World Surveillance Group Inc (fka WSGI)

[yerevan]

August 2004 Letter To shareholders

http://www.globetel.net/about/letter081604.html



To Our Valued Shareholders,

In this letter to you, I want to give you a more detailed update on current activities and plans for the rest of this year. I will cover our financial goals, the makeup of our revenues, internal investments, a market update and our ongoing vision for the company.

We have made considerable investments in the future of our company over this year, and I would like to describe these investments and the payoffs expected from them.

Financial Components - An important part of understanding GTEL is that our current carrier-based revenues that will start to build over the last half of this year will produce low margins and is not our long term focus. However, it provides a base in which to build. As our retail products such as Magic Money, one of our stored value programs and Magic Phone, our IP-Telephony program, start to build customer loyalty, they will create increased margins and revenues to add to the already ramping carrier business. We will move from high revenues with small margins to higher revenues with large margins.

Financial Goals - As I mentioned in past releases, we expected our first and second quarter growth in revenue to be flat as we focus our efforts and attention to developing, launching and supporting the new product initiatives of the company.

This doesn't mean that we have forgotten carrier sales. Late in the second quarter we started our relationship with a well established carrier group, Carrier Sales, Inc. We formed a company named Centerline Communications in which will draw from both parties' strengths. This initiative is already producing results as we expected.

Our carrier sales will grow significantly in the third quarter and be in full swing by the end of the fourth quarter 2004. Our fourth quarter revenue will grow to approximately $4M to $5M per month, which equates to a $48M to $60M annual run rate. The end of the first half of 2005 should see us grow to a $100M annual run rate.

The goal is to be a $250M company in 2006. Remember that these are goals, and we will devote all of our efforts to achieve them. As such, I will try to give our shareholders the most reasonable forward-looking picture possible.

Project Chart of Revenue to Margin Ratios

View Graph

Carrier sales creates large revenue base per client. One client can bring hundreds of thousands of dollars per week if not millions. The drawback of this revenue stream is that as you grow it, it becomes harder to achieve desired margins. This is demonstrated in many carrier-based telecommunications companies today. Our goal is to combine the carrier business that is a by-product of our IP networks with the business of our high margin retail based business to create a high-revenue with high-margin stream.

The monthly fee based income from our stored-value card or our IP telephony may not create large scale revenue from each customer but is much higher in margin, and as our client or subscriber base grows incrementally every day, the gross margin becomes a larger portion of our bottom line, daily, weekly and throughout the years. Thus, a $50M carrier business trying to maintain a 5 to 7 percent margin can be combined with a $25M Value Added Product business with a 30 to 40 percent margin to create a $75M business with a 13 to 20 per cent margin, and it grows! As we acquire new customers and retain our existing ones, we will build a business that is solidly diversified in the wholesale and retail markets.
Investments

We have invested heavily this year in the organization, both at home and overseas. We have made investments in key people, like Leigh Coleman, GTEL President, who moved to Miami from Australia. Joseph Seroussi is working with us to develop the technology and stored value programs. We further added depth to our marketing team with Laura Garfinkel, helping us support and develop marketing programs as Director of Marketing. David Savitch assumed responsibility for U.S. carrier sales. Overseas, we appointed two (2) country managers, Phil Harris in Australia and Anton Romulo in the Philippines. This is not to mention the substantial investments made in equipment and corporate structure made around the world to support these efforts.

These are serious investments made to develop and support the opportunities and programs that I mention in my letters to you. You only have to see the progress being made by the number and frequency of major announcements being made on our web site, to appreciate the need for such investments at this point.

These investments and the return on them will occur in 2005. However, these investments needed to be made now in 2004, if we are to grow GTEL.
Company Vision

Mission Statement - "To enable individuals to communicate at anytime, anywhere in the world; allowing them to transact and interact personally, financially and in a simple and straightforward way that they have never been able to do before. To free individuals from the confinement and inflexibility of current technology and provide them with more freedom, choices and options."

We believe that the world is about to undergo a Paradigm shift. GTEL is positioning itself to take advantage of this shift.

We believe that, as digital technology created whole new multi-billion dollar industries and companies, IP technology and the deregulation of the communications industry on a global scale will also create multi-billion dollar industries and companies. A little known microwave company mainly designed to handle communications for the trucking industry in the Midwest was aware of such a Paradigm shift in the communication industry. MCI (Microwave Communications Corp.) saw the digital age coming and road the wave to become one of the worlds premiere carriers and a multi-billion dollar company. Digital technology had been around for decades, but when opportunity and market conditions crossed, MCI stepped into the void and created one of the best success stories of our time. Yes, MCI competed as a carrier but added value-added products to the product base. This was the difference. GTEL stands at the door of this opportunity.

There is not any question that the world of communications is about to undergo a global change. We feel with the combination of IP technology, financial based products, last-mile solutions (Sanswire), and CPE (Customer Premise Equipment) will enable GTEL to provide a door-to-door solution for just about any transaction.

We plan to integrate the needs of our customers, their communications needs, credit card, international funds transfer or remittances, education, surveillance, content delivery, TV broadcast and cell phone services all on our networks all over the globe.

Yes, this is a very aggressive set of goals, but we feel we have the plan and the resolve to achieve this. With the construction of the prototype of Sanswire, we will get GTEL international attention. This will truly change the world and how we communicate with each other.

I believe that you must be able to dream it before you can achieve it.

Market Update -- Many of you are long time shareholders and have been very patient with your investment. Our management team is committed to creating a company of substance and value. This doesn't happen overnight. Our plans were first to restructure the company, which we have. The company today has a clean corporate structure and is incorporated in ways that give it the ability to grow. Second was to develop opportunities and products that gave GTEL competitive advantages in the marketplace and to do this on a global scale. We have produced several products and services that give us the advantages and we have invested in developing a global reach and an international workforce to deliver these products and services. Finally, we planned to create shareholder value. We have been actively working to recreate GTEL into a company that can give value to its shareholders.

GTEL currently trades in the OTCBB, where value is not necessarily given to companies that have potential and are making progress. We plan to move from the OTCBB to a larger trading Board.

These plans will be released by the end of the year and most likely will be a move to the Small Cap NASDAQ Board or the American Stock Exchange Board (AMEX). The AMEX offers us the ability to move easily and quickly. We technically meet the requirements for the AMEX now. Since we are a $50m plus market cap company, we fit within an exemption that allows us to list without any consideration to price per share. Which board we decide to go to is still being decided.

Our plans are to start effectively telling our story, not only to the general public but to funds and money managers and to complete this process by the end of the first quarter of 2005.

I want to thank you for your time and I have never been more excited about the future of GTEL.

Best regards,
Timothy Huff
CEO
GlobeTel Communications Corp.