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What changed in AUDIOEYE INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of AUDIOEYE INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+151 added−139 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-09)

Top changes in AUDIOEYE INC's 2023 10-K

151 paragraphs added · 139 removed · 119 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeSupreme Court has yet to articulate a unified approach, so some degree of uncertainty remains. Similarly, the DOJ has not promulgated new regulations laying out compliance standards for websites and mobile applications. In the absence of clear guidance, courts generally measure accessibility using the Web Content Accessibility Guidelines (“WCAG”), which are promulgated by the World Wide Web Consortium.
Biggest changeIn the absence of clear guidance, litigants generally measure accessibility using the Web Content Accessibility Guidelines (“WCAG”), which are promulgated by the World Wide Web Consortium. This growing focus on website and mobile application accessibility is also reflected by other federal and state laws.
AudioEye stands out among its competitors because it offers automated and manual remediations and continuous monitoring of accessibility issues without fundamental changes to the website architecture. We also recognize that automation alone cannot fix all accessibility issues, which is why we also offer certified accessibility experts, who can provide manual testing and remediations.
AudioEye stands out among its competitors because it offers automated and human assisted technological remediations and continuous monitoring of accessibility issues without fundamental changes to the website architecture. We also recognize that automation alone cannot fix all accessibility issues, which is why we also offer certified accessibility experts, who can provide human assisted technological testing and remediations.
In particular, Title III of the ADA governs private businesses and prohibits discrimination on the basis of disability in the provision of services, programs, and activities by public accommodations. 4 Table of Contents While the law governing website and mobile application accessibility is still developing, many courts have held that websites and mobile applications fall within Title III’s scope.
Title III of the ADA governs private businesses and prohibits discrimination on the basis of disability in the provision of services, programs, and activities by public accommodations. While the law governing website and mobile application accessibility is still developing, many courts have held that websites and mobile applications fall within Title III’s scope.
AudioEye also offers additional solutions to provide for enhanced compliance and accessibility, including periodic manual auditing, manual remediations and legal 2 Table of Contents support services. Our solutions may be purchased through a subscription service on a month-to-month basis or with one or multi-year terms.
AudioEye also offers additional solutions to provide for enhanced compliance and accessibility, including periodic auditing, human assisted technological remediations 2 Table of Contents 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 had one major customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 17% of our revenue in the year ended December 31, 2022.
We had one major customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 17% of our revenue in each of the years ended December 31, 2023 and 2022.
In addition, the SEC maintains a website at www.sec.gov containing reports, proxy and information statements and other information regarding issuers that file electronically with the SEC.
In addition, the SEC maintains a website at www.sec.gov containing reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. 5 Table of Contents
Our solution is trusted by some of the largest and most influential companies in the world, including ADP, Tommy Hilfiger, A360 Media, Samsung, Landry’s, and others. Government agencies, such as the Federal Communications Commission, use our software with their digital platforms. We also work with government agencies at the state and local level.
Our solution is trusted by some of the largest and most influential companies in the world, including Samsung, Landry’s, Calvin Klein and others. Government agencies, such as the Federal Communications Commission, use our software with their digital platforms. We also work with government agencies at the state and local level.
Our offerings provide automated remediations and a transparent accessibility score with additional manually driven enhancements. We think that as the industry develops, opaque products with unsubstantiated claims will ultimately fail. ● Highly experienced inventors, technologists, and product development team. Our team comprises experienced software and SaaS developers and technologists. Legal and Regulatory Framework Many courts and the U.S.
Our offerings provide automated remediations with additional human assisted technologically driven enhancements. We think that as the industry develops, opaque products with unsubstantiated claims will ultimately fail. ● Highly experienced inventors, technologists, and product development team. Our team comprises experienced software and SaaS developers and technologists. Legal and Regulatory Framework Many courts and the U.S.
Intellectual Property 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-four (24) issued patents in the United States and three (3) pending US patent applications.
Intellectual Property 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-two (22) issued patents in the United States and two (2) pending US patent applications.
Some courts hold that Title III applies to all customer-facing websites and mobile applications, while others apply a “nexus” approach, which requires websites and mobile applications to comply with Title III if the website or mobile application is heavily integrated with a physical location. The U.S.
Some courts hold that Title III applies to all customer-facing websites and mobile applications, while others apply a “nexus” approach, which requires websites and mobile applications to comply with Title III if the website or mobile application is associated with a physical location. The U.S. Supreme Court has yet to articulate a unified approach, so some degree of uncertainty remains.
As of December 31, 2022, we had 120 full-time employees. We use a variety of methods for recruiting including in-house recruiting resources, employee referrals and third-party agencies, when required, and we believe our mission allows us to recruit and retain high-quality talent. We utilize independent contractors to supplement our staff, as needed.
We use a variety of methods for recruiting including in-house recruiting resources, employee referrals and third-party agencies, when required, and we believe our mission allows us to recruit and retain high-quality talent. We utilize independent contractors to supplement our staff, as needed. None of our employees are represented by a labor union or subject to a collective bargaining agreement.
None of our employees are represented by a labor union or subject to a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its employee relations are positive. Corporate Information AudioEye, Inc. was formed as a Delaware corporation on May 20, 2005.
The Company has never experienced a work stoppage and believes that its employee relations are positive. Corporate Information AudioEye, Inc. was formed as a Delaware corporation on May 20, 2005.
AudioEye has worked primarily in a remote environment since the onset of the COVID-19 pandemic in 2020. AudioEye provides employees with the technology and resources required to have a high-quality remote work experience while remaining connected to teams in other locations. We expect to continue a hybrid of virtual and in-person work in the future.
AudioEye provides employees with the technology and resources required to have a high-quality remote work experience while remaining connected to teams in other locations. We expect to continue a hybrid of virtual and in-person work in the future. As of December 31, 2023, we had 114 full-time employees.
This focus on website accessibility is growing internationally as well, with over 100 countries having ratified the U.N. Convention on the Rights of Persons with Disabilities. Although the WCAG does not carry force of law, courts may order defendants to substantially comply with the WCAG as a remedy for accessibility violations. Settlements and consent decrees generally require the same.
Although the WCAG does not carry force of law, courts may order defendants to substantially comply with the WCAG as a remedy for accessibility violations. Settlements and consent decrees generally require the same.
This growing focus on website and mobile application accessibility is also reflected by other federal and state laws. The California Unruh Civil Right Act also prohibits discrimination on the basis of disability, and California Government code Section 11546.7 requires state agency directors to certify that their websites comply with the WCAG.
The California Unruh Civil Right Act also prohibits discrimination on the basis of disability, and California Government code Section 11546.7 requires state agency directors to certify that their websites comply with the WCAG. In 2010, Congress enacted the 21st Century Communications and Video Accessibility Act in an effort to update telecommunications protections for people with disabilities.
In 2010, Congress enacted the 21st Century Communications and Video Accessibility Act in an effort to update telecommunications protections for people with disabilities. Furthermore, the Department of Transportation has issued rules interpreting and implementing the Air Carrier Access Act and setting forth website accessibility standards for air carriers.
Furthermore, the Department of Transportation has issued rules interpreting and implementing the Air Carrier Access Act and setting forth website accessibility standards for air carriers. This focus on website accessibility is growing internationally as well, with over 100 countries having ratified the U.N. Convention on the Rights of Persons with Disabilities.
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In 2023, the DOJ proposed regulations to add specific requirements about web 4 Table of Contents and mobile application accessibility under Title II of the ADA that would apply to state and local governments, although those regulations have not been finalized.
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Similarly, while the DOJ has taken the position that Title III applies to websites and mobile applications, the DOJ has not promulgated regulations laying out compliance standards for websites and mobile applications under Title III of the ADA.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIf they are unable to do so or our new employees do not work effectively, there may be delays in execution of our business and operating strategies. 10 Table of Contents Our expansion into new products, services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks.
Biggest changeOur expansion into new products, services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks. We may have limited or no experience in our newer market segments, and our customers may not adopt our new offerings.
There are inherent risks in integrating these opportunities, which may include: ● the assumption of liabilities of the acquired businesses that could be greater than anticipated; ● incurring significantly higher than anticipated capital expenditures and operating expenses following the acquisition; 7 Table of Contents ● failing to integrate the operations, customers and personnel of the acquired company or business; ● the diversion of financial and management resources from existing operations; ● the potential loss of key employees or existing customers or adverse effects on existing business relationships with suppliers and customers; ● incorrect estimates made in the accounting for acquisitions, incurrence of non-recurring charges, and write-off of significant amounts of goodwill or other assets that could adversely affect our operating results; ● unforeseen risks and liabilities associated with businesses acquired, including any unknown vulnerabilities in acquired technology or compromises of acquired data; and ● failing to achieve the anticipated benefits of the acquisition.
There are inherent risks in integrating these opportunities, which may include: ● the assumption of liabilities of the acquired businesses that could be greater than anticipated; 7 Table of Contents ● incurring significantly higher than anticipated capital expenditures and operating expenses following the acquisition; ● failing to integrate the operations, customers and personnel of the acquired company or business; ● the diversion of financial and management resources from existing operations; ● the potential loss of key employees or existing customers or adverse effects on existing business relationships with suppliers and customers; ● incorrect estimates made in the accounting for acquisitions, incurrence of non-recurring charges, and write-off of significant amounts of goodwill or other assets that could adversely affect our operating results; ● unforeseen risks and liabilities associated with businesses acquired, including any unknown vulnerabilities in acquired technology or compromises of acquired data; and ● failing to achieve the anticipated benefits of the acquisition.
