Delaware
|
88-0292161
|
|
(State or other jurisdiction
|
(IRS Employer Identification No.)
|
|
of incorporation or organization)
|
Page
|
||
PART I - FINANCIAL INFORMATION
|
||
Item 1.
|
Condensed Consolidated Financial Statements (Unaudited)
|
|
Condensed Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010
|
3
|
|
Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2011 and 2010
|
4
|
|
Condensed Consolidated Statements of Stockholders’ Deficit for the six months ended June 30, 2011
|
5
|
|
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010
|
6
|
|
Notes to Condensed Consolidated Financial Statements
|
7
|
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
19
|
Item 4.
|
Controls and Procedures
|
24
|
PART II - OTHER INFORMATION
|
||
Item 1.
|
Legal Proceedings
|
25
|
Item 1A.
|
Risk Factors
|
27
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
36
|
Item 6.
|
Exhibits
|
36
|
Signatures
|
37
|
|
Exhibit Index
|
38
|
JUNE 30,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
(unaudited)
|
(audited)
|
|||||||
ASSETS
|
||||||||
CURRENT ASSETS
|
||||||||
Cash and cash equivalents
|
$
|
709,857
|
$
|
29,491
|
||||
Accounts receivable, net of allowance for doubtful accounts of $0
|
11,712
|
—
|
||||||
Other receivables
|
83,000
|
—
|
||||||
Inventories
|
38,625
|
—
|
||||||
Prepayments
|
11,310
|
—
|
||||||
Assets from discontinued operations
|
6,406
|
6,406
|
||||||
TOTAL CURRENT ASSETS
|
860,910
|
35,897
|
||||||
PROPERTY AND EQUIPMENT
|
||||||||
Property and equipment, net of accumulated depreciation of $16,170
|
2,726,105
|
—
|
||||||
OTHER NONCURRENT ASSETS
|
||||||||
Deposits
|
75,425
|
350
|
||||||
TOTAL NONCURRENT ASSETS
|
75,425
|
350
|
||||||
TOTAL ASSETS
|
$
|
3,662,440
|
$
|
36,247
|
||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||||||||
CURRENT LIABILITIES
|
||||||||
Accounts payable (including $0 and $289,753 due to joint venture partner at June 30, 2011 and December 31, 2010)
|
$
|
5,074,857
|
$
|
5,315,659
|
||||
Notes payable
|
8,019,681
|
7,811,510
|
||||||
Other accrued liabilities (including $0 and $2,185,000 due to joint venture partner at June 30, 2011 and December 31, 2010)
|
1,659,951
|
3,576,587
|
||||||
Deferred revenues
|
210,312
|
—
|
||||||
Derivative liabilities
|
1,553,021
|
1,329,489
|
||||||
Liabilities from discontinued operations
|
1,365,929
|
1,365,929
|
||||||
TOTAL CURRENT LIABILITIES
|
17,883,751
|
19,399,174
|
||||||
TOTAL LIABILITIES
|
17,883,751
|
19,399,174
|
||||||
STOCKHOLDERS' EQUITY ( DEFICIT)
|
||||||||
Common stock, $0.00001 par value, 500,000,000 shares authorized; 398,637,494 shares and 322,538,559 shares issued and outstanding as of June 30, 2011 and December 31, 2010, respectively.
|
3,987
|
3,226
|
||||||
Additional paid-in capital
|
130,399,433
|
125,146,946
|
||||||
Accumulated deficit
|
(144,624,731
|
)
|
(144,513,099
|
)
|
||||
TOTAL STOCKHOLDERS' DEFICIT
|
(14,221,311
|
)
|
(19,362,927
|
)
|
||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
$
|
3,662,440
|
$
|
36,247
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
REVENUES
|
||||||||||||||||
Net sales
|
$
|
26,093
|
$
|
150,000
|
$
|
26,093
|
$
|
150,000
|
||||||||
Cost of sales
|
16,345
|
—
|
16,345
|
—
|
||||||||||||
Gross profit
|
9,748
|
150,000
|
9,748
|
150,000
|
||||||||||||
COSTS AND EXPENSES:
|
||||||||||||||||
General administrative
|
790,358
|
1,379,582
|
1,155,835
|
1,864,561
|
||||||||||||
Research and development
|
168,246
|
150,000
|
268,246
|
150,000
|
||||||||||||
Professional fees
|
407,977
|
646,080
|
626,680
|
1,079,336
|
||||||||||||
Acquisition-related costs
|
65,000
|
—
|
65,000
|
—
|
||||||||||||
Depreciation and amortization
|
12,950
|
242,175
|
12,950
|
484,350
|
||||||||||||
TOTAL EXPENSES
|
1,444,531
|
2,417,837
|
2,128,711
|
3,578,247
|
||||||||||||
LOSS FROM OPERATIONS
|
(1,434,783
|
)
|
(2,267,837
|
)
|
(2,118,963
|
)
|
(3,428,247
|
)
|
||||||||
OTHER INCOME (EXPENSE)
|
||||||||||||||||
Gain on extinguishment of liabilities to joint venture partner
|
—
|
—
|
2,474,753
|
—
|
||||||||||||
Gain on extinguishment of debt
|
—
|
16,788
|
—
|
16,788
|
||||||||||||
Change in fair value of derivative liabilities
|
(970,310
|
)
|
(1,822,501
|
)
|
(223,532
|
)
|
(1,147,283
|
)
|
||||||||
Interest expense, net
|
(109,756
|
)
|
(105,447
|
)
|
(243,890
|
)
|
(349,345
|
)
|
||||||||
NET OTHER INCOME (EXPENSE)
|
(1,080,066
|
)
|
(1,911,160
|
)
|
2,007,331
|
(1,479,840
|
)
|
|||||||||
NET LOSS
|
$
|
(2,514,849
|
)
|
$
|
(4,178,997
|
)
|
$
|
(111,632
|
)
|
$
|
(4,908,087
|
)
|
||||
NET LOSS PER SHARE:
|
||||||||||||||||
Basic and Diluted
|
$
|
(0.01
|
)
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
||||
WEIGHTED AVERAGE SHARES:
|
||||||||||||||||
Basic and Diluted
|
362,484,346
|
285,677,475
|
344,881,070
|
275,358,110
|
ADDITIONAL
|
TOTAL
|
|||||||||||||||||||
COMMON STOCK
|
PAID-IN
|
ACCUMULATED
|
STOCKHOLDERS'
|
|||||||||||||||||
Description
|
SHARES
|
AMOUNT
|
CAPITAL
|
DEFICIT
|
DEFICIT
|
|||||||||||||||
BALANCE, DECEMBER 31, 2010
|
322,538,559
|
$
|
3,226
|
$
|
125,146,946
|
$
|
(144,513,099
|
)
|
$
|
(19,362,927
|
)
|
|||||||||
Shares issued for cash
|
25,888,332
|
259
|
1,941,366
|
—
|
1,941,625
|
|||||||||||||||
Shares issued for settlement of debt
|
17,562,200
|
176
|
352,735
|
—
|
352,911
|
|||||||||||||||
Shares issued for acquisition
|
24,500,000
|
245
|
1,837,255
|
—
|
1,837,500
|
|||||||||||||||
Shares issued for acquisition - held in escrow
|
5,500,000
|
55
|
412,445
|
—
|
412,500
|
|||||||||||||||
Shares issued for services
|
634,998
|
6
|
46,910
|
—
|
46,916
|
|||||||||||||||
Shares issued for directors’ compensation
|
250,000
|
2
|
17,498
|
—
|
17,500
|
|||||||||||||||
Vesting of restricted shares issued as stock-based compensation
|
—
|
—
|
48,099
|
—
|
48,099
|
|||||||||||||||
Options vesting
|
—
|
—
|
596,197
|
—
|
596,197
|
|||||||||||||||
Cashless exercise of options
|
1,615,129
|
16
|
(16
|
)
|
—
|
—
|
||||||||||||||
Cashless exercise of warrants
|
148,276
|
2
|
(2
|
)
|
—
|
—
|
||||||||||||||
Net loss
|
—
|
—
|
—
|
(111,632
|
)
|
(111,632
|
)
|
|||||||||||||
BALANCE, JUNE 30, 2011
|
398,637,494
|
$
|
3,987
|
$
|
130,399,433
|
$
|
(144,624,731
|
)
|
$
|
(14,221,311
|
)
|
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
OPERATING ACTIVITIES:
|
||||||||
Net loss
|
$
|
(111,632
|
)
|
$
|
(4,908,087
|
)
|
||
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
Depreciation and amortization
|
12,950
|
484,350
|
||||||
Stock-based compensation
|
467,869
|
1,832,989
|
||||||
Cost of raising capital
|
—
|
(15,800
|
)
|
|||||
Change in fair value of derivative liabilities
|
223,532
|
1,147,283
|
||||||
Loan interest capitalized to debt
|
208,171
|
213,895
|
||||||
Gain on extinguishment of liabilities to joint venture partner
|
(2,474,753
|
)
|
—
|
|||||
Change in operating assets and liabilities:
|
||||||||
Accounts receivable
|
763
|
(100,000
|
)
|
|||||
Other receivables
|
(15,000
|
)
|
||||||
Prepayments
|
(11,310
|
)
|
—
|
|||||
Accounts payable
|
369,980
|
760,626
|
||||||
Other accrued liabilities
|
200,576
|
235,988
|
||||||
Deferred revenues
|
210,312
|
100,000
|
||||||
NET CASH USED IN OPERATING ACTIVITIES
|
(918,542
|
)
|
(248,756
|
)
|
||||
INVESTING ACTIVITIES:
|
||||||||
Acquisition, net of cash acquired
|
(336,032
