AEYE 10-K & 10-Q changes, risk factors and insider trading

We have a $7.0credit million loan due in November 2026facility that includes certain financial and liquidity covenants. We cannot guarantee we will meet these covenants, obtain sufficient capital to repay the loandebt on a timely basis or obtain refinancing of the loandebt on satisfactory terms, or at all, all of which could have a material adverse effect on our business.

We are, have been party to litigationbeen, and may in the future bebe, party to additional litigation, which could have a material adverse effect on our financial position or results of operations.

We are subject to disputes and allegations related to our business operations. Because we are in a technology industry, these disputes may involve claims of intellectual property infringement or misappropriation. We also are, and previously have also beenbeen, involved in securities law litigation in the past.litigation. These and other types of litigation can be very expensive, and we cannot assure you that our insurance policies will cover the costs. Because it is not possible to determine when and whether these disputes and allegations may arise or the ultimate disposition of such matters, the resolution of any such matters, should they arise, could have a material adverse effect on our financial position or results of operations.

If interest rates remain high or continue to increase, so could our interest costs for any new debt. Our $7.0$13.4 million term loan hasoutstanding anas of December 31, 2025 bears interest ratepayable equalin tocash 6.25%on a monthly basis of 3.25% in excess of the baseterm SOFR rate, which is defined as the greater of the(i) prime rate2.30% and 7.00%(ii) perthe annum,1-month payableTerm inSOFR cashReference on a monthly basis.Rate. Consequently, our interest payment obligations are subject to fluctuations in market interest rates. This increased cost is outside of our control, and we can provide no assurance that we can refinance the indebtedness on favorable terms, or at all. We may also incur additional variable interest rate indebtedness in the future. Rising interest rates could limit our ability to refinance debt when it matures or cause us to pay higher interest rates upon refinancing and increased interest expense on refinanced indebtedness, assuming we can refinance the indebtedness.

We have soughtentered into in the past, and are continuing to seek, strategic opportunities, which may include acquisitions, to help us pursue our business objectives. Although we may devote significant time and resources in pursuit of such transactions, we may struggle to successfully identify such opportunities, or to successfully conclude transactions. Should we be unable to identify or conclude important strategic transactions, our business prospects and operations could be adversely affected as a result of the devotion of significant managerial effort required, and the challenges of achieving our objectives in the absence of strategic opportunities. In addition, we may incur significant costs in connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed.

If we do locate and consummate important acquisitions or strategic relationships, weWe may not be able to integrate thoseacquisitions opportunitiesor strategic relationships that we complete, or successfully realize their full benefit. There are inherent risks in integrating these opportunities, which may include:

We may have limited or no experience in our newer market segments, and our customers may not adopt our new offerings. These offerings may present new and difficult technology challenges, and we may be subject to claims if customers of these offerings experience service disruptions or failures or other quality issues. In addition, profitability, if any, in our newer activities may be lower than in our older activities, and we may not be successful enough in these newer activities to recoup our investments in them. If any of thisthese were to occur, it could damage our reputation, limit our growth, and negatively affect our operating results.

AudioEye is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (“ADA”) and Web Content Accessibility Guidelines (“WCAG”) compliance at scale. Our solutions advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience. In 2024,2025, we continued to focus on product innovation,innovation and expanding revenue and managing expenses.revenue.

As of December 31, 2024,2025, AudioEye had approximately 127,000131,000 customers, an increase from 110,000127,000 customers at December 31, 2023.2024. The increase in customer count iswas attributedattributable to bothan increase in customers in our Partner and Marketplace and Enterprise channels.channel.

In the twelve months ended December 31, 2024,2025, revenue from our Partner and Marketplace channel grew 12%10% over the prior year. This channel represented about 58% of ARR at the end of December 2024.31, 2025. In the twelve months ended December 31, 2024,2025, total Enterprise revenue, inclusive ofchannel revenue from ADA Site Compliance acquired in September 2024, increased by 13%21% over the prior year. The Enterprise channel represented about 42% of ARR at the end of December 2024.31, 2025.

The Company continued to invest in research and development in 2024.2025. Total research and development cost, as defined under the “Research and Development” section in the “Results of Operations” below, was 19%16% of total revenue in 2024.2025. Total research and development cost decreased from the prior year due to thelower completionpersonnel of significant initiatives in research and development.cost.

