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Not sure that Hotstocked is somewhere you want to see your investments being discussed. Found this via quick Google search.
"Enigma Software Group is not the only channel through which Mr. Colorado Stark and Mr. Alvin Estevez carry out their business ideas. The two entrepreneurs also run Stara Zagora Company, a Bulgaria based company, which owns and operates an ex-stock promoting website called Hotstocked. There is no mistake – the Bulgarian trade registry clearly shows the names of Colorado Stark and Alvin Estevez as the company’s co-owners.
Starting with Mr. Colorado Stark, his Linkedin profile shows that he has a higher education in fashion and the invaluable experience of resurrecting twice from bankruptcy. Apparently, at some point of his life Mr. Stark dumped the stylish rags and delved into the broad world of financial markets.A Broker Check for Colorado Stark at FINRA indicates that he had been a broker at five different financial companies between 1992 and 2004. According to this report, in 2000 Mr. Stark got involved in a customer dispute with allegations of “unsuitable margin activity, churning, risk exposure, and mishandling of the account as unethical and improper resulting in a loss of about $71,000”.
However, later on, the customer had decided not to pursue this complaint.Mr. Colorado Stark, manager and owner of hotstocked.com, operated by Stara Zagora Company, BulgariaSeveral years after he quitted his career as a broker, Colorado Stark relocated to Bulgaria, where labor is as cheap as dirt and laws are not as strict as in the US; and the hunt for investors continued, this time through a website called Hotstocked, which not so long ago participated actively in stock promotions of securities traded on the OTC and Pink Sheets exchange.
In fact,testimony of this activity still remains on the website. Adding all the numbers disclosed on this page, it turns out the aggregate sum received by the owners of Hotstocked for their promotional activities amounts to $1,060,000, not including equity compensations.That’s excellent news for the owners of Hotstocked and Enigma Software but what about the common investors playing on the small cap market?
It looks like there are investors who do not keep good memories about the activities of Hotstocked and Mr. Colorado Stark:[toggle title="Here are a couple of opinions from the Internet:" state="open" ]• A forum user at iHub, called RyGuy, openly claims that “Colorado Stark the man behind Hotstocked.com is a scam artist that runs EnigmaSoftware, the parent of SpyHunter. I would not trust a work he or hotstocked has to say, let alone the fact they are running hotstocked out of Bulgaria.” And here is another interesting find of RyGuy‘s, “How scummy can these people be, that operate these sites like hotstocked.com and manipulate the market to steal money from all of us.”• “The hotstocked.com site that put out the article about GOSY has a bad reputation for misrepresenting information,” says Goku 77 over at iHub and adds some interesting finds.• Another iHub user adds: “What do we expect from a paid for promotional site. They can be bought for a promotion but also for some truth. Like all those sites they publish what they are paid to publish be it good or bad, long as they’re paid that’s all they care about.”• A comment at ripoffreport.com completely scathes the company saying, ” Hotstocked.com is a horrible company with a horrible reputation. I would never rely on them for any important decisions regarding stock or business. Run from this company. They should be put out of business.They are frauds, cheats, and liars!”• “hotstocked is a total hack site…”, “Hotstocked.com is a complete scam run by the shorts, everyone knows it,”say Max Power and The Phoenix, iHub members. [/toggle]Hotstocked’s promotional activity was so ostentatious that its campaigns attracted the watchful eye of the U.S. Securities and Exchange Commission (SEC). The story unfolded in the summer of 2011 when the SEC suspended trading in 17 microcap companies in order to “combat misrocap stock fraud”. After this intervention, which stirred the small cap market, the SEC commented that it was targeting “insiders and promoters” and “other “gatekeepers” who flourish in the shadows of this less-than-transparent market.” And which was the first website that the SEC listed under the section Excerpts From Internet Promotional Campaigns that accompanied the press release summarizing the event? It wasHotstocked and its materials on Calypso Wireless Inc. (PINK:CLYW)."
Take your profits while you can is my best advise. I predict they are short lived. Can't put the cat back in the bag. Everyone has now figured out exactly how they are generating their purported growth. Had they not come up with the creative way of recognizing all of those non monetary license exchanges as revenues, where do you think the stock would be trading right now? I can't imagine reporting a 50% plus drop in monetary revenues would have supported the current 100X multiple of cash sales. 97% of all last quarters revenues involved exchanging a license with a customer for no cash. All the partnerships, sales groups and press releases about how all agencies need what they offer, yet cash sales dropped over 50% at just $87k in Q2 and some, if not all of it, may have come from La Frontera where the CEO's father is Chief Development Officer. Same company who they previously issued no less than 3 press releases about.
I won't be surprised if and when they are again raising more money and diluting again. Just look at what has occurred to share count in the last year, almost 100M shares fully diluted. If you consider they only generated $87k in cash revenues last quarter and how they lowered the strike price on those 10M warrants to get them exercised, without that they would have again been selling more shares to fund operations. With the warrants already having been exercised last Q, it will be interesting to see what happens in terms of a need for additional financing. Rarely have I personally seen a small company run through cash like this one and only have just $87k in cash revenues in the most recent quarter to show for it.
It should see at least $.25. Even at that, it would still be trading at an almost $25M fully diluted market cap, 25X what they sold the company to CMGO for in 2010 or an incredibly pricey almost 62X's cash revenues based on their Q2! Don't forget that the fully diluted share count is almost 100M shares now.
There will certainly be no lack of effort by some, one posting today in fact, but it's hard to put that bloom back on the rose so to speak. Anyone reading the filings knows the truth. Despite the releases only talking about huge 1400% revenue growth and upping guidance, the devil is in the details, 97% of last Qs revs were non monetary. This guy was onto it even after Q1. Funny how he was watching and said he would be worried if 2/3rds of Q2 revs were also non monetary. Turns out it was almost 97%! Worse, normal cash revenues dropped over 50 % in Q2.
