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Strategies & Market Trends : Roger's 1998 Short Picks -- Ignore unavailable to you. Want to Upgrade?

To: Roger A. Babb who wrote (8169)	5/2/1998 1:31:00 PM
From: phbolton	Read Replies (3) \| Respond to of 18691

Andrea Electronics (AND) update: About a year ago this company had no debt and had posted a very nice gain in revenues and earnings primarily due to packaging of their headset with some IBM ViaVoice software. Since then the insiders have cashed in about $16 mil in options, the shares have been diluted by about 30%, revenues have dropped about 20%, operating earnings have dropped from about $1 mil positive to $1 mil loss per quarter, there have been earnings warnings the past two quarters and the only analyst who sort of follows the stock has dropped his rating to a 3. Insider sales this year are over 500,000 shares for $6,943,009 for an average of under $14. Much of the insider selling was done in March. See insidertrader.com for all the details. The balance sheet is, in my opinion, simply dreadful. This past quarter there was a $1.1 mil loss on $4.5 mil in revenues while inventory rose $2 mil to $7.7 mil. Andrea claims the buildup in inventory to meet expected demand in the June/July timeframe a statement which I find difficult to believe. Excluding one time time tax gains and the sale of a facility earnings these past three quarters have been 0.11, 0.06,-0.12. The corresponding prior year numbers are 0.04, 0.12, 0.12. Excluding one time charges the EPS the past four quarters is about 0.22 to give a current PE of about 80. Cash revenues in third quarter 97 were about $7.7 mil, 4th quarter 97 about $6.2 mil and 1st 98 about $4.5. The originally reported numbers for 4th quarter 97 did not mention that $1.5 mil of the revenue was "barter" a fact only revealed in the 10-K. The portion of the 10-K relating to compensation has not yet been filed. Andrea has bought Lamar Signal Processing, an Israeli company with 8 employees, for $3 million and 1.8 million shares of stock apparently for a "patent pending" far field microphone technology. There are about 10 million other shares outstanding. They have also sold their current facility and are moving into a leased place costing $600,000/year. They are expanding in some uncertain way into the Utah valley. Thus, expenses are rising while revenues are declining. They had only $2 mil in cash before buying Lamar so they are now in debt. They will have to borrow more to keep going this year as the losses mount. More debt is more interest. The future does not look promising. The move to a leased facility, the expansion in Utah and the purchase of Lamar all indicate rising in expenses. Will there be an offsetting increase in revenues? No apparent reason to expect revenues of over $5 mil per quarter anytime soon. There has been no announcement but their deal with IBM may not be as favorable as it once was which would explain their plummeting revenues-down more than 50%- from OEM deals. All of the PC OEMs apparently already have microphone deals with Telex/Shure/Emkay/Philips etc. Dynatec (DYNX) got the Lu deal dynatecintl.com ). AND seems to be lagging in all areas of headset technology . For example, they are many months behind their previously announced schedule on the full duplex wireless headset which have been available from Telex etc for a long time anyway. There are about six companies making headsets which seem to be commodity items to me. Headsets are not going to be used in internet telphony which will be mostly phone-net-phone. To see some truly scary commentary on Andrea take a look at the Yahoo AND bulletin board messages.yahoo.com these folks not only have trouble telling revenues from earnings but they believe things like the "voice recognition business will grow to $30 billion in 2002" and then also assume that AND will get 10% of the business. Sounds just like the old Zitel song. However, even these folks now seem worried. Andrea looks in worse shape to me now than at any time since I started following it about last August. This appears to be a broken company and with mounting losses may be forced to turn to a "floorless" convertible. Sticking to a prediction of single digits by 6/1/98 or so.