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ACQUISITIONS
 9 Months Ended
Sep. 30, 2025
ACQUISITIONS  
ACQUISITIONS

NOTE 3 — ACQUISITIONS

ADA Site Compliance, LLC

On September 27, 2024, we entered into a Membership Interest Purchase Agreement and acquired all the outstanding equity interests of ADA Site Compliance, LLC (“ADA Site Compliance”), which provides audits and best practices to help organizations create websites that are accessible and compliant to Web Content Accessibility Guidelines (“WCAG”) standards. The acquisition provided an opportunity to expand on ADA Site Compliance’s existing customer relationships by migrating customers to AudioEye’s products and further expanding revenue. The aggregate consideration for the purchase of ADA Site Compliance was approximately $7.0 million (at fair value), consisting of a $3.4 million cash payment at closing, $2.35 million in unsecured promissory notes payable to the sellers within 60 days following the closing (collectively, the “Note Payable”), and an estimated $1.25 million in aggregate contingent consideration to be paid in cash in the second quarter of 2026 if and to the extent certain earn-outs are satisfied. Actual contingent consideration is based on satisfaction of the earn-out conditions related to certain annual recurring revenue (“ARR”) and non-recurring revenue (“NRR”) targets measured as of December 31, 2025 and may differ from estimated contingent consideration recognized at acquisition, therefore a range of undiscounted payment outcomes cannot be estimated.

We accounted for the acquisition of ADA Site Compliance as a business combination in accordance with FASB ASC 805, “Business Combinations” (“ASC 805”). Accordingly, under the acquisition method of accounting, we completed the purchase price allocation to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date as follows:

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(in thousands)

    

Balance at September 27, 2024

Assets purchased:

 

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Cash

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$

284

Accounts receivable, net

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357

Other assets

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15

Customer relationships (1)

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5,100

Goodwill (2)

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2,682

Total assets purchased

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8,438

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Liabilities assumed:

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Accounts payable and accrued liabilities

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362

Deferred revenue

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1,071

Total liabilities assumed

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1,433

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Net assets acquired

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7,005

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Consideration:

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Cash paid

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3,407

Note payable (3)

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​

2,348

Contingent consideration liability (4)

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1,250

Total consideration

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$

7,005

(1)Represents an acquired intangible asset that will be amortized on a straight-line basis over its estimated useful life of 8 years.
(2)Goodwill represents the excess of purchase price over the estimated fair value of net tangible and intangible assets acquired. The amount of goodwill expected to be deductible for tax purposes is $2,682,000. Goodwill primarily relates to the expected synergies from combining operations of the Company and ADA Site Compliance and the value of the acquired workforce.
(3)Represents the fair value of the Note Payable in the aggregate principal amount of $2,400,000.
(4)The fair value of the ADA Site Compliance contingent consideration liability was determined using the Monte-Carlo simulation. The key assumptions used in the Monte-Carlo simulation were as follows: ARR and NRR metrics for the earn-out period, NRR discount rate of 7.5%, ARR discount rate of 6.5%, expected NRR volatility of 12.5%, expected ARR volatility of 7.5%, risk-free rate of 3.9%, buyer specific counterparty credit risk of 14.25%, and discount period of 1.62 years.

Pro Forma Financials

The following unaudited pro forma results of operations for the three and nine months ended  September 30, 2025 and 2024 assumes ADA Site Compliance had been acquired on January 1, 2024.

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The pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the results of operations that would have been realized if the acquisition had been completed on January 1, 2024, nor does it purport to project the results of operations of the combined Company in future periods. The pro forma financial information does not give effect to any anticipated integration costs savings or expenses related to the acquired company.

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Pro Forma Combined Financials (unaudited)

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Three months ended September 30, 

    

Nine months ended September 30, 

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(in thousands)

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2025

    

2024

    

2025

    

2024

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Revenue

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$

10,227

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$

9,471

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$

29,817

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$

27,127

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Net loss attributed to common shareholders

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(554)

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(660)

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(1,992)

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(1,994)

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For purposes of the pro forma disclosures above, results for the nine months ended September 30, 2025 exclude $33,000 in acquisition expense and results for the three and nine months ended September 30, 2024 exclude $394,000 in acquisition expense.

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Asset Acquisition

In the second quarter of 2025, we completed an acquisition that does not meet the definition of a business based on our assessment of the screening test as required by ASU 2017-01, as substantially all the fair value of the gross assets acquired is concentrated in one single identifiable intangible asset, customer relationships. In connection with this asset acquisition, we recognized $1.8 million in customer relationships, which will be amortized on a straight line basis over their estimated useful life of 8 years.