AudioEye 10Q 2024 Q2 Quarterly report

AudioEye (AEYE) 10-Q2024 Q2 Quarterly report

Content analysis

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission File Number: 001-38640

AudioEye, Inc.

(Exact name of registrant as specified in its charter)

Delaware		20-2939845
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

5210 East Williams Circle, Suite 750, Tucson, Arizona		85711
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: 866-331-5324

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.00001 per share	AEYE	The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 25, 2024, 11,879,116 shares of the registrant’s common stock were issued and outstanding.

Table of Contents


		Page
PART I	FINANCIAL INFORMATION	1

Item 1.	Financial Statements	1

	Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (unaudited)	2

	Consolidated Statements of Operations for the three and six months ended June 30, 2024 and 2023 (unaudited)	3

	Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2024 and 2023 (unaudited)	4

	Consolidated Statements of Cash Flows for the six months ended June 30, 2024 and 2023 (unaudited)	5

	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II	OTHER INFORMATION	22

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Issuer Purchases of Equity Securities	22

Item 6.	Exhibits	23

SIGNATURES		24

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

The financial information set forth below with respect to the consolidated financial statements as of June 30, 2024 and December 31, 2023 and for the three- and six-month periods ended June 30, 2024 and 2023 is unaudited. This financial information, in the opinion of our management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three- and six-month periods ended June 30, 2024 are not necessarily indicative of results to be expected for any subsequent period. Our fiscal year end is December 31. The Company presents its unaudited consolidated financial statements, notes, and other financial information rounded to the nearest thousand United States Dollars (“U.S. Dollar”), except for per share data.

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AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)


	June 30,		December 31,
(in thousands, except per share data)	2024		2023

ASSETS
Current assets:
Cash	$	5,086	$	9,236
Accounts receivable, net of allowance for doubtful accounts of $436 and $496, respectively		5,420		4,828
Prepaid expenses and other current assets		1,050		712
Total current assets		11,556		14,776

Property and equipment, net of accumulated depreciation of $301 and $251, respectively		222		218
Right of use assets		474		611
Intangible assets, net of accumulated amortization of $8,489 and $7,423, respectively		5,628		5,783
Goodwill		4,001		4,001
Other		123		106
Total assets	$	22,004	$	25,495

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	2,688	$	2,339
Operating lease liabilities		211		312
Finance lease liabilities		—		7
Deferred revenue		7,050		6,472
Contingent consideration		—		2,399
Total current liabilities		9,949		11,529

Long term liabilities:
Term loan, net		6,773		6,727
Operating lease liabilities		319		417
Deferred revenue		1		10
Other		105		105
Total liabilities		17,147		18,788

Stockholders’ equity:
Preferred stock, $0.00001 par value, 10,000 shares authorized
Common stock, $0.00001 par value, 50,000 shares authorized, 11,808 and 11,711 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively		1		1
Additional paid-in capital		97,912		96,182
Accumulated deficit		(93,056)		(89,476)
Total stockholders’ equity		4,857		6,707

Total liabilities and stockholders’ equity	$	22,004	$	25,495

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


		Three months ended June 30,			Six months ended June 30,
(in thousands, except per share data)	2024		2023		2024		2023
Revenue	$	8,470	$	7,836	$	16,553	$	15,608

Cost of revenue		1,764		1,787		3,525		3,489

Gross profit		6,706		6,049		13,028		12,119

Operating expenses:
Selling and marketing		2,971		3,253		5,974		6,496
Research and development		1,221		2,033		2,543		3,779
General and administrative		3,011		2,791		5,639		5,926
Total operating expenses		7,203		8,077		14,156		16,201

Operating loss		(497)		(2,028)		(1,128)		(4,082)

Interest income (expense), net		(238)		55		(436)		98

Net loss	$	(735)	$	(1,973)	$	(1,564)	$	(3,984)

Net loss per common share-basic and diluted	$	(0.06)	$	(0.17)	$	(0.13)	$	(0.34)

Weighted average common shares outstanding-basic and diluted		11,703		11,738		11,706		11,688

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND SIX MONTHS ENDED JUNE 30, 2024 AND 2023

(unaudited)


				Additional
	Common stock			Paid-in		Accumulated
(in thousands)	Shares	Amount		Capital		Deficit		Total
Balance, December 31, 2023	11,711	$	1	$	96,182	$	(89,476)	$	6,707
Common stock issued upon settlement of restricted stock units	235		—		—		—		—
Issuance of common stock for services	7		—		—		—		—
Surrender of stock to cover tax liability on settlement of employee stock-based awards	(25)		—		(160)		—		(160)
Common stock repurchased for retirement	(266)		—		—		(1,686)		(1,686)
Stock-based compensation	—		—		883		—		883
Net loss	—		—		—		(829)		(829)
Balance, March 31, 2024	11,662	$	1	$	96,905	$	(91,991)	$	4,915
Issuance of common stock for cash, net of transaction expenses	40		—		563		—		563
Common stock issued upon exercise of options on a cashless basis	17		—		—		—		—
Common stock issued upon settlement of restricted stock units	141		—		—		—		—
Issuance of common stock for services	5		—		—		—		—
Common stock issued pursuant to employee stock purchase plan	4		—		53		—		53
Surrender of stock to cover tax liability on settlement of employee stock-based awards	(28)		—		(584)		—		(584)
Common stock repurchased for retirement	(33)		—		—		(330)		(330)
Stock-based compensation	—		—		975		—		975
Net loss	—		—		—		(735)		(735)
Balance, June 30, 2024	11,808	$	1	$	97,912	$	(93,056)	$	4,857


