000 of revenue generated in a 12-month period, "Partner" shall be entitled to receive a cash bonus of $15,000. For each additional $1,000,000 revenues generated above the first $5,000,000 revenue, the "Partner" shall be entitled to receive a cash bonus of $35,000. In the event that revenues exceed $10,000,000 in the 12-month period, "Partner" shall receive an additional cash bonus of $20,000 for each additional $1,000,000 of revenue generated above $10,000,000.

 

As further inducement for the "Partners" to generate profitable revenues utilizing their Calling Services, the Company, through Centerline and its subsidiaries, shall provide accounts receivable financing for customers and advance payments for vendors while "Partner" retains 100% of its profit margin. The "Partner" shall provide credit terms to qualified customers of the "Partner" and the determination of qualified customers shall remain within the sole discretion of Centerline. Centerline or its subsidiaries shall provide necessary prepayments to its vendors where required. Prepayment shall preferably take the form of a letter of credit, or through an established escrow account and/or cash prepayment. The determination of the nature and amount of vendor prepayment shall remain within the sole discretion of Centerline. The "Partner" agrees to repay Centerline for all funds advanced by it for the benefit of "Partner's" Calling Services customers and/or vendors within the agreed terms.

 

Centerline shall acquire equipment necessary to facilitate Calling Services from "Partner's" customer or to "Partner's" vendors. Equipment purchase shall be subject to approval of Centerline's management. Centerline will continue to expand the network to grow its family of vendors during the term of the agreement and make all Centerline vendors' excess capacity available to "Partner." "Partner" will be granted the use of Centerline's TDM and/or VoIP switching facilities. Network use is included in the .00025 per minute fee. "Partners" agree to sell network directly to Centerline at their best wholesale price where vendors are not financed/secured by "Partner" pursuant to the agreement. In addition, Centerline will retain the right to purchase excess termination provided by "Partners" at "Partner's" cost and Centerline will share with "Partner" margin generated by Centerline sales utilizing "Partner's" vendors on a 50/50 basis.

 

Profit margin on all traffic terminated through "Partner's" network from "Partner's" customers, less an operating fee of .00025 per minute, shall be paid to "Partner" on a monthly basis following receipt of payment from "Partner's" customers. In the event "Partner" customer purchases network from Centerline, the parties agree that Centerline will share with "Partner" the margin, on a 50/50 basis.

 

The wholly-owned subsidiaries of Centerline that are subject to the "Partner" Incentive and Financing Agreements as of the date of this filing are EQ8, LLC, G Link Solutions, LLC, Volta Communications, LLC, and Lonestar Communications, LLC. During 2004, only Volta Communications, LLC and Lonestar Communications, LLC had operations, which are consolidated in the operations of Centerline above. In conjunction with each "Partner Incentive and Financing Agreement, Management Agreements" were executed, wherein the "Partners" will provide general management for the respective subsidiaries of Centerline in connection with the development, marketing and implementation of the business operations of Centerline's respective subsidiaries.

 

The parties agreed any equity compensation "Partners'" are entitled to, if any, shall be paid from the Company's shares issueable to CSI as described above, and, furthermore, the cash bonuses, if any, shall also be the obligation of CSI. However, whereas the anticipated profit margin was not achieved, and the management fees not paid, the Company believes that no additional compensation is payable to the "Partners" by CSI or the Company. Furthermore the revenue generated by the partners was not profitable, as required by the agreements. Accordingly, no additional amounts were recorded as owing to the "Partners" by the Company as of December 31, 2004.

 

During a period of this contract, Mr. Joseph Monterosso was a principal of CSI and was an officer of GlobeTel Communications.

 

NOTE 9. MISCELLANEOUS RECEIVABLE

 

In September 1999, the Company was awarded a judgment against Imaging Systems Synergies, Inc. (“ISS”) in the amount of $125,000. However, the Company is uncertain if it will be successful in recovering any damages against ISS. There has been an allowance for uncollectibility for the entire $125,000. During 2003, the Company determined that this amount is unrecoverable and therefore wrote-off the balance.

 

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NOTE 10 - LOANS AND ACCOUNTS PAYABLE TO RELATED PARTY - CHARTERHOUSE

 

 

NOTE 11. ACCRUED EXPENSES AND OTHER LIABILITIES

 

Accrued expenses and other liabilities consisted of the following:

		2004			2003
Professional fees		$	90,000		$	35,000
Interest			--			22,423
Other			3,436			--
		$	93,436		$	57,423

 

NOTE 12. CAPITAL LEASE OBLIGATIONS

 

Capital lease obligations as of December 31, 2003, consisted of an amount payable for telecommunications equipment, which was abandoned prior to 2003, and the liability was subsequently written off in 2004. See Note 18 below regarding disposition of this obligation.

 

		2004			2003
Total capital lease obligations,
as described above		$	7,564		$	53,311
Current obligations under
capital leases			( 2,846	)		(53,311	)
Long-term obligations under
capital leases		$	4,718		$	--

 

2005		$	3,348
2006			3,348
2007			1,674
Amount representing interest			(3,652	)
Present value of future minimum lease payments		$	4,718

 

Interest expense recorded on all capital lease obligations of the Company amounted to $2,561 and $15,924 for the years ended December 31, 2004 and 2003, respectively.

 

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NOTE 13 - OPERATING EQUIPMENT LEASE OBLIGATIONS

 

Telecommunications equipment lease

 

In July 2004, the Company entered into a lease agreement for telecommunications collocation equipment, under which they made a down payment and other fees totaling $37,635 and must pay $3,778 for 24 months. Since the transaction does not qualify as a capital lease, the company charges the monthly payments to cost of sales and amortizes the prepayment to cost of sales over the period of the lease.

 

NOTE 14. ACCRUED OFFICERS' SALARIES AND BONUSES

 

Effective January 1, 2002, GlobeTel entered into three-year employment agreements with its key management. For the year 2002, the agreements provide for annual compensation of $150,000 for its Chief Executive Officer (“CEO”), $125,000 each for its Chief Financial Officer (“CFO”) and Chief Operating Officer (“COO”) and $75,000 each for its Chief Administrative Officer (“CAO”) and VP of Network Operations. Further, there remained an employment contract with its President, as described below, which calls for annual salaries of $100,000 per annum. In addition to the base compensation, the employment agreements provide for payment of bonuses that at a minimum equal the executives' base compensation. As of December 31, 2002, the executives all agreed not to receive bonuses to which they were entitled pursuant to the employment agreement.

 

In 2003, the base compensation increased to $175,000 for its CEO, $150,000 each for its CFO and COO, $90,000 each for its CAO and VP of Network Operations. In 2004, the base compensation increases to $200,000 for its CEO, $175,000 each for its CFO and COO, $120,000 for its CAO and $110,000 for its VP of Network Operations. Bonuses for each year will also be equal to the base salaries as a minimum, unless otherwise agreed to by the executives.

 

From October 1, 1996, through December 31, 2003, the Company had an employment agreement with its President wherein the Company agreed to pay compensation of $100,000 annually. In September 2003, the Company's president resigned effective December 31, 2003, but remained as a member of the board of directors of the Company throughout 2004.

 

In September 2003, the officers agreed to forego their accrued salaries in exchange for stock options at $.015 per share or 50% of the market price as of the exercise date. The officers subsequently exercised their stock options in January 2004.

 

As of December 31, 2003, the Company recorded accrued officers' salaries totaling $245,000. The officers again agreed to forego their accrued salaries in exchange for stock options at $.015 per share or 50% of the market price as of the exercise date. The officers subsequently exercised their stock options in January 2004.

 

As of December 31, 2004, the Company recorded accrued officers' salaries totaling $198,333, which were subsequently paid in January 2005.

 

NOTE 15. NOTES AND LOANS PAYABLE

 

Loan Payable to Related Party - Charterhouse

 

In October 2002, the holders of two promissory notes agreed that in lieu of payment of principal and interest under the loans, each to accept six (6) million shares of common stock of GlobeTel as payment, which were paid to the note holders directly by the Company's primary customer during 2002, who was also a consultant (“Charterhouse”). Accordingly, the Company recorded the $300,000, plus interest of $11,960, as a loan payable to Charterhouse. In January 2003 Charterhouse loaned an additional $50,000, for total loans payable of $361,960. As of December 31, 2004, these amounts, as well as $135,000 payable for consultancy services rendered in 2002, were settled for Series B preferred stock. See Note 9 above and Note 23 below.

 

Convertible Subordinated Notes

 

On August 21, 2002, the Company executed a $125,000 convertible subordinated promissory note payable to an unrelated third party, due August 21, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 7.5 million shares of the Company's common stock, which were issued by the Company and held in escrow under the agreement. The Company recorded the issuance of these shares at par value. The note is convertible into shares of the Company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note in effect on any conversion date shall be the lesser of $.25 or 75% of the per share market value price as of the close of business on the conversion date. Any conversion pursuant to this agreement shall be for a minimum principal of $10,000 and until the first day of the month preceding the maturity date of this note, the holder may not, during any 30-day period, convert more than the greater of $100,000 of the principal amount of this note, or 10% of the preceding month's trading value of the common stock as reported by the principal market in which the common stock is traded.

 

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In July 2003, the holder exercised his right to convert the debt into shares of the Company's common stock in accordance with the terms of the note. The conversion rate was determined to be $.04 and accordingly, the holder retained 3,055,556 shares and returned 4,444,444 to the Company.

 

On August 27, 2002, the Company executed a $125,000 convertible subordinated promissory note payable to an unrelated third party, due August 27, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 7.5 million shares of the Company's common stock, which were issued by the Company and held in escrow under the agreement. The Company recorded the issuance of these shares at par value. The note is convertible into shares of the company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note in effect on any conversion date shall be the lesser of $.25 or 75% of the per share market value price as of the close of business on the conversion date. Any conversion pursuant to this agreement shall be for a minimum principal of $10,000 and until the first day of the month preceding the maturity date of this note, the holder may not, during any 30-day period, convert more than the greater of $100,000 of the principal amount of this note, or 10% of the preceding month's trading value of the common stock as reported by the principal market in which the common stock is traded.

 

In December 2003, the holder exercised his right to convert the debt into shares of the Company's common stock in accordance with the terms of the note. The conversion rate was determined to be $.035 and accordingly, the holder retained 3,500,000 shares and returned 4,000,000 to the Company.

 

On October 22, 2002, the Company executed a $125,000 convertible subordinated promissory note payable to an unrelated third party, due October 22, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 15 million shares of the Company's common stock, which were issued by the Company and held in escrow under the agreement. The Company recorded the issuance of these shares at par value. The note is convertible into shares of the Company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note in effect on any conversion date shall be the lesser of $.20 or 75% of the per share market value price as of the close of business on the conversion date. Any conversion pursuant to this agreement shall be for a minimum principal of $10,000 and until the first day of the month preceding the maturity date of this note, the holder may not, during any 30-day period, convert more than the greater of $100,000 of the principal amount of this note, or 10% of the preceding month's trading value of the common stock as reported by the principal market in which the common stock is traded.

 

On November 18, 2002, the Company executed a $125,000 convertible subordinated promissory note payable to an unrelated third party, due November 18, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 15 million shares of the Company's common stock, which were issued by the Company and held in escrow under the agreement. The Company recorded the issuance of these shares at par value. The note is convertible into shares of the Company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note in effect on any conversion date shall be the lesser of $.20 or 75% of the per share market value price as of the close of business on the conversion date. Any conversion pursuant to this agreement shall be for a minimum principal of $10,000 and until the first day of the month preceding the maturity date of this note, the holder may not, during any 30-day period, convert more than the greater of $100,000 of the principal amount of this note, or 10% of the preceding month's trading value of the common stock as reported by the principal market in which the common stock is traded.

 

The October 22 and November 18 notes were from the same investor, and in July 2003, the holder exercised the right to convert the debt into shares of the Company's common stock in accordance with the terms of the note. The conversion rate was determined to be $.024 and accordingly, the holder retained 10,416,666 shares and returned 19,583,334 to the Company.

 

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On November 25, 2002, the Company executed a $125,000 convertible subordinated promissory note payable to an unrelated third party, due November 25, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 15 million shares of the Company's common stock, which were issued by the Company and held in escrow under the agreement. The Company recorded the issuance of these shares at par value. The note is convertible into shares of the Company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note in effect on any conversion date shall be the lesser of $.20 or 75% of the per share market value price as of the close of business on the conversion date. Any conversion pursuant to this agreement shall be for a minimum principal of $10,000 and until the first day of the month preceding the maturity date of this note, the holder may not, during any 30-day period, convert more than the greater of $100,000 of the principal amount of this note, or 10% of the preceding month's trading value of the common stock as reported by the principal market in which the common stock is traded.

 

Also on November 25, 2002, the Company executed a second $125,000 convertible subordinated promissory note payable to an unrelated third party, due November 25, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 15 million shares of the company's common stock, which were issued by the Company and held in escrow under the agreement. The company recorded the issuance of these shares at par value. The note is convertible into shares of the company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note in effect on any conversion date shall be the lesser of $.20 or 75% of the per share market value price as of the close of business on the conversion date. Any conversion pursuant to this agreement shall be for a minimum principal of $10,000 and until the first day of the month preceding the maturity date of this note, the holder may not, during any 30-day period, convert more than the greater of $100,000 of the principal amount of this note, or 10% of the preceding month's trading value of the common stock as reported by the principal market in which the common stock is traded.

 

Both notes dated November 25, 2002 were from the same investor, and in July 2003, the holder exercised the right to convert the debt into shares of the Company's common stock in accordance with the terms of the note. The conversion rate was determined to be $.022 and accordingly, the holder retained 11,111,112 shares and returned 18,888,888 to the Company.

 

On November 5, 2002, the Company executed a second $125,000 convertible subordinated promissory note payable to an unrelated third party, due November 5, 2003, with interest payable monthly at a rate of 12% per annum. The note is collateralized with 15 million shares of the Company's common stock, which were issued by the Company and held in escrow under the agreement. The Company recorded the issuance of these shares at par value. The note is convertible into shares of the Company's common stock at the option of the holder in whole or in part, in accordance with the terms of the note. The conversion price for this note is of $.025 per share. The note holder also received a common stock purchase warrant giving them the right to purchase 5 million shares of the Company's common stock at the price of $.03 per share. Subsequent to the execution of this note, additional amounts of $85,528 were received from the note holder, bringing the total balance to $210,528.