Deep Dive into AudioEye
Board: Saul's Investing Discussions
Author: mekong22
"So I spent some of my weekend reading AEYE’s latest 10-Q, 10-K and some other information I could find (because what beats spending a summer weekend reading SEC filings, right?). Anyone that has invested in the company, or is considering an investment in the company, I strongly encourage you to at least read the company’s latest quarterly 10-Q report.
http://www.sec.gov/Archives/edgar/data/1362190/0001104659......
It’s only 22 pages long. The 2nd quarter 10-Q should be released in another two weeks.
If you’re investing a couple percent of your portfolio, you should probably familiarize yourself with the additional info in the 2013 Annual 10-K report. It is a lot longer, but much of the information gets repeated a few times and you can scan over it after reading it the first time.
http://www.sec.gov/Archives/edgar/data/1362190/0001104659......
OK, so let’s get to it,
“Holy red flags, Batman!”
is essentially what I said to myself about 10 minutes in as I decided whether to sell two-thirds, or all, of my current position in AEYE after reading this in Footnote 1 of the 3/31/14 10-Q (note I later changed my mind about selling right now as you'll see below):
For the three months ended March 31, 2014, the Company sold one license for cash of $225,000 and exchanged the same license to three other customers for licenses to their intellectual property. The three licenses exhanged were determined to meet the aforementioned criteria and were each recognized as revenue and intangible assets for $225,000 each for a total of $675,000.
So what we’re saying here, is that of the $1.029 million record quarterly revenue they recognized in Q1, only about a third of that, or $350k, was sold for cash. The other $675k was essentially traded for licenses to the customer’s IP (of which I couldn’t easily figure out what those obtained licenses were, although I didn’t look too hard. It does look like they are a 3 year license based on the amortization period of the related intangible assets) and AEYE will never actually be paid for the $675k of Q1 sales. This is allowed under GAAP accounting rules, but there are a lot of hurdles you have to overcome to record revenue this way, which I’ll assume that AEYE had covered.
Theoretically (and hopefully for shareholders) the licenses they obtained will somehow lead to future revenue, but I don’t know the details. There were probably press releases when those sales occurred (as AEYE LOVES to issue PR’s, not sure I think that is necessarily a good thing or not) which may explain more but I haven’t dug in that far just yet.
My first thought was “ok, so if 2/3rds of their Q1 revenue represents sales that they’ll never be paid for, what if 2/3rds of the $3 million Q2 revenue they pre-announced is also non-cash sales?”. Well the first answer to that question, is, that would be a very bad sign. The second answer is, we need to wait until they announce Q2 (last year it was announced on August 9th, I assume the timing will be similar, maybe the 8th if they keep it on a Friday again) because the pre-announcement didn’t specify."
You should have no problem adding shares. Especially when one considers that the almost 1.1M shares issued last quarter for services should be just now reaching, or approaching 144 eligibility, assuming not S8 shares, where they too may now be possibly sold.
"From April 1, 2014 through June 30, 2014, the Company also issued 1,071,915 shares of common stock for services"
I personally still expect the shares to eventually trade at new all time lows and sub $.25.
Can you answer this question...how much non monetary revenue must a company produce to generate a cash profit and what is a fair multiple of sales for a company that did only $87k in cash revenues last quarter, down over 50% year over year?
If I were you, I would take that small profit while you still can...
I don’t know what is more concerning, the way they are accounting for all of this non monetary revenue, or the simple fact that whoever did their filing can’t spell nonmonetary or exchanged?
"For the three and six months ended June 30, 2014, the Company sold an aggregate of thirteen and seventeen licenses, respectively for $225,000 per license and exchanged the license with its customers for either a license to their intellectual property or prepaid services. The thirteen and seventeen licenses exhanged were determined to meet the aforementioned criteria. During the three and six months ended June 30, 2014, nonmmonetary revenue of $2,925,000 and $3,825,000, respectively, was recognized. This resulted in an increase to intangible assets and prepaid expenses of $675,000 and $3,150,000, respectively."
Does make one pay closer attention to this disclosure: They found in 2013 that the company’s “internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles due to the presence of the following material weakness - Material inconsistencies and omissions related to financial reporting related to certain equity transactions”
Pretty incredible what the Bradley's have done here. Taking some nice pay for a company that only generated just $87k in actual cash revenues last quarter, down over 50% year over year. Their equity is still worth almost $8M and all for a company they sold for just close to $1M in 2010. Correct me if I'm wrong, but based on last Q, their real cash revenues are not materially different today than they were those four years ago? Yet as of today's price, the company is amazingly valued at almost 50X that same price they sold for.
Key Executive
Pay
Mr. Nathaniel T. Bradley , 37
Co-Founder, Chief Exec. Officer, Pres and Director
702.00K
Mr. Sean D. Bradley , 32
Chief Technology Officer, VP and Sec.
611.00K
Mr. Paul R. Arena , 55
Exec. Chairman
Not listed but salary alone is $275,000
Ironically the author stated it would be a very bad sign should the company's Q2 also be 2/3rds (66.6%) non monetary revenues as was the case in their Q1. Turned out that it was far worse at almost 97% non monetary revenues. Out of a reported approximately $3M in Q2 revenue, just $87k represented real cash sales.
While their Q2 press release selectively sites 1400% year over year growth, never mentioning 97% being non monetary, the sad truth for actual cash revenues is as follows:
Traditional Cash Revenues
2014 Revenues $ 86,908 for the Q
2013 Revenues $ 182,232 for the Q
DOWN OVER 50% Y over Y
2014 Revenues for six months $216,669
2013 Revenues for six months $406,529
DOWN CLOSE TO 47% Y over Y
"Deep Dive into AudioEye
Board: Saul's Investing Discussions
Author: mekong22
So I spent some of my weekend reading AEYE’s latest 10-Q, 10-K and some other information I could find (because what beats spending a summer weekend reading SEC filings, right?). Anyone that has invested in the company, or is considering an investment in the company, I strongly encourage you to at least read the company’s latest quarterly 10-Q report.
http://www.sec.gov/Archives/edgar/data/1362190/0001104659......
