AUDIOEYE: Administration’s Dialogue and Evaluation of Monetary Place and Outcomes of Operations (Kind 10-Okay)

The next dialogue ought to be learn together with our audited
monetary statements and the associated notes for the years ended December 31, 2020
and 2019 that seem elsewhere on this annual report on Kind 10-Okay. The next
dialogue incorporates forward-looking statements that mirror our plans, estimates
and beliefs. Our precise outcomes may differ materially from these mentioned in
the forward-looking statements. Elements that would trigger or contribute to such
variations embody however usually are not restricted to these mentioned under and elsewhere
on this annual report on Kind 10-Okay, significantly in "Threat Elements." The
forward-looking statements included on this annual report on Kind 10-Okay are made
solely as of the date hereof.



Background



AudioEye, Inc. was fashioned as a Delaware company on Could 20, 2005. On
August 1, 2018, the Firm amended its Certificates of Incorporation to
implement a reverse inventory break up within the ratio of 1 share for each 25 shares of
frequent inventory and to cut back the variety of approved shares of frequent inventory from
250,000,000 to 50,000,000. Consequently, 186,994,384 shares of the Firm's
frequent inventory had been exchanged for 7,479,775 shares of the Firm's frequent inventory.



                                      18





Overview



AudioEye is an industry-leading software program resolution supplier delivering web site
accessibility compliance in any respect worth factors to companies of all sizes. Our
options advance accessibility with patented expertise that reduces boundaries,
expands entry for people with disabilities, and enhances the consumer
expertise for a broader viewers. We imagine that, when carried out, our
resolution provides companies and organizations the chance to achieve extra
prospects, enhance model picture, construct further model loyalty, and, most
importantly, present an accessible and usable internet expertise to the expansive
and ever-growing world inhabitants of people with disabilities.



AudioEye primarily generates income via the sale of subscriptions for our
software-as-a-service ("SaaS") accessibility options. Our options are backed
by AudioEye's machine-learning/AI-driven expertise that finds and fixes the
commonest accessibility errors. Our core and supplemental options are
designed to assist web sites and functions obtain and maintain substantial
conformance with the Internet Content material Accessibility Tips ("WCAG") that are internet
accessibility requirements printed by the Internet Accessibility Initiative of the
World Extensive Internet Consortium, the principle worldwide requirements group for the
web. Our options assist mitigate a buyer's danger of expensive digital
accessibility-related authorized motion and enhance their negotiation leverage when
defending towards claims of non-compliance. AudioEye prospects might buy
options immediately via the AudioEye web site, via a platform or an company
accomplice, comparable to Duda, that integrates our options into their market,
via a vertical Content material Administration System ("CMS") accomplice or via an
approved reseller, or by working immediately with the AudioEye gross sales workforce. We
additionally present PDF remediation and Cellular App report providers. Our choices serve
companies and organizations of all sizes and in any respect worth factors.



AudioEye stands out amongst its opponents as a result of it delivers
machine-learning/synthetic intelligence ("AI")-driven accessibility with out
basic adjustments to the web site structure. As one other differentiator, we
supply higher transparency. Our choices present automated remediations and a
clear compliance rating with further manually pushed enhancements.
AudioEye pairs its patented expertise options with licensed accessibility
specialists, which permits our prospects to realize the next degree of compliance than
opponents relying solely on the attain of automation. Our expertise publishes
multiple billion remediations day by day, and our resolution is trusted by a few of
the biggest and most influential firms on this planet, together with ADP, Tommy
Hilfiger, 360 Media, Samsung, Darden, Landry's and extra. Authorities businesses,
from the federal degree all the way down to the native degree, have additionally built-in our
software program of their digital platforms, together with the Federal Communications
Fee and the Social Safety Administration.