Failure to maintain effective internal controls in the future could also result in a material misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and that could cause us to restate our financial statements for a prior period, cause investors to lose confidence in our financial statements and/or limit our ability to raise capital.
Failure to maintain effective internal controls in the future could also result in a material misstatement of our annual or quarterly consolidated financial statements that would not be prevented or detected on a timely basis and that could cause us to restate our consolidated financial statements for a prior period, cause investors to lose confidence in our consolidated financial statements and/or limit our ability to raise capital.
The issuance of any shares under our equity compensation plans, for acquisition, licensing or financing efforts, upon exercise of warrants and options, or settlement of restricted stock units, will dilute the interests of our holders of common stock and cause a reduction in the proportionate ownership and voting power of all then current stockholders.
The issuance of any shares under our equity compensation plans, for acquisition, licensing or financing efforts, upon exercise of options, or settlement of restricted stock units, will dilute the interests of our holders of common stock and cause a reduction in the proportionate ownership and voting power of all then current stockholders.
The deployment of our products, services, systems and operations will also be vulnerable to damage or interruption from: ● power loss, transmission cable cuts and other telecommunications failures; ● damage or interruption caused by fire, earthquake and other natural disasters; ● computer viruses or software defects; and ● physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
The deployment of our products, services, systems and operations will also be vulnerable to damage or interruption from: ● power loss, transmission cable cuts and other telecommunications failures; ● damage or interruption caused by fire, earthquake and other natural disasters; 13 Table of Contents ● computer viruses or software defects; and ● physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
While other next-generation Internet-based applications have grown rapidly in personal and professional use, we cannot assure you that the adoption of our products and services will grow at a comparable rate or grow at all. Our success is dependent on our employees, many of whom are relatively new in their positions with the Company.
While other next-generation Internet-based applications have grown rapidly in personal and professional use, we cannot assure you that the adoption of our products and services will grow at a comparable rate or grow at all. 10 Table of Contents Our success is dependent on our employees, many of whom are relatively new in their positions with the Company.
These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. Delaware law may delay or prevent takeover attempts by third parties and therefore inhibit our stockholders from realizing a premium on their stock.
These provisions could limit the price that some investors might be willing to pay in the future for shares of our common stock. 17 Table of Contents Delaware law may delay or prevent takeover attempts by third parties and therefore inhibit our stockholders from realizing a premium on their stock.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline. 16 Table of Contents We are subject to financial reporting and other requirements that place significant demands on our resources.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline. We are subject to financial reporting and other requirements that place significant demands on our resources.
Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures and our internal control over financial reporting were effective as of December 31, 2022.
Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures and our internal control over financial reporting were effective as of December 31, 2023.
If we fail to meet any of the continuing listing requirements, our common stock may be subject to delisting. If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the- 14 Table of Contents counter market.
If we fail to meet any of the continuing listing requirements, our common stock may be subject to delisting. If our common stock is delisted and we are not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter market.
In addition, such contracts may provide for termination by the government at any time, without cause. If we do not successfully adapt, enhance or develop new products and services in a cost-effective manner to meet customer demand in the rapidly evolving market for next-generation Internet-based applications and services, our business may fail.
In addition, such contracts may provide for termination by the government at any time, without cause. 11 Table of Contents If we do not successfully adapt, enhance or develop new products and services in a cost-effective manner to meet customer demand in the rapidly evolving market for next-generation Internet-based applications and services, our business may fail.
The performance of our products and services could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our products and services, which could result in legal claims 12 Table of Contents against us, harming our business.
The performance of our products and services could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize our products and services, which could result in legal claims against us, harming our business.
There are a significant number of U.S. and foreign patents and patent applications in our areas of interest, and we believe that there has been, and is likely to continue to be, significant litigation in the industry regarding patent and other intellectual property rights.
There are a significant 9 Table of Contents number of U.S. and foreign patents and patent applications in our areas of interest, and we believe that there has been, and is likely to continue to be, significant litigation in the industry regarding patent and other intellectual property rights.
Although our shares of common stock are listed on the Nasdaq Capital Market under the symbol “AEYE,” historically trading volume in our common stock has been limited. In addition, our stock has also historically seen significant price volatility, which may reduce the liquidity of our common stock.
This may result in reduced liquidity of our common stock. Although our shares of common stock are listed on the Nasdaq Capital Market under the symbol “AEYE,” historically trading volume in our common stock has been limited. In addition, our stock has also historically seen significant price volatility, which may reduce the liquidity of our common stock.
Any such issuances may also result in a reduction in the market price of our common stock. The interests of our controlling stockholders may not coincide with yours and such controlling stockholders may make decisions with which you may disagree.
Any such issuances may also result in a reduction in the market price of our common stock. 16 Table of Contents The interests of our controlling stockholders may not coincide with yours and such controlling stockholders may make decisions with which you may disagree.
Each of the following risks should be carefully considered, together with all the other information included in this Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, our financial 5 Table of Contents statements and the related notes and in our other filings with the SEC.
Each of the following risks should be carefully considered, together with all the other information included in this Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, our consolidated financial statements and the related notes and in our other filings with the SEC.
Our Certificate of Incorporation authorizes the issuance of up to 50,000,000 shares of common stock with a $0.00001 par value per share and 10,000,000 shares of preferred stock with a $0.00001 par value per share, of which, as of December 31, 2022, approximately 11,551,000 shares of common stock were issued and outstanding.
Our Certificate of Incorporation authorizes the issuance of up to 50,000,000 shares of common stock with a $0.00001 par value per share and 10,000,000 shares of preferred stock with a $0.00001 par value per share, of which, as of December 31, 2023, approximately 11,711,000 shares of common stock were issued and outstanding.
Should our estimates turn out to be inaccurate or should the business fail to attract new revenue in relation to each respective product or product enhancement, we may have to reverse or write off the related capitalized expenses.
Should our estimates turn out to be inaccurate or 12 Table of Contents should the business fail to attract new revenue in relation to each respective product or product enhancement, we may have to reverse or write off the related capitalized expenses.
We have experienced and will continue to experience competition as more companies seek to provide products and services similar to our products and services, and because larger and better-financed competitors may affect our ability to compete in the marketplace and achieve profitability, our business may fail.
We have experienced and will continue to experience competition as more companies seek to provide products and services similar to our products and services and seek to take advantage of changes in technologies. Because larger and better-financed competitors may affect our ability to compete in the marketplace and achieve profitability, our business may fail.
Risks Relating to Our Business and Industry We have a history of generating significant losses and may not be able to achieve and sustain profitability. To date, we have not been profitable, and we may never achieve profitability on a full-year or consistent basis. We incurred net losses of $10,433,000 for the year ended December 31, 2022.
Risks Relating to Our Business and Industry We have a history of generating significant losses and may not be able to achieve and sustain profitability. To date, we have not been profitable, and we may never achieve profitability on a full-year or consistent basis. We incurred net losses of $5,872,000 for the year ended December 31, 2023.
These factors may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread 15 Table of Contents between the bid and ask prices for our common stock.
These factors may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread between the bid and ask prices for our common stock.
As of December 31, 2022, we had an accumulated deficit of $82,482,000. If we continue to experience losses, we may not be able to continue our operations, and investors may lose their entire investment. We continue to pursue business through a variety of channels.
As of December 31, 2023, we had an accumulated deficit of $89,476,000. If we continue to experience losses, we may not be able to continue our operations, and investors may lose their entire investment. We continue to pursue business through a variety of channels.
As of December 31, 2022, we also had outstanding options to purchase an aggregate of approximately 156,000 shares of our common stock, and unvested, or vested but not yet settled, restricted stock units covering an aggregate of approximately 1,803,000 shares of common stock.
As of December 31, 2023, we also had outstanding options to purchase an aggregate of approximately 112,000 shares of our common stock, and unvested, or vested but not yet settled, restricted stock units covering an aggregate of approximately 1,707,000 shares of common stock.
The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: ● the outcomes of potential future patent litigation; ● our ability to monetize our future patents; ● changes in our industry; ● announcements of technological innovations, new products or product enhancements by us or others; ● announcements by us or others of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments; ● changes in laws or regulations or judicial interpretation of the application of accessibility-related laws and regulations to the internet; ● changes in earnings estimates or recommendations by security analysts, if our common stock is covered by analysts; ● investors’ general perception of us; ● future issuances of common stock; ● investors’ future resales of our securities; ● the addition or departure of key personnel; ● general market conditions, including the volatility of market prices for shares of technology companies, generally, and other factors, including factors unrelated to our operating performance; and ● the other factors described in this “Risk Factors” section.
The market price of our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as: ● the outcomes of potential future patent litigation; ● our ability to monetize our future patents; ● changes in our industry; ● announcements of technological innovations, new products or product enhancements by us or others; ● announcements by us or others of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments; ● changes in laws or regulations or judicial interpretation of the application of accessibility-related laws and regulations to the internet; ● our failure to meet any financial covenants, to have sufficient liquidity to repay any of our indebtedness, or to refinance our indebtedness on favorable terms, or at all; ● changes in earnings estimates or recommendations by security analysts, if our common stock is covered by analysts; ● investors’ general perception of us; ● future issuances of common stock; ● investors’ future resales of our securities; ● the addition or departure of key personnel; 15 Table of Contents ● general market conditions, including the volatility of market prices for shares of technology companies, generally, and other factors, including factors unrelated to our operating performance; and ● the other factors described in this “Risk Factors” section.