It’s only 22 pages long. The 2nd quarter 10-Q should be released in another two weeks.
If you’re investing a couple percent of your portfolio, you should probably familiarize yourself with the additional info in the 2013 Annual 10-K report. It is a lot longer, but much of the information gets repeated a few times and you can scan over it after reading it the first time.
http://www.sec.gov/Archives/edgar/data/1362190/0001104659......
OK, so let’s get to it,
“Holy red flags, Batman!”
is essentially what I said to myself about 10 minutes in as I decided whether to sell two-thirds, or all, of my current position in AEYE after reading this in Footnote 1 of the 3/31/14 10-Q (note I later changed my mind about selling right now as you'll see below):
For the three months ended March 31, 2014, the Company sold one license for cash of $225,000 and exchanged the same license to three other customers for licenses to their intellectual property. The three licenses exhanged were determined to meet the aforementioned criteria and were each recognized as revenue and intangible assets for $225,000 each for a total of $675,000.
So what we’re saying here, is that of the $1.029 million record quarterly revenue they recognized in Q1, only about a third of that, or $350k, was sold for cash. The other $675k was essentially traded for licenses to the customer’s IP (of which I couldn’t easily figure out what those obtained licenses were, although I didn’t look too hard. It does look like they are a 3 year license based on the amortization period of the related intangible assets) and AEYE will never actually be paid for the $675k of Q1 sales. This is allowed under GAAP accounting rules, but there are a lot of hurdles you have to overcome to record revenue this way, which I’ll assume that AEYE had covered.
Theoretically (and hopefully for shareholders) the licenses they obtained will somehow lead to future revenue, but I don’t know the details. There were probably press releases when those sales occurred (as AEYE LOVES to issue PR’s, not sure I think that is necessarily a good thing or not) which may explain more but I haven’t dug in that far just yet.
My first thought was “ok, so if 2/3rds of their Q1 revenue represents sales that they’ll never be paid for, what if 2/3rds of the $3 million Q2 revenue they pre-announced is also non-cash sales?”. Well the first answer to that question, is, that would be a very bad sign. The second answer is, we need to wait until they announce Q2 (last year it was announced on August 9th, I assume the timing will be similar, maybe the 8th if they keep it on a Friday again) because the pre-announcement didn’t specify."
On January 27, 2014, the Company awarded 1,500,000 options, one third of which vested immediately, one third vest upon the Company reporting a minimum of $10 million in annualized revenues by the second anniversary of the grant date and one third vest upon the Company reporting a minimum of $20 million in annualized reveunes by the third anniversary of the grant date, with an exercise price of $0.40 per share and an expiration date of January 27, 2019. The fair value on the grant date of the options was $303,562 and it is being recognized over the vesting period of the options.
On February 17, 2014, the Company awarded 55,000 options, which vest over three years, with an exercise price of $0.305 per share and an expiration date of February 17, 2019. The fair value on the grant date of the options was $10,556 and it is being recognized over the vesting period of the options.
On March 3, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.40 per share and an expiration date of March 3, 2019. The fair value on the grant date of the options was $36,935 and it is being recognized over the vesting period of the options.
On March 24, 2014, the Company awarded 2,522,100 options, which vest over three years,with the exception of 200,000 options issued to one individual that vested immediately upon grant. The options have an exercise price of $0.45 per share and an expiration date of March 24, 2019. The value on the grant date of the options was $724,948 and it is being recognized over the vesting period of the options.
On March 28, 2014, 100,000 options were exercised in a cashless manner and 49,496 shares of common stock were issued.
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Table of Contents
On June 2, 2014 and June 9, 2014, the Company issued 175,000 options, which vest over three years. The options have an exercise price of $0.33 per share and an expiration date of June 2, 2019 and June 9, 2019. The value on the grant date of the options was $35,834 and it is being recognized over the vesting period of the options.
On June 11, 2014 and June 30, 2014, the Company awarded 400,000 options, which vest over three years. The options have an exercise price of $0.33 and $0.34 per share and an expiration date of June 11, 2019 and June 30, 2019. The value on the grant date of the options was $68,830 and it is being recognized over the vesting period of the options.
For the three and six months ended June 30, 2014 and 2013, stock compensation expense related to options totaled $290,158 and $168,542, respectively, and totaled $624,353 and $253,358, respectively.
On November 16, 2013, the Company issued warrants to purchase 1,300,000 shares of common stock which vested immediately and have an exercise price of $0.01 per share and expire on December 13, 2018. The fair value on the grant date of the options was $331,287 and the expense for year ended December 31, 2013 was determined to be $331,287. As of June 30, 2014, these warrants have been exercised in their entirety.
On January 27, 2014, the Company issued five-year fully-vested warrants to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $44,370 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the Second Private Placement. The units in the Second Private Placement consisted of 666,667 shares of the Company’s common stock and warrants to purchase an additional 666,667 shares of the Company’s common stock, as well as 53,334 placement agent warrants. The warrants in the Second Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $122,287. As of June 30, 2014, these warrants have not been exercised.