InFor the twelve monthsyear ended December 31, 2024,2025, both selling and marketing expense and general and administrative expense increased over the prior year. ThisThe increase in selling and marketing expense was duemainly todriven additionalby costshigher associated with ADA Site Compliance, which was acquiredinvestment in September 2024, as well as higher third-party marketing and stock compensation expenses.services. The increase in general and administrative expense for the year ended December 31, 2025 was mainlydue drivenprimarily byto increaseshigher inamortization litigationexpense andassociated stockwith compensationour expenses,intangible assets, as well as transaction costs incurredincreases in connectionpersonnel withcosts, theincluding acquisitionstock ofcompensation ADAexpense, Siteand Compliance.litigation expenses.

The Enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites, who generally engage directly with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal, state and local government agencies and revenue attributable to ADA Site Compliance, which was acquired in September 2024.agencies.

For the year ended December 31, 2024,2025, total revenue increased by 12%15% over the prior year. The 10% increase in Partner and Marketplace channel revenue was the result of continued expansion with existing partners and the execution of new partnerships agreements in the year. The 21% increase in Enterprise channel revenue was driven primarily by annew increasecustomer inrelationships, Enterpriseincluding customers.from our expansion into the European Union.

For the year ended December 31, 2024,2025, cost of revenue increased by 4%21% over the prior year. The increase in cost of revenue was primarily due to higherincreased costs incurred for service deliverydelivery, costswhich associatedwere in line with increasedthe increase in revenue, and higher amortization ofexpense related to our capitalized software development costs and additional costs attributable to ADA Site Compliance, which was acquired in September 2024.costs.

For the year ended December 31, 2024,2025, selling and marketing expenses increased by 8%18% over the prior year. The increase in selling and marketing expenses resulted primarily from additionalhigher cost associated with ADA Site Compliance, which was acquiredinvestment in September 2024, as well as higher third-party marketing services and stockhigher compensationpersonnel expense.costs.

Research and Development Expenses

For the year ended December 31, 2024,2025, R&D expenses decreased by 27%10% from the prior year. This decrease was driven by lower personnel cost associatedresulting withfrom a realignmentreduction in our product and development teams following the completion of significant initiatives in R&D.headcount. For the year ended December 31, 2024,2025, capitalized R&D cost decreasedincreased by 9%6% from the prior year. The decreaseincrease in capitalized R&D cost was the result of engineering personnel spending lessmore time on product development than in previous comparable periods.year. Total R&D cost, which includes both R&D expenses and capitalized R&D costs, decreased 23%6% from 20232024 to 2024.2025.

For the year ended December 31, 2024,2025, general and administrative expenses increased by 18%13% over the prior year. The increase in general and administrative expenses was due primarily to higher amortization expense associated with our intangible assets, as well as higher personnel cost, including stock compensation expense, and an increase in litigation expenses of $2.1 million, as well as increased stock compensation expense andby transaction costs incurred in connection with the acquisition of ADA Site Compliance.$715,000.

Interest IncomeExpense, (Expense)Net

For the year ended December 31, 2024, interestInterest expense, net consistedconsists primarily of interest on our term loan borrowed in the fourth quarter of 2023, which was partiallyloan, offset by interest income from investment in money market funds. For the year ended December 31, 2023, interest income, net consisted primarily of income from investment in money market funds.

As of December 31, 2024,2025, we had $5.7$5.3 million in cash and cash equivalents, and working capital of $549,000.($1,794,000). The $2.7$2.3 million decrease in working capital in 20242025 was primarily due to thean acquisitionincrease in deferred revenue associated with new customers, accrued liabilities related to asset acquisitions, and a portion of ADAour Siteterm Compliance,loan forbeing whichclassified weas madea paymentscurrent totaling $5.3 million in 2024, net of cash received.liability.

In January 2025, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $12.5 million of our common stock through January 24, 2027. The program may be amended, suspended, or discontinued at any time and does not commit the Company to repurchase any shares of its common stock. NoShares repurchases have been maderepurchased under thisthe program are subsequently retired and restored to the status of authorized but unissued shares of common stock. In the year ended December 31, 2025, we used $4.57 million of the program to date.repurchase shares. As of December 31, 2025, we had $7.93 million remaining for the repurchase of shares.

As of March 12, 2025,2026, we have no off-balance sheet arrangements, and we believe that the Company has sufficient liquidity to continue as a going concern through the next twelve months. We expect to continue to invest in our product and in sales and marketing to capture market demand. In 2024,2025, cash provided by operating activities totaled $2.7$4.8 million, and we were able to raise $6.6 million through an ATM offering, net of transaction costs.million. We expect cash provided by operating activities to continue to improve in 2025,2026, driven mainly by the anticipated revenue growth.