We handle prospects via two major channels, Enterprise and Companion and
Market. Enterprise channel consists of our bigger prospects and
organizations, together with these with non-platform customized web sites, who usually
have interaction immediately with AudioEye gross sales personnel for customized pricing and options.
This channel additionally contains federal, state and native authorities businesses. The
Companion and Market channel consists of our CMS companions, platform & company
companions, approved resellers and the Market. This channel serves small
and medium sized companies which can be on a accomplice or reseller's web-hosting
platform or that buy an AudioEye resolution from our Market. We noticed
sturdy development in each our Enterprise and Companion and Market channels in
2020, with income development in every channel of 48% and 177%, respectively, in 2020
in comparison with 2019. Our Companion and Market income development was resulting from a
vital variety of further buyer implementations that every Companion
provides, and represented about 57% of Month-to-month Recurring Income ("MRR")
contribution on the finish of 2020. We outline MRR because the sum of (i) for our
Enterprise channel, the overall of the typical month-to-month recurring payment quantity below
every lively paid contract on the date of willpower, plus (ii) for our
Companion and Market channel, the acknowledged recurring month-to-month payment quantity for
all paying prospects on the date of willpower, in every case, assuming no
adjustments to the subscription and with out considering any utilization above the
subscription or recurring income base, if any, which may be relevant to such
subscription. This willpower contains each annual and month-to-month contracts for
recurring merchandise. A few of our contracts are cancelable, which can influence
future MRR. MRR excludes income from our PDF remediation providers and Cellular
App report enterprise. As of December 31, 2020, MRR was roughly $1.9
million, which represented a rise of 54% year-over-year.



                                      19





Outcomes of Operations



Our monetary statements are said in United States {Dollars} and are ready in
accordance with United States Usually Accepted Accounting Rules ("U.S.
GAAP" or "GAAP"). The dialogue of the outcomes of our operations compares the
yr ended December 31, 2020 with the yr ended December 31, 2019. Our outcomes
of operations in these intervals usually are not essentially indicative of the outcomes
which can be anticipated for any subsequent interval. Attributable to rounding, numbers
introduced all through this doc might not add up exactly to the totals
supplied and percentages might not exactly mirror absolutely the figures.



In 2020, the Firm amended the categorization of sure bills to adapt
to adjustments incurred in its operations, together with inner division construction
adjustments, worker actions, mental property and expertise associated
bills, and facility bills. For the needs of comparability, the corporate
reclassified prior interval outcomes to adapt with our present interval
presentation.



                                                   Yr ended                Favorable / (Unfavorable)
                                                  December 31,                         Change
(in hundreds)                                 2020           2019              $                   %
Income                                     $   20,475$   10,765$        9,710                90 %
Value of income                                  5,961          4,406              1,555                35 %
Gross revenue                                    14,514          6,359              8,155               128 %
Working bills:
Promoting and advertising and marketing                            8,472          5,708             (2,764 )             (48 )%
Analysis and improvement                         1,230            636               (594 )             (93 )%
Common and administrative                      11,945          7,833
      (4,112 )             (52 )%
Complete working bills                        21,647         14,177             (7,470 )             (53 )%
Working loss                                  (7,133 )       (7,818 )              685                 9 %
Different revenue (expense):
Change in truthful worth of warrant legal responsibility          120             99
          21                21 %
Curiosity expense                                  (145 )          (76 )              (69 )             (91 )%
Different revenue (expense)                               -             12                (12 )            (100 )%
Complete different revenue (expense)                       (25 )           35
         (60 )            (171 )%
Internet loss                                    $   (7,158 )$   (7,783 )   $          625                 8 %




                                      20





Income


The next desk presents our revenues damaged down by gross sales channel:


                                            Yr ended December 31,           Favorable / (Unfavorable) Change
(in hundreds)                               2020              2019                  $                      %
Enterprise                               $     10,735$     7,252     $             3,483                48 %
Companion and Market                         9,740             3,513                   6,227               177 %
Complete revenues                           $     20,475$    10,765     $             9,710                90 %




Enterprise channel consists of our bigger prospects and organizations, together with
these with non-platform customized web sites, who usually have interaction immediately with
AudioEye gross sales personnel for customized pricing and options. This channel additionally
contains federal, state and native authorities businesses.



Companion and Market channel consists of our CMS companions, platform & company
companions, approved resellers and the Market. This channel serves small &
medium sized companies which can be on a accomplice or reseller's web-hosting platform
or that buy an AudioEye resolution from our Market.



For the yr ended December 31, 2020, whole income elevated by 90%, over the
prior yr. We skilled income development in each of our gross sales channels. The
improve in Enterprise channel income was pushed by development in our managed
options and the profit from elevated contribution by our PDF remediation
providers and Cellular App report enterprise. The rise in Companion and Market
channel income was a results of our continued concentrate on extremely transactional
{industry} verticals to realize greater penetration inside our present
partnerships.