Further, while a significant portion of the aggregate consideration for BOIA is based on BOIA’s revenues for 2022 and 2023, BOIA may ultimately not perform as we hope. If it does not, our results of operations and financial condition could be adversely affected. Our business plan may not be realized.
Further, while a significant portion of the aggregate consideration for BOIA is based on BOIA’s revenues for 2022 and 2023, BOIA may ultimately not perform as we hope both during and subsequent to the earn-out period. If it does not, our results of operations and financial condition could be adversely affected.
We may incur 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.
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.
For the foreseeable future, many of our competitors may be larger, better-financed companies that may develop products superior to our current and proposed products, which could create significant competitive advantages for those companies. Our future success depends on our ability to compete effectively with our competitors. As a result, we may have difficulty competing with larger, established competitors.
For the foreseeable future, many of our competitors may be larger, better-financed companies that may develop products superior to our current and proposed products, which could create significant competitive advantages for those companies. Our future success depends on our ability to compete effectively with our competitors or other technologies.
(“BOIA”) on March 9, 2022, and we cannot assure you that will successfully integrate the business or that the acquisition will bring us the expected benefits. On March 9, 2022, we acquired Bureau of Internet Accessibility Inc. (“BOIA”).
On March 9, 2022, we acquired Bureau of Internet Accessibility Inc. (“BOIA”). We cannot assure you that we will be able to successfully integrate the business or that we will receive the expected benefits from the acquisition.
As of February 28, 2023, six of our stockholders, two of whom are our Executive Chairman and our Chief Executive Officer, and another of whom is a director, beneficially owned in the aggregate over 50% of the voting power of our outstanding shares of common.
As of December 31, 2023, four of our stockholders, two of whom are our Executive Chairman and our Chief Executive Officer, and another of whom is a director, beneficially owned in the aggregate over 45% of the voting power of our outstanding shares of common stock.
If our new platform does not operate as expected or is not accepted, our ability to pursue and retain business may be damaged and our business and results of operations may be materially and adversely affected.
We cannot guarantee that our platform will continue to operate as expected or that our new platform will be fully accepted by our customers. If our new platform does not operate as expected or is not accepted, our ability to pursue and retain business may be damaged and our business and results of operations may be materially and adversely affected.
If we fail to address competitive developments quickly and effectively, we may not be able to remain a viable business. If we are not able to adequately protect our patented rights, our operations may be negatively impacted. Our ability to compete largely depends on the superiority, uniqueness and value of our technology and intellectual property.
If we are not able to adequately protect our patented rights, our operations may be negatively impacted. Our ability to compete largely depends on the superiority, uniqueness and value of our technology and intellectual property.
Our future development will require additional capital, and we may be unable to obtain needed capital or financing on satisfactory terms, or at all, which would prevent us from fully developing our business and generating revenues. As of December 31, 2022, we had $6.9 million in cash.
Our future development will require additional capital, and we may be unable to obtain needed capital or financing on satisfactory terms, or at all, which would prevent us from fully developing our business and generating revenues.
In the event we are not successful through appeal and do not subsequently obtain monetary and injunctive relief, these litigation matters may significantly reduce our financial resources and have a material impact on our ability to continue our operations.
These legal proceedings could continue for several years and may require significant expenditures for legal fees and other expenses. In the event we are not successful through appeal and do not subsequently obtain monetary and injunctive relief, these litigation matters may significantly reduce our financial resources and have a material impact on our ability to continue our operations.
Generally, these competitors may have: ● substantially greater financial, technical, and marketing resources; 8 Table of Contents ● a larger customer base; ● better name recognition; and ● more expansive or different product offerings.
As a result, we may have difficulty competing with larger, established competitors. Generally, these competitors may have: ● substantially greater financial, technical, and marketing resources; ● a larger customer base; 8 Table of Contents ● better name recognition; ● access to different and evolving technologies; and ● more expansive or different product offerings.
Consequently, the actual results of operations during the forecast periods will vary from the forecasts, and such variations may be material. In addition, the degree of uncertainty increases with each successive year presented in our business plan. We cannot assure you that we will succeed in the anticipated operation of our business plan.
Unanticipated events may occur that could affect the actual results achieved during the forecast periods. Consequently, the actual results of operations during the forecast periods will vary from the forecasts, and such variations may be material. In addition, the degree of uncertainty increases with each successive year presented in our business plan.
Market interest rates could remain high or continue to increase our interest costs on future debt and could adversely affect our stock price. If interest rates remain high or continue to increase, so could our interest costs for any new debt. This increased cost could make financing, including the financing of any acquisition, costlier.
Market interest rates could remain high or continue to increase our interest costs on future debt and could adversely affect our stock price. If interest rates remain high or continue to increase, so could our interest costs for any new debt.
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.
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, there can be no assurance that we would fully realize the potential benefit of the relationships. If we cannot do so, we may be unable to meet future revenue expectations. Our new technology platform may not function as expected or may not be accepted by our clients.
In addition, there can be no assurance that we would fully realize the potential benefit of the relationships. If we cannot do so, we may be unable to meet future revenue expectations.
Many of our employees are relatively new to their positions, and we can provide no assurance that our management team will be able to effectively work together or with all of our employees.
Many of our employees are relatively new to their positions, and we can provide no assurance that our management team will be able to effectively work together or with all of our employees. If they are unable to do so or our new employees do not work effectively, there may be delays in execution of our business and operating strategies.
If our business plan proves to be unsuccessful, our business may fail, and you may lose some or all of your investment.
We cannot assure you that we will succeed in the anticipated operation of our business plan. If our business plan proves to be unsuccessful, our business may fail, and you may lose some or all of your investment.
In 2022, we completed the migration of all customers to our new platform for our digital accessibility product. We cannot guarantee that our platform will operate as expected or that our new platform will be accepted by our customers.
We cannot assure you that we will be able to attract or retain such personnel. Our new technology platform may not function as expected or may not be accepted by our clients. In 2022, we completed the migration of all customers to our new platform for our digital accessibility product.
As of February 28, 2023, our directors and executive officers beneficially owned an aggregate of 4,526,112 of our outstanding shares of common stock, which represents approximately 39% of the aggregate voting power of our outstanding shares of common stock.
As of January 31, 2024, our directors and executive officers beneficially owned an aggregate of 4,718,606 of our outstanding shares of common stock, which represents approximately 40% of the aggregate voting power of our outstanding shares of common stock.
If we fail to use new technologies effectively, to develop our technical expertise and new products and services, or to enhance existing products and services on a timely basis, either internally or through arrangements with third parties, our product and service offerings may fail to meet customer needs, which would adversely affect our revenues and prospects for growth. 11 Table of Contents In addition, if we are unable to, for technological, legal, financial, or other reasons, adapt in a timely manner to changing market conditions or customer requirements, we could lose customers, strategic alliances, and market share.
If we fail to use new technologies effectively, to develop our technical expertise and new products and services, or to enhance existing products and services on a timely basis, either internally or through arrangements with third parties, our product and service offerings may fail to meet customer needs, which would adversely affect our revenues and prospects for growth.
We will need to recruit and retain additional qualified personnel to successfully grow our business. Our future success will depend in part on our ability to attract and retain qualified operations, marketing and sales personnel as well as technical personnel. Inability to attract and retain such personnel could adversely affect our business.
Our future success will depend in part on our ability to attract and retain qualified operations, marketing and sales personnel as well as technical personnel. Inability to attract and retain such personnel could adversely affect our business. Competition for technical, sales, marketing and executive personnel is intense, particularly in the technology and Internet sectors.
Additionally, any such failure may also negatively impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the SEC, consume a significant amount of management’s time, and cause us to incur substantial additional costs relating to the implementation of remedial measures.
Additionally, any such failure may also negatively impact our operating results and financial condition, impair our ability to timely file our periodic and other reports with the SEC, consume a significant amount of management’s time, and cause us to incur substantial additional costs relating to the implementation of remedial measures. 14 Table of Contents Risks Related to the Market for Our Common Stock Although our shares of common stock are listed on the Nasdaq Capital Market, historically we have had a limited trading volume and a higher price volatility.
We do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment. We will need to recruit and retain additional qualified personnel to successfully grow our business.
To the extent we do not successfully avoid or overcome the risks or problems related to any acquisitions, our results of operations and financial condition could be adversely affected. We acquired the Bureau of Internet Accessibility Inc.
To the extent we do not successfully avoid or overcome the risks or problems related to any acquisitions, our results of operations and financial condition could be adversely affected. Our business plan may not be realized. If our business plan proves to be unsuccessful, our business may fail, and you may lose your entire investment.
Our business plan will require additional capital expenditures, and our capital outlays could increase substantially over the next several years as we implement our business plan. As a result, we may need to raise additional capital through future private or public equity offerings, strategic alliances or debt financing.
As a result, we may need to raise additional capital through future private or public equity offerings, strategic alliances or debt financing.
These types of occurrences could cause users to perceive that our products and services do not function properly and could therefore adversely affect our ability to attract and retain strategic partners and customers. 13 Table of Contents We do not expect to pay any dividends to holders of our common stock for the foreseeable future, which will affect the extent to which our investors realize any future gains on their investment.
These types of occurrences could cause users to perceive that our products and services do not function properly and could therefore adversely affect our ability to attract and retain strategic partners and customers.
