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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from [ ] to [ ]
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or |
| (I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
| (Zip Code) |
Registrant’s telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
The |
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.
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).
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 | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
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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 May 9, 2022,
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
The financial information set forth below with respect to the financial statements as of March 31, 2022 and December 31, 2021 and for the three-month period ended March 31, 2022 and 2021 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-month period ended March 31, 2022 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 financial statements, notes, and other financial information rounded to the nearest thousand United States Dollars (“U.S. Dollar”), except for per share data.
1
AUDIOEYE, INC.
BALANCE SHEETS
(unaudited)
| March 31, |
| December 31, | |||
(in thousands, except per share data) | 2022 | 2021 | ||||
ASSETS |
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Current assets: |
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Cash | $ | |
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Accounts receivable, net of allowance for doubtful accounts of $ |
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Deferred costs, short term |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net of accumulated depreciation of $ |
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Right of use assets |
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Deferred costs, long term |
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Intangible assets, net of accumulated amortization of $ |
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Goodwill |
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Other | |
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Total assets | $ | |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses | $ | |
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Finance lease liabilities |
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Operating lease liabilities |
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Deferred revenue |
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Contingent consideration | |
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Total current liabilities |
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Long term liabilities: |
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Finance lease liabilities |
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Operating lease liabilities |
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Deferred revenue |
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Contingent consideration, long term |
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Total liabilities |
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Stockholders' equity: |
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Preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' equity |
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Total liabilities and stockholders' equity | $ | |
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See Notes to Unaudited Financial Statements
2
AUDIOEYE, INC.
STATEMENTS OF OPERATIONS
(unaudited)
| Three months ended March 31, | |||||
(in thousands, except per share data) |
| 2022 |
| 2021 | ||
Revenue |
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Cost of revenue |
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Gross profit |
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Operating expenses: |
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Selling and marketing |
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Research and development |
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General and administrative |
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Total operating expenses |
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Operating loss |
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Other expense: |
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Interest expense |
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Total other expense |
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Net loss |
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Dividends on Series A Convertible Preferred Stock |
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Net loss available to common stockholders | $ | ( |
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Net loss per common share-basic and diluted | ( |
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Weighted average common shares outstanding-basic and diluted |
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See Notes to Unaudited Financial Statements
3
AUDIOEYE, INC.
STATEMENTS OF STOCKHOLDERS’ EQUITY
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(unaudited)
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Common stock | Paid-in | Accumulated | ||||||||||||
(in thousands) | Shares | Amount | Capital | Deficit | Total | |||||||||
Balance, December 31, 2021 | | $ | | $ | | $ | ( | $ | | |||||
Common stock issued upon settlement of restricted stock units | | — | — | — | — | |||||||||
Issuance of common stock for services | | — | — | — | — | |||||||||
Surrender of stock to cover tax liability on settlement of employee stock-based awards | ( | — | ( | — | ( | |||||||||
Stock-based compensation |
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Net loss |
| — | — | — | ( | ( | ||||||||
Balance, March 31, 2022 |
| | $ | | $ | | $ | ( | $ | | ||||
Additional | |||||||||||||||||||
Common stock | Preferred stock | Paid-in | Accumulated | ||||||||||||||||
(in thousands) |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Total | |||||
Balance, December 31, 2020 | | $ | | | $ | | $ | | $ | ( | $ | | |||||||
Issuance of common stock for cash, net of transaction expenses | |
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Common stock issued upon exercise of warrants and options on a cash basis | |
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Common stock issued upon exercise of warrants and options on a cashless basis | | — | — | — | — | — | — | ||||||||||||
Common stock issued upon settlement of restricted stock units | | — | — | — | — | — | — | ||||||||||||
Issuance of common stock for services | | — | — | — | — | — | — | ||||||||||||
Surrender of stock to cover tax liability on settlement of employee stock-based awards | ( | — | — | — | ( | — | ( | ||||||||||||
Stock-based compensation | — |
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Net loss | — |
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Balance, March 31, 2021 | | $ | |
| | $ | | $ | | $ | ( | $ | | ||||||
See Notes to Unaudited Financial Statements
4
AUDIOEYE, INC.
STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss | $ | ( |
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Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |
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Depreciation and amortization |
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Loss on impairment of long-lived assets |
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Loss on disposal of property and equipment |
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Stock-based compensation expense |
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Amortization of deferred commissions |
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Amortization of right of use assets |
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Provision for accounts receivable |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other assets |
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Accounts payable and accruals |
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Operating lease liability |
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Deferred revenue |
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Net cash provided by (used in) operating activities |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchase of equipment |
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Software development costs |
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Patent costs |
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Payment for acquisition, net of cash received | ( | |||||
Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from common stock offering, net of transaction costs |
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Proceeds from exercise of options and warrants |
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Payments related to settlement of employee shared-based awards |
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Repayments of finance leases |
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Net cash provided by (used in) financing activities |
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Net increase (decrease) in cash |
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Cash-beginning of period |
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Cash-end of period | $ | |
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Supplemental disclosures of noncash activities: | ||||||
Right-of-use assets and operating lease obligations recognized during the period | $ | | $ | | ||
See Notes to Unaudited Financial Statements
5
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of AudioEye, 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 financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”), as filed with the SEC on March 11, 2022.
