Look out below! AEYE

I know there aren’t many folks left on this board following AEYE, but it has gotten slammed the past few days, from about 27 cents last week to 10 cents today.

Clearly the market thinks it is going to zero, and it very well may be.

I couldn’t resist picking up a few shares at 10c today, knowing fully well that I could easily see that evaporate completely in the next few weeks (tax deduction, yay!).

But seriously, there hasn’t been any news since they first announced the delay in their 10K and Q1 10Q. Assuming they told the truth in that PR and investor call, we already know what the re-stated financials are going to look like (remove the non-cash revenue, remove the related intangible assets and reduce retained earnings on those revenues net of any amortization that gets reversed.) That’s more or less how I modeled their performance over the past year anyway.

So the question is this, will they be overcome by the various class action lawsuits getting filed on behalf of shareholders and what is likely to be an inability to raise money for the near future?

Or will they issue their restated financials sometime in the next month or two showing the cash revenue which will be pretty significant in both Q4 2014 and Q1 2015 based on what has been communicated previously? Will they be cash flow positive in Q1 like management had anticipated? If they do, it will only be a few weeks later that they report Q2 results.

If the restated financials don’t spell total doom and gloom and the revenue trends keep moving in the direction that it did from Q3 to Q4 to Q1, they could have a fighting chance. But given the price action the past couple of days, it’s very possible that many other people know something I don’t and this game is already over.

The good news is that management has a large stake in the company and not too long ago accepted shares in lieu of amounts that were owed to them so they certainly have an incentive to try to save the company. I also expect that their patents could be worth a decent amount even in a liquidation scenario.

we shall see soon…

mekong

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The good news is that management has a large stake in the company and not too long ago accepted shares in lieu of amounts that were owed to them so they certainly have an incentive to try to save the company. I also expect that their patents could be worth a decent amount even in a liquidation scenario.

Hey Mekong,

I would never assume that a company’s patent portfolio would come anywhere close to helping recover any significant losses from investing in their stock. I can’t think of a single instance where it would.

Jeb

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I would never assume that a company’s patent portfolio would come anywhere close to helping recover any significant losses from investing in their stock. I can’t think of a single instance where it would.

I hear you, but then again we’ve got a market cap of only $7 million today.

mekong

mekong, I haven’t followed AEYE in a long time. Do they actually have cash revenues now? People have been paying real money for their products?

There are so many opportunities out there – even some interesting turnaround opportunities in the TMF universe if you prefer beaten down things – why put more money into this one?

Neil


See all of my holdings at http://my.fool.com/profile/CMFKaizen/info.aspx
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Neil

you’re right, it’s probably more of a gamble than an investment at this moment. From today’s price, it’s either going to go to zero and be bankrupt quickly or it will be a 10-20 bagger in a short period. The odds are much lower on the second scenario, but in my opinion, it’s sufficiently high to make it a worthwhile gamble if your risk tolerance is really high.

Yes, in Q3 they signed cash contracts worth $1 million, in Q4 cash deals worth $2.5m, and they’ve preliminary announced another $2m of new cash deals in Q1 2015. So the trailing nine months of cash revenue contract signings is pretty much equivalent to their market cap today.

Now keep in mind there is a lag from the time they sign these contracts until they’ve fulfilled on them and the revenue shows up on their income statement and they get paid, although my guess is that it’s only about 1-2 quarters or so. However, any investment thesis in this company would have to assume that cash revenue will continue to grow significantly going forward, as it has over the past year.

So yes, there are lots of great investments in TMF land and I’ve done really well with them thanks to the newsletters I subscribe to over the past 15 years or so. Actually I think AEYE is currently my only holding that didn’t come from a newsletter I subscribe to. That’s why I keep my AEYE holdings pretty small, but for someone with my risk tolerance, I think the cost/benefit is worth having some skin in the game. But I wouldn’t recommend anyone else take a starter position today if you’re not already invested. Better to see what happens if they successfully get the restatement filed, and maybe even then until Q2 10-Q gets filed and we can see what’s happening with new cash contracts and collections/cash flows. If things work out really well, I bet there will be future, much less risky opportunities to buy some shares.

mekong

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What’s the market for screen readers? What’s a million dollar contract if the CEO gets paid $700,000?

AudioEye is not an investment, it’s a bet with poor odds.

Denny Schlesinger

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I’m with you mekong. I bought shares at 10 cents near the end of the day. I agree the odds of losing everything is greater than the odds of having a 10 or 20 bagger, but I think it’s worth a small bet. If the cash sales are what they say they are and they are cash flow positive in Q1 or Q2, then AEYE should bounce back. Even if it only goes back to 30 cents, we have a quick 3 bagger.

I don’t think they are “cash sales” as much as cash contracts. They could be for quick or long term collection. Also… don’t be surprised if customers cancel or hold back if they realize the company is crashing. Nobody wants a vendor on the edge. There can always be a pop that may make 10cents a good payoff, but I don’t think that means it is a good bet or investment. What ever IP they have if they go under is unlikely to pay their liabilities.

I knew many friends that failed to get paid months of salary after they suspended it and they kept working. They at least thought after the company got sold off (which it did) they would get paid but other creditors took most of it, employees got something back, most supplies got nothing and investors 0

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I hear you, but then again we’ve got a market cap of only $7 million today.

mekong

Good point.

From what little I know, I would bet that their patent portfolio is worth much less than $7 million. In reality, the truth is I don’t know. If someone could provide any idea of what it might be worth that would be interesting and enlightening.

But for a questionable penny stock it may not worth the time it takes to research it.

Jeb
Sounding really curmudgeonly today!

despite how meaning less a 6 cent rise is for this company, it is pretty cool to see 67% rise today

despite how meaning less a 6 cent rise is for this company, it is pretty cool to see 67% rise today

Earlier today I was reading an article titled “How To Trade Like Stan Druckenmiller, George Soros And Jim Rogers.” Druckenmiller used to work for George Soros at the Quantum Fund until he got fired about GBLX [my estimate]. Druckenmiller had this to say:

The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I’m here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they’re teaching at business school today is probably the most misguided concept everywhere. And if you look at all the great investors that are as different as Warren Buffett, Carl Icahn, Ken Langone, they tend to be very, very concentrated bets. They see something, they bet it, and they bet the ranch on it. And that’s kind of the way my philosophy evolved, which was if you see – only maybe one or two times a year do you see something that really, really excites you… The mistake I’d say 98% of money managers and individuals make is they feel like they got to be playing in a bunch of stuff. And if you really see it, put all your eggs in one basket and then watch the basket very carefully. -Stan Druckenmiller

http://thefelderreport.com/2015/04/20/how-to-trade-like-stan…

Now imagine you had put half your money in AEYE, your ENTIRE port would be up 33.5% today! Oink! Oink! LOL

Denny Schlesinger

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