|
)
|
—
|
|||||
Property and equipment
|
(2,322
|
)
|
—
|
|||||
Deposits
|
(4,363
|
)
|
—
|
|||||
NET CASH USED IN INVESTING ACTIVITIES
|
(342,717
|
)
|
—
|
|||||
FINANCING ACTIVITIES:
|
||||||||
Proceeds from sale of common stock
|
1,941,625
|
487,037
|
||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
1,941,625
|
487,037
|
||||||
NET INCREASE IN CASH AND EQUIVALENTS
|
680,366
|
238,281
|
||||||
CASH AND EQUIVALENTS, BEGINNING OF PERIOD
|
29,491
|
12
|
||||||
CASH AND EQUIVALENTS, END OF PERIOD
|
$
|
709,857
|
$
|
238,293
|
||||
SUPPLEMENTAL INFORMATION:
|
||||||||
Interest paid
|
$
|
—
|
$
|
—
|
||||
SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||
Common stock issued for acquisition
|
2,250,000
|
—
|
||||||
Common stock issued for accounts payable
|
361,136
|
402,237
|
||||||
Common stock issued for accrued expenses
|
38,691
|
154,000
|
||||||
Acquisition payable due seller
|
250,000
|
—
|
||||||
Convertible note payable for restricted cash
|
—
|
25,000
|
||||||
Stock options issued for accrued bonuses for officers and directors
|
193,926
|
—
|
Fair Value Measurements at June 30, 2011 Using:
|
||||||||||||||||
Total
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
|||||||||||||
Cash and cash equivalents
|
$
|
709,857
|
$
|
709,857
|
$
|
—
|
$
|
—
|
||||||||
Derivative liabilities
|
(1,553,021
|
)
|
—
|
—
|
(1,553,021
|
)
|
||||||||||
Totals
|
$
|
(843,164
|
)
|
$
|
709,857
|
$
|
—
|
$
|
(1,553,021
|
)
|
·
|
Buildings and improvements
|
20 - 40 years
|
·
|
Appliques
|
15 – 25 years
|
·
|
Machinery and equipment
|
3 – 12 years
|
·
|
Office furniture and fixtures
|
3 – 10 years
|
·
|
Computer hardware and software
|
3 – 7 years
|
·
|
Transportation vehicles
|
3 – 6 years
|
Telecom
|
GlobeTel
Wireless
|
Total
|
||||||||||
Cash
|
$
|
6,406
|
$
|
—
|
$
|
6,406
|
||||||
ASSETS FROM DISCONTINUED OPERATIONS
|
—
|
|||||||||||
Accounts payable
|
140,116
|
1,216,208
|
1,356,324
|
|||||||||
Accrued liabilities
|
9,605
|
—
|
9,605
|
|||||||||
LIABILITIES FROM DISCONTINUED OPERATIONS
|
149,721
|
1,216,208
|
1,365,929
|
|||||||||
Net liabilities of discontinued operations
|
$
|
143,315
|
1,216,208
|
$
|
1,359,523
|
Current assets
|
$
|
203,780
|
||
Property and equipment
|
2,736,732
|
|||
Current liabilities assumed
|
(90,512
|
)
|
||
Total Purchase Price
|
$
|
2,850,000
|
Revenues
|
$
|
236,438
|
||
Net loss
|
$
|
(245,887
|
)
|
|
Per common share data:
|
||||
Basic and diluted
|
$
|
(0.00
|
)
|
|
Weighted average shares:
|
||||
Basic and diluted
|
368,748,473
|
June 30,
2011
(Unaudited)
|
December 31,
2010
|
|||||||
Appliques
|
$
|
2,736,732
|
$
|
—
|
||||
Office furniture and fixtures
|
5,543
|
—
|
||||||
2,742,275
|
—
|
|||||||
Less: accumulated depreciation
|
(16,170)
|
—
|
||||||
$
|
2,726,105
|
$
|
—
|
June 30,
2011
(Unaudited)
|
December 31,
2010
|
|||||||
Payroll liabilities
|
$
|
1,054,684
|
$
|
998,410
|
||||
Professional fees
|
64,727
|
118,946
|
||||||
Accrued legal claims payable
|
235,540
|
274,231
|
||||||
Acquisition related costs
|
55,000
|
—
|
||||||
GTC acquisition payable
|
250,000
|
—
|
||||||
Due to joint venture partner
|
—
|
2,185,000
|
||||||
OTHER ACCRUED LIABILITIES
|
$
|
1,659,951
|
$
|
3,576,587
|
June 30,
2011
(Unaudited)
|
December 31,
2010
|
|||||||
Unsecured promissory notes
|
$
|
5,997,030
|
$
|
5,997,030
|
||||
Accrued interest
|
2,022,651
|
1,814,480
|
||||||
NOTES PAYABLE
|
$
|
8,019,681
|
$
|
7,811,510
|
June 30,
|
December
31,
|
|||||||
2011
|
2010
|
|||||||
Warrants:
|
||||||||
Risk-free interest rate
|
0.03% - 0.81
|
%
|
0.29% - 1.02
|
%
|
||||
Expected volatility
|
11% - 160
|
%
|
10% - 167
|
%
|
||||
Expected life (in years)
|
0.17 – 2.25
|
0.67 – 2.75
|
||||||
Expected dividend yield
|
-
|
-
|
||||||
Aggregate fair value of warrants outstanding
|
$
|
1,553,021
|
$
|
1,329,489
|
Derivative Liabilities
|
Weighted
Average
|
|||||||||||||||
Warrants
|
Warrants
|
Other
|
Exercise
|
|||||||||||||
Class A
|
Class B
|
Warrants
|
Price
|
|||||||||||||
Outstanding at December 31, 2010
|
21,909,111
|
21,186,886
|
2,377,167
|
$
|
0.244
|
|||||||||||
Warrants Granted
|
—
|
—
|
2,583,334
|
0.210
|
||||||||||||
Warrants Expired
|
(1,217,549
|
)
|
(938,184
|
)
|
—
|
0.221
|
||||||||||
Outstanding at June 30, 2011
|
20,691,562
|
20,248,702
|
4,960,501
|
$
|
0.253
|
SHARES
|
CONSIDERATION
|
VALUATION
|
||||||
25,888,332
|
Stock for Cash
|
$
|
1,941,625
|
|||||
17,562,200
|
Settlement of Debts
|
352,911
|
||||||
30,000,000
|
Acquisition
|
2,250,000
|
||||||
634,998
|
Stock issued for services
|
46,916
|
||||||
250,000
|
Stock for Directors Fees
|
17,500
|
||||||
1,763,405
|
Cashless warrant and option exercises
|
—
|
3-Year Options
|
7-Year Options
|
|||||||
Expected stock volatility
|
128.47
|
%
|
261.62
|
%
|
||||
Expected option life
|
3 years
|
7 years
|
||||||
Expected dividend yield
|
0.0
|
%
|
0.0
|
%
|
||||
Risk-free interest rate
|
1.180
|
%
|
2.90
|
%
|
Date Issued
|
Shares
|
Consideration
|
Valuation
|
Relationship
|
||||||
02/08/2011
|
1,500,000
|
Compensation
|
$
|
77,570
|
Corporate Officer
|
|||||
03/02/2011
|
3,500,000
|
2010 Bonus Awards
|
$
|
193,926
|
Board Member & Management Team
|
|||||
03/30/2011
|
13,750,000
|
Performance Based Award
|
$
|
907,058
|
Board, Mgmt, Employee and Consultant
|
|||||
18,750,000
|
$
|
1,178,554
|
2011
|
2010
|
|||||||||||||||
Shares
|
Weighted
average
exercise
price
|
Shares
|
Weighted
average
exercise
price
|
|||||||||||||
Outstanding at beginning of period
|
26,583,334
|
$
|
.078
|
38,042,499
|
$
|
.298
|
||||||||||
Granted
|
18,750,000
|
.068
|
700,000
|
.075
|
||||||||||||
Exercised
|
(3,861,111
|
)
|
.074
|
—
|
—
|
|||||||||||
Forfeited / expired / cancelled
|
(555,556
|
)
|
.090
|
(5,536,945
|
)
|
.213
|
||||||||||
Outstanding at end of period
|
40,916,667
|
$
|
.067
|
33,205,554
|
$
|
.081
|
||||||||||
Options exercisable at end of period
|
31,926,570
|
$
|
.068
|
38,205,554
|
$
|
.081
|
||||||||||
Weighted average remaining contractual term
|
2.86 years
|
1.70 years
|
Options Outstanding and Exercisable
|
|||||||||||||
Exercise prices |
Number
outstanding
|
Weighted average
remaining
contractual
terms
(years)
|
Weighted
Average
Exercise
price
|
||||||||||
$
|
.045
|
4,444,444
|
0.85
|
$
|
.045
|
||||||||
$
|
.066
|
5,500,000
|
6.75
|
.066
|
|||||||||
$
|
.070
|
759,903
|
2.61
|
.070
|
|||||||||
$
|
.073
|
2,250,000
|
1.50
|
.073
|
|||||||||
$
|
.075
|
3,500,000
|
2.67
|
.075
|
|||||||||
$
|
.080
|
1,500,000
|
0.78
|
.080
|
|||||||||
$
|
.090
|
12,672,223
|
2.09
|
.090
|
|||||||||
$
|
.094
|
1,300,000
|
2.27
|
.094
|
|||||||||
31,926,570
|
1.85
|
$
|
.068
|
Six Months Ended June 30,
|
||||||||
2011
|
2010
|
|||||||
Numerator:
|
||||||||
Net loss
|
$
|
(111,632
|
)
|
$
|
(4,808,087
|
)
|
||
Denominator:
|
||||||||
Weighted-average shares of common stock outstanding
|
344,881,070
|
275,358,110
|
||||||
Dilutive effect of stock warrants and stock options
|
-
|
-
|
||||||
Weighted-average shares of common stock outstanding, assuming dilution
|
344,881,070
|
275,358,110
|
||||||
Net loss per share:
|
||||||||
Basic and diluted
|
$
|
(0.00
|
)
|
$
|
(0.02
|
)
|
|
·
|
stored value card services;
|
|
·
|
wholesale telecommunications services;
|
|
·
|
voice over IP;
|
|
·
|
wireless broadband; and
|
|
·
|
high altitude airships.
