Item 1. Business
Overview
AudioEye is an industry-leading
software solution provider delivering website accessibility compliance at all price points to businesses of all sizes. Our solutions
advance accessibility with patented technology that reduces barriers, expands access for individuals with disabilities, and enhances
the user experience for a broader audience. We believe that, when implemented, our solution offers businesses and organizations
the opportunity to reach more customers, improve brand image, build additional brand loyalty, and, most importantly, provide an
accessible and usable web experience to the expansive and ever-growing global population of individuals with disabilities.
AudioEye
primarily generates revenue through the sale of subscriptions for our software-as-a-service (“SaaS”)
accessibility solutions. Our solutions are backed by AudioEye’s machine-learning/AI-driven technology that finds and
fixes common accessibility errors. Our core and supplemental solutions are designed to help websites and applications achieve
and sustain substantial conformance with AudioEye’s interpretation of the Web Content Accessibility Guidelines
(“WCAG”) which are web accessibility standards published by the Web Accessibility Initiative of the World Wide
Web Consortium, the main international standards organization for the internet. Our solutions help mitigate a
customer’s risk of costly digital accessibility-related legal action. AudioEye customers may purchase solutions
directly through the AudioEye Marketplace, through a platform partner or an agency, such as Duda, that integrates our
solutions into their marketplace, through a vertical Content Management System (“CMS”) partner, or through an
authorized reseller, or by working directly with the AudioEye sales team. Our offerings serve businesses and organizations of
all sizes and at all price points.
AudioEye stands out
among its competitors because it delivers machine-learning/artificial intelligence (“AI”)-driven accessibility without
fundamental changes to the website architecture. As another differentiator, we offer transparency. Our offerings provide automated
remediations and a transparent compliance score with additional manually driven enhancements. AudioEye pairs its patented technology
solutions with certified accessibility experts, which allows our customers to achieve a higher level of compliance than competitors
relying solely on automation. Our technology publishes more than one billion remediations daily, and our solution is trusted by
some of the largest and most influential companies in the world, including ADP, Tommy Hilfiger, 360 Media, Samsung, Darden, Landry’s
and more. Government agencies, from the federal level down to the local level, have also integrated our software in their digital
platforms, including the Federal Communications Commission and the Social Security Administration.
Industry Background
If not coded properly,
a website or application may not offer full access to content or functionality for individuals with disabilities and, in particular,
for users of assistive technology (“AT”), such as a screen reader. As a result, those sites may exclude potential users
and customers. As discussed in more detail below, these sites also may not comply with U.S. and foreign laws requiring accessibility
and digital inclusion, such as Title III of the Americans with Disabilities Act, Section 508 of the Rehabilitation Act, and California’s
Unruh Civil Rights Act. Website accessibility lawsuits have continued to increase in recent years. By some estimates, more than
3,000 lawsuits were filed in federal and state courts in 2020.
Traditional solutions
addressing web accessibility may be costly and difficult to implement. Historically, the process for achieving compliance has
been driven by costly consulting services and has not fully utilized emerging technologies to reduce the compliance cost burden.
At the same time, web accessibility efforts have generally focused on a limited number of disability use cases, leaving many users’
accessibility needs for digital inclusion unaddressed. Businesses may have been reluctant to invest further in web accessibility
solutions due to a perceived lack of commercial return on the significant investment required to design and implement a thorough
and usable compliance solution.
Other solutions have
been developed to help users access websites, but these often require the installation of a plug-in or software on the user’s
computer. Similarly, some are tailored to either single or a limited number of use cases and do not encompass a more holistic
approach for addressing compliance and accessibility.
AudioEye
Solutions
At its core, AudioEye’s
provides an always-on testing, remediation, and monitoring solution that continually improves conformance with WCAG. This in turn
helps businesses and organizations comply with WCAG standards as well as applicable U.S. and foreign accessibility laws. Our technology
is capable of immediately identifying and fixing common accessibility errors and addresses a wide range of disabilities including
dyslexia, color blindness, epilepsy and more. AudioEye also offers additional solutions to provide for enhanced compliance and
accessibility including periodic manual auditing, manual remediations and legal support services. Our solutions may be purchased
through a subscription service on a month-to-month basis or with one or multi-year terms. We also offer PDF remediation services
and Native Mobile App audit reports to help our customers with their digital accessibility needs.
AudioEye
Customers
Our current and potential
customer base includes a very broad range of private and public sector customers, including:
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Small- and medium-sized businesses;
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Non-profit organizations;
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Federal government agencies, whose electronic and information technology must be accessible to
people with disabilities, including employees and members of the public, pursuant to Section 508 of the Rehabilitation Act of 1973;
and
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Foreign, state and local governments and agencies, which often have laws and regulations that require
accessibility for people with disabilities.
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AudioEye Channels
/ Go-to-market:
We go-to-market through
two primary channels: Enterprise and Partner and Marketplace.
Enterprise channel
consists of our larger customers and organizations, including those with non-platform custom websites, who generally engage directly
with AudioEye sales personnel for custom pricing and solutions. This channel also includes federal, state and local government
agencies.
Partner and Marketplace
channel consists of our 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 who purchase an AudioEye solution
from our Marketplace.
The Company had one
major customer (including the customer’s affiliates reflecting multiple contracts and a partnership with the Company) which
accounted for approximately 16.7% of the Company’s revenue in the year ended December 31, 2020. The Company had one major
customer which generated approximately 10% of its revenue in the year ended December 31, 2019.
Our typical market
sectors include, but are not limited to:
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Finance and banking institutions;
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Travel and hospitality companies;
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Public and private transportation companies;
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Retail and ecommerce companies;
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Educational institutions (which occasionally enter into settlement
agreements with the Department of Education’s Office of Civil Rights regarding accessibility);
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Food services companies; and
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SaaS service or solution providers.