				Additional
	Common stock			Paid-in		Accumulated
(in thousands)	Shares	Amount		Capital		Deficit		Total
Balance, December 31, 2022	11,551	$	1	$	93,070	$	(82,482)	$	10,589
Common stock issued upon settlement of restricted stock units	192		—		—		—		—
Issuance of common stock for services	10		—		—		—		—
Surrender of stock to cover tax liability on settlement of employee stock-based awards	(56)		—		(258)		—		(258)
Stock-based compensation	—		—		1,118		—		1,118
Net loss	—		—		—		(2,011)		(2,011)
Balance, March 31, 2023	11,697	$	1	$	93,930	$	(84,493)	$	9,438
Common stock issued upon settlement of restricted stock units	108		—		—		—		—
Issuance of common stock for services	14		—		—		—		—
Common stock issued pursuant to employee stock purchase plan	9		—		36		—		36
Surrender of stock to cover tax liability on settlement of employee stock-based awards	(31)		—		(188)		—		(188)
Stock-based compensation	—		—		1,031		—		1,031
Net loss	—		—		—		(1,973)		(1,973)
Balance, June 30, 2023	11,797	$	1	$	94,809	$	(86,466)	$	8,344

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


		Six months ended June 30,
(in thousands)	2024		2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,564)	$	(3,984)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		1,168		1,103
Loss on disposal or impairment of long-lived assets		4		147
Stock-based compensation expense		1,858		2,149
Amortization of deferred commissions		16		36
Amortization of debt discount and issuance costs		47		—
Amortization of right of use assets		137		199
Change in fair value of contingent consideration		(12)		214
Provision for accounts receivable		111		(1)
Changes in operating assets and liabilities:
Accounts receivable		(703)		739
Prepaid expenses and other assets		(372)		119
Accounts payable and accruals		(447)		(82)
Operating lease liability		(199)		(271)
Deferred revenue		569		(559)
Net cash provided by (used in) operating activities		613		(191)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment		(75)		(57)
Software development costs		(947)		(999)
Patent costs		(13)		—
Net cash used in investing activities		(1,035)		(1,056)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock offering, net of transaction costs		663		—
Proceeds from employee stock purchase plan		53		36
Payments related to settlement of employee shared-based awards		(744)		(446)
Settlement of contingent consideration		(1,677)		(908)
Repurchase of common stock		(2,016)		—
Repayments of finance leases		(7)		(22)
Net cash used in financing activities		(3,728)		(1,340)

Net decrease in cash		(4,150)		(2,587)
Cash-beginning of period		9,236		6,904
Cash-end of period	$	5,086	$	4,317

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock offering costs included in accounts payable	$	100	$	—

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The accompanying unaudited interim consolidated financial statements of AudioEye, Inc. and its wholly-owned subsidiary, Springtime, Inc. (“we”, “our” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) and the rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”), as filed with the SEC on March 7, 2024.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain information and disclosures normally contained in the audited consolidated financial statements as reported in the Company’s Annual Report on Form 10-K have been condensed or omitted in accordance with the SEC’s rules and regulations for interim reporting.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the 2023 Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes to the consolidated financial statements contained in the 2023 Form 10-K when reviewing interim financial results.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial statements and during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to stock-based compensation, allowance for doubtful accounts, and intangible assets. Actual results may differ from these estimates.

Revenue Recognition

We derive our revenue primarily from the sale of internally developed software by a software-as-a-service (“SaaS”) delivery model, as well as from professional services, through our direct sales force or through third-party resellers. Our SaaS fees include support and maintenance.

We recognize revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We determine revenue recognition through the following five steps:

●

Identify the contract with the customer;

●

Identify the performance obligations in the contract;

●

Determine the transaction price;

●

Allocate the transaction price to the performance obligations in the contract; and

●

Recognize revenue when, or as, the performance obligations are satisfied.

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer. If we determine that we have not satisfied a performance obligation, we will defer recognition of the revenue until the performance obligation is deemed to be satisfied. SaaS agreements are generally non-cancelable, although clients typically have the right to terminate their contracts for cause if we fail to perform material obligations.

Our SaaS revenue is comprised of fixed subscription fees from customer accounts on our platform related to our software products. Our support revenue is comprised of subscription fees for customers for periodic auditing, human-assisted technological remediations, legal support, and other professional support services. SaaS and support (also referred to as “subscription”) revenue is recognized on a ratable basis over the contractual subscription term of the arrangement beginning on the date that our service is made available to the customer. Certain SaaS and support fees are invoiced in advance on an annual, semi-annual, or quarterly basis. Any funds received for services not provided yet are held in deferred revenue and are recorded as revenue when the related performance obligations have been satisfied.

Non-subscription revenue consists primarily of PDF remediation and one-time website and mobile application reporting services, and is recognized upon delivery. Consideration payable under PDF remediation arrangements is based on usage. Consideration payable under non-subscription website and mobile application reporting services arrangements is based on fixed fees.