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 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 2021 Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes to the financial statements contained in the 2021 Form 10-K when reviewing interim financial results.
Use of Estimates
The preparation of 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 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 continuous 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; |
6
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
| ● | 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. |
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. Our support revenue is comprised of subscription fees for customers which are not on our SaaS platform to access our customer 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 Website and Mobile App report services, and is recognized upon delivery. Consideration payable under PDF remediation arrangements is based on usage. Consideration payable under Website and Mobile App report services arrangements is based on fixed fees.
The following table presents our revenues disaggregated by sales channel:
Three months ended | ||||||
March 31, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
Partner and Marketplace | $ | |
| $ | | |
Enterprise |
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Total revenues | $ | |
| $ | | |
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 March 31, 2022 and December 31, 2021:
| March 31, |
| December 31, | |||
(in thousands) | 2022 | 2021 | ||||
Deferred revenue - current | $ | |
| $ | | |
Deferred revenue - noncurrent | | | ||||
Total deferred revenue | $ | |
| $ | | |
7
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In the three-month period ended March 31, 2022 we recognized $
In the three months ended March 31, 2022, one customer (including affiliates of such customer) accounted for
One customer with a long-standing relationship with the Company represented
Deferred Costs (Contract acquisition costs)
We capitalize initial and renewal sales commissions in the period in which 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 March 31, 2022 and December 31, 2021:
March 31, | December 31, | |||||
(in thousands) |
| 2022 |
| 2021 | ||
Deferred costs - current | $ | | $ | | ||
Deferred costs - noncurrent |
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Total deferred costs | $ | | $ | | ||
Amortization expense associated with sales commissions was included in selling and marketing expenses on the statements of operations and totaled $
Business Combinations
The assets acquired, liabilities assumed and contingent consideration are recorded at their estimated fair value on the acquisition date with subsequent changes recognized in earnings. These estimates are inherently uncertain and are subject to refinement. Management develops estimates based on assumptions as a part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the business combination date. As a result, the Company may recognize adjustments to provisional amounts of assets acquired or liabilities assumed in earnings in the reporting period in which the adjustments are determined.
Acquisition-related expenses primarily consist of legal, accounting, and other advisory fees associated and are recorded in the period in which they are incurred.
Stock-Based Compensation
The Company periodically issues options, warrants, 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 statements of operations as if such amounts were paid in cash.
8
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The fair value of options and warrants 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). Future grants of equity awards accounted for as stock-based compensation could have a material impact on reported expenses depending upon the number, value, and vesting period.
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, warrants and RSUs as the restriction period lapses, which is typically a - to
The following table summarizes the stock-based compensation expense recorded for the three months ended March 31, 2022 and 2021:
Three months ended March 31, | ||||||
(in thousands) |
| 2022 |
| 2021 | ||
Stock Options | $ | | $ | | ||
RSUs |
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Unrestricted Shares of Common Stock | | | ||||
Total | $ | | $ | | ||
As of March 31, 2022, the outstanding unrecognized stock-based compensation expense related to options and RSUs was $
9
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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, warrants, restricted stock units and convertible preferred stock. The dilutive effect of our stock-based awards and warrants is computed using the treasury stock method, which assumes all stock-based awards and warrants 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. The dilutive effect of our convertible preferred stock is computed using the if-converted method, which assumes conversion at the beginning of the year. 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.
Potentially dilutive securities outstanding as of March 31, 2022 and 2021, which were excluded from the computation of basic and diluted net loss per share for the years then ended, are as follows:
March 31, | ||||
( in thousands) |
| 2022 |
| 2021 |
Preferred stock (1) |
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Options |
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Warrants |
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Restricted stock units |
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Total |
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| (1) | Represents number of shares of common stock that are issuable upon conversion of outstanding shares of Series A Convertible Preferred Stock. |
The following table summarizes the stock option, warrants, and RSUs activity for the three months ended March 31, 2022:
Options |
| Warrants |
| RSUs | ||
Outstanding at December 31, 2021 |
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Granted |
| — | — |
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Exercised/Settled |
| — | — |
| ( | |
Forfeited/Expired |
| ( | ( |
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Outstanding at March 31, 2022 |
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Vested at March 31, 2022 | | | | |||
Unvested at March 31, 2022 | | — | |
10
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recent Accounting Pronouncements
In October 2021, the FASB issued ASU No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 805). This ASU requires an acquirer in a business combination to recognize and measure contract assets and contract liabilities (deferred revenue) from acquired contracts using the revenue recognition guidance in Topic 606. At the acquisition date, the acquirer applies the revenue model as if it had originated the acquired contracts. The ASU is effective for annual periods beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASU should be applied prospectively. The Company elected to early adopt ASU 2021-08 on a prospective basis during the first quarter of 2022. The adoption did not have a material effect on our financial statements.