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Intellectual Property
Our intellectual property
is primarily comprised of trade secrets, trademarks, issued, published and pending patent applications, copyrights and technological
innovation. We have a patent portfolio comprised of seventeen (17) issued patents in the United States. We also have eight (8)
pending patent applications and two (2) international patent applications filed via the Patent Cooperation Treaty (“PCT”).
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.
Competition
Most of our competition
falls within the following categories:
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There are a small number of web accessibility audit and tracking
platform providers that purport to analyze websites for accessibility concerns. While these providers may sometimes identify issues
for remediation, they typically do not provide remediation technology or the additional solutions that AudioEye offers.
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Currently, other technology providers attempt to apply compliance
remediation strictly through automation technology and accessibility toolbars. We believe their solutions do not compete with the
full breadth of solutions offered by AudioEye including the manual auditing and custom remediation services that are essential
for achieving a meaningful level of compliance that mitigates compliance lawsuits and provides customers with negotiation leverage
when defending against legal complaints.
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There are a substantial number of consulting service providers
offering website and application accessibility. Each generally provides an analysis of the various compliance issues associated
with its clients’ websites. They ultimately provide resources and assistance in applying fixes and changes at the source.
We believe our offerings are much more cost effective and comprehensive than these providers. We also provide tools that empower
an end-to-end fully managed service, as well as resources that empower self-directed developers to fix issues on their own.
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Competitive Strengths
Our management believes
the following competitive strengths will enable our success in the accessibility marketplace:
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Unique
patented technology. AudioEye builds all its products with the primary goal of enhancing
the user experience regardless of the end-user’s individual disability or physical
limitation. AudioEye is a marketplace technology leader providing what we believe to
be unparalleled web accessibility solutions for our customers through our suite of offerings.
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Broad
price points and offerings. With a free 30-day trial for our base offering, AudioEye
allows website owners to test our solution before choosing their preferred option. They
range from low-cost offerings, to standard offerings, to our customized, enterprise-wide
solutions.
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Unique combination of advanced technology and expert-driven
services. Our management believes that AudioEye addresses the problem of Web Accessibility holistically and provides a combination
of leading-edge technology and high-quality specialized services. Our solutions are designed to provide our customers with reliable
website accessibility compliance solutions, and to lead to cost-savings and reduced time-to-market for our customers. Our management
believes that the AudioEye solution allows our customers to focus not only on achieving compliance, but also to help maintain compliance
throughout the life of the subscription.
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We offer greater transparency in marketing
our offerings. We believe there is no fully automated solution on the market that can provide 100% compliance. Our offerings provide
automated remediations and a transparent compliance score with additional manually driven enhancements. We think that as the industry
develops, opaque products with unsubstantiated claims will ultimately fail.
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Highly
experienced inventors, technologists and product development team. Our team is comprised
of experienced software and SaaS developers and technologists.
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Legal and Regulatory Framework
Courts and the U.S.
Department of Justice (“DOJ”) broadly hold that Titles II and III of the Americans with Disabilities Act (“ADA”),
together with Sections 504 and 508 of the Rehabilitation Act of 1973, require public and private websites and mobile applications
to be accessible to people with disabilities. In particular, Title III of the ADA governs private businesses and prohibits
discrimination on the basis of disability in the provision of services, programs, and activities by public accommodations.
While the law governing
website and mobile application accessibility is still developing, most courts have held that websites and mobile applications fall
within Title III’s scope. Some courts hold that Title III applies to all customer-facing websites and mobile applications,
while others apply a “nexus” approach, which requires websites and mobile applications to comply with Title III if
the website or mobile application is heavily integrated with a physical location. The U.S. Supreme Court has yet to articulate
a unified approach, so some degree of uncertainty remains. Similarly, the DOJ has not promulgated new regulations laying out compliance
standards for websites and mobile applications. In the absence of clear guidance, courts generally measure accessibility using
the Web Content Accessibility Guidelines (“WCAG”), which are promulgated by the World Wide Web Consortium.
Although the WCAG does
not carry force of law, courts may order defendants to comply with the WCAG as a remedy for accessibility violations. Settlements
and consent decrees generally require the same. We therefore design our products and services to help customer websites and
mobile applications achieve and sustain substantial conformance with our interpretation of the informative guidance
supplied through the WCAG, and we continue to improve and update our products and services as new guidance emerges.
Lawsuits alleging website
or mobile application accessibility claims typically follow a similar pattern. Both private commercial businesses and governmental
agencies are regularly targeted for alleged violations. With an increasing amount of business taking place remotely, ensuring compliance
with the relevant accessibility statutes is becoming increasingly important.
This growing focus
on website and mobile application accessibility is also reflected by other federal and state laws. In 2010, Congress enacted
the 21st Century Communications and Video Accessibility Act in an effort to update telecommunications protections for people with
disabilities. Furthermore, the Department of Transportation has issued rules interpreting and implementing the Air Carrier
Access Act and setting forth website accessibility standards for air carriers. The California Unruh Civil Right Act also prohibits
discrimination on the basis of disability, and California Government code Section 11546.7 requires state agency directors to certify
that their websites comply with the WCAG. This focus on website accessibility is growing internationally as well, with over 100
countries having ratified the U.N. Convention on the Rights of Persons with Disabilities.
Employees
As of December 31,
2020, we had 89 full-time employees. We utilize independent contractors to supplement our staff, as needed. None of our employees
is subject to a collective bargaining agreement, and we believe that relations with our employees are very good.
Corporate Information
AudioEye, Inc. was
formed as a Delaware corporation on May 20, 2005. We file reports with the Securities and Exchange Commission (“SEC”)
and make available, free of charge, on or through our website at www.audioeye.com, our annual reports on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, proxy and information statements and amendments to those reports filed or furnished
pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such material
with, or furnish it to, the SEC. In addition, the SEC maintains a website at www.sec.gov containing reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC.