10
Table of Contents
On February 3, 2014, the Company issued 44,307 shares of common stock and five-year fully-vested warrants to purchase 44,307 shares of common stock with an exercise price of $0.40 per share for payment for services. The fair value on the grant date of the warrants was $8,186 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
On March 24, 2014, the Company issued warrants to purchase 1,000,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by an affiliate of the warrant holder. The warrants have an exercise price of $0.40 per share and an expiration date of March 24, 2019. The fair value on the grant date of the warrants was $321,746 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
On June 30, 2014, the Company sold an aggregate of 2,766,667 units to three accredited investors for gross proceeds of $830,000 in the Third Private Placement. The units in the Third Private Placement consisted of 2,766,667 shares of the Company’s common stock and warrants to purchase an additional 2,766,667 shares of the Company’s common stock, as well as 168,000 placement agent warrants. The warrants in the Third Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $503,884. As of June 30, 2014, these warrants have not been exercised.
On June 30, 2014, the Company issued five-year fully-vested warrants to purchase 100,000 shares of common stock with an exercise price of $0.35 per share for payment for services. The fair value on the grant date of the warrants was $13,202 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
For the three and six months ended June 30, 2014 and 2013, the Company has incurred warrant-based expense of $13,202 and $0, respectively, and $387,504 and $0, respectively.
NOTE 7: PERFORMANCE SHARE UNITS
On January 27, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Paul Arena, the Company’s Executive Chairman. Mr. Arena was granted an award of up to an aggregate of 3,000,000 Performance Share Units (“PSUs”). Each PSU represents the right to receive one share of the Company’s common stock. The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.
Read the Chairman's comp agreement. Speaks for itself. Maybe you can weigh in with your opinion as to whether the Chairman is receiving some sizable cash bonuses based on these non monetary revenues? Wouldn't that be something and possibly explain the genesis of all these license exchanges? Still like to know who the single customer is who paid $225k for a license with cash that appears to have enabled them to recognize all of the other license exchanges as revenues under Gaap. A staggering almost 97% of last quarters total revenues!
4. Base Salary . For all services to be rendered by Executive pursuant to this Agreement, the Company agrees to pay Executive commencing January 1, 2014 a base salary (the “ Base Salary ”) at an annual rate of $275,000 during the Employment Period. The Base Salary shall be paid in periodic installments in accordance with the Company’s regular payroll practices.
5. Bonuses . During the Employment Period, Executive shall be paid the following cash bonuses:
(a) signing bonus of $35,000 paid in connection with entry into this Agreement;
(b) commencing for the quarter ending March 31, 2014 and ending with the quarter ending December 31, 2014, a cash bonus for recognized revenues (the “ Quarterly Bonus ”) calculated as follows:
(i) a Quarterly Bonus of $50,000 if the annual contract value of the Company’s new sales net of cash (or cash value of equity) commissions or re-seller agreements paid to third parties during such quarter is greater than or equal to $2,000,000;
(ii) a Quarterly Bonus of $20,000 if the annual contract value of the Company’s new sales net of cash (or cash value of equity) commissions or re-seller agreements paid to third parties during such quarter is less than $2,000,000 but greater than or equal to $1,500,000 for a calendar year;
(iii) notwithstanding the foregoing, at the end of the 2014 calendar year, provided the aggregate net sales is at least $8,000,000 for such year, the Company shall apply any amount of net sales for a particular quarter in excess of the target to any quarter where there is a shortfall with the objective to maximize the Quarterly Bonus. Executive shall be paid any additional Quarterly Bonus within three business days from the date such adjusted amount is so determined; and
2
(iv) for calendar year 2015, the same Quarterly Bonus amount will be payable, but the target net sales amount will be adjusted based on the 2015 budget to be determined by the Company upon consultation with the Executive.
Equity Awards; Trading of Company Stock .
(a) Executive shall be issued warrants to purchase up to 250,000 shares of Company common stock with a grant date that is the same as the Effective Date. The warrants will have a 5-year term, will vest immediately upon grant and will have an exercise price of $0.40 per share.
(b) Executive will be issued incentive stock options to purchase up to 1,500,000 shares of Company common stock. The stock options will be issued pursuant to a new incentive compensation plan to be adopted by the Company following the Effective Date. The stock options will vest 1/3rd upon grant, 1/3 if and upon the Company reporting a minimum of $10,000,000 in annualized revenues by the second anniversary of the grant date, and 1/3 if and upon the Company reporting a minimum of $20,000,000 in annualized revenues by the third anniversary of the grant date. The stock options will have a 5-year term and will have an exercise price equal to the greater of (i) $0.40 per share or (ii) the closing stock price per share on the trading day prior to the grant date.
(c) Executive shall be eligible for such additional grants of awards under the AudioEye, Inc. 2013 Incentive Compensation Plan (or any successor or replacement plan adopted by the Board and approved by the stockholders of the Company) (the “ Plan ”) as the Compensation Committee (or the Board, if there is no Compensation Committee) may from time to time determine (the “ Share Awards ”). Share Awards
3
shall be subject to the applicable Plan terms and conditions; provided, however, that Share Awards shall be subject to any additional terms and conditions as are provided herein or in any award agreement, which shall supersede any conflicting provisions governing Share Awards provided under the Plan.
As John McCain recently stated, "facts are stubborn"
Hard to argue some may not have incentive to drive revenues, regardless of how and whether they generate actual cash or not. Correct me if I'm wrong, but not only was 97% of last quarters revenues non monetary coming from exchanging a license, but they appear to be awarding bonuses based on this revenue growth? Perhaps this explains how their chairman just bought that nice new property in Az. for a purported couple million? Really a nice place based on the pictures. Is it possible he may have sold some of the 1.3m shares given to him just a penny each in Dec of last year? Be interested to know if he still hold those?
On January 27, 2014, the Company awarded 1,500,000 options, one third of which vested immediately, one third vest upon the Company reporting a minimum of $10 million in annualized revenues by the second anniversary of the grant date and one third vest upon the Company reporting a minimum of $20 million in annualized reveunes by the third anniversary of the grant date, with an exercise price of $0.40 per share and an expiration date of January 27, 2019. The fair value on the grant date of the options was $303,562 and it is being recognized over the vesting period of the options.