No assurance can be given that we can successfully raise additional equity or debt capital, or that such financing will be available to us on favorable terms, if at all. 6 Table of Contents Weakened global economic conditions including current and ongoing microeconomic uncertainty may adversely affect our industry, business and results of operations.
We cannot guarantee that we will always meet these covenants or that we can obtain sufficient capital to repay the loan on a timely basis, or obtain refinancing of the loan on satisfactory terms, or at all. 6 Table of Contents Weakened global economic conditions including current and ongoing microeconomic uncertainty may adversely affect our industry, business and results of operations.
The likelihood of our success must be considered in light of the problems, expenses, complications, and delays frequently encountered in connection with the development of a new business. Unanticipated events may occur that could affect the actual results achieved during the forecast periods.
Our operations are subject to all of the risks inherent in the establishment of a growing business enterprise with a limited operating history. The likelihood of our success must be considered in light of the problems, expenses, complications, and delays frequently encountered in connection with the development of a new business.
Removed
We cannot assure you that we will be able to successfully integrate the business or that we will receive the expected benefits from the acquisition. All of the risks from the prior paragraph apply to the integration of BOIA, including that its success is contingent upon a small number of key employees.
Added
As of December 31, 2023, we had $9.2 million in cash following a $7.0 million loan acquired in November 2023, which will become due in November 2026. Our business plan will require additional capital expenditures, and our capital outlays could increase substantially over the next several years as we implement our business plan.
Removed
If our business plan proves to be unsuccessful, our business may fail, and you may lose your entire investment. Our operations are subject to all of the risks inherent in the establishment of a growing business enterprise with a limited operating history.
Added
No assurance can be given that we can successfully raise additional equity or debt capital, or that such financing will be available to us on favorable terms, if at all. We have a $7.0 million loan due in November 2026 that includes certain financial and liquidity covenants.
Removed
These legal proceedings could continue for several years 9 Table of Contents and may require significant expenditures for legal fees and other expenses.
Added
We cannot guarantee we will meet these covenants, obtain sufficient capital to repay the loan on a timely basis or obtain refinancing of the loan on satisfactory terms, or at all, all of which could have a material adverse effect on our business.
Removed
Competition for technical, sales, marketing and executive personnel is intense, particularly in the technology and Internet sectors. We cannot assure you that we will be able to attract or retain such personnel.
Added
On November 30, 2023, we entered into a Loan and Security Agreement (the “Loan Agreement”) with SG Credit Partners, Inc. (the “Lender”) pursuant to which we acquired a $7.0 million loan due in November 2026. Under the Loan Agreement, we provided the Lender a first priority security interest in all existing and future acquired assets owned by us.
Removed
Risks Related to the Market for Our Common Stock Although our shares of common stock are listed on the Nasdaq Capital Market, historically we have had a limited trading volume and a higher price volatility. This may result in reduced liquidity of our common stock.
Added
The Loan Agreement contains certain customary covenants that limit our ability to engage in certain transactions.
Added
In addition, we must maintain (i) at all times a minimum liquidity of not less than $2.0 million (plus, prior to our payment in full of an earnout related to our BOIA acquisition, an amount equal to the greater of $2.1 million and the expected amount of the earnout) and (ii) minimum monthly recurring revenue levels measured on a trailing three (3) month average basis as of the last day of each calendar month.
Added
The minimum monthly recurring revenue levels commence at $2.3 million and increase for each month after the month ending November 30, 2024 to the greater of $2.3 million and 105.00% of Borrowers’ monthly recurring revenue for the applicable month in the prior year.
Added
Our $7.0 million term loan has an interest rate equal to 6.25% in excess of the base rate, which is defined as the greater of the prime rate and 7.00% per annum, payable in cash on a monthly basis. Consequently, our interest payment obligations are subject to fluctuations in market interest rates.
Added
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.
Added
Furthermore, recent advances in different technologies, such as artificial intelligence, large language models, and multi-modal models, may impact our industry, and it is unclear whether we or our competitors will be able to take advantage of these advances.
Added
If we fail to address competitive developments quickly and effectively, we may not be able to remain a viable business. We acquired the Bureau of Internet Accessibility Inc. (“BOIA”) on March 9, 2022, and we cannot assure you that will successfully integrate the business or that the acquisition will bring us the expected benefits.
Added
All of the risks from the prior paragraph apply to the integration of BOIA including the risk that we could fail to integrate the customers to new products and services over time.
Added
In addition, if we are unable to, for technological, legal, financial, or other reasons, adapt in a timely manner to changing market conditions or customer requirements, we could lose customers, strategic alliances, and market share.
Added
We do not expect to pay any dividends to holders of our common stock for the foreseeable future, which will affect the extent to which our investors realize any future gains on their investment. We do not anticipate that we will pay any dividends to holders of our common stock in the foreseeable future.
Added
As of January 31, 2024, our Chief Executive Officer alone beneficially owned over 29% of the voting power of our outstanding shares of common stock.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWilliams Circle, Suite 750, Tucson, Arizona 85711, consisting of approximately 627 square feet under a lease agreement that expires in October 2024. 17 Table of Contents The Company also leases office space in Marietta, Georgia, Miami, Florida, and New York City, New York, and occupies shared office space in Portland, Oregon, Austin, Texas, and Seattle, Washington under membership agreements which provide for membership fees based on the number of contracted seats.
Biggest changeThe Company also leases office space in Marietta, Georgia, Miami, Florida, and New York City, New York, and occupies shared office space in Portland, Oregon, Seattle, Washington, and Lehi, Utah, under membership agreements which provide for membership fees based on the number of contracted seats.
Item 2. Properties The Company’s principal offices are located at 5210 E.
Item 2. Properties The Company’s principal offices are located at 5210 E. Williams Circle, Suite 750, Tucson, Arizona 85711, consisting of approximately 627 square feet under a lease agreement that expires in October 2024.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile these matters could materially affect operating results when resolved in future periods, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided for in the balance sheet as of December 31, 2022, would not be material to our financial position or annual results of operations.
Biggest changeWhile these matters could materially affect operating results when resolved in future periods, management believes that, after final disposition, including anticipated insurance recoveries in certain cases, any monetary liability or financial impact to the Company beyond that provided for in the consolidated balance sheet as of December 31, 2023, would not be material to our financial position or annual results of operations.
Removed
On October 26, 2020, AudioEye filed a complaint against accessiBe Ltd. (“accessiBe”) in District Court in the Western District of Texas, Waco Division, which was subsequently transferred to the Western District of New York. On July 14, 2021, AudioEye filed a second complaint against accessiBe in District Court in the Western District of Texas, Waco Division.
Added
Item 4. Mine Safety Disclosures Not applicable. PART II
Removed
On June 16, 2022, accessiBe filed a complaint against AudioEye in the U.S. District Court for the District of Delaware. On October 24, 2022, AudioEye and accessiBe announced a global settlement of all pending legal disputes, and the three complaints have been dismissed without prejudice. Item 4. Mine Safety Disclosures Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe following table sets forth information with respect to our repurchases of common stock during the three months ended December 31, 2022: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Total Number of Maximum Number ​ ​ ​ ​ ​ ​ ​ Shares Purchased ​ of Shares that May ​ ​ Total Number of ​ ​ ​ ​ as Part of Publicly ​ Yet Be Purchased ​ ​ Shares Purchased ​ Average Price ​ Announced Plans or ​ under the Plans or ​ (1) Paid per Share Programs Programs October 1 - October 31 4,720 ​ $ 5.49 — — November 1 - November 30 9,013 ​ 4.70 — — December 1 - December 31 5,715 ​ 4.48 — — Total 19,448 ​ $ 4.82 — — 18 Table of Contents (1) Amount represents shares surrendered by employees to satisfy tax withholding obligations in connection with the settlement of restricted stock units or the issuance of unrestricted shares of common stock. ​ The transfer agent of our common stock is Equiniti Trust Company.
Biggest changeOn January 31, 2024, there were 148 holders of record of our common stock, and a greater number of beneficial holders of our common stock for whom shares were held in a “nominee” or “street” name. 19 Table of Contents The following table sets forth information with respect to our repurchases of common stock during the three months ended December 31, 2023: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Maximum Number ​ ​ ​ ​ ​ ​ ​ ​ ​ of Shares (or ​ ​ ​ ​ ​ ​ ​ Total Number of ​ Approximate Dollar ​ ​ ​ ​ ​ ​ ​ Shares Purchased ​ Value) that May ​ ​ ​ ​ ​ ​ ​ as Part of Publicly ​ Yet Be Purchased ​ ​ Total Number of ​ Average Price ​ Announced Plans or ​ under the Plans or ​ Shares Purchased Paid per Share Programs Programs (2) October 1 - October 31: ​ ​ ​ ​ ​ ​ ​ Employee transactions (1) 3,438 ​ $ 4.99 — ​ $ — November 1 - November 30: ​ ​ ​ ​ ​ ​ Employee transactions (1) 8,675 ​ ​ 4.44 — ​ — December 1 - December 31: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee transactions (1) ​ 8,983 ​ ​ 4.36 ​ — ​ ​ — Share repurchase program (2) ​ 248,205 ​ ​ 4.52 ​ — ​ ​ 3,878,000 Total: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Employee transactions (1) ​ 21,096 ​ $ 4.49 ​ — ​ $ — Share repurchase program (2) ​ 248,205 ​ $ 4.52 ​ — ​ $ 3,878,000 (1) Includes shares surrendered by employees to satisfy tax withholding obligations in connection with the settlement restricted stock units or the issuance of unrestricted shares of common stock.
