Form 10-Q AUDIOEYE INC For: Sep 30
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E-mailUNITED 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) |
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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
As of October 26, 2026,
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
AUDIOEYE, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited) | |||||||
| September 30, | | December 31, | ||||
(in thousands, except per share data) | 2026 | 2025 | |||||
ASSETS | |||||||
Current assets: |
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Cash and cash equivalents | $ | | $ | | |||
Accounts receivable, net of allowance for credit losses of $ |
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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 | | | |||||
Intangible assets, net of accumulated amortization of $ |
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Goodwill | | | |||||
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 | $ | | $ | | |||
Operating lease liabilities | | | |||||
Deferred revenue |
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Contingent consideration | | | |||||
Term loan, current | | | |||||
Total current liabilities |
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Long term liabilities: |
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Term loan, net | | | |||||
Operating lease liabilities | | — | |||||
Deferred revenue |
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Contingent consideration, long term |
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Other | | | |||||
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 | $ | | $ | | |||
See notes to unaudited consolidated financial statements
3
AUDIOEYE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended September 30, | Nine months ended September 30, | ||||||||||||
(in thousands, except per share data) | | 2026 | | 2025 | | 2026 | | 2025 | |||||
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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Change in fair value of contingent consideration | — |
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Total operating expenses |
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Operating income (loss) |
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Other expense: |
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Interest expense, net | ( |
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Loss on extinguishment of debt |
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Total other expense | ( | ( | ( | ( | |||||||||
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Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
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Net income (loss) per common share - basic | $ | | $ | ( | $ | ( | $ | ( | |||||
Net income (loss) per common share - diluted | $ | | $ | ( | $ | ( | $ | ( | |||||
Weighted average common shares outstanding - basic |
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Weighted average common shares outstanding - diluted | | | | | |||||||||
See notes to unaudited consolidated financial statements
4
AUDIOEYE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2026 AND 2025
(unaudited)
| | | | | Additional | | | |||||||
Common stock | Paid-in | Accumulated | ||||||||||||
(in thousands) | | Shares | | Amount | Capital | | Deficit | | Total | |||||
Balance, December 31, 2025 |
| | $ | | $ | | $ | ( | $ | | ||||
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 | ( | — | ( | — | ( | |||||||||
Common stock repurchased for retirement | ( | — | — | ( | ( | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Net loss |
| — | — | — | ( | ( | ||||||||
Balance, March 31, 2026 | | $ | | $ | | $ | ( | $ | | |||||
Common stock issued upon settlement of restricted stock units | | — | — | — | — | |||||||||
Issuance of common stock for services | | — | — | — | — | |||||||||
Common stock issued pursuant to employee stock purchase plan | | — | | — | | |||||||||
Surrender of stock to cover tax liability on settlement of employee stock-based awards | ( | — | ( | — | ( | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance, June 30, 2026 | | $ | | $ | | $ | ( | $ | | |||||
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 | — | — | | — | | |||||||||
Net income | — | — | — | | | |||||||||
Balance, September 30, 2026 | | $ | | $ | | $ | ( | $ | | |||||
5
Additional | ||||||||||||||
Common stock | Paid-in | Accumulated | ||||||||||||
(in thousands) | | Shares | | Amount | | Capital | | Deficit | | Total | ||||
Balance, December 31, 2024 | | $ | | $ | | $ | ( | $ | | |||||
Common stock issued upon settlement of restricted stock units | | — | — | — |
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Common stock issued upon exercise of options on a cash basis | | — | | — | | |||||||||
Issuance of common stock for services | | — | — | — | — | |||||||||
Surrender of stock to cover tax liability on settlement of employee stock-based awards | ( | — | ( | — |
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Stock-based compensation | — | — | | — | | |||||||||
Net loss |
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Balance, March 31, 2025 | | $ | | $ | | $ | ( | $ | | |||||
Common stock issued upon exercise of options on a cashless basis | | — | — | — | — | |||||||||
Common stock issued upon settlement of restricted stock units | | — | — | — | — | |||||||||
Issuance of common stock for services | | — | — | — | — | |||||||||
Common stock issued pursuant to employee stock purchase plan | | — | | — | | |||||||||
Surrender of stock to cover tax liability on settlement of employee stock-based awards | ( | — | ( | — | ( | |||||||||
Common stock repurchased for retirement | ( | — | — | ( | ( | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance, June 30, 2025 | | $ | | $ | | $ | ( | $ | | |||||
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 | ( | — | ( | — | ( | |||||||||
Common stock repurchased for retirement | ( | — | — | ( | ( | |||||||||
Stock-based compensation | — | — | | — | | |||||||||
Net loss | — | — | — | ( | ( | |||||||||
Balance, September 30, 2025 | | $ | | $ | | $ | ( | $ | | |||||
See notes to unaudited consolidated financial statements
6
AUDIOEYE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Nine months ended September 30, | |||||||
(in thousands) | | 2026 | | 2025 | |||
CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||
Net loss | $ | ( | $ | ( | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization |
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Loss on disposal or impairment of long-lived assets | | | |||||
Loss on extinguishment of debt | — | | |||||
Stock-based compensation expense | | | |||||
Amortization of deferred commissions | | | |||||
Amortization of debt discount and issuance costs |
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Amortization of right-of-use assets | | | |||||
Change in fair value of contingent consideration |
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Provision for accounts receivable | | | |||||
Changes in operating assets and liabilities: | |||||||
Accounts receivable | | ( | |||||
Prepaid expenses and other assets | ( | ( | |||||
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 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 | ( | ( | |||||
Payment for acquisitions, net | ( | ( | |||||
Net cash used in investing activities |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Proceeds from term loan, net of lender fees | | | |||||
Payments for costs directly attributable to the issuance of term loan | — | ( | |||||
Repayment of term loan | ( | ( | |||||
Payments for debt extinguishment costs | — | ( | |||||
Proceeds from exercise of options | — | | |||||
Proceeds from employee stock purchase plan | | | |||||
Payments related to settlement of employee share-based awards | ( | ( | |||||
Repurchase of common stock | ( | ( | |||||
Net cash provided by financing activities |
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Net increase (decrease) in cash and cash equivalents |
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Cash and cash equivalents - beginning of period |
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Cash and cash equivalents - end of period | $ | | $ | | |||
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SUPPLEMENTAL CASH FLOW DISCLOSURES |
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Interest paid | $ | | $ | | |||
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Supplemental non-cash information: | | | |||||
Right-of-use assets and operating lease obligations recognized during the period | $ | | $ | — | |||
See notes to unaudited consolidated financial statements
7
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
NOTE 1 — BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of AudioEye, Inc. and its wholly-owned subsidiary Equally AI Ltd. (“we”, “our” or the “Company”), have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP” or “GAAP”) and the rules of the Securities and Exchange Commission (the “SEC”), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “2025 Form 10-K”), as filed with the SEC on March 12, 2026.