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 acquisition represents another step forward in strengthening our suite of products and services by adding additional capabilities for enterprise accessibility compliance. The aggregate consideration for the purchase of BOIA was approximately $
11
NOTE 3 — ACQUISITIONS (continued)
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, the preliminary purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date as follows:
( in thousands) |
| Balance at March 9, 2022 | |
Assets purchased: |
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Cash | $ | | |
Accounts receivable |
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Other assets |
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Client relationships (1) |
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Internally-developed software (1) |
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Trade name (1) |
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Goodwill (2) |
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Total assets purchased |
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Liabilities assumed: |
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Accounts payable and accrued liabilities |
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Deferred revenue |
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Total liabilities assumed |
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Net assets acquired |
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Consideration: |
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Cash paid |
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Contingent consideration liability (3) |
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Total consideration | $ | |
(1) | Acquired intangible assets will be amortized on a straight-line basis over their estimated useful life. |
(2) | Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired. |
(3) | Included within liabilities on our balance sheet as of March 31, 2022. |
The provisional purchase price allocated to assets acquired and liabilities are subject to adjustments as information is obtained about facts and circumstances that existed at the acquisition date.
In the three months ended March 31, 2022, the Company incurred $
Our Statement of Operations for the three months ended March 31, 2022, also includes nominal BOIA results for the period from March 10, 2022 through March 31, 2022.
Pro Forma Financials
The following unaudited pro forma results of operations for the three months ended March 31, 2022 and 2021 assumes BOIA had been acquired on January 1, 2021.
12
NOTE 3 — ACQUISITIONS (continued)
The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on January 1, 2021, nor does it purport to project the results of operations of the combined Company in future periods. The pro forma financial information does not give effect to any anticipated integration costs savings or expenses related to the acquired company and are not necessarily indicative of the results that would have occurred if the business combination had been in effect on the dates indicated.
| Pro Forma Combined Financials (unaudited) | |||||
Three months ended March 31, | ||||||
( in thousands) | 2022 | 2021 | ||||
Revenue | $ | | $ | | ||
Net loss attributed to common shareholders |
| ( |
| ( | ||
For purposes of the pro forma disclosures above, results for the three months ended March 31, 2022 exclude $
Square ADA LLC
On December 28, 2021, the Company completed the acquisition of substantially all of the assets of Square ADA LLC (“Square ADA”), a provider of accessibility solution to websites built or hosted by Squarespace, Inc. The aggregate consideration for the purchase of Square ADA was $
We accounted for the acquisition of Square ADA as an asset acquisition in accordance with ASC 805 and ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business”. Based on our assessment of the screen test as required by ASU 2017-01, the transaction does not meet the definition of a business as substantially all the fair value of the gross assets acquired is concentrated in one single identifiable intangible asset, the acquired customer relationships. Accordingly, we allocated the total cost of the acquisition to customer relationships following the cost accumulation model.
The operating results of Square ADA are not material for purposes of proforma disclosure.
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 has finance leases to purchase computer equipment. The amortization expense of the leased equipment is included in depreciation expense. As of March 31, 2022 and December 31, 2021, the Company’s outstanding finance lease obligations totaled $
13
NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS (continued)
The following summarizes the assets acquired under finance leases, included in property and equipment, net of disposals:
| March 31, |
| December 31, | |||
(in thousands) | 2022 | 2021 | ||||
Computer equipment | $ | | $ | | ||
Less: accumulated depreciation |
| ( |
| ( | ||
Assets acquired under finance leases, net | $ | | $ | | ||
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, Marietta, Georgia, Miami Beach, Florida, and New York, New York. The lease for the principal office located in Tucson consists of approximately
The Company entered into a lease agreement for new office space in New York, New York, consisting of approximately
In addition, the Company entered into membership agreements to occupy shared office space in Austin, Texas, Portland, Oregon, and Seattle, Washington. The membership agreements do not qualify as a lease under ASC 842, therefore the Company expenses membership fees as they are incurred. See Note 5 - Commitments and Contingencies for further details on our shared office arrangements.
