AEYE thoughts.

There was a pro-AEYE article on Seeking Alpha that seemed rather encouraging,

http://seekingalpha.com/article/2837656-audioeye-so-much-bet…

But when I went on and read the comments, they were so clear, and so damning, that I think anyone is safer out of this stock. Here’s just one of the comments.

Let’s just cut to the chase, should we assume you invested in the recent 40 cent financing? While I appreciate your disclosure that you work for an investment firm and they have a position in the stock. Is it possible your article was written in an effort to help monetize your investment? I’ve seen irresponsible articles here over the years, but this ranks amongst the most overzealous I’ve ever read. Frankly, the fact SA even let you publish it only discredits their site in my opinion.

Regarding the business, I’m personally not so sure the business opportunity exists. Section 508 compliance was originally mandated in 2001 and the 21st Century Communications act was signed in 2010 by Obama if I recall accurately.

Accessibility isn’t new and many larger company’s have been providing solutions for the impaired for well over a decade now. Even this company indicates they were founded in 2003. What have they been doing for the last 12 years? Here’s a press release from 2006!

http://bit.ly/1yOZ9De

The notion you suggest that anyone is going to come to them because of their patents is comical at best in my opinion. Have you noticed the valuation they placed on their patents was done by the exact same company who valued their patents while at Augme Technologies, changed to Hipcricket? Research history and see how that worked out for shareholders. Today, software patents are barely enforceable thanks to patent reform. I would be surprised if they weren’t completely invalidated if subject to an IPR.

To me the opportunity has long since passed them by and that the small growth and lack of traction in real cash revenues is telling. All the old pr’s talking about partnering or hiring all these gov. sales specialists announced in the last year and Q4 cash revenues are only $1M, the entire year just under $2M.

Don’t forget that despite the impending 508 changes you suggest will spur growth, the largest shareholders of this company must have felt otherwise as they elected to sell the entire company in 2010 to a penny stock company called CMGO for only about $1M dollars. Just read the terms of what they were willing to sell it for then…eye opening in light of the supposed opportunity you allude to.

Here is where they bought it for barely a million dollars, most they took in shares of CMGO, under a penny today.

http://bit.ly/1yUcQUL

Here is where they spun it back out:

http://bit.ly/1yUcOwd

Meanwhile total quarterly sequential revs from Q3 to Q4 dropped 33%. Dropped 33% and that’s inclusive of the continuing license exchanges that don’t generate any cash. Conveniently that comparison was present in last quarters release but omitted from the recent one along with run rate. It’ shard for me to think that if you can’t even grow license exchanges which cost nothing to a client, how are you going to grow actual cash sales?

What you also could have also mentioned is that it was just one single license in Q1 that was paid for by cash of $225k that allowed them to recognize all the other subsequent license swaps as revenues. Absent that, their reportable revenues for the year would be under $2M, not $12M. Sure legal per accounting rules, but like Paulo said it’s inherently “misleading”. Based on all the colorful releases discussing top line growth, income, run rate etc., it’s impossible for most not talking a position to believe it not all completely by design. Frankly, it worked, the stock is currently valued at an incredibly overvalued fully diluted 25X trailing cash sales. Fully diluted they have over 106M shares outstanding now as you mention.

The real question you need to find out from your friends at the company remains who really paid for that single one license with cash? I still would like to know as others have suggested, was it La Frontera, their client previously disclosed a year ago in filings to be over 50% of their revenues? That would be interesting if it was considering the family tie involved.

State Senator David Bradley, a Navy Veteran, licensed counselor and Chief Development Officer at La Frontera Arizona

http://yhoo.it/1yUcOMs

I believe one of the criteria for that one sale to be able to serve as fair value for subsequent exchanges of the license is that the transaction must be considered arms length so that the price represents an equitable valuation for the asset.

So it would be interesting to know exactly which customer did they receive the $225k cash from in Q1 that opened the door to the accounting treatment they have been leveraging? Like you rightfully state, such accounting treatment for all the non monetary revenues can only be considered to have painted a fairly unrealistic picture of reality creating the perception that their growth rate was much higher than it truly is. What is equally troubling is if you look at the Chairman’s employment agreement, it doesn’t appear to distinguish non monetary revenue growth versus monetary as a prerequisite of receiving his bonus’s. Begs the question if they are receiving prescribed bonuses for these non monetary license exchanges while they are of virtually no benefit to shareholders and generate no cash.

Want to go a step further, look into the the last company the CEO and Chairman were involved with called HipCricket “HIPP”, trading at a penny now. The now Chairman of that company Paul Arena was the CEO of it and a company called GEOs Communications prior to it, again defunct. Shareholders of the last two companies where the now Chairman of AudioEye was CEO of, have today lost everything.