The following table presents our revenues disaggregated by sales channel:


	Six months ended June 30,
(in thousands)	2024		2023
Partner and Marketplace	$	9,704	$	8,760
Enterprise		6,849		6,848
Total revenues	$	16,553	$	15,608

The Company records accounts receivable for amounts invoiced to customers for which the Company has an unconditional right to consideration as provided under the contractual arrangement. Deferred revenue includes payments received in advance of performance under the contract and is reported on an individual contract basis at the end of each reporting period. Deferred revenue is classified as current or noncurrent based on the timing of when we expect to recognize revenue.

The table below summarizes our deferred revenue as of June 30, 2024 and December 31, 2023:


	June 30,		December 31,
(in thousands)	2024		2023
Deferred revenue — current	$	7,050	$	6,472
Deferred revenue — noncurrent		1		10
Total deferred revenue	$	7,051	$	6,482

In the six-month period ended June 30, 2024, we recognized $4,922,000, or 76%, in revenue from deferred revenue outstanding as of December 31, 2023.

We had one customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 16% of our total revenue in each of the three and six months ended June 30, 2024 and 2023.

One major customer represented 15% and 16% of total accounts receivable as of June 30, 2024 and December 31, 2023, respectively.

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred Costs (Contract acquisition costs)

We capitalize initial and renewal sales commissions in the period the commission is earned, which generally occurs when a customer contract is obtained, and amortize deferred commission costs on a straight-line basis over the expected period of benefit, which we have deemed to be the contract term. As a practical expedient, we expense sales commissions as incurred when the amortization period of related deferred commission costs would have been one year or less.

The table below summarizes the deferred commission costs as of June 30, 2024 and December 31, 2023, which are included in Prepaid expenses and other current assets on our consolidated balance sheets:

Amortization expense associated with sales commissions was included in Selling and marketing expenses on the consolidated statements of operations and totaled $6,000 and $16,000 for the three- and six-month periods ended June 30, 2024, respectively, and $17,000 and $36,000 for the three- and six-month periods ended June 30, 2023, respectively.

Debt Discount and Debt Issuance Costs

Costs related to the issuance of debt due to the lender (debt discount) or to third parties (debt issuance costs) are capitalized and amortized to interest expense based on the effective interest method over the term of the related debt. Debt discount and debt issuance costs are presented on the Company’s consolidated balance sheets as a direct deduction from the carrying amount of our term loan.

Employee Stock Purchase Plan

In May 2022, the stockholders of the Company approved the Company’s Employee Stock Purchase Plan (the “ESPP”), which provides for the issuance of up to 500,000 shares of common stock. Eligible employees may elect to have a percentage of eligible compensation withheld to purchase shares of our common stock at the end of each purchase period. The Company expects each purchase period to be the six month periods ending on June 30 or December 31 of each calendar year. The purchase price per share is expected to equal 85% of the fair market value of our common stock on the last trading day of the purchase period. Under the ESPP, a participant may not be granted rights to purchase more than $25,000 worth of common stock for each calendar year and no participant may purchase more than 1,500 shares of our common stock (or such other number as the Compensation Committee may designate) on any one purchase date. As of June 30, 2024, 18,960 shares had been issued under the ESPP and 481,040 shares remained available under the plan.

Stock-Based Compensation

The Company periodically issues options, restricted stock units (“RSUs”), and shares of its common stock as compensation for services received from its employees, directors, and consultants. The fair value of the award is measured on the grant date. The fair value amount is then recognized as expense over the requisite vesting period during which services are required to be provided in exchange for the award. We recognize forfeitures as they occur. Stock-based compensation expense is recorded in the same expense classifications in the consolidated statements of operations as if such amounts were paid in cash.

The fair value of options awards is measured on the grant date using a Black-Scholes option pricing model, which includes assumptions that are subjective and are generally derived from external data (such as risk-free rate of interest) and historical data (such as volatility factor and expected term).

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

We estimate the fair value of restricted stock unit awards with time- or performance-based vesting using the value of our common stock on the grant date. We estimate the fair value of market-based restricted stock unit awards as of the grant date using the Monte Carlo simulation model.

We expense the compensation cost associated with time-based options and RSUs as the restriction period lapses, which is typically a one- to three-year service period with the Company. Compensation expense related to performance-based RSUs is recognized on a straight-line basis over the requisite service period, provided that it is probable that performance conditions will be achieved, with probability assessed on a quarterly basis and any changes in expectations recognized as an adjustment to earnings in the period of the change. Compensation cost is not recognized for service- and performance-based awards that do not vest because service or performance conditions are not satisfied, and any previously recognized compensation cost is reversed. Compensation costs related to awards with market conditions are recognized on a straight-line basis over the requisite service period regardless of whether the market condition is satisfied and is not reversed provided that the requisite service period derived from the Monte-Carlo simulation has been completed. If vesting occurs prior to the end of the requisite service period, expense is accelerated and fully recognized through the vesting date.