The Company made operating lease payments in the amount of $
14
NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS (continued)
The following summarizes the total lease liabilities and remaining future minimum lease payments at March 31, 2022 (in thousands):
Year ending March 31, |
| Finance Leases |
| Operating Leases |
| Total | |||
2022 (9 months remaining) | $ | | $ | | $ | | |||
2023 |
| |
| |
| | |||
2024 |
| |
| |
| | |||
2025 | | | | ||||||
2026 | | | | ||||||
Total minimum lease payments |
| | | | |||||
Less: present value discount |
| ( |
| ( |
| ( | |||
Total lease liabilities |
| |
| |
| | |||
Current portion of lease liabilities |
| | | | |||||
Long term portion of lease liabilities | $ | | $ | | $ | | |||
The following summarizes expenses associated with our finance and operating leases for the three months ended March 31, 2022 and 2021:
Three months ended March 31, | ||||||
(in thousands) | 2022 | 2021 | ||||
Finance lease expenses: |
|
| ||||
Depreciation expense | $ | | $ | |||
Interest on lease liabilities |
| | ||||
Total Finance lease expense |
| | ||||
Operating lease expense |
| | ||||
Short-term lease and related expenses |
| | ||||
Total lease expenses | $ | | $ | |||
The following table provides information about the remaining lease terms and discount rates applied as of March 31, 2022:
March 31, | ||||
2022 | 2021 | |||
Weighted average remaining lease term (years) |
|
| ||
Operating Leases |
| |||
Finance Leases |
| |||
Weighted average discount rate (%) |
|
| ||
Operating Leases |
| | | |
Finance Leases |
| | | |
NOTE 5 — COMMITMENTS AND CONTINGENCIES
Membership agreement to occupy shared office space
The Company occupies shared office space in Austin, TX, and Seattle, WA under membership agreements which end in May 2022 and July 2022, respectively. Fees due under these membership agreements are based on the number of contracted seats and the use of optional office services. As of March 31, 2022, minimum fees due under these shared office arrangements totaled $
15
NOTE 5 — COMMITMENTS AND CONTINGENCIES (continued)
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.
On October 26, 2020, AudioEye filed a complaint (amended on December 29, 2020) against accessiBe Ltd. (“accessiBe”) in District Court in the Western District of Texas, Waco Division. The complaint alleges infringement of nine of AudioEye’s patents and various claims under the Lanham Act and New York law and seeks damages, costs, and injunctive relief. On November 1, 2021, accessiBe answered denying infringement, alleging invalidity of the patents at issue and counterclaimed with similar claims and remedies. On March 9, 2022, the District Court ordered the case transferred to the Western District of New York.
On July 14, 2021, AudioEye filed a second complaint (amended on August 4, 2021) against accessiBe in the same court alleging infringement of six of AudioEye’s patents and seeking damages, costs, and injunctive relief.
NOTE 6 — SUBSEQUENT EVENTS
We have evaluated subsequent events occurring after March 31, 2022 and based on our evaluation we did not identify any events that would have required recognition or disclosure in these financial statements.
16
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 MDA, should be read in conjunction with our 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; |
| ● | the inherent uncertainties and costs associated with litigation; |
| ● | judicial applications of accessibility laws to the internet; |
| ● | the adverse impact of the COVID-19 pandemic on our business and results of operations; |
| ● | 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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The AudioEye Solutions
At its core, AudioEye’s offering provides an always-on testing, remediation, and monitoring solution that continually improves conformance with 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 manual auditing, manual 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 Website and Native Mobile App audit reports 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, 2021 as filed with the SEC on March 11, 2022 provides additional information about our business and operations.
Executive Overview
AudioEye is an industry-leading digital accessibility platform delivering website accessibility compliance at all price points to businesses of all sizes. 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 first quarter of 2022 we focused on the continued expansion of revenue and product innovation.
We have two sales channels to deliver our product, the Partner and Marketplace channel and the Enterprise channel. AudioEye continues to focus on growth in both channels, with specific focus on growing recurring revenue in 2022, while still offering our Mobile App and PDF services. On March 9, 2022, AudioEye acquired the Bureau of Internet Accessibility which will contribute to Enterprise revenue in 2022. As of March, 31, 2022, Annual Recurring Revenue (“ARR”) was approximately $28.1 million, which represented an increase of 22% year-over-year. Refer to Other Key Operating Metrics below for details on how we calculate ARR.
As at March 31, 2022, AudioEye had approximately 74,000 customers, up from approximately 68,000 at March 31, 2021, but down sequentially from 82,000 customers at December 2021. The customer count decreased from December 31, 2021, due to an ongoing negotiation with a digital agency upgrading from a basic tier to a more advanced offering. Excluding the impact from this digital agency, our customer count grew sequentially. Revenue from our Partners and Marketplace grew 20% from prior year. This channel represented about 55% of ARR contribution at the end of March 2022.
