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!
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.
Here is where they spun it back out:
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
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