In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain information and disclosures normally contained in the audited consolidated financial statements as reported in the Company’s Annual Report on Form 10-K have been condensed or omitted in accordance with the SEC’s rules and regulations for interim reporting. The Company presents its unaudited consolidated financial statements, condensed notes, and other financial information rounded to the nearest thousand United States Dollars (“U.S. Dollar”), except for per share data.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our significant accounting policies are presented in “Note 2 – Significant Accounting Policies” in the 2025 Form 10-K. Users of financial information for interim periods are encouraged to refer to the footnotes to the consolidated financial statements contained in the 2025 Form 10-K when reviewing interim financial results.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial statements and during the reporting period. On an ongoing basis, management evaluates its estimates and judgments, including those related to stock-based compensation, allowance for credit losses, intangible assets, and contingent consideration. Actual results may differ from these estimates.
Revenue Recognition
We derive our revenue primarily from the sale of internally developed software by a software-as-a-service (“SaaS”) delivery model, as well as from professional services, through our direct sales force or through third-party resellers. Our SaaS fees include support and maintenance.
We recognize revenue in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
We determine revenue recognition through the following five steps:
| ● | Identify the contract with the customer; |
| ● | Identify the performance obligations in the contract; |
| ● | Determine the transaction price; |
| ● | Allocate the transaction price to the performance obligations in the contract; and |
| ● | Recognize revenue when, or as, the performance obligations are satisfied. |
8
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
Performance obligations are the unit of accounting for revenue recognition and generally represent the distinct goods or services that are promised to the customer.
Our SaaS revenue is comprised of fixed subscription fees from customer accounts on our platform related to our software products. Our support revenue is comprised of subscription fees for customers for periodic auditing, human-assisted technological remediations, legal support, and other professional support services. SaaS and support (also referred to as “subscription”) revenue is recognized on a ratable basis over the contractual subscription term of the arrangement beginning on the date that our service is made available to the customer. Certain SaaS and support fees are invoiced in advance on an annual, semi-annual, or quarterly basis. Any funds received for services not provided yet are held in deferred revenue and are recorded as revenue when the related performance obligations have been satisfied. Our subscription agreements are generally non-cancelable, although clients typically have the right to terminate their contracts for cause if we fail to perform material obligations.
Non-subscription revenue consists primarily of PDF remediation and one-time website and mobile application reporting services and is recognized upon delivery. Consideration payable under PDF remediation arrangements is based on usage. Consideration payable under non-subscription website and mobile application reporting services arrangements is based on fixed fees.
The following tables present our revenues disaggregated by sales channel:
Three months ended September 30, | ||||||
(in thousands) | | 2026 | | 2025 | ||
Partner and Marketplace | $ | |
| $ | | |
Enterprise |
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Total revenues | $ | | $ | | ||
Nine months ended September 30, | ||||||
(in thousands) | | 2026 | | 2025 | ||
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 September 30, 2026 and December 31, 2025:
| September 30, | December 31, | ||||
(in thousands) | | 2026 | | 2025 | ||
Deferred revenue – current | $ | | $ | | ||
Deferred revenue – noncurrent | | | ||||
Total deferred revenue | | $ | |
| $ | |
In the three months ended September 30, 2026, we recognized as revenue $
We had
9
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
total revenue in the nine months ended September 30, 2026, and
As of September 30, 2026 and December 31, 2025,
Deferred Costs (Contract Acquisition Costs)
We capitalize initial and renewal sales commissions in the period the commission is earned, which generally occurs when a customer contract is obtained, and amortize deferred commission costs on a straight-line basis over the expected period of benefit, which we have deemed to be the contract term. As a practical expedient, we expense sales commissions as incurred when the amortization period of related deferred commission costs would have been one year or less.
The table below summarizes the deferred commission costs as of September 30, 2026 and December 31, 2025, which are included in Prepaid expenses and other current assets (current portion) and Other assets (noncurrent portion) on our consolidated balance sheets:
| September 30, | December 31, | ||||
(in thousands) | | 2026 | | 2025 | ||
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 consolidated statements of operations and totaled $
Business Combinations
The assets acquired, liabilities assumed and contingent consideration in business combinations 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 part of the purchase price allocation process to value the assets acquired and liabilities assumed as of the business combination date. As a result, changes to the provisional amounts of assets acquired or liabilities assumed that are identified within the measurement period (not to exceed 12 months from the acquisition date) are recorded as adjustments to the purchase price allocation. Any adjustments identified after the measurement period are recognized in earnings in the reporting period in which they are determined.
Acquisition-related expenses primarily consist of legal, accounting, and other advisory fees and are recorded in the period in which they are incurred.
Asset Acquisitions
Acquisitions that do not meet the definition of a business are accounted for as asset acquisitions. The Company allocates the cost of the acquisition to the individual assets acquired and liabilities assumed on a relative fair value basis and goodwill is not recognized in an asset acquisition. Contingent consideration is not recorded in an asset acquisition until it is deemed probable and reasonably estimable. Direct transaction costs are capitalized as a component of the cost of the acquisition.
Intangible Assets
Intangible assets include patents, capitalized software development costs, and customer relationships. Intangible assets with finite lives are amortized on a straight-line basis over their respective estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. Intangible assets determined to have
10
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
indefinite useful lives are not amortized but are tested for impairment annually and more frequently if events occur or circumstances change that indicate an asset may be impaired.
As of September 30, 2026 and December 31, 2025, intangible assets primarily included $
Debt Discount and Debt Issuance Costs
Costs related to the issuance of debt due to the lender (debt discount) or to third parties (debt issuance costs) are capitalized and amortized to interest expense over the term of the related debt on a straight-line basis, which is not materially different from the effective interest method. Debt discount and debt issuance costs are presented on the Company’s consolidated balance sheets as a direct deduction from the carrying amount of our term loan.
Employee Stock Purchase Plan
In May 2022, the stockholders of the Company approved the Company’s Employee Stock Purchase Plan (the “ESPP”), which provides for the issuance of up to
Under the ESPP, a participant may not be granted rights to purchase more than $
Stock-Based Compensation
The Company periodically issues options, restricted stock units (“RSUs”), and shares of its common stock as compensation for services received from its employees, directors, and consultants. The fair value of the award is measured on the grant date. The fair value amount is then recognized as expense over the requisite vesting period during which services are required to be provided in exchange for the award. We recognize forfeitures as they occur. Stock-based compensation expense is recorded in the same expense classifications in the consolidated statements of operations as if such amounts were paid in cash.
The fair value of option 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).
