Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

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, 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.

Executive Overview

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.

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 mobile application reporting services and PDF remediation services that provide non-recurring revenue.

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.

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 was attributable to an increase in customers in our Partner and Marketplace channel.

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.

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.

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.

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 by higher 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.

We provide further commentary on our Results of Operation below.

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, 2025 with the year ended December 31, 2024. Our results of operations in these 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.

​

Revenue

The following table presents our revenues disaggregated by sales channel:

​

​

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

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.

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.

Cost of Revenue and Gross Profit

​

​

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, 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.

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.

Selling and Marketing Expenses

​

​

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 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 servicesand higher personnel costs.

Research and Development Expenses

​

​

Research and development ("R&D") expenses consist primarily of compensation and related benefits 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 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.

General and Administrative Expenses

​

​

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, occupancy and transaction costs.

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.

Change in Fair Value of Contingent Consideration

​

Change in fair value of contingent consideration consists of non-cash valuation adjustments to contingent consideration liabilities recognized in connection with a business combination or an asset acquisition.

For the year ended December 31, 2025, the change in fair value of contingent consideration was due to a reduction in the estimated earnout payable in connection with the acquisition of ADA Site Compliance. We do not expect further changes in fair value of contingent consideration associated with ADA Site Compliance in future periods.

Interest Expense, Net

​

​

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

For the year ended December 31, 2025, interest expense, net increased by 10% over the prior year. The increase in interest expense, net was primarily attributable to a reduction in interest income from investment in money market funds.

Loss on Extinguishment of Debt

​

​

On March 31, 2025, upon entering into a new credit facility with Western Alliance Bank, the Company paid the full $7.0 million in outstanding principal on its previous term loan with SG Credit Partners. For the year ended December 31, 2025, in connection with the termination of this term loan, we recognized a $300,000 loss on extinguishment of debt, which included $144,000 in prepayment and other fees and the unamortized portion of related debt discount and debt issuance costs.

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 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, 2025, ARR was $40.0 million, which represents an increase of 9% year-over-year, driven by growth in both our Partner and Marketplace channel and Enterprise channel.

Liquidity and Capital Resources

​

Working Capital

​

​

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.

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.

As of December 31, 2025, we had $13.4 million outstanding under the term loan, $12.9 million of which is classified as a noncurrent liability. The term loan matures on March 31, 2030, and requires quarterly principal payments due beginning on April 10, 2026. Refer to Note 6 - Debt to our consolidated financial statements for additional information regarding our credit facility.

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.

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

​

​

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.

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.

For the year ended December 31, 2025, in relation to the prior year, the change to cash used in financing activities from cash provided by financing activities was primarily due to an increase in common stock repurchases from $2.0 million in 2024 to $4.6 million in 2025. This impact was partially offset by a net improvement in other financing activities, as 2025 net proceeds from debt refinancing

of $5.7 million exceeded the net 2024 impact of $4.9 million, which was comprised of net common stock offering proceeds of $6.6 million reduced by $1.7 million in cash outlays for settlement of contingent consideration.

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.

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.

​

Contingent Consideration Recognized in Connection with Business Combinations and Asset Acquisitions

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.

The fair value of the contingent consideration liability resulting from an asset acquisition is determined by management based on estimated recurring revenue from acquired customer relationships. Subsequent changes in the estimated amount of consideration are recognized as an adjustment to the cost of the acquired asset. Changes in estimated revenue and outcomes different from estimates could cause a significant adjustment to the cost of acquired assets in a reporting period as the fair value of the liability is highly dependent on management's estimate.

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 intangible assets.

​