Value of income and gross revenue


                   Yr ended December 31,          Favorable / (Unfavorable) Change
(in hundreds)       2020             2019                 $                      %
Income          $     20,475$  10,765     $              9,710               90 %
Value of gross sales           5,961           4,406                   (1,555 )            (35 )%
Gross revenue     $     14,514$   6,359     $              8,155              128 %




Value of income consists primarily of compensation and associated advantages prices
for our buyer expertise workforce, in addition to a portion of our expertise
operations workforce that helps the supply of our providers, charges paid to our
managed internet hosting and different third-party service suppliers, amortization of
capitalized software program improvement prices and patent prices, and allotted overhead
prices.



For the yr ended December 31, 2020, price of gross sales elevated by 35% over the
prior yr. The rise in price of gross sales was primarily resulting from additions to our
worker and contractor headcount to help the rise in income and
supply of our providers, in addition to a rise in amortization of capitalized
software program improvement prices.



For the yr ended December 31, 2020, gross revenue elevated by 128% over the
prior yr. The rise in gross revenue was a results of elevated income and
continued enchancment in expertise pushed efficiencies as we scale, offset in
half by greater prices to help the income development.



Gross sales and advertising and marketing prices


                                            Yr ended December 31,             Favorable / (Unfavorable) Change
(in hundreds)                              2020               2019                  $                       %
Promoting and advertising and marketing                   $      8,472$      5,708     $            (2,764 )                (48 )%




Promoting and advertising and marketing bills consist primarily of compensation and advantages
associated to our gross sales and advertising and marketing workers, in addition to third-party promoting and
advertising and marketing bills.



For the yr ended December 31, 2020, promoting and advertising and marketing bills elevated
by 48% over the prior yr. The rise in promoting and advertising and marketing bills
resulted primarily from a rise in personnel prices pushed by centered expertise
acquisition, greater fee prices, greater digital and third-party advertising and marketing
company bills, and better media spend as we continued to broaden our enterprise.



                                      21





Analysis and Growth



                                            Yr ended December 31,             Favorable / (Unfavorable) Change
(in hundreds)                              2020               2019                 $                        %

Analysis and improvement prices $ 1,230$ 636 $

             (594 )                  (93 )%
Plus: Capitalized analysis and
improvement price                                1,157               307                   (850 )                 (277 )%
Complete analysis and improvement price     $       2,387               943
$           (1,444 )                 (153 )%



Analysis and improvement ("R&D") bills consist primarily of compensation and
associated advantages, impartial contractor prices, and an allotted portion of
common overhead prices, together with occupancy prices associated to our workers
concerned in analysis and improvement actions. Complete analysis and improvement
price contains the quantity of analysis and improvement expense reported inside
working bills in addition to improvement price that was capitalized throughout
the
fiscal interval.



For the yr ended December 31, 2020, analysis and improvement
bills elevated by 93% over the prior yr. This was pushed by elevated
funding in Machine Studying and non-capitalizable R&D efforts associated to our
new product and platform improvement as we take a look at and be taught new capabilities. For
the yr ended December 31, 2020, capitalized analysis and improvement price
elevated 277% over the prior yr, pushed by elevated funding in our
platforms and merchandise as we proceed to enhance our expertise and product
supply to assist our prospects and acquire efficiencies as we scale. Complete analysis
and improvement price, which incorporates each R&D bills and capitalized R&D
prices, elevated 153% from 2019 to 2020.



Common and administrative bills


                                            Yr ended December 31,             Favorable / (Unfavorable)Change
(in hundreds)                              2020               2019                  $                       %
Common and administrative              $      11,945$     7,833     $            (4,112 )                (52 )%



Common and administrative bills primarily embody compensation and advantages associated to our officers, help capabilities and administrative workers, company overheads, together with authorized charges, and occupancy prices.