We estimate the fair value of RSU 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 RSU awards as of the grant date using the Monte Carlo simulation model.
We expense the compensation cost associated with time-based options and RSUs as the restriction period lapses, which is typically a - to
11
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
market conditions are recognized on a straight-line basis over the requisite service period regardless of whether the market condition is satisfied and is not reversed provided that the requisite service period derived from the Monte-Carlo simulation has been completed. If vesting occurs prior to the end of the requisite service period, expense is accelerated and fully recognized through the vesting date.
Earnings (Loss) Per Share (“EPS”)
Basic EPS is calculated by dividing net income (loss) available to common stockholders by the weighted average number of shares of the Company’s common stock outstanding during the period. Diluted EPS is calculated based on the net income (loss) available to common stockholders and the weighted average number of shares of common stock outstanding during the period, adjusted for the effects of all potential dilutive common stock issuances related to options and RSUs. The dilutive effect of our stock-based awards is computed using the treasury stock method, which assumes all stock-based awards are exercised and the hypothetical proceeds from exercise are used to purchase common stock at the average market price during the period. The incremental shares (i.e., the difference between shares assumed to be issued versus purchased), to the extent they would have been dilutive, are included in the denominator of the diluted EPS calculation. However, when a net loss exists, no potential common stock equivalents are included in the computation of the diluted per-share amount because the computation would result in an anti-dilutive per-share amount.
Potentially dilutive securities outstanding as of September 30, 2026 and 2025, which were excluded from the computation of basic and diluted net loss per share for the nine-month period ended September 30, 2026 and the three- and nine-month periods ended September 30, 2025, are as follows:
September 30, | ||||
(in thousands) | | 2026 | | 2025 |
Options |
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Restricted stock units |
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Total |
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Stock Repurchases
In January 2025, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $
Shares repurchased by the Company are immediately retired. The Company made an accounting policy election to charge the excess of repurchase price over par value entirely to retained earnings.
Fair Value of Financial Instruments
Fair value is an estimate of the exit price, representing the amount that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are based upon observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our view of market participant assumptions in the absence of observable market information. Assets and liabilities required to be measured at fair value are categorized based upon the level of judgment associated with the inputs used to measure their value in one of the following three categories:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.
Level 3: Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.
12
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value based on the short-term maturity of these instruments.
The table below provides information on our Level 3 liabilities:
| Nine Months Ended | ||
September 30, 2026 | |||
(in thousands) | Level 3 | ||
Contingent consideration (1) | |||
Balance at December 31, 2025 | $ | | |
Additions | — | ||
Change in fair value of contingent consideration (2) | ( | ||
Balance at September 30, 2026 | $ | | |
| (1) | Represents the contingent consideration liability recorded in connection with asset acquisitions in 2025. The fair value of the contingent consideration was determined by management based on estimated recurring revenue from acquired customer relationships. |
| (2) | Represents the change in fair value of the contingent consideration liability recorded in connection with asset acquisitions in 2025. The change in fair value is recognized as an adjustment to the cost of the acquired assets. |
Recent Accounting Pronouncements
Not Yet Adopted
In September 2025, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software, which modernizes the recognition and disclosure framework for internal-use software costs, removing the previous “development stage” model and introducing a more judgment-based approach. ASU 2025-06 is effective for fiscal years beginning after December 15, 2027, and for interim periods within those annual reporting periods, with early adoption permitted. The Company is evaluating the impact of ASU 2025-06 on its consolidated financial statements and related disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40) to improve the disclosures about a public entity’s expenses and provide more detailed information about the types of expenses included in certain expense captions in the consolidated financial statements. The amendments in this update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted and the amendments in this update should be applied either prospectively to financial statements issued for reporting periods after the effective date of this update or retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the impact of the new standard on the disclosures in its consolidated financial statements.
13
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
NOTE 3 — DEBT
Term Loan and Revolving Credit Facility with Western Alliance Bank
On March 31, 2025, the Company entered into a Loan and Security Agreement (the “Credit Facility Agreement”) with Western Alliance Bank, an Arizona corporation (the “Lender”). The Credit Facility Agreement provides for borrowings of up to $
The outstanding Term Loan and the Revolving Facility bear interest on the outstanding daily balance at a floating rate equal to
Under the Term Loan, the Company was obligated to pay interest-only payments through April 9, 2026. Beginning on April 10, 2026, the Company is obligated to repay the Term Loan in (i) quarterly principal payments in the amount of $
The Company incurred $
In the three and nine months ended September 30, 2026, the aggregate amortization of debt discount and debt issuance costs totaled $
The Credit Facility Agreement is secured by substantially all of our assets and contains certain customary financial covenants, including the requirements that the Company maintain at all times from the closing date through and including the calendar quarter ended June 30, 2026, (a) unrestricted and unencumbered cash held in accounts with the Lender equal to at least $
On September 18, 2026, the Company entered into a Fourth Loan Modification Agreement with the Lender, which modified the covenant definitions of Adjusted EBITDA and Adjusted EBIDA to permit the add-back of certain litigation expenses, subject to specified caps, and modified the per year limits on permitted stock repurchases. On October 26, 2026, the Company entered into a Fifth Loan Modification Agreement with the Lender, which, among other things, removed the dollar amount limits on permitted stock repurchases, such that repurchases can now be made as long as there is no event of default at the time of, or following, any repurchase, the Company’s liquidity at the time of, or after giving effect to, the repurchase is at least $
14
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
As of September 30, 2026, the outstanding principal balance of our Term Loan totaled $
As of September 30, 2026, future principal payments of debt based on the principal balance then outstanding are as follows (in thousands):
Year ending December 31, | | Term Loan | |
2026 (3 months remaining) | $ | | |
2027 | | ||
2028 | | ||
2029 | | ||
2030 | | ||
Total repayments | $ | | |
As of September 30, 2026, the $
(in thousands) | September 30, 2026 | ||
Term loan principal | $ | | |
Less: unamortized debt discount and debt issuance costs | ( | ||
Term loan, net | $ | | |
Term loan, current | $ | | |
Term loan, noncurrent | $ | | |
Term Loan with SG Credit Partners
On November 30, 2023, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with SG Credit Partners, Inc., a Delaware corporation. The Loan Agreement provided for a $
On March 31, 2025, the Company paid $
NOTE 4 — COMMITMENTS AND CONTINGENCIES
Litigation
From time to time, we are involved in various legal proceedings. These matters are subject to inherent uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely to us. Further, even if these matters are resolved favorably, they may require the expenditure of significant fees and costs.
On the basis of our current knowledge and understanding, we do not believe that judgments, settlements or orders, if any, arising from these matters (either individually or in the aggregate) will have a material adverse effect on our financial position or results of operations.