Total Enterprise revenue, inclusive of revenue from the Bureau of Internet Accessibility from the period of March 10, 2022, to the end of the first quarter 2022, grew by 18% from prior year. Enterprise revenue from recurring sources increased by 18% in 2022 over prior comparable period. The contribution of non-recurring website audit report revenue from the Bureau of Internet Accessibility offset the decrease in PDF project-oriented revenue in the quarter. The Enterprise channel represented about 45% of ARR contribution at the end of March 2022.
In the three months ended March 31, 2022, one customer (including affiliates of such customer) accounted for 18% of our total revenue; this is compared to the three months ended March 31, 2021, two customers accounted for 20% and 10%, respectively, of our total revenue.
The Company continued to invest in Research and development in the first quarter of 2022. As a percent of revenue, Research and development cost was 26% of total revenue, an increase from 22% in same period of prior year. Sales and marketing expense also
18
increased from the first quarter of 2021 as we continue to invest to reach a wider, growing, audience and bring further awareness to accessibility on the web.
We provide further commentary on our Results of Operation below.
Results of Operations
Our unaudited 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 months ended March 31, 2022 with the three months ended March 31, 2021.
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 |
| |||||||||||
March 31, | Change |
| ||||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| |||
Revenue | $ | 6,906 |
| $ | 5,788 |
| $ | 1,118 | 19 | % | ||
Cost of revenue |
| (1,710) |
|
| (1,353) |
|
| (357) | 26 | % | ||
Gross profit |
| 5,196 |
|
| 4,435 |
|
| 761 | 17 | % | ||
Operating expenses: |
|
|
|
|
|
|
|
|
| |||
Selling and marketing |
| 3,726 |
|
| 2,754 |
|
| 972 | 35 | % | ||
Research and development |
| 1,529 |
|
| 1,032 |
|
| 497 | 48 | % | ||
General and administrative |
| 3,556 |
|
| 3,410 |
|
| 146 | 4 | % | ||
Total operating expenses |
| 8,811 |
|
| 7,196 |
|
| 1,615 | 22 | % | ||
Operating loss |
| (3,615) |
|
| (2,761) |
|
| (854) | 31 | % | ||
Other expense: |
|
|
|
|
|
|
| |||||
Interest expense |
| (1) |
|
| (4) |
|
| 3 | (75) | % | ||
Total other expense |
| (1) |
|
| (4) |
|
| 3 | (75) | % | ||
Net loss | $ | (3,616) |
| $ | (2,765) |
| $ | (851) | 31 | % | ||
Revenue
The following tables present our revenues disaggregated by sales channel:
| Three months ended March 31, |
| Change |
| ||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % | ||||
Partner and Marketplace | $ | 3,812 |
| $ | 3,178 |
| $ | 634 | 20 | % | ||
Enterprise |
| 3,094 |
|
| 2,610 |
|
| 484 | 19 | % | ||
Total revenues | $ | 6,906 |
| $ | 5,788 |
| $ | 1,118 | 19 | % | ||
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 months ended March 31, 2022, total revenue increased by 19% over the prior year comparable period. We experienced revenue growth in both of our sales channels. The increase Partner and Marketplace channel revenue was a result of our continued focus on highly transactional industry verticals to achieve higher penetration with new and existing partnerships. The increase in Enterprise channel revenue was driven primarily by additional recurring revenue from enterprise customers, with contributions from non-recurring
19
BOIA audit report revenue offsetting the decrease in PDF project-oriented revenue. Our Enterprise channel revenue from recurring sources were 18% higher in the three months ended March 31, 2022 than in the prior year comparable period.
Cost of Revenue and Gross Profit
Three months ended March 31, |
| Change |
| |||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| |||
Revenue | $ | 6,906 |
| $ | 5,788 |
| $ | 1,118 | 19 | % | ||
Cost of Revenue |
| (1,710) |
|
| (1,353) |
|
| (357) | 26 | % | ||
Gross profit | $ | 5,196 |
| $ | 4,435 |
| $ | 761 | 17 | % | ||
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 months ended March 31, 2022, cost of revenue increased by 26% over the prior year comparable period. The increase in cost of revenue is primarily due to enhancements to our service delivery through investment in customer experience and platform support, as well as increased amortization of capitalized software development costs.
For the three months ended March 31, 2022, gross profit increased by 17%, over the prior year comparable period. The increase in gross profit was a result of increased revenue, offset in part by higher costs to support the revenue growth.
Selling and Marketing Expenses
| Three months ended March 31, |
| Change |
| ||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| |||
Selling and marketing | $ | 3,726 |
| $ | 2,754 |
| $ | 972 | 35 | % | ||
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 months ended March 31, 2022, selling and marketing expenses increased by 35% over the prior year comparable period. The increase in selling and marketing expenses resulted primarily from higher online media and third-party marketing agency expenses, as well as higher personnel costs associated with the increase in headcount and in stock-based compensation expense as we continued to expand our business.