In June 2022, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $3 million of our common stock through June 30, 2024. The stock repurchase program may be suspended or discontinued at any time and does not obligate the Company to repurchase any dollar amount or particular number of shares of stock.
In November 2023, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $5 million of our common stock through December 31, 2025. The stock repurchase program may be suspended or discontinued at any time and does not commit the Company to repurchase any dollar amount or particular number of shares of stock.
Shares repurchased under the program are subsequently retired. As of December 31, 2022, we had $2.24 million remaining for the repurchase of shares. On February 28, 2023, there were 149 holders of record of our common stock, and a greater number of beneficial holders of our common stock for whom shares were held in a “nominee” or “street” name.
Shares repurchased under the program are subsequently retired and restored to the status of authorized but unissued shares of common stock. As of December 31, 2023, we had $3.88 million remaining for the repurchase of shares.
Added
In June 2022, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $3 million of our common stock through June 30, 2024. Shares repurchased under the program were subsequently retired. In August 2023, the share repurchase program was terminated.
Added
(2) In November 2023, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $5 million of our common stock through December 31, 2025. Shares repurchased under the program are subsequently retired. The average price paid per share includes any broker commissions. The transfer agent of our common stock is Equiniti Trust Company.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table sets forth reconciliations of Non-GAAP loss to net loss, the most directly comparable GAAP-based measure, as well as Non-GAAP loss per diluted share to net loss per diluted share, the most directly comparable GAAP-based measure. ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (in thousands, except per share data) ​ 2022 2021 Non-GAAP Earnings (Loss) Reconciliation ​ ​ ​ ​ Net loss (GAAP) ​ $ (10,433) ​ $ (14,209) Non-cash valuation adjustment to contingent consideration ​ 346 ​ — Interest expense, net ​ 4 ​ 12 Stock-based compensation expense ​ 4,566 ​ 7,616 Acquisition expense (1) ​ 247 ​ — Litigation expense (2) ​ ​ 1,916 ​ ​ 2,099 Executive team restructuring cost (3) ​ ​ 246 ​ ​ — Depreciation and amortization ​ ​ 2,111 ​ ​ 1,322 Loss on disposal or impairment of long-lived assets ​ ​ 51 ​ ​ 22 Gain on loan forgiveness ​ ​ — ​ ​ (1,316) Non-GAAP loss ​ $ (946) ​ $ (4,454) ​ ​ ​ ​ ​ ​ ​ Non-GAAP Earnings (Loss) per Diluted Share Reconciliation ​ ​ ​ ​ Net loss per common share (GAAP) — diluted ​ $ (0.91) ​ $ (1.29) Non-cash valuation adjustment to contingent consideration ​ 0.03 ​ — Interest expense, net ​ — ​ — Stock-based compensation expense ​ 0.40 ​ 0.69 Acquisition expense (1) ​ 0.02 ​ — Litigation expense (2) ​ ​ 0.17 ​ ​ 0.19 Executive team restructuring cost (3) ​ ​ 0.02 ​ ​ — Depreciation and amortization ​ ​ 0.18 ​ ​ 0.12 Loss on disposal or impairment of long-lived assets ​ ​ — ​ ​ — Gain on loan forgiveness ​ ​ — ​ ​ (0.12) Non-GAAP loss per diluted share (4) ​ $ (0.08) ​ $ (0.41) Diluted weighted average shares (5) ​ 11,477 ​ 11,040 (1) Represents legal and accounting fees associated with the BOIA acquisition.
Biggest changeThe following table sets forth reconciliations of Adjusted EBITDA to net loss, the most directly comparable GAAP-based measure, and Adjusted earnings (loss) per diluted share to net loss per diluted share, the most directly comparable GAAP-based measure. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, ​ (in thousands, except per share data) ​ 2023 2022 Adjusted EBITDA Reconciliation ​ ​ ​ ​ ​ Net loss (GAAP) ​ $ (5,872) ​ $ (10,433) ​ Non-cash valuation adjustment to contingent consideration ​ 442 ​ 346 ​ Interest (income) expense, net ​ (93) ​ 4 ​ Stock-based compensation expense ​ 3,698 ​ 4,566 ​ Acquisition expense (1) ​ — ​ 247 ​ Litigation expense (2) ​ ​ 415 ​ ​ 1,916 ​ Executive team restructuring cost (3) ​ ​ 247 ​ ​ 246 ​ Depreciation and amortization ​ ​ 2,268 ​ ​ 2,111 ​ Loss on disposal or impairment of long-lived assets ​ ​ 235 ​ ​ 51 ​ Adjusted EBITDA ​ $ 1,340 ​ $ (946) ​ Adjusted EBITDA margin (4) ​ ​ 4 % ​ (3) % ​ ​ ​ ​ ​ ​ ​ ​ Adjusted Earnings (Loss) per Diluted Share Reconciliation ​ ​ ​ ​ ​ Net loss per common share (GAAP) — diluted ​ $ (0.50) ​ $ (0.91) ​ Non-cash valuation adjustment to contingent consideration ​ 0.04 ​ 0.03 ​ Interest (income) expense, net ​ (0.01) ​ — ​ Stock-based compensation expense ​ 0.31 ​ 0.40 ​ Acquisition expense (1) ​ — ​ 0.02 ​ Litigation expense (2) ​ ​ 0.04 ​ ​ 0.17 ​ Executive team restructuring cost (3) ​ ​ 0.02 ​ ​ 0.02 ​ Depreciation and amortization ​ ​ 0.19 ​ ​ 0.18 ​ Loss on disposal or impairment of long-lived assets ​ ​ 0.02 ​ ​ — ​ Adjusted earnings (loss) per diluted share (5) ​ $ 0.11 ​ $ (0.08) ​ Diluted weighted average shares (GAAP) ​ 11,766 ​ 11,477 ​ Includable incremental shares (Non-GAAP) (5) ​ ​ 338 ​ ​ — ​ Adjusted diluted shares (Non-GAAP) (6) ​ ​ 12,104 ​ ​ 11,477 ​ (1) Represents legal and accounting fees associated with the BOIA acquisition.
Both intangible assets and goodwill are evaluated periodically for impairment. ​ Refer to Note 2 - Significant Accounting Policies to our financial statements for a complete discussion of the significant accounting policies and methods used in the preparation of our financial statements, including our accounting policies related to stock-based compensation and intangible assets. ​ Item 7A.
Both intangible assets and goodwill are evaluated periodically for impairment. ​ Refer to Note 2 - Significant Accounting Policies to our consolidated financial statements for a complete discussion of the significant accounting policies and methods used in the preparation of our consolidated financial statements, including our accounting policies related to stock-based compensation and intangible assets. ​ Item 7A.
Changes in estimated revenue and outcomes different from estimates may cause a significant adjustment to earnings in a reporting period as the fair value of the liability is highly dependent on management’s estimate. ​ Goodwill is recorded based on the excess of purchase price over the estimated fair value of net assets acquired and is not amortized.
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. ​ Goodwill is recorded based on the excess of purchase price over the estimated fair value of net assets acquired and is not amortized.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our audited financial statements and the related notes for the years ended December 31, 2022 and 2021 that appear elsewhere in this annual report on Form 10-K.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes for the years ended December 31, 2023 and 2022 that appear elsewhere in this annual report on Form 10-K.
We have no debt obligations or off-balance sheet arrangements, and we believe that the Company has sufficient liquidity to continue as a going concern through the next twelve months. While the Company has been successful in raising capital, there is no assurance that it will be successful at raising additional capital in the future.
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. While the Company has been successful in raising capital, there is no assurance that it will be successful at raising additional capital in the future.
For the year ended December 31, 2022, in relation to the prior year, cash used in investing activities increased primarily due to the acquisition of BOIA, for which we paid $4.5 million, net of cash acquired and receipts associated with net working capital adjustments.
For the year ended December 31, 2023, in relation to the prior year, cash used in investing activities decreased primarily due to the acquisition of BOIA in 2022, for which we paid $4.5 million, net of cash acquired and receipts associated with net working capital adjustments.
Results of Operations Our 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 year ended December 31, 2022 with the year ended December 31, 2021.
Results of Operations Our 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 year ended December 31, 2023 with the year ended December 31, 2022.
All of the items adjusted in the Non-GAAP earnings (loss) to net loss and the related per share calculations are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance.
All of the items adjusted in the Adjusted EBITDA to net loss and the Adjusted earnings (loss) per share calculations are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance.
Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share, as disclosed in this Annual Report on Form 10-K, have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. 23 Table of Contents To properly and prudently evaluate our business, we encourage readers to review the GAAP financial statements included elsewhere in this Annual Report on Form 10-K, and not rely on any single financial measure to evaluate our business.
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted earnings (loss) per diluted share, as disclosed in this Annual Report on Form 10-K, have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use. 24 Table of Contents To properly and prudently evaluate our business, we encourage readers to review the consolidated GAAP financial statements included elsewhere in this Annual Report on Form 10-K, and not rely on any single financial measure to evaluate our business.
Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone.
Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted earnings (loss) per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone.
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements and the accompanying notes. Actual results could differ materially from these estimates under different assumptions or conditions.
The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts 26 Table of Contents reported and disclosed in our consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates under different assumptions or conditions.