|
|
·
|
Invited by the U.S. Department of Defense to test and demonstrate the Argus One airship at the Army’sproving ground facility in Yuma, Arizona;
|
|
·
|
Changed our corporate name to World Surveillance Group Inc. to reflect our revised focus in light of thepotential GTC acquisition and unveiled a new corporate website;
|
|
·
|
Successfully completed initial flight testing of the Argus One airship in Easton, MD;
|
|
·
|
Awarded a $200,000 contract from Space Florida to create a performance data package in connection withthe flight testing of our Argus One UAV at the U.S. Army’s proving ground facility in Yuma, Arizona;
|
|
·
|
Closed an aggregate of approximately $1.7 million of financings of our common stock;
|
|
·
|
Closed the acquisition of Global Telesat Corp., a U.S. based satellite tracking firm;
|
|
·
|
Settled the outstanding lawsuit with Hudson Bay;
|
|
·
|
Completed additional flight testing of the Argus One in Easton, MD focusing on improvements to theelectronic control systems and the gas bag stability system as well as different engine and propellerconfigurations; and
|
|
·
|
Held the first annual shareholder meeting of the Company in five years.
|
|
·
|
make it difficult for us to make payments on this debt and other obligations;
|
|
·
|
make it difficult for us to obtain future financing;
|
|
·
|
require us to redirect significant amounts of cash from operations to servicing the debt;
|
|
·
|
require us to take measures such as the reduction in scale of our operations that might hurt our future performance in order to satisfy our debt obligations; and
|
|
·
|
make us more vulnerable to bankruptcy or an unwanted acquisition on terms unsatisfactory to us.
|
|
·
|
integrating and optimizing the utilization of the properties, equipment, suppliers, distribution channels, manufacturing, marketing, promotion and sales activities and information technologies;
|
|
·
|
integrating and expanding product offerings and opportunities;
|
|
·
|
consolidating corporate and administrative infrastructures;
|
|
·
|
coordinating geographically dispersed organizations;
|
|
·
|
retaining existing customers and attracting new customers as well as leveraging the customer and partner relationships of the parties; and
|
|
·
|
conforming standards, controls, procedures and policies, business cultures and compensation structures between the companies.
|
|
·
|
failure to obtain the required regulatory approvals for their use;
|
|
·
|
prohibitive production costs;
|
|
·
|
competing products;
|
|
·
|
lack of innovation of the product;
|
|
·
|
ineffective distribution and marketing;
|
|
·
|
lack of sufficient cooperation from our partners; and
|
|
·
|
demonstrations of the airships not aligning with or meeting customer needs.
|
|
·
|
Designing, developing and producing products using advanced and unproven technologies and airships in intelligence and homeland security applications that operate in high demand, high risk situations; and
|
|
·
|
Designing developing and producing products to collect, distribute and analyze various types of information.
|
|
·
|
limited numbers of buyers and sellers in the market;
|
|
·
|
actual or anticipated variations in our results of operations;
|
|
·
|
our ability or inability to generate new revenues;
|
|
·
|
the development of our products; and
|
|
·
|
increased competition or technological innovations or new products by competitors.
|
|
·
|
the ability of the board of directors to designate the terms of, and to issue new, series of preferred stock;
|
|
·
|
advance notice requirements for nominations for election to the board of directors;
|
|
·
|
the ability of the board of directors to fix the number of directors and fill any vacancies or newly created directorships;
|
|
·
|
a classified board of directors;
|
|
·
|
Limitations on the removal of directors;
|
|
·
|
limitations on stockholders’ ability to call a special meeting of stockholders; and
|
Exhibits
|
Description
|
|
3.1
|
Certificate of Ownership of Sanswire Corp. and World Surveillance Group Inc. dated April 4, 2011 (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 19, 2011 and incorporated herein by reference)
|
|
3.2
|
Amended and Restated Certificate of Incorporation (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on July 27, 2011 and incorporated herein by reference)
|
|
4.1
|
Stock Purchase Agreement, dated May 2, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 9, 2011 and incorporated herein by reference)
|
|
4.2
|
Registration Rights Agreement, dated May 2, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 9, 2011 and incorporated herein by reference)
|
|
4.3
|
Stock Purchase Agreement, dated May 27, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 2, 2011 and incorporated herein by reference)
|
|
4.4
|
Registration Rights Agreement, dated May 27, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 2, 2011 and incorporated herein by reference)
|
|
10.1
|
Settlement Agreement dated May 17, 2011 between the Company and Hudson Bay Fund LP and Hudson Bay Master Fund Ltd. (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 20, 2011 and incorporated herein by reference)
|
|
10.2
|
Stock Purchase Agreement by and among World Surveillance Group Inc., Global Telesat Corp., Growth Enterprise Fund, S.A. and David Phipps dated May 25, 2011 (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 31, 2011 and incorporated herein by reference)
|
|
10.3
|
Option Agreement by and among World Surveillance Group Inc., Global Telesat Corp., and Growth Enterprise Fund, S.A. dated May 25, 2011 (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 31, 2011 and incorporated herein by reference)
|
|
10.4+
|
Letter Agreement, dated June 13, 2011 by and between the Company and Kevin S. Pruett (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 17, 2011 and incorporated herein by reference)
|
|
10.5+
|
Letter Agreement, dated June 13, 2011 by and between the Company and Anita S. Hulo (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 17, 2011 and incorporated herein by reference)
|
|
10.6
|
Code of Ethics and Business Conduct of the Company (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 15, 2011 and incorporated herein by reference)
|
|
2011 Equity Compensation Incentive Plan (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on July 27, 2011 and incorporated herein by reference)
|
||
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 15, 2011 and incorporated herein by reference)
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 15, 2011 and incorporated herein by reference)
|
|
32.1
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 15, 2011 and incorporated herein by reference)
|
|
32.2
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 15, 2011 and incorporated herein by reference)
|
|
*
|
Filed herewith.
|
|
+
|
Indicates management contract relating to compensatory plans or arrangements
|
WORLD SURVEILLANCE GROUP INC.
|
|
By: /s/ W. Jeffrey Sawyers
|
|
Name: W. Jeffrey Sawyers
|
|
Title: Chief Financial Officer and Treasurer
|
|
(Principal Financial and Accounting Officer)
|
Number
|
Description
|
|
3.1
|
Certificate of Ownership of Sanswire Corp. and World Surveillance Group Inc. dated April 4, 2011 (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on April 19, 2011 and incorporated herein by reference)
|
|
3.2
|
Amended and Restated Certificate of Incorporation (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on July 27, 2011 and incorporated herein by reference)
|
|
4.1
|
Stock Purchase Agreement, dated May 2, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 9, 2011 and incorporated herein by reference)
|
|
4.2
|
Registration Rights Agreement, dated May 2, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 9, 2011 and incorporated herein by reference)
|
|
4.3
|
Stock Purchase Agreement, dated May 27, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 2, 2011 and incorporated herein by reference)
|
|
4.4
|
Registration Rights Agreement, dated May 27, 2011, by and among the Company and the purchasers identified therein (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 2, 2011 and incorporated herein by reference)
|
|
10.1
|
Settlement Agreement dated May 17, 2011 between the Company and Hudson Bay Fund LP and Hudson Bay Master Fund Ltd. (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 20, 2011 and incorporated herein by reference)
|
|
10.2
|
Stock Purchase Agreement by and among World Surveillance Group Inc., Global Telesat Corp., Growth Enterprise Fund, S.A. and David Phipps dated May 25, 2011 (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 31, 2011 and incorporated herein by reference)
|
|
10.3
|
Option Agreement by and among World Surveillance Group Inc., Global Telesat Corp., and Growth Enterprise Fund, S.A. dated May 25, 2011 (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on May 31, 2011 and incorporated herein by reference)
|
|
10.4+
|
Letter Agreement, dated June 13, 2011 by and between the Company and Kevin S. Pruett (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 17, 2011 and incorporated herein by reference)
|
|
10.5+
|
Letter Agreement, dated June 13, 2011 by and between the Company and Anita S. Hulo (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 17, 2011 and incorporated herein by reference)
|
|
10.6
|
Code of Ethics and Business Conduct of the Company (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on June 15, 2011 and incorporated herein by reference)
|
|
2011 Equity Compensation Incentive Plan (filed as an Exhibit to the Company’s Current Report on Form 8-K, as filed with the SEC on July 27, 2011 and incorporated herein by reference)
|
||
31.1
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2011 and incorporated herein by reference)
|
|
31.2
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2011 and incorporated herein by reference)
|
|
32.1
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2011 and incorporated herein by reference)
|
|
32.2
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed as an Exhibit to the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on August 14, 2011 and incorporated herein by reference)
|
|
*
|
Filed herewith.