Research and Development Expenses
| Three months ended March 31, |
| Change |
| ||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| |||
Research and development expense | $ | 1,529 |
| $ | 1,032 |
| $ | 497 | 48 | % | ||
Plus: Capitalized research and development cost |
| 241 |
|
| 246 |
|
| (5) | (2) | % | ||
Total research and development cost | $ | 1,770 |
| $ | 1,278 |
| $ | 492 | 38 | % | ||
Research and development (“RD”) expenses consist primarily of compensation and related benefits, independent contractor costs, and an allocated portion of general overhead costs, including occupancy costs related to our employees involved in research and development activities. 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.
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For the three months ended March 31, 2022, research and development expenses increased by 48% over the prior year comparable period. This was driven by higher personnel cost associated with the increase in headcount and in stock-based compensation expense. For the three months ended March 31, 2022, capitalized research and development cost remained consisted with prior year comparable period. For the three months ended March 31, 2022, total research and development cost, which includes both RD expenses and capitalized RD costs, increased by 38% over the prior year comparable period.
General and Administrative Expenses
| Three months ended March 31, |
| Change |
| ||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| |||
General and administrative | $ | 3,556 |
| $ | 3,410 |
| $ | 146 | 4 | % | ||
General and administrative expenses consist primarily of compensation and benefits related to our executives, directors and corporate support functions, general corporate expenses including legal fees, and occupancy costs.
For the three months ended March 31, 2022, general and administrative expenses increased by 4% over the prior year comparable period. The increase in general and administrative expenses was due primarily to higher legal expenses associated with patent litigation pursued by the Company, as well as professional fees incurred in connection with the BOIA acquisition in the first quarter of 2022, and was partially offset by the decrease in stock-based compensation expense.
Interest Expense
| Three months ended March 31, |
| Change |
| ||||||||
(in thousands) |
| 2022 |
| 2021 |
| $ |
| % |
| |||
Interest expense | $ | 1 |
| $ | 4 |
| $ | (3) | (75) | % | ||
Interest expense for the three months ended March 31, 2022 consists of interest on our finance lease liabilities. Interest expense for the three months ended March 31, 2021 also included interest on our PPP Loan, which was fully forgiven in the second quarter of 2021.
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 annual recurring fee amount under each active paid contract at the date of determination, plus (ii) for our Partner and Marketplace channel, the recognized monthly fee amount for all paying customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are cancelable, which may impact future ARR. ARR excludes revenue from our PDF remediation services business and Website and Mobile App report business and other report services. As of March 31, 2022, ARR was $28.1 million, which represents an increase of 22% year-over-year, driven by both our Partner and Marketplace channel and Enterprise Channel.
Use of Non-GAAP Financial Measures
From time to time, we review adjusted financial measures that assist us in comparing our operating performance consistently over time, as such measures remove the impact of certain items, as applicable, such as our capital structure (primarily interest charges), items outside the control of the management team (taxes), and expenses that do not relate to our core operations, including transaction-related expenses and other costs that are expected to be non-recurring, such as severance related to strategic shift. In order to provide investors with greater insight, and allow for a more comprehensive understanding of the information used in our financial and operational decision-making, the Company has supplemented the Financial Statements presented on a GAAP basis in this Quarterly Report on Form 10-Q with the following non-GAAP financial measures: Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share.
21
These non-GAAP financial measures have limitations as analytical tools and should not be considered in isolation or as a substitute for analysis of Company results as reported under GAAP. The Company compensates for such limitations by relying primarily on our GAAP results and using non-GAAP financial measures only as supplemental data. We also provide a reconciliation of non-GAAP to GAAP measures used. Investors are encouraged to carefully review this reconciliation. In addition, because these non-GAAP measures are not measures of financial performance under GAAP and are susceptible to varying calculations, these measures, as defined by us, may differ from and may not be comparable to similarly titled measures used by other companies.
Non-GAAP Earnings (Loss) and Non-GAAP Earnings (Loss) per Diluted Share
We define: (i) Non-GAAP earnings (loss) as net income (loss), plus interest expense, plus stock-based compensation expense, plus certain litigation expense, plus certain acquisition expense, plus loss on impairment of long-lived assets, and plus loss on disposal of property and equipment; and (ii) Non-GAAP earnings (loss) per diluted share as net income (loss) per diluted common share, plus interest expense, plus stock-based compensation expense, plus certain litigation expense, plus certain acquisition expense, plus loss on impairment of long-lived assets, and plus loss on disposal of property and equipment, each on a per share basis. Non-GAAP earnings per diluted share would include incremental shares in the share count that are considered anti-dilutive in a GAAP net loss position. However, no incremental shares apply when there is a Non-GAAP loss per diluted share, as is the case for the periods presented in this Quarterly Report on Form 10-Q.
Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share are used to facilitate a comparison of our operating performance on a consistent basis from period to period and provide for a more complete understanding of factors and trends affecting our business than GAAP measures alone. All of the items adjusted in the Non-GAAP earnings (loss) to net loss and the related per share calculations are either recurring non-cash items, or items that management does not consider in assessing our on-going operating performance. In the case of the non-cash items, such as stock-based compensation expense and valuation adjustments to assets and liabilities, management believes that investors may find it useful to assess our comparative operating performance because the measures without such items are expected to be less susceptible to variances in actual performance resulting from expenses that do not relate to our core operations and are more reflective of other factors that affect operating performance. In the case of items that do not relate to our core operations, management believes that investors may find it useful to assess our operating performance if the measures are presented without these items because their financial impact does not reflect ongoing operating performance.
Non-GAAP earnings (loss) is not a measure of liquidity under GAAP, or otherwise, and is not an alternative to cash flow from continuing operating activities, despite the advantages regarding the use and analysis of these measures as mentioned above. Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share, as disclosed in this Quarterly Report on Form 10-Q, have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP; nor are these measures intended to be measures of liquidity or free cash flow for our discretionary use.
22
To properly and prudently evaluate our business, we encourage readers to review the GAAP financial statements included elsewhere in this Quarterly Report on Form 10-Q, and not rely on any single financial measure to evaluate our business. The following table sets forth reconciliations of Non-GAAP loss to net loss, the most directly comparable GAAP-based measure, as well as Non-GAAP loss per diluted share to net loss per diluted share, the most directly comparable GAAP-based measure.
| Three months ended March 31, | |||||
(in thousands, except per share data) |
| 2022 |
| 2021 | ||
Non-GAAP Earnings (Loss) Reconciliation |
|
|
| |||
Net loss (GAAP) | $ | (3,616) |
| $ | (2,765) | |
Interest expense |
| 1 |
|
| 4 | |
Stock-based compensation expense |
| 1,145 |
|
| 1,781 | |
Acquisition expense (1) | 198 |
|
| — | ||
Litigation expense (2) | 862 | 227 | ||||
Loss on impairment of long-lived assets |
| — |
|
| 10 | |
Loss on disposal of property and equipment |
| — |
|
| 7 | |
Non-GAAP loss | $ | (1,410) |
| $ | (736) | |
Non-GAAP Earnings (Loss) per Diluted Share Reconciliation |
|
|
|
| ||
Net loss per common share (GAAP) — diluted | $ | (0.32) |
| $ | (0.27) | |
Interest expense |
| — |
|
| — | |
Stock-based compensation expense |
| 0.10 |
|
| 0.18 | |
Acquisition expense (1) | 0.02 |
|
| — | ||
Litigation expense (2) | 0.08 | 0.02 | ||||
Loss on impairment of long-lived assets |
| — |
|
| — | |
Loss on disposal of property and equipment |
| — |
|
| — | |
Non-GAAP loss per diluted share (3) | $ | (0.12) |
| $ | (0.07) | |
Diluted weighted average shares (4) |
| 11,444 |
|
| 10,457 | |
| (1) | Represents legal and accounting fees associated with the BOIA acquisition. |
| (2) | Represents legal expenses related primarily to patent litigation pursued by the Company. |
| (3) | Non-GAAP earnings per adjusted diluted share for our common stock is computed using the more dilutive of the two-class method or the if-converted method. |
| (4) | The number of diluted weighted average shares used for this calculation is the same as the weighted average common shares outstanding share count when the Company reports a GAAP and non-GAAP net loss. |
Liquidity and Capital Resources
Working Capital
As of March 31, 2022, we had $11,962,000 in cash and working capital of $4,972,000. The decrease in working capital in the three months ended March 31, 2022 was primarily due to a $5 million initial payment made in connection with the acquisition of BOIA.
As of March 31, 2022, we had $2.8 million in estimated contingent consideration liabilities recognized in connection with the acquisition of Square ADA and BOIA. We have no debt obligations or off-balance sheet arrangements and we believe that the Company has sufficient liquidity to continue as a going concern through the next twelve months.
23
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.
(in thousands) |
| March 31, 2022 |
| December 31, 2021 | ||
Current assets | $ | 17,736 |
| $ | 24,831 | |
Current liabilities |
| (12,764) |
|
| (11,216) | |
Working capital | $ | 4,972 |
| $ | 13,615 | |
Cash Flows
| Three months ended March 31, | |||||
(in thousands) |
| 2022 |
| 2021 | ||
Net cash provided by (used in) operating activities | $ | (1,948) |
| $ | 652 | |
Net cash used in investing activities |
| (5,014) |
|
| (296) | |
Net cash provided by (used in) financing activities |
| (42) |
|
| 16,385 | |
Net increase (decrease) in cash | $ | (7,004) |
| $ | 16,741 | |
For the three months ended March 31, 2022, in relation to the prior year comparable period, cash used in operating activities increased primarily due to an increase in sales and marketing costs, primarily driven by higher digital, consulting and third-party costs to support the Company’s growth, as well as patent litigation costs and increased product development headcount.
