Audioeye Inc (OTCMKTS:AEYE) Pushed up by Preliminary Results

A few months ago, Audioeye Inc (OTCMKTS:AEYE) made a rather impressive run up the charts. The ticker started climbing on March 18 when it was still sitting below the $0.30 per share mark and on April 8, it peaked at $0.65. Unfortunately, the stock failed to sustain those prices and it slowly slid back down to around $0.30.

At the moment, we’re seeing something similar. The only difference is, the current climb is happening at a quicker pace. More than 1.6 million shares changed hands during yesterday’s session which means that after just six and a half hours of trading, the dollar volume stood at nearly $750 thousand. AEYE opened the day with a tiny gap down and started climbing almost immediately. At one point, it peaked at $0.70, but it then settled down and closed the session with a price of $0.562 (70% above Tuesday’s value). So, will it be able to remain calm under the pressure this time, or will it drop like it did a couple of months ago?

AEYE‘s business plan is rooted in a noble cause. They want to make web-based content more accessible for people with disabilities. They’ve already developed their cloud-based infrastructure and say that with just a few lines of code, you can make your website usable for people with visual, auditory, or motor impairment.

The plan is certainly sound and they seem to be making some progress. Yesterday’s run was caused by a press release with which AEYE announced their preliminary results for the second quarter of 2014. Among other things, they said that:

• they have registered around $3 million in revenues during the three months ended June 30
• they have secured approximately $1 million in contracts with a “leading national health care company“
• they are in discussions with some government agencies that might decide to use their services
• they expect to have a positive bottom line under the statement of operations in their Q2 report

As you can see, there’s plenty of things that could get investors excited and it should be noted that if you go through AEYE‘s older filings, you’ll see that the projections above don’t sound too far-fetched. The revenues have been on the increase for quite some time and if they do in fact manage to turn profitable, the stock could be in for a ride.

All in all, AEYE certainly looks like one of the more solid investment opportunities in Pennyland. That said, it’s not without its risks.

The Q1 report tells us that 1,300,000 warrants were exercised at $0.01 per share during the three months ended March 31. If you take a closer look at the 2013 10-K, you’ll see that last year, AEYE sold quite a lot of investment units at $0.30 a piece. As is often the case, the units consist of shares and warrants and although the discount is not huge (certainly not as ridiculous as the ones we’ve seen in other penny stocks’ filings), if the price continues to grow, the profit opportunity might be too big to ignore.

Another thing worth bearing in mind is the increase in the number of authorized shares that took place in March. The A/S count was raised from 100 million to 250 million and, especially in light of the fact that the number of outstanding shares at the moment stands at under 60 million, this might mean that some dilution could be expected.

This is a risk that is well worth considering before putting any money on the line.