|
|
+
|
Indicates management contract relating to compensatory plans or arrangements
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Accounts receivable, allowance for doubtful accounts | $ 0 | Â |
Property and equipment, accumulated depreciation | 16,170 | Â |
Accounts payable, due to joint venture partner | 0 | 289,753 |
Other accrued liabilities, due to joint venture partner | $ 0 | $ 2,185,000 |
Common stock, par value | $ 0.00001 | $ 0.00001 |
Common stock, shares authorized | 500,000,000 | 500,000,000 |
Common stock, shares issued | 398,637,494 | 322,538,559 |
Common stock, shares outstanding | 398,637,494 | 322,538,559 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
REVENUES | Â | Â | Â | Â |
Net sales | $ 26,093 | $ 150,000 | $ 26,093 | $ 150,000 |
Cost of sales | 16,345 | Â | 16,345 | Â |
Gross profit | 9,748 | 150,000 | 9,748 | 150,000 |
COSTS AND EXPENSES: | Â | Â | Â | Â |
General and administrative | 790,358 | 1,379,582 | 1,155,835 | 1,864,561 |
Research and development | 168,246 | 150,000 | 268,246 | 150,000 |
Professional fees | 407,977 | 646,080 | 626,680 | 1,079,336 |
Acquisition-related costs | 65,000 | Â | 65,000 | Â |
Depreciation and amortization | 12,950 | 242,175 | 12,950 | 484,350 |
TOTAL EXPENSES | 1,444,531 | 2,417,837 | 2,128,711 | 3,578,247 |
LOSS FROM OPERATIONS | (1,434,783) | (2,267,837) | (2,118,963) | (3,428,247) |
OTHER INCOME (EXPENSE) | Â | Â | Â | Â |
Change in fair value of derivative liabilities | (970,310) | (1,822,501) | (223,532) | (1,147,283) |
Interest expense, net | (109,756) | (105,447) | (243,890) | (349,345) |
NET OTHER INCOME (EXPENSE) | (1,080,066) | (1,911,160) | 2,007,331 | (1,479,840) |
NET LOSS | (2,514,849) | (4,178,997) | (111,632) | (4,908,087) |
NET LOSS PER SHARE: | Â | Â | Â | Â |
BASIC and DILUTED | $ (0.01) | $ (0.01) | $ 0.00 | $ (0.02) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | Â | Â | Â | Â |
BASIC and DILUTED | 362,484,346 | 285,677,475 | 344,881,070 | 275,358,110 |
Joint Venture Partner
|
 |  |  |  |
OTHER INCOME (EXPENSE) | Â | Â | Â | Â |
Gain on extinguishment of debt/liabilities | Â | Â | 2,474,753 | Â |
All Other
|
 |  |  |  |
OTHER INCOME (EXPENSE) | Â | Â | Â | Â |
Gain on extinguishment of debt/liabilities | Â | $ 16,788 | Â | $ 16,788 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 10, 2011
|
|
Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | true | Â |
AmendmentDescription | This amendment is being filed to update financials. | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Trading Symbol | WSGI | Â |
Entity Registrant Name | WORLD SURVEILLANCE GROUP INC. | Â |
Entity Central Index Key | 0000919742 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 399,378,152 |
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NOTES PAYABLE
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
|||||||||||||||||||||||||||||||||||||
NOTES PAYABLE |
NOTE 6. NOTES PAYABLE
Obligations
at June 30, 2011 and December 31, 2010 were as
follows:
As
of June 30, 2011 and December 31, 2010, notes payable included two
unsecured promissory notes aggregating $5,997,030 with no stated
interest rate or terms of repayment. The Company has accrued
interest at 7% per annum on both notes since their inception and
includes the notes in current liabilities.
|
SHARE-BASED COMPENSATION
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2011
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SHARE-BASED COMPENSATION |
NOTE 11. SHARE-BASED COMPENSATION
The
Company issues stock-based compensation that consists of common
stock, restricted stock and stock options to its directors,
officers, employees and consultants. All common stock and
restricted stock awards are subject to the securities law
restrictions of Rule 144 as promulgated under the Securities Act of
1933, as amended.
Common Stock
The
Company recognizes the cost of the common stock issued to
directors, officers, and employees as compensation expense at the
closing market price on the grant date. All common stock awards are
fully vested on the date of grant, therefore there is no
unrecognized compensation expense associated with these awards. The
Company awarded 250,000 shares of common stock totaling $17,500 for
director fees during the six months ended June 30,
2011.
Restricted Stock
Awards
of restricted stock are independent of stock option grants and are
generally subject to forfeiture if employment terminates prior to
vesting. Prior to vesting, ownership of the restricted stock cannot
be transferred. The restricted stock has the same voting rights as
the common stock. The Company recognizes the grant date fair value
of restricted stock awards ratably over the vesting period as
compensation expense based upon the stock’s closing market
price on the grant date. Vested restricted stock awards totaled
$48,100 during the six months ended June 30, 2011. There is
approximately $12,600 in unrecognized compensation relating to
restricted stock awards at June 30, 2011.
Stock Options
The
Company has issued stock options at exercise prices equal to the
Company’s common stock market price on the date of grant with
contractual terms of three to seven years. Historically, the stock
options were fully vested and expensed as compensation on the grant
date. During 2010, the Company began issuing stock options with
vesting schedules and such stock options are generally subject to
forfeiture if employment terminates prior to vesting. The Company
issued 3.5 million options valued at approximately $194,000 related
to 2010 bonuses and 15.25 million options valued at $984,628 as
share-based compensation awards to directors, officers, employees
and consultants during the three months ended March 31, 2011.
Approximately 5,500,000 performance-based options for $363,000 and
approximately 166,667 options pertaining to compensation awards for
$8,700 vested during the quarter ended June 30, 2011. No
performance-based options vested during the three months ended
March 31, 2011 and approximately 645,236 options pertaining to
compensation awards for $34,800 vested during the three months
ended March 31, 2011. At June 30, 2011, there were approximately
$582,300 in unrecognized compensation expense relating to these
awards, of which approximately $544,000 will vest only upon the
attainment of specific performance related goals.
The
Company uses the Black-Scholes option pricing model to estimate the
fair value of stock options. The principal assumptions utilized in
valuing stock options include the expected stock price volatility
(based on the most recent historical period equal to the expected
life of the option); the expected option life (an estimate based on
historical experience); the expected dividend yield; and the
risk-free interest rate (an estimate based upon on the yields of
Treasury constant maturities equal to the expected life of the
option).
The
fair value of the 3-year and 7-year options granted during the
three months ended March 31, 2011 were determined using the
Black-Scholes option pricing model with the following
assumptions:
There
were no option grants awarded during the three months ended June
30, 2011.
During
the six months ended June 30, 2011, the Company issued the
following options to acquire common stock:
The
following table summarizes the stock option activity for the six
months ended June 30,
The
following table summarizes information about stock options
outstanding and exercisable at June 30, 2011:
The
aggregate intrinsic value of the 31,926,570 options outstanding and
exercisable at June 30, 2011 was $1,190,646. The aggregate
intrinsic value for the options is calculated as the difference
between the prices of the underlying awards and quoted price of the
Company’s common stock for the options that were in-the-money
at June 30, 2011.
|
DISCONTINUED OPERATIONS
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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DISCONTINUED OPERATIONS |
NOTE 2. DISCONTINUED OPERATIONS
In
2007, the Company discontinued operations of its telecom and
wireless segments and reported the effects as discontinued
operations. Certain assets and liabilities from its
discontinued operations are carried at fair value in the
consolidated balance sheet as of June 30, 2011 and December 31,
2010 as follows:
No
income or expenses were incurred by the Company related to its
discontinued operations for the six month periods ended June 30,
2011 and 2010.
|
DERIVATIVE LIABILITIES
|
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Jun. 30, 2011
|
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DERIVATIVE LIABILITIES |
NOTE 8. DERIVATIVE LIABILITIES
The
Company follows the authoritative guidance and accounts for
derivative instruments at fair value. Gains and losses from changes
in the fair value of derivatives are recognized in interest
expense. The Company’s derivative instruments are stock
warrants that contained anti-dilution provisions that were issued
with certain debt and equity financings.
Warrants
During
the past, the Company entered into financing agreements for
convertible promissory notes and stock purchase agreements, which
included both Class A and Class B warrants. The Company has issued
an aggregate of 4,960,501 warrants under two new stock purchase
agreements. Warrants issued under the new stock purchase agreements
have no anti-dilution rights and are not considered to be
derivative liabilities. All warrants have 3-year terms and are
exercisable for a purchase price of $0.21 per share or, in the case
of Class B warrants, $0.315 per share.
The
fair value of derivative liabilities was determined using the
Black-Scholes option pricing model with the following
assumptions:
The
aggregate intrinsic value of the warrants outstanding and
exercisable as of June 30, 2011 and December 31, 2010 was $69,584
and $22,675, respectively. All warrants were fully exercisable and
there was no unamortized cost to be recognized in future
periods.