 

In May 2003, the holder and the Company agreed that the balance of $210,528 be converted into shares of the Company's common stock and as a result the collateralized shares were then issued to the holder. In addition, it was agreed upon that the holder's 15 million shares are non-dilutable for 18 months from April 1, 2003. Further, the holder of the note is comprised of three (3) owners, one of whom is Timothy M. Huff who owns 40% of the entity. Timothy Huff is the CEO of the Company.

 

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Unsecured Loans and Notes Payable

 

In February 2003, the Company executed two unsecured promissory notes payable, each for $100,000 (to fund operations and pay operating expenses), to an unrelated third party, which is also a secured promissory note holder. Each note was originally due in May 2003, and included interest payable monthly at a rate of 25% per annum. The Company and the note holder subsequently agreed to extend due dates of the loans on a month-to-month basis under the same interest rate. In February 2004, the Company paid both notes.

 

In February 2003, the Company executed a $40,000 promissory note payable to another party, due on demand with interest payable at 2.5% per annum.

 

In June 2003, the Company executed a $200,000 promissory note payable to Commercebank, N.A., due in June 2004, with interest payable at a rate of one percent over the prime rate, currently 4%. In August 2004, the Company repaid its $200,000 loan with Commercebank, N.A. in full.

 

Letter of Credit and Bank Loan Payable

 

As of December 31, 2002, the Company had a $500,000 letter of credit with Commercebank, N.A., guaranteed by Florida Export Finance Corporation (“FEFC”) a $200,000 letter of credit was issued to the Mexican telecom provider that provides local connectivity. In March 2003, the Company issued another $100,000 to the same Mexican telecom provider. The remaining $200,000 was used by the Company as collateral for its $200,000 loan with Commercebank, N.A., the funds of which were used to purchase the telecom equipment used in the Brazil operations.

 

The letters of credit issued to the Mexican telecom provider have been cancelled by the provider and have been returned. The Company is in the process of negotiating with their bank to renew the letters of credit for use in future transactions

 

The Company presently does not have any existing letters of credit but has the option of reopening the letter of credit with Commercebank, N.A. should the needs for it arise.

 

NOTE 16. RELATED PARTY TRANSACTIONS

 

Related Party Payables

 

As of December 31, 2004 and 2003, related party payables were $117,500 and $57,500, respectively. The balances represent short-term, non-interest bearing loans by officers of the Company, due on demand.

 

Notes Payable - Stockholder

 

As of December 31, 2002, the Company was obligated under a convertible promissory note payable to a stockholder and former director for $55,000, principally representing advances to the Company. In fiscal 2003, the Company issued 4 million shares in complete settlement of the balance due.

 

NOTE 17 - AGREEMENTS

 

Consulting, Investment Advisory and Investment Banking Agreements

 

On August 15, 2002, the Company entered into an agreement with Charles Morgan Securities, Inc. ("Charles Morgan") to provide consulting services for a period of 12 months, including arranging for funding, assisting with corporate and business planning, advice regarding potential mergers and acquisitions, private placements of the Company's stock, and other related services.

 

The agreement provided that the Company pay Charles Morgan a monthly fee of $5,000 from August to January 2003, and $10,000 thereafter for the next six months. The Company also paid an engagement fee of $30,000 upon initial funding.

 

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In accordance with the agreement, the Company also paid Charles Morgan a total of 2.7 million shares of common stock of the Company for services provided in fiscal 2002 and 1.3 million shares in fiscal 2003, for a total of 4 million shares.

 

In addition to the shares described above, in August 2002, Charles Morgan received 12.5 million restricted shares (Rule 144) in connection with arranging for the convertible subordinated notes payable above. The Company valued the shares at $250,000, based on one-half of the closing bid price of the Company's shares on the date of issuance and charged this amount to consulting expense. Pursuant to the agreement, Charles Morgan received an additional 12.5 million restricted shares (Rule 144) for arranging additional financing of $500,000 during the quarter ending December 31, 2002.

 

During the third quarter 2002, Global VoIP, a principal customer and related party to the Company, paid Charles Morgan $35,000 for the initial monthly fee of $5,000 and the engagement fee of $30,000. This amount was offset against the remaining accounts receivable balance owed by Global VoIP to the Company.

 

In January 2003, Fordham Financial Management, Inc. (“Fordham Financial”), an investment banking firm, based in New York City, assumed all functions and responsibilities of Charles Morgan Securities to provide consulting services. Under the agreement, the Company was obliged to pay a monthly fee of $10,000. In June 2003, the firm and the Company agreed to suspend the monthly fee until both parties agree it should resume. The Company paid total fees of $40,000 during the six months ended June 30, 2003. Pursuant to agreement, the Company issued 4.9 million restricted shares of the Company's common stock as payment for services rendered. The Company charged $51,250 to expense during the three months ended September 30, 2003, based on an amount equal to one-half of the average bid and asked price of the Company's shares on the date of issuance. No further payments were made in the fourth quarter of 2003 as it relates to this investment banking agreement.

 

In October 2003, the Company entered into an agreement with Fordham Financial to raise $2,500,000 resulting in issuance of circular offering dated October 17, 2003 (“Preferred Stock, Series A”). Fordham Financial agreed to receive 10% commission for the raising of the investments. In addition to the commissions totaling $250,000, Fordham Financial also received 57,500 Preferred Stock, Series A as additional compensation. Fordham Financial had subscriptions of $1,092,140 as of December 31, 2003 and had raised the full $2,500,000 as of January 31, 2004.

 

On August 16, 2004, the Company entered into an investment advisory agreement with Charles Morgan Securities, Inc. (“CMS”) for term ending on December 31, 2005. CMS will render consulting services related to business development, corporate planning, investment and securities matters, including the Company's applying for trading on a higher listed exchange. As compensation for services, the Company will pay a one-time fee of 500 shares of Preferred Class C stock, convertible into 1% of the common shares of the Company after a one year holding period. Pursuant to the agreement, the compensation is not considered earned until when and if the advisor accomplishes the moving of the Company's stock from trading on the OTCBB to another trading board of higher standing by December 31, 2005.

 

Sanswire, LLC - Australian Project

 

On April 14, 2004, the Company entered into an agreement with Australian based individuals, Michael Terry, E. John Hardy and Robert Johnson to form a new company to be domiciled in Australia. The new company will have the following distribution: GlobeTel - 45%, Mr. Terry - 30%, Mr. Hardy - 12.5% and Mr. Johnson - 12.5%.

 

The purpose of the new corporation is to deploy the StratelliteTM technology and other GlobeTel international services in the Australian and New Zealand markets. Messrs. Terry, Hardy & Johnson will undertake initial capital raising to fund the launch of the StratelliteTM technology in Australia while GlobeTel will enter into a license agreement with the new company to provide its StratelliteTM technology and GlobeTel services under terms and conditions agreed upon.

 

No operations or activities were conducted during 2004 and through the date of this report.

 

Stored Value Card and Other Telecommunications Programs Agreements

 

In June 2004, the Company entered into an agreement with Bankcard Inc., a member of the RCBC Group, one of the largest private commercial bank and financial institutions in the Philippines to introduce a stored value card program for domestic and international use. Bankcard will be able to issue a Visa and MasterCard card program that will offer Overseas Filipino Workers and Filipinos in foreign countries, convenient, risk free and low cost international funds transfer and discounted long distance calling services. This agreement was facilitated by Four Star Consulting, a Manila, Philippine-based consulting group who was paid a fee of $10,000.

 

51

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Several other agreements, letters of intent, and memorandums of understanding regarding stored value cards and other telecommunications programs, as well as the for the Sanswire project, were entered into during 2004 and through the date of this report, none of which required the recording of any assets, liabilities, revenues or expenses.

 

NOTE 18. COMMITMENTS AND CONTINGENCIES

 

Mexico Associate and Customer Litigation

 

The Company has a legal action against our associate and customer in Mexico for non-payment of the amount they owe the Company. This customer has substantial assets, including telecommunications equipment, existing working networks and Mexican tax refunds which they have proposed to turn over to the Company. The Company filed a motion in the Mexican courts which was necessary to formally request that the Company become the assigned payee of the tax refund receivable and formally secure the equipment and to take over the operations of the existing networks.

 

In February 2005, the customer agreed that proceeds from the network operations were to be paid totally to GlobeTel, including the customer's portion of the profit sharing, until the amount owed has been fully paid. Upon full payment, the Company will begin the sharing profits again in accordance with the contract.

 

The Company received a judgment on February 14, 2005 in the amount of $330,000. It is not certain of the amounts that, ultimately, will be realized from the Mexico associate.

 

This situation with our customer has caused us to record an allowance for bad debt expense for the fiscal year ending 2004 in the amount of $938,782 and record an allowance for bad debt expense for the fiscal year ending 2005 in the amount of $625,855 and an allowance for bad debt expense for the fiscal year ending 2005 for a Mexican Tax Refund in the amount of $382,160.

 

Former Consultants Litigation

 

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. GlobeTel was entered into the action, as ADGI was the predecessor of the Company. The suit also requests an accounting for the sales generated by the consultants and attorneys fees and costs for the action.

 

The lawsuits relate to consulting services that were provided by Mr. Milo and Mr. Quattrocchi and a $50,000 loan advanced by these individuals, dated May 14, 1997, of which $35,000 had been repaid.

 

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, which has since been paid. 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.

 

However, an outcome cannot be projected with any certainty. The Company has not entered into any settlement negotiations with Mr. Milo and Mr. Quattrocchi and does not believe that we will be materially adversely affected by the outcome of this proceeding.

 

Presently, the Company is continuing its defense and counterclaims in this matter. A jury was selected on March 3, 2006 in anticipation for a trial; however, the parties entered into an agreement to proceed before a Judicial Hearing Officer for a non-jury trial. This case was assigned to a Judicial Hearing Officer and one week of trial has taken place. The trial has adjourned and no new date for the continuation of the trial has been set.

 

52

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Patent Infringement Litigation

 

A case was filed against the Company for patent infringement. On or about September 1, 2004, Alexsam, Inc. (“Alexsam”) filed an action for patent infringement against us alleging the stored value card and service the Company is planning to offer infringes one or more of U.S. Patent No. 6,000,608 (“the 608 patent”) and U.S. Patent No. 6,189,787 (“the 787 patent”), allegedly owned by Alexsam. The actions were filed in the United States District Court, Eastern District of Texas, styled Alexsam, Inc. vs. Datastream Card Svc., et al. Case Number 2:03-cv-337. On January 14, 2005, the court dismissed the lawsuit against the Company.

 

On February 8, 2005, we filed suit against Alexsam and Robert Dorf (collectively the “defendants”) in the United States District Court for the Southern District of Florida, Civil Action No. 05-60201, seeking a declaratory judgment from the court that the 608 and 787 patents are invalid, not enforceable and will not be infringed by our stored value card offering. We are also seeking recovery for damages brought on us by Alexsam, the owners of Alexsam and Dorf, for breach of confidential disclosure and trust, intentional interference with business advantage, and for unfair competition under Sec. 501.204 of the Florida Statutes.

 

We and Alexsam have subsequently settled our dispute. In exchange for granting a non-exclusive license to GlobeTel for the Patents, GlobeTel withdrew its motion for attorneys' fees in the Texas Lawsuit and dismissed the Florida Lawsuit. The License Agreement was made and entered into in September 2005. The license taken by us extends further to our customers, bank partners, third party financial processors and cardholders, and all those in privity with any of them, but only to the extent those entities' activities relate to us and its license.

 

Service Provider Agreement - Brazil Network

 

On March 23, 2002, GlobeTel signed a memorandum of understanding with a company called Trans Global Ventures, Inc. (“TGV”), a company based in Miami, to form a joint venture to be registered as a limited liability company ("LLC”) in the State of Florida to build out a VoIP network in Brazil offering call origination including but not limited to prepaid calling and 800 number calling as well as access to GlobeTel's Enhanced Services Platform technology.

 

TGV has been operating in Brazil and had networks with a capacity of 3 million minutes per month in Rio de Janeiro, Sao Paulo and Belo Horizonte. Initially, the venture was to be based on a 50/50 ownership between the two companies. Subsequently, the memorandum of understanding was modified to give GlobeTel 80% ownership, a percentage determined based on the investments to be made by the Company in the venture. Ultimately, however, both companies determined that TGV acting as a service provider would best serve the needs of each company, and therefore both companies agreed to terminate the memorandum of understanding and accordingly, the LLC was never formed.

 

Under the service provider agreement, for service provided, TGV shall be entitled to receive 20% of the project income, defined as: the revenues from the Brazil network, less direct costs of sales for operating this network, less other costs allocated to this project (based on multiplying total operating expenses by the percentage of Brazil network sales to total Company revenues for the year).

 

The Brazilian network operated at a ramp-up rate during the first six months of 2002, and upon delivery of equipment during this period, the network began operating at capacity of approximately 4 million minutes per month starting in July 2002. The network continued to operate at or near capacity throughout the year and still continues to operate as of the date of this filing.

 

The Company recognized revenues of $2,147,119 and $2,923,981 for December 31, 2004 and 2003, respectively. The cost of sales, substantially all of which was paid directly to third-party suppliers, was $1,996,635 in 2004 and of $1,993,737 in 2003.

 

In June 2005, the Company and TGV discontinued the network operations and do not intend to recommence such operations in the near term.

 

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Service Provider Agreement - Mexico Network

 

On June 26, 2002, GlobeTel signed a memorandum of understanding with Qualnet Telecom, LLC for a joint venture to be known as GlobeTel Qualnet LLC, to be registered as an LLC in the State of Florida. The purpose of the venture was to build out a VoIP network in Mexico for call termination throughout the country that will have initial capacity to transport 8 million minutes per month. Qualnet had been operating in Mexico for several years and had contracts with various Mexican telecom companies. GlobeTel's role in the agreement was to provide financing and equipment to build the network. The agreement was for GlobeTel to have 80% ownership of the venture and Qualnet 20%, and accordingly GlobeTel committed 80% of the funding of the venture in the form of working capital, equipment and guarantees for the issuance of letters of credit as required by the Mexican telecom companies. Since Qualnet already had points of presence in several cities in Mexico had an established customer base, installation of the equipment and ramping up of the traffic required substantially less time than if the network was to be built from the ground up. As a result, the venture was able to operate within several weeks and was able to fill the network near capacity.

 

The network continued to operate at capacity throughout the year and it was subsequently determined that each party would be better served by continuing to do business with Qualnet as a service provider. Both parties agreed not to proceed with the joint venture, and accordingly, the LLC was never formed and the parties signed an agreement not to pursue the joint venture agreement as contemplate in the memorandum of agreement dated June 26 2002. Under the service provider agreement, for services provided, Qualnet shall be entitled to receive 20% of the project income, defined as: the revenues from the Mexico network, less direct costs of sales for operating this network, less other costs allocated to this project (based on multiplying total operating expenses by the percentage of Mexico network sales to total Company revenues for the year).