Item 1A. Risk Factors
Investing in our securities
involves a variety of risks and uncertainties, known and unknown, including, among others, those discussed below. Each of the following
risks should be carefully considered, together with all the other information included in this Form 10-K, including Management’s
Discussion and Analysis of Financial Condition and Results of Operations, our financial statements and the related notes and in
our other filings with the SEC. Furthermore, additional risks and uncertainties not presently known to us or that we currently
believe to be immaterial may also adversely affect our business. Our business, financial condition, operating results, cash flow
and prospects could be materially and adversely affected by any of these risks or uncertainties.
Risks Relating to Our Business and Industry
We have a history of generating significant
losses and may not be able to achieve and sustain profitability.
To date, we have not
been profitable, and we may never achieve profitability on a full-year or consistent basis. We incurred net losses of $7,158,000
for the year ended December 31, 2020. As of December 31, 2020, we had an accumulated deficit of $57,084,000. If we continue
to experience losses, we may not be able to continue our operations, and investors may lose their entire investment.
Our success is dependent on members
of our management team and employees, many of whom are relatively new in their positions with the Company.
Our success has depended,
and continues to depend, on the efforts and talents of our senior management team and employees, including our engineers, product
managers, sales and marketing personnel, and professional services personnel. Many members of
our executive management team and our employees are relatively new to
their positions, including our Interim Chief Executive Officer and Chief
Strategy Officer and our President, both of whom were appointed to their respective positions in August 2020. Our senior management
team has not worked with other members of management and
our employees for a significant period of time. We can provide no assurance that our management team
will be able to effectively work together or with our employees. If they are unable to do so, there may be delays in execution
of our business and operating strategies.
We may not receive forgiveness of
all or a portion of our PPP Loan.
As discussed in this report, including
in Note 6 in the notes to the consolidated financial statements included herein, on April 15, 2020, we entered into a note
agreement in the amount of $1,302,000 with Liberty Capital Bank (the “PPP Loan”) pursuant to the Paycheck Protection
Program of the CARES Act, which is being administered by the Small Business Administration. All or a portion of the Loan may be
forgiven upon application by the Company in accordance with the Small Business Administration requirements. In October 2020,
we submitted our application to obtain forgiveness of the PPP Loan in full. No assurance can be provided, however, that we will
obtain forgiveness of all or a portion of the PPP Loan. If we are unable to obtain forgiveness of all or a portion of the PPP Loan,
our liquidity could be reduced, and our business, financial condition and results of operations may be adversely affected.
We intend to pursue business through a variety of new
channels. The new channels may result in the use of a significant amount of our management resources and costs, and we cannot guarantee
we will fully realize the expected benefits.
We
intend to pursue business through a variety of new channels. Although we may devote significant resources and costs to the development
of the new sales channels, we may struggle to successfully identify the channel partners,
or to successfully conclude transactions with the channel partners. Should we be unable to identify or conclude important channel
partnerships, or if our partners are unable to meet our expectations, our business prospects and operations could be adversely
affected as a result of the devotion of significant managerial effort required. In addition, there can be no assurance that we
would fully realize the potential benefit of the relationships. If we cannot do so, we may be unable to meet future revenue expectations.
Our new technology platform may not
function as expected or may not be accepted by our clients.
We released a new platform
for our digital accessibility product in the first quarter of 2021. We cannot guarantee that our platform will operate as expected
or that our new platform will be accepted by our customers. If our new platform does not operate as expected or is not accepted,
our ability to pursue and retain business may be damaged and our business and results of operations may be materially and adversely
affected.
Our future development will require
additional capital, and we may be unable to obtain needed capital or financing on satisfactory terms, or at all, which would prevent
us from fully developing our business and generating revenues.
As of December 31,
2020, we had $9.1 million in cash. Our business plan will require additional capital expenditures, and our capital outlays could
increase substantially over the next several years as we implement our business plan. As a result, we may need to raise additional
capital through future private or public equity offerings, strategic alliances or debt financing. Our future capital requirements
will depend on many factors, including, among others: market conditions, sales and marketing costs, mergers and acquisition activity,
if any, costs of litigation in enforcing our intellectual property rights, and information technology development and acquisition
costs. No assurance can be given that we can successfully raise additional equity or debt capital, or that such financing will
be available to us on favorable terms, if at all.
Weakened global economic conditions
including current and ongoing microeconomic uncertainty may adversely affect our industry, business and results of operations.
Our overall performance
depends in part on worldwide economic and geopolitical conditions. The United States and other key international economies have
experienced cyclical downturns from time to time in which economic activity was impacted by falling demand for a variety of goods
and services, restricted credit, poor liquidity, reduced corporate profitability, volatility in credit, equity and foreign exchange
markets, bankruptcies and overall uncertainty with respect to the economy. These economic conditions can arise suddenly, and the
full impact of such conditions can remain uncertain. In addition, geopolitical developments, such as existing and potential trade
wars and other events beyond our control, such as the coronavirus pandemic, can increase levels of political and economic unpredictability
globally and increase the volatility of global financial markets. For example, in response to the coronavirus pandemic, we have
shifted certain of our customer events to virtual-only experiences and we may deem it advisable to similarly alter, postpone or
cancel entirely additional customer, employee or industry events in the future. Moreover, these conditions can affect the rate
of IT spending and could adversely affect our customers’ ability or willingness to attend our events or to purchase our software,
delay prospective customers’ purchasing decisions, reduce the value or duration of their subscription contracts, affect attrition
rates, or decrease our ability to collect on accounts receivable, all of which could adversely affect our future sales and operating
results.
We
have been subject to litigation and may in the future be subject to additional litigation, which could have a material adverse
effect on our financial position or results of operations.