On February 17, 2014, the Company awarded 55,000 options, which vest over three years, with an exercise price of $0.305 per share and an expiration date of February 17, 2019. The fair value on the grant date of the options was $10,556 and it is being recognized over the vesting period of the options.
On March 3, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.40 per share and an expiration date of March 3, 2019. The fair value on the grant date of the options was $36,935 and it is being recognized over the vesting period of the options.
On March 24, 2014, the Company awarded 2,522,100 options, which vest over three years,with the exception of 200,000 options issued to one individual that vested immediately upon grant. The options have an exercise price of $0.45 per share and an expiration date of March 24, 2019. The value on the grant date of the options was $724,948 and it is being recognized over the vesting period of the options.
On March 28, 2014, 100,000 options were exercised in a cashless manner and 49,496 shares of common stock were issued.
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Table of Contents
On June 2, 2014 and June 9, 2014, the Company issued 175,000 options, which vest over three years. The options have an exercise price of $0.33 per share and an expiration date of June 2, 2019 and June 9, 2019. The value on the grant date of the options was $35,834 and it is being recognized over the vesting period of the options.
On June 11, 2014 and June 30, 2014, the Company awarded 400,000 options, which vest over three years. The options have an exercise price of $0.33 and $0.34 per share and an expiration date of June 11, 2019 and June 30, 2019. The value on the grant date of the options was $68,830 and it is being recognized over the vesting period of the options.
For the three and six months ended June 30, 2014 and 2013, stock compensation expense related to options totaled $290,158 and $168,542, respectively, and totaled $624,353 and $253,358, respectively.
On November 16, 2013, the Company issued warrants to purchase 1,300,000 shares of common stock which vested immediately and have an exercise price of $0.01 per share and expire on December 13, 2018. The fair value on the grant date of the options was $331,287 and the expense for year ended December 31, 2013 was determined to be $331,287. As of June 30, 2014, these warrants have been exercised in their entirety.
On January 27, 2014, the Company issued five-year fully-vested warrants to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $44,370 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the Second Private Placement. The units in the Second Private Placement consisted of 666,667 shares of the Company’s common stock and warrants to purchase an additional 666,667 shares of the Company’s common stock, as well as 53,334 placement agent warrants. The warrants in the Second Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $122,287. As of June 30, 2014, these warrants have not been exercised.
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Table of Contents
On February 3, 2014, the Company issued 44,307 shares of common stock and five-year fully-vested warrants to purchase 44,307 shares of common stock with an exercise price of $0.40 per share for payment for services. The fair value on the grant date of the warrants was $8,186 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
On March 24, 2014, the Company issued warrants to purchase 1,000,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by an affiliate of the warrant holder. The warrants have an exercise price of $0.40 per share and an expiration date of March 24, 2019. The fair value on the grant date of the warrants was $321,746 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
On June 30, 2014, the Company sold an aggregate of 2,766,667 units to three accredited investors for gross proceeds of $830,000 in the Third Private Placement. The units in the Third Private Placement consisted of 2,766,667 shares of the Company’s common stock and warrants to purchase an additional 2,766,667 shares of the Company’s common stock, as well as 168,000 placement agent warrants. The warrants in the Third Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $503,884. As of June 30, 2014, these warrants have not been exercised.
On June 30, 2014, the Company issued five-year fully-vested warrants to purchase 100,000 shares of common stock with an exercise price of $0.35 per share for payment for services. The fair value on the grant date of the warrants was $13,202 and was expensed during the six months ended June 30, 2014. As of June 30, 2014, these warrants have not been exercised.
For the three and six months ended June 30, 2014 and 2013, the Company has incurred warrant-based expense of $13,202 and $0, respectively, and $387,504 and $0, respectively.
NOTE 7: PERFORMANCE SHARE UNITS
On January 27, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Paul Arena, the Company’s Executive Chairman. Mr. Arena was granted an award of up to an aggregate of 3,000,000 Performance Share Units (“PSUs”). Each PSU represents the right to receive one share of the Company’s common stock. The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.
I don't have an opinion on the trading action, but thought your reference to "wash trades" of interest. As you know, wash trades are illegal and a form of market manipulation. I believe some less than ethical stock promoters have been known to engage in the process for obvious reasons.
Speaking of which, do you have any idea who received the over 1M shares issued last quarter for "services" as disclosed in this company's most recent Q filing? Be nice to better understand who and what services were performed for that much compensation.
Investopedia explains 'Wash Trading'
Wash trading is illegal, as it is done in order to manipulate the market and prompt other investors into buying the position. A quick turnaround in positions isn't considered wash trading, as long as the transaction creates market risk for the trader and changes their market position, even if only temporarily.
Two releases in two days announcing “cash” contracts. Does anyone else feel it ironic and somewhat telling how no disclosure of "cash revenues" or "non monetary" revenues were made in the company’s prior financial press release: http://finance.yahoo.com/news/audioeye-inc-reports-net-income-122800395.html
“Non monetary”, “cash revenues”, no mention to be found. Almost as if seemingly irrelevant and not worth pointing out? Not deemed material in their eyes? All that appeared worth mentioning was the top line revenue which created the perception of tremendous growth? Led directly the shares trading much higher causing many to pay prices far north of the current price.
The CEO’s quote in the original release makes no mention whatsoever of these details, but he appears quick to want to talk about the $3M in revenues yet omits how a staggering 97% of them are non monetary license exchanges, and then ups their guidance for the year?
Well low and behold, his last two releases specifically talk only about cash sales. It would appear he most certainly now wants to make the distinction in revenues perhaps acknowledging there is in fact a big difference, maybe not all revenues are equal?