For the year ended December 31, 2024,2025, in relation to the prior year, cash provided by operating activities increased primarily due to increased revenue and cost efficiencies associated with lower personnel expense followingas a realignmentresult of the increase in our product and development teams.revenue.

For the year ended December 31, 2024,2025, in relation to the prior year, cash used in investing activities increaseddecreased primarily due to a reduction in payments towards business and asset acquisitions. In 2024, we paid $5.3 million in connection with the acquisition of ADA Site Compliance in 2024, for which we paid $5.3 million,Compliance, net of cash acquired.acquired, Cashwhereas usedpayments fortowards investingasset activitiesacquisitions in 20232025 relatedtotaled primarily$2.2 to cash outlays for software development costs.million.

Goodwill, Intangible Assets and Contingent Consideration recognizedRecognized in connectionConnection with a Business CombinationCombinations and Asset Acquisitions

We also recognize the contingent consideration liability resulting from a business combination based on its fair value, which is determined both initially and inat the end of each reporting period preceding the end of the measurement period using the Monte-Carlo simulation model. The model incorporates key assumptions, including non-recurring and recurring revenue metrics. Changes in estimated revenue and outcomes different from estimates could cause a significant adjustment to earnings in a reporting period as the fair value of the liability is highly dependent on management’s estimate.

Readers of this report are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent QuarterlySEC Reports on Form 10-Q and Current Reports on Form 8-K.filings. This cautionary note is applicable to all forward-looking statements contained in this report.

At its core, AudioEye’s offering provides ongoing testing, automated fixes, and 24/7 monitoring that continually improves conformance with Web Content Accessibility Guidelines (“WCAG”). This in turn helps businesses and organizations comply with WCAG standards as well as applicable U.S. and foreign accessibility laws. Our technology is capable of immediately identifying and fixing most of the common accessibility errors and addresses a wide range of disabilities including dyslexia, color blindness, epilepsy and more. AudioEye also offers additional solutions to provide for enhanced compliance and accessibility, including periodic auditing, custom fixes by experts, and legal support services. Our solutions may be purchased through a subscription service on a month-to-month basis or with one or multi-year terms. We also offer PDF remediation servicesservices, andas well as mobile application and audit reporting servicesservices, including Voluntary Product Accessibility Template (VPAT) audits, to help our customers with their digital accessibility needs.

Our intellectual property is primarily comprised of copyrights, trademarks, trade secrets, issued patents and pending patent applications. We have a patent portfolio comprised of twenty-sixtwenty-five (2625) issued patents in the United States and three (3) pending USU.S. patent applications. The commercial value of these patents is unknown.

AudioEye is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (“ADA”) and WCAG compliance at scale. Our solutions advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience. In the three months ended MarchJune 31,30, 2026, we continued to focus on product innovation and expanding revenue.

We have two sales channels to deliver our product, the Partner and Marketplace channel and the Enterprise channel. AudioEye continues to focus on recurring revenue growth in both channels, while still offering ourone-time website and mobile application reporting services andas well as PDF remediation services that provide non-recurring revenue.

In the three months ended MarchJune 31,30, 2026, total revenue increased by 8%9% over the prior year comparable period. As of MarchJune 31,30, 2026, Annual Recurring Revenue (“ARR”) was approximately $41.2$42.3 million, which represented an increase of 11% year-over-year. Refer to “Other Key Operating Metrics” below for details on how we calculate ARR.

As of MarchJune 31,30, 2026, AudioEye had approximately 127,000129,000 customers, a 7% increase from 119,000120,000 customers at MarchJune 31,30, 2025. The increase in customer count was attributable to an increase in our Partner and Marketplace channel customers.

In the three months ended MarchJune 31,30, 2026, revenue from our Partner and Marketplace channel grew 8%16% over the prior year comparable period.period, primarily due to continued expansion with existing partners. The Partner and Marketplace channel represented about 59% of ARR as of MarchJune 31,30, 2026. In three months ended MarchJune 31,30, 2026, total Enterprise channel revenue grewremained 9%consistent overwith the prior year comparable period.period, as the growth in recurring revenue was mostly offset by attrition of customers added through acquisition and a reduction in non-recurring revenue. The Enterprise channel represented about 41% of ARR as of MarchJune 31,30, 2026.