Non-GAAP earnings per diluted share would include incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position. However, no incremental shares apply when there is a Non-GAAP loss per diluted share, as is the case for the periods presented in this Annual Report on Form 10-K.
Adjusted earnings per diluted share would include incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position. However, no incremental shares apply when there is an Adjusted loss per diluted share, as is the case for one of the periods presented in this Annual Report on Form 10-K.
This determination includes both annual and monthly contracts for recurring products. Some of our contracts are cancelable, which may impact future ARR. ARR excludes revenue from our PDF remediation services business, Website and Mobile App report services business and other miscellaneous non-recurring services.
This determination includes both annual and monthly contracts for recurring products. Some of our contracts are cancelable, which may impact future ARR. ARR excludes revenue from our PDF remediation services business, one-time Website and Mobile App report services business and other miscellaneous non- 23 Table of Contents recurring services.
In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used in our financial and operational decision-making, the 22 Table of Contents Company has supplemented the Financial Statements presented on a GAAP basis in this Annual Report on Form 10-K with the following non-GAAP financial measures: Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share.
In order to provide investors with greater insight and allow for a more comprehensive understanding of the information used in our financial and operational decision-making, the Company has supplemented the consolidated financial statements presented on a GAAP basis in this Annual Report on Form 10-K with the following non-GAAP financial measures: Adjusted EBITDA, Adjusted EBITDA margin, and Adjusted earnings (loss) per diluted share.
Non-GAAP earnings (loss) is not a measure of liquidity under GAAP, or otherwise, and is not an alternative to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above.
Adjusted EBITDA is not a measure of liquidity under GAAP, or otherwise, and is not an alternative to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above.
Non-GAAP Earnings (Loss) and Non-GAAP Earnings (Loss) per Diluted Share We define: (i) Non-GAAP earnings (loss) as net income (loss), plus interest expense, plus depreciation and amortization expense, plus stock-based compensation expense, plus non-cash valuation adjustment to contingent consideration, plus certain litigation expense, plus certain acquisition expense, plus executive team restructuring cost, plus loss on disposal or impairment of long-lived assets, and less gain on loan forgiveness; and (ii) Non-GAAP earnings (loss) per diluted share as net income (loss) per diluted common share, plus interest expense, plus depreciation and amortization expense, plus stock-based compensation expense, plus non-cash valuation adjustment to contingent consideration, plus certain litigation expense, plus certain acquisition expense, plus executive team restructuring cost, plus loss on disposal or impairment of long-lived assets, and less gain on loan forgiveness, each on a per share basis.
Adjusted EBITDA, Adjusted EBITDA Margin, and Adjusted Earnings (Loss) per Diluted Share We define: (i) Adjusted EBITDA as net income (loss), plus (less) interest expense (income), plus depreciation and amortization expense, plus stock-based compensation expense, plus non-cash valuation adjustment to contingent consideration, plus certain litigation expense, plus certain acquisition expense, plus executive team restructuring cost, and plus loss on disposal or impairment of long-lived assets; (ii) Adjusted EBITDA margin as Adjusted EBITDA as a percentage of GAAP revenue; and (iii) Adjusted earnings (loss) per diluted share as net income (loss) per diluted common share, plus (less) interest expense (income), plus depreciation and amortization expense, plus stock-based compensation expense, plus non-cash valuation adjustment to contingent consideration, plus certain litigation expense, plus certain acquisition expense, plus executive team restructuring cost, and plus loss on disposal or impairment of long-lived assets, each on a per share basis.
Management periodically assesses the probability of achievement of each performance condition. Expense recognition only starts when achievement is deemed probable, and the amount recognized in each reporting period varies based on the expected timing of performance completion.
Expense recognition only starts when achievement is deemed probable, and the amount recognized in each reporting period varies based on the expected timing of performance completion.
Total research and development cost includes the amount of research and development expense reported within operating expenses as well as development cost that was capitalized during the fiscal period. For the year ended December 31, 2022, research and development expenses increased by 15% over the prior year.
Total research and development cost includes the amount of research and development expense reported within operating expenses as well as development cost that was capitalized during the fiscal period. For the year ended December 31, 2023, research and development expenses increased by 15% over the prior year. This increase was driven by higher personnel cost.
Acquired intangible assets are amortized on a straight-line basis over their estimated useful. ​ We also recognize the contingent consideration liability resulting from a business combination based on its fair value, which is determined both initially and in each reporting period using the Monte-Carlo simulation model. The model incorporates key assumptions, including non-recurring and recurring revenue metrics.
Acquired intangible assets are amortized on a straight-line basis over their estimated useful. ​ We also recognize the contingent consideration liability resulting from a business combination based on its fair value, which is determined both initially and in each reporting period preceding the end of the measurement period using the Monte-Carlo simulation model.
Cost of Revenue and Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ Change (in thousands) ​ 2022 2021 $ % Revenue ​ $ 29,913 ​ $ 24,503 ​ $ 5,410 ​ 22 % Cost of revenue ​ (7,219) ​ (6,121) ​ (1,098) ​ 18 % Gross profit ​ $ 22,694 ​ $ 18,382 ​ $ 4,312 ​ 23 % ​ Cost of revenue consists primarily of compensation and related benefits costs for our customer experience 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.
Cost of Revenue and Gross Profit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, ​ Change (in thousands) ​ 2023 2022 $ % Revenue ​ $ 31,316 ​ $ 29,913 ​ $ 1,403 ​ 5 % Cost of revenue ​ (6,974) ​ (7,219) ​ 245 ​ (3) % Gross profit ​ $ 24,342 ​ $ 22,694 ​ $ 1,648 ​ 7 % ​ Cost of revenue consists primarily of compensation and related benefits costs for our customer experience 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 year ended December 31, 2022, selling and marketing expenses decreased by 7% over the prior year.
For the year ended December 31, 2023, selling and marketing expenses decreased by 14% over the prior year.
Selling and Marketing Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ Change ​ (in thousands) ​ 2022 2021 $ % Selling and marketing ​ $ 13,657 ​ $ 14,621 ​ $ (964) ​ (7) % ​ Selling and marketing expenses consist primarily of compensation and benefits related to our sales and marketing staff, as well as third-party advertising and marketing expenses.
Selling and Marketing Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ Change ​ (in thousands) ​ 2023 2022 $ % Selling and marketing ​ $ 11,781 ​ $ 13,657 ​ $ (1,876) ​ (14) % ​ Selling and marketing expenses consist primarily of compensation and benefits related to our sales and marketing staff, as well as third-party advertising and marketing expenses.
(5) The number of diluted weighted average shares used for this calculation is the same as the weighted average common shares outstanding share count when the Company reports a GAAP and non-GAAP net loss. Liquidity and Capital Resources Working Capital As of December 31, 2022, we had $6.9 million in cash and working capital of $1.9 million.
(6) The number of diluted weighted average shares used for this calculation is the same as the weighted average common shares outstanding share count when the Company reports a GAAP net loss and a negative Adjusted EBITDA. 25 Table of Contents Liquidity and Capital Resources Working Capital As of December 31, 2023, we had $9.2 million in cash and working capital of $3.2 million.
Riley Securities, Inc. (“Agent”), under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock to or through the Agent as its sales agent, having an aggregate offering price of up to $30 million.
On February 11, 2021, we entered into an At The Market (“ATM”) Sales Agreement with B. Riley Securities, Inc. (“Agent”), under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock to or through the Agent as its sales agent, having an aggregate offering price of up to $30 million.
In addition, in 2022, we repurchased $756,000 of shares of our common stock. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States.
Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States.
As of December 31, 2022, ARR was $29.2 million, which represents an increase of 13% year-over-year, driven by both our Partner and Marketplace channel and Enterprise channel.
As of December 31, 2023, ARR was $31.2 million, which represents an increase of 7% year-over-year, driven by growth in our Partner and Marketplace channel.
Additionally, if the Company’s plans are not achieved and/or if significant unanticipated events occur, the Company may have to further modify its business plan, which may require us to raise additional capital or reduce expenses. ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (in thousands) ​ 2022 2021 Current assets ​ $ 12,966 ​ $ 24,831 Current liabilities ​ (11,062) ​ (11,216) Working capital ​ $ 1,904 ​ $ 13,615 ​ Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (in thousands) ​ 2022 ​ 2021 Net cash used in operating activities $ (4,999) $ (4,980) Net cash used in investing activities ​ (5,733) ​ (1,624) Net cash provided by (used in) financing activities ​ (1,330) ​ 16,475 Net increase (decrease) in cash ​ $ (12,062) ​ $ 9,871 ​ For the year ended December 31, 2022, in relation to the prior year, cash used in operating activities increased marginally primarily due to timing of customer collections and vendor payments, including timing of payments of our patent litigation costs.
Additionally, if the Company’s plans are not achieved and/or if significant unanticipated events occur, the Company may have to further modify its business plan, which may require us to raise additional capital or reduce expenses. ​ ​ ​ ​ ​ ​ ​ ​ ​ At December 31, (in thousands) ​ 2023 2022 Current assets ​ $ 14,776 ​ $ 12,966 Current liabilities ​ (11,529) ​ (11,062) Working capital ​ $ 3,247 ​ $ 1,904 ​ Cash Flows ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ December 31, (in thousands) ​ 2023 ​ 2022 Net cash provided by (used in) operating activities $ 318 $ (4,999) Net cash used in investing activities ​ (2,156) ​ (5,733) Net cash provided by (used in) financing activities ​ 4,170 ​ (1,330) Net increase (decrease) in cash ​ $ 2,332 ​ $ (12,062) ​ For the year ended December 31, 2023, in relation to the prior year, cash provided by operating activities increased primarily due to lower patent litigation costs and a reduction in sales and marketing costs, driven mainly by lower digital, consulting and third-party costs.
