Quick AEYE update

mekong22 · July 9, 2015, 11:06am

I know there aren’t many folks (if any) on here still following AEYE. But here’s a really brief summary of what has happened since they announced back in April that they would be restating their previous quarters to not include the noncash revenues.

May 7th - raised $1.75m via preferred stock issuance (at a lowly 17.5c/share). Good and bad imo. Good that they still found investors willing to put nearly $2m into the company, bad that they are preferred shares and will likely trump the common shares if they go bankrupt. Granted, if they go bankrupt, the common shares will have little or no value regardless

May 19th - reissued all previously issued 10-Q’s that needed to be restated. This includes Q1, Q2, and Q3 2014. The restated financials looked exactly as we would have expected. The noncash revenue were now excluded (which was a known amount so no surprises there) and the related assets that they received in return for those transactions came off the balance sheet as expected.

Today - announced a new agreement with the Chairman of the Board. The Chairman has agreed to take all of his pay for the next year in stock. I’m not sure that the company had much choice other than to structure it this way, but at the same time, it seems like a good sign that he is willing to take the pay in stock and “may” indicate that he thinks the company will survive with some future stock value appreciation.

So this leaves both the 12/31/14 10-K and 3/31/15 10-Q which have never been issued. So they won’t technically be restated, but we are waiting for them to be filed for the first time. Although never filed, the company did announce at the end of each quarter the high level results and the levels of actual cash revenue is much higher in the past two quarters than in any other time in their history (if we can believe what management has told us previously of course) so things were trending in the right direction as of the end of Q1 2015.

They have never said that they expect Q2 2015 to be filed late, and that is due about one month from now, so I think there is a good chance that they will file the 2014 10-K and Q1 2015 10-Q in the next couple of weeks. (a lot of if’s here) but If they do complete the 2014 audit and IF there are no major changes to what have previously been announced on the “cash” revenue side and IF they get the 10-K and 10-Q filed and IF they file Q2 2015 10-Q on time and IF Q2’s cash revenue has not fallen off a cliff from the prior month, then this could get interesting.

Lots of IF’s so definitely still a big chance that they go bankrupt. They also have plenty of class action “investigations” that got announced when it first came out that AEYE would be restating. I don’t know if any of those firms found lead plaintiff/class rep’s or not, but that is a significant possible cost that they could have to deal with even if there is never a judgement against them. Hopefully their insurance will cover anything above their deductible.

I wouldn’t recommend anyone buy into this company until some of the dust settles (although being the gambler that I am, I did pick up some more shares under 12 cents today). But in the next 4-6 weeks we should have a much better idea of how things are looking and whether they will be able to survive.

-mekong

mekong22 · July 17, 2015, 9:14pm

My timing was pretty good with the post above because it’s only a week later and now they have successfully finished their 2014 audit and issued both the 2014 10-K and Q1 2015 10-Q. They’re now fully up to date with their filings and they reiterated that they expect to file Q2 on time.

That’s the good news, now for the bad news (and there’s plenty of it)

I was under the impression that the only change being made to revenue was to remove any revenue related to non-cash sales. However, the manner that they were estimating revenue earned for cash sales (percentage of completion method) was being done wrong too, as the revenue numbers for both Q4 and Q1 are far less than what had previously been reported as their “cash” revenue for those quarters in earlier announcements.

On January 12th during the Q4 pre announcement, they said that cash revenue for Q4 was over $1 million. However, the actual revenue reported for Q4 in their 10-K is only $238k.

Then revenue for Q1 2015 was only $101k. not good

The Jan 12th release also said they expected operating cash receipts of $2 million during Q1 and that they would be operating cash flow positive for the quarter. That didn’t happen. Operating cash flow was a negative $2.4m. By my calculation, given the amount of Q1 revenue and the decrease in A/R, they collected about $338k in Q1. The good news is that A/R is only $23k at the end of Q1, meaning they are collecting on their receivables timely.

So what does this tell us?

Managment could have been lying to us in their earlier announcements. They certainly haven’t done anything to earn much trust from shareholders yet so this possibility shouldn’t be completely ignored

The company is not executing on the contracts they’ve signed nearly as fast as they expected, since they are recording revenue on a percentage of completion.

