Flight Safety Technologies (OTC:FLST.OB).….Get Ready for the Crash and Burn.
August 12, 2003
Part 1 of 2
Flight Safety Technologies (OTC:FLST.OB).….Get Ready for the Crash and Burn.
Flight Safety Technologies has become one of the most actively traded issues on the OTC BB over the past month. Stocklemon believes that this activity and upward movement in the stock does not correlate to the viability of their products, rather it is a mere bi product of a stock promotion. Flight Safety has been testing a proprietary product called SOCRATES, which measures wake vortices using a laser beam. This project has been in development for over 6 years now and does not look like it has any commercial or scientific viability in the near future.
With over 18 million shares outstanding,FLST.OB has close to a $60 million company that is nothing more but a grandiose idea that has never proven its merits.
Flight Safety states on their website and has stated in the earlier filings that the tests at JFK Airport were successful. This is not true. The company knew the result of the FAA tests on SOCRATES were negative as they were telling a different story to investors.
THE REPORT THAT FLIGHT SAFETY DOESN’T WANT YOU TO SEE!!!!!!!!
Volpe Report
The Volpe Center is a research division of the US Department of Transportation. Volpe analyzed the data from the tests that were done with the Socrates System, and found the tests to be UNSUCCESFULL. Stocklemon has included a copy of this report for all to read, yes the same report thatFLST.OB stated that they were unaware of until 6 months after it was issued.
Here are some pull quotes that show highlights of the report:
“Unfortunately, as their analysis concludes in this report, the Socrates program, which is primarily a technology program, is based upon a premise that is not sufficiently understood to support a technology development program.”
“It is clear that the technology can not be tied to any airport development program planed for near term operational implementation, without unacceptable risk.”
“The JFK program was a rapid development exercise to determine that there was any basis to the hypothesis that Wake vortices emit unique consistent acoustic signatures and that the Socrates sensor array could detect them. The results indicated marginal detection at best, using a 2-beam system.”
“I do not believe that the current results indicate Socrates is a viable sensor for any safety related sensor”
“Socrates sounds more like a solution in search of a problem than a thoughtfully considered alternative approach to a known problem.”
The MIT Study
Below is a link for the results of a study of Wake Vortices at the prestigious Massachusetts Institute of Technology. The study concluded,
“Our assessment is the Socrates concept is unlikely to result in a sensor that will be used for any operation procedure or perhaps even research”
mitrecaasd.org
Conclusion of Dr. George Greene, the NASA R&D Manager at Langley.
“It was a very risky concept which has not been proven practical to date”
research.faa.gov
Who is to blame for the stock promotion?
We know this might sound crazy, but we almost believe that the company is not behind their current stock promotion. When Flight Safety merged into the public shell, they only received 53.77% of the public entity. This leaves close to 8 million shares in the hands of the shell owners, who we believe to be the promoters. In one of the most interesting clauses we have seen in a reverse merger, the Flight Safety was OBLIGATED to promote their stock as soon as the merger was completed.
According to the 8-k filed on 7-18-02 (pubco refers to RELS, the predecessor of FLST.OB)
On or before and as a condition of the Closing, Pubco will complete a financing by way of a private placement (the "Private Placement") for gross proceeds of $2,075,000, consisting of 1,037,500 units at $2.00 per unit (each a "Unit"), with each Unit consisting of one common share in the capital of Pubco and one-half of one share purchase warrant (a "Warrant"), with each whole Warrant entitling the holder thereof to acquire one further common share for a period of two years from the Closing Date at a price of $2.00 per common share, as further described on the term sheet attached hereto as Schedule "K".
A further term of the Private Placement is the requirement that Pubco commits to spend $575,000 of the proceeds of the Private Placement on an investor relations program, to be administered by Dunhill, subject to the approval and oversight of management of the Company and in substantial accordance with the budget attached hereto as Schedule "L", as the same may be revised from time to time with the mutual approval of the Company and Dunhill. The funds for the investor relations program shall be deposited into a joint account in the names of the Company and Dunhill upon closing of the Private Placement.”
Plus Dunhill gets a nice fee of $200,000 plus up to $50,000 of reimbursed expenses for administering the Investor Relations Program. So let’s do the math. Of the $1,700,000, $575,000 goes to a mandatory investor relations program or approximately 1/3 of the funds. $250,000 of the $1.7 mil goes towards fees and expenses (we were unable to find out if commissions were paid to anyone). Therefore, no less than $825,000 of the $1.7 million was spent day one.
The Promotional Machine
The company has been promoting its stock in a myriad of ways.
Much of this promotion was fueled by a report written by Dennis Slothower under his newsletter Stealth Stocks. We have emailed Mr. Slothower and asked him if he had ever taken the time to read the test results of the Socrates Project. We have not yet received a response from Mr. Slothower. Interestingly, the distribution of the report that he wrote cost $454,225.00 This cost was paid by a group called Network Holdings. Stocklemon contacted Flight Safety and asked who paid this fee, to which we were told that they did not know. C’mon Good People….do you think that we are gullible enough to believe that?
It is the opinion of Stocklemon that the report written by Mr. Slothower has no factual evidence and ignores the scientific and the financial side of the company. This newsletter looked like a quintessential piece of stock promotion with all the hype and mis-truths that we have seen one too many times. As for Mr. Slothower, we will compare track records any day on our stock picks.
Research and Development
Flight Safety is a company that is based solely on its R&D. Yet, it has been virtually nonexistent over the past year
According to the financials (filed in the SB-2 filed 1/29/03), THEY SPENT $16,823.00 (YES $16K!!!) for SIX MONTHS for the period ended 11/30/02 and $12,155 for the three months ended the same period. How much did they spend in the SIX-month period in the prior year? $24,256.00. (We only found six month figures listed)
Conclusion
It is the conclusion of Stocklemon, that Flight Safety is an overly promoted and hyped story that has not held its weight scientifically. Stocklemon believes that this stock will trade below a dollar in the near future as the promoters behind this company find the nearest possible exit, hopefully they are sitting in an exit row.
Stay tuned for Part 2 where we will learn of these shareholders behind the shell. We will also analyze how the company has misled investors about the advances in their technology.
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