Interest expense for the year ended December 31, 2021 also included interest on our PPP Loan, which was fully forgiven in the second quarter of 2021. Other Key Operating Metrics We consider annual recurring revenue (“ARR”) as a key operating metric and a key indicator of our overall business.
For the year ended December 31, 2022, interest expense consisted of interest on our finance lease liabilities. Other Key Operating Metrics We consider annual recurring revenue (“ARR”) as a key operating metric and a key indicator of our overall business.
BOIA contributed to Enterprise revenue in 2022. In the twelve months ended December 31, 2022, revenue from our Partner and Marketplace grew 17% from prior year comparable period. This channel represented about 58% of ARR at the end of December 2022.
The increase in customer count was driven by additions in the Partner and Marketplace channel. In the twelve months ended December 31, 2023, revenue from our Partner and Marketplace grew 13% from prior year comparable period. This channel represented about 60% of ARR at the end of December 2023.
For the year ended December 31, 2022, total revenue increased by 22% over the prior year. As of December 31, 2022, Annual Recurring Revenue (“ARR”) was approximately $29.2 million, which represented an increase of 13% from December 31, 2021. Refer to Other Key Operating Metrics below for details on how we calculate ARR.
As of December 31, 2023, Annual Recurring Revenue (“ARR”) was approximately $31.2 million, which represented an increase of 7% from December 31, 2022. Refer to Other Key Operating Metrics below for details on how we calculate ARR. As of December 31, 2023, AudioEye had approximately 110,000 customers, an increase from 86,000 customers at December 31, 2022.
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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ Change (in thousands) ​ 2022 ​ 2021 ​ $ ​ % Revenue $ 29,913 $ 24,503 $ 5,410 ​ 22 % Cost of revenue ​ (7,219) ​ (6,121) ​ (1,098) ​ 18 % Gross profit ​ 22,694 ​ 18,382 ​ 4,312 ​ 23 % Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling and marketing ​ 13,657 ​ 14,621 ​ (964) ​ (7) % Research and development ​ 6,085 ​ 5,304 ​ 781 ​ 15 % General and administrative ​ 13,381 ​ 13,970 ​ (589) ​ (4) % Total operating expenses ​ 33,123 ​ 33,895 ​ (772) ​ (2) % Operating loss ​ (10,429) ​ (15,513) ​ 5,084 ​ (33) % Other income (expense): ​ ​ ​ ​ ​ ​ ​ ​ ​ Gain on loan forgiveness ​ — ​ 1,316 ​ (1,316) ​ (100) % Interest expense ​ (4) ​ (12) ​ 8 ​ (67) % Total other income (expense) ​ (4) ​ 1,304 ​ (1,308) ​ (100) % Net loss ​ $ (10,433) ​ $ (14,209) ​ $ 3,776 ​ (27) % ​ Revenue The following table presents our revenues disaggregated by sales channel: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, Change (in thousands) ​ 2022 ​ 2021 ​ $ ​ % Partner and Marketplace ​ $ 15,972 ​ $ 13,638 ​ $ 2,334 ​ 17 % Enterprise ​ 13,941 ​ 10,865 ​ 3,076 ​ 28 % Total revenues ​ $ 29,913 ​ $ 24,503 ​ $ 5,410 ​ 22 % ​ Partner and Marketplace channel consists of our CMS partners, platform & agency partners, authorized resellers and the Marketplace.
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. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ Change (in thousands) ​ 2023 ​ 2022 ​ $ ​ % Revenue $ 31,316 $ 29,913 $ 1,403 ​ 5 % Cost of revenue ​ (6,974) ​ (7,219) ​ 245 ​ (3) % Gross profit ​ 24,342 ​ 22,694 ​ 1,648 ​ 7 % Operating expenses: ​ ​ ​ ​ ​ ​ ​ ​ ​ Selling and marketing ​ 11,781 ​ 13,657 ​ (1,876) ​ (14) % Research and development ​ 6,989 ​ 6,085 ​ 904 ​ 15 % General and administrative ​ 11,537 ​ 13,381 ​ (1,844) ​ (14) % Total operating expenses ​ 30,307 ​ 33,123 ​ (2,816) ​ (9) % Operating loss ​ (5,965) ​ (10,429) ​ 4,464 ​ (43) % Interest income (expense), net ​ ​ 93 ​ ​ (4) ​ ​ 97 ​ (2,425) % Net loss ​ $ (5,872) ​ $ (10,433) ​ $ 4,561 ​ (44) % ​ 21 Table of Contents Revenue The following table presents our revenues disaggregated by sales channel: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended December 31, Change (in thousands) ​ 2023 ​ 2022 ​ $ ​ % Partner and Marketplace ​ $ 18,027 ​ $ 15,972 ​ $ 2,055 ​ 13 % Enterprise ​ 13,289 ​ 13,941 ​ (652) ​ (5) % Total revenues ​ $ 31,316 ​ $ 29,913 ​ $ 1,403 ​ 5 % ​ Partner and Marketplace channel consists of our CMS partners, platform & agency partners, authorized resellers and the Marketplace.
In 2021, the Company issued 471,970 shares of its common stock under the ATM offering and raised $16,534,000, net of transaction expenses. No shares of common stock were sold under the ATM offering in 2022. As of December 31, 2022, we had $2.9 million in estimated contingent consideration liabilities recognized in connection with the acquisition of BOIA.
In 2021, the Company issued 471,970 shares of its common stock under the ATM offering and raised $16,534,000, net of transaction expenses. No shares of common stock were sold under the ATM offering in 2023 or 2022.
The critical accounting estimates discussed below are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations. 25 Table of Contents Stock-Based Compensation Awards with performance conditions ​ Compensation expense related to performance-based options and RSUs is recognized on a straight-line basis over the requisite service period, provided that it is probable that performance conditions will be achieved.
The critical accounting estimates discussed below are estimates made in accordance with generally accepted accounting principles that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations.
Total research and development cost, which includes both R&D expenses and capitalized R&D costs, increased 8% from 2021 to 2022. 21 Table of Contents General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ December 31, ​ Change ​ (in thousands) ​ 2022 2021 ​ $ % General and administrative ​ $ 13,381 ​ $ 13,970 ​ $ (589) ​ (4) % ​ General and administrative expenses consist primarily of compensation and benefits related to our executives, directors and corporate support functions, general corporate expenses including legal fees, and occupancy costs.
General and Administrative Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ December 31, ​ Change ​ (in thousands) ​ 2023 2022 ​ $ % General and administrative ​ $ 11,537 ​ $ 13,381 ​ $ (1,844) ​ (14) % ​ General and administrative expenses consist primarily of compensation and benefits related to our executives, directors and corporate support functions, general corporate expenses including legal fees, and occupancy costs.
Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ Change ​ (in thousands) 2022 2021 $ % Research and development expense ​ $ 6,085 ​ $ 5,304 ​ $ 781 ​ 15 % Plus: Capitalized research and development cost ​ 1,160 ​ 1,425 ​ (265) ​ (19) % Total research and development cost ​ $ 7,245 ​ 6,729 ​ $ 516 ​ 8 % ​ Research and development (“R&D”) expenses consist primarily of compensation and related benefits, independent contractor costs, and an allocated portion of general overhead costs, including occupancy costs related to our employees involved in research and development activities.
The decrease in selling and marketing expenses resulted primarily from a reduction in online media and third-party marketing expenses and a reduction to stock compensation expense which was partially offset by higher personnel costs. 22 Table of Contents Research and Development ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, ​ Change ​ (in thousands) 2023 2022 $ % Research and development expense ​ $ 6,989 ​ $ 6,085 ​ $ 904 ​ 15 % Plus: Capitalized research and development cost ​ 1,946 ​ 1,160 ​ 786 ​ 68 % Total research and development cost ​ $ 8,935 ​ 7,245 ​ $ 1,690 ​ 23 % ​ Research and development (“R&D”) expenses consist primarily of compensation and related benefits, independent contractor costs, and an allocated portion of general overhead costs, including occupancy costs related to our employees involved in research and development activities.
In 2022, we continued to focus on product innovation, expanding revenue and managing expenses. 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 our Website and Native Mobile App report services and PDF services.
In 2023, we continued to focus on product innovation, expanding revenue and managing expenses. 20 Table of Contents We have two sales channels to deliver our product, the Partner and Marketplace channel and the Enterprise channel.
This decrease was mainly driven by efficiencies implemented during the year in these areas and lower stock compensation expense, partially offset by costs associated with BOIA and other expenses. We provide further commentary on our Results of Operation below.
With revenue for the twelve months ended 2023 increasing 5% from prior year comparable period, both Sales and Marketing expense and General and Administrative expense decreased from 2022. This decrease was mainly driven by efficiencies implemented during the year in these areas and lower stock compensation expense and litigation expense. We provide further commentary on our Results of Operation below.
In the twelve months ended December 31, 2022, total Enterprise revenue, inclusive of revenue from BOIA, grew by 28% from prior year comparable period. The Enterprise channel represented about 42% of ARR at the end of December 2022. In the year ended December 31, 2022, one major customer (including its affiliates) accounted for approximately 17% of our total revenue.