15
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
Contingent Consideration
The Company recorded contingent consideration liabilities in connection with certain asset acquisition transactions in fiscal year 2025. The fair value of the contingent consideration liabilities was determined by management based on estimated recurring revenue from acquired customer relationships. As of September 30, 2026, the total contingent consideration liability was $
Operating Leases
The Company has operating leases for office space in Tucson, Arizona, and Miami Beach, Florida. The following summarizes the total lease liabilities and remaining future minimum lease payments as of September 30, 2026 (in thousands):
Year ending December 31, | Operating Leases | ||
2026 (3 months remaining) | $ | | |
2027 | | ||
2028 | | ||
2029 | | ||
2030 | | ||
Thereafter | | ||
Total minimum lease payments |
| | |
Less: present value discount |
| ( | |
Total lease liabilities | $ | | |
Current portion of lease liabilities | $ | | |
Long term portion of lease liabilities | $ | | |
NOTE 5 — STOCK-BASED COMPENSATION
The following table summarizes the stock-based compensation expense recorded for the three and nine months ended September 30, 2026 and 2025:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
(in thousands) | | 2026 | | 2025 | | 2026 | | 2025 | ||||
RSUs | $ | | $ | | $ | | $ | | ||||
Unrestricted shares of common stock | | | | | ||||||||
Employee stock purchase plan | — | — | | | ||||||||
Total | $ | | $ | | $ | | $ | | ||||
As of September 30, 2026, the unrecognized stock-based compensation expense related to outstanding RSUs totaled $
The following table summarizes the stock option and RSUs activity for the nine months ended September 30, 2026:
| Options | | RSUs | |
Outstanding at December 31, 2025 |
| |
| |
Granted |
| — |
| |
Exercised/Settled |
| — |
| ( |
Forfeited/Expired |
| ( |
| ( |
Outstanding at September 30, 2026 |
| |
| |
Vested at September 30, 2026 | | | ||
Unvested at September 30, 2026 | — | |
16
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2026
(Unaudited)
On May 4, 2026, the Company amended and restated its employment agreements with Kelly Georgevich, in connection with her appointment as Chief Executive Officer, and with David Moradi, in connection with his appointment as Executive Chairman and Chief Product Officer. Pursuant to such agreements, all of their time-based RSUs that were outstanding on May 4, 2026 vested on a pro rata basis through and including May 4, 2026, and the remaining unvested RSUs were cancelled. In addition, all outstanding performance shares held by Mr. Moradi were cancelled on May 4, 2026.
Concurrent with the cancellations on May 4, 2026, the executives were granted new equity awards. Ms. Georgevich was granted
The modifications to the outstanding equity awards held by Ms. Georgevich and Mr. Moradi, as well as the new grants, were accounted for under ASC 718, Compensation — Stock Compensation. Accordingly, incremental compensation cost of $
The Company accounted for Mr. Moradi's awards as a single combined-package modification, treating his entire pre-modification equity portfolio as
NOTE 6 — SEGMENT INFORMATION
The Company has a reportable segment focused on the sale of similar products and related services. This reportable segment derives revenues from customers by selling subscriptions for our digital accessibility platform delivering website accessibility compliance and providing services related to digital accessibility.
The Company’s chief operating decision-maker (the "CODM”), who is the chief executive officer, assesses performance for the reportable segment and decides how to allocate resources using net income as the primary measure of profitability. The CODM is not regularly provided with segment specific expenses, but focuses on revenue, gross margin, and net income. The significant expense categories regularly provided to and reviewed by the CODM are consistent with the expense line items presented on the face of the Company's consolidated statements of operations. These segment measures of profitability are shown in the consolidated statements of operations. The measure of segment assets is reported on the consolidated balance sheets as total assets.
NOTE 7 — SUBSEQUENT EVENTS
In October 2026, the Board of Directors adopted a new program to repurchase up to $
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with our consolidated financial statements and related notes in Part I, Item 1 of this report.
As used in this quarterly report, the terms “we,” “us,” “our” and similar references refer to AudioEye, Inc., unless otherwise indicated.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). In some cases, you may be able to identify forward-looking statements by terms such as “may,” “should,” “will,” “forecasts,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “projects,” “potential” or “continue,” the negative of these terms and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements, and are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions and speak only as of the date on which they are made.
Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results, events or developments to differ materially from those expressed or implied by these forward-looking statements, including our plans, objectives, expectations and intentions and other factors discussed in “Part I, Item 1A. Risk Factors” contained in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. Risk factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to risks related to:
| ● | the uncertain market acceptance of our existing and future products; |
| ● | our need for, and the availability of, additional capital in the future to fund our operations and the development of new products; |
| ● | the success, timing and financial consequences of new strategic relationships, acquisitions or licensing agreements we may enter into; |
| ● | rapid changes in internet-based applications that may affect the utility and commercial viability of our products; |
| ● | the timing and magnitude of expenditures we may incur in connection with our ongoing product development activities; |
| ● | judicial applications of accessibility laws to the internet; |
| ● | the level of competition from our existing competitors and from new competitors in our marketplace; and |
| ● | the regulatory environment for our products and services. |
Readers of this report are cautioned not to rely on these forward-looking statements, since there can be no assurance that these forward-looking statements will prove to be accurate. Forward-looking statements speak only as of the date they are made, and we expressly disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our subsequent SEC filings. This cautionary note is applicable to all forward-looking statements contained in this report.
18
AudioEye Solutions
At its core, AudioEye’s offering provides ongoing testing, automated fixes, and 24/7 monitoring that continually improves conformance with Web Content Accessibility Guidelines (“WCAG”). This in turn helps businesses and organizations comply with WCAG standards as well as applicable U.S. and foreign accessibility laws. Our technology is capable of immediately identifying and fixing most of the common accessibility errors and addresses a wide range of disabilities including dyslexia, color blindness, epilepsy and more. AudioEye also offers additional solutions to provide for enhanced compliance and accessibility, including periodic auditing, custom fixes by experts, 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, as well as website and mobile application reporting services, including Voluntary Product Accessibility Template (VPAT) audits, 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-five (25) issued patents in the United States and three (3) pending U.S. 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, 2025 as filed with the SEC on March 12, 2026 provides additional information about our business and operations.
Executive Overview
AudioEye is an industry-leading digital accessibility platform delivering Americans with Disabilities Act (“ADA”) and WCAG compliance at scale. Our solutions advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances the user experience for a broader audience. In the three months ended September 30, 2026, we continued to focus on product innovation and expanding revenue.
We have two sales channels to deliver our product, the Partner and Marketplace channel and the Enterprise channel. AudioEye continues to focus on recurring revenue growth in both channels, while still offering one-time website and mobile application reporting services as well as PDF remediation services that provide non-recurring revenue.