We may become involved
in disputes and allegations related to our business operations. Because we are in a technology industry, these disputes may involve
claims of intellectual property infringement or misappropriation. We have also been involved in securities law litigation in the
past. These types of litigation can be very expensive, and we cannot assure you that our insurance policies will cover the costs.
Because it is not possible to determine when and whether these disputes and allegations may arise or the ultimate disposition of
such matters, the resolution of any such matters, should they arise, could have a material adverse effect on our financial position
or results of operations.
An increase in market interest rates
could increase our interest costs on future debt and could adversely affect our stock price.
If interest rates increase,
so could our interest costs for any new debt. This increased cost could make financing, including the financing of any acquisition,
costlier. We may incur variable interest rate indebtedness in the future. Rising interest rates could limit our ability to refinance
debt when it matures or cause us to pay higher interest rates upon refinancing and increased interest expense on refinanced indebtedness.
We may pursue new strategic opportunities
which may result in the use of a significant amount of our management resources or significant costs, and we may not be able to
fully realize the potential benefit of such opportunities.
We may seek strategic
opportunities to help us pursue our business objectives. Although we may devote significant time and resources in pursuit of such
transactions, we may struggle to successfully identify such opportunities, or to successfully conclude transactions. Should we
be unable to identify or conclude important strategic transactions, our business prospects and operations could be adversely affected
as a result of the devotion of significant managerial effort required, and the challenges of achieving our objectives in the absence
of strategic opportunities. In addition, we may incur significant costs in connection with seeking acquisitions or other strategic
opportunities regardless of whether the transaction is completed, and in combining its operations with ours if such a transaction
is completed. In the event that we consummate an acquisition or strategic relationship in the future, we cannot assure you that
we would fully realize the potential benefit of such a transaction or that we would not be subject to unknown liabilities.
Our business plan may not be realized.
If our business plan proves to be unsuccessful, our business may fail, and you may lose your entire investment.
Our operations are
subject to all of the risks inherent in the establishment of a new business enterprise with a limited operating history. The likelihood
of our success must be considered in light of the problems, expenses, complications, and delays frequently encountered in connection
with the development of a new business. Unanticipated events may occur that could affect the actual results achieved during the
forecast periods. Consequently, the actual results of operations during the forecast periods will vary from the forecasts, and
such variations may be material. In addition, the degree of uncertainty increases with each successive year presented in our business
plan. We cannot assure you that we will succeed in the anticipated operation of our business plan. If our business plan proves
to be unsuccessful, our business may fail, and you may lose your entire investment.
We have experienced and will continue
to experience competition as more companies seek to provide products and services similar to our products and services, and because
larger and better-financed competitors may affect our ability to compete in the marketplace and achieve profitability, our business
may fail.
Competition in our market is intense, and we expect competition
for our products and services to become even more intense. We compete directly against other companies offering similar products
and services that compete or will compete directly with our proposed products and services. We also compete against established
vendors in our markets. These companies may incorporate other competitive technologies into their product offerings, whether developed
internally or by third parties. There are also established consultants who offer services to help their customers obtain compliance
with accessibility standards. In many cases these consultants compete for the same funding from our prospective customers. For
the foreseeable future, many of our competitors may be larger, better-financed companies that may develop products superior to
our current and proposed products, which could create significant competitive advantages for those companies. Our future success
depends on our ability to compete effectively with our competitors. As a result, we may have difficulty competing with larger,
established competitors. Generally, these competitors may have:
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substantially greater financial, technical, and marketing resources;
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a larger customer base;
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better name recognition; and
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more expansive or different product offerings.
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These competitors may
command a larger market share than we do, which may enable them to establish a stronger competitive position, in part, through
greater marketing opportunities. Further, our competitors may be able to respond more quickly than we are to new or emerging technologies
and changes in user preferences and to devote greater resources to developing new products and offering new services. These competitors
may develop products or services that are comparable or superior to ours. If we fail to address competitive developments quickly
and effectively, we may not be able to remain a viable business.
If we are not able to adequately
protect our patented rights, our operations may be negatively impacted.
Our ability to compete
largely depends on the superiority, uniqueness and value of our technology and intellectual property. To protect our intellectual
property rights, we rely on a combination of patent, trademark, copyright, and trade secret laws, confidentiality agreements with
our employees and third parties, and protective contractual provisions. We cannot assure you that infringement or invalidity claims
(or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against us or that any such
assertions or prosecutions will not materially adversely affect our business.
Regardless of whether
any future claims are valid or can be successfully asserted, defending against such claims could cause us to incur significant
costs, could jeopardize or substantially delay a successful outcome in any future litigation, and could divert resources away from
our other activities. In addition, assertion of infringement claims could result in injunctions that prevent us from distributing
our products. In addition to challenges against our existing patents, any of the following could also reduce the value of our intellectual
property now, or in the future:
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our applications for patents, trademarks, and copyrights relating to our business may not be granted and, if granted, may be challenged or invalidated;
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issued trademarks, copyrights or patents may not provide us with any competitive advantages;
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our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; or
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our efforts may not prevent the development and design by others of products or technologies similar to, competitive with, or superior to those that we develop.
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Also, we may not be
able to effectively protect our intellectual property rights in certain foreign countries where we may do business in the future
or from which competitors may operate. Obtaining patents will not necessarily protect our technology or prevent our international
competitors from developing similar products or technologies. Our inability to adequately protect our patented rights may have
a negative impact on our operations and revenues.
In addition, legal
standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related
businesses are uncertain and still evolving. Because of the growth of the Internet and Internet-related businesses, patent applications
are continuously and simultaneously being filed in connection with Internet-related technology. There are a significant number
of U.S. and foreign patents and patent applications in our areas of interest, and we believe that there has been, and is likely
to continue to be, significant litigation in the industry regarding patent and other intellectual property rights.
