AUDIOEYE INC

Previous wording

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes for the years ended December 31, 2024 and 2023 that appear elsewhere in this annual report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include but are not

Current wording

The following discussion should be read in conjunction with our audited consolidated financial statements and the related notes for the years ended December 31, 2025 and 2024 that appear elsewhere in this annual report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include but are not limited to those discussed below and elsewhere in this annual report on Form 10-K, particularly in “Risk Factors.” The forward-looking statements included in this annual report on Form 10-K are made only as of the date hereof.

Previous wording

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 2024, we continued to focus on product innovation, expanding revenue and managing expenses.

Current wording

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

Previous wording

For the year ended December 31, 2024, total revenue increased by 12% over the prior year. As of December 31, 2024, Annual Recurring Revenue (“ARR”) was approximately $36.6 million, which represented an increase of 17% from December 31, 2023. Refer to “Other Key Operating Metrics” below for details on how we calculate ARR.

Current wording

For the year ended December 31, 2025, total revenue increased by 15% over the prior year. As of December 31, 2025, Annual Recurring Revenue (“ARR”) was approximately $40.0 million, which represented an increase of 9% from December 31, 2024. Refer to “Other Key Operating Metrics” below for details on how we calculate ARR.

Previous wording

As of December 31, 2024, AudioEye had approximately 127,000 customers, an increase from 110,000 customers at December 31, 2023. The increase in customer count isattributed to both our Partner and Marketplace and Enterprise channels.

Current wording

As of December 31, 2025, AudioEye had approximately 131,000 customers, an increase from 127,000 customers at December 31, 2024. The increase in customer count wasattributable to an increase in customers in our Partner and Marketplace channel.

Previous wording

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

Current wording

In the twelve months ended December 31, 2025, revenue from our Partner and Marketplace channel grew 10% over the prior year. This channel represented about 58% of ARR at December 31, 2025. In the twelve months ended December 31, 2025, total Enterprise channel revenue increased by 21% over the prior year. The Enterprise channel represented about 42% of ARR at December 31, 2025.

Previous wording

We had one major customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 15% and 17% of our revenue in the years ended December 31, 2024 and 2023, respectively.

Current wording

We had one major customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which accounted for approximately 13% and 15% of our revenue in the years ended December 31, 2025 and 2024, respectively.

Previous wording

The Company continued to invest in research and development in 2024. Total research and development cost, as defined under the “Research and Development” section in the “Results of Operations” below, was 19% of total revenue in 2024. Total research and development cost decreased from the prior year due to the completion of significant initiatives in research and development.

Current wording

The Company continued to invest in research and development in 2025. Total research and development cost, as defined under the “Research and Development” section in the “Results of Operations” below, was 16% of total revenue in 2025. Total research and development cost decreased from the prior year due to lower personnel cost.

Previous wording

In the twelve months ended December 31, 2024, both selling and marketing expense and general and administrative expense increased over the prior year. This increase in selling and marketing expense was due to additional costs associated with ADA Site Compliance, which was acquired in September 2024, as well as higher third-party marketing and stock compensation expenses. The increase in general and administrative expense was mainly driven by increases in litigation and stock compensation expenses, as well as transaction costs incurred in connection with the acquisition of ADA Site Compliance.

Current wording

For the year ended December 31, 2025, both selling and marketing expense and general and administrative expense increased over the prior year. The increase in selling and marketing expense was mainly driven byhigher investment in third-party marketing services. The increase in general and administrative expense for the year ended December 31, 2025 was due primarily to higher amortization expense associated with our intangible assets, as well as increases in personnel costs, including stock compensation expense, and litigation expenses.

Previous wording

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

Current wording

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

Previous wording

For the year ended December 31, 2024, total revenue increased by 12% over the prior year. The increase in Partner and Marketplace channel revenue was the result of continued expansion with existing partners and the execution of new partnerships agreements in the year. The increase in Enterprise channel revenue was driven primarily byan increase in Enterprise customers.

Current wording

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

Previous wording

For the year ended December 31, 2024, cost of revenue increased by 4% over the prior year. The increase in cost of revenue was primarily due to higher service delivery costs associated with increased revenue, amortization of our capitalized software development costs and additional costs attributable to ADA Site Compliance, which was acquired in September 2024.

Current wording

For the year ended December 31, 2025, cost of revenue increased by 21% over the prior year. The increase in cost of revenue was primarily due to increased costs incurred for service delivery, which were in line with the increase in revenue, and higher amortization expense related to our capitalized software development costs.

Previous wording

For the year ended December 31, 2024, gross profit increased by 15% over the prior year. The increase in gross profit was a result of increased revenue.

Current wording

For the year ended December 31, 2025, gross profit increased by 13% over the prior year. The increase in gross profit was a result of increased revenue.