In the three months ended September 30, 2026, total revenue increased by 7% over the prior year comparable period. As of September 30, 2026, Annual Recurring Revenue (“ARR”) was approximately $43.3 million, which represented an increase of 12% year-over-year. Refer to “Other Key Operating Metrics” below for details on how we calculate ARR.
As of September 30, 2026, AudioEye had approximately 130,000 customers, a 6% increase from 123,000 customers at September 30, 2025. The increase in customer count was attributable to an increase in both our Partner and Marketplace channel customers and our Enterprise channel customers.
In the three months ended September 30, 2026, revenue from our Partner and Marketplace channel grew 14% over the prior year comparable period, primarily due to continued expansion with existing partners. The Partner and Marketplace channel represented about 59% of ARR as of September 30, 2026. In the three months ended September 30, 2026, total Enterprise channel revenue decreased 1% from the prior year comparable period, primarily due to a reduction in non-recurring revenue. The Enterprise channel represented about 41% of ARR as of September 30, 2026.
We had two customers (including, for each such customer, the customer’s affiliates) which accounted for 11% and 12% of our total revenue, respectively, or 23% in aggregate, in the three months ended September 30, 2026. One customer accounted for 13% of our total revenue in the nine months ended September 30, 2026.
The Company continued to invest in research and development in the third quarter of 2026. Total research and development cost, as defined under the “Research and Development Expenses” section in the “Results of Operations” below, was 12% of total revenue in the three months ended September 30, 2026. In the three months ended September 30, 2026, research and development expenses decreased
19
from the prior year comparable period primarily due to a reduction in employee headcount as a result of efficiency gains from newly implemented AI tools and automation.
In the three months ended September 30, 2026, selling and marketing expenses decreased from the prior year comparable period. The decrease in selling and marketing expenses was mainly driven by a reduction in marketing personnel resulting from efficiencies gained with the implementation of AI tools and automation.
In the three months ended September 30, 2026, general and administrative expenses increased from the prior year comparable period. The increase in general and administrative expenses was due primarily to higher personnel costs, partially offset by lower litigation expenses.
We provide further commentary on our Results of Operations below.
Results of Operations
Our unaudited consolidated financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“U.S. GAAP” or “GAAP”). The discussion of the results of our operations compares the three and nine months ended September 30, 2026 with the three and nine months ended September 30, 2025.
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 precisely to the totals provided and percentages may not precisely reflect the absolute figures.
Three months ended September 30, | Change |
| ||||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Revenue | $ | 10,963 |
| $ | 10,227 |
| $ | 736 | 7 | % | ||
Cost of revenue |
| 1,871 |
|
| 2,312 |
|
| (441) | (19) | % | ||
Gross profit |
| 9,092 |
|
| 7,915 |
|
| 1,177 | 15 | % | ||
Operating expenses: |
|
|
|
|
|
|
| |||||
Selling and marketing |
| 3,304 |
|
| 3,649 |
|
| (345) | (9) | % | ||
Research and development |
| 889 |
|
| 1,118 |
|
| (229) | (20) | % | ||
General and administrative |
| 3,644 |
|
| 3,506 |
|
| 138 | 4 | % | ||
Change in fair value of contingent consideration |
| — |
|
| (40) |
|
| 40 | (100) | % | ||
Total operating expenses |
| 7,837 |
|
| 8,233 |
|
| (396) | (5) | % | ||
Operating income (loss) |
| 1,255 |
|
| (318) |
|
| 1,573 | 495 | % | ||
Other expense: | ||||||||||||
Interest expense, net |
| (265) |
| (236) |
| (29) | 12 | % | ||||
Net income (loss) | $ | 990 |
| $ | (554) |
| $ | 1,544 | 279 | % | ||
20
Nine months ended September 30, | Change |
| ||||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % | ||||
Revenue | $ | 32,232 | $ | 29,817 | $ | 2,415 | 8 | % | ||||
Cost of revenue |
| 6,439 |
| 6,545 |
| (106) | (2) | % | ||||
Gross profit |
| 25,793 |
| 23,272 |
| 2,521 | 11 | % | ||||
Operating expenses: |
|
|
|
|
|
|
| |||||
Selling and marketing |
| 10,806 |
| 11,169 |
| (363) | (3) | % | ||||
Research and development |
| 2,848 |
| 3,471 |
| (623) | (18) | % | ||||
General and administrative |
| 13,365 |
| 10,998 |
| 2,367 | 22 | % | ||||
Change in fair value of contingent consideration |
| — |
| (1,350) |
| 1,350 | (100) | % | ||||
Total operating expenses |
| 27,019 |
| 24,288 |
| 2,731 | 11 | % | ||||
Operating loss |
| (1,226) |
| (1,016) |
| (210) | 21 | % | ||||
Other expense: | ||||||||||||
Interest expense, net | (763) | (709) | (54) | 8 | % | |||||||
Loss on extinguishment of debt | — | (300) | 300 | (100) | % | |||||||
Total other expense | (763) | (1,009) | 246 | (24) | % | |||||||
Net loss | $ | (1,989) | $ | (2,025) | $ | 36 | (2) | % | ||||
Revenue
The following tables present our revenues disaggregated by sales channel:
| Three months ended September 30, | | Change |
| ||||||||
(in thousands) |
| 2026 | | 2025 | | $ | | % | ||||
Partner and Marketplace | $ | 6,380 |
| $ | 5,582 |
| $ | 798 | 14 | % | ||
Enterprise |
| 4,583 |
|
| 4,645 |
|
| (62) | (1) | % | ||
Total revenues | $ | 10,963 |
| $ | 10,227 |
| $ | 736 | 7 | % | ||
| Nine months ended September 30, | | Change |
| ||||||||
(in thousands) | 2026 | 2025 | $ | % |
| |||||||
Partner and Marketplace | $ | 18,595 | $ | 16,501 | $ | 2,094 | 13 | % | ||||
Enterprise |
| 13,637 |
| 13,316 |
| 321 | 2 | % | ||||
Total revenue | $ | 32,232 | $ | 29,817 | $ | 2,415 | 8 | % | ||||
The Partner and Marketplace channel consists of our Content Management System (“CMS”) partners, platform & agency partners, authorized resellers and the Marketplace. This channel serves small and medium sized businesses that are on a partner or reseller’s web-hosting platform or that purchase our solutions from our Marketplace.
The Enterprise channel consists of our larger customers and organizations, including those with non-platform custom websites, who generally engage directly with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal, state and local government agencies.
For the three and nine months ended September 30, 2026, total revenue increased by 7% and 8%, respectively, over the prior year comparable periods. The 14% and 13% increases in Partner and Marketplace channel revenue for the three and nine months ended September 30, 2026, respectively, were primarily due to continued expansion with existing partners.