Look at this from their first release: “Revenue for the three months ended June 30, 2014 totaled $3,013,033, which represented a 1,405% increase when compared with revenue of $200,232 in the second quarter of 2013. On a sequential basis, revenue for the second quarter of 2014 increased 192% when compared with revenue of $1,032,886 in the first quarter of 2014.” WOW! Even a Seeking Alpha article was written stating this 1400% year over year growth.
Problem is that what was stated can.only be considered inherently misleading because aren’t they comparing cash revenues last year with predominantly non monetary revenues this year? Again, may be permissible under Gaap, but is it misleading? Shouldn’t apples be only compared to apples and not oranges? Why no mention that cash revenues in the Q actually dropped to $87k or down 50% in the same period? Doesn’t sound as good does it?
I’m of the opinion that only when investors began to ask questions seeing what’s really behind their “supposed” growth, do they now two days in a row issue a release specifically pointing out they sold something for cash. To me, these last two releases trigger thought of the proverbial “kid getting caught with his hand in the cookie jar”.
I find it hard to believe this wasn’t calculated and as though we may be being playing for fools. Management didn't think we deserved to be told the difference between a non monetary sale and an actual cash sale when it helped them and its lack of disclosure played in their favor, so why now? I think the answer is painfully clear.
I would like to still like to know if the company the CEO's father is involved with, La Frontera AZ, three press releases mentioning them, was responsible for either the original $225,000 cash license sale or any of the $1M in cash sales announced yesterday? Without that one cash “paid for” license serving as the basis for determining fair value, allowing the subsequent 19 license exchanges to be considered revenues under creative Gaap accounting, the company’s quarterly filings and press releases would let’s just say…look very different. Suffice it to say, the company’s stock price may as well.
Fool me once, shame on you. Fool me twice, shame on you? Just my opinions based on my findings. If I made a mistake or you disagree, by all means let me know so I may correct it or we can discuss it. While at it, can anyone identify another public company who is currently accounting for revenues based on these license exchanges, just one as a reference?
Thank you for the suggestion. I have read their filings numerous times and that is what has lead to my questions regarding these “Non Monetary revenues” which accounted for almost 97% of all of last Q’s revenues. Since you and others here were so instrumental in “supporting” the shares rise providing such “insight”, I naturally thought you a good place to gain more knowledge. It’s probably better if you more educated posters here explain it to me because when left to coming to my own conclusion, it’s not a very favorable one. You really don’t want me, or anyone else for that matter, trying to come to a logical conclusion on their own for why they may be doing this. It’s for that reason I again ask you, or anyone here for their thoughts.
Had I only read their press releases, I would probably have missed some important information. For instance:
"For the three and six months ended June 30, 2014, the Company sold an aggregate of thirteen and seventeen licenses, respectively for $225,000 per license and exchanged the license with its customers for either a license to their intellectual property or prepaid services. The thirteen and seventeen licenses exchanged were determined to meet the aforementioned criteria. During the three and six months ended June 30, 2014, nonmonetary revenue of $2,925,000 and $3,825,000, respectively, was recognized. This resulted in an increase to intangible assets and prepaid expenses of $675,000 and $3,150,000, respectively."
They unfortunately don’t disclose the single customer that paid cash ($225,000) for one of these licenses back in Q1 which appears to be their basis of fair value assessment allowing all the other licenses to then be counted as revenues under Gaap. Can you imagine if they could only have reported traditional cash revenues like most companies? Probably be hard to maintain an almost $60M market valuation with just $87k in revenues last quarter, down over 50% from the prior year. Thank God for those exchanges of licenses right.
Do you have any insight who the single customer is who actually paid cash for the first license? I ask because I noticed three past press releases where AudioEye announced things with La Frontera of Arizona.
https://www.audioeye.com/la-frontera-community-solutions-contracts-audioeye-launch-behavioral-health-technology-solutions/
http://www.marketwired.com/press-release/la-frontera-arizona-partnership-with-audioeye-launches-rally-point-az-mobile-app-arizona-otcqb-aeye-1817050.htm
http://finance.yahoo.com/news/audioeye-la-frontera-innovations-select-161642540.html
I would guess that maybe La Frontera is one of the clients that previously accounted for at least the majority of the previous cash revenues they ever recorded? Their 2013 10K filing indicated that about 80% of all revenues came from only two clients. “As of December 31, 2013, two major customers generated 80% of our revenue. If we are unable to establish, maintain, grow or replace our relationships with customers and develop a diversified customer base, our revenues may fluctuate and our growth may be limited.”
So my question is simply, is La Frontera possibly the customer that paid $225,000 for this one cash license?
I ask because I noticed that one David Bradley is listed as Chief Development Officer at La Frontera. http://www.lafronteraarizona.org/who-we-are/executive-management-team.html. It would appear he is related AudioEye’s CEO Nathaniel Bradley dad correct?
Look forward to you helping further educate me and others here who may have similar questions. TIA!
I was wondering if you could answer a question for me?
How much non monetary revenue must a company generate before it generates a cash profit?
While I don’t know if this company’s exchange of a license for non monetary revenues is technically considered “a barter”, to barter does mean to exchange and their filing clearly says they exchanged 13 licenses for no cash and recognized about 96% of all their entire last Q’s revenues as “non monetary revenues”. One must assume they are at minimum similar in nature? Regardless, here are some interesting points that too would on the surface seem to be perhaps relevant to what they are doing here? Please correct me if I am mistaken.
While all legal per gaap accounting, one can only wonder if this type of revenue recognition paints a very inaccurate picture of a company's true growth and financial condition? Appears to be the authors point.
http://benfranklinrepublican-gmail.blogspot.com/2010/10/no-barter-in-revenue-especially-for.html
"Strong reasons exist for rejecting permissibility of barter transactions as revenue. This paper argues that barter is a poorly measurable, imprudently and carelessly considered management practice that can produce deterioration in the revenue generating cycle.