The
following table summarizes certain information about the
Company’s warrants to purchase common stock.
|
PER SHARE INFORMATION
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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PER SHARE INFORMATION |
NOTE 13. PER SHARE INFORMATION:
Basic
earnings per share (“Basic EPS”) of common stock is
computed by dividing the net income by the weighted-average number
of shares of common stock outstanding. Diluted earnings
per share of common stock (“Diluted EPS”) is computed
by dividing the net income by the weighted-average number of shares
of common stock, and dilutive common stock equivalents and
convertible securities then outstanding. U.S. GAAP
requires the presentation of both Basic EPS and Diluted EPS on the
face of the Company’s Condensed Consolidated Statements of
Operations. Common stock equivalents totaling 86,817,432
and 74,082,932 were excluded from the computation of Diluted EPS
for the six month periods ended June 30, 2011 and 2010,
respectively, as their effect on the computation of Diluted EPS
would have been anti-dilutive.
|
LITIGATION AND CONTINGENCIES
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
LITIGATION AND CONTINGENCIES |
NOTE 9. LITIGATION AND CONTINGENCIES
In
the ordinary conduct of business, the Company is subject to
periodic lawsuits, investigations and litigation claims, which the
Company accrues for where appropriate. The Company cannot predict
with certainty the ultimate resolution of such lawsuits,
investigations and claims asserted against it. As of June 30,
2011, the Company had the following material
contingencies:
Hudson Bay Fund LP et al. and Brio Capita l
Hudson
Bay Fund LP and Hudson Bay Overseas Fund Ltd. filed an action
against the Company on June 16, 2009 in the Supreme Court of New
York relating to the warrants attached to a Subscription Agreement
between those entities and the Company. The Hudson Bay entities
sought to re-price the warrants, increase the number of shares they
can purchase pursuant to the warrants, certain equitable remedies,
and unspecified damages. A non-final Summary Judgment Order in
favor of Hudson Bay was granted by the Court in March 2011 which
would have required the Company, among other things, to issue
9,283,352 shares of common stock. The Company filed a Motion to
Renew, Reargue and Reconsider the summary judgment order that was
denied.
On
May 17, 2011, the Company reached a settlement with Hudson Bay Fund
LP and Hudson Bay Master Fund Ltd. f/k/a Hudson Bay Overseas Fund,
Ltd. (collectively, “Hudson Bay”) and entered into a
Settlement Agreement resolving the previously disclosed lawsuit
against the Company, without admitting any liability or wrongdoing
on the part of the Company. The settlement relates to the
exercise of certain Class A and Class B Warrants issued by the
Company to Hudson Bay dating back to 2006, and resolves all
outstanding issues and claims between the parties. As a
result of the Settlement Agreement, Hudson Bay has no further
rights of any kind whatsoever with respect to the above referenced
Warrants.
Under
the terms of the Settlement Agreement, the Company was required to,
and has, issued an aggregate of 13,283,352 shares of our common
stock (the “Hudson Bay Shares”) to Hudson Bay, which
have been issued and pay aggregate attorney fees of approximately
$180,000, in twelve equal monthly payments. Pursuant to the
Settlement Agreement, Hudson Bay agreed not to sell publicly on any
trading day in excess of the greater of 20% of (i) the daily or
intra day trading volume or (ii) the daily average of the prior
40-day trading volume of our common stock. The
Settlement Agreement also contains mutual releases and required the
filing of a stipulation of discontinuance by the parties that
discontinued Hudson Bay’s Supreme Court action with
prejudice.
Brio Capital
Brio
Capital, the holder of a similarly worded warrant to those of
Hudson Bay, filed an action against us on March 25, 2011 in the
Supreme Court of the State of New York for the issuance of
approximately 6.2 million shares of common stock upon the exercise
of certain warrants. The Company has filed a response to such
complaint, which includes additional arguments from those set forth
in the Hudson Bay litigation. Brio Capital filed a summary judgment
motion that the Company has responded to. The Company considers the
plaintiff’s interpretation of the warrant provisions to be
incorrect and intends to vigorously defend the action, but the
outcome of the action cannot be predicted.
Tsunami Communications v. GlobeTel
On
March 3, 2006, Civil Action File No. 06A-02368-5 was filed in
Superior Court for Gwinnett County, Georgia by Tsunami
Communications and several of its former shareholders. The Company
asserted affirmative defenses and a trial was held in November
2009. By Order of the Court entered on September 2, 2010, a
judgment was entered against GlobeTel and several other
co-defendants for the breach by Sanswire Technologies, Inc.
(“ST”) (a then unrelated party) of its asset purchase
agreement with the plaintiff Tsunami based on a deemed de facto
merger resulting from a subsequent asset purchase agreement between
ST and GlobeTel. As damages, the Company was ordered to issue
530,015 shares of common stock to former shareholders of Tsunami
and pay $229,180 to a former Tsunami shareholder with respect to
two outstanding promissory notes. Subsequent to the Order, the
plaintiffs filed both a Motion for Reconsideration asking the Court
to reconsider its decision to deny several of the plaintiffs’
claims and to substantially increase the award of damages and a
Claim for Attorney’s Fees, both of which have been denied by
the Court. The Company has issued the share portion of the
judgment, but the Company is in settlement discussions with the
plaintiffs relating to the cash judgment in this
matter.
Peter Khoury
The
Company’s former CEO, Peter Khoury, filed an arbitration
proceeding against the Company on October 10, 2010 asserting claims
for payment of amounts alleged to be due in connection with his
services provided to the Company totaling in the aggregate over
$400,000 in cash, 1.8 million shares of common stock, and an
additional $250,000 in shares of common stock. The Company has
filed a motion to dismiss the arbitration that has yet to be heard.
The parties have agreed to mediate prior to arbitration with an
agreed upon mediator; however, a mediation date has yet to be
determined. The Company intends to respond to the allegations and
defend itself vigorously in this matter, but the outcome of the
action cannot be predicted.
The DeCarlo Group
A
lawsuit was filed by the DeCarlo Group on November 24, 2010 in
Miami-Dade County Courthouse for over $400,000 claimed in
connection with CFO, accounting and auditing services allegedly
rendered to the Company. It is the Company’s position that
the Company was overcharged in connection with the services
rendered and that the amounts are not due. DeCarlo is currently
seeking an attorney to represent him in this matter and a hearing
has been scheduled for August 23, 2011. The Company has filed a
motion to dismiss on various grounds and intends to otherwise
defend itself vigorously in this matter, but the outcome of the
action cannot be predicted.
Siegel
A
lawsuit was filed by Frances Siegel, the mother of a former officer
and director of the Company, on January 20, 2011 in Miami-Dade
County Courthouse for $300,000 plus interest claimed in connection
with an alleged investment in the Company in 2003. The parties have
begun preliminary discovery. The Company has filed a motion to
dismiss and intends to defend itself vigorously in this matter, but
the outcome of the action cannot be predicted.
GlobeTel Wireless Europe GmbH
A
lawsuit was filed by Rechtsanwalt Harry Kressel, Court Appointed
Insolvency Administrator of the Assets of GlobeTel Wireless Europe
GmbH, on March 8, 2011 in the Circuit Court in Brevard County, FL
for $165,000 plus interest claimed in connection with an alleged
parent company guaranty. The parties have begun preliminary
discovery. The Company is currently reviewing the claim and intends
to respond to the allegations and defend itself vigorously in this
matter, but the outcome of the action cannot be
predicted.
Dohan
The
Company has filed a lawsuit on November 3, 2008, in the Florida
Circuit Court for the Eleventh Circuit in Miami-Dade County, FL
against its former auditors, Dohan Brown Salum + Ferro CPA PA n/k/a
Dohan Salum + Company CPA PA and the individual auditors who
performed work for the Company. The claim asserts that but for the
professional negligence of the audit firm in failing to observe
U.S. GAAP and other accounting and auditing standards, the Company
would not have incurred substantial fees and professional expenses
to restate its financials and defend allegations of wrongdoing
asserted by the SEC against it. If negotiations are not fruitful,
the Company intends to amend its complaint to add claims and will
begin aggressive discovery, but the outcome of the action cannot be
predicted.
IRS
During
2010 and 2009, the Company, under its former name Sanswire Corp.,
incurred and reported to the Internal Revenue Service
(“IRS”) payroll tax liabilities (and deposited the
appropriate withholding amounts) during the normal course of
business at each payroll cycle. The Company has reported its
payroll tax liabilities for all the tax periods in 2007 and 2008,
however, it failed to deposit the appropriate withholding amounts
for those periods. The Company recognized this issue and,
accordingly, contacted the IRS to make arrangements to pay any
taxes due. One such matter has been resolved with the IRS, and the
Company currently estimates the amount involved in the second
matter to be approximately $200,000. The Company may be subject to
additional penalties and interest from the IRS in connection with
these payroll tax matters. The Company is engaged in
discussions with the IRS to settle this matter and has filed an
Offer in Compromise with the IRS.
|
IMPAIRMENT OF INTANGIBLE ASSETS AND EXTINGUISHMENT OF DEBT
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
IMPAIRMENT OF INTANGIBLE ASSETS AND EXTINGUISHMENT OF DEBT |
NOTE 7. IMPAIRMENT OF INTANGIBLE ASSETS AND EXTINGUISHMENT OF
DEBT
On
June 3, 2008 the Company, TAO Technologies Gmbh (“TAO”)
and Professor Bernd Kroeplin (“Kroeplin”) restructured
their November 2007 agreement and entered into a new agreement to
form a 50/50 U.S. based joint venture company owned by the Company
and TAO to be called Sanswire-TAO Corp. to place, among other
things, the license rights to certain TAO intellectual property for
the exclusive use in the U.S., Canada and Mexico. The intellectual
property included, but was not limited to, an existing patent in
Germany as well as any updates to that patent. This integration of
the Company and Stuttgart, Germany-based TAO was intended to create
various strategic advantages for both companies.