For the three months ended September 30, 2026, Enterprise channel revenue decreased by 1% from the prior year comparable period, primarily due to a reduction in non-recurring revenue. For the nine months ended September 30, 2026, Enterprise channel revenue increased by 2% over the prior year comparable period, driven primarily by the growth in recurring revenue resulting from new customer relationships.
21
Cost of Revenue and Gross Profit
Three months ended September 30, | | Change |
| |||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Revenue | $ | 10,963 |
| $ | 10,227 |
| $ | 736 | 7 | % | ||
Cost of Revenue |
| 1,871 |
|
| 2,312 |
|
| (441) | (19) | % | ||
Gross profit | $ | 9,092 |
| $ | 7,915 |
| $ | 1,177 | 15 | % | ||
Nine months ended September 30, | Change |
| ||||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Revenue | $ | 32,232 | $ | 29,817 | $ | 2,415 | 8 | % | ||||
Cost of revenue |
| 6,439 |
| 6,545 |
| (106) | (2) | % | ||||
Gross profit | $ | 25,793 | $ | 23,272 | $ | 2,521 | 11 | % | ||||
Cost of revenue consists primarily of compensation and related benefits costs for our service delivery team, as well as a portion of our technology operations team that supports the delivery of our services, fees paid to our managed hosting and other third-party service providers, amortization of capitalized software development costs and patent costs, and allocated overhead costs.
For the three and nine months ended September 30, 2026, cost of revenue decreased by 19% and 2%, respectively, from the prior year comparable periods. The decrease in cost of revenue for the three months ended September 30, 2026 was primarily due to reductions in fulfillment costs and in employee headcount as a result of operational efficiencies. The decrease in cost of revenue for the nine months ended September 30, 2026 was primarily due to a reduction in employee headcount as a result of operational efficiencies.
For the three and nine months ended September 30, 2026, gross profit increased by 15% and 11%, respectively, over the prior year comparable periods. The increases in gross profit were primarily a result of increased revenue attributed to new customers and to the continued expansion with existing partners.
Selling and Marketing Expenses
| Three months ended September 30, | | Change |
| ||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Selling and marketing | $ | 3,304 | $ | 3,649 |
| $ | (345) | (9) | % | |||
| Nine months ended September 30, | Change | ||||||||||
(in thousands) | 2026 | | 2025 | | $ | | % |
| ||||
Selling and marketing | $ | 10,806 | $ | 11,169 | $ | (363) | (3) | % | ||||
Selling and marketing expenses consist primarily of compensation and benefits related to our sales and marketing staff, as well as third-party advertising and marketing expenses.
For the three and nine months ended September 30, 2026, selling and marketing expenses decreased by 9% and 3%, respectively, from the prior year comparable periods. The decreases in selling and marketing expenses were primarily due to a reduction in marketing personnel resulting from efficiencies gained with the implementation of AI tools and automation. The decrease in selling and marketing expenses for the nine months ended September 30, 2026 was partially offset by an increase in third-party marketing expenses.
22
Research and Development Expenses
| Three months ended September 30, | | Change |
| ||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Research and development expense | $ | 889 |
| $ | 1,118 |
| $ | (229) | (20) | % | ||
Plus: Capitalized research and development cost |
| 411 |
|
| 452 |
|
| (41) | (9) | % | ||
Total research and development cost | $ | 1,300 |
| $ | 1,570 |
| $ | (270) | (17) | % | ||
| Nine months ended September 30, | Change | ||||||||||
(in thousands) | 2026 | | 2025 | | $ | | % |
| ||||
Research and development expense | $ | 2,848 | $ | 3,471 | $ | (623) | (18) | % | ||||
Plus: Capitalized research and development cost |
| 1,265 |
| 1,430 |
| (165) | (12) | % | ||||
Total research and development cost | $ | 4,113 | $ | 4,901 | $ | (788) | (16) | % | ||||
Research and development (“R&D”) expenses consist primarily of compensation and related benefits, independent contractor costs, and an allocated portion of general overhead costs related to our employees involved in research and development activities. Total research and development cost includes the amount of research and development expense reported within operating expenses as well as research and development cost that was capitalized during the fiscal period.
For the three and nine months ended September 30, 2026, R&D expenses decreased by 20% and 18%, respectively, from the prior year comparable periods. The decreases were primarily driven by a reduction in employee headcount as a result of efficiency gains from newly implemented AI tools and automation. For the three and nine months ended September 30, 2026, capitalized R&D cost decreased by 9% and 12%, respectively, from the prior year comparable periods primarily due to a reduction in engineering personnel. For the three and nine months ended September 30, 2026, total R&D cost, which includes both R&D expenses and capitalized R&D costs, decreased by 17% and 16%, respectively, from the prior year comparable periods.
General and Administrative Expenses
Three months ended September 30, | Change |
| ||||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % | ||||
General and administrative | $ | 3,644 | $ | 3,506 | $ | 138 |
| 4 | % | |||
Nine months ended September 30, | Change | |||||||||||
(in thousands) | 2026 | | 2025 | $ | | % |
| |||||
General and administrative | $ | 13,365 | $ | 10,998 | $ | 2,367 | 22 | % | ||||
General and administrative expenses consist primarily of compensation and benefits related to our executives, directors and corporate support functions, and general corporate expenses including legal fees, occupancy and transaction costs.
For the three and nine months ended September 30, 2026, general and administrative expenses increased by 4% and 22%, respectively, over the prior year comparable periods. For the three months ended September 30, 2026, the increase in general and administrative expenses was due primarily to higher personnel costs, partially offset by lower litigation expenses. For the nine months ended September 30, 2026, the increase in general and administrative expenses was due primarily to increases in litigation and in stock compensation expense.
23
Change in Fair Value of Contingent Consideration
Three months ended September 30, | Change |
| ||||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % | ||||
Change in fair value of contingent consideration | $ | — | $ | (40) | $ | 40 |
| (100) | % | |||
Nine months ended September 30, | Change | |||||||||||
(in thousands) | 2026 | | 2025 | $ | | % |
| |||||
Change in fair value of contingent consideration | $ | — | $ | (1,350) | $ | 1,350 | (100) | % | ||||
Change in fair value of contingent consideration consists of non-cash valuation adjustments to contingent consideration liabilities recognized in connection with the acquisition of ADA Site Compliance, which was accounted for as a business combination. The earnout targets for ADA Site Compliance were measured as of December 31, 2025, and there will be no further changes to the fair value of this contingent consideration.
For the three and nine months ended September 30, 2026, no change in fair value of contingent consideration was recorded in earnings.