It wouldn’t surprise me at all if they did everything they could to keep Q4 and Q1 revenue down since they are already stuck dealing with the restatements and delayed filings. I suspect they want to show as much revenue as they can in future regularly announced quarterly reports, making the comps look better too. The delayed Q4 and Q1 filings would be released without much fanfare so no point showing too much revenue in those quarters if it can be held for later quarters, assuming of course you can do this without too many accounting shenanigans. The other possibility is they are keeping the numbers looking bad so that someone connected to management can step in and try to take the company private (to own the technology and patents) while shares are cheap.

If we can believe that they did sign contracts for cash sales in Q3, Q4, and Q1 of $1 million, $2.4 million, and $2 million as they’ve previously reported, that’s $5.4m of future revenue and cash receipts that will have to show up eventually, assuming of course, that they can execute on, and collect on, those contracts (big if’s). That better happen soon because they are burning through cash at a pretty high rate.

I wouldn’t be buying this company’s stock today. That being said, I probably won’t sell any that I already own until I see what the next quarter or two look like (assuming they make it that long). I bought this stock expecting that I would either make 10-20 times my money or lose 100%, and at least for now, I’m going to continue to let it ride and see whether they can get this train on the tracks. I’m not all that optimistic at this point.

Q2 should be announced in about three weeks. If they do an earnings call, it should be very interesting.

-mekong

GauchoRico · July 18, 2015, 2:18am

I bought this stock expecting that I would either make 10-20 times my money or lose 100%, and at least for now, I’m going to continue to let it ride and see whether they can get this train on the tracks. I’m not all that optimistic at this point.

Q2 should be announced in about three weeks. If they do an earnings call, it should be very interesting.

mekong,

I wonder how anyone can trust anything that this management says. I also wonder why anyone would want to invest any more time, effort, and energy into this company. And I wonder why any prudent investor wouldn’t just take the loss and redeploy what’s left into a company that has trustworthy management, is growing fast, and is reasonably valued. If you ask me, I’d say the chance of making 10-20x your investment on this are pretty close to zero and the chance of losing 100% are quite high. IMO holding on is a “strategy” of hope when all signs are pointing to disaster.

Chris

jdc115 · July 18, 2015, 5:51am

I was under the impression that the only change being made to revenue was to remove any revenue related to non-cash sales. However, the manner that they were estimating revenue earned for cash sales (percentage of completion method) was being done wrong too, as the revenue numbers for both Q4 and Q1 are far less than what had previously been reported as their “cash” revenue for those quarters in earlier announcements.

On January 12th during the Q4 pre announcement, they said that cash revenue for Q4 was over $1 million. However, the actual revenue reported for Q4 in their 10-K is only $238k.

Cash flow is probably more important to follow anyway. There later quarters may starting having decent revenue from all the deferred revenue they need to recognize yet they already received the cash. I would be more interested to follow increase cash flows if I anything.

But a better question, why invest in this in them at all? If not first brought to attention by Saul, I don’t think anybody here would have touched this company yet few still remain after all these issues?

mekong22 · July 18, 2015, 10:50am

If you ask me, I’d say the chance of making 10-20x your investment on this are pretty close to zero and the chance of losing 100% are quite high.

I agree. Just so my comments don’t get taken out of context, I didn’t say that there is a good chance of 10-20x returns on purchasing the stock today. I was saying that when I purchased the stock, I thought the chances of those types of returns were there. They had recently turned the corner on profitability, were looking to be on the verge of becoming profitable on cash contracts alone, and were anticipating imminent positive quarterly operating cash flows.

Clearly, in retrospect, those forecasts were unaudited and erroneous.

As I said, I wouldn’t be a buyer today, but there are a number of reasons why it might make sense for a prudent investor to continue to hold for another quarter or two if you are already an owner

liquidity - volumes are low, and even trying to sell a small number of shares today could move the stock price by 10% or more.
taxes - there’s no rush to lock in capital losses for 2015, I’ll get the same benefit on my 2015 tax return of selling for a loss today vs selling in Q4. Right now I haven’t had to sell many winners yet this year so there’s not a lot of gains to offset beyond the $3k that can be applied to ordinary income.
management - changes have been made since they announced the restatement earlier this year. Yes, the old management is still around in some capacity, but I’m willing to give the new Chairman a quarter or two.

Sure, they could file for bankruptcy tomorrow and it will have ultimately been better to sell today. But if they thought they were headed to bankruptcy, I doubt they would have put in the time or expense to restate and catch up on their filings. I also doubt the new Chairman would have accepted his total compensation in company stock.

-mekong