 

The Company recognized revenues of $4,774,657 and $8,052,143, respectively, for the years ended December 31, 2004 and 2003. The cost of sales substantially all of which was paid directly to third-party suppliers were $4,556,912 in 2004 and $6,159,401 in 2003. There were no activities in connection with the Mexico network in 2005 and through the date of this report.

 

Joint Venture Agreement - TrueSpeed Wireless

 

On September 19, 2002, the Company entered into a joint venture agreement with TrueSpeed Wireless, Inc., a Nevada corporation based in Aliso Viejo, California. The venture is incorporated in Nevada as TrueSpeed Wireless International, Inc. and the structure of the joint venture is based on 50% ownership by GlobeTel and 50% ownership by TrueSpeed Wireless, Inc. The purpose of the joint venture shall be for the deployment of the wireless technology services currently being deployed by TrueSpeed Wireless, Inc. and to market and distribute high-speed wireless data communications.

 

The venture had not been able to secure contracts in targeted countries and as of December 2003, both companies agreed to dissolve the joint venture. No revenues or expenses were ever generated from the joint venture, nor were there any asset, liability, or equity transactions requiring recording in the financial statements during the existence of the joint venture.

 

Joint Venture Agreement - Englewood Corporation

 

On May 3, 2004, the Company entered into a Joint Venture Agreement and Stock Option Plan with Englewood Corporation and respectively with Joseph Seroussi an individual (“Agreement”). This Agreement replaces in its entirety a Memorandum of Understanding signed among the parties on October 21, 2002. Under the Agreement Englewood gives to the Company all of its current and new products and services in the telephony, financial and non financial services fields all market contacts and relationships and existing and future telecommunications, non financial and financial contracts and to develop the processing capabilities for transactions on networks in conjunction with ATM, debit and credit cards including but not limited to the financial networks of MasterCard, MasterCard International, VISA and private banking ATM networks along with the ability to market such products and services through strategic partners in various countries around the world. Subject to the terms and conditions of the Agreement the Company will earn 100% of all revenues and profits. During the three-year term of this Agreement Englewood at its sole discretion may elect to have a third party independent appraiser, mutually agreed to by both parties, determine the fair market value of the Joint Venture. The Englewood portion of the value of the Joint Venture will be equal to 20% of the fair market value of the Joint Venture.

 

54

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At Englewood's sole discretion Englewood may elect in whole or in part to exchange in whole or a portion of its interest in the Joint Venture for cashless options granted by the Company. The options granted by the company shall be at .02 cents per share of the Company's common stock, as established on the date that the original Memorandum of Understanding was signed in October of 2002. Once exercised, the options shall be distributed to Englewood over a three-year period in 12 equal parts. Englewood will have piggy back registration rights for a period of two years following the grant of each block of options.

 

Additionally, at the time of the Agreement, Seroussi would continue to serve as a consultant to the Company for a minimum period of three years. Subsequently Seroussi and the Company have entered in an Agreement whereby Seroussi has given up his consulting contract and on October 1, 2004, joined the Company as its Chief Technical Officer. All of the terms and conditions of the Agreement with Englewood remain the same.

 

Through the date of this report their were no transactions requiring recording in the financial statements related to this joint venture, other than 3 million restricted shares of the Company's common stock issued for consulting services, valued at $135,000, based on one-half of the closing price of the stock on date of issuance. See Note 22.

 

Use of Proceeds from Preferred Stock Subscriptions Receivable

 

During 2005, the Company anticipates receiving Series B Preferred Stock subscriptions of $11.75 million, of which approximately $10 million is committed to capital expenditures for equipment for our stored value program.

 

Leases and Rents

 

The Company leases office facilities at 9050 Pines Blvd., Suite 110, Pembroke Pines, Florida 33024, as of April 1, 2004. This lease will expire in June 2009, and has an initial monthly rent of $5,462 with increases of 4% per year.

 

In November 2004, the Company leased additional adjacent space at the Pembroke Pines, Florida location under the same terms and period as the existing lease, bring the total monthly rent to $9,186.

 

In June 2005, we negotiated with the landlord to lease an additional 5,000 square feet office on the second floor of our present facility, 9050 Pines Blvd., Pembroke Pines, Florida 33024. The Company will begin occupancy of this office in April 2006 and the lease expires in June 2009 with a monthly rent of $9,186 (including sales tax). GlobeTel vacated the premises in March 2006, having turned over the space to Gotham Financial as part of the sale of the Magic Money division to Gotham.

 

GlobeTel’s corporate offices are not located at 101 NE 3^rd Ave., Suite 1500, Fort Lauderdale, FL 33301. Base rent is $13,000 per month plus the cost of services used by GlobeTel. The lease is for a period of 6 months.

 

GlobeTel formerly leased facilities at 444 Brickell Avenue, Suite 522, Miami, Florida 33131. The Company was under a five-year lease expiring April 2005, with a monthly rent of $3,463. In January of 2005 the Company satisfied its lease obligation related to this office.

 

In January 2005, GlobeTel signed a lease agreement with the San Bernardino International Airport Authority for hangar space at the airport in San Bernardino, California for the purpose of assembling and storing the Stratellite prototype. The term of the agreement is from January 15, 2005 through March 31, 2005, at a monthly lease rate of $9,767. Three months prepaid rent totaling $29,302 was paid in December 2004. The agreement provides that with the consent of the lessor we may remain on a month-to-month basis, and we do intend to remain in the space for the near term.

 

Sanswire Technologies, Inc., the company from which we purchased Sanswire, LLC, had an office space lease in Dekalb County, Georgia. The lease term was from April 1, 2004 through March 31, 2005, with monthly rent of $2,628. Although not directly obligated on this lease, the Company paid the monthly rent from May 2004 through March 2005, whereas employees of our subsidiary, Sanswire, LLC, utilized the premises. The employees have since vacated the premises.

 

Effective November 2001, the Company signed a sub-lease agreement for the Jersey City facility with a customer/consultant of the Company. Pursuant to the sublease agreement, the customer/consultant has maintained the obligation of the monthly rent of $1,600, and at January 31, 2003, the lease expired and the Company has no further obligation to the lessee.

 

55

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2005		$	154,472
2006		$	115,771
2007		$	120,401
2008		$	125,217
2009 and thereafter		$	88,617
		$	604,478

 

Rent expense for 2004 and 2003 was $126,624 and $48,607, respectively.

 

NOTE 19 - NET GAINS ON SETTLEMENT OF LIABILITIES AND DISCONTINUED OPERATIONS

 

During the year ended December 31, 2004 and 2003 the Company recorded net gains on settlement of debts totaling $268,397and $26,274, respectively, as discussed below.

 

Equipment Vendor

 

At December 2003, the Company settled with one its vendors to pay a lesser amount for the purchase of equipment that ultimately did not function as purported. Likewise, the Company wrote off other long-term outstanding liabilities for purchase of equipment that also did not function properly. The settlement and write-off resulted in a gain of $26,274 in 2003.

 

Accounts Payable

 

The Company had included in accounts payable certain disputed amounts payable to creditors totaling $14,823. The Company does not believe it has obligations to pay the recorded balances, and the vendors have not sought collection from the Company for over one year, and, accordingly, recognized a gain in 2004.

 

Professional Services Provider and Note Holder

 

In addition, the Company has recorded accounts payables to a former provider of professional services totaling $333,060 and a note payable of $50,000 to an individual, a principal of the professional services firm. The Company entered into an arrangement with the parties, which states that upon payment of a total of $200,000, all of which was paid prior to December 31, 2004, the remaining balance of the above obligations referred to above will be considered fully satisfied without the necessity of further payments. The balance of $183,060 was written off and a gain recorded in 2004 whereas the amounts due under the settlement are paid in full and all conditions fulfilled.

 

Capital Lease Obligations

 

As of December 31, 2003, the Company had a balance due of $53,311 of principal on capital lease obligation and $15,924 in accrued interest. The equipment securing the obligation was abandoned prior to the 2003, after the lessee's refusal to accept return of the equipment in settlement of the obligation. The Company does not believe it has an obligation to repay the recorded balance, and neither the original lessee nor assigns have sought collection from the Company for over one year, and, accordingly the Company has recorded a gain of $69,235 in 2004.

 

Former Employees of Discontinued Operating Division

 

In June 2003, the Company ceased operations of its St. Louis, Missouri office. As part of the termination agreement with the employees of the St. Louis office, the employees were authorized to maintain and service the existing clients and keep the property and equipment of that office. The Company agreed to return the customer deposits made by the St. Louis clients. The Company recorded a gain of $55,842 in 2003 in connection with these transactions, based on the excess of the liabilities extinguished over the assets given up by the Company.

 

Three terminated employees were issued a total of 1.2 million free-trading shares of the Company's stock as severance pay. The Company charged $36,000 to expense in 2003 based on an amount equal to the average bid and asked price of the Company's shares on the date of issuance. The Company had a recorded balance due of $16,279 to terminated employees. However, during the three months ended September 30, 2004, the Company determined, and the former employees agreed, that any and all amounts due to or payable on behalf of the employees had been satisfied and no additional amounts were owed.

 

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Former Consultants

 

Certain former consultants of the Company were granted a judgment in the sum of $15,000, as described in Note 17 above. All disputed amounts allegedly payable to the consultants were written off and a gain was reported in prior periods. A loss on settlement of liabilities was recorded during 2004, for the $15,000 subsequently determined payable.

 

NOTE 20 - LOSS ON PROPERTY AND EQUIPMENT DISPOSITIONS

 

As of December 31, 2004, the Company evaluated its property and equipment, including telecommunications equipment, located both within and outside of the United States, and office furniture and equipment ascribed to our various domestic office locations maintained from 2000 through December 31, 2004. Certain assets were abandoned, based on management's determination that such assets have no economic value, due to such factors as technological obsolescence, non-functioning of assets, lack of salvage in excess of costs to dispose, and non-recoverability of assets located in geographical markets and areas in which we are no longer active. During 2004 we recorded a loss on disposition of property and equipment of $56,804.

 

 

NOTE 21. INCOME TAXES (restated)

 

Deferred income taxes and benefits for 2004 and 2003 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 carryforwards that give rise to significant portions of deferred tax assets and liabilities consist of the following:

					Current
					Period
		2003			Changes			2004
Deferred tax assets:
Accrued officers' compensation		$	137,005		$	(107,255	)	$	29,750
Allowance for doubtful accounts			56,818			169,042			225,860
Consulting services elected
as start-up costs under
IRC Sec. 195 (b)			851,257			(425,628	)		425,629
Reincorporation expenses amortized
under IRC Sec. 248			25,975			--			25,975
Accumulated depreciation			(376,829	)		136,806			(240,023	)
Net operating loss carryforwards			2,410,423			2,068,129			4,478,552
			3,104,649			1,841,094			4,945,743
Valuation allowance			(3,104,649	)		(1,841,094	)		(4,945,743	)
Net deferred tax asset		$	--		$	--		$	--

 

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A reconciliation of income benefit provided at the federal statutory rate of 15% to income tax benefit is as follows:

		2003			2004
Income tax benefit computed at federal
statutory rate		$	(930,379	)	$	(1,975,030	)
Accrued officers' salaries			27,505			29,750
Allowance for doubtful accounts			(107,345	)		169,042
Depreciation			(7,179	)		(4,497	)
Losses not benefited			1,017,398			1,780,735
		$	--		$	--

 

 

 

 

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 2004, the Company had net operating loss carryforwards (of its successor due to accounting for the reincorporation as an "F" reorganization under the Internal Revenue Code) of approximately $27,079,011, which expire at various dates through 2021.

 

NOTE 22. COMMON STOCK TRANSACTIONS

 

During the year ended December 31, 2003, the Company issued the following shares of Common stock:

 

 

Date Issued

Shares

Consideration

Valuation

Relationship

March 14, 2003

2,200,000

Consulting services

$

22,000

Consultant

March 14, 2003

1,800,000

Investment banking

18,000

Consultant

May 7, 2003

1,100,000

Consulting services

11,550

Consultant

May 7, 2003

900,000

Investment banking

9,450

Consultant

May 22, 2003

2,500,000

Loan Collateral

--

Note Holder

May 22, 2003

2,500,000

Loan Collateral

--

Note Holder

May 22, 2003

15,000,000

Conversion of debt

239,206

Investor

May 29, 2003

4,000,000

Satisfaction of debt

55,000

Shareholder/Former director

July 18, 2003

200,000

Severance pay

6,000

Employee

July 18, 2003

500,000

Severance pay

15,000

Employee

July 18, 2003

500,000

Severance pay

15,000

Employee

July 18, 2003

450,000

Legal services

13,500

Legal counsel/former corporate secretary

July 18, 2003

800,000

Consulting services

24,000

Consultant/employee

July 18, 2003

12,844,000

Conversion of debt

256,880

Investor

August 5, 2003

20,080,321

Sale of stock

500,000

Investor/consultant

August 5, 2003

--

Marketing services

100,402

Investor/consultant

August 8, 2003

3,400,000

Consulting services

102,000

Consultant/employee

August 28, 2003

(42,916,666

)

Return of shares issued

--

Note Holders

for loan collateral

August 28, 2003

--

Conversion of debt

125,000

Investor

August 28, 2003

--

Conversion of debt

250,000

Investor/consultant

August 28, 2003

--

Conversion of debt

125,000

Investor

August 28, 2003

--

Conversion of debt

250,000

Investor

September 3, 2003

944,444

Consulting services

11,806

Consultant

September 3, 2003

900,000

Consulting services

11,250

Consultant

September 3, 2003

1,100,000

Consulting services

13,750

Consultant

September 3, 2003

3,847,222

Consulting services

49,090

Consultant

September 29, 2003

656,687

Consulting services

8,211

Consultant

October 9, 2003

4,281,333

Additional shares due

--

Investor

for Conversion of debt

October 9, 2003

3,650,000

Consulting services

73,000

Consultant/employee

October 9, 2003

2,000,000

Officer's salary

40,000

Chief Financial Officer

December 31, 2003

7,500,000

Officer's salary

112,500

Chief Executive Officer

December 31, 2003

1,166,667

Officer's salary

17,500

Chief Financial Officer

December 31, 2003

(4,000,000

)

Return of shares issued

--

Note Holder

for loan collateral

 