Interest Expense
| Three months ended September 30, | | Change |
| ||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Interest expense, net | $ | (265) |
| $ | (236) |
| $ | (29) | 12 | % | ||
| Nine months ended September 30, | | Change |
| ||||||||
(in thousands) | 2026 | | 2025 | $ | | % |
| |||||
Interest expense, net | $ | (763) | $ | (709) | $ | (54) | 8 | % | ||||
Interest expense, net consists primarily of interest on our term loan, offset by interest income from investment in money market funds.
For the three and nine months ended September 30, 2026, interest expense, net increased by 12% and 8%, respectively, from the prior year comparable periods. The increases in interest expense were attributable to the increase in outstanding principal balance on our term loan, as we drew the remaining $3.6 million in subsequent term loan advances in the first quarter of 2026.
Loss on Extinguishment of Debt
| Nine months ended September 30, | | Change |
| ||||||||
(in thousands) | | 2026 | | 2025 | | $ | | % |
| |||
Loss on extinguishment of debt | $ | — |
| $ | (300) |
| $ | 300 | (100) | % | ||
On March 31, 2025, upon entering into a new credit facility with Western Alliance Bank, the Company paid the full $7.0 million in outstanding principal on its previous term loan with SG Credit Partners. In the three months ended March 31, 2025, in connection with the termination of the SG Credit Partners term loan, we recognized a $300,000 loss on extinguishment of debt, which included prepayment and other fees and the unamortized portion of related debt discount and debt issuance costs. No loss on extinguishment of debt was incurred in the three and nine months ended September 30, 2026.
Other Key Operating Metrics
We consider annual recurring revenue (“ARR”) as a key operating metric and a key indicator of our overall business. We also use ARR as one of the primary methods for planning and forecasting overall expectations and for evaluating, on at least a quarterly and annual basis, actual results against such expectations.
We define ARR as the sum of (i) for our Enterprise channel, the total of the annualized recurring fee at the date of determination under each active contract, plus (ii) for our Partner and Marketplace channel, the annual or monthly recurring fee for all active customers at the date of determination, in each case, assuming no changes to the subscription, multiplied by 12 if applicable. Recurring fees are defined as revenues expected to be generated from services typically offered as a subscription service or annual service offering such as
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our automation and platform, periodic auditing, human-assisted technological fixes, legal support and professional service offerings and other services that reoccur on a multi-year contract. This determination includes both annual and monthly contracts for recurring products. Some of our contracts are terminable prior to the expected term, which may impact future ARR. ARR excludes non-recurring fees, which are defined as revenue expected to be generated from services typically not offered as a subscription service or annual service offering such as our PDF remediation services business, one-time website and mobile application reports, and other miscellaneous services that are offered as non-subscription services or are expected to be one-time in nature. As of September 30, 2026, ARR was $43.3 million, which represents an increase of 12% year-over-year, driven by growth in both our Partner and Marketplace channel and our Enterprise channel.
Liquidity and Capital Resources
Working Capital
(in thousands) | September 30, 2026 | | December 31, 2025 | ||||
Current assets | $ | 15,977 | $ | 12,622 | |||
Current liabilities |
| (12,999) |
| (14,416) | |||
Working capital (deficit) | $ | 2,978 | $ | (1,794) | |||
As of September 30, 2026, we had $9.3 million in cash and cash equivalents and working capital of $3.0 million. The $4.8 million increase in working capital in the nine months ended September 30, 2026 was primarily due to our $3.6 million draw of the remaining subsequent term loan advances available to the Company.
In January 2025, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $12.5 million of our common stock through January 24, 2027 (the “2025 Program”). In the nine months ended September 30, 2026, we used $475,000 of the 2025 Program to repurchase shares. As of September 30, 2026, we had $7.45 million remaining for the repurchase of shares under the 2025 Program. In October 2026, the Board of Directors adopted a new program to repurchase up to $15.0 million of our outstanding shares of common stock through October 18, 2027. This program replaced the 2025 Program, which the Board of Directors terminated in connection with the approval of the new program. The new program may be amended, suspended, or discontinued at any time and does not commit the Company to repurchase any shares of its common stock. Shares repurchased under any repurchase program are subsequently retired and restored to the status of authorized but unissued shares of common stock.
As of September 30, 2026, we had $16.6 million in principal outstanding under the term loan, $15.7 million of which is classified as a noncurrent liability. The term loan matures on March 31, 2030, and requires quarterly principal payments which began on April 10, 2026. Refer to Note 3 – Debt to our consolidated financial statements for additional information regarding our credit facility. As of September 30, 2026, we were in compliance with all covenants under the credit facility. In October 2026, the Company entered into a Fifth Loan Modification Agreement with the Lender, which amended certain restrictions on permitted stock repurchases under the Credit Facility Agreement. See Part II, Item 5. “Other Information” for additional information regarding the Fifth Loan Modification Agreement.
As of October 26, 2026, we had no off-balance sheet arrangements, and we believe that the Company has sufficient liquidity to continue as a going concern through the next twelve months.
While the Company has been successful in raising capital, there is no assurance that it will be successful at raising additional capital in the future. Additionally, if the Company’s plans are not achieved and/or if significant unanticipated events occur, the Company may have to further modify its business plan, which may require us to raise additional capital or reduce expenses.
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Cash Flows
Nine months ended September 30, | |||||||
(in thousands) | | 2026 | | 2025 | |||
Net cash provided by operating activities | | $ | 4,035 | $ | 2,220 | ||
Net cash used in investing activities |
| (1,753) |
| (3,527) | |||
Net cash provided by financing activities |
| 1,757 |
| 206 | |||
Net increase (decrease) in cash and cash equivalents | $ | 4,039 | $ | (1,101) | |||
For the nine months ended September 30, 2026, in relation to the prior year comparable period, cash provided by operating activities increased primarily due to an increase in customer collections and a decrease in personnel cost resulting from a reduction in headcount.
For the nine months ended September 30, 2026, in relation to the prior year comparable period, cash used in investing activities decreased primarily due to a reduction in the current year period in payments associated with acquisitions.
For the nine months ended September 30, 2026, in relation to the prior year comparable period, cash provided by financing activities increased primarily due to a reduction in repurchases of common stock and lower payments related to settlement of employee share-based awards, partially offset by lower net proceeds from credit facility activity. In the nine months ended September 30, 2026 and 2025, we received $3.6 million and $13.4 million, respectively, in proceeds from term loan borrowings under the credit facility with Western Alliance Bank. In the first quarter of 2025, we used a portion of the term loan borrowings to repay our previous $7.0 million term loan, as well as costs associated with the issuance and termination of our previous credit facility.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States. The preparation of consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported and disclosed in our consolidated financial statements and the accompanying notes. Actual results could differ materially from these estimates under different assumptions or conditions.