The following table summarizes the stock-based compensation expense recorded for the three and six months ended June 30, 2024 and 2023:


	Three months ended June 30,				Six months ended June 30,
(in thousands)	2024		2023		2024		2023
Options	$	1	$	39	$	5	$	116
RSUs		853		900		1,666		1,887
Unrestricted shares of common stock		112		86		178		140
Employee stock purchase plan		9		6		9		6
Total	$	975	$	1,031	$	1,858	$	2,149

As of June 30, 2024, the unrecognized stock-based compensation expense related to outstanding RSUs totaled $4,443,000, which may be recognized through April 2027, subject to achievement of service, performance, and market conditions.

Earnings (Loss) Per Share (“EPS”)

Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted EPS is calculated based on the net income (loss) available to common stockholders and the weighted average number of shares of common stock outstanding during the period, adjusted for the effects of all potential dilutive common stock issuances related to options and restricted stock units. The dilutive effect of our stock-based awards is computed using the treasury stock method, which assumes all stock-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (i.e., the difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation. However, when a net loss exists, no potential common stock equivalents are included in the computation of the diluted per-share amount because the computation would result in an anti-dilutive per-share amount.

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Potentially dilutive securities outstanding as of June 30, 2024 and 2023, which were excluded from the computation of basic and diluted net loss per share for the periods then ended, are as follows:


	June 30,
(in thousands)	2024	2023
Options	80	134
Restricted stock units	1,470	1,903
Total	1,550	2,037

The following table summarizes the stock option and RSUs activity for the six months ended June 30, 2024:


	Options	RSUs
Outstanding at December 31, 2023	112,279	1,707,258
Granted	—	200,170
Exercised/Settled	(25,642)	(376,176)
Forfeited/Expired	(6,740)	(61,481)
Outstanding at June 30, 2024	79,897	1,469,771
Vested at June 30, 2024	79,897	447,117
Unvested at June 30, 2024	—	1,022,654

Stock Repurchases

In the fourth quarter of 2023, the Board of Directors of the Company approved a program to repurchase up to $5 million of its outstanding shares of common stock through December 31, 2025. In 2023, we used $1.12 million of the program to repurchase shares. In the six months ended June 30, 2024, we used $2.02 million of the program to repurchase shares. As of June 30, 2024, we had $1.86 million remaining for the repurchase of shares.

Shares repurchased by the Company are immediately retired. The Company made an accounting policy election to charge the excess of repurchase price over par value entirely to retained earnings.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. The ASU is effective for annual periods beginning after December 15, 2024, with early adoption permitted. We plan to adopt ASU 2023-09 in our fiscal year 2025 annual financial statements. The adoption of this ASU will not affect the Company’s consolidated results of operations, financial position or cash flows.

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 3 — ACQUISITIONS

Bureau of Internet Accessibility Inc.

On March 9, 2022, we entered into a Stock Purchase Agreement (“Purchase Agreement”) to acquire all the outstanding equity interests of Bureau of Internet Accessibility Inc. (“BOIA”), a Delaware corporation which provides web accessibility services including audits, training, remediation and implementation support. The aggregate consideration for the purchase of BOIA was approximately $7.5 million (at fair value), consisting of $5.1 million cash payment at closing, $0.2 million cash received in the third quarter of 2022 resulting from net working capital adjustments, and an estimated $2.6 million in aggregate contingent consideration to be paid in cash following the one- and two-year anniversary of the closing date. Actual aggregate cash consideration was based on BOIA’s revenues for 2022 and 2023. In the first quarter of 2023, we made a $974,000 cash payment towards the contingent consideration liability. In the second quarter of 2024, we made a $2,387,000 cash payment to settle the contingent consideration associated with the BOIA acquisition in full.

We accounted for the acquisition of BOIA as business combination in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”). Accordingly, under the acquisition method of accounting, we allocated the purchase price to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values, and recognized goodwill for the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired.

Acquired intangible assets are amortized on a straight-line basis over their estimated useful lives of 2 to 7 years. In the six months ended June 30, 2024 and 2023, amortization expense associated with acquired intangible assets totaled $349,000 and $357,000, respectively.

For the six months ended June 30, 2024 and 2023, we recorded $12,000 and $(214,000), respectively, in income (expense) related to the change in the fair value of contingent consideration, which is included in General and administrative in the accompanying Consolidated Statements of Operations.

NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS

We determine whether an arrangement is a lease at inception. Right-of-use assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease.

Finance Leases

The Company had finance leases to purchase computer equipment that expired in the second quarter of 2024. The amortization expense of the leased equipment is included in depreciation expense. As of June 30, 2024 and December 31, 2023, the Company’s outstanding finance lease obligations totaled zero and $7,000, respectively. The effective interest rate of the finance leases was estimated at 6.0% based on the implicit rate in the lease agreements.

Operating Leases

Operating lease right-of-use assets and liabilities are recognized at commencement date based on the present value of lease payments over the expected lease term. Since our lease arrangements do not provide an implicit rate, we use our estimated incremental borrowing rate for the expected remaining lease term at commencement date in determining the present value of future lease payments. Operating lease expense is recognized on a straight-line basis over the lease term.

The Company has operating leases for office space in Tucson, Arizona, and New York, New York. The lease for the principal office located in Tucson consists of 627 square feet and ends in October 2024. The lease for the New York office, which consists of approximately 5,000 square feet, commenced in January 2022 and will expire in December 2026.