The Company continued to invest in research and development in the firstsecond quarter of 2026. Total research and development cost, as defined under the “Research and Development Expenses” section in the “Results of Operations” below, was 15%12% of total revenue in the three months ended MarchJune 31,30, 2026. Total research and development cost inIn the three months ended MarchJune 31,30, 20262026, research and development expenses decreased from the prior year comparable period primarily due to lowera personnelreduction cost.in employee headcount as a result of efficiency gains from newly implemented AI tools and automation.

In the three months ended MarchJune 31,30, 2026, both selling and marketing expense and general and administrative expense increaseddecreased from the prior year comparable period. The increasedecrease in selling and marketing expense was mainly driven by a reduction in marketing personnel resulting from efficiencies gained with the implementation of AI tools and automation, partially offset by higher third-party marketing expenses and personnel costs. The increase in general and administrative expenses in the three months ended March 31, 2026 was due primarily to higher litigation, stock compensation and amortization expense.expenses.

Our unaudited consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”). The discussion of the results of our operations compares the three and six months ended MarchJune 31,30, 2026 with the three and six months ended MarchJune 31,30, 2025.

Our results of operations in these interim periods are not necessarily indicative of the results which may be expected for any subsequent period. Due to rounding, numbers presented throughout this document may not add up precisely to the totals provided and percentages may not precisely reflect the absolute figures.

The following tabletables presentspresent our revenues disaggregated by sales channel:

For each of the three and six months ended MarchJune 31,30, 2026, total revenue increased by 8%9% over the prior year comparable period.periods. The 8%16% increaseand 12% increases in Partner and Marketplace channel revenue for the three and six months ended MarchJune 31,30, 20262026, wasrespectively, were primarily due to continued expansion with existing partners. The 9% increase in Enterprise channel revenue for the three months ended March 31, 2026 was driven primarily by new customer relationships, including additions from acquisitions.

Cost of revenue consists primarily of compensation and related benefits costs for our customerservice experiencedelivery team, as well as a portion of our technology operations team that supports the delivery of our services, fees paid to our managed hosting and other third-party service providers, amortization of capitalized software development costs and patent costs, and allocated overhead costs.

For the three and six months ended MarchJune 31,30, 2026, cost of revenue increased by 15%1% and 8%, respectively, over the prior year comparable period.periods. The increaseincreases in cost of revenue waswere primarily due to higher costs incurred for service delivery supporting our increased revenue, additionalpartially costsoffset attributableby toa assetreduction acquisitions,in employee headcount as a result of efficiency gains from newly implemented AI tools and higher amortization expense related to our capitalized software development costs.automation.

For the three and six months ended MarchJune 31,30, 2026, gross profit increased by 7%11% and 9%, respectively, over the prior year comparable periods. The increaseincreases in gross profit waswere primarily a result of increased revenue from new customers exceeding the incremental fulfilment cost.

For the three months ended MarchJune 31,30, 2026, selling and marketing expenses increaseddecreased by 4% overfrom the prior year comparable period. The increasedecrease in selling and marketing expenses resulted primarily from highera reduction in marketing personnel resulting from efficiencies gained with the implementation of AI tools and automation, partially offset by an increase in third-party marketing expensesexpenses. Selling and personnelmarketing costs.expenses for the six months ended June 30, 2026 were consistent with the prior year comparable period.

For the three and six months ended MarchJune 31,30, 2026, R&D expenses decreased by 4%29% and 17%, respectively, from the prior year comparable period.periods. The decreasedecreases waswere primarily driven by lowera personnelreduction cost.in employee headcount as a result of efficiency gains from newly implemented AI tools and automation. For the three and six months ended MarchJune 31,30, 2026, capitalized R&D cost remaineddecreased consistentby with23% and 13%, respectively, from the prior year comparable periodperiods primarily due to a reduction in engineering personnel spending a similar level of effort on product development.personnel. For the three and six months ended MarchJune 31,30, 2026, total R&D cost, which includes both R&D expenses and capitalized R&D costs, decreased by 3%27% and 16%, respectively, from the prior year comparable period.periods.

For the three and six months ended MarchJune 31,30, 2026, general and administrative expenses increased by 38%22% fromand 30%, respectively, over the prior year comparable period.periods. The increaseincreases in general and administrative expense waswere due primarily to an increase in litigation expense by $1,110,000,expense, as well as to higher stockseverance compensationcost expenseassociated with a reduction in headcount and amortization expense associated with our intangible assets.