Our critical accounting estimates, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2025, relate to contingent consideration recognized in connection with business combinations and asset acquisitions. 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, 2025.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures that are designed to ensure that there is reasonable assurance that the information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based on the definition of “disclosure controls and procedures” in Exchange Act Rules 13a-15(e) and 15d-15(e). In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, projections of any evaluation of effectiveness of our disclosure controls and procedures to future periods are subject to the risk that controls or procedures may become inadequate because of changes in conditions, or that the degree of compliance with the controls or procedures may deteriorate.
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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 Principal Executive Officer and 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 Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2026.
Changes in Internal Controls over Financial Reporting
During the quarter ended September 30, 2026, there were no changes in our internal control over financial reporting that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are involved in various legal proceedings. These matters are subject to inherent uncertainties, and it is possible that some of these matters could ultimately be decided, resolved or settled adversely to us. Further, even if these matters are resolved favorably, they may require the expenditure of significant fees and costs.
On the basis of our current knowledge and understanding, we do not believe that judgments, settlements or orders, if any, arising from these matters (either individually or in the aggregate) will have a material adverse effect on our financial position or results of operations.
Item 1A. Risk Factors
You should carefully consider the factors discussed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Form 10-K”), which could materially affect our business, financial condition and results of operations. There have been no material changes to the risk factors set forth in the 2025 Form 10-K. The risks described in our 2025 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.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table sets forth information with respect to our repurchases of common stock during the three months ended September 30, 2026:
| | |||||||||
Maximum Number (or | ||||||||||
Total Number of | Approximate Dollar | |||||||||
Shares Purchased | Value) of Shares that | |||||||||
as Part of Publicly | May Yet Be Purchased | |||||||||
Total Number of | Average Price | Announced Plans or | under the Plans or | |||||||
Period | | Shares Purchased | | Paid per Share | | Programs | | Programs | ||
July 1 - July 31, 2026: |
|
|
| |||||||
Employee transactions (1) |
| 787 | $ | 6.92 |
| — | $ | — | ||
Share repurchase program (2) | — | — | — | 7,450,000 | ||||||
August 1 - August 31, 2026: |
| |||||||||
Employee transactions (1) |
| 1,373 | 6.97 |
| — |
| — | |||
Share repurchase program (2) | — | — | — | 7,450,000 | ||||||
September 1 - September 30, 2026: | ||||||||||
Employee transactions (1) | 43,405 | 7.20 | — | — | ||||||
Share repurchase program (2) | — | — | — | 7,450,000 | ||||||
Total: | ||||||||||
Employee transactions (1) | 45,565 | $ | 7.19 | — | $ | — | ||||
Share repurchase program (2) | — | $ | — | — | $ | 7,450,000 | ||||
| (1) | Consists of shares surrendered by employees to satisfy tax withholding obligations in connection with the settlement of restricted stock units and the issuance of common stock. |
| (2) | In January 2025, the Board of Directors adopted a share repurchase program authorizing the repurchase of up to $12.5 million of our common stock through January 24, 2027, which program was in effect at September 30, 2026 but was subsequently replaced with a $15.0 million program. Shares repurchased under the programs are subsequently retired. |
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Item 5. Other Information
Fifth Loan Modification Agreement
Because we are filing this Quarterly Report on Form 10-Q within four business days after the triggering event, we are making the following disclosure under this Item 5 instead of filing a Current Report on Form 8-K under Item 1.01, Entry into a Material Definitive Agreement and Item 2.03, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant:
On October 26, 2026, we entered into a Fifth Loan Modification Agreement (the “Fifth Amendment”) to the Loan and Security Agreement, dated as of March 31, 2025, by and between the Company and Western Alliance Bank (the “Bank”) (as amended by that certain Consent and First Loan Modification Agreement dated as of May 22, 2025, that certain Second Loan Modification Agreement dated as of August 13, 2025, that certain Consent and Third Loan Modification Agreement dated as of January 12, 2026, and that certain Fourth Loan Modification Agreement dated as of September 18, 2026, the “Loan Agreement”).
The Fifth Amendment eliminates the definition of “Permitted Stock Buyback Amount” from the Loan Agreement, which previously limited the Company’s repurchases of its stock to an amount not to exceed $7.0 million in the aggregate for fiscal years 2025, 2026, and 2027, and an amount not to exceed $2.0 million for fiscal year 2028 and each fiscal year thereafter.
The Fifth Amendment also amends and restates the definition of “Permitted Stock Buybacks” in the Loan Agreement to mean any repurchases of the Company’s stock, in management’s commercially reasonable discretion, provided that each of the following conditions is satisfied: (i) an event of default does not exist at the time of any repurchase, and would not exist after giving effect to the repurchase, (ii) the Company has delivered evidence, satisfactory to the Bank in its sole and absolute discretion, that the Company’s liquidity at the time of any repurchase, and after giving effect to the repurchase, is at least $5,000,000, and (iii) at least five business days prior to the opening of any Company trading window during which the Company intends to make any repurchases, the Company has delivered written notice to the Bank of its intent to make repurchases during the trading window. The restrictions in the amended and restated definition of “Permitted Stock Buybacks” relating to the absence of events of default and minimum liquidity are consistent with restrictions in the Loan Agreement prior to the Fifth Amendment.
The foregoing description of the Fifth Amendment is a summary only and is qualified in its entirety by reference to such document, which is attached hereto as Exhibit 10.2 and is incorporated herein by reference.
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2026, no director or executive officer
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Item 6. Exhibits
| Incorporation by Reference | |||||||||
Exhibit No. | | Description | | Form | | Date of Filing | | Exhibit No. | | Filed Herewith |
3.1 | Restated Certificate of Incorporation of AudioEye, Inc., dated as of May 24, 2024 | 8-K | May 24, 2024 | 3.3 | ||||||
3.2 | 10-Q | July 29, 2024 | 3.3 | |||||||
10.1 | 8-K | September 18, 2026 | 10.1 | |||||||
10.2 | X | |||||||||
31.1 | X | |||||||||
31.2 | X | |||||||||
32.1 | X | |||||||||
101.INS | Inline XBRL Instance Document | |||||||||
| ||||||||||
101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | ||||||||
| ||||||||||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | ||||||||
| ||||||||||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | ||||||||
| ||||||||||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | ||||||||
| ||||||||||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | ||||||||
104 | Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |||||||||
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
AUDIOEYE, INC. | |||||
Date: | October 26, 2026 | | By: | /s/ Kelly Georgevich | |
Kelly Georgevich | |||||
Principal Executive Officer | |||||
Date: | October 26, 2026 | | By: | /s/ Matthew Domeyer | |
Matthew Domeyer | |||||
Principal Financial Officer | |||||
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ATTACHMENTS / EXHIBITS
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