We may commence legal proceedings
against third parties who we believe are infringing on our intellectual property rights, and if we are forced to litigate to defend
our intellectual property rights, or to defend claims by third parties against us relating to intellectual property rights, legal
fees and court injunctions could adversely affect our financial condition and potentially end our business.
We have active litigation
against a competitor related to the alleged violation of our patents and other unfair trade practices, and we may engage in future
litigation. We expect an increase in the number of third parties who could violate our patents as the market develops new uses
of similar products and consumers continue to increase their adoption of technology and integrate it into their daily lives. We
foresee the potential need to enter into additional active litigation to defend and enforce our patents. We anticipate
that these legal proceedings could continue for several years and may require significant expenditures for legal fees and other
expenses. In the event we are not successful through appeal and do not subsequently obtain monetary and injunctive relief, these
litigation matters may significantly reduce our financial resources and have a material impact on our ability to continue our operations.
The time and effort required of our management to effectively pursue or defend these litigation matters may adversely affect our
ability to operate our business, since time spent on matters related to the lawsuits would take away from the time spent on managing
and operating the business. We cannot assure you any such potential lawsuits will result in an outcome that is favorable to our
stockholders or the Company.
The current regulatory environment
for our products and services remains unclear.
We cannot assure you
that our existing or planned product and service offerings will be in compliance with local, state, and/or federal U.S. laws or
the laws of any foreign jurisdiction where we operate or may operate in the future. Further, we cannot assure you that we will
not unintentionally violate such laws or that such laws will not be modified, or that new laws will not be enacted in the future,
which would cause us to be in violation of such laws. More aggressive domestic or international regulation of the Internet may
materially and adversely affect our business, financial condition, operating results, and future prospects.
Our business greatly depends on the
growth of online services, Internet of Things (“IOT”), kiosks, streaming, and other next-generation Internet-based
applications, and there is a risk that such growth may not occur as expected, or at all, which would harm our business.
The Internet may ultimately
prove not to be a viable commercial marketplace for such applications for several reasons, including:
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unwillingness of consumers to shift to and use other such next-generation Internet-based audio applications;
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refusal to purchase our products and services;
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perception by end-users with respect to product and service quality and performance;
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limitations on access and ease of use;
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congestion leading to delayed or extended response times;
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inadequate development of Internet infrastructure to keep pace with increased levels of use; and
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increased government regulations.
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Because of these and
other factors, the growth of online services, IOT, kiosks, streaming, and other next-generation Internet-based applications
may be impeded or not occur as expected. As a result, our business and operations could be adversely impacted.
If the market for our online services
does not grow as anticipated, our business would be adversely affected.
While other next-generation
Internet-based applications have grown rapidly in personal and professional use, we cannot assure you that the adoption of our
products and services will grow at a comparable rate or grow at all.
Our expansion into new products,
services, technologies, and geographic regions subjects us to additional business, legal, financial, and competitive risks.
We may have limited
or no experience in our newer market segments, and our customers may not adopt our new offerings. These offerings may present new
and difficult technology challenges, and we may be subject to claims if customers of these offerings experience service disruptions
or failures or other quality issues. In addition, profitability, if any, in our newer activities may be lower than in our older
activities, and we may not be successful enough in these newer activities to recoup our investments in them. If any of this were
to occur, it could damage our reputation, limit our growth, and negatively affect our operating results.
We face risks related to system interruption
and lack of redundancy.
We experience occasional
system interruptions and delays that make our websites and services unavailable or slow to respond and prevent us from efficiently
providing services to third parties, which may reduce our net sales and the attractiveness of our products and services. If we
are unable to continually add software and hardware, effectively upgrade our systems and network infrastructure, and take other
steps to improve the efficiency of our systems, it could cause system interruptions or delays and adversely affect our operating
results.
Our computer and communications
systems and operations could be damaged or interrupted by fire, flood, power loss, telecommunications failure, earthquakes, acts
of war or terrorism, acts of God, computer viruses, physical or electronic break-ins, and similar events or disruptions. Any of
these events could cause system interruption, delays, and loss of critical data, and could prevent us from providing services,
which could make our product and service offerings less attractive and subject us to liability. Our systems are not fully redundant,
and our disaster recovery planning may not be sufficient. In addition, we may have inadequate insurance coverage to compensate
for any related losses. Any of these events could damage our reputation and be expensive to remedy.
Government regulation is evolving, and unfavorable changes
could harm our business.
We are subject to general
business regulations and laws, as well as regulations and laws specifically governing the Internet, e-commerce, electronic devices,
and other services. Existing and future laws and regulations may impede our growth. These regulations and laws may cover website
accessibility, taxation, privacy, data protection, pricing, content, copyrights, distribution, mobile communications, electronic
device certification, electronic waste, energy consumption, environmental regulation, electronic contracts and other communications,
competition, consumer protection, web services, the provision of online payment services, information reporting requirements, unencumbered
Internet access to our services, the design and operation of websites, the characteristics and quality of products and services,
and the commercial operation of unmanned aircraft systems. It is not clear how existing laws governing issues such as property
ownership, libel, and personal privacy apply to the Internet, e-commerce, digital content, and web services. Unfavorable regulations
and laws could diminish the demand for our products and services and increase our cost of doing business.
We could be subject to additional
sales tax or other indirect tax liabilities.
U.S. Supreme Court
decisions restrict the imposition of obligations to collect state and local sales taxes with respect to remote sales. However,
an increasing number of states have considered or adopted laws or administrative practices that attempt to impose obligations on
out-of-state businesses to collect taxes on their behalf. A successful assertion by one or more states or foreign countries requiring
us to collect taxes where we do not currently do so could result in substantial tax liabilities, including for past sales, as well
as penalties and interest.
We may be subject to risks related
to government contracts and related procurement regulations.