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS (continued)

In the second quarter of 2024, Company entered into a agreement to sublease office space in Miami Beach, Florida, on a month-to-month basis. In addition, the Company entered into membership agreements to occupy shared office space in Lehi, Utah, Tucson, Arizona, and Portland, Oregon. Because these agreements do not qualify as a lease under ASC 842, we expense the related rent and membership fees as they are incurred.

In the first quarter of 2023, we closed our Marietta, Georgia office. As a result of abandoning the office space prior to its lease expiration in August 2024, we wrote off the associated right-of-use asset in full and recognized a $146,000 loss on impairment, which is included in General and administrative in the accompanying Consolidated Statement of Operations. As of June 30, 2024, the lease liability related to the Marietta, GA office was $21,000.

The Company made operating lease payments in the amount of $227,000 and $271,000 during the six months ended June 30, 2024 and 2023, respectively.

The following summarizes the total lease liabilities and remaining future minimum lease payments at June 30, 2024 (in thousands):


Year ending December 31,	Operating Leases
2024 (6 months remaining)	$	127
2025		219
2026		225
Total minimum lease payments		571
Less: present value discount		(41)
Total lease liabilities		530
Current portion of lease liabilities		211
Long term portion of lease liabilities	$	319

The following summarizes expenses associated with our finance and operating leases for the six months ended June 30, 2024 and 2023:


	Six months ended June 30,
(in thousands)	2024			2023
Finance lease expenses:
Depreciation expense	$	6	$	20
Interest on lease liabilities		—		1
Total Finance lease expense		6		21
Operating lease expense		165		266
Short-term lease and related expenses		204		117
Total lease expenses	$	375	$	404

The following table provides information about the remaining lease terms and discount rates applied as of June 30, 2024 and 2023:


	June 30,
	2024	2023
Weighted average remaining lease term (years)
Operating Leases	2.42	2.84
Finance Leases	—	0.78
Weighted average discount rate (%)
Operating Leases	6.00	6.00
Finance Leases	—	6.00

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2024

(Unaudited)

NOTE 5 — DEBT

On November 30, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with SG Credit Partners, Inc., a Delaware corporation (the “Lender”). The Loan Agreement provides for a $7.0 million term loan, which is due and payable on the maturity date of November 30, 2026. The interest rate is 6.25% in excess of the base rate, which is defined as the greater of the prime rate and 7.00% per annum. Interest is payable in cash on a monthly basis.

The Company paid a commitment fee equal to $105,000 on the closing date and is required to pay an exit fee equal to $105,000 upon the earlier of repayment in full of the obligations, the maturity date and the occurrence of a liquidity event. The commitment and exit fees payable to the lender were recorded as debt discount. The exit fee was included within long term liabilities on our consolidated balance sheet as of June 30, 2024. The Company also incurred $71,000 in third-party expenses in connection with the term loan, which were recorded as debt issuance costs. Debt discount and debt issuance costs are presented as a direct deduction from the carrying amount of our term loan and are amortized to interest expense over the term of the loan using the effective interest method. In the six months ended June 30, 2024, amortization of debt discount and debt issuance costs totaled $35,000 and $12,000, respectively.

The Loan Agreement secured by substantially all of our assets and contains certain customary financial covenants, including the requirements that the Company maintain (i) minimum liquidity of $2.0 million and (ii) minimum monthly recurring revenue levels measured on a trailing three month average basis as of the last day of each calendar month. 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% of Borrowers’ monthly recurring revenue for the applicable month in the prior year. The Company was in compliance with all applicable covenants at June 30, 2024.

As of June 30, 2024, outstanding principal balance of the term loan totaled $7,000,000 and accrued interest thereon totaled $86,000.

NOTE 6 — COMMITMENTS AND CONTINGENCIES

Litigation

We may become involved in various routine disputes and allegations incidental to our business operations. While it is not possible to determine the ultimate disposition of these matters, management believes that the resolution of any such matters, should they arise, is not likely to have a material adverse effect on our financial position or results of operations.

NOTE 7 — SUBSEQUENT EVENTS

We have evaluated subsequent events occurring after June 30, 2024, and based on our evaluation we did not identify any events that would have required recognition or disclosure in these consolidated financial statements.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with our consolidated financial statements and related notes in Part I, Item 1 of this report.

As used in this quarterly report, the terms “we,” “us,” “our” and similar references refer to AudioEye, Inc., unless otherwise indicated.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you may be able to identify forward-looking statements by terms such as “may,” “should,” “will,” “forecasts,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential” or “continue,” the negative of these terms and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and speak only as of the date on which they are made.

Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed in “Part I, Item 1A. Risk Factors” contained in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to:

●

the uncertain market acceptance of our existing and future products;

●

our need for, and the availability of, additional capital in the future to fund our operations and the development of new products;

●

the success, timing and financial consequences of new strategic relationships or licensing agreements we may enter into;

●

rapid changes in Internet-based applications that may affect the utility and commercial viability of our products;

●

the timing and magnitude of expenditures we may incur in connection with our ongoing product development activities;

●

judicial applications of accessibility laws to the internet;

●

the level of competition from our existing competitors and from new competitors in our marketplace; and

●

the regulatory environment for our products and services.