For the yr ended December 31, 2020, common and administrative bills
elevated by 52% over the prior yr. The rise basically and administrative
bills was due primarily to greater compensation prices, together with stock-based
compensation expense, pushed by elevated govt headcount to help the
Firm's development, methods infrastructure enchancment and authorized bills in the direction of
company governance, litigation and mental property protection. As well as,
within the third quarter of 2020, we incurred $360,000 in severance expense
related to our strategic determination to maneuver our expertise heart from
Atlanta, Georgia, to Portland, Oregon.



Change in truthful worth of legal responsibility for warrants

                                                     Yr ended
                                                    December 31,                Favorable / (Unfavorable)Change
(in hundreds)                                 2020             2019               $                       %
Change in truthful worth of warrant legal responsibility   $       120$        99
 $          21                      21 %




Change in truthful worth of warrant legal responsibility consists of truthful worth changes
related to warrants to buy 146,667 shares of the Firm's frequent
inventory, which had been issued in consideration for the credit score facility prolonged by
Sero Capital within the third quarter of 2019. Within the third quarter of 2020, the
warrants had been totally exercised and the associated legal responsibility was extinguished, which
led to a $120,000 acquire being acknowledged for the yr ended December 31, 2020.



Curiosity Expense



                       Yr ended
                      December 31,            Favorable / (Unfavorable) Change
(in hundreds)      2020        2019             $                         %
Curiosity expense   $   145$  76     $           (69 )                     (91 )%



Curiosity expense consists primarily of amortization of debt issuance prices from
our line of credit score, and curiosity on our PPP Mortgage and finance lease liabilities.
The rise in curiosity expense for the yr ended December 31, 2020 was
attributable to the amortization of deferred issuance prices related to our
line of credit score, which was not drawn upon via its one-year time period which expired
in August 2020.



                                      22





Different Key Working Metrics


We think about month-to-month recurring income ("MRR") as a key working metric and a
key indicator of our total enterprise. We additionally use MRR as (i) one of many major
strategies for planning and forecasting total expectations and for evaluating, on
a minimum of a quarterly and annual foundation, precise outcomes towards such expectations;
and (ii) as a efficiency metric for sure govt stock-based compensation
awards.



We outline MRR because the sum of (i) for our Enterprise channel, the overall of the
common month-to-month recurring payment quantity below every lively paid contract on the date
of willpower, plus (ii) for our Companion and Market channel, the
acknowledged month-to-month payment quantity for all paying prospects on the date of
willpower, in every case, assuming no adjustments to the subscription and with out
considering any utilization above the subscription or recurring income base,
if any, which may be relevant to such subscription. This willpower contains
each annual and month-to-month contracts for recurring merchandise. A few of our contracts
are cancelable, which can influence future MRR. MRR excludes income from our PDF
remediation providers enterprise and Cellular App report enterprise. As of December 31,
2020, MRR was about $1.9 million, which represents a rise of 54%
year-over-year pushed primarily by our Companion and Market channel.



Use of non-GAAP monetary measures

Infrequently, we assessment adjusted monetary measures that help us in
evaluating our working efficiency persistently over time, as such measures
take away the influence of sure gadgets, as relevant, comparable to our capital construction
(primarily curiosity prices), gadgets outdoors the management of the administration workforce
(taxes), and bills that don't relate to our core operations, together with
transaction-related bills and different prices which can be anticipated to be
non-recurring, comparable to severance associated to strategic shift. With a purpose to present
buyers with higher perception, and permit for a extra complete understanding
of the data utilized in our monetary and operational decision-making, the
Firm has supplemented the Monetary Statements introduced on a GAAP foundation in
this Annual Report on Kind 10-Okay with the next non-GAAP monetary measures:
Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share.



These non-GAAP monetary measures have limitations as analytical instruments and
shouldn't be thought of in isolation or as an alternative to evaluation of Firm
outcomes as reported below GAAP. The Firm compensates for such limitations by
relying totally on our GAAP outcomes and utilizing non-GAAP monetary measures solely
as supplemental knowledge. We additionally present a reconciliation of non-GAAP to GAAP
measures used. Traders are inspired to fastidiously assessment this reconciliation.
As well as, as a result of these non-GAAP measures usually are not measures of economic
efficiency below GAAP and are vulnerable to various calculations, these
measures, as outlined by us, might differ from and will not be corresponding to
equally titled measures utilized by different firms.