Our contracts with
U.S., as well as state, local, and foreign, government entities are subject to various procurement regulations and other requirements
relating to their formation, administration, and performance. We may be subject to audits and investigations relating to our government
contracts, and any violations could result in various civil and criminal penalties and administrative sanctions, including termination
of contracts, refunding or suspending of payments, forfeiture of profits, payment of fines, and suspension or debarment from future
government business. In addition, such contracts may provide for termination by the government at any time, without cause.
If we do not successfully adapt,
enhance or develop new products and services in a cost-effective manner to meet customer demand in the rapidly evolving market
for next-generation Internet-based applications and services, our business may fail.
The market for next-generation
Internet-based applications and services is characterized by rapidly changing technology, evolving industry standards, changes
in customer needs, and frequent new service and product introductions. Our future success will depend, in part, on our ability
to use new technologies effectively, to continue to develop our technical expertise and proprietary technology, to enhance our
existing products and services, and to develop new products and services that meet changing customer needs on a timely and cost-effective
basis. We may not be able to adapt quickly enough to changing technology, customer requirements, and industry standards. If we
fail to use new technologies effectively, to develop our technical expertise and new products and services, or to enhance existing
products and services on a timely basis, either internally or through arrangements with third parties, our product and service
offerings may fail to meet customer needs, which would adversely affect our revenues and prospects for growth.
In addition, if we
are unable to, for technological, legal, financial, or other reasons, adapt in a timely manner to changing market conditions or
customer requirements, we could lose customers, strategic alliances, and market share. Sudden changes in user and customer requirements
and preferences, the frequent introduction of new products and services embodying new technologies, and the emergence of new industry
standards and practices could render our existing products, services and systems obsolete. The emerging nature of products and
services in the technology and communications industry and their rapid evolution will require that we continually improve the performance,
features, and reliability of our products and services. Our survival and success will depend, in part, on our ability to:
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design, develop, launch and/or license our planned products, services, and technologies that address the increasingly sophisticated and varied needs of our prospective customers; and
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respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
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The development
of products and services and other patented technology involves significant technological and business risks and requires
substantial expenditures and lead time. We may be unable to use new technologies effectively. Updating our technology
internally and licensing new technology from third parties may also require us to incur significant additional
expenditures.
If our products and services do not
continue to gain market acceptance, we may not be able to fund future operations.
A number of factors
may affect the market acceptance of our products or services or any other products or services we develop or acquire, including,
among others:
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the price of our products or services relative to other competitive products and services;
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the perception by users of the effectiveness of our products and services;
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our ability to fund our sales and marketing efforts; and
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the effectiveness of our sales and marketing efforts.
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If our products and
services do not continue to gain market acceptance, we may not be able to fund future operations, including the development of
new products and services and/or our sales and marketing efforts for our current products and services, which inability would have
a material adverse effect on our business, financial condition, and operating results.
We continually develop new products
and product enhancements and actively capitalize software development costs, while making educated assumptions to anticipate the
attributed revenue to be derived from each development or enhancement. If our assumptions are incorrect or if we are unable to
accurately attribute revenue to each respective product or product enhancement, we may have to account for impairment, thus causing
us to reverse the capitalized expenditures.
Our product developers
are consistently programming new products and enhancements to existing products. Under applicable accounting guidance, we make
determinations to estimate the useful life of each of these products and enhancements. Based on these determinations, we amortize
software expenses over a pre-determined period of time. Should our estimates turn out to be inaccurate or should the business fail
to attract new revenue in relation to each respective product or product enhancement, we may have to reverse or write off the related
capitalized expenses.
Our products and services are highly
technical and may contain undetected errors, which could cause harm to our reputation and adversely affect our business.
Our products and services
are highly technical and complex and, when deployed, may contain errors or defects. Despite testing, some errors in our products
and services may only be discovered after they have been installed and used by customers. Any errors or defects discovered in our
products and services after commercial release could result in failure to achieve market acceptance, loss of revenue or delay in
revenue recognition, loss of customers, and increased service and warranty cost, any of which could adversely affect our business,
operating results and financial condition. In addition, we could face claims for product liability, tort, or breach of warranty.
The performance of our products and services could have unforeseen or unknown adverse effects on the networks over which they are
delivered as well as on third-party applications and services that utilize our products and services, which could result in legal
claims against us, harming our business. Furthermore, we expect to provide implementation, consulting, and other technical services
in connection with the implementation and ongoing maintenance of our products and services, which typically involves working with
sophisticated software, computing systems, and communications systems. Many of our contracts with customers contain provisions
relating to warranty disclaimers and liability limitations, but such provisions may not be upheld. Defending a lawsuit, regardless
of its merit, is costly and may divert our management’s attention and adversely affect the market’s perception of us
and our products and services. In addition, if our business liability insurance coverage proves inadequate or future coverage is
unavailable on acceptable terms or at all, our business, operating results and financial condition could be adversely impacted.
Malfunctions of third-party communications
infrastructure, hardware and software expose us to a variety of risks we cannot control, and those risks could result in harm to
our business.
Our business depends
upon the capacity, reliability and security of the infrastructure owned by third parties over which our product offerings are deployed.
We have no control over the operation, quality or maintenance of a significant portion of that infrastructure or over whether those
third parties will upgrade or improve their equipment. We do depend on these companies to maintain the operational integrity of
our integrated connections. If one or more of these companies is unable or unwilling to supply or expand its levels of service
in the future, our operations could be adversely impacted. System interruptions or increases in response time could result in a
loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users. In addition,
users depend on real-time communications; outages caused by increased traffic could result in delays and system failures. These
types of occurrences could cause users to perceive that our products and services do not function properly and could therefore
adversely affect our ability to attract and retain strategic partners and customers.
Security breaches, computer viruses,
and computer hacking attacks could harm our business, financial condition, results of operations, or reputation.