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

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AudioEye Solutions

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

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-three (23) issued patents in the United States and three (3) pending US patent applications. The commercial value of these patents is unknown.

We plan to continue to invest in research and development and expand our portfolio of proprietary intellectual property.

Our Annual Report filed on Form 10-K for the year ended December 31, 2023 as filed with the SEC on March 7, 2024 provides additional information about our business and operations.

Legal and Regulatory Framework Update

On April 24, 2024, the U.S. Department of Justice (“DOJ”) published a rule to add specific requirements about web and mobile application accessibility under Title II of the ADA that would apply to state and local governments. On May 9, 2024, the U.S. Department of Health and Human Services (“HHS”) published a rule to add, among other things, specific requirements about web and mobile application accessibility under Section 504 of the Rehabilitation Act that would apply to recipients of Federal financial assistance.

Executive Overview

AudioEye is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (“ADA”) and WCAG compliance at scale. Our solutions advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience. In the three months ended June 30, 2024, 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 mobile application reporting services and PDF remediation services that provide non-recurring revenue. For the six months ended June 30, 2024, total revenue increased by 6% over the prior year comparable period. As of June 30, 2024, Annual Recurring Revenue (“ARR”) was approximately $33.3 million, which represented an increase of 12% year-over-year. Refer to Other Key Operating Metrics below for details on how we calculate ARR.

As of June 30, 2024, AudioEye had approximately 121,000 customers, a 16% increase from 104,000 customers at June 30, 2023. The increase in customer count is attributed to both our Partner and Marketplace and Enterprise channels.

In the six months ended June 30, 2024, revenue from our Partner and Marketplace channel grew 11% over the prior year comparable period. This channel represented about 60% of ARR at the end of June 2024. In six months ended June 30, 2024, total Enterprise channel revenue remained consistent with the prior year comparable period. The Enterprise channel represented about 40% of ARR at the end of June 2024.

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The Company continued to invest in research and development in the second quarter of 2024. Total research and development cost, as defined under Research and Development Expenses section in the Results of Operations below, was 21% of total revenue in the six months ended June 30, 2024. Total research and development cost decreased from the prior year comparable period primarily due to the completion of significant initiatives in research and development.

While revenue increased 6% in the six months ended June 30, 2024, selling and marketing expense and general and administrative expense decreased from the prior year comparable period. This decrease was mainly driven by efficiencies in selling and marketing and lower stock compensation expense.

We provide further commentary on our Results of Operation below.

Results of Operations

Our unaudited consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”). The discussion of the results of our operations compares the three and six months ended June 30, 2024 with the three and six months ended June 30, 2023.

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


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
Revenue	$	8,470	$	7,836	$	634	8	%
Cost of revenue		(1,764)		(1,787)		23	(1)	%
Gross profit		6,706		6,049		657	11	%
Operating expenses:
Selling and marketing		2,971		3,253		(282)	(9)	%
Research and development		1,221		2,033		(812)	(40)	%
General and administrative		3,011		2,791		220	8	%
Total operating expenses		7,203		8,077		(874)	(11)	%
Operating loss		(497)		(2,028)		1,531	(75)	%
Interest income (expense), net		(238)		55		(293)	(533)	%
Net loss	$	(735)	$	(1,973)	$	1,238	(63)	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
Revenue	$	16,553	$	15,608	$	945	6	%
Cost of revenue		(3,525)		(3,489)		(36)	1	%
Gross profit		13,028		12,119		909	8	%
Operating expenses:
Selling and marketing		5,974		6,496		(522)	(8)	%
Research and development		2,543		3,779		(1,236)	(33)	%
General and administrative		5,639		5,926		(287)	(5)	%
Total operating expenses		14,156		16,201		(2,045)	(13)	%
Operating loss		(1,128)		(4,082)		2,954	(72)	%
Interest income (expense), net		(436)		98		(534)	(545)	%
Net loss	$	(1,564)	$	(3,984)	$	2,420	(61)	%

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Revenue

The following tables present our revenues disaggregated by sales channel:


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
Partner and Marketplace	$	4,970	$	4,417	$	553	13	%
Enterprise		3,500		3,419		81	2	%
Total revenues	$	8,470	$	7,836	$	634	8	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
Partner and Marketplace	$	9,704	$	8,760	$	944	11	%
Enterprise		6,849		6,848		1	—	%
Total revenues	$	16,553	$	15,608	$	945	6	%

Partner and Marketplace channel consists of our CMS partners, platform & agency partners, authorized resellers and the Marketplace. This channel serves small & medium sized businesses that are on a partner or reseller’s web-hosting platform or that purchase our solutions from our Marketplace.

Enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites, who generally engage directly with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal, state and local government agencies.

For the three and six months ended June 30, 2024, total revenue increased by 8% and 6%, respectively, over the prior year comparable periods. 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. The increase in Enterprise channel revenue for the three months ended June 30, 2024 was driven primarily by an increase in Enterprise customers.

Cost of Revenue and Gross Profit


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
Revenue	$	8,470	$	7,836	$	634	8	%
Cost of Revenue		(1,764)		(1,787)		23	(1)	%
Gross profit	$	6,706	$	6,049	$	657	11	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
Revenue	$	16,553	$	15,608	$	945	6	%
Cost of Revenue		(3,525)		(3,489)		(36)	1	%
Gross profit	$	13,028	$	12,119	$	909	8	%

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 three and six months ended June 30, 2024, cost of revenue remained consistent with the prior year comparable periods.