Change in fair value of contingent consideration consists of non-cash valuation adjustments to contingent consideration liabilities recognized in connection with the acquisition of ADA Site Compliance, which was accounted for as a business combination. The earnout targets for ADA Site Compliance were measured as of December 31, 2025, and there will be no further changes to the fair value of this contingent consideration.

For the three and six months ended MarchJune 31,30, 2026, interest expense, net remainedincreased consistentby with9% and 5%, respectively, from the prior year comparable period,periods. asThe increases in interest expense were attributable to the impactincrease of the higherin outstanding principal balance wason mostlyour offsetterm byloan, as we drew the lowerremaining interest$3.6 ratemillion fromin subsequent term loan advances in the newfirst creditquarter facilityof and the increase in interest income from investment in money market funds.2026.

On March 31, 2025, upon entering into a new credit facility with Western Alliance Bank, the Company paid the full $7.0 million in outstanding principal on its previous term loan with SG Credit Partners. In the three months ended March 31, 2025, in connection with the termination of the SG Credit Partners term loan, we recognized a $300,000 loss on extinguishment of debt, which included prepayment and other fees and the unamortized portion of related debt discount and debt issuance costs. No loss on extinguishment of debt was incurred in the three and six months ended June 30, 2026.

We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service or annual service offering such as our automation and platform, periodic auditing, human-assisted technological fixes, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service or annual service offering such as our PDF remediation services business, one-time mobile application reports, and other miscellaneous services that are offered as non-subscription services or are expected to be one-time in nature. As of MarchJune 31,30, 2026, ARR was $41.2$42.3 million, which represents an increase of 11% year-over-year, driven by growth in both our Partner and Marketplace channel and Enterprise channel.

As of MarchJune 31,30, 2026, we had $8,563,000$8,717,000 in cash and cash equivalents and working capital of $440,000.$974,000. The $2.2$2.8 million increase in working capital in the threesix months ended MarchJune 31,30, 2026 was primarily due to our $3.6 million indraw proceeds drawn fromof the remaining subsequent term loan advances available to the Company, partially offset by the $0.8 million increase in accrueddeferred expenses and in a portion of our term loan being classified as a current liability.revenue.

In January 2025, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $12.5 million of our common stock through January 24, 2027. The program may be amended, suspended, or discontinued at any time and does not commit the Company to repurchase any shares of its common stock. Shares repurchased under the program are subsequently retired and restored to the status of authorized but unissued shares of common stock. In the threesix months ended MarchJune 31,30, 2026, we used $475,000 of the program to repurchase shares. As of MarchJune 31,30, 2026, we had $7.45 million remaining for the repurchase of shares.shares under the program.

As of MarchJune 31,30, 2026, we had $17.0$16.8 million outstanding under the term loan, $16.2$15.9 million of which is classified as a noncurrent liability. The term loan matures on March 31, 2030, and requires quarterly principal payments beginningwhich began on April 10, 2026. Refer to Note 3 – Debt to our consolidated financial statements for additional information regarding our credit facility. As of June 30, 2026, we were in compliance with all covenants under the credit facility.

As of MayAugust 12,13, 2026, we had no off-balance sheet arrangements, and we believe that the Company has sufficient liquidity to continue as a going concern through the next twelve months.

For the threesix months ended MarchJune 31,30, 2026, in relation to the prior year comparable period, cash provided by operating activities increased primarily due to the timing of paymentscustomer and the increase in revenue.payments.

For the threesix months ended MarchJune 31,30, 2026, in relation to the prior year comparable period, cash used in investing activities decreased primarily due to a reduction in payments associated acquisitions in the current year period.period in payments associated with acquisitions.

For the threesix months ended MarchJune 31,30, 2026, in relation to the prior year comparable period, cash provided by financing activities decreased primarily due to $475,000 in stock repurchases in the first quarter of 2026, as well as to lower net proceeds from credit facility activity.activity, partially offset by a reduction in repurchases of common stock and lower payments related to settlement of employee share-based awards. In the threesix months ended MarchJune 31,30, 2026 and 2025, we obtainedreceived $3.6 million and $12.0$13.4 million, respectively, in proceeds from term loan borrowings under the credit facility with Western Alliance Bank. In the threefirst monthsquarter ended March 31,of 2025, we used a portion of the term loan borrowings to repay our previous $7.0 million term loan, as well as costs associated with the issuance and termination of our previous credit facilities.