 

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Date Issued

Shares

Consideration

Valuation

Relationship

January 15, 2004

4,500,000

Exercised Stock Options

$

--

Chief Executive Officer/Director

January 15, 2004

5,166,666

Exercised Stock Options

--

Chief Financial Officer

January 15, 2004

2,000,000

Exercised Stock Options

--

Director/Former President

January 15, 2004

9,000,000

Exercised Stock Options

--

Chief Operating Officer/Director

January 15, 2004

1,000,000

Exercised Stock Options

--

President/Director/Former Consultant

January 15, 2004

2,666,667

Exercised Stock Options

--

Vendor

February 3, 2004

3,202,180

Exercised Stock Options

--

Chief Executive Officer/Director

February 3, 2004

1,243,847

Exercised Stock Options

--

Chief Financial Officer

February 3, 2004

2,003,106

Exercised Stock Options

--

Chief Operating Officer/Director

February 3, 2004

6,410,513

Exercised Stock Options

--

Employee

February 3, 2004

1,458,333

Exercised Stock Options

--

Accountant

February 4, 2004

20,796,483

Exercised Stock Options

--

Director/Former President

February 4, 2004

16,500,000

Investment in Unconsolidated Foreign Subsidiary

--

Investee

February 5, 2004

3,500,000

Investment in Unconsolidated Foreign Subsidiary

--

Creditor of Investee

February 17, 2004

9,100,000

Consulting Services

425,000

Director (COB)/Former Consultant

May 11, 2004

108,333

Marketing Services

6,500

Consultant

May 12, 2004

28,000,000

Sanswire Assets Acquisition

2,800,000

Shareholders of Selling Corporation

May 25, 2004

1,352,528

Investment Banking Fees

67,626

Investment Banker

May 25, 2004

676,264

Investment Banking Fees

33,813

Investment Banker

May 25, 2004

1,352,528

Investment Banking Fees

67,626

Investment Banker

July 29, 2004

1,500,000

Compensation

144,000

Employee

July 29, 2004

500,000

Compensation

48,000

Employee

July 29, 2004

500,000

Compensation

48,000

Employee

August 12, 2004

2,000,000

Consulting Services

192,000

President/Former Consultant (as Nominee)

August 12, 2004

2,000,000

Consulting Services

192,000

Chief Technology Officer/Former Consultant (as Nominee)

August 12, 2004

175,000

Compensation

7,000

Employee

Sept. 28, 2004

2,000,000

Stratodyne Assets Acquisition

--

Shareholder of Selling Corporation

November 4, 2004

7,800,000

Convert Pfd. Ser. A (received as broker fee).

--

Preferred Series-A Shareholder/ Investment Banker

November 4, 2004

5,200,000

Convert Pfd. Ser. A

--

Preferred Series-A Shareholders

November 17, 2004

26,000,000

Convert Pfd. Ser. A

--

Preferred Series-A Shareholder/ Investment Banker

November 17, 2004

20,800,000

Convert Pfd. Ser. A

--

Preferred Series-A Shareholders

November 17, 2004

10,920,000

Convert Pfd. Ser. A

157,500

Preferred Series-A Shareholders

November 18, 2004

1,560,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

November 19, 2004

9,360,000

Convert Pfd. Ser. A

135,000

Preferred Series-A Shareholders

November 23, 2004

7,800,000

Convert Pfd. Ser. A

112,500

Preferred Series-A Shareholders

November 24, 2004

1,560,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

November 30, 2004

9,360,000

Convert Pfd. Ser. A

135,000

Preferred Series-A Shareholders

December 1, 2004

31,200,000

Convert Pfd. Ser. A

450,000

Preferred Series-A Shareholders

December 3, 2004

1,560,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

December 8, 2004

6,240,000

Convert Pfd. Ser. A

90,000

Preferred Series-A Shareholders

December 10, 2004

12,480,000

Convert Pfd. Ser. A

180,000

Preferred Series-A Shareholders

December 28, 2004

6,240,000

Convert Pfd. Ser. A

90,000

Preferred Series-A Shareholders

December 30, 2004

1,560,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

December 31, 2004

(28,000,000)

Return of shares originally issued for Sanswire and Stratodyne Assets

(2,800,000)

Shareholders of Selling Corporation

December 31, 2004

26,000,000

Reissuance of shares for Sanswire Assets

2,600,000

Shareholders of Selling Corporation

December 31, 2004

2,000,000

Reissuance of shares for Stratodyne Assets

200,000

Shareholder of Selling Corporation

December 31, 2004

3,000,000

Consulting Services

135,000

Consultant

December 31, 2004

3,000,000

Consulting Services

135,000

Consultant

December 31, 2004

500,000

Consulting Services

22,500

Consultant

December 31, 2004

500,000

Consulting Services

22,500

Consultant

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In connection with the above, for certain issuances of shares, Forms S-8 have been filed with the Securities and Exchange Commission relative to such issuances of stock. The shares issued were valued by the Company based upon the average bid and asked price of the shares on the date of issuance. The value of these shares was charged to expense unless they were in consideration for future services, in which case they were recorded as deferred consulting fees.

 

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. Issuance of restricted shares (Rule 144) are 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.

 

 

NOTE 23. STOCK OPTIONS

 

During the year ended December 31, 2003, the Company issued the following options to acquire Common stock:

Date Issued

Shares

Consideration

Valuation

Relationship

September 26, 2003

2,206,667

Satisfaction of debt

33,100

Former President

September 26, 2003

17,600,000

Accrued salary

264,200

Former President

September 26, 2003

8,944,467

Accrued salary

134,167

Chief Executive Officer

September 26, 2003

7,444,467

Accrued salary

111,667

Chief Operating Officer

September 26, 2003

7,444,467

Accrued salary

111,667

Chief Financial Officer

September 26, 2003

4,111,133

Accrued salary

61,667

Controller

December 18, 2003

6,666,667

Officer salary

100,000

Former President

December 18, 2003

5,333,333

Officer salary

80,000

Chief Operating Officer

December 18, 2003

3,333,333

Salary

50,000

Former Controller

December 18, 2003

1,000,000

Officer salary

15,000

President

December 18, 2003

1,666,667

Accounting services

25,000

Accountants

December 18, 2003

2,666,667

Network services

40,000

Vendor

 

The above options were issued at $0.015 per share.

 

The above option shares were issued in "cashless exercises". Accordingly, the option shares actually issued were reduced by the number of shares required to pay for the options as $0 .015 per share.

 

All of the above stock options were subsequently exercised in January 2004.

 

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Issued

Shares

Consideration

Valuation

Relationship

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

Chief Executive Officer/Director

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

Director (COB)/Former Consultant

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

Chief Operating Officer/Director

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

Director/Former President

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

President/Director/Former Consultant

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

Director/Former President of Subsidiary

December 31, 2004

479,778

Accrued Board Member Stipends

18,750

Director

December 31, 2004

359,833

Accrued Board Member Stipends

14,065

Chief Financial Officer

December 31, 2004

4,444,444

Bonus

200,000

Chief Executive Officer/Director

December 31, 2004

3,888,889

Bonus

175,000

Chief Financial Officer

December 31, 2004

3,888,889

Bonus

175,000

Chief Operating Officer/Director

December 31, 2004

694,444

Bonus

31,250

Chief Technology Officer/Former Consultant

December 31, 2004

833,333

Bonus

37,500

Senior Vice-President

December 31, 2004

2,777,778

Bonus

125,000

President/Director/Former Consultant

December 31, 2004

1,444,444

Bonus

65,000

Employee

December 31, 2004

2,444,444

Bonus

110,000

Employee

December 31, 2004

670,556

Bonus

30,175

Employee

December 31, 2004

530,556

Bonus

23,875

Employee

December 31, 2004

500,000

Bonus

22,500

Employee

December 31, 2004

412,720

Bonus

18,572

Employee

December 31, 2004

523,144

Bonus

23,541

Employee

December 31, 2004

88,040

Bonus

3,962

Employee

December 31, 2004

281,250

Bonus

12,656

Employee

December 31, 2004

61,040

Bonus

2,747

Employee

December 31, 2004

68,000

Bonus

3,060

Employee

December 31, 2004

20,000

Bonus

900

Employee

December 31, 2004

550,922

Bonus

24,791

Employee of Subsidiary

December 31, 2004

83,333

Bonus

3,750

Former Employee of Subsidiary

December 31, 2004

374,078

Bonus

16,834

Employee of Subsidiary

December 31, 2004

574,533

Bonus

25,854

Employee of Subsidiary

December 31, 2004

397,456

Bonus

17,886

Former Employee of Subsidiary

December 31, 2004

277,778

Bonus

12,500

Employee of Subsidiary

December 31, 2004

133,333

Bonus

6,000

Employee of Subsidiary

December 31, 2004

116,667

Bonus

5,250

Employee of Subsidiary

December 31, 2004

185,189

Bonus

8,334

Employee of Subsidiary

December 31, 2004

222,222

Amount owed for services

10,000

Accountant

December 31, 2004

31,519,878

Officer Stock Option Grant

1,418,394

Chief Executive Officer / Director

December 31, 2004

21,013,252

Officer Stock Option Grant

945,596

Chief Operating Officer / Director

December 31, 2004

15,759,939

Officer Stock Option Grant

709,197

Chief Financial Officer

December 31, 2004

10,506,626

Officer Stock Option Grant

472,798

Director/Former President

December 31, 2004

10,506,626

Officer Stock Option Grant

472,798

President / Director / Former Consultant

December 31, 2004

10,506,626

Officer Stock Option Grant

472,798

Chief Technology Officer / Former Consultant

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2004 Stock Options Issued

 

In May 2004, the board of directors approved an Officers' Stock Option Grant Plan, pursuant to which certain officers are entitled to receive stock options, for each of three years, beginning in 2004 (Year 1). The annual number of option shares to be issued will be equal to amounts that, after the exercise of such options, would affect ownership of various percentages of the total shares then issued and outstanding. The following officers received options for restricted shares in the following percentages: CEO - 3% in each of the three years (total 9%); COO - 2% in each of the three years (total 6%), CFO - 1.5% in Year 1 and 1% in each of the following years (total 3.5%), Director and former President - 1.0% in Year 1 and .5% in each of the following years (total 2%), current President - 1% in each of the three years (total 3%), and CTO - 1% in each of the three years (total 3%). The recipient's rights to the options will vest after continued service at the completion of each year. The total number of option shares to be issued for 2004 is 99,812,946. The stock options are exercisable at $.045 per share, based on one-half of the average closing market price for the shares during the ten day period prior to the vesting date of December 31, 2004.

 

In December 2004, we established our 2004 Stock Option Bonus Plan, wherein the board of directors authorized the issuance of stock options for restricted shares totaling 26,487,483 shares to the officers and employees of the company as payment of accrued bonuses through December 31, 2004. The stock options are exercisable $.045 per share, based on one-half of the average closing market price for the shares during the ten-day period prior to the vesting date of December 31, 2004.

 

In December 2004, the board of directors authorized the issuance of stock options for restricted shares totaling 3,718,279 shares to the directors of the company as payment of accrued board members' stipends through December 31, 2004. The stock options are exercisable at $.0391 per share.

 

2004 Stock Options Exercised in 2005

 

During 2005, a total of 1,785,490 (26,782,350 post-split) of the above options shares were exercised and issued (net of shares used to pay for “cashless” options”), with payment in cash and common stock subscriptions receivable totaling $92,906, pursuant to the 2004 Stock Option Bonus Plan, the Officers' Stock Option Grant Plan, and for accrued board members' stipends, and, furthermore, these shares were registered by the Company's filing a Form S-8 registration statement. The number of shares registered were allocated to the individuals exercising the options based a ratio of the number of options held by each individual to the total number of options held by all individuals.

 

As of the date of this report an aggregate of 30,000,000 shares were exercised and issued pursuant to the 2004 Stock Option Bonus Plan, the Officers' Stock Option Grant Plan, and for accrued board members' stipends, and, furthermore, these shares were registered by the Company's filing a Form S-8 registration statement. The number of shares registered were allocated to the individuals exercising the options based a ratio of the number of options held by each individual to the total number of options held by all individuals.

 

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Options Pursuant to Convertible Promissory Notes

 

On December 16, 2002, the Company filed an SB-2 registration statement to register shares pursuant to the convertible promissory notes as described in Note 14. During 2003, the Company and its lenders decided to wait until the waiting period is over, thereby eliminating the need to file the SB-2 registration statement.

 

NOTE 24 - PREFERRED STOCK

 

Series A

 

In October 2003, the Company entered into an agreement with Fordham Financial Management Inc. to raise funds. In accordance with the agreement, the investors will receive preferred shares convertible into common stock upon investment. An Offering Circular was made available to investors on October 17, 2003.

 

The offering was for maximum of 150,000 shares ("Shares") of Series A Convertible Redeemable Preferred Stock, par value $.001 per share ("Series A Preferred"). The shares have a liquidation preference of $16.67 per share and each share is convertible into a number of shares of Common Stock determined by dividing the number of shares of Common Stock outstanding as of the date of conversion by three, and dividing the result of that calculation by 250,000. The Company may redeem the Shares at $.001 per share at any time after the second anniversary of the date of issuance. Such redemption would effectively require the investor to convert his shares at that time or lose the entire amount of his investment.

 

As part of the offering, the Company agreed to pay its investment banking consultant, Fordham Financial Management, Inc. a 10% commission, plus 100,000 Shares.

 

The Company had $1,200,000 subscribed as of December 31, 2003, and had received $717,140 ($1,200,000 less related expenses of $107,860 and $375,000 of subscriptions receivable). The full amount of $2,500,000 had been subscribed as of January 31, 2005, and the $2,250,000 ($2,500,000 total less 10% commission) had been received as of February 6, 2005.

 

During 2004, preferred shareholders converted a total 153,500 shares into 10,642,666 (159,640,000 pre-split) of the Company's common stock, based on conversation ratio of 1,040 common shares for each preferred share owned, in accordance with the formula described above. The Company had remaining 96,500 Series A Preferred Shares issued and outstanding, representing $697,500 subscribed, as of December 31, 2004. During 2005, the preferred shareholders converted a total all of the remaining 96,500 Series A Preferred shares into 8,911,651 (pre-split) shares of the Company's common stock.

 

Series B

 

On April 27, 2004, the Company agreed to sell 1,000 shares of Series B Preferred Stock of GlobeTel Communications Corp. (“GTEL”) to Caterham Financial Management, Ltd., a Malaysian company (“Caterham”), for a total investment of $15 million. The Company intends to use $5 million of this investment for working capital and $10 million to purchase two Stored Value Card Data switches.