On
June 3, 2008, the Company reclassified the transaction as the
purchase of assets and recognized a $3,229,000 intangible asset
related to the intellectual property, including the German patent.
The $391,000 paid during 2007 was applied as payment towards the
investment. During 2008, the Company paid an additional $653,000
for the investment, made up of $385,000 in cash and the issuance of
2,680,000 shares of the Company’s common stock valued at
$268,000. The balance due of $2,185,000 was recorded in accrued
expenses. (See Note 4)
During
the fourth quarter of 2010, the Company entered into discussions
with TAO and Kroeplin as to the future relationship between the
parties and the status of the joint venture. By the end of
December, the Company had decided to base its business going
forward exclusively on the technology developed for it by Eastcor
Engineering in the United States. Accordingly, the Company recorded
an impairment charge of $1,210,875 representing the unamortized
balance of the intangible asset at December 31, 2010.
On
March 22, 2011, the Company entered into a Settlement Agreement by
and among the Company, TAO, Kroeplin and Global Telesat Corp.,
providing for, among other things, the termination of all existing
agreements between the parties (the “Old Agreements”);
the retention by TAO and Kroeplin of all cash and shares of the
Company’s common stock previously paid to them; the return of
the old STS 111 (SD34) airship by the Company to TAO; the discharge
in full of $2,474,753 in debt owed by the Company under the Old
Agreements; and the winding down and dissolution of the joint
venture, Sanswire-TAO Corp. The Company recorded a $2,474,753 gain
on the extinguishment of the debt during the first quarter ended
March 31, 2011. The Sanswire-TAO Corp. was dissolved on June
20, 2011.
|
ACQUISITIONS
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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ACQUISITIONS |
NOTE 3. ACQUISITIONS
On
May 25, 2011, World Surveillance Group Inc. (the
“Company”) entered into a Stock Purchase Agreement (the
“Agreement”) by and among the Company, Global Telesat
Corp. (“GTC”), Growth Enterprise Fund, S.A. (the
“Shareholder”) and David Phipps (“Phipps”)
pursuant to which the Company acquired 100% of the outstanding
shares of capital stock of GTC, such that GTC is now a wholly-owned
subsidiary of the Company.
Pursuant
to the Agreement, the purchase price paid by the Company for GTC
consisted of: $600,000 in cash, with $350,000 payable on the
closing of the acquisition (the “Closing”), $125,000
payable on or before the date that is 60 days after the Closing and
the final $125,000 payable on or before the date that is 120 days
after the Closing, 30,000,000 shares of the Company’s common
stock, and an earn-out equal to 5% of the gross revenues related to
the construction by GTC of certain potential satellite ground
stations. Pursuant to the Agreement and an Escrow Agreement,
5,500,000 shares of common stock out of the 30,000,000 shares
issued by the Company have been placed in escrow for one year to
satisfy possible indemnification claims of the Company. David
Phipps, the President of GTC, has entered into an employment
agreement with GTC and WSGI to continue in his role as President of
GTC. The Shareholder has the right to nominate two members of the
Company’s Board of Directors, both of whom are required to be
“independent” under the rules and regulations of the
Securities and Exchange Commission. The Agreement also includes
restrictions on the sale of the Company’s securities issued
as the purchase price by the Shareholder for a two-year period
following the Closing.
In
connection with the Closing, GTC, the Shareholder and the Company
also entered into an Option Agreement dated May 25, 2011 pursuant
to which the Shareholder was granted an exclusive option to
purchase certain GTC assets on the occurrence of a bankruptcy event
of WSGI occurring within 18 months of the Closing at a purchase
price equal to 80% of the fair market value of such assets at the
time of the bankruptcy event, as determined by an independent
valuation firm.
The
common stock of the Company issued as purchase price pursuant to
the Agreement was issued as restricted securities under an
exemption provided by Section 4(2) of the Securities Act of 1933,
as amended. The Agreement, however, provides the Shareholder
with certain piggyback registration rights, although these rights
have been waived in connection with the registration statement the
Company filed pursuant to certain Registration Rights Agreements
entered into by the Company in May 2011.
Management
believes the Company’s acquisition of GTC reflects the
Company’s commitment to strategically expand and diversify
our business. GTC provides mobile voice and data communications
services globally via satellite to the U.S. government and defense
industry end users. GTC specializes in services related to the
Globalstar satellite constellation, including ground station
construction, satellite telecommunications voice airtime and
tracking services. GTC is also an authorized reseller of
satellite telecommunications services offered by other leading
satellite network providers such as Inmarsat, Iridium and Thuraya.
GTC’s equipment is installed in various ground stations
across Africa, Asia, Australia, Europe and South
America.
The
operating results of GTC from May 25, 2011 to June 30, 2011 are
included in the Company’s Condensed Consolidated Statements
of Operations for the three and six months ended June 30, 2011. The
Company’s Condensed Consolidated Balance Sheet as of June 30,
2011 reflects the acquisition of GTC, effective on the acquisition
date of May 25, 2011.
The
following table summarizes the allocation of the GTC acquisition
purchase price, which has been accounted for at the fair values of
the assets acquired and liabilities assumed under the acquisition
method of accounting:
The
acquired property and equipment primarily consists of eight unique
satellite network infrastructure devices, known as appliqués,
which provide the signal receipt and processing technology that
enables and powers Globalstar’s satellite data service.
GTC’s appliqués are located at a number of Globalstar
satellite ground stations and provide service across Europe, Russia
and parts of Australia, Asia, the Middle East and South America.
Long-term contracts with Globalstar allow GTC access to their
satellite network for the purposes of offering tracking services
for commercial applications over the useful life of the
appliqués through 2025. GTC has developed various simplex
satellite tracking devices that are capable of transmitting
locational and other information from any location within the
Globalstar satellite network. Although GTC can sell to U.S.
government customers without the need for any form of
certification, GTC can not sell such tracking devices commercially
without certification from Globalstar and the Federal
Communications Commission for use in the U.S., and from comparable
entities globally, like CE Mark. GTC has begun the
process to apply for certification to sell these devices both in
the U.S. and globally. Although, GTC believes the likelihood of
obtaining these certifications is high due to its experience in
producing these tracking devices for government customers combined
with its knowledge and experience of the Globalstar network and
their certification requirements, there is no guarantee that GTC
will be able to certify its tracking devices. GTC is currently
obtaining certification of their proprietary tracking devices for
commercial applications and expects to begin selling the tracking
devices and service plans before the end of 2011 .
The
following table shows certain unaudited pro forma results of the
Company, assuming the Company had acquired GTC on January 1,
2011:
|
PROPERTY AND EQUIPMENT
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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PROPERTY AND EQUIPMENT |
NOTE 4. PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following:
|
INCOME TAXES
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
INCOME TAXES |
NOTE 12. INCOME TAXES
The
Company has federal and state net operating loss (NOL)
carryforwards, which can be used to offset future earnings.
Accordingly, no provision for income taxes is recorded in the
condensed consolidated 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.
The
Company operated in multiple tax jurisdictions within the United
States of America. Although management does not believe
that the Company is currently under examination in any major tax
jurisdiction in which it operates other than the issues with the
IRS as described in Note 8, the Company remains subject to
examination in all of those tax jurisdictions until the applicable
statute of limitations expire. As of June 30, 2011, a
summary of the tax years that remain subject to examination in the
Company’s major tax jurisdictions are: United States –
Federal and State – 2005 and forward. The Company
does not expect to have a material change to unrecognized tax
positions within the next twelve months.