In the twelve months ended December 31, 2023, total Enterprise revenue, inclusive of revenue from the acquisition of BOIA in March 2022, decreased by 5% due to the reduction in revenue from one large customer. The Enterprise channel represented about 40% of ARR at the end of December 2023.
For the year ended December 31, 2022, general and administrative expenses decreased by 4% over the prior year.
For the year ended December 31, 2023, general and administrative expenses decreased by 14% over the prior year. The decrease in general and administrative expenses was due primarily to lower legal expenses towards non-recurring litigation and lower stock compensation expense.
This channel also includes federal, state and local government agencies and revenue attributable to the Bureau of Internet Accessibility Inc. (“BOIA”), which was acquired in March 2022. For the year ended December 31, 2022, total revenue increased by 22% over the prior year. We experienced revenue growth in both of our sales channels.
This channel also includes federal, state and local government agencies. For the year ended December 31, 2023, total revenue increased by 5% over the prior year. The increase in Partner and Marketplace channel revenue was the result of continued expansion with existing partners and execution of new partnerships agreements in the period.
(2) Represents legal expenses related primarily to patent litigation pursued by the Company. (3) Represents severance expense associated with the restructuring in executive roles. (4) Non-GAAP earnings per adjusted diluted share for our common stock is computed using the treasury stock method.
(2) Represents legal expenses related primarily to non-recurring litigation pursued by the Company. (3) Represents severance expense associated with the restructuring in executive roles. (4) Net loss as a percentage of GAAP revenues, which is the GAAP-based measure most comparable to Adjusted EBITDA margin, was (19)% and (35)%, respectively, for the years ended December 31, 2023 and 2022.
This increase was driven by less capitalized research and development costs and higher personnel cost associated with an increase in headcount. For the year ended December 31, 2022, capitalized research and development cost decreased by 19% over the prior year. This decrease is attributable to specific projects and products developed and the allocation of time spent on those projects.
For the year ended December 31, 2023, capitalized research and development cost increased by 68% over the prior year. The increase to capitalized research cost was the result of engineering personnel spending more time on product development than in previous comparable periods.
In the year ended December 31, 2021, two major customers accounted for 20% and 10%, respectively, of our total revenue. The Company continued to invest in Research and Development in 2022. Total Research and Development cost, as defined under Research and Development section in the Results of Operations below, was 24% of total revenue in 2022.
Total Research and Development cost, as defined under Research and Development section in the Results of Operations below, was 29% of total revenue in 2023. Total research and development cost increased primarily due to additional investments in engineering and product talent.
The decrease in working capital in 2022 was primarily due to the acquisition of BOIA, in connection with which net cash outflows in 2022 totaled $4.5 million and current contingent liability totaled $1.0 million as of December 31, 2022.
As of December 31, 2023, we had $2.4 million in current contingent consideration liability recognized in connection with the acquisition of BOIA, and $7.0 million in noncurrent term loan which matures on November 30, 2026.
For the year ended December 31, 2022, gross profit increased by 23% over the prior year. The increase in gross profit was a result of increased revenue, offset in part by higher costs to support the revenue growth.
The increase in gross profit was a result of increased revenue with a corresponding decrease to cost of revenue.
For the year ended December 31, 2022, cost of revenue increased by 18% over the prior year. The increase in cost of revenue is primarily due to enhancements to our service delivery through investment in customer experience and platform support, costs associated with BOIA’s operations, as well as increased amortization of capitalized software development costs.
For the year ended December 31, 2023, cost of revenue decreased by 3% over the prior year. The decrease in cost of revenue is primarily due to efficiencies achieved from infrastructure platform improvements and lower overhead costs from facilities. For the year ended December 31, 2023, gross profit increased by 7% over the prior year.
Removed
As of December 31, 2022, AudioEye had approximately 86,000 customers, an increase from 82,000 customers at December 31, 2021. Customer count increased in both the Enterprise and Partner and Marketplace channel during this period. On March 9, 2022, AudioEye acquired the Bureau of Internet Accessibility (“BOIA”), which provides web accessibility services including audits, training, remediation, and implementation support.
Added
AudioEye continues to focus on recurring revenue growth in both channels, while still offering our Website and Native Mobile App report services and PDF services that provide non-recurring revenue. For the year ended December 31, 2023, total revenue increased by 5% over the prior year.
Removed
Total research and development cost increased primarily due to additional investments in engineering and product talent. 19 Table of Contents With revenue for the twelve months ended 2022 increasing 22% from prior year comparable period, both Sales and Marketing expense and General and Administrative expense decreased from 2021.
Added
We had one major customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 17% of our revenue in each of the years ended December 31, 2023 and 2022. The Company continued to invest in Research and Development in 2023.
Removed
The increase Partner and Marketplace channel revenue was a result of our continued focus on highly transactional industry verticals to achieve higher penetration with new and existing partnerships.
Added
The decrease in Enterprise channel revenue was driven primarily by the reduction in revenue from one large customer.
Removed
The increase in Enterprise channel revenue was driven primarily by contributions from BOIA’s recurring support and non-recurring audit report revenue, as well as 20 Table of Contents additional recurring revenue from our current Enterprise offering. In 2022, our Enterprise channel revenue from recurring sources increased 22% over the prior year.
Added
Total research and development cost, which includes both R&D expenses and capitalized R&D costs, increased 23% from 2022 to 2023.
Removed
The decrease in selling and marketing expenses resulted primarily from a reduction in online media and third-party marketing agency expenses, which was partially offset by additional expenses incurred in connection with the acquisition of BOIA, as well as higher personnel costs associated with an increase in headcount.
Added
Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, Change (in thousands) ​ 2023 2022 ​ $ % Interest income (expense), net ​ $ 93 ​ $ (4) ​ $ 97 ​ (2,425) % ​ For the year ended December 31, 2023, interest income, net consisted primarily of income from investment in money market funds, which was partially offset by interest on our term loan acquired in the fourth quarter of 2023.
Removed
The decrease in general and administrative expenses was due primarily to lower stock-based compensation expense and legal expenses towards patent litigation pursued by the Company and was partially offset by costs associated with the BOIA acquisition, including the amortization expense related to acquired intangible assets and charges from the change in fair value of the contingent consideration.
Added
Adjusted EBITDA margin represents Adjusted EBITDA as a percentage of GAAP revenue. (5) Adjusted earnings per adjusted diluted share for our common stock is computed using the treasury stock method.
Removed
Refer to Note 9 - Commitments and Contingencies to our financial statements for information on our litigation.
Added
The increase in working capital in 2023 was primarily due to our $7 million term loan acquired in the fourth quarter of 2023, and was partially offset by the $1.4 million increase in current liability associated with the contingent consideration relating to the BOIA earn-out as the final payment is expected to be settled in the second quarter of 2024.
Removed
Gain on Loan Forgiveness ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ ​ ​ ​ December 31, ​ Change (in thousands) ​ 2022 ​ 2021 ​ $ ​ % Gain on loan forgiveness $ — $ 1,316 $ (1,316) ​ (100) % ​ In the second quarter of 2021, we recorded a $1,316,000 gain on loan forgiveness in connection with the full forgiveness of the outstanding principal and interest on our PPP Loan, which was originated on April 15, 2020 with a principal amount of $1,302,000.
Added
Cash used for investing activities in 2023 related primarily to cash outlays for software development costs. For the year ended December 31, 2023, in relation to the prior year, cash provided by financing activities increased due to a $7.0 million term loan obtained in November 2023.
Removed
As of December 31, 2022 and 2021, the Company had no debt outstanding.
Added
This increase was partially offset by a $366,000 increase in stock repurchases in 2023, as well as $974,000 payment towards our contingent consideration in the first quarter of 2023 in connection with the acquisition of BOIA, of which $908,000 and $66,000 are classified as cash used in financing and operating activities, respectively.
Removed
Interest Expense ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Year ended ​ ​ ​ ​ December 31, Change (in thousands) ​ 2022 2021 ​ $ % Interest expense ​ $ 4 ​ $ 12 ​ $ (8) ​ (67) % ​ Interest expense for the year ended December 31, 2022 consists of interest on our finance lease liabilities.
Added
Stock-Based Compensation Awards with performance conditions ​ Compensation expense related to performance-based options and RSUs is recognized on a straight-line basis over the requisite service period, provided that it is probable that performance conditions will be achieved. Management periodically assesses the probability of achievement of each performance condition.
Removed
In addition, in 2022 we paid approximately $3.0 in legal expenses primarily related to a patent litigation pursued by the Company, and which was settled in the fourth quarter of 2022, and repurchased $0.8 million of shares of our common stock under a program to repurchase up to $3.0 million of our outstanding shares. 24 Table of Contents On February 11, 2021, we entered into an At The Market (“ATM”) Sales Agreement with B.
Added
The model incorporates key assumptions, including non-recurring and recurring revenue metrics.
Removed
For the year ended December 31, 2021, cash provided by financing activities was higher primarily due to capital raised under the ATM Offering initiated in the first quarter of 2021. In 2021, the Company issued 471,970 shares of its common stock under the ATM offering and raised $16,534,000, net of transaction expenses.
Added
Quantitative and Qualitative Disclosures About Market Risk Not applicable.
Removed
Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data Our Financial Statements begin on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. 26 Table of Contents

Other AEYE 10-K year-over-year comparisons