 

The agreement was later modified so that the total number of shares is 35,000 for the same investment convertible into the same amount of common stock as agreed upon on April 27, 2004.

 

With respect to the $5 million in working capital, Caterham has agreed to advance $1 million to GTEL on May 7, July 1, September 1, November 1 and December 31 of 2004. The Agreement provides that Caterham has a 10 day grace period, in which to make any scheduled payments. With respect to the Master Card Data switches, Caterham has agreed to advance an aggregate of $5 million to GTEL to purchase a Stored Value Card Data Switch, which will be located in Miami, Florida and subsequently a second switch will be installed in the Company's Hong Kong operations.

 

The Certificate of Designation for the Series B Preferred Stock was filed with the State of Delaware on July 30, 2004.

 

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Except for voting rights and conversion rights, each share of Series B Preferred Stock shall have rights that are identical to shares of the Company's common stock. The Series B Preferred Stock issued to Caterham and its nominees will have voting rights equal to 50% plus one share of the Company's authorized shares of common stock for a period of three years beginning on the first closing date an ending three years thereafter, provided that Caterham and/or its nominee have not converted more than 15% of their Series B Preferred Stock into the Company's common stock during this time period. In March 2005 the Company and Caterham amended the agreement to revise voting rights to specify that provided at least 85% of the Series B Preferred Stock remains outstanding, the holders of the Series B Preferred Stock, voting as a group, will have voting rights equal to 50% plus one shares of the Company's authorized shares of common stock for a period up to and including April 30, 2005. Thereafter the holders shall have one vote for each share of common stock for which the Series B Preferred Stock may be converted, regardless of the percentage of Series B Preferred Stock outstanding.

 

Beginning on the first anniversary after the first closing date and expiring two years thereafter, Caterham and its nominees may convert (in whole or in part) its Series B Preferred Stock into GlobeTel common stock. Each 1,000 share increment of Series B Preferred Stock, as a class, issued to Caterham and its nominees shall be convertible into that number of shares of the Company's common stock equal to 1% of GlobeTel then issued and outstanding shares (the "Aggregate Conversion Shares") as determined on the date in which Caterham, or one of its nominees, first converts its Series B Preferred Stock into the Company's common stock (the "First Conversion Date"). In March 2005 the Company and Caterham amended the agreement to revise conversion rights to provide issuance of 5,542,000 shares of GlobeTel common stock. Each holder of the Series B Preferred Stock will receive shares of GlobeTel aggregate conversion shares based on his pro-rata ownership of the Series B Preferred Stock. Three years after the first closing date, all of the shares of GlobeTel's Series B Preferred Stock which have not converted into GTEL common stock will be automatically converted into shares of GlobeTel's common stock.

 

The Company had subscribed and received $3,350,000 as of December 31, 2004 (net of $11.5 million of subscriptions receivable). A total of $2,850,000 was received from Caterham; an amount representing $500,000 was issued to Charterhouse in settlement of outstanding obligations (see Note 14 above). In addition, an amount representing $150,000, was issued as a broker's fee.

 

In January 2005 an additional $250,000 was received from Caterham. The remaining amount of the subscription receivable was subsequently received during 2005 in the form of $4,835,200 of telecommunication equipment - the data switch in connection with the Stored Value Card program.

 

In December 2005, the Company entered into an agreement with Caterham wherein all 35,000 Series B Preferred shares were converted into 12,931,334 post-split shares of GlobeTel common stock in full settlement of all obligations of the parties.

 

Series C

 

On April 27, 2004, the Company agreed to sell 1,000 shares of Series C Preferred Stock of GlobeTel Communications Corp. ("GTE") to Tim Ingram, a Hong Kong based investment banker, for a total investment of $1 million. The Company intended to use this $1 million investment for working capital and purchase of equipment necessary to expand the Company's Stored Value Card Programs.

 

On July 30, 2004, the Company filed a Certificate of Designation for Series C Preferred Stock with the State of Delaware.

 

Provided that the preferred shares have not been converted, the holders of the Series C Preferred Stock, voting as a group, will have voting rights equal to the current conversion share amount at the time of the vote of GTE's authorized shares of common stock for a period of three years from the first closing date.

 

For a period of one year after the first closing date, the Series C Preferred Stock shall not be convertible into shares of GlobeTel Communications common stock. Beginning on the first anniversary of the first closing date and for a period of two years thereafter, Tim Ingram may convert (in whole or part) its Series C Preferred Stock into GlobeTel Communications common stock. Each 1,000 shares of Series C Preferred Stock will represent 2% of the GlobeTel Communications common in their converted state. The Series C Preferred Stock shall be convertible in at least 100 share increments, each increment, at the time of conversion, will represent one tenth of 2% of the issued and outstanding shares of GlobeTel Communications common stock. On the third anniversary of the First Closing Date, all shares of Series C Preferred Stock owned by Tim Ingram will automatically be converted into GlobeTel Communications common stock (to the extent such shares have not been converted into common stock prior to this date). Except for the aforementioned voting rights and conversion rights, each share of Series C Preferred Stock shall have rights that are identical to that of GlobeTel Communications' common stock.

 

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Ingram agreed to advance $1 million to GlobeTel Communications on or before June 25, August 25, October 25 and December 25, 2004. Mr. Ingram advanced $250,000 to the Company on June 25, 2004 as agreed, and 250 shares of Series C Preferred Stock were issued. Subsequently, Mr. Ingram notified the Company that he will not be funding the remaining $750,000 and instead agreed to assign the remaining amount to other groups wanting to invest in the Company. In December 2004, Mr. Ingram converted his preferred shares into 151,515 (2,272,727 pre-split) common shares, recorded at the then current market price of $1.65 ($0.11 pre-split) per common share, for a total of $250,000.

 

On August 20, 2004, the Company agreed to sell 500 shares of Series C Preferred Stock of GlobeTel Communications Corp. ("GTE") to Paul E. Taboada for a total investment of $500,000. Mr. Taboada, an individual investor, has also been providing consulting services for the Company for over four years. The Company is using this $500,000 investment for working capital and purchase of equipment for Sanswire Networks, LLC, necessary to launch the prototype of the Stratellite.

 

The purchase price was payable in five (5) installments of $100,000, payable no later than August 30, 2004, September 30, 2004, October 30, 2004, November 30, 2004, and December 30, 2004. The Purchaser has a three-day cure period to remit the monthly payments. As of December 31, 2004, the Company has received the full $500,000 as agreed upon.

 

In September 2005, Mr. Taboada converted all 500 shares of Series C Preferred Stock into 820,000 (12,300,000 pre-split) shares of the Company's common stock based on 1% of the then outstanding total of the Company's common stock, as agreed upon by the parties.

 

On October 22, 2004, the Company agreed to sell 250 shares of Series C Preferred Stock of GlobeTel Communications Corp. ("GTE") to Lawrence Lynch for a total investment of $250,000. Mr. Lynch, an individual investor, is also the current Chief Operating Officer of the Company. The Company used this $250,000 investment for working capital and purchase of equipment necessary to expand the Company's stored value card programs.

 

In November 2005, Mr. Lynch converted all 250 shares of Series C Preferred Stock into 500,000 (7,500,000 pre-split) shares of the Company's common stock.

 

As of December 31, 2005, the there were no subscriptions receivable for Series C preferred stock, all shares were converted into Company common stock, and the Company does not anticipate issuing any additional shares in connection with this preferred stock series.

 

Series D

 

On July 28, 2004, the Company agreed to sell 1,000 shares of Series D Preferred Stock of GlobeTel Communications Corp. ("GTE") to Mitchell A. Siegel, former Chief Operating Officer and current Vice President and Director of the Company. The Company intends to use $1 million of this investment for working capital and purchase of equipment necessary to expand the Company's stored value card programs.

 

Mitchell A. Siegel agreed to advance $1 million to GTEL in four (4) quarterly installments beginning August 2004. The agreement was subsequently modified for the installment period to be semi-annual and to begin in October 2004. Mr. Siegel has remitted the initial $250,000, and in June 2005, remitted the second $250,000.

 

The Certificate of Designation for the Series D Preferred Stock was filed with the State of Delaware on July 30, 2004.

 

Provided that the preferred shares have not been converted, the Holders of the Series D Preferred Stock, voting as a group, will have voting rights equal to the current conversion share amount at the time of the vote of GTE's authorized shares of common stock for a period of three years from the first closing date.

 

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For a period of two years after the first closing date, the Series D Preferred Stock shall not be convertible into shares of GTE common stock. Beginning on the second anniversary of the first closing date and for a period of one year thereafter, Mitchell A. Siegel may convert (in whole or part) its Series D Preferred Stock into GTE common stock. The 1000 shares of Series D Preferred Stock will represent 2% of the GTE common in their converted state. The Series D Preferred Stock shall be convertible in at least 100 share increments, each increment, at the time of conversion, will represent one tenth of 2% of the issued and outstanding shares of GTE common stock. On the third anniversary of the first closing date, all shares of Series D Preferred Stock owned by Mitchell A. Siegel will automatically be converted into GTE common stock (to the extent such shares have not been converted into common stock prior to this date). Except for the aforementioned voting rights and conversion rights, each share of Series D Preferred Stock shall have rights that are identical to that of GTE's common stock.

 

The Series D Preferred Stock was subsequently amended so that it was convertible in at least 250 share increments, each increment, at the time of conversion, representing 8,750,000 shares of GlobeTel common stock.

 

The Company expects to receive the remaining $500,000 in stock subscriptions receivable from Mr. Siegel in the near term.

 

NOTE 25 - SUBSEQUENT EVENTS (restated)

SEC Investigation

In September 2006 the SEC issued a formal order of investigation regarding certain issues with respect to the Company.

 

On October 5, 2007, GlobeTel Communications Corp., received a "Wells Notice" from the Securities and Exchange Commission ("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. Under the process established by the SEC, recipients have the opportunity to respond in writing to a Wells Notice before the SEC staff makes any formal recommendation to the Commission regarding what action, if any, should be brought by the SEC. The Company is determining if it will provide a written submission to the SEC in response to the Wells Notice.

 

Redwood Grove Financing

 

During the first quarter of 2006, the Company received additional investments totaling over $4 million. Convertible promissory notes with face values totaling $1.8 million were issued, and, after commissions, fees and costs, a net of $1,579,487 was received in January 2005. In February 2005 the notes were converted into a total of 23,574,615 shares of the Company's common stock. In March 2005 the investors exercised warrants to purchase a total of 35,366,285 additional shares of common stock for an additional $2,625,025, including amount due under a redemption buyout of the warrant shares.

 

On February 5, 2005 GlobeTel filed a registration statement with the Securities and Exchange Commission on Form SB-2 to register shares offered by shareholders who may convert, and eventually did as discussed above, their convertible notes, and additional shares to ensure sufficient number of shares are available for conversion. Further, additional shares totaling 75% of the underlying convertible notes and warrants to ensure that shares are available for conversion under all contingencies.

 

Sanswire Subsidiaries

 

On March 8, 2005, we announced a global strategy for its Sanswire Networks Corporation subsidiary. We signed a Letter of Intent to immediately establish Sanswire Europe S.A., its first regional operating subsidiary. Sanswire Europe will be a joint venture between GlobeTel's wholly-owned operating subsidiary, Sanswire Networks, LLC and Strato-Wireless Ltd. (“SWL”), in which GlobeTel will own 55% and Strato-Wireless will own 45% of the shares of the European Venture. The new operation will be managed jointly by J. Randolph Dumas and John A. Jensen, Jr., both former senior managing directors at global investment banking firms. Both principals have decades of business experience throughout Europe and the Middle East.

 

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Longview Financing

On January 25, 2005, the company entered into a subscription agreement with Longview Equity Fund LP, Longview International Equity Fund, LP, Longview Fund LP, and Alpha Capital Aktiengesellshcaft whereby these investors are purchasing $1,800,000 in convertible notes, with Class A Warrants to purchase up to an additional $1,609,989 in common stock of the Registrant.

Under the funding arrangement, the promissory notes are convertible into common stock of the Company at $.08 per share. Prior to any notice of conversion the Company has the right to redeem the note at a premium, subject to a 3-day right to convert by the investor.

There are two types of warrants. There are 12,500,000 Class A Warrants exercisable at $.12 per share and Redemption Warrants. Redemption Warrants will be provided in the event that the Company has sought to redeem more than 50% of the principal amount of the Note. They are given on the basis of 1,111 warrants for each $1,000 in principal the Company seeks to redeem over $900,000. The Warrants are identical to the Class A warrants except that they have an exercise price of $.11 per share.

Resignation of Jerrold Hinton

On February 8, 2005 Dr. Jerrold R. Hinton has resigned as a member of the Board of Directors of GlobeTel Communications Corp. There were no disputes between the Company and Dr. Hinton.

Appointment and Resignation of Laina Raveendran Greene as Director

In February 2005, Laina Raveendran Greene joined the Board of Directors of the Company. Ms. Greene subsequently resigned from the Board of Directors on December 26, 2005.

May 2005 Financing

On May 9, 2005, the company entered into a private placement with a number of accredited investors whereby these investors have purchased $2,357,959.96 in GlobeTel's Common Shares at a price of $0.1924 per share, with Warrants to purchase up to an additional 8,578,856 shares of common stock of the Registrant at an exercise price of $.3395 per share.

On May 23, 2005, the Company accepted an additional subscription from one of the initial investors increasing their investment by $200,000 on the same terms and conditions as all the other investors.

The Company has entered into a Registration Rights Agreement with the investors and is obligated to register the shares purchased by Investors and the shares underlying the Investor's warrants.

HotZone

In September 2004, the Company entered into an independent contractor agreement with Hotzone Wireless, LLC (“HotZone”), a service provider for consulting/engineering services related to the Sanswire Stratellite project. The non-exclusive service provider provided engineering / consulting services, transmission equipment, and installation and testing of equipment. The term of the agreement was for six (6) months and was automatically renewable for additional one (1) year terms after the initial term unless terminated by either party. As initial compensation, Company paid the service provider $10,000 per month. This agreement was terminated during fiscal year 2005.

On June 2, 2005, the Company entered into an agreement to acquire assets of HotZone, an advanced developer of WIMAX and extended range WIFI Systems with operations in the United States and Europe. The acquisition transaction, which closed during the three months ended September 30, 2005, was paid with $27,000 cash and provides for a total of 2 million (post split) shares of the Company's common stock to be issued in increments of 666,667 shares on each of the first, second, and third anniversary dates of the agreement, assuming that certain milestones are achieved. The first milestone was achieved for 2005, and accordingly, shares are to be issued during fiscal year 2006. Additionally, the HotZone staff is entering into employment agreements with the Company.

