AIRBEE WIRELESS INC.
Due Diligence Report
Investors/Potential Investors
Background
On September14, 2005, Texas Instruments and Airbee Wireless Inc. (Symbol ABEW.PK) announced a partnership bringing together TI’s MSP430 Microcontroller and Airbee’s Zigbee software. Airbee’s new website also provides details pertaining to a partnership with Chipcon. Airbee previously announced a major contract with Radiocrafts AS of Norway and details on other contracts are expected to be released shortly.
On September 12,2005, Airbee announced that it will receive the 2005 Frost & Sullivan Award for excellence in technology.
Airbee is a fully-reporting public company that is expected to move from the “Pink Sheets” to the NASDAQ Bulletin Board. SEC approval is anticipated by the end of September.
Information on the company is available on the Airbee web-site at www.airbeewireless.com. An excellent business summary can also be found on the Investors’ Hub site at Board 2425 by accessing it and clicking on “show information”.
Airbee is the only pure publicly-traded Zigbee company. It has now emerged from the development stage and is presently starting to earn revenue which was recently estimated on the last 10-Q to reach as much as $500,000 for the last six months of 2005. Beginning in 2006, revenue is expected to grow exponentially with profitability anticipated by mid-year.
The nature of the software business is relatively unique. Once development of a product (or suite of products) is completed, costs are basically limited to support, administration and marketing. In Airbee’s case, support activities will be carried out mainly in India where the labor market is relatively inexpensive. Since Airbee will be selling to chip manufacturers and OEM’s ( Original Equipment Manufacturers) primarily at trade shows and through the use of trial down-loads, marketing will be substantially less expensive than those encountered in promoting retail products. Moreover, in the software business, once overheads are covered, each incremental dollar of sales essentially flows directly to the bottom line.
Because Airbee trades on the “Pinks”, it is relatively unknown to the investment community. The company’s share structure can be summarized as follows:
Total number of share issued - 48 million (approximately)
Outstanding options - 17 million (approximately)
Total number of shares-fully diluted- 65 million .
Float in the hands of the public- only around 12 million shares.
Management retains about 80% of the company.
There is an excellent Airbee “chat board” on Raging Bull (ABEW). Posters on this board (together with friends and families) account for over 6 million of the 12 million shares in the hands of the public. There are about 30 people/families involved.
The shares in the company have traded primarily in the .50- .85 range over the past six months. In May, Airbee announced the acquisition of a company “(Identity”) which manufactures and sells an automotive anti-theft device. In August, Airbee’s management and the former owner of Identity agreed to rescind this arrangement. The shares issued by Airbee in connection with the purchase were returned to treasury and the former owner re-assumed the assets and liabilities of that business. The management of Airbee has reaffirmed its intent to focus on its original business plan-the promotion of its Zigbee-related software.
Reasons for Investing
In late 2004, Raj Sundaresan, President and CEO of Airbee, predicted that by 2008, Airbee revenues should reach approximately $400-$560 million annually.
The analysis which follows makes the following assumptions:
1. For purposes of a very conservative analysis, it is assumed that revenue in 2008 will be only one-half of the average of $400 and $560 million., i.e. $240 million.
2. Expenses are assumed to rise to $25 million annually- five times the current level of expenditures (which now include substantial R&D and legal costs to obtain the NASDAQ OBB listing).
3 .The tax rate on profits is assumed to be 33.3%.
4. On a fully-diluted basis, it is assumed there will be 75 million shares. This is comprised of 65 million shares as previously mentioned and an allowance for a further 10 million shares for financing, incentive bonuses and options to staff.
5. It is assumed that 20 times net earnings is a realistic Price/Earnings multiple for a company in this industry.
6. Finally, the calculations which follow discount the 2008 value per share by 40% to give effect to the present value of an earnings stream two years into the future.
Projected sales in 2008 $240,000,000 *
Cost of sales 25,000,000
Earnings before taxes 215,000,000
Income taxes 71,600,000
Net earnings $143,400,000
Earnings per share ($143.4/75 ) $1.92
Price per share @ 20x earnings (Rounded) $38.00
Discounted by 40% for current value 15.00
Current value per share $23.00
* Management estimate of $400-$560 million has been discounted by 50% to reflect risks and uncertainties.
Summary
Airbee has reached its current position while incurring only $3 million in debt-primarily owning to related parties. Once SEC approval to move off the Pink Sheets is received, (This is expected within 30 days) ample sources of financing will become available.
The downside risk of buying shares at any price below, say, $2 is limited. Of course, a purchase of 1,000 shares for $2,000 could result in a loss of one’s entire investment. However, given the contracts that Airbee already has and the expected wide-spread acceptance of Zigbee-related products, a total loss of one’s investment appears extremely unlikely.
On the other hand, based on the analysis above, a $2,000 investment now could return $38,000 by 2008. This provides an excellent risk/reward ratio.
Disclosure
This analysis has been prepared by three investors (non-management) who, as of September 1, 2005 collectively own over 2 million shares of the 12 million in the Airbee float. We are not traders or dealers in securities and are unaffiliated with anyone in this industry.
The projections have been made by us and have not been discussed with management (with the exception of the reference to Mr. Sundaresan’s projection of revenue by 2008-which we discounted by 50%). All calculations are solely based on our own opinions. We encourage all investors and potential investors to do their own due diligence . In our experience, management has been very forthcoming and reasonable in handling questions. The Airbee web-site provides all the necessary contact information.
Please feel free to join us on the Raging Bull Airbee (ABEW) Board for ongoing discussions on the company.