If a seller accepted bartered goods or services and reported this as revenue because it wants to use assets to exchange for a future good or service, receiving payment in anything else similar in fair value other than what is realizable in the money of account and claims to it, the circumstances of the barter exchange breach the earnings cycle for the unforeseeable future. Based on that, barter transactions have failed the revenue test, while also perhaps failing the arms length, arms’ length, fair value assumption on which the public reporting model is based.
The use of and reporting barter transactions as revenue promotes a management notion that it can engage in commerce while ineffectively pricing and, in turn, charging others for the goods and services it provides, meanwhile disserving its stakeholders and non management shareholders. Including barter in revenue further promotes the notion that management can avoid establishing optimal pricing for its goods and services, yet desiring to engage in a commercial environment that functions on cash and readily exchangeable equivalents.
Including barter transactions in revenue fails to complete the revenue cycle with respect to realized-realizable. It is inferior for measurement purposes and fails to produce cash on which the company and employees rely for operating activity and remuneration purposes. Employees, nonmanagement shareholders, and stakeholders of such enterprises are finding that the flawed pricing and costing practices of businesses do not contribute to society in the meaningful way the stakeholders desire. The result becomes a progressive moral hazard, with associated market scams that enrich a few insiders, while fleecing the ordinary investor and the less powerful stakeholders."
Thank you for the insight, but all the non monetary revenues in the world won't matter in my opinion. All the exchanges don't generate actual cash which pay salaries, cover overhead or result in the company no longer having to dilute to remain a going concern. Have you seen how much cash these guys are pulling out in salaries? It's almost a million dollars with just the handful of top execs.
The revenue numbers only look impressive in a press release, ironically no disclosure of how 97% of them were "non monetary" in theirs, but the filings do tell the reality of the matter.
They sold a single license for cash in Q1, wonder who paid for it, and then they used that number ($225,000) as fair value for all the other licenses they sold. I assume it's that one cash sale which allowed them to satisfy the GAAP requirement in determining "Fair Value" for the asset and enabling them to recognize the future 13 or so exchanges as non monetary revenues in the same amount?
"For the three months ended March 31, 2014, the Company sold one license for cash of $225,000 and exchanged the same license to three other customers for licenses to their intellectual property."
In Q2, they sold not a single license for actual cash. Cash sales in the Q were down to just $87K from over twice that in the similar period last year. So down over 50% year over year and down even more sequentially.
Simple question...why with all of the previously announced sales partnerships with organizations focused on Gov. contracts, at least 4 to 5 at this point, a product that is supposedly superior and mandated according to some, why does it appear as though only a single license was paid for with real cash where every other one was an exchange that resulted in non monetary revenues? Common sense would indicate if you had something of value, then others would be willing to actually pay for it with real money right? Isn't this how most companies really do business?
Sorry...based on the public filings, AudioEye is something I personally just can't "SEE".
There will be no lack of effort by some I'm sure but it's hard to not think the bloom is now off the rose so to speak. Anyone reading the filings knows the truth. Despite the releases only talking about huge revenue growth and upping guidance, the devil is in the details. This guy was onto it even after Q1. Funny how he was watching and said he would be worried if 2/3rds of Q2 revs were also non monetary. Turns out it was almost 97%! Worse, normal cash revenues dropped over 50 % in Q2.
Deep Dive into AudioEye
Board: Saul's Investing Discussions
Author: mekong22
"So I spent some of my weekend reading AEYE’s latest 10-Q, 10-K and some other information I could find (because what beats spending a summer weekend reading SEC filings, right?). Anyone that has invested in the company, or is considering an investment in the company, I strongly encourage you to at least read the company’s latest quarterly 10-Q report.
http://www.sec.gov/Archives/edgar/data/1362190/0001104659......
It’s only 22 pages long. The 2nd quarter 10-Q should be released in another two weeks.
If you’re investing a couple percent of your portfolio, you should probably familiarize yourself with the additional info in the 2013 Annual 10-K report. It is a lot longer, but much of the information gets repeated a few times and you can scan over it after reading it the first time.
http://www.sec.gov/Archives/edgar/data/1362190/0001104659......
OK, so let’s get to it,
“Holy red flags, Batman!”
is essentially what I said to myself about 10 minutes in as I decided whether to sell two-thirds, or all, of my current position in AEYE after reading this in Footnote 1 of the 3/31/14 10-Q (note I later changed my mind about selling right now as you'll see below):
For the three months ended March 31, 2014, the Company sold one license for cash of $225,000 and exchanged the same license to three other customers for licenses to their intellectual property. The three licenses exhanged were determined to meet the aforementioned criteria and were each recognized as revenue and intangible assets for $225,000 each for a total of $675,000.
So what we’re saying here, is that of the $1.029 million record quarterly revenue they recognized in Q1, only about a third of that, or $350k, was sold for cash. The other $675k was essentially traded for licenses to the customer’s IP (of which I couldn’t easily figure out what those obtained licenses were, although I didn’t look too hard. It does look like they are a 3 year license based on the amortization period of the related intangible assets) and AEYE will never actually be paid for the $675k of Q1 sales. This is allowed under GAAP accounting rules, but there are a lot of hurdles you have to overcome to record revenue this way, which I’ll assume that AEYE had covered.
Theoretically (and hopefully for shareholders) the licenses they obtained will somehow lead to future revenue, but I don’t know the details. There were probably press releases when those sales occurred (as AEYE LOVES to issue PR’s, not sure I think that is necessarily a good thing or not) which may explain more but I haven’t dug in that far just yet.
My first thought was “ok, so if 2/3rds of their Q1 revenue represents sales that they’ll never be paid for, what if 2/3rds of the $3 million Q2 revenue they pre-announced is also non-cash sales?”. Well the first answer to that question, is, that would be a very bad sign. The second answer is, we need to wait until they announce Q2 (last year it was announced on August 9th, I assume the timing will be similar, maybe the 8th if they keep it on a Friday again) because the pre-announcement didn’t specify."
