AudioEye(AEYE) - 2024 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements This section presents AudioEye, Inc.'s unaudited consolidated financial statements for periods ending September 30, 2024, and December 31, 2023, including balance sheets, statements of operations, stockholders' equity, and cash flows, with detailed notes on accounting policies and significant events Consolidated Balance Sheets This subsection provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time | (in thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | ASSETS | | | | Total current assets | $11,396 | $14,776 | | Total assets | $29,390 | $25,495 | | LIABILITIES AND STOCKHOLDERS' EQUITY | | | | Total current liabilities | $13,610 | $11,529 | | Total liabilities | $22,038 | $18,788 | | Total stockholders' equity | $7,352 | $6,707 | | Total liabilities and stockholders' equity | $29,390 | $25,495 | - Total assets increased by $3.895 million (15.3%) from December 31, 2023, to September 30, 2024, primarily driven by increases in intangible assets and goodwill, likely due to the ADA Site Compliance acquisition[5][46] - Total liabilities increased by $3.250 million (17.3%) over the same period, largely due to a new Note Payable of $2.348 million and an increase in deferred revenue[5][76] Consolidated Statements of Operations This subsection details the company's revenues, expenses, and net income or loss over specific reporting periods | (in thousands, except per share data) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $8,925 | $7,838 | $25,478 | $23,446 | | Gross profit | $7,102 | $6,050 | $20,130 | $18,169 | | Operating loss | $(991) | $(1,390) | $(2,119) | $(5,472) | | Net loss | $(1,202) | $(1,355) | $(2,766) | $(5,339) | | Net loss per common share-basic and diluted | $(0.10) | $(0.11) | $(0.23) | $(0.46) | - Revenue increased by 14% for the three months and 9% for the nine months ended September 30, 2024, compared to the prior year periods[6][102] - Net loss decreased by 11% for the three months and 48% for the nine months ended September 30, 2024, indicating improved financial performance[6] Consolidated Statements of Stockholders' Equity This subsection outlines changes in the equity section of the balance sheet, including common stock, additional paid-in capital, and accumulated deficit | (in thousands) | Balance, Dec 31, 2023 | Balance, Sep 30, 2024 | | :--------------- | :-------------------- | :-------------------- | | Common Shares | 11,711 | 12,034 | | Common stock Amount | $1 | $1 | | Additional Paid-in Capital | $96,182 | $101,609 | | Accumulated Deficit | $(89,476) | $(94,258) | | Total | $6,707 | $7,352 | - Total stockholders' equity increased by $645 thousand from December 31, 2023, to September 30, 2024, primarily due to an increase in additional paid-in capital from common stock issuances, partially offset by net losses and common stock repurchases[8][115][116] Consolidated Statements of Cash Flows This subsection details the cash inflows and outflows from operating, investing, and financing activities over specific periods | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--------------- | :----------------------------- | :----------------------------- | | Net cash provided by (used in) operating activities | $2,166 | $(515) | | Net cash used in investing activities | $(4,603) | $(1,654) | | Net cash used in financing activities | $(1,321) | $(1,461) | | Net decrease in cash | $(3,758) | $(3,630) | | Cash-end of period | $5,478 | $3,274 | - Net cash provided by operating activities significantly improved to $2.166 million for the nine months ended September 30, 2024, compared to a net cash used of $(515) thousand in the prior year, driven by increased revenue and cost efficiencies[13][120] - Cash used in investing activities increased to $(4.603) million for the nine months ended September 30, 2024, primarily due to the acquisition of ADA Site Compliance[13][121] - Cash used in financing activities decreased to $(1.321) million for the nine months ended September 30, 2024, mainly due to capital raised from an ATM offering, partially offset by common stock repurchases and contingent consideration payouts[13][122] Notes to Consolidated Financial Statements This subsection provides detailed explanations and additional information supporting the consolidated financial statements NOTE 1 — BASIS OF PRESENTATION The unaudited interim consolidated financial statements are prepared in accordance with U.S. GAAP and SEC rules, including all necessary recurring adjustments for fair presentation, though interim results are not necessarily indicative of full-year performance - Financial statements are unaudited and prepared in accordance with U.S. GAAP and SEC rules for interim reporting[15][16] - Interim results are not necessarily indicative of full-year performance[16] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the Company's significant accounting policies, including the use of estimates, revenue recognition, deferred costs, business combinations, debt accounting, employee stock purchase plan, stock-based compensation, earnings per share, stock repurchases, and recent accounting pronouncements Use of Estimates This subsection explains