For the three and six months ended June 30, 2024, gross profit increased by 11% and 8% over the prior year comparable periods. The increase in gross profit was a result of increased revenue.

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Selling and Marketing Expenses


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
Selling and marketing	$	2,971	$	3,253	$	(282)	(9)	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
Selling and marketing	$	5,974	$	6,496	$	(522)	(8)	%

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.

For the three and six months ended June 30, 2024, selling and marketing expenses decreased by 9% and 8%, respectively, over the prior year comparable periods. 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.

Research and Development Expenses


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
Research and development expense	$	1,221	$	2,033	$	(812)	(40)	%
Plus: Capitalized research and development cost		457		526		(69)	(13)	%
Total research and development cost	$	1,678	$	2,559	$	(881)	(34)	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
Research and development expense	$	2,543	$	3,779	$	(1,236)	(33)	%
Plus: Capitalized research and development cost		947		999		(52)	(5)	%
Total research and development cost	$	3,490	$	4,778	$	(1,288)	(27)	%

Research and development (“R&D”) expenses consist primarily of compensation and related benefits, independent contractor costs, and an allocated portion of general overhead costs related to our employees involved in research and development activities. 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 three and six months ended June 30, 2024, research and development expense decreased by 40% and 33%, respectively, over the prior year comparable periods. This decrease was driven by lower personnel cost associated with a realignment in our product and development teams following the completion of significant initiatives in R&D. For the three and six months ended June 30, 2024, capitalized research and development cost decreased by 13% and 5%, respectively, over the prior year comparable periods. The decrease to capitalized research cost was the result of engineering personnel spending less time on product development than in the prior year comparable periods. For the three and six months ended June 30, 2024, total research and development cost, which includes both R&D expenses and capitalized R&D costs, decreased by 34% and 27%, respectively, over the prior year comparable periods.

General and Administrative Expenses


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
General and administrative	$	3,011	$	2,791	$	220	8	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
General and administrative	$	5,639	$	5,926	$	(287)	(5)	%

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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.

For the three months ended June 30, 2024, general and administrative expenses increased by 8% over the prior year comparable period. The increase in general and administrative expenses was due primarily to higher stock compensation expense and litigation expenses, partially offset by lower personnel costs and the absence of valuation adjustments to contingent consideration in the second quarter of 2024.

For the six months ended June 30, 2024, general and administrative expenses decreased by 5% over the prior year comparable periods. The decrease in general and administrative expenses was due primarily to lower personnel costs and a reduction in valuation adjustments to contingent consideration, partially offset by an increase in litigation expenses.

Interest Income (Expense)


	Three months ended June 30,				Change
(in thousands)	2024		2023		$		%
Interest income (expense), net	$	(238)	$	55	$	(293)	(533)	%


	Six months ended June 30,				Change
(in thousands)	2024		2023		$		%
Interest income (expense), net	$	(436)	$	98	$	(534)	(545)	%

For the three and six months ended June 30, 2024, interest expense, net consisted primarily of interest on our term loan borrowed in the fourth quarter of 2023, which was partially offset by interest income from investment in money market funds. For the three and six months ended June 30, 2023, interest income, net consisted primarily of income from investment in money market funds.

Other Key Operating Metrics

We consider annual recurring revenue (“ARR”) as a key operating metric and a key indicator of our overall business. We also use ARR as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations.

We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service such as our automation and platform, periodic auditing, human-assisted technological remediations, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service such as our PDF remediation services business, one-time mobile application reports, and other miscellaneous services that are offered as non-subscription services or are expected to be one-time in nature. As of June 30, 2024, ARR was $33.3 million, which represents an increase of 12% year-over-year, driven by growth in both our Partner and Marketplace channel and Enterprise channel.

Liquidity and Capital Resources

Working Capital


(in thousands)	June 30, 2024		December 31, 2023
Current assets	$	11,556	$	14,776
Current liabilities		(9,949)		(11,529)
Working capital	$	1,607	$	3,247

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As of June 30, 2024, we had $5,086,000 in cash and working capital of $1,607,000. The $1.6 million decrease in working capital in the six months ended June 30, 2024 was primarily due to the use of $2.02 million in cash to repurchase 299,371 shares of our common 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 and restored to the status of authorized but unissued shares of common stock. As of June 30, 2024, we had $1.86 million remaining for the repurchase of shares.

In the second quarter of 2024, the Company initiated an At The Market offering (“ATM offering”), under which we issued 39,646 shares of our common stock and raised $663,000, net of transaction expenses. As of June 30, 2024, offering costs included in accounts payable totaled $100,000.

In the second quarter of 2024, we made the $2.4 million cash payment to settle the contingent consideration associated with the BOIA acquisition in full. As of June 30, 2024, we had $7.0 million in noncurrent term loan which matures on November 30, 2026.

As of June 30, 2024, we had no off-balance sheet arrangements, and we believe that the Company has sufficient liquidity to continue as a going concern through the next twelve months.

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. 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.