In addition, if you look at HIPP’s public filings, you will see a disclosure of an SEC investigation alleged to have been looking at certain public statements made by him that did not come to fruition, like revenue guidance. In fact, there is also an on-going shareholder lawsuit naming him personally. I’m sure you could dig up that info online if interested.

Paulo got it exactly right in my opinion. I think most will see your article as what it is, and attempt to prop up the stock so you can sell the shares you likely recently bought in the financing. I predict this company may follow right in the footsteps of the last two both the CEO and Chairman were involved with, eventually trading to pennies and potential eventual bankruptcy.

Sorry to have been so in favor of it earlier.

Saul

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Saul

I was wondering when we might hear your latest thoughts on AEYE. As most folks on here know, I have a position in AEYE which is quite a bit more significant since they preannounced Q4 results and I was able to buy a larger position (that’s I’m comfortable with) sub 45 cents per share. So I’m up 25% in two weeks but granted that’s only about 12 cents so it wouldn’t take much to see those gains disappear.

I don’t disagree with any of your comments above and I agree that this is a very risky company to invest in with a very real chance of their stock someday dropping to zero.

However, I think the comments that you’ve quoted above come from posters that have just as much invested in the stock dropping as the writer of the seeking alpha article may have invested in the stock price rising. I don’t believe that those commenters have no position in AEYE and spent the time to research the history just so they could warn prospective investors out of the goodness of their heart. Sure, maybe they did the research in order to make their own personal decision not to invest and then shared their findings, but the same people that post on the yahoo boards on AEYE post over and over and over again, and never get any responses from shareholders with alternate views, so it’s not like they are involved in a conversation, they clearly have an agenda which they are repeating over and over nearly every day. I’ve got most of them on “ignore” so I can tell that it’s the same folks that keep bashing.

I actually hadn’t seen the seeking alpha article before so thanks for posting.

Ultimately, there’s nothing in those comments that I would consider really new information. Sure, the Section 508 compliance is not exactly new, we knew that. And sure, AEYE’s cash revenue was very low in the past, next to nothing, as we know. However the trend over the last couple of quarters has been very positive ($86k in Q2, $600k in Q3, $1 million in Q4, and we know, per their press release, that they have already locked in another $1.4 million of cash sales during Q4 which should show up as revenue in Q1 2015. Therefore Q1 should be at least $1.4m cash revenue plus anything else they are able to earn during the next couple of months.

Management has said pretty consistently that they are getting close to being operating cash flow positive. They reiterated it just this month claiming that they expect to be operating cash flow positive in Q1 2015 and I tend to think they will either acheive that or be very close and then reach it in Q2.

Keeping your investment small, I believe that AEYE is a high risk high reward stock that has the potential to climb to several times it’s current stock price if they reach positive cash flow, maintain it, and continue to see upward momentum with cash revenues. There are a lot of “ifs” there which is why I say most folks should keep any position small, but I think there’s potential here.

-mekong

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Mekong, I think what bothers me is how the principals have been involved with apparently shady companies in the past, which have dropped to almost nothing. Also that all the non-cash income was their estimation of what another company’s services in developing a product that they might get a cut from if the other company sold it, might be worth… hypothetically, and they could just pick a number out of the sky.

Hey, I may be wrong and this could quadruple or more by the end of the year, but it makes me uncomfortable.

Saul

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I’ve posted elsewhere that I have very little respect for Seeking Alpha. They strive for volume. As far as I can tell, they have no process to vet their authors, if you can write almost coherent English and chose a finance related subject, they’ll publish it. I don’t know what their remuneration scheme is for authors, but I’m will to bet that most people who get published there get nothing from SA.

Occasionally, there is a well researched, objective post there, but my impression is that almost all the posts are about promoting a position (long or short) in a given stock which will benefit the author if they can influence a sufficient number of readers to actually take action. Separating the wheat from the chaff is hardly worth the effort, I pretty much ignore the site all together.

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I’ve posted elsewhere that I have very little respect for Seeking Alpha. They strive for volume. As far as I can tell, they have no process to vet their authors, if you can write almost coherent English and chose a finance related subject, they’ll publish it. I don’t know what their remuneration scheme is for authors, but I’m will to bet that most people who get published there get nothing from SA.

I use SA regularly. SA has practically no editorial supervision, they act more like a common carrier. They do pay the authors based on page views. The more comments you see the more money the author is making, the schedule is available here:

http://seekingalpha.com/account/write_post_new

I agree that there is a lot of junk on SA but once you learn to distinguish and ignore the crap writers and the crap commentators, you do find the occasional nugget. It’s a way of filtering “news” related to your portfolio.

Several years ago I was urged to publish one of my essays on SA. The interface was so poor that I never did. They suggested I use their blog. I have my own. :wink:

Denny Schlesinger

1 Like