that management's financial reporting relies on estimates and assumptions that affect reported amounts - Management makes estimates and assumptions affecting reported amounts, including stock-based compensation, allowance for doubtful accounts, intangible assets, and contingent consideration[18] Revenue Recognition This subsection details how the company recognizes revenue from its SaaS delivery model and professional services - Revenue is primarily derived from SaaS delivery model and professional services, recognized in accordance with ASC 606[19][20] - SaaS and support (subscription) revenue is recognized ratably over the contractual term, while non-subscription revenue (PDF remediation, one-time reporting) is recognized upon delivery[22][23] | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--------------- | :----------------------------- | :----------------------------- | | Partner and Marketplace | $14,930 | $13,365 | | Enterprise | $10,548 | $10,081 | | Total revenues | $25,478 | $23,446 | | (in thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Deferred revenue - current | $7,587 | $6,472 | | Deferred revenue - noncurrent | $8 | $10 | | Total deferred revenue | $7,595 | $6,482 | - One customer accounted for approximately 15% and 16% of total revenue for the three and nine months ended September 30, 2024, respectively[25] Deferred Costs (Contract Acquisition Costs) This subsection describes the capitalization and amortization of costs incurred to acquire customer contracts - Initial and renewal sales commissions are capitalized and amortized over the expected period of benefit (contract term)[27] | (in thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Deferred costs – current | $19 | $20 | | Deferred costs - noncurrent | $50 | $2 | | Total deferred costs | $69 | $22 | - Amortization expense for sales commissions was $27 thousand for the nine months ended September 30, 2024, a decrease from $49 thousand in the prior year period[28] Business Combinations This subsection explains the accounting treatment for assets acquired, liabilities assumed, and contingent consideration in business combinations - Assets acquired, liabilities assumed, and contingent consideration in business combinations are recorded at estimated fair value on the acquisition date, with adjustments recognized in earnings[29] Debt Discount and Debt Issuance Costs This subsection outlines the capitalization and amortization of costs associated with debt issuance - Costs related to debt issuance (debt discount and issuance costs) are capitalized and amortized to interest expense over the debt term using the effective interest method[31] Employee Stock Purchase Plan This subsection describes the company's Employee Stock Purchase Plan, including eligibility and share availability - The ESPP, approved in May 2022, allows eligible employees to purchase common stock at 85% of fair market value, with 18,960 shares issued and 481,040 shares remaining available as of September 30, 2024[32] Stock-Based Compensation This subsection details the accounting for stock options, restricted stock units (RSUs), and common stock issued as compensation - Stock-based compensation for options, RSUs, and common stock is expensed over the vesting period, with fair value measured on the grant date using Black-Scholes or Monte Carlo simulation models[33][34][35][36] | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | | :--------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Options | $0 | $20 | $5 | $136 | | RSUs | $1,077 | $826 | $2,743 | $2,713 | | Unrestricted shares of common stock | $113 | $40 | $291 | $180 | | Employee stock purchase plan | $0 | $0 | $9 | $6 | | Total | $1,190 | $886 | $3,048 | $3,035 | - Unrecognized stock-based compensation expense for outstanding RSUs totaled $4.925 million as of September 30, 2024, to be recognized through July 2027[37] Earnings (Loss) Per Share ("EPS") This subsection explains the calculation of basic and diluted earnings per share, including the treatment of anti-dilutive securities - Basic EPS is calculated by dividing net income (loss) by weighted average common shares outstanding; diluted EPS adjusts for potential dilutive common stock issuances, but these are excluded when a net loss exists (anti-dilutive)[38] | (in thousands) | September 30, 2024 | September 30, 2023 | | :--------------- | :----------------- | :----------------- | | Options | 76 | 115 | | Restricted stock units | 1,402 | 1,840 | | Total | 1,478 | 1,955 | Stock Repurchases This subsection provides details on the company's share repurchase program and the amount of shares repurchased - The Board approved a $5 million share repurchase program through December 31, 2025; in the nine months ended September 30, 2024, $2.02 million was used to repurchase shares, leaving $1.86 million remaining[41][115] Recent Accounting Pronouncements This subsection discusses the impact of recently issued accounting standards on the company's financial statements - The Company plans to adopt ASU 2023-09 (Income Taxes) in fiscal year 2025, which will not affect consolidated results of operations, financial position, or cash flows[43][44] NOTE 3 — ACQUISITIONS This note details the acquisition