World Surveillance Group Inc (fka WSGI)

[Nippy1]

Hi,

As we progress into the Third Quarter, we felt it would be important to provide you with an update on our rapidly progressing Sanswire Program. And "progress" is the operative word. We have been operating in the vortex of a range of favorable developments in recent months which have improved both the commercial prospects and the technological features of our Airship program.

On the technological front, we have been the fortunate beneficiaries of a range of new developments - some derived from our in-house testing activities and others acquired from the scientific community at large. These advancements in technology have allowed us to re-think and to materially enhance our design and testing program. In particular, as we have completed a variety of low-altitude, tethered float tests using our Sanswire One Airship, a number of useful improvements have been identified. This, in concert with our extensive testing, has provided several generational leaps in the materials technology and composition elements of our prototype. Of significant importance, given the weight-to-lift ratios which are fundamental to the operational physics of our Airship, we recently embraced the development of a new, very-light-weight, carbon-fiber, composite material which will allow us to construct current and future airships in a way, and at a pace, which will substantially reduce our time-to-market, while dramatically improving our operating efficiencies. This composite construction will allow for greater platform strength, durability and payload capacities. This new carbon-fiber infrastructure will reduce our operational weight by approximately 50% (thereby increasing the payload capabilities) and, ultimately, it will reduce the assembly time by a similar amount. When combining this new very-light-weight, high tensile strength, rigid frame design with the new battery and fuel cell technologies which have emerged in recent months (which will also result in dramatic improvements in power-capacity-to-weight ratios), we have concluded that the optimal strategy for getting our first commercial vehicle to market, as quickly as possible, is to immediately leap-frog from Sanswire One to Sanswire Two. This focuses all our energies, all the expertise which we have gained to date and all our resources, both financial and human, on efforts which have a clear and immediate pay-off. Sanswire Two has allowed us to "funnel" everything we have learned from Sanswire One into a timetable which will put our first commercial vehicle in the stratosphere much earlier than we had previously expected.

Our Sanswire Two Airship, which is currently under construction, will incorporate all the technological features of our final commercial vehicle. It will represent a major "leap" in virtually every area, based on the much-improved power and weight ratios which we are now able to access. Speaking of "ratios", our launch of Sanswire Two will also have the major shareholder benefit of considerably reducing whatever operational and testing risks which might have previously existed. In other words, our "risk-reward" ratio will be enhanced and, from a shareholder's perspective, this is a key consideration. Thus, as currently planned, we expect to put our new high-tech Sanswire Two vehicle through its most demanding operational paces, at altitude, before the end of this year.