I don't believe they could qualify right now even if the wanted to. Could you please explain your comment and exactly what criteria they meet to list on Nasdaq. They authorized a 1 for 10 reverse split. Do you expect they reverse the shares?
Does it concern you that almost 97% of all their revs in the last quarter were non monetary...involve no actual real cash exchange like normal revenues? That real traditional revs actually were cut in half year over year to just $87k in the Q?
Who do you think the almost 1.1 million shares were issued to in just the last Q for certain services? What do you think those services were?
Can some here please take a look at AudioEye AEYE and give me some thoughts? While I already firmly believe what they are doing to be legal and acceptable per GAAP, it sure appears to paint a very unrealistic picture of the company's true strength and growth.
I'm particularly interested in how they are putting out a press release like this one: http://finance.yahoo.com/news/audioeye-inc-reports-net-income-122800395.html
Notice how you didn't see non monetary mentioned in any press releases. You also didn't hear how traditional cash revenues, where a customer actually pays you for a service or product, dropped over 50% last quarter to just roughly $87k compared to roughly $182k in 2013. Six month year over year dropped about 47%.
NON MONETARY REVENUES...almost 96% of all last quarters revenues were an exchange of a license with a customer and result in no cash exchanging hands yet the words non monetary are not once mentioned in their release upping revenue guidance. To me, this seems much like the old barters of the dotcom era that lead to overstated revenues. Does anyone know if technically speaking what they are doing falls under the barter category? Barter by definition mans to exchange and they use exchange in their own language so one can only assume they are at least similar in some respect.
"For the three and six months ended June 30, 2014, the Company sold an aggregate of thirteen and seventeen licenses, respectively for $225,000 per license and exchanged the license with its customers for either a license to their intellectual property or prepaid services. The thirteen and seventeen licenses exchanged were determined to meet the aforementioned criteria. During the three and six months ended June 30, 2014, nonmonetary revenue of $2,925,000 and $3,825,000, respectively, was recognized. This resulted in an increase to intangible assets and prepaid expenses of $675,000 and $3,150,000, respectively."
Note the increase to intangible assets. The definition of intangible is non material, unquantifiable, can't be touched, difficult to define, vague, lacking substance and more.
Ironically I just learned today there was apparently an SEC investigation at the company the CEO and Chairman used to be with. Supposedly had something to do with misleading public statements or guidance. Looks like it was never prosecuted but it is disclosed in the other company's filings.
Any thoughts welcomed if you have seen this type of accounting utilized elsewhere in recent years?
I would agree that the current 69M shares issued and outstanding isn't that bad. Unfortunately, it looks like you also need to add what appears to be about 11M unexersized warrants, about 9M options and about 4M performance share units, all have a basis in the general range of 35 to 40 cents.
Assuming my math correct, the fully diluted share count is maybe 95M shares plus or minus. Please verify my math if you would. That would be an approximate $60M plus valuation fully diluted. Quite impressive for a company who booked $87k in traditional monetary revs last Q and that was down 50% from same Q last year. Thankfully they are generating all those non monetary revenues which has lead to a nice increase in share price.
Makes sense then why they had to raise the authorized from 100M to 250M in March.
Still also like to know who was issued the almost 1.1M shares for services in just the last quarter. Exactly what services were all these shares awarded for? At the price of the stock over the last Q, whoever received them could have raked in around $1M if issued as S8 shares. Not too shabby. Some are making a lot of money here.
You should read the filing. It's all right there. Especially look at all the options, warrants and share issuance and their respective strike prices. You won't get those details from any of their press releases.
In July 2014, the Company offered holders of a series of its warrants, including the warrants issued in the Second Private Placement and the Third Private Placement, the opportunity to exercise their warrants for a 10% discount to the stated exercise price in exchange for their agreement to exercise their warrants in full and for cash on or before July 31, 2014. Under the warrant exercise offer, in July 2014 the Company issued 10,027,002 shares of common stock pursuant to exercise of warrants for total proceeds of $3,632,801.
(10m shares issued at 36 cent cost basis)
As of May 14, 2014, 55,517,709 shares of the registrant’s common stock were issued and outstanding.
As of August 11, 2014, 69,367,752 shares of the registrant’s common stock were issued and outstanding.
Roughly 25% increase in shares for the quarter.
From April 1, 2014 through June 30, 2014, the Company also issued 1,071,915 shares of common stock for services for an expense of $354,828 with no future period amortization.
Anyone know who received these and what services were provided?
Some here who have invested in this company should take the time to read the company's public filing. Notice how you didn't see non monetary mentioned in any press releases. You also didn't hear how traditional cash revenues, where a customer actually pays you for a service or product, dropped over 50% last quarter to just roughly $87k compared to roughly $182k in 2013. Six month year over year dropped about 47%.
NON MONETARY REVENUES...almost 96% of all last quarters revenues were an exchange of a license with a customer and result in no cash exchanging hands yet the words non monetary are not once mentioned in their release upping revenue guidance.
"For the three and six months ended June 30, 2014, the Company sold an aggregate of thirteen and seventeen licenses, respectively for $225,000 per license and exchanged the license with its customers for either a license to their intellectual property or prepaid services. The thirteen and seventeen licenses exchanged were determined to meet the aforementioned criteria. During the three and six months ended June 30, 2014, nonmonetary revenue of $2,925,000 and $3,825,000, respectively, was recognized. This resulted in an increase to intangible assets and prepaid expenses of $675,000 and $3,150,000, respectively."
Note the increase to intangible assets. The definition of intangible is non material, unquantifiable, can't be touched, difficult to define, vague, lacking substance and more.