of ADA Site Compliance, LLC, including consideration, purchase price allocation, and transaction costs, along with an update on the settlement of contingent consideration for the Bureau of Internet Accessibility Inc. acquisition ADA Site Compliance, LLC This subsection provides details on the acquisition of ADA Site Compliance, LLC, including the purchase price and allocation of assets and liabilities - On September 27, 2024, AudioEye acquired ADA Site Compliance, LLC for approximately $7.0 million, consisting of $3.4 million cash, $2.35 million in unsecured promissory notes, and an estimated $1.25 million in contingent consideration[45] | (in thousands) | Amount | | :--------------- | :----- | | Assets purchased: | | | Cash | $284 | | Accounts receivable | $400 | | Other assets | $15 | | Customer relationships | $5,100 | | Goodwill | $2,614 | | Total assets purchased | $8,413 | | Liabilities assumed: | | | Accounts payable and accrued liabilities | $331 | | Deferred revenue | $1,077 | | Total liabilities assumed | $1,408 | | Net assets acquired | $7,005 | | Consideration: | | | Cash paid | $3,407 | | Note payable | $2,348 | | Contingent consideration liability | $1,250 | | Total consideration | $7,005 | - The acquisition resulted in $5.1 million in customer relationships (amortized over 8 years) and $2.614 million in goodwill[46][47] - Transaction costs of $394 thousand related to the acquisition were incurred and included in General and administrative expenses for the three and nine months ended September 30, 2024[50] | (in thousands) | Three months ended Sep 30, 2024 (Pro Forma) | Three months ended Sep 30, 2023 (Pro Forma) | Nine months ended Sep 30, 2024 (Pro Forma) | Nine months ended Sep 30, 2023 (Pro Forma) | | :--------------- | :------------------------------------------ | :------------------------------------------ | :----------------------------------------- | :----------------------------------------- | | Revenue | $9,471 | $8,408 | $27,127 | $24,981 | | Net loss attributed to common shareholders | $(660) | $(1,264) | $(1,994) | $(5,110) | Bureau of Internet Accessibility Inc. This subsection provides an update on the settlement of contingent consideration from the prior acquisition of Bureau of Internet Accessibility Inc - In the second quarter of 2024, AudioEye made a $2.387 million cash payment to fully settle the contingent consideration from the BOIA acquisition[55] - Amortization expense for acquired intangible assets totaled $522 thousand for the nine months ended September 30, 2024, compared to $536 thousand in the prior year[57] - The Company recorded $12 thousand in income related to the change in fair value of contingent consideration for the nine months ended September 30, 2024, compared to an expense of $(200) thousand in the prior year[58] NOTE 4 — LEASE LIABILITIES AND RIGHT OF USE ASSETS This note details the Company's lease arrangements, including the expiration of finance leases, the recognition and accounting for operating leases for office spaces, and a summary of lease payments and expenses Finance Leases This subsection discusses the company's finance lease obligations, which expired in the second quarter of 2024 - Finance leases for computer equipment expired in Q2 2024, resulting in zero outstanding obligations as of September 30, 2024[60] Operating Leases This subsection details the company's operating lease arrangements for office spaces, including recognition, terms, and associated expenses - Operating lease right-of-use assets and liabilities are recognized based on the present value of lease payments, using an estimated incremental borrowing rate of 6.0%[61][69] - The Company has operating leases for office space in Tucson (ends Oct 2025) and New York (ends Dec 2026), and entered into month-to-month sublease in Miami Beach and shared office space agreements in other locations[62][63] - Operating lease payments were $305 thousand for the nine months ended September 30, 2024, down from $396 thousand in the prior year[65] | (in thousands) | Operating Leases | | :--------------- | :--------------- | | Year ending December 31, 2024 (3 months remaining) | $53 | | 2025 | $219 | | 2026 | $225 | | Total minimum lease payments | $497 | | Less: present value discount | $(34) | | Total lease liabilities | $463 | | Current portion of lease liabilities | $194 | | Long term portion of lease liabilities | $269 | | (in thousands) | Nine months 2024 | Nine months 2023 | | :--------------- | :--------------- | :--------------- | | Total Finance lease expense | $6 | $27 | | Operating lease expense | $221 | $388 | | Short-term lease and related expenses | $318 | $204 | | Total lease expenses | $545 | $619 | NOTE 5 — DEBT This note details the Company's debt obligations, including a $7.0 million term loan with SG Credit Partners, Inc., its interest rate, fees, and financial covenants, and the $2.4 million unsecured promissory notes issued for the ADA Site Compliance acquisition Term Loan This subsection provides details on the company's $7.0 million term loan, including its terms, fees, and compliance with financial covenants - A $7.0 million term loan was entered into on November 30, 2023, with SG Credit Partners, Inc., maturing on