Non-GAAP earnings (loss) and non-GAAP earnings (loss) per diluted share

We outline: (i) Non-GAAP earnings (loss) as internet revenue (loss), much less non-cash
valuation changes to liabilities, plus curiosity expense, plus stock-based
compensation expense and plus sure severance expense; and (ii) Non-GAAP
earnings (loss) per diluted share as internet revenue (loss) per diluted frequent share,
much less non-cash valuation changes to liabilities, plus curiosity expense, plus
stock-based compensation expense and plus sure severance expense, every on a
per share foundation. Non-GAAP earnings per diluted share would come with incremental
shares within the share depend which can be thought of anti-dilutive in a GAAP internet loss
place. Nonetheless, no incremental shares apply when there's a Non-GAAP loss per
diluted share, as is the case for the intervals introduced on this Annual Report on
Kind 10-Okay.


Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per diluted share are used
to facilitate a comparability of our working efficiency on a constant foundation
from interval to interval and supply for a extra full understanding of things
and tendencies affecting our enterprise than GAAP measures alone. All the gadgets
adjusted within the Non-GAAP earnings (loss) to internet loss and the associated per share
calculations are both recurring non-cash gadgets, or gadgets that administration does
not think about in assessing our on-going working efficiency. Within the case of the
non-cash gadgets, comparable to stock-based compensation expense and valuation
changes to property and liabilities, administration believes that buyers might
discover it helpful to evaluate our comparative working efficiency as a result of the
measures with out such gadgets are anticipated to be much less vulnerable to variances in
precise efficiency ensuing from bills that don't relate to our core
operations and are extra reflective of different components that have an effect on working
efficiency. Within the case of things that don't relate to our core operations,
administration believes that buyers might discover it helpful to evaluate our working
efficiency if the measures are introduced with out these things as a result of their
monetary influence doesn't mirror ongoing working efficiency.



Non-GAAP earnings (loss) is just not a measure of liquidity below GAAP, or in any other case,
and isn't a substitute for money circulate from persevering with working actions,
regardless of the benefits relating to the use and evaluation of those measures as
talked about above. Non-GAAP earnings (loss) and Non-GAAP earnings (loss) per
diluted share, as disclosed on this Annual Report on Kind 10-Okay, have limitations
as analytical instruments, and you shouldn't think about these measures in isolation or
as an alternative to evaluation of our outcomes as reported below GAAP; nor are
these measures meant to be measures of liquidity or free money circulate for our
discretionary use.



                                      23





To correctly and prudently consider our enterprise, we encourage readers to assessment
the GAAP monetary statements included elsewhere on this Annual Report on
Kind 10-Okay, and never depend on any single monetary measure to guage our
enterprise. The next desk units forth reconciliations of Non-GAAP loss to internet
loss, probably the most immediately comparable GAAP-based measure, in addition to Non-GAAP loss
per diluted share to internet loss per diluted share, probably the most immediately comparable
GAAP-based measure.



                                                                Yr ended December 31,
(in hundreds, besides per share knowledge)                            2020

2019

Non-GAAP Earnings (Loss) Reconciliation
Internet loss (GAAP)                                              $     (7,158 )$    (7,783 )
Non-cash valuation changes to liabilities                        (120 )             (99 )
Curiosity expense                                                      145                76
Inventory-based compensation expense                                    4,138
          1,216
Severance expense (1)                                                 360                 -
Non-GAAP loss                                                $     (2,635 )$    (6,590 )

Non-GAAP earnings (loss) per diluted share Reconciliation Internet loss per frequent share (GAAP) – diluted

                   $      (0.77 )$     (0.97 )
Non-cash valuation changes to liabilities                       (0.01 )           (0.01 )
Curiosity expense                                                     0.02              0.01
Inventory-based compensation expense                                     0.44              0.16
Severance expense (1)                                                0.04                 -
Non-GAAP loss per diluted share (2)                          $      (0.28 )$     (0.81 )
Diluted weighted common shares (3)                                 9,313
          8,107



(1) Represents severance pay related to transferring our expertise

heart in the direction of Portland, Oregon, and doesn’t embody collected trip paid at

        termination of employment.

    (2) Non-GAAP earnings per adjusted diluted share for our frequent inventory is
        computed utilizing the extra dilutive of the two-class technique or the
        if-converted technique.