Security breaches,
computer malware and computer hacking attacks have become more prevalent in our industry. Any security breach caused by hacking,
which involves efforts to gain unauthorized access to information or systems, or to cause intentional malfunctions or loss or corruption
of data, software, hardware or other computer equipment, or the inadvertent transmission of computer viruses could adversely affect
our business, financial condition, results of operations or reputation.
Our corporate systems,
third-party systems and security measures may be breached due to the actions of outside parties, employee error, malfeasance, a
combination of these, or otherwise, and, as a result, an unauthorized party may obtain access to our data or any third-party data
we may possess. Any such security breach could require us to comply with various breach notification laws and may expose us to
litigation, remediation and investigation costs, increased costs for security measures, loss of revenue, damage to our reputation,
and potential liability.
System failure or interruption or
our failure to meet increasing demands on our systems could harm our business.
The success of our
product and service offerings depends on the uninterrupted operation of various systems, secure data centers, and other computer
and communication networks that we use or establish. To the extent the number of users of networks utilizing our future products
and services suddenly increases, the technology platform and hosting services which will be required to accommodate a higher volume
of traffic may result in slower response times, service interruptions or delays or system failures. The deployment of our products,
services, systems and operations will also be vulnerable to damage or interruption from:
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power loss, transmission cable cuts and other telecommunications failures;
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damage or interruption caused by fire, earthquake and other natural disasters;
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computer viruses or software defects; and
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physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
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System interruptions
or failures and increases or delays in response time could result in a loss of potential or existing users and, if sustained or
repeated, could reduce the appeal of our products and services to users. These types of occurrences could cause users to perceive
that our products and services do not function properly and could therefore adversely affect our ability to attract and retain
strategic partners and customers
We do not expect to pay any dividends
to holders of our common stock for the foreseeable future, which will affect the extent to which our investors realize any future
gains on their investment.
We do not anticipate
that we will pay any dividends to holders of our common stock in the foreseeable future. Accordingly, investors must rely on sales
of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
We will need to recruit and retain
additional qualified personnel to successfully grow our business.
Our future success
will depend in part on our ability to attract and retain qualified operations, marketing and sales personnel as well as technical
personnel. Inability to attract and retain such personnel could adversely affect our business. Competition for technical, sales,
marketing and executive personnel is intense, particularly in the technology and Internet sectors. We cannot assure you that we
will be able to attract or retain such personnel.
If we fail to maintain effective
internal control over financial reporting and effective disclosure controls and procedures, we may not be able to report financial
results accurately or on a timely basis, or to detect fraud, which could have a material adverse effect on our business and stock
price.
In connection with
this annual report, our management carried out an evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures and of the effectiveness of our internal control over financial reporting. Based on that evaluation, our
Principal Executive Officer and Principal Financial Officer have concluded that, primarily due to material weaknesses in our internal
control over financial reporting as described in this annual report, our disclosure controls and procedures and our internal control
over financial reporting were not effective as of December 31, 2020.
Our failure to establish
and maintain the required internal control over financial reporting, and to establish and maintain effective disclosure controls
and procedures, or any failure of those controls or procedures once established, could adversely impact our public disclosures
regarding our business, financial condition or results of operations. Upon review of the required internal control over financial
reporting, our management and/or our auditors have in the past and may in the future identify material weaknesses and/or significant
deficiencies that need to be addressed. Any actual or perceived weaknesses or conditions that need to be addressed in our internal
control over financial reporting and disclosure of management's assessment of the Company’s internal control over financial
reporting or disclosure of our independent registered public accounting firm's attestation to or report on management's assessment
of our internal control over financial reporting, or our failure to obtain such an attestation or report, could adversely impact
the price of and our ability to list our common stock and may lead to stockholder claims and regulatory action against us. Failure
to remediate our current material weaknesses or to maintain effective internal controls in the future could also result in a material
misstatement of our annual or quarterly financial statements that would not be prevented or detected on a timely basis and that
could cause us to restate our financial statements for a prior period, cause investors to lose confidence in our financial statements
and/or limit our ability to raise capital.
Additionally, any such
failure may also negatively impact our operating results and financial condition, impair our ability to timely file our periodic
and other reports with the SEC, consume a significant amount of management's time, and cause us to incur substantial additional
costs relating to the implementation of remedial measures.
Risks Related to the Market for Our
Common Stock
Although our shares of common stock
are listed on the Nasdaq Capital Market, historically we have had a limited trading volume and a higher price volatility. This
may result in reduced liquidity of our common stock.
Although
our shares of common stock are listed on the Nasdaq Capital Market under the symbol “AEYE,” historically trading
volume in our common stock has been limited. In addition, our stock has also historically seen significant price volatility, which
may reduce the liquidity of our common stock. The sale of a significant number of shares of common stock at any particular time
could be difficult to achieve at the market prices prevailing immediately before such shares are offered, and may limit your liquidity
options.
If we cannot continue to satisfy
the continuing listing criteria of the Nasdaq Capital Market, the exchange may subsequently delist our common stock.
The Nasdaq Capital
Market requires us to meet certain financial, public float, bid price and liquidity standards on an ongoing basis in order to continue
the listing of our common stock. Generally, we must maintain a minimum amount of stockholders’ equity and a minimum number
of holders of our securities, as well as meet certain disclosure and corporate governance requirements. If we fail to meet any
of the continuing listing requirements, our common stock may be subject to delisting. If our common stock is delisted and we are
not able to list our common stock on another national securities exchange, we expect our securities would be quoted on an over-the-counter
market. If this were to occur, our stockholders could face significant material adverse consequences, including limited availability
of market quotations for our common stock and reduced liquidity for the trading of our securities. In addition, we could experience
a decreased ability to issue additional securities and obtain additional financing in the future.
The market price for our common stock
may fluctuate significantly, which could result in substantial losses by our investors.