November 30, 2026, at an interest rate of 6.25% above the base rate (greater of prime or 7.00%)[70] - The loan includes a $105 thousand commitment fee and a $105 thousand exit fee, recorded as debt discount, and $71 thousand in third-party issuance costs[71][72] - An amendment to the Loan Agreement on September 27, 2024, allowed for earn-out and Note Payable payments related to the ADA Site Compliance acquisition, subject to liquidity covenants[73] - The Company was in compliance with all financial covenants, including minimum liquidity ($2.0 million) and monthly recurring revenue levels, as of September 30, 2024[74] - As of September 30, 2024, the outstanding principal balance of the term loan was $7.0 million[75] Note Payable This subsection details the unsecured promissory notes issued in connection with the ADA Site Compliance acquisition - Unsecured non-interest bearing promissory notes totaling $2.4 million were issued on September 27, 2024, for the ADA Site Compliance acquisition, maturing sixty days from issuance[76] - The outstanding principal balance of the Note Payable was $2.348 million as of September 30, 2024[76] NOTE 6 — COMMITMENTS AND CONTINGENCIES The Company may be involved in routine disputes, but management believes the resolution of such matters is not likely to have a material adverse effect on its financial position or results of operations - Management believes that the resolution of any potential litigation is not likely to have a material adverse effect on financial position or results of operations[77] NOTE 7 — SUBSEQUENT EVENTS The Company evaluated subsequent events after September 30, 2024, and identified no events requiring recognition or disclosure in the consolidated financial statements - No material subsequent events were identified after September 30, 2024[78] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on AudioEye's financial condition and results of operations, including an executive overview of business performance, detailed analysis of revenue and expenses, key operating metrics, liquidity and capital resources, and critical accounting policies, highlighting the Company's focus on digital accessibility solutions, recent regulatory updates, and the impact of strategic acquisitions Cautionary Note Regarding Forward-Looking Statements This subsection advises readers that the report contains forward-looking statements subject to risks and uncertainties, and the company disclaims any obligation to update them - The report contains forward-looking statements subject to known and unknown risks and uncertainties, which could cause actual results to differ materially[80][81] - Readers are cautioned not to rely on these statements, and the Company disclaims any obligation to update them[82] AudioEye Solutions This subsection describes AudioEye's core offerings, which include always-on testing, remediation, and monitoring solutions for WCAG conformance and accessibility law compliance - AudioEye provides an always-on testing, remediation, and monitoring solution to improve WCAG conformance and comply with accessibility laws, addressing various disabilities[84] - The Company's intellectual property includes 23 issued patents in the U.S. and 3 pending applications, with plans for continued investment in R&D[85] Legal and Regulatory Framework Update This subsection provides an update on recent regulatory changes impacting web and mobile application accessibility requirements - The U.S. Department of Justice (DOJ) and Department of Health and Human Services (HHS) published new rules in April and May 2024, respectively, adding specific web and mobile application accessibility requirements under Title II of the ADA and Section 504 of the Rehabilitation Act[87] Executive Overview This subsection provides a high-level summary of AudioEye's business performance, strategic focus, and key financial and operational highlights - AudioEye is a leading digital accessibility platform focused on product innovation, revenue expansion, and expense management[88] - Total revenue increased by 9% for the nine months ended September 30, 2024, over the prior year[90] - Annual Recurring Revenue (ARR) was approximately $36.2 million as of September 30, 2024, representing a 19% year-over-year increase[90][113] - Customer count increased by 18% to 126,000 at September 30, 2024, from 107,000 in the prior year[91] - Partner and Marketplace channel revenue grew 12% and represented 58% of ARR, while Enterprise channel revenue grew 5% and represented 42% of ARR for the nine months ended September 30, 2024[92] - Total research and development cost decreased due to the completion of significant initiatives[94] Results of Operations This section provides a detailed comparison of financial performance for the three and nine months ended September 30, 2024, versus 2023, analyzing changes in revenue by sales channel, cost of revenue, gross profit, and operating expenses (selling and marketing, research and development, general and administrative), as well as interest income/expense Revenue This subsection analyzes the company's revenue performance, broken down by Partner and Marketplace and Enterprise channels | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :------------------------------ | :------------------------------ | :------- | :------- | | Partner and Marketplace | $5,226 | $4,605 | $621 | 13% | | Enterprise | $3,699 | $3,233 | $466 | 14% | | Total revenues | $8,925 | $7,838 | $1,087 | 14% | | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Partner and Marketplace | $14,930 | $13,365 | $1,565 | 12% | | Enterprise | $10,548 | $10,081 | $467 | 5% | | Total revenues | $25,478 | $23,446 | $2,032 | 9% | - The increase in Partner and Marketplace revenue was primarily due to continued expansion with existing partners, while Enterprise channel revenue growth was driven by an increase in Enterprise customers[102] Cost of Revenue and Gross Profit This subsection examines the cost of generating revenue and the resulting gross profit for the reporting periods - Cost of revenue remained consistent year-over-year for both the three and nine months ended September 30, 2024[104] - Gross profit increased by 17% for the three months and 11% for the nine months ended September 30, 2024, driven by increased revenue[104] Selling and Marketing Expenses This subsection analyzes changes in expenses related to sales and marketing activities | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :------------------------------ | :------------------------------ | :------- | :------- | | Selling and marketing | $3,148 | $2,891 | $257 | 9% | | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Selling and marketing | $9,122 | $9,387 | $(265) | (3)% | - Selling and marketing expenses increased by 9% for the three months ended September 30, 2024, due to higher third-party marketing and stock compensation expense, but decreased by 3% for the nine months due to reductions in online media and third-party marketing[106] Research and Development Expenses This subsection details the company's expenditures on research and development, including capitalized costs | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :------------------------------ | :------------------------------ | :------- | :------- | | Research and development expense | $1,151 | $1,955 | $(804) | (41)% | | Plus: Capitalized research and development cost | $432 | $482 | $(50) | (10)% | | Total research and development cost | $1,583 | $2,437 | $(854) | (35)% | | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Research and development expense | $3,694 | $5,734 | $(2,040) | (36)% | | Plus: Capitalized research and development cost | $1,379 | $1,481 | $(102) | (7)% | | Total research and development cost | $5,073 | $7,215 | $(2,142) | (30)% | - Research and development expense decreased by 41% for the three months and 36% for the nine months ended September 30, 2024, primarily due to lower personnel costs following the completion of significant R&D initiatives[108] General and Administrative Expenses This subsection analyzes changes in general and administrative costs, including transaction and litigation expenses | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :------------------------------ | :------------------------------ | :------- | :------- | | General and administrative | $3,794 | $2,594 | $1,200 | 46% | | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :----------------------------- | :----------------------------- | :------- | :------- | | General and administrative | $9,433 | $8,520 | $913 | 11% | - General and administrative expenses increased by 46% for the three months and 11% for the nine months ended September 30, 2024, mainly due to transaction costs from the ADA Site Compliance acquisition and higher litigation expenses ($840 thousand for Q3, $1.339 million for YTD)[110] Interest Income (Expense) This subsection examines the company's net interest income or expense for the reporting periods | (in thousands) | Three months ended Sep 30, 2024 | Three months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :------------------------------ | :------------------------------ | :------- | :------- | | Interest income (expense), net | $(211) | $35 | $(246) | (703)% | | (in thousands) | Nine months ended Sep 30, 2024 | Nine months ended Sep 30, 2023 | Change $ | Change % | | :--------------- | :----------------------------- | :----------------------------- | :------- | :------- | | Interest income (expense), net | $(647) | $133 | $(780) | (586)% | - Net interest expense increased significantly for both periods due to interest on the term loan borrowed in Q4 2023, partially offset by interest income from money market funds[111] Other Key Operating Metrics This subsection highlights Annual Recurring Revenue (ARR) as a critical indicator of the company's ongoing business performance - Annual Recurring Revenue (ARR) is a key operating metric, defined as the annualized recurring fee from active contracts in both Enterprise and Partner and Marketplace channels[112][113] - As of September 30, 2024, ARR was $36.2 million, a 19% increase year-over-year, driven by growth in both sales channels[113] Liquidity and Capital Resources This section discusses the Company's working capital position, cash flows from operating, investing, and financing activities, and its ability to meet short-term and long-term obligations, highlighting the impact of