(3) The variety of diluted weighted common shares used for this calculation is

        the identical because the weighted common frequent shares excellent share depend
        when the Firm stories a GAAP and non-GAAP internet loss.



Liquidity and capital sources

Working Capital


As of December 31, 2020, we had $9.1 million in money and dealing capital of $5.6
million. The rise in working capital in 2020 was primarily a results of a
public providing whereby the Firm raised internet proceeds of $7.8 million by
issuing 473,239 shares of its frequent inventory, in addition to $880,000 obtained from a
money train of warrants by Sero Capital. We intend to make use of the online proceeds
from this providing for working capital and common company functions.



As well as, on February 11, 2021, we entered into an At Market Issuance Gross sales
Settlement (the "Gross sales Settlement") with B. Riley Securities, Inc. ("Agent") below
which the Firm might supply and promote, now and again at its sole discretion,
shares of its frequent inventory to or via the Agent as its gross sales agent, having an
combination providing worth of as much as $30 million. As of March 8, 2021, we had offered
a complete of 378,108 shares of frequent inventory below this Gross sales Settlement for whole
proceeds of roughly $14.1 million, internet of estimated transaction prices.



These capital will increase have helped enhance our money circulate and dealing capital, and we imagine the corporate has sufficient money to maintain going over the subsequent twelve months.


Whereas the Firm has been profitable in elevating capital, there isn't a assurance
that it will likely be profitable at elevating further capital sooner or later.
Moreover, if the Firm's plans usually are not achieved and/or if vital
unanticipated occasions happen, the Firm might need to additional modify its enterprise
plan, which can require us to boost further capital or scale back bills.
                               At December 31,
 (in hundreds)               2020         2019
Present property              $ 14,631$  5,608
Present liabilities           (9,015 )     (6,726 )

Working capital (deficit) $ 5,616($ 1,118)


                                      24





Money Flows



                                              Yr ended December 31,
(in hundreds)                                  2020             2019

Internet money utilized in working actions ($ 1,906)($ 5,617)
Internet money utilized in investing actions

             (1,298 )          (363 )
Internet money supplied by financing actions         10,327           2,210
Internet improve (lower) in money             $      7,123$  (3,770 )




For the yr ended December 31, 2020, in relation to the prior yr, money used
in working actions decreased primarily resulting from a rise in our paying
buyer base resulting in our income development. The impact of upper collections
from this expanded buyer base was partially offset by the elevated personnel
and gross sales and advertising and marketing prices, primarily pushed by the rise in headcount and
associated bills and better consulting and third-party prices to help the
Firm's development. As well as, the Firm paid $360,000 in severance, as effectively
as $66,000 in accrued trip, related to the relocation of our expertise
heart to Portland, Oregon, as a part of our strategic plan to construct scalable
expertise to enhance effectivity.



For the yr ended December 31, 2020, in relation to the prior yr, money used
in investing actions elevated primarily resulting from funding in new
applied sciences for enhancements to our legacy options, product improvement, as
effectively as patents prices to guard our mental property and solidify our
portfolio.



For the yr ended December 31, 2020, in relation to the prior yr, money
supplied by financing actions elevated primarily resulting from internet proceeds of $7.8
million that we obtained from a public providing within the third quarter of 2020,
whereby we issued 473,239 shares of our frequent inventory. We intend to make use of the
proceeds from this providing for working capital and common company functions,
together with the implementation of our marketing strategy and development of present
operations. As well as, within the second quarter of 2020, we obtained a $1.3
million PPP Mortgage. The rise in money from financing actions because of the
capital increase and PPP Mortgage was partially offset by a $1 million discount in
proceeds from the train of choices and warrants, which totaled $1.3 million
and $2.3 million within the years ended December 31, 2020 and 2019, respectively.



Off-balance sheet preparations


We have now no off-balance sheet preparations which have or are moderately more likely to
have a present or future impact on our monetary situation, adjustments in monetary
situation, revenues or bills, outcomes of operations, liquidity, capital
expenditures or capital sources which can be materials to stockholders.