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Resignation of Leigh Coleman as Director

On August 18, 2005 Leigh Coleman resigned as a director of the Company. Mr. Coleman had no disputes with the Company.

Appointment of Jonathan Leinwand as Director

The Board of Directors appointed Jonathan Leinwand to the Board of Directors effective August 18, 2005. Mr. Leinwand was and continued to be the Company’s General Counsel, until September 10, 2007 when he was named Chief Executive Officer.

August 2005 Convertible Note Financing

On August 30, 2005, the company entered into a subscription agreement with Steelhead Investments LTD, Nite Capital LP, and SRG Capital LLC whereby these investors are purchasing a total $4,500,000 in 5% convertible notes, with 3 year Class A Warrants to purchase up to an additional $6,818,181 in common stock of the Registrant.

Under the funding arrangement, the promissory notes are convertible into common stock of the Company at $1.65 per share. Prior to any notice of conversion the Company has the right to redeem the note at a premium for cash, subject to a 5-day right to convert by the investor. The notes amortize at 12.5% per quarter payable each quarter in cash or common shares.

The Investors will receive one Class A Warrant to purchase one share of common stock for each that the notes would be convertible into had they been converted on the closing date (August 30, 2005) (a total of 2,727,273 shares). The per share exercise price of the Warrants is $2.50.

Appointment and Resignation of Sir Christopher Meyer as Director

The Board of Directors appointed Sir Christopher Meyer as a Director effective September 13, 2005. Sir Christopher has served as the head of the UK Press Complaints Commission since 2003 and from 1997 until 2003 he was the UK ambassador to the United States. Sir Christopher has also been elected by the Board to be its Chairman and to serve on the Audit Committee. Sir Christopher subsequently resigned on March 21, 2006. He had no disputes with the Company.

Resignation of Przemyslaw Kostro as Director

Przemyslaw Kostro a director of the Company, resigned effective October 7, 2005. Mr. Kostro had no disputes with the Company.

American Stock Exchange Deficiency Letter

On December 19, 2005 the Company received a letter from the American Stock Exchange, pursuant to Rule 1009(a)(i) of the American Stock Exchange Company Guide that it had not timely filed with the Exchange an Additional Listing Application to list shares that had been issued by the Company since its initial listing in May 2005. The Company has subsequently filed such an application with the Exchange.

According to the letter, the Exchange determined not to apply, at that time, continued listing evaluation and follow-up procedures.

Agreement with Internafta

On December 29, 2005, GlobeTel Wireless Corp. a wholly-owned subsidiary of GlobeTel Communications Corp. has entered into an agreement with LLC Internafta, a Russian corporation, whereby Internafta will pay GlobeTel $600 million to construct and install a communications network in the 30 largest Russian cities. This communications network will utilize GlobeTel’s HotZone 4010 WiMax (802.16e) capable radio. It is intended that this network will provide wireless broadband access, Voice over IP capabilities, DECT functionality, and IPTV capabilities.

 

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The networks will be installed in the cities over a 27-month period. Payments to GlobeTel are pursuant to a schedule that includes certain milestones. Payments will be made via a Letter of Credit confirmed by a US money center bank. GlobeTel will not commence construction until the first payment has been made by Internafta. Additionally, GlobeTel will help operate the Russian networks once constructed and will be a 50/50 joint venture partner with Internafta in the networks’ operations.

In May 2006, GlobeTel announced that it was terminating the Joint Venture Agreement

Warrant Agreement

On January 9, 2006, GlobeTel entered into agreements with the investors in its August 2005 Convertible Note placement for them to exercise their warrants that had an exercise price of $2.50 per share. The investors will exercise their warrants and the Company will issue to the investors a total of 1,935,606 new warrants with an exercise price of $4.00 per share.

The investors were given “piggy-back” registration rights for the warrants. If the warrants have not been registered after one year, then the investors have a demand registration rights.

The warrants expire on August 31, 2008.

Appointment and Resignation of Michael Castellano and Dorian Klein as Directors

The Board of Directors appointed Dorian Klein and Michael P. Castellano to serve as directors on GlobeTel’s Board of Directors.

Mr. Castellano subsequently resigned as a director on March 14, 2007.

Mr. Klein subsequently resigned as a director on October 7, 2006.

Appointment and Resignation of J. Randolph Dumas as Director

The Board of Directors appointed J. Randolph Dumas as a Director and Executive Vice Chairman on November 30, 2005. Mr. Dumas was a partner of Salomon Brothers International Limited responsible for the firm's European corporate finance, mortgage securities and real estate investment banking businesses, and a managing Partner of two private equity firms focusing on telecommunications and European leveraged buyouts. Upon the resignation of Sir Christopher Meyer in March 2006, Mr. Dumas was elected Chairman. Mr. Dumas resigned on October 7, 2006 in conjunction with a management restructuring. He had no disputes with the Company.

Retirement of Thomas Jimenez

On April 7, 2006, Thomas Jimenez retired as Chief Financial Officer of GlobeTel Communications Corp. Mr. Jimenez had no disputes with the Company.

Appointment and Termination of Lawrence Lynch

On April 10, 2006 Chief Operating Officer Lawrence Lynch was named acting Chief Financial Officer, following Mr. Jimenez’s retirement. Subsequently, Mr. Lynch had been promoted to the Company’s Chief Operating Officer. He joined the Company as Vice President in July 2004. On October 25, 2006, Mr. Lynch was dismissed from the Company.

Appointment and Resignation of Ambassador Ferdinando Salleo as Director

On May 16, 2006, the Board of Directors appointed Ambassador Ferdinando Salleo, former Italian ambassador to the United States, as Director. Ambassador Salleo resigned as Director on October 7, 2006 in conjunction with a management restructuring. He had no disputes with the Company.

 

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American Stock Exchange

On July 18, 2006 certain regulatory officials at the American Stock Exchange called the Company and stated that they intended to send a notice to the Company that the Company’s common shares currently traded on the Exchange would be de-listed. On July 19, 2006 the Company received a letter from the American Stock Exchange stating that the Exchange intended to de-list the Company’s shares because the Company’s press releases were “overly promotional” and that the Company had not provided all requested documentation to the Exchange pursuant to a request for information.

GlobeTel disputes that its press releases violated Exchange standards and has attempted to work diligently with the Exchange to assure its compliance in this area. Additionally, the Company did respond to the request for information and did not receive any indication that the documentation was incomplete.

The Company appealed this determination by the AMEX staff.

On August 18, 2006 the Company received notice from the Amex Staff updating and supplementing its letter dated July 17, 2006 concerning its allegations that the Company no longer complies with Exchange's continued listing standards. In addition to the alleged violations set forth in its July 18, 2006 letter the Staff alleges violations of the following sections of the Amex Company Guide: 120 (Review of Related Party Transactions), 127 (Discretionary Authority of the Amex), 134 (Filing Requirements with a reference to Section 1101), 402 (Explanation of Exchange Disclosure Policies), 403 (Content and Preparation of Public Announcements), 404 (Exchange Surveillance Procedures), 921 (Notification of the Exchange Upon Change in Officers and Directors), 1002(d) and (e) (Failure to Comply with Listing Agreement, Any Other Event That Would Warrant Delisting [referencing Sec 127 listed above]), 1003(d) (Failure to Comply with Listing Agreement and/or SEC Requirements) and 1101 (General Filing Requirements).

The Company was notified by letter dated August 18, 2006 that its appeal was to be heard by the Listing Qualifications Panel on September 28, 2006. On October 3, 2006 the Company received notice from the American Stock Exchange notifying the Company that the Amex Committee on Securities upheld the recommendation of the Amex Staff that the Company no longer complies with Exchange's continued listing standards including the following sections of the Amex Company Guide: 120 (Review of Related Party Transactions), 127 (Discretionary Authority of the Amex), 134 (Filing Requirements with a reference to Section 1101), 401 ((Outline of Exchange Disclosure Policies), 402 (Explanation of Exchange Disclosure Policies), 403 (Content and Preparation of Public Announcements), 1001 (General Suspension and Delisting Policies), 1002(d) and (e) (Failure to Comply with Listing Agreement, Any Other Event That Would Warrant Delisting), 1003(d) (Failure to Comply with Listing Agreement and/or SEC Requirements) and 1101 (General Filing Requirements).

 

The Company decided not to further appeal this determination and the Company’s common shares began trading on the Pink Sheets under the symbol GTEM The Company disclosed to the SEC in a Form 25-NSE, on November 17, 2006, that it had received from the Amex a document dated November 17 entitled “ Determination and Notification of Removal from Listing And/or Registration under Section 12(b) of the Securities Exchange Act of 1934.

The 2006 Westor Financing

Creation Of A Direct Financial Obligation Or An Obligation Under An Off-Balance Sheet Arrangement Of A Registrant; Unregistered Sales Of Equity Securities

On September 6, 2006, the Company entered into subscription agreements with Hudson Bay Overseas Fund Ltd, Hudson Bay Fund LP, Nite Capital LP, Castle Creek Technology, Double U Master Funder, The Nutmeg Group and Brio Capital LP whereby these investors bought a total $1,075,000 in 7% convertible notes, and were issued Class A and Class B Warrants (described below). The common shares underlying the notes and the warrants carry with them registration rights that obligated the Company to register such shares within 30 days.

The Notes were convertible into common stock at $0.36939 per share. Prior to any notice of conversion the Company had the right, under certain circumstances, to redeem the notes at a premium for cash, subject to a right to convert by the investor. The investors received one Class A Warrant to purchase one share of common stock for every two shares that the notes were convertible into on the closing date as well as one Class B Warrant to purchase the identical number of shares.

 

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The Class A Warrants are exercisable for a purchase price equal to 150% of the market price on the day prior to closing and the Class B Warrants are exercisable for a purchase price equal to 200% of the market price on the day prior to closing. The Warrants have a 5 year term The Placement Agent for the transaction, Westor Capital Group, has the right to raise up to $3 million for the Company.

Appointment and Resignation of Patrick Heyn as Director

On September 27, 2006 the Board of Directors appointed Patrick Heyn to serve as an independent director on GlobeTel’s Board of Directors and to serve on the Audit Committee.

Mr. Heyn subsequently resigned as a Director on March 14, 2007.

Management Restructuring

On October 7, 2006 Amb. Ferdinando Salleo, Dorian Klein, J. Randolph Dumas and Timothy Huff resigned as directors. Timothy Huff also resigned as Chief Executive Officer but remained as Chief Technology Officer until April 13, 2007, when he resigned.

The Board of Directors appointed Peter Khoury as the Company’s Interim Chief Executive Officer and appointed him to the Board of Directors. The Board also appointed Przemyslaw L. Kostro as a director and Interim Chairman of the Board of Directors.

 

Mr. Khoury subsequently resigned in September 2007 and was replaced as Chief Executive Officer by GlobeTel’s General Counsel, Jonathan Leinwand.

Lt. Colonel (USA/Ret.) Douglas B. Murch tendered his resignation as President of Sanswire Networks LLC on October 16, 2007.

Sale of Magic Money Division

On November 3, 2006, GlobeTel Communications Corp. entered into an agreement to sell substantially all of the assets related to its stored value card division that was also known as the Magic Money program, to Gotham Financial LLC. Under terms of the agreement, Gotham acquired substantially all of the assets, which include the stored value program, financial processing switch and contracts, and assumed the liabilities of associated with the program including certain employees and leased office space.

The agreement calls for the payment, over a 3 to 6 year period, of up to $4 million. The length of the payment period depends upon Gotham making certain minimum payments. Revenues earned by GlobeTel will be based on the successful rollout of the platform by Gotham and on user fees following a formula that considers the total number of transactions on a Stored Value card and use of the card at any ATM, POS or other transaction, under closed and committed contracts GlobeTel had at the time of sale, and the number of transactions utilizing the Financial Processing Switch.

The agreement also gives GlobeTel the right to the most favorable pricing if it decides in the future to utilize the services to be provided by Gotham.

Appointment and Subsequent Resignation of Michael DeCarlo as Interim CFO

On November 7, 2006, Michael A. DeCarlo Jr., was appointed as interim Chief Financial Officer. On March 21, 2007, Mr. DeCarlo resigned as Interim CFO.

 

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Appointment and Termination of Joseph Monterosso Chief Operating Officer

 

On November 17, 2006, the Company announced the appointment of Joseph Monterosso as Chief Operating Officer, succeeding Mr. Lynch, who was dismissed from the Company. On April 27, 2007, Mr. Monterosso was terminated as COO.

Appointment and Resignation of Alice Muntz as Director

On November 20, 2006 the Company announced the appointment of Dr. Alice Muntz to the Company’s Board of Directors. Dr. Muntz resigned as a director on March 13, 2007.

Change in Registrant's Certifying Accountant

On January 4, 2007, the Company’s Audit Committee dismissed Dohan and Co., CPAs PA as the Company's certifying accountant, and stated on that date that during the two years ended December 31, 2005 and December 31, 2004 and the subsequent interim periods through August 14, 2006, there were no disagreements with Dohan & Co. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. The Audit Committee went on to say that the report of independent registered public accounting firm of Dohan and Company as of and for the two years ended December 31, 2005 and December 31, 2004, did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to audit scope or accounting principle. The Company also engaged McKean Paul Chrycy Fletcher & Co. as the Company's certifying accountants.

Change in Registrant's Certifying Accountant

On March 21, 2007, the Company was notified that McKean Paul Chrycy Fletcher & Co. declined to accept the engagement as the Company’s certifying public accountants. McKean Paul Chrycy Fletcher & Co. performed no services for the Company and did not have any disputes with the Company.

Completion of Agreement To Form “No Mas Cables” Joint Venture with VPN de Mexico S.A. de C.V

On April 3, 2007, the Company and VPN de Mexico S.A. de C.V., subsidiary of Grupo IUSA S.A. de C.V., Mexico, finalized an agreement that called for the creation of a joint venture company called “No Mas Cables de Mexico S.A. de C.V.” to be owned 51% by VPN and 49% by GlobeTel. The purpose of the joint venture is to install and operate wireless broadband networks utilizing GlobeTel's HotZone 4010 wireless base station. The parties had originally entered into a Test Network Installation Agreement in June 2006, pursuant to which GlobeTel installed a network in the Mexican city of Pachuca. As of the date of this filing, the Company retains its 49% ownership in No Mas Cables and recently re-affirmed its commitment to working with the Peralta family, owners of VPN de Mexico.