|
OTHER ACCRUED LIABILITIES
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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OTHER ACCRUED LIABILITIES |
NOTE 5. OTHER ACCRUED LIABILITIES
Accrued
liabilities consisted of the following:
|
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT (USD $)
|
Total
|
COMMON STOCK
|
COMMON STOCK ADDITIONAL PAID-IN CAPITAL
|
ACCUMULATED DEFICIT
|
Other Issue
|
Other Issue
COMMON STOCK
|
Other Issue
COMMON STOCK ADDITIONAL PAID-IN CAPITAL
|
Held in Escrow
|
Held in Escrow
COMMON STOCK
|
Held in Escrow
COMMON STOCK ADDITIONAL PAID-IN CAPITAL
|
---|---|---|---|---|---|---|---|---|---|---|
Beginning Balance at Dec. 31, 2010 | $ (19,362,927) | $ 3,226 | $ 125,146,946 | $ (144,513,099) | Â | Â | Â | Â | Â | Â |
Beginning Balance (in shares) at Dec. 31, 2010 | Â | 322,538,559 | Â | Â | Â | Â | Â | Â | Â | Â |
Shares issued for cash (in shares) | Â | 25,888,332 | Â | Â | Â | Â | Â | Â | Â | Â |
Shares issued for cash | 1,941,625 | 259 | 1,941,366 | Â | Â | Â | Â | Â | Â | Â |
Shares issued for settlement of debt (in shares) | Â | 17,562,200 | Â | Â | Â | Â | Â | Â | Â | Â |
Shares issued for settlement of debt | 352,911 | 176 | 352,735 | Â | Â | Â | Â | Â | Â | Â |
Shares issued for services (in shares) | Â | 634,998 | Â | Â | Â | Â | Â | Â | Â | Â |
Shares issued for services | 46,916 | 6 | 46,910 | Â | Â | Â | Â | Â | Â | Â |
Shares issued for directors' compensation (in shares) | Â | 250,000 | Â | Â | Â | Â | Â | Â | Â | Â |
Shares issued for directors' compensation | 17,500 | 2 | 17,498 | Â | Â | Â | Â | Â | Â | Â |
Vesting of restricted shares issued as stock-based compensation | 48,099 | Â | 48,099 | Â | Â | Â | Â | Â | Â | Â |
Options vesting | 596,197 | Â | 596,197 | Â | Â | Â | Â | Â | Â | Â |
Shares issued for options exercised (in shares) | Â | 1,615,129 | Â | Â | Â | Â | Â | Â | Â | Â |
Shares issued for options exercised | Â | 16 | (16) | Â | Â | Â | Â | Â | Â | Â |
Cashless exercise of warrants (in shares) | Â | 148,276 | Â | Â | Â | Â | Â | Â | Â | Â |
Cashless exercise of warrants | Â | 2 | (2) | Â | Â | Â | Â | Â | Â | Â |
Net loss | (111,632) | Â | Â | (111,632) | Â | Â | Â | Â | Â | Â |
Shares issued for acquisition (in shares) | Â | Â | Â | Â | Â | 24,500,000 | Â | Â | 5,500,000 | Â |
Shares issued for acquisition | Â | Â | Â | Â | 1,837,500 | 245 | 1,837,255 | 412,500 | 55 | 412,445 |
Ending Balance at Jun. 30, 2011 | $ (14,221,311) | $ 3,987 | $ 130,399,433 | $ (144,624,731) | Â | Â | Â | Â | Â | Â |
Ending Balance (in shares) at Jun. 30, 2011 | Â | 398,637,494 | Â | Â | Â | Â | Â | Â | Â | Â |
SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
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Jun. 30, 2011
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SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES |
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES
DESCRIPTION
OF BUSINESS
World
Surveillance Group Inc. (the “Company”) designs,
develops, markets and sells autonomous lighter-than-air (LTA)
unmanned aerial vehicles (UAVs) capable of carrying payloads that
provide persistent security and/or wireless communication from air
to ground solutions at low, mid and high altitudes. The
Company’s airships, when integrated with electronics systems
and other high technology payloads, are designed for use by
government-related and commercial entities that require real-time
intelligence, surveillance and reconnaissance or communications
support for military, homeland defense, border control, drug
interdiction, natural disaster relief and maritime
missions.
Through
our wholly-owned subsidiary Global Telesat Corp. (GTC), we provide
mobile voice and data communications services globally via
satellite to the U.S. government and defense industry end users.
GTC specializes in services related to the Globalstar satellite
constellation, including ground station construction, satellite
telecommunications voice airtime and tracking services. GTC is also
an authorized reseller of satellite telecommunications services
offered by other leading satellite network providers such as
Inmarsat, Iridium and Thuraya. GTC’s equipment is installed
in various ground stations across Africa, Asia, Australia, Europe
and South America.
BASIS
OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements
include the accounts of World Surveillance Group Inc. and its
subsidiaries (“WSGI” or the “Company”) and
have been prepared in accordance with generally accepted accounting
principles in the United States of America (“U.S.
GAAP”) for interim financial information and reports and
pursuant to the requirements for reporting on Form 10-Q and
Regulation S-X for scaled disclosures for smaller reporting
companies. Accordingly, they do not include all, or include a
condensed version of, the information and footnotes required by
U.S. GAAP for complete financial statements. The Company believes,
however, that the disclosures are adequate to make the information
presented not misleading. Therefore, the Company’s
condensed consolidated financial statements reflect all adjustments
(consisting solely of normal recurring adjustments), which are, in
the opinion of management, necessary for the fair presentation of
the consolidated financial position and the consolidated results of
operations of the Company for the periods shown. Results shown for
interim periods are not necessarily indicative of the results to be
obtained for a full fiscal year or for any future period. The
preparation of financial statements in conformity with U.S. GAAP
requires us to make estimates, judgments and assumptions that
affect the amounts reported in the condensed consolidated financial
statements. Actual results may differ from management’s
estimates.
The
consolidated balance sheet information as of December 31, 2010 was
derived from the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K filed with the
Securities and Exchange Commission (“SEC”) for the
fiscal year ended December 31, 2010 under the Company’s
former name, Sanswire Corp. These interim condensed consolidated
financial statements should be read in conjunction with the
Company’s most recently audited financial statements and the
notes thereto included in such above referenced Annual Report on
Form 10-K.
The
Company applies the provisions of U.S. GAAP applicable to
consolidations of variable interest entities to its investment in
Sanswire-TAO. Under U.S. GAAP, a variable interest entity is
subject to consolidation if the total equity investment at risk is
not sufficient to permit the entity to finance its activities
without additional subordinated financial support provided by any
parties, including equity holders. At September 30, 2009, the
Company determined that such consolidation of Sanswire-TAO was
appropriate. Inter-company accounts and transactions have been
eliminated in consolidation (See Note 6 concerning the dissolution
of the Sanswire-TAO joint venture)
GOING
CONCERN
The
accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the
realization of assets and the settlement of liabilities and
commitments in the normal course of business. However, as reflected
in the accompanying condensed consolidated financial statements,
the Company incurred a loss from operations of $2,118,963 for the
six months ended June 30, 2011 and negative cash flows from
operations of $918,542 for the six months ended June 30, 2011. The
Company had a working capital deficit of $16,897,841 and total
stockholders’ deficit of $14,221,311 at June 30, 2011. The
Company had an accumulated deficit of $144,624,731 at June 30,
2011. These factors raise substantial doubt about the
Company’s ability to continue as a going concern. The
Company’s ability to continue as a going concern is dependent
upon its ability to raise additional funds either through
investments or by generating revenue from the sale of the
Company’s products to continue its business operations and
implement its strategic plan, which includes, among other things,
continued development of its UAVs, the pursuit or continued
development of strategic relationships and expansion of the
Company’s subsidiary GTC’s business. The
Company’s business plan, which if successfully implemented,
will allow it to sell UAVs and other products for a profit, which
in turn will reduce the Company’s dependence on raising
additional funds from outside sources. The consolidated financial
statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern. The
Company anticipates a net loss to continue for the next several
quarters if not for all of the year 2011.
Additional
cash will be needed to support our ongoing operations until such
time that operations provide sufficient cash flow to cover
expenditures. We are currently pursuing both short and
long-term financing options from private investors as well as
through institutional investors. We are also working to
commercialize our Argus One airship and GTC products to begin
generating revenues from customers. We anticipate generating
revenues from the sale of our airships in 2012 and are already
generating revenue from our GTC products. The costs
associated with our strategic plan are variable and contingent on
our ability to raise capital or begin generating revenue from
customer contracts, but we expect to need funding of approximately
$3 million over the next 12 months. We continue to have discussions
with Space Florida and other entities relating to funding, but
there can be no assurance that such funding will be received in the
amounts required, on a timely basis, or at all. While we
believe we will be able to continue to raise capital from various
funding sources in such amounts sufficient to sustain operations at
our current levels through at least December 31, 2011, if we are
not able to do so and if we are not able to generate revenue
through the sale of our products, we would likely need to modify
our strategy or cut back or terminate some of our operations. If we
are able to raise additional funds through the issuance of equity
securities, substantial dilution to existing shareholders may
result. However, if our plans are not achieved and/or if
significant unanticipated events occur or if we are unable to
obtain the necessary additional funding on favorable terms or at
all, we will likely have to modify our business plan and reduce,
delay or discontinue some or all of our operations to continue as a
going concern or seek a buyer for all or a portion of our assets.
As of the date hereof, we continue to raise capital to sustain our
current operations.
CASH
AND CASH EQUIVALENTS
Cash
and cash equivalents include cash on-hand and highly liquid
investments with contractual maturities of three months or less
when purchased.
REVENUE
RECOGNITION
The
Company recognizes revenue when all four of the following criteria
are met: 1) persuasive evidence of an arrangement exists; 2)
delivery has occurred and title has transferred or services have
been rendered; 3) our price to the buyer is fixed or
determinable; and 4) collectability is reasonably
assured.
INCOME
TAXES
The
Company accounts for income taxes using the asset and liability
approach. Under this approach, deferred income taxes are recognized
based on the tax effects of temporary differences between the
financial statement and tax bases of assets and liabilities, as
measured by current enacted tax rates. Valuation allowances are
recorded to reduce the deferred tax assets to an amount that will
more likely than not be realized . (See Note 11)
U.S.
GAAP requires that, in applying the liability method, the financial
statement effects of an uncertain tax position be recognized based
on the outcome that is more likely than not to occur. Under
this criterion the most likely resolution of an uncertain tax
position should be analyzed based on technical merits and on the
outcome that will likely be sustained under examination. There were
no adjustments related to uncertain tax positions recognized during
the six months ended June 30, 2011 and 2010,
respectively.
FAIR
VALUE MEASUREMENTS
U.S.
GAAP includes a framework for measuring fair value, which also
addresses disclosure requirements for fair value measurements. Fair
value is the price that would be received upon sale of an asset or
paid upon transfer of a liability in an orderly transaction between
market participants at the measurement date and in the principal or
most advantageous market for that asset or liability. The fair
value, in this context, should be calculated based on assumptions
that market participants would use in pricing the asset or
liability, not on assumptions specific to the entity. In addition,
the fair value of liabilities should include consideration of
non-performance risk, including the Company’s own credit
risk.
Under
the measurement framework, a fair valuation hierarchy for
disclosure of the inputs to valuation used to measure fair value
has been established. This hierarchy prioritizes the inputs into
three broad levels that reflect the degree of subjectivity
necessary to determine fair value measurements, as follows.