Essential Accounting Insurance policies



The dialogue and evaluation of our monetary situation and outcomes of operations
are primarily based upon our monetary statements, which have been ready in accordance
with the accounting rules usually accepted in the USA.
Making ready monetary statements requires our administration to make estimates and
assumptions that have an effect on the reported quantities of property, liabilities, income and
bills. These estimates and assumptions are affected by our administration's
software of accounting insurance policies.



The next is a abstract of the Firm's most crucial accounting insurance policies.
Confer with Notice 3 - Important Accounting Insurance policies to our monetary statements
included in Half II, Merchandise 8 for a whole dialogue of the numerous
accounting insurance policies and strategies used within the preparation of our monetary
statements.



                                      25





Income Recognition


The Firm derives income primarily from the sale of internally-developed
software program by a software program as a service ("SaaS") supply mannequin, via our direct
gross sales power or via our Companion and Market channel. SaaS charges embody
help and upkeep. The Firm additionally derives income from PDF remediation
and Cellular App report providers. The Firm acknowledges income when supply of
the promised items or providers is transferred to its prospects, in an quantity
that displays the consideration that the Firm expects to be entitled to in
trade for these items or providers.



Efficiency obligations are the unit of accounting for income recognition and
usually symbolize the distinct items or providers which can be promised to the
buyer. If we decide that we've got not happy a efficiency obligation,
we'll defer recognition of the income till the efficiency obligation is
deemed to be happy. SaaS agreements are usually non-cancelable, though
shoppers sometimes have the suitable to terminate their contracts for trigger if we
fail to carry out materials obligations.



Our SaaS (additionally known as "subscription") income is acknowledged on a ratable
foundation over the contractual subscription time period of the association starting on the
date that our service is made out there to the client. Sure SaaS charges are
invoiced upfront on an annual, semi-annual, or quarterly foundation. Any funds
obtained for providers not supplied but are held in deferred income and are
recorded as income when the associated efficiency obligations have been
happy.



Non-subscription income consists of PDF correction and cellular app reporting providers and is accrued upon supply. Consideration payable below these preparations relies on utilization.


Confer with Notice 3 - Important Accounting Insurance policies to our monetary statements
included in Half II, Merchandise 8 for extra info relating to our income
recognition insurance policies.


Provision for unhealthy money owed


Accounts receivables are comprised of quantities owed the Firm for options and
providers bought. Contracts with particular person shoppers and resellers decide
when receivables are due and payable. In figuring out the allowances for uncertain
accounts, the unpaid receivables are reviewed periodically to find out the
fee standing primarily based upon probably the most at present out there info. Throughout these
periodic critiques, the Firm determines the required allowances for uncertain
accounts for estimated losses ensuing from the unwillingness or incapability of
its shoppers or resellers to make required funds.



Inventory-Primarily based Compensation


The Firm measures the price of providers obtained in trade for an award of
fairness devices primarily based on the truthful worth of the award measured on the grant
date. The truthful worth quantity is then acknowledged over the requisite vesting interval
throughout which providers are required to be supplied in trade for the award.



The truthful worth of choices and warrants awards is measured on the grant date
utilizing a Black-Scholes choice pricing mannequin. We estimate the truthful worth of
restricted inventory unit awards with time- or performance-based vesting utilizing the
worth of our frequent inventory on the date of grant. We estimate the truthful worth of
restricted inventory items with market-based situations utilizing a Monte Carlo
simulation mannequin on the date of grant.



Inventory-based compensation expense is recorded by the Firm in the identical expense
classifications within the statements of operations as if such quantities had been paid in
money. Confer with Notice 3 - Important Accounting Insurance policies to our monetary
statements included in Half II, Merchandise 8 for extra info relating to
our
stock-based compensation.


Capitalization of software program improvement prices


In accordance with ASC 350-40, the Firm capitalizes sure laptop software program
and software program improvement prices incurred in reference to growing or
acquiring laptop software program for inner use when each the preliminary venture
stage is accomplished, and it's possible that the software program might be used as
meant. Capitalized software program prices embody solely (i) exterior direct prices of
supplies and providers utilized in growing or acquiring laptop software program and
(ii) compensation and associated advantages for workers who're immediately related
with the software program venture. Capitalized software program prices are included in intangible
property on our steadiness sheet and amortized on a straight-line foundation when positioned
into service over the estimated helpful lives of the software program. Amortization
expense is included in price of income on the statements of operations.



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