Entry Into A Material Definitive Agreement to Reprice Exercise Price of Warrants

On April 13, 2007, the Company agreed to reprice the exercise price of warrants previously packaged with aforementioned Convertible Note financing in September 2006 to $.20 per share, and increased the number of shares issuable upon exercise of such warrants 1.5 times the original amount of warrants issued. In consideration of the aforementioned the investors exercised their warrants which will result in the issuance of up to 4,839,014 shares of common being issued for a total consideration of up to $967,802.80. As of that date, warrants have been exercised for a total of 3,750,000 shares for total consideration of $750,000. The Company relied on the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"). The Company believes that the investors are 'accredited investors', as such term is defined in Rule 501(a) promulgated under the Securities Act.

Change in Registrant's Certifying Accountant

On April 13, 2007, the Company appointed Weinberg & Company, P.A. of Boca Raton, Florida as the Company's new independent registered public accounting firm to audit and certify our financial statements for fiscal year ended December 31, 2006. The Company had, on September 11, 2007, re-appointed previous independent auditor Dohan & Co. P.A. to audit and certify financial statements for fiscal year ended December 31, 2004 and 2005. The Company maintains and intends to maintain its relationship with Weinberg & Co. moving forward.

 

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Entry Into a Material Definitive Agreement, Winding Down of Centerline, Refocus of Wireless Unit

 

On May 1, 2007, the Company entered into a one-year consulting agreement with Ulrich Altvater, the former president of the GlobeTel Wireless subsidiary, providing for.Mr. Altvater to provide certain assembly and support services to the Company for its line of HotZone products, the intellectual property for which the Company purchased from Mr. Altvater's previous company in June 2005. In consideration for providing such services, the Company will pay Mr. Altvater a consulting fee of $45,000 per month. Additionally, Mr. Altvater would receive 50% of the net proceeds resulting from any sales of HotZone products he generated.

Additionally, the Company decided to wind down the operations of its Centerline Communications LLC subsidiary. In conjunction therewith the Company is investigating whether to sell its related equipment, redeploy such equipment or a combination thereof.

The Company also reorganized its GlobeTel Wireless Corp. subsidiary to focus on the sale and implementation of wireless broadband networks. In conjunction with the restructuring, the Company entered into the above referenced consulting agreement with Mr. Altvater.

On July 12, 2007, the Company announced that it terminated its agreement with Mr. Altvater and his company, Trimax Wireless, Inc., and filed a lawsuit against Trimax and Mr. Altvater to recover assets and money, totaling approximately $475,000, that belong to the Company’s shareholders.

Refinancing of Debt

On May 1, 2007, GlobeTel Communications Corp. executed several Certificates of Adjustments for previously issued Warrants. The Warrants previously had Exercise Prices ranging from $0.75 to $1.00 and with the execution of the adjustments, the Exercise Price is now set at $0.196.

 

Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.

On May 4, 2007, the Board of Directors of GlobeTel Communications Corp. (the "Company"), in consultation with its outside accounting consultant, determined that the Company will restate its financial statements for the years ended 2004 and 2005, as reported on Form 10-K and for the interim periods in fiscal 2005 and the first two fiscal quarters of 2006 for which the Company filed reports on Form 10-Q.

Change in Registrant's Certifying Accountant

On September 11, 2007, the Company appointed Dohan & Co., P.A. (“Dohan”) CPAs of Miami, Florida as the Company’s independent registered public accounting firm to audit and certify our financial statements for fiscal year ended December 31, 2004 and 2005.

Letter of Intent with TAO Technologies GmbH

On September 26, 2007 the Company entered into a Letter of Intent with TAO Technologies GmbH for the Company to acquire 50% of TAO and its airship design patents. The LOI contemplates the acquisition of the interest for payment in both cash and stock. The LOI also modified the Company’s previous cooperation agreement with TAO signed in October 2005. Subsequent to the execution of the LOI, Sanswire, the Company’s wholly-owned subsidiary, shipped the Sanswire 2A Technology Demonstrator airship to TAO in Stuttgart, Germany for evaluation and overhaul.

 

NOTE 26. SEGMENTS AND RELATED INFORMATION (restated)

 

During the prior year 2001, the Company adopted FASB Statement No. 131 (“SFAS No. 131”), "Disclosures about Segments of an Enterprise and Related Information," which changes the way the Company reports information about its operating segments.

 

 

		Telecom			Sanswire			Unallocated			Totals
		(restated)						(restated)			(restated)
Revenues Earned		$	11,309,376		$	--		$	--		$	11,309,376
Costs of Revenues Earned			11,500,577			--			--			11,500,577
Gross Margin (Loss)			(191,201	)		--			--			(191,201	)
Expenses			901,076			746,827			13,980,347			15,628,250
Loss Before Other Income (Expense) and Income			(1,092,277	)		(746,827	)		(13,980,347	)		(15,819,451	)
Taxes			--			--			--			--
Other Income (Expense)			(379,511	)		--			254,093			(125,418	)
Loss Before Income Taxes			(1,471,788	)		(746,827	)		(13,726,254	)		(15,944,869	)
Income Taxes			--			--			--			--
Net Loss		$	(1,471,788	)	$	(746,827	)	$	(13,726,254	)	$	(15,944,869	)

 

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 8a. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company carried out an evaluation under the supervision and with the participation of Jonathan Leinward, the Company’s Chief Executive Officer and Principal Financial Officer (the “Reviewing Officer”), of the effectiveness of the Company's disclosure controls and procedures as of December 31, 2004. 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 Officer concluded that as of December 31, 2004, 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.

For the year ended December 31, 2003, the Company's independent auditors, Dohan and Company, CPA's, P.A. ("Dohan") advised management and the Board of Directors by a letter dated March 30, 2004, that in connection with its audit of the Company's consolidated financial statements for the year ended December 31, 2003, it noted certain matters involving internal control and its operation that it considered to be a material weakness under standards established by the American Institute of Certified Public Accountants. Reportable conditions are matters coming to an independent auditors' attention that, in their judgment, relate to significant deficiencies in the design or operation of internal control and could adversely affect the organization's ability to record, process, summarize, and report financial data consistent with the assertions of management in the financial statements. Further, a material weakness is a reportable condition in which the design or operation of one or more internal control components does not reduce to a relatively low level the risk that errors or fraud in amounts that would be material in relation to the financial statements being audited may occur and not be detected within a timely period by employees in the normal course of performing their assigned functions. Dohan advised management and the Board of Directors that it considered the following to constitute material weaknesses in internal control and operations: (i) the Company's failure to adequately staff its finance group to effectively control the increased level of transaction activity, address the complex accounting matters and manage the increased financial reporting complexities and (ii) the Company's current monthly close process does not mitigate the risk that material errors could occur in the books, records and financial statements, and does not ensure that those errors would be detected in a timely manner by the Company's employees in the normal course of performing their assigned functions. Dohan noted that these matters were considered by them during its audit and did not modify the opinion expressed in its independent auditor's report dated March 30, 2004.

In light of the letter from Dohan, we identified deficiencies in our internal controls and disclosure controls related to our accounting and audit procedures. Specifically, the identified deficiencies involved the ineffective controls over (i) revenue reporting, (ii) audit preparation procedures and (iii) financial reporting procedures.

Remediation of Material Weaknesses

We have formulated a program to remedy the material weaknesses identified above. In the first phase of the program, already completed as of September 30, 2007, we have hired outside accountants and consultants to review our financial statements and prepare the restatement of our financial statements. We have also hired outside counsel to advise on the amendment of our previously filed annual and quarterly reports filed with the SEC.

 

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Additionally we determined that the Company had ineffective controls over revenue recognition. 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 have restated revenue.

In the second phase of the program, commencing with the filing of our restated financial statements, we will be implementing 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

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, 2004 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

ITEM 8b. OTHER INFORMATION

NONE

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

The following table sets forth certain information regarding the executive officers and directors of the Company as of September 30, 2007:

Name		Age		Position with Company
Jonathan Leinwand		37		Chief Executive Officer, Director
Przemyslaw Kostro		45		Chairman of the Board

 

The following table sets forth certain information regarding the executive officers and directors of the Company as of 2004:

(During 2004)
Name		Age		Position with Company
Timothy Huff (a)		40		Chief Executive Officer and Director
Przemyslaw Kostro		42		Chairman
Jerrold Hinton (b)		63		Director
Leigh Coleman (c)		56		Director, President
Mitchell Siegel (d)		58		Director
Thomas Y. Jimenez (e)		46		Chief Financial Officer
Michael Molen (f)		48		Director
Kyle McMahan (g)		47		Director

________________

(a)	Resigned as Director and CEO October 7, 2006.
(b)	Resigned as Director February 8, 2005.
(c)	Resigned as an officer and Director August 18, 2005.
(d)	Retired as a Director June 21, 2006.
(e)	Retired as Chief Financial Officer on April 17, 2006.
(f)	Declined to stand for re-election and term ended August 11, 2005.
(g)	Declined to stand for re-election as director and term ended on June 21, 2006.

Set forth below is a biographical description of directors and senior executive officers of the Company based on information supplied by each of them.

Jonathan Leinwand

Jonathan Leinwand, Chief Executive Officer and Director, joined GlobeTel as General Counsel in June 2005 and became a director in August 2005. He was appointed CEO in September 2007. Prior to joining GlobeTel, he was in private practice since 1996 concentrating in the areas of corporate and securities law, representing a number of public companies. As part of his practice, Mr. Leinwand also served as a deal-maker for several US and foreign corporations arranging strategic alliances and funding both in the US and abroad. Mr. Leinwand graduated from the University of Miami with honors degrees in Political Science and Communications and graduated cum laude from the University of Miami School Of Law.

Przemyslaw L. Kostro

 

Przemyslaw L. Kostro, Chairman, was first elected to the Board of Directors in November 2001. From November 2001 to April 2002, Mr. Kostro also served as the CEO of GlobeTel before relinquishing the position to Timothy Huff. Over the past five years, Mr. Kostro has been an attorney engaged in international law, and has been providing professional and consulting services to several large and mid-sized entities in Europe.  Mr. Kostro resigned as a Director in October 2005 and was reappointed as Director and Chairman of the Board in October 2006.

 

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Timothy M. Huff

Timothy M. Huff, Director, Chief Executive Officer, joined GlobeTel in October 1999, and has served as CEO and as a member of the Board of Directors since April 2002. Prior to joining GlobeTel, Mr. Huff spent over five years owning and operating several successful private telecom companies. Mr. Huff has over eighteen years experience in international telecom business that included working with Sprint and MCI International, where he was involved in the construction of MCI's first international gateways. Mr. Huff resigned as Director and CEO on October 7, 2006.

Jerrold R. Hinton

Jerrold R. Hinton, Director, has served on the Board of Directors since March 1995. He had previously served as Chief Executive Officer, President and Chairman of the Board from March 1995 to November 2001. Dr. Hinton, a graduate of Florida State University, holds bachelors, masters and doctorate degrees in management, engineering and real estate. From 1992 to early 1995, prior to joining the company, Dr. Hinton served as an officer of United Biomedical, Inc., a private company. Mr. Hinton resigned as a Director on February 8, 2005.

Leigh Coleman

Leigh Coleman, President, joined the Company in September 2003. Mr. Coleman was CEO of a major division for an internationally recognized Dutch public company based in the United States. In 2001, Mr. Coleman was CEO of an Australian public company specializing in IP PBX applications and CP equipment before joining GlobeTel. Mr. Coleman has a Masters in Business Administration, and has lectured in Strategic Management at Curtin University in Australia. He has focused on growing companies and international business development since 1986. Mr. Coleman resigned as an officer and Director on August 18, 2005.

Mitchell A. Siegel

Mitchell A. Siegel, Director, Chief Operating Officer, has served in this capacity and as a member of the Board of Directors since May 2002. Since 1996, he was a consultant to Global Transmedia Communications Corporation and was instrumental in defining our role as a licensed telecommunications company. Mr. Siegel graduated from American University, holding a Bachelors Degree in Business Administration and has completed Masters Degree courses in finance at City College of New York - Bernard Baruch School of Finance. Mr. Siegel retired as a Director on June 21, 2006.

Thomas Y. Jimenez

Thomas Y. Jimenez, CPA, Chief Financial Officer, has served as our CFO since joining the Company in October 1999. For the three years prior to joining the Company, Mr. Jimenez was a consultant to various telecommunications companies, running their financial department and assisted in building networks in different countries. Previously, Mr. Jimenez was a partner in certified public accounting firm in the New York City area. Mr. Jimenez graduated from Cleveland State University with a degree in Business Administration. Mr. Jimenez retired as Chief Financial Officer on April 17, 2006.

Michael Molen

Michael Molen has served on our Board of Directors since May 2004. Since 1995, he has served in various capacities for Sanswire Technologies, Inc., including Chairman, Chief Executive Officer and Director. He currently serves as Chief Executive Officer of Sanswire Technologies, Inc. He was nominated to serve on the Company's Board of Directors in accordance with the terms of the Company's asset purchase agreement with Sanswire Technologies, Inc. Mr. Molen declined to stand for re-election and his term ended on August 11, 2005. Mr. Molen declined to stand for re-election and his term ended August 11, 2005.

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Kyle McMahan

Kyle McMahan has served on our Board of Directors since May 2004. From 1989 to 2003, Mr. McMahan served as Chief Executive Officer of Southern Mortgage Reporting, Inc., a credit-reporting agency. From April 2001 through September 2003, he served as chairman of INFO 1 Co., Inc., a company that organized, planned and financed the startup of new businesses in the credit reporting industry. Mr. McMahan has served as a board member of The Mortgage Bankers Association of Georgia and The National Credit Reporting Association. He has been nominated to serve on the Company's Board of Directors in accordance with the terms of the Company's asset purchase agreement with Sanswire Technologies, Inc. Mr. McMahan declined to stand for re-election as director and term ended on June 21, 2006.

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 did not disclose any failures to file reports under Section 16(a) of the Exchange Act.

During 2004 we had one audit committee financial expert, Kyle McMahan, who was independent of management. We have a separately designated audit committee. In addition to Mr. McMahan, Jerrold R. Hinton was a member of the audit committee through date of his resignation in February 2005. Since March 2007, the Company has not had an independent Audit Committee and the Board of Directors as a whole sat as the Audit Committee.

ITEM 10. EXECUTIVE COMPENSATION.