Level 1 inputs are based on unadjusted quoted prices in active
markets for identical assets or liabilities. Level 2 inputs
are based on quoted prices for similar assets and liabilities in
active markets or inputs that are observable for the asset or
liability, either directly or indirectly, through market
corroboration, for substantially the full term of the asset or
liability. Level 3 inputs are unobservable inputs and reflect
the Company’s estimates of assumptions that market
participants would use to measure assets and liabilities at fair
value. The fair values are therefore determined using
model-based techniques that include option pricing models and
discounted cash flow models. A financial asset or liability’s
classification within the hierarchy is determined based on the
lowest level input that is significant to the fair value
measurement.
The
following table provides the assets and liabilities carried at fair
value measured on a recurring basis:
The
derivative liabilities are measured at fair value using quoted
market prices and estimated volatility factors, and are classified
within Level 3 of the valuation hierarchy, due to use of an
estimate of volatility factors. There were no changes in the
valuation techniques during the six months ended June 30,
2011.
DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company’s financial instruments include cash and cash
equivalents, accounts payable, notes payable and derivative
instruments. The carrying values for the current financial assets
and liabilities, including cash and cash equivalents, accounts
payable and notes payable approximate fair value due to their short
maturity. The fair values of the Company’s derivative
instruments are recorded in the consolidated balance sheets. (See
Note 7)
USE
OF ESTIMATES
The
process of preparing financial statements in conformity with U.S.
GAAP requires the use of estimates, judgments and assumptions
regarding certain types of assets, liabilities, revenues, and
expenses. These estimates, judgments and assumptions are evaluated
on an ongoing basis. The Company bases its estimates on historical
experience and on various other assumptions that it believes are
reasonable at that time, the results of which form the basis for
making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Such
estimates primarily relate to unsettled transactions and events as
of the date of the financial statements. Accordingly, upon
settlement, actual results may differ from the Company’s
estimated amounts.
BASIC
AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic
and diluted net income (loss) per common share has been computed by
dividing the net income (loss) by the weighted average number of
shares of common stock outstanding during each period. Whenever
losses are reported, the weighted average number of common shares
outstanding excludes common stock equivalents because their
inclusion would be anti-dilutive, thus resulting in a loss per
share less than the basic loss per share. If all outstanding
options, warrants and convertible shares were converted or
exercised as of June 30, 2011, the shares outstanding would be
485,454,926. As of August 10, 2011, the Company had 399,378,152
common shares outstanding. The Company is obligated under various
existing agreements, options and warrants to issue additional
shares of its common stock.
PROPERTY
AND EQUIPMENT
Property and equipment, including
property under capital lease agreements, are carried at cost less
accumulated depreciation. Depreciation is based on the
estimated service lives of the depreciable assets and is calculated
using the straight-line method. Amortization of
leasehold improvements is computed using the straight-line method
over the shorter of the remaining lease term or the estimated
useful lives of the improvements. Expenditures that
increase the value or productive capacity of assets are
capitalized. Fully depreciated assets are retained in
property and accumulated depreciation accounts until they are
removed from service. When property and equipment are
retired, sold or otherwise disposed of, the asset’s carrying
amount and related accumulated depreciation are removed from the
accounts and any gain or loss is included in
operations. Repairs and maintenance are expensed as
incurred.
The
estimated useful lives of property and equipment are generally as
follows:
OTHER
LONG-LIVED ASSETS
The
Company follows the authoritative guidance for impairment testing
of property and equipment and other long-lived assets, which
requires that a triggering event occur before impairment testing an
asset or group of assets is appropriate. Triggering events include
but are not limited to a significant disposal of a portion of such
assets, an adverse change in the market involving the business
employing the related asset, a significant decrease in the benefits
realized from an acquired business, difficulties or delays in
integrating the acquired business, and a significant change in the
operations of an acquired business. Once a triggering event has
occurred, the Company performs the impairment test based on its
intention to hold or sell the asset or asset group. If the Company
intends to hold the asset or group of assets for continued use, the
Company compares the asset or asset group’s carrying value to
the sum of their estimated undiscounted future cash flows. If the
carrying value of the asset or asset group exceeds the sum of their
estimated undiscounted future cash flows, the asset or asset group
is deemed impaired and the Company recognizes an impairment loss
for the difference. If the Company intends to sell the asset or
asset group and certain other criteria are met (i.e., the asset can
be disposed of currently, appropriate levels of authority have
approved the sale, and there is an actively pursuing buyer), the
Company compares the asset’s or asset group’s carrying
value to its fair value less costs to sell. The Company generally
determines fair value by using the discounted cash flow method. If
the carrying value of the asset or group of assets is greater than
the fair value less costs to sell, the asset or asset group is
deemed impaired and the Company recognizes an impairment loss for
the difference. Generally, the Company performs its testing of the
asset or asset group at the lowest level for which identifiable
cash flows are available. Assets held for sale are separately
presented on the balance sheet and are no longer
depreciated.
INTANGIBLE
ASSETS
Intangible
assets are related to the Company’s intellectual property
rights. Intangible assets with finite lives are amortized over
their estimated useful lives, which are three years for patents and
intellectual property. In addition to amortization, intangible
assets are tested at least annually for impairment, or whenever
events or changes in circumstances indicate that the carrying
amount should be assessed. An asset is considered impaired if its
carrying amount exceeds the future net cash flow the asset is
expected to generate. If an asset is considered to be impaired, the
impairment to be recognized is measured by the amount by which the
carrying amount of the asset exceeds its fair value. The Company
generally measures fair value by considering sales prices for
similar assets or by discounting estimated future net cash flows
from such assets using a discount rate reflecting our average cost
of capital. (See Note 6 for impairment of the intangible assets in
2010)
DERIVATIVE
FINANCIAL INSTRUMENTS
Derivative
liabilities primarily relate to warrants to purchase common stock
of the Company issued in conjunction with certain debt and equity
financings. Each reporting period the Company determines the fair
value of the stock warrants using the Black-Scholes option pricing
model at the balance sheet date. Changes in the fair value of the
stock warrants are recognized each period in current earnings. (See
Note 7)
SHARE-BASED
COMPENSATION
The
Company offers share-based compensation programs to its officers,
directors and employees that consist of employee stock options,
common stock and restricted stock awards. Common stock and
restricted stock awards are issued at the closing price of the
Company’s common stock on the date of grant. The Company
recognizes compensation expense ratably over the vesting periods
for restricted stock awards using the grant date fair value of the
stock awarded. The Black-Scholes option pricing model is used to
value stock options, and compensation expense is recognized ratably
over the requisite service vesting period. Stock options typically
have contractual terms of three years. Share-based
compensation for employees and non-employees recognized during the
six months ended June 30, 2011 and 2010 was $467,869 and
$1,832,989, respectively. (See Note 10)
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COMMON STOCK TRANSACTIONS
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Jun. 30, 2011
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COMMON STOCK TRANSACTIONS |
NOTE 10. COMMON STOCK TRANSACTIONS
During
the six month period ended June 30, 2011, the Company issued the
following shares of Common Stock:
The
valuation amounts of the above common stock transactions are based
on the amounts that common stock and related additional paid-in
capital were increased (decreased) upon recording of each
transaction. For exercises of stock options, no values are
indicated, whereas the options were valued and the additional
paid-in capital account was increased upon the original issuance
(grant) of the options and no additional charges were recorded upon
exercise of the options. The valuation amounts related
to the vested shares and the options reflect the vesting related to
previously issued shares or options.
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SUBSEQUENT EVENTS
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Jun. 30, 2011
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SUBSEQUENT EVENTS |
NOTE 14. SUBSEQUENT EVENTS
The
Company has evaluated subsequent events from the balance sheet
date. The following material subsequent event was as
follows:
World
Surveillance Group Inc. held its 2011 Annual Meeting of
Shareholders on Tuesday, July 26, 2011. At that meeting, the
shareholders of the Company approved:
The Amended and Restated Certificate of Incorporation (the
“Restated Charter”)
The
Restated Charter increases the authorized common stock of the
Company from 500,000,000 to 750,000,000 shares and (i) identifies
the rights of the preferred stock, if issued, and the common stock
of the Company, (ii) establishes that the Company has a perpetual
existence, (iii) allows for the books and records of the Company to
be kept wherever the Board of Directors designates, and (iv)
eliminates the personal liability of directors except in certain
circumstances, as allowed by Delaware law.
The 2011 Equity Compensation Incentive Plan of the Company (the
“Plan”)
The
purpose of the Plan is to strengthen the Company and its
subsidiaries by enhancing its profitable growth by providing
incentives in the form of stock options and other equity ownership
opportunities in the Company (each, an “ Award ”) to its
and its subsidiaries’ employees, officers, directors,
consultants and advisers, all of whom are eligible to receive
Awards under the Plan, thereby encouraging them to devote their
abilities and industry to the success of the Company and its
subsidiaries and their business and enterprise.
Subject
to certain adjustments, the aggregate number of shares (the “
Authorized
Shares ”) of Common Stock that may be delivered in
satisfaction of Awards granted under the Plan is 25,000,000 shares
of Common Stock. Awards under the Plan may be in the form of
incentive stock options (“ ISOs ”),
nonstatutory stock options, restricted stock, restricted stock
units, and any other equity-based interests as the Administrator
shall determine, or any combination thereof. If any Award expires,
or is terminated, surrendered, forfeited, expires unexercised, is
settled in cash in lieu of Common Stock or is exchanged for other
Awards, in whole or in part, the unissued shares covered by such
Award shall again be available for the grant of Awards under the
Plan.
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