For the three months ended March 31, 2022, in relation to the prior year comparable period, cash used in investing activities increased primarily due to the acquisition of BOIA, for which we paid $4.7 million, net of cash acquired.
For the three months ended March 31, 2021, cash provided by financing activities was higher primarily due to capital raised under the ATM Offering initiated in the first quarter of 2021. In the three months ended March 31, 2021, the Company issued 471,970 shares of its common stock under the ATM offering and raised $16,534,000, net of transaction expenses.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported and disclosed in our financial statements and the accompanying notes. Actual results could differ materially from these estimates under different assumptions or conditions.
Our critical accounting estimates, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, relate to stock-based compensation. 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, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
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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 Interim 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 March 31, 2022.
Changes in Internal Controls over Financial Reporting
During the quarter ended March 31, 2022, 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.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
On October 26, 2020, AudioEye filed a complaint (amended on December 29, 2020) against accessiBe Ltd. (“accessiBe”) in District Court in the Western District of Texas, Waco Division. The complaint alleges infringement of nine of AudioEye’s patents and various claims under the Lanham Act and New York law and seeks damages, costs, and injunctive relief. On November 1, 2021, accessiBe answered denying infringement, alleging invalidity of the patents at issue and counterclaimed with similar claims and remedies. On March 9, 2022, the District Court ordered the case transferred to the Western District of New York.
On July 14, 2021, AudioEye filed a second complaint (amended on August 4, 2021) against accessiBe in the same court alleging infringement of six of AudioEye’s patents and seeking damages, costs, and injunctive relief.
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, 2021 (“2021 Form 10-K”), which could materially affect our business, financial condition and results of operations. The risks described in our 2021 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 March 31, 2022:
|
|
| Total Number of |
| Maximum Number | ||||
Shares Purchased | of Shares that May | ||||||||
Total Number of | as Part of Publicly | Yet Be Purchased | |||||||
Shares Purchased | Average Price | Announced Plans or | under the Plans or | ||||||
| (1) |
| Paid per Share |
| Programs |
| Programs | ||
January 1 - January 31 |
| 555 |
| $ | 5.68 |
| — |
| — |
February 1 - February 28 |
| 879 |
|
| 6.01 |
| — |
| — |
March 1 - March 31 |
| 2,404 |
|
| 7.04 |
| — |
| — |
Total |
| 3,838 |
| $ | 6.61 |
| — |
| — |
(1) | Amount represents shares surrendered by employees to satisfy tax withholding obligations in connection with the settlement restricted stock units, the exercise of stock options, or the issuance of unrestricted shares of common stock. |
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Item 6. Exhibits
Exhibit |
| Description |
3.1 | Certificate of Incorporation of AudioEye, Inc., dated as of May 20, 2005 (1) | |
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
3.6 | Certificate of Designations - Series A Convertible Preferred Stock (5) | |
3.7 | ||
3.8 | ||
10.1 | ||
10.2 | ||
10.3 | ||
31.1* | ||
32.1* | ||
101.INS* | XBRL Instance Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.INS) |
* | Filed herewith. |
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(1) | Incorporated by reference to Form S-1, filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 21, 2011 (File No. 333-177463). |
(2) | Incorporated by reference to Form S-1/A, filed with the SEC on October 1, 2012 (File No. 333-177463). |
(3) | Incorporated by reference to Form 10-K, filed with the SEC on March 31, 2014. |
(4) | Incorporated by reference to Form 8-K, filed with the SEC on August 7, 2018. |
(5) | Incorporated by reference to Form 10-K, filed with the SEC on March 30, 2020. |
(6) | Incorporated by reference to Form 8-K, filed with the SEC on June 25, 2021. |
(7) | Incorporated by reference to Form 8-K/A, filed with the SEC on September 24, 2020. |
(8) | Incorporated by reference to Form 8-K, filed with the SEC on March 11, 2022. |
(9) | Incorporated by reference to Form 8-K, filed with the SEC on April 8, 2022. |
(10) | Incorporated by reference to Form 8-K, filed with the SEC on April 15, 2022. |
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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: | May 13, 2022 |
| By: | /s/ David Moradi | |
David Moradi | |||||
Principal Executive Officer | |||||
Date: | May 13, 2022 | By: | /s/ Kelly Georgevich | ||
Kelly Georgevich | |||||
Principal Financial Officer | |||||
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