the ADA Site Compliance acquisition, share repurchase program, ATM offering, and contingent consideration payments on liquidity Working Capital This subsection analyzes the company's working capital position and its ability to meet short-term obligations | (in thousands) | September 30, 2024 | December 31, 2023 | | :--------------- | :----------------- | :------------------ | | Current assets | $11,396 | $14,776 | | Current liabilities | $(13,610) | $(11,529) | | Working capital | $(2,214) | $3,247 | - Working capital decreased by $5.5 million to $(2.214) million as of September 30, 2024, primarily due to the ADA Site Compliance acquisition ($3.1 million initial payment, $2.3 million noncurrent note payable)[114] - The Company had $5.478 million in cash as of September 30, 2024[114] - The Company believes it has sufficient liquidity to continue as a going concern through the next twelve months, but there is no assurance of raising additional capital in the future[118][119] Cash Flows This subsection provides a detailed analysis of cash flows from operating, investing, and financing activities - Cash provided by operating activities increased to $2.166 million for the nine months ended September 30, 2024, from cash used of $(515) thousand in the prior year, due to increased revenue and cost efficiencies[120] - Cash used in investing activities increased to $(4.603) million due to the ADA Site Compliance acquisition ($3.1 million net payment)[121] - Cash used in financing activities decreased to $(1.321) million, primarily due to $3.473 million raised from an ATM offering, partially offset by $2.02 million in common stock repurchases and $2.387 million in contingent consideration payouts for the BOIA acquisition[122] Critical Accounting Policies and Estimates This subsection confirms that there have been no material changes to the company's critical accounting policies and estimates since its last annual report - No material changes to critical accounting policies and estimates (stock-based compensation, goodwill, intangible assets, contingent consideration) were reported since the 2023 Form 10-K[124] Item 3. Quantitative and Qualitative Disclosures About Market Risk This subsection states that the disclosures about market risk are not applicable for the current report - This section is not applicable for the current report[125] Item 4. Controls and Procedures This section confirms the effectiveness of the Company's disclosure controls and procedures as of September 30, 2024, and states that there were no material changes in internal controls over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This subsection confirms the effectiveness of the company's disclosure controls and procedures as of the reporting date - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2024, providing reasonable assurance of achieving desired control objectives[125][126] Changes in Internal Controls over Financial Reporting This subsection states that no material changes in internal controls over financial reporting occurred during the quarter - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2024[127] PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company may be involved in routine disputes, but management believes that the resolution of any such matters is not likely to have a material adverse effect on its financial position or results of operations - Management believes that the resolution of any legal proceedings is not likely to have a material adverse effect on the Company's financial position or results of operations[130] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors set forth in the 2023 Form 10-K[131] Item 2. Issuer Purchases of Equity Securities This section provides information on the Company's repurchases of common stock during the three months ended September 30, 2024, including shares surrendered by employees for tax obligations and the remaining authorization under the share repurchase program | Period | Total Number of Shares Purchased (Employee transactions) | Average Price per Share (Employee transactions) | | :---------------- | :--------------------------------------- | :------------------------------------ | | July 1 - July 31 | 2,006 | $20.68 | | August 1 - August 31 | 5,990 | $22.50 | | September 1 - September 30 | 10,704 | $21.71 | | Total | 18,700 | $21.85 | - As of September 30, 2024, $1.86 million remained available under the $5 million share repurchase program authorized through December 31, 2025[132][133] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including organizational documents, acquisition agreements, loan amendments, certifications, and XBRL interactive data files - Key exhibits include the Restated Certificate of Incorporation, By-Laws, Membership Interest Purchase Agreement for ADA Site Compliance, First Amendment to Loan and Security Agreement, and various certifications[134] SIGNATURES The report is duly signed on November 7, 2024, by David Moradi, Principal Executive Officer, and Kelly Georgevich, Principal Financial Officer, on behalf of AudioEye, Inc - The report was signed by David Moradi, Principal Executive Officer, and Kelly Georgevich, Principal Financial Officer, on November 7, 2024[135][136]