Previous wording

For the year ended December 31, 2024, selling and marketing expenses increased by 8% over the prior year. The increase in selling and marketing expenses resulted primarily from additional cost associated with ADA Site Compliance, which was acquired in September 2024, as well as higher third-party marketing and stock compensation expense.

Current wording

For the year ended December 31, 2025, selling and marketing expenses increased by 18% over the prior year. The increase in selling and marketing expenses resulted primarily from higher investment in third-party marketing services and higher personnel costs.

Previous wording

For the year ended December 31, 2024, R&D expenses decreased by 27% from the prior year. 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 year ended December 31, 2024, capitalized R&D cost decreased by 9% from the prior year. The decrease in capitalized R&D cost was the result of engineering personnel spending less time on product development than in previous comparable periods. Total R&D cost, which includes both R&D expenses and capitalized R&D costs, decreased 23% from 2023 to 2024.

Current wording

For the year ended December 31, 2025, R&D expenses decreased by 10% from the prior year. This decrease was driven by lower personnel cost resulting from a reduction in headcount. For the year ended December 31, 2025, capitalized R&D cost increased by 6% from the prior year. The increase in capitalized R&D cost was the result of engineering personnel spending more time on product development than in previous year. Total R&D cost, which includes both R&D expenses and capitalized R&D costs, decreased 6% from 2024 to 2025.

Previous wording

For the year ended December 31, 2024, general and administrative expenses increased by 18% over the prior year. The increase in general and administrative expenses was due primarily toan increase in litigation expenses of $2.1 million, as well as increased stock compensation expense and transaction costs incurred in connection with the acquisition of ADA Site Compliance.

Current wording

For the year ended December 31, 2025, general and administrative expenses increased by 13% over the prior year. The increase in general and administrative expenses was due primarily to higher amortization expense associated with our intangible assets, as well as higher personnel cost, including stock compensation expense, and an increase in litigation expense by $715,000.

Previous wording

For theyear ended December 31, 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 theyear ended December 31, 2023, interest income, net consisted primarily of income from investment in money market funds.

Current wording

Interest expense, net consists primarily of interest on our term loan, offset by interest income from investment in money market funds.

Previous wording

We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service or annual service offering such as our automation and platform, periodic auditing, human-assisted technological fixes, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service or annual service offering such as our PDF remediation services business, one-time mobile application reports, and other miscellaneous services that are offered as non-subscription services or are expected to be one-time in nature. As of December 31, 2024, ARR was $36.6 million, which represents an increase of 17% year-over-year, driven by growth in both our Partner and Marketplace channeland Enterprise channel.

Current wording

We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service or annual service offering such as our automation and platform, periodic auditing, human-assisted technological fixes, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service or annual

Previous wording

As of December 31, 2024, we had $5.7 million in cash and cash equivalents, and working capital of $549,000. The $2.7 million decrease in working capital in 2024 was primarily due tothe acquisition of ADA Site Compliance, for which we made payments totaling $5.3 million in 2024, net of cash received.

Current wording

As of December 31, 2025, we had $5.3 million in cash and cash equivalents, and working capital of ($1,794,000). The $2.3 million decrease in working capital in 2025 was primarily due to an increase in deferred revenue associated with new customers, accrued liabilities related to asset acquisitions, and a portion of our term loan being classified as a current liability.

Previous wording

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 and restored to the status of authorized but unissued shares of common stock. In the twelve months ended December 31, 2024, we paid $2.02 million in cash to repurchase 299,371 shares of our common stock. As of December 31, 2024, we had $1.86 million remaining for the repurchase of shares. In March 2025, this share repurchase program was terminated. No shares were repurchased under this program between December 31, 2024 and the date it was terminated.

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

For the year ended December 31, 2025, in relation to the prior year, cash provided by operating activities increased primarily as a result of the increase in revenue.

Previous wording

For the year ended December 31, 2024, in relation to the prior year, cash used in investing activities increased primarily due to the acquisition of ADA Site Compliance in 2024, for which we paid $5.3 million, net of cash acquired. Cash used for investing activities in 2023 related primarily to cash outlays for software development costs.

Current wording

For the year ended December 31, 2025, in relation to the prior year, cash used in investing activities decreased primarily due to a reduction in payments towards business and asset acquisitions. In 2024, we paid $5.3 million in connection with the acquisition of ADA Site Compliance, net of cash acquired, whereas payments towards asset acquisitions in 2025 totaled $2.2 million.

Previous wording

Goodwill, Intangible Assets and Contingent Consideration recognized in connection with a Business Combination

Current wording

Contingent Consideration Recognized in Connection with Business Combinations and Asset Acquisitions

Previous wording

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. The model incorporates key assumptions, including non-recurring and recurring revenue metrics. Changes in estimated revenue and outcomes different from estimates could cause a significant adjustment to earnings in a reporting period as the fair value of the liability is highly dependent on management’s estimate.

Current wording

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