World Surveillance Group Inc (fka WSGI)

[Madmonks]

** Updated Summary **

As with any investment, you should do your own due diligence. Here are some highlights (and lowlights) about the company.


First off, a little history. The company has gone through numerous name changes in its corporate history. Here is a timeline:

1979-1995 : Terra West Homes, Inc.
1995-2002 : American Diversified Group, Inc.
2002-2008 : Globetel Communications, Corp,
2008-2011 : Sanswire Corp.
2011-Present : World Surveillance Group Inc.

The current financial situation of the company is directly tied to what transpired during the Globetel years. One cannot understand why without revisiting what happened during this dark period in the company's history. In a nutshell, Globetel was accused by the U.S. Securities and Exchange Commission (SEC) of reporting millions of dollars in fraudulent telecommunications revenue from 2002 to 2006. Globetel's CEO, Timothy Huff, was found guilty of conspiring with other Globetel executives to commit fraud and sentenced to 50 months in prison.

http://www.sec.gov/litigation/litreleases/2012/lr22513.htm

http://www.fbi.gov/miami/press-releases/2010/mm072610.htm

Globetel itself was sued by the SEC, the company's stock was delisted, and the company was left with significant debt and other legal issues. The fallout is still being felt today. The company's balance sheet remains weak and legacy issues remain.


Today, World Surveillance Group, Inc. (WSGI) is the parent company, and it has one wholly-owned subsidiary: Global Telesat Corp. (GTC).

http://www.wsgi.com

http://www.gtc-usa.com


WSGI's current management took over in 2010 in an effort to turn around the company. The CEO, Glenn Estrella, is a former JP Morgan Chase executive and is a Harvard Business graduate. In 2014, Lt. Colonel Drew West of The Trident Group, Ltd. was named Chairman of the Board. No one in the management team receives a salary. All are compensated with shares of stock. That's because there isn't enough money to pay them. The revenue picture looks like this:

2011 - $0
2012 - $1 million
2013 - $1.8 million
2014 - TBD

Current debt: Approximately $15 million

Currently, GTC provides the company with its only source of revenue. GTC sells satellite telecommunications voice airtime, satellite phones and tracking devices and related services through contracts, its website and Amazon.

Securing funding has been a challenge, and stock dilution has plagued the company and remains an issue. In 2013, WSGI filed a lawsuit against La Jolla Cove Investors, Inc. which provided funding to the company and resulted in further dilution. The litigation is ongoing, and the outcome is uncertain.

http://ir.stockpr.com/wsgi/company-news/detail/1204/world-surveillance-group-files-lawsuit-against-la-jolla-cove-investors

The company is currently working with a team of consultants to try to improve its balance sheet.


Since this management team took over, the company has:

- Settled all outstanding matters with the SEC involving the fraud committed by previous management
- Settled or resolved most of the lawsuits filed against the company related to the fraud
- Acquired two companies: GTC and Lighter Than Air Systems (LTAS)
- Developed the Blimp-in-a-Box (BiB) aerostat system and Argus One airship
- Sold one company: LTAS


LTAS's BiB aerostat system had the most potential for WSGI in the near-term. But due to WSGI's poor balance sheet, high expenses, and lack of significant contracts, plus the government impact of sequestration, the company sold LTAS to Drone Aviation Corp. (DAC) in 2014 for $335,000 in cash and 10,000,000 shares of DAC common stock (symbol=DRNE).

http://ir.stockpr.com/wsgi/company-news/detail/1314/world-surveillance-group-inc---letter-to-shareholders

http://www.droneaviationcorp.com

Because WSGI retains an approximate 29% stake in DAC as a result of this sales transaction, this holding is a significant asset of the company and could become more valuable based on the value of the DAC common stock going forward. So it is still relevant and appropriate to lay out the BiB's potential.

Two BiBs were sold to the U.S. Army JIEDDO (Joint Improvised Explosive Device Defeat Organization) which has been evaluating the BiB for over a year now at Fort Polk, LA.

http://content.stockpr.com/snsr/files/media/Inside+the+Army+Bib+992013.pdf

Another version of the BiB, which the military has dubbed the WASP, is being evaluated by the U.S. Army SMDC (Space and Missile Defense Command) in Alabama for communications purposes.

http://www.army.mil/article/115882/SMDC_helps_WASP_fly/

A number of aerostats have also been sold to the U.S. Army REF (Rapid Equipping Force). Those aerostats are currently in operation in Afghanistan.

http://ir.stockpr.com/wsgi/company-news/detail/1234/lighter-than-air-systems-receives-order-for-aerostat-systems-to-support-the-u-s-army-rapid-equipping-force

And finally, a BiB has been sold to the State of Ohio Department of Transportation. Training and live exercises are currently being performed as part of its evaluation.

http://finance.yahoo.com/news/drone-aviation-delivers-blimp-box-130000009.html

The BiB is designed to be operated at the platoon level. So if the BiB was added to the U.S. Army's Table of Equipment, it would become standard equipment. There are approximately 3,000 platoons in the Army. So doing the math, the BiB (which sells for $300,000) could potentially become a $1 billion product. And that's just selling to the U.S. Army. The BiB could also be sold to the U.S. Marines (which follow the Army's lead when it comes to equipment) and other U.S., state and local government agencies, not to mention foreign governments.


In the longer-term, WSGI's potential lies with its airship business. To date, not one airship has been sold. The Argus One is a mid-altitude LTA UAV. It is designed to fly over areas of interest for extended durations carrying various payloads intended to allow for ISR, communications and other applications.

http://wsgi.com/argus.html

In August of 2013, WSGI announced the forming of a new consortium for furthering the development of the Argus One.

http://ir.stockpr.com/wsgi/company-news/detail/1224/world-surveillance-group-establishes-consortium-teaming-agreement-to-further-develop-and-commercialize-argus-one-airship

It's also anticipated that a major research university will be joining the consortium by the end of 2014.


In the even longer-term, there is the Stratellite. The Stratellite is an airship designed to hover in the stratosphere which could serve as a replacement for cell-towers and provide voice, Internet and TV service to millions of customers, especially in remote and under-served areas throughout the world.

http://wsgi.com/stratellite.html

Google is developing a similar system called Project Loon, but WSGI's concept is in many ways different and has many advantages over Google's. Project Loon requires thousands of balloons floating through the stratosphere. WSGI's Stratellite would be stationed over a specific area, and one airship could cover hundreds of square miles.

http://www.wired.com/gadgetlab/2013/08/googlex-project-loon/

However, Google is still a major threat to WSGI's potential Stratellite business. And Google's approach could always change. Google's acquisition of Titan Aerospace is proof of that.

http://www.reuters.com/article/2014/04/14/us-google-titan-aerospace-idUSBREA3D1H620140414


In conclusion, WSGI's business strategy used to be simple: Foxhole to the Stratosphere. But with the sale of LTAS to DAC, the strategy is now less clear.


The stock is pretty much near its low. There is still risk of it falling further, even with the threat of bankruptcy unlikely. At its current market cap of $3.7 million, the stock may be undervalued, but further dilution makes it hard to assess.

Invest at your own risk.