Wednesday, January 08, 2014

AudioEye Is Something I Just Don't See

A fellow private investor recently asked me if I had ever heard of AudioEye (AEYE).  This company promises to leverage legal changes that encourage broader access to communications technology for people with disabilities.  I'm not convinced that this company has much of a business case.

Let's start with what federal law requires.  The FCC describes how the Twenty-First Century Communications and Video Accessibility Act will change how telecom carriers and equipment manufacturers configure their equipment and services.  It does not appear to me to be some kind of broad mandate for every website hosted in the United States, or any website anywhere that can reach an American audience.  The American Foundation for the Blind notes in its review of this law how it will benefit the disabled, mainly by enabling them to translate messages.  Any company staking a claim to enormous growth in automated audio translation for all websites is, to put it mildly, overly optimistic.

The AudioEye investor relations page tells us about the company's executive team.  I can honestly say that I have never ever seen a publicly traded tech company put its management bios on an IR page.  Here's what Startup Tucson had to say about AudioEye in an undated article from 2013.  The CEO divided his time between this company and other ventures which have since merged:  Augme Technologies and Hipcricket.  Hipcricket looks like another mobile CRM platform.  Good luck competing against Salesforce.  Hipcricket has problems of its own.  It reported a net loss for the quarter ending November 30, 2013.  Reviewing the quarterly income history for HIPP at Yahoo Finance reveals quarterly losses since 2012.  Yeah, some track record.

CMG Holdings bought AudioEye in 2010.  CMG tried to reposition AudioEye to reach the health care sector in 2011.  It then spun off AudioEye in 2012 while retaining some ownership.  I have always understood spinoffs to result from successful restructurings or the disposal of a non-core asset.  CMG Holdings' actions with AudioEye make no strategic sense to me.

Read AudioEye's latest 10-Q from November 1, 2013.  They still have a working capital deficit.  They only had $73K in cash on hand for the quarter ending September 30.  Their net loss for that quarter was -$870K, more than twice the size of their quarterly loss from the same quarter in 2012.  Look at their 8-K for December 26, 2013.  That private placement generated almost 12M new warrants which, if exercised, will significantly dilute the 44.5M shares currently outstanding.

AudioEye could sure use some real groundbreaking web development innovator to help it figure out its strategy.  Alas, I can find no public indications that a guru on the scale of GoDaddy founder Bob Parsons or some other such leading light is behind AudioEye.  I host Alfidi Capital on GoDaddy and no one from that company has ever informed me that my site must suddenly use new technology to become compliant with a federal law for the disabled.  It sure looks like AudioEye registered one of its domains through GoDaddy using an email address resembling the CEO's name. 

I did find AudioEye mentioned on a few websites known for touting penny stocks.  AEYE trades in penny territory as of today, at about 34 cents a share.  The company wants the blind to see the Web but I can't see it ever helping my portfolio, and the pun on "seeing" is intended.

Full disclosure:  No position in AEYE, ever.