Cash Flows


	Six months ended June 30,
(in thousands)	2024		2023
Net cash provided by (used in) operating activities	$	613	$	(191)
Net cash used in investing activities		(1,035)		(1,056)
Net cash used in financing activities		(3,728)		(1,340)
Net decrease in cash	$	(4,150)	$	(2,587)

For the six months ended June 30, 2024, in relation to the prior year comparable period, cash provided by operating activities increased primarily due cost efficiencies associated with lower personnel cost following a realignment in our product and development teams, as well as lower online media and third-party marketing expenses.

For the six months ended June 30, 2024, in relation to the prior year comparable period, cash used in investing activities decreased primarily due to lower software development costs.

For the six months ended June 30, 2024, in relation to the prior year comparable period, cash used in financing activities increased primarily due to common stock repurchases totaling $2.02 million, as well as higher payouts towards the contingent consideration in connection with the acquisition of BOIA. In the six months ended June 30, 2024, payments towards our contingent consideration totaled $2,387,000, of which $1,677,000 and $710,000 are classified as cash used in financing and operating activities, respectively. In the six months ended June 30, 2023, payments towards our contingent consideration totaled $974,000, of which $908,000 and $66,000 are classified as cash used in financing and operating activities, respectively.

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. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts 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.

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Our critical accounting estimates, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, relate to stock-based compensation and goodwill, intangible assets and contingent consideration recognized in connection with a business combination. There have been no material changes to our critical accounting policies and estimates as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, projections of any evaluation of effectiveness of our disclosure controls and procedures to future periods are subject to the risk that controls or procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls or procedures may deteriorate.

As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s senior management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), of the effectiveness of the design and operation of the Company’s disclosure controls and procedures to provide reasonable assurance of achieving the desired objectives of the disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of June 30, 2024.

Changes in Internal Controls over Financial Reporting

During the quarter ended June 30, 2024, there were no material changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

Item 5. Other Information

Rule 10b5-1 Trading Plans

During the three months ended June 30, 2024, no director or executive officer adopted, modified or terminated a “10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement”, as each term is defined in Item 408(a) of Regulation S-K.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We may become involved in various routine disputes and allegations incidental to our business operations. While it is not possible to determine the ultimate disposition of these matters, our management believes that the resolution of any such matters, should they arise, is not likely to have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

You should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023 (“2023 Form 10-K”), which could materially affect our business, financial condition and results of operations. There have been no material changes to the risk factors set forth in the 2023 Form 10-K. The risks described in our 2023 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or results of operations.

Item 2. Issuer Purchases of Equity Securities

The following table sets forth information with respect to our repurchases of common stock during the three months ended June 30, 2024:


					Maximum Number
				Total Number of	of Shares (or
				Shares Purchased	Approximate Dollar Value)
				as Part of Publicly	that May Yet Be Purchased
	Total Number of	Average Price		Announced Plans or	under the Plans or
	Shares Purchased	Paid per Share		Programs	Programs (2)
April 1 - April 30:
Employee transactions (1)	2,817	$	11.44	—	$	—
Share repurchase program (2)	33,401		9.87	33,401		1,862,000
May 1 - May 31:
Employee transactions (1)	8,470		22.83	—		—
June 1 - June 30:
Employee transactions (1)	17,366		20.29	—		—
Total:
Employee transactions (1)	28,653	$	20.17	—	$	—
Share repurchase program (2)	33,401	$	9.87	33,401	$	1,862,000

(1)

Includes shares surrendered by employees to satisfy tax withholding obligations in connection with the settlement of restricted stock units, exercise of stock options, or issuance of unrestricted shares of common stock.

(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.

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Item 6. Exhibits

		Incorporation by Reference
Exhibit No.	Description		Form	Date of Filing	Exhibit No.	Filed Herewith
3.1	Restated Certificate of Incorporation of AudioEye, Inc., dated as of May 24, 2024		8-K	May 24, 2024	3.3

3.2	Certificate of Amendment to Restated Certificate of Incorporation of AudioEye, Inc., dated as of May 24, 2024		8-K	May 24, 2024	3.2

3.3	By-Laws of AudioEye, Inc. (as amended as of May 22, 2024)					X

10.1	AudioEye, Inc. 2020 Equity Incentive Plan, as amended through May 24, 2024		8-K	May 24, 2024	10.1

10.2	At The Market Offering Agreement, dated as of June 5, 2024, by and between the Company and Craig-Hallum Capital Group LLC		8-K	June 6, 2024	1.1

31.1	Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X

31.2	Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002					X

32.1	Certification of the Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002					X

101.INS	XBRL Instance Document

101.SCH	XBRL Taxonomy Extension Schema Document					X

101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document					X

101.DEF	XBRL Taxonomy Extension Definition Linkbase Document					X

101.LAB	XBRL Taxonomy Extension Label Linkbase Document					X

101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document					X

104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		AUDIOEYE, INC.

Date:	July 29, 2024	By:	/s/ David Moradi
			David Moradi
			Principal Executive Officer

Date:	July 29, 2024	By:	/s/ Kelly Georgevich
			Kelly Georgevich
			Principal Financial Officer

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

June 30,

December 31,

(in thousands)

Deferred costs — current

Deferred costs — noncurrent

Total deferred costs