SUMMARY COMPENSATION TABLE

 

Name & Principal Position		Year			Salary ($)			Bonus ($)			Stock Awards($)			Option Awards ($)			Non-Equity Incentive Plan Compensation ($)			Change in Pension Value and Non-Qualified Deferred Compensation Earnings ($)			All Other Compensation ($)			Total ($)
Timothy M. Huff, CEO			2004			200,000 (a	)		0			0			1,618,394 (b,e	)		0			0			18,750 (d	)		1,837,144
Timothy M. Huff, CEO			2003			175,000 (a	)		0			112,500			0			0			0			134,167 (f	)		421,667
Mitchell A. Siegel, COO			2004			175,000 (a	)		0			0			1,120,596 (b,e	)		0			0			18,750 (d	)		1,314,346
Mitchell A. Siegel, COO			2003			150,000 (a	)		0			0			0			0			0			191,667 (f	)		341,167
Thomas Y. Jimenez, CFO			2004			175,000 (a	)		0			0			884,197 (b,e	)		0			0			14,063 (d	)		1,073,260
Thomas Y. Jimenez, CFO			2003			150,000 (a	)		0			57,500			0			0			0			111,667 (f	)		318,667
Lawrence E. Lynch, Sr. VP Since August 2004			2004			37,500 (a	)		0			0			37,500 (b	)		0			0			0			75,000
Joseph Seroussi, CTO Since Novemeber 2004			2004			25,000 (a	)		0			192,000			504,048 (b,e	)		0			0			0			721,048
Jerrold R. Hinton, Director/Former President			2004			0			0			192,000			472,798 (e	)		0			0			18,750 (d	)		683,548
Jerrold R. Hinton Director/Former President			2003			100,000 (a	)		0			0			0			0			0			0			100,000
Leigh A. Coleman President Since June 2004			2004			70,780 (a	)		0			0			597,798 (b,e	)		0			0			50,031 (d	)		718,609
Vivian Manevich, CAO Through Dec. 2002			2004			0 (c	)		0			0			0			0			0			0			0
Vivian Manevich, CAO Through Dec. 2002			2003			0 (c	)		0			0			0			0			0			0			0

 

78

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(a) Effective January 1, 2002, GlobeTel entered into a three-year employment agreements with its key management. Effective 2005, the agreements were renewed automatically on a year-to-year basis. For the year 2002, the agreements provided for annual compensation of $150,000 for its Chief Executive Officer (CEO), $125,000 each for its Chief Financial Officer (CFO) and Chief Operating Officer (COO) and $75,000 each for its Chief Administrative Officer (CAO) and VP of Network Operations. Further, there remained an employment contract with its former President, as described below, which called for a salary of $100,000 per annum through 2003.

In 2003, the base compensation increased to $175,000 for its CEO, $150,000 each for its CFO and COO, $90,000 each for its CAO and VP of Network Operations.

In 2004, the base compensation increased to $200,000 for its CEO, $175,000 each for its CFO and COO, $120,000 for the Controller (formerly the CAO) and $110,000 for its VP of Network Operations.

Accrued but unpaid base compensation of $82,500 for the CEO, $57,500 for the CFO and $58,333 for the COO (a total of $198,333) were owed as of December 31, 2004. These amounts were paid in January 2005.

(b) In addition to the base compensation, the employment agreements provide for payment of bonuses that at a minimum equal the executives’ base compensation, unless otherwise agreed to by the executives. As of December 31, 2003 and 2002, the executives all agreed not to receive bonuses they are entitled to pursuant to the employment agreements. For 2004, the executives received bonuses as entitled to under the agreements. The bonuses received were equal to the amount of gross compensation received during 2004. All executive bonuses for 2004 were included in the Employee Stock Option Plan (see Note 23 to financial statements) and paid with stock options.

(c) Vivian Manevich served as the CAO through 2002. Thereafter, Ms. Manevich accepted a non-executive position in the Company, and, accordingly, any and all compensation for 2003, 2004 and 2005 was included in employee payroll and none of her compensation was included in executive compensation.

(d) The Company's Directors received stipends of $6,250 per quarter, beginning the second quarter of 2004, for a total of $18,750 per director for 2004. The CFO, who functioned as treasurer reporting to the Board, received stipends equal to 75% of the directors' stipends, or $4,688 per quarter, beginning the second quarter of 2004, for a total of $14,063. All Directors' stipends were paid with stock options (see Note 23 to financial statements).

In 2004, the then Chairman received additional stock compensation of $425,000, for services rendered providing assistance in expanding our business and services world-wide and in obtaining funding for us.

(e) Pursuant to an Officers' Stock Option Grant plan approved by the Board (see Note 23 to financial statements), certain officers are entitled to receive stock options in amounts which, after the exercise of such options, would effect ownership of various percentages of the total shares then issued and outstanding. The following officers received options for restricted shares in the following percentages for 2005: CEO - 3%, former COO and current SVP - 2%, CFO - 1.5%, current COO - 1%, CTO - 1%, SVP of Finance - 2% and General Counsel - .75%.

All of the stock options issued to executives in 2003 were subsequently exercised in January and February 2004. The schedule below indicates the date issued, number of shares received upon exercise and the aggregate dollar value realized upon exercise.

(f) In 2003, the Company approved the issuance of Stock Options as reimbursement for previously accrued and unpaid salary for the Company Officers (see Note 23 to financial statements).

OUTSTANDING EQUITY AWARDS

Option Awards						Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)
Timothy Huff	513,479			658,918	December 31, 2006
Thomas Jimenez	427,368			625,168	December 31, 2006
Jerrold Hinton	1,519,766			1,339,010	December 31, 2006
Mitchell Siegel	733,540			1,080,168	December 31, 2006
Leigh Coleman	66,667			108,000	December 31, 2006

 

79

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COMPENSATION OF DIRECTORS

DIRECTOR COMPENSATION
Name (a)	Fees Earned or Paid in Cash ($) (b)	Stock Awards ($) (c)	Option Awards ($) (d)	Non-Equity Incentive Plan Compensation ($) (e)	Non-Qualified Deferred Compensation Earnings ($) (f)	All Other Compensation ($) (g)	Total ($) (j)
Przemyslaw L. Kostro, Chairman (2004)			443,750				443,750
Przemyslaw L. Kostro, Chairman (2003)							0
Michael Molen (2004)	--	--	18,750	--	--		18,750
Kyle McMahan (2004)	--	--	18,750	--	--		18,750

 

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 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Common Stock

At October 17, 2007, we had 127,749,688 common shares issued and outstanding (taking into account the 1 for 15 reverse split on May 23, 2005). 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

Title of Class	Name & Address of Beneficial Ownership	Amount and Beneficial	Nature of Ownership	Percentage of Class (1)
Common Stock	Przemyslaw L. Kostro Chairman  101 NE 3rd Ave, Suite 1500, Fort Lauderdale, Florida 33301	9,211,385	Shares	7.25%
Common Stock	Jonathan Leinwand, CEO Since October 2007 and Director Since August 2005 101 NE 3rd Ave, Suite 1500, Fort Lauderdale, Florida 33301	1,420,000	Shares	1.1%
	Total of all Officers and Directors as a Group	10,631,385		9.35%

 

(1) Based on 127,749,688 shares issued and outstanding on October 17, 2007.

 

80

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ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

COMMON STOCK TRANSACTIONS

 

During the year ended December 31, 2003, the Company issued the following shares of Common stock:

Date Issued

Shares

Consideration

Valuation

Relationship

March 14, 2003

146,667

Consulting services

$

22,000

Consultant

March 14, 2003

120,000

Investment banking

18,000

Consultant

May 7, 2003

73,333

Consulting services

11,550

Consultant

May 7, 2003

60,000

Investment banking

9,450

Consultant

May 22, 2003

166,667

Loan Collateral

--

Note Holder

May 22, 2003

166,667

Loan Collateral

--

Note Holder

May 22, 2003

1,000,000

Conversion of debt

239,206

Investor

May 29, 2003

266,667

Satisfaction of debt

55,000

Shareholder/Former director

July 18, 2003

13,333

Severance pay

6,000

Employee

July 18, 2003

33,333

Severance pay

15,000

Employee

July 18, 2003

33,333

Severance pay

15,000

Employee

July 18, 2003

30,000

Legal services

13,500

Legal counsel/fmr corp secretary

July 18, 2003

800,000

Consulting services

24,000

Consultant/employee

July 18, 2003

856,267

Conversion of debt

256,880

Investor

August 5, 2003

1,338,688

Sale of stock

500,000

Investor/consultant

August 5, 2003

--

Marketing services

100,402

Investor/consultant

August 8, 2003

226,667

Consulting services

102,000

Consultant/employee

August 28, 2003

(2,861,111

)

Return of shares issued for loan collateral

--

Note Holders

August 28, 2003

--

Conversion of debt

125,000

Investor

August 28, 2003

--

Conversion of debt

250,000

Investor/consultant

August 28, 2003

--

Conversion of debt

125,000

Investor

August 28, 2003

--

Conversion of debt

250,000

Investor

September 3, 2003

62,963

Consulting services

11,806

Consultant

September 3, 2003

60,000

Consulting services

11,250

Consultant

September 3, 2003

73,333

Consulting services

13,750

Consultant

September 3, 2003

256,481

Consulting services

49,090

Consultant

September 29, 2003

43,779

Consulting services

8,211

Consultant

October 9, 2003

285,422

Additional shares due for Conversion of debt

--

Investor

October 9, 2003

243,333

Consulting services

73,000

Consultant/employee

October 9, 2003

133,333

Officer's salary

40,000

Chief Financial Officer

December 31, 2003

500,000

Officer's salary

112,500

Chief Executive Officer

December 31, 2003

77,778

Officer's salary

17,500

Chief Financial Officer

December 31, 2003

(266,667

)

Return of shares issued for loan collateral

--

Note Holder

 

81

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During the year ended December 31, 2004, the Company issued the following shares of Common stock:

Date Issued

Shares

Consideration

Valuation

Relationship

January 15, 2004

300,000

Exercised Stock Options

$

--

Chief Executive Officer/Director

January 15, 2004

344,444

Exercised Stock Options

--

Chief Financial Officer

January 15, 2004

133,333

Exercised Stock Options

--

Director/Former President

January 15, 2004

600,000

Exercised Stock Options

--

Chief Operating Officer/Director

January 15, 2004

66,667

Exercised Stock Options

--

President/Director/Former Consultant

January 15, 2004

177,778

Exercised Stock Options

--

Vendor

February 3, 2004

213,479

Exercised Stock Options

--

Chief Executive Officer/Director

February 3, 2004

82,923

Exercised Stock Options

--

Chief Financial Officer

February 3, 2004

133,540

Exercised Stock Options

--

Chief Operating Officer/Director

February 3, 2004

427,368

Exercised Stock Options

--

Employee

February 3, 2004

97,222

Exercised Stock Options

--

Accountant

February 4, 2004

1,386,432

Exercised Stock Options

--

Director/Former President

February 4, 2004

1,100,000

Investment in Unconsolidated

--

Investee

Foreign Subsidiary

February 5, 2004

233,333

Investment in Unconsolidated

--

Creditor of Investee

Foreign Subsidiary

February 17, 2004

606,667

Consulting Services

425,000

Director (COB)/Former Consultant

May 11, 2004

7,222

Marketing Services

6,500

Consultant

May 12, 2004

1,866,667

Sanswire Assets

2,800,000

Shareholders of Selling

Acquisition

Corporation

May 25, 2004

90,169

Investment Banking Fees

67,626

Investment Banker

May 25, 2004

45,084

Investment Banking Fees

33,813

Investment Banker

May 25, 2004

90,169

Investment Banking Fees

67,626

Investment Banker

July 29, 2004

100,000

Compensation

144,000

Employee

July 29, 2004

33,333

Compensation

48,000

Employee

July 29, 2004

33,333

Compensation

48,000

Employee

August 12, 2004

133,333

Consulting Services

192,000

President/Former Consultant (as Nominee)

August 12, 2004

133,333

Consulting Services

192,000

Chief Technology Officer/Former Consultant (as Nominee)

August 12, 2004

11,667

Compensation

7,000

Employee

Sept. 28, 2004

133,333

Stratodyne Assets Acquisition

--

Shareholder of Selling Corporation

November 4, 2004

520,000

Convert Pfd. Ser. A

--

Preferred Series-A Shareholder/

(received as broker fee).

Investment Banker

November 4, 2004

346,667

Convert Pfd. Ser. A

--

Preferred Series-A Shareholders

November 17, 2004

1,733,333

Convert Pfd. Ser. A

--

Preferred Series-A Shareholder/ Investment Banker

November 17, 2004

1,386,667

Convert Pfd. Ser. A

--

Preferred Series-A Shareholders

November 17, 2004

728,000

Convert Pfd. Ser. A

157,500

Preferred Series-A Shareholders

November 18, 2004

104,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

November 19, 2004

624,000

Convert Pfd. Ser. A

135,000

Preferred Series-A Shareholders

November 23, 2004

520,000

Convert Pfd. Ser. A

112,500

Preferred Series-A Shareholders

November 24, 2004

104,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

November 30, 2004

624,000

Convert Pfd. Ser. A

135,000

Preferred Series-A Shareholders

December 1, 2004

2,080,000

Convert Pfd. Ser. A

450,000

Preferred Series-A Shareholders

December 3, 2004

104,000

Convert Pfd. Ser. A

22,500

Preferred Series-A Shareholders

December 8, 2004

416,000

Convert Pfd. Ser. A

90,000

Preferred Series-A Shareholders

December 10, 2004

832,000

Convert Pfd. Ser. A

180,000

Preferred Series-A Shareholders

December 28, 2004

416,000

Convert Pfd. Ser. A

90,000

Preferred Series-A Shareholders

December 30, 2004

104,000

Convert Pfd. Ser. A

22,500

Preferred Series-AShareholders

December 31, 2004

(1,866,667

)

Return of shares originally issued for Sanswire and Stratodyne Assets

(2,800,000

)

Shareholders of Selling Corporations

December 31, 2004

1,733,333

Reissuance of shares for

2,600,000

Shareholders of Selling Corporation

Sanswire Assets

December 31, 2004

133,333

Reissuance of shares for

200,000

Shareholder of Selling Corporation

Stratodyne Assets

December 31, 2004

200,000

Consulting Services

135,000

Consultant

December 31, 2004

200,000

Consulting Services

135,000

Consultant

December 31, 2004

33,333

Consulting Services

22,500

Consultant

December 31, 2004

33,333

Consulting Services

22,500

Consultant