The market price of
our common stock may fluctuate significantly in response to numerous factors, some of which are beyond our control, such as:
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the outcomes of potential future patent litigation;
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our ability to monetize our future patents;
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changes in our industry;
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announcements of technological innovations, new products or product enhancements by us or others;
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announcements by us of significant strategic partnerships, out-licensing, in-licensing, joint ventures, acquisitions or capital commitments;
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changes in earnings estimates or recommendations by security analysts, if our common stock is covered by analysts;
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investors’ general perception of us;
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future issuances of common stock;
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investors’ future resales of our securities;
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the addition or departure of key personnel;
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general market conditions, including the volatility of market prices for shares of technology companies, generally, and other factors, including factors unrelated to our operating performance; and
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the other factors described in this “Risk Factors” section.
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These factors and any
corresponding price fluctuations may materially and adversely affect the market price of our common stock and result in substantial
losses by our investors.
Further, the stock
market in general, and the market for technology companies in particular, has experienced extreme price and volume fluctuations
in the past. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause
a decline in the value of our common stock.
Price volatility of
our common stock might be worse if the trading volume of our common stock is low. In the past, following periods of market volatility,
stockholders have often instituted securities class action litigation. We have previously been the target of securities litigation
and may in the future be subject to additional securities litigation, which could result in substantial costs to us and divert
resources and attention of management from our business, even if we are successful in any such litigation. Future sales of our
common stock could also reduce the market price of such stock.
Moreover, the liquidity
of our common stock is limited, not only in terms of the number of shares that can be bought and sold at a given price, but by
delays in the timing of transactions and reduction in security analysts’ and the media’s coverage of us, if any. These
factors may result in lower prices for our common stock than might otherwise be obtained and could also result in a larger spread
between the bid and ask prices for our common stock. In addition, without a large float, our common stock is less liquid than the
stock of companies with broader public ownership and, as a result, the trading price of our common stock may be more volatile.
In the absence of an active public trading market, an investor may be unable to liquidate its investment in our common stock. Trading
of a relatively small volume of our common stock may have a greater impact on the trading price of our stock than would be the
case if our public float were larger. We cannot predict the prices at which our common stock will trade in the future.
Sales or the availability for sale of a substantial number
of shares of our common stock may cause the price of our common stock to decline and adversely affect our ability to raise capital.
If our stockholders
sell substantial amounts of our common stock in the public market, including pursuant to our currently effective Registration Statement
on Form S-3, such sales or the anticipation of such sales could cause the market price of our common stock to fall. Such circumstances,
whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through
the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.
When we issue additional shares of common stock in the
future, including under our at-the-market program, in future financings or upon conversion of our Series A Convertible Preferred
Stock, it will result in the dilution of our existing stockholders and may also result in a reduction in the market price of our
common stock.
Our Certificate
of Incorporation authorizes the issuance of up to 50,000,000 shares of common stock with a $0.00001 par value per share and
10,000,000 shares of preferred stock with a $0.00001 par value per share, of which, as of December 31, 2020,
approximately 10,130,000 shares of common stock and 90,000 shares of Series A Convertible Preferred Stock were issued
and outstanding. Such shares of Series A Convertible Preferred Stock, based upon the applicable conversion rate as of
December 31, 2020, were at such time convertible into an aggregate of approximately 263,000 shares of common stock. As
of December 31, 2020, we also had outstanding warrants and options to purchase an aggregate of approximately 598,000
shares of our common stock and unvested, or vested but not yet settled, restricted stock units covering an aggregate of
approximately 958,000 shares of common stock. The exercise of such options and warrants and the vesting or vesting and
settlement of such restricted stock units would further increase the number of our outstanding shares of common stock.
In addition, in February 2021, we entered into an At Market
Issuance Sales Agreement under which the Company may offer and sell, from time to time at its sole discretion, shares of its common
stock having an aggregate offering price of up to $30 million.
From time to time,
we may adopt new equity compensation plans or increase the number of shares available for issuance in connection with our existing
equity compensation plans. Our board of directors may also choose to issue some or all of our available shares to provide additional
financing or acquire businesses in the future.
The issuance of
any shares upon conversion of any preferred stock, including our Series A Convertible Preferred Stock, under our equity
compensation plans, for acquisition, licensing or financing efforts, upon exercise of warrants and options, or upon
settlement of restricted stock units or in financings will dilute the interests of our holders of common stock and cause a
reduction in the proportionate ownership and voting power of all then current stockholders. Any such issuances may also
result in a reduction in the market price of our common stock.
The interests of our controlling
stockholders may not coincide with yours and such controlling stockholders may make decisions with which you may disagree.
As of February 3, 2021, five of our stockholders, two of whom
are our Executive Chairman and our Interim Chief Executive Officer and Chief Strategy Officer, and another of whom is a director,
beneficially owned in the aggregate over 50% of the voting power of our outstanding shares of common stock and Series A Preferred
Stock on an as-converted basis. As a result, these stockholders may be able to influence the outcome of matters requiring stockholder
approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration
of ownership may delay or prevent a change in control of our company and make some future transactions more difficult or impossible
without the support of our controlling stockholders. The interests of our controlling stockholders may not coincide with our interests
or the interests of other stockholders.
If securities or industry analysts
do not publish research or publish inaccurate or unfavorable research about our business, our stock price and trading volume could
decline.
The trading market
for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our
business. We currently have new research coverage by securities and industry analysts. If one or more of the analysts who covers
us downgrades our stock or publishes inaccurate or unfavorable research about our business, our stock price would likely decline.
If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our stock could
decrease, which could cause our stock price and trading volume to decline.
We are subject to financial reporting
and other requirements that place significant demands on our resources.
We are subject to reporting
and other obligations under the Securities Exchange Act of 1934, as amended, including the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002. Section 404 requires us to conduct an annual management assessment of the effectiveness of
our internal control over financial reporting. These reporting and other obligations place significant demands on our management,
administrative, operational, internal audit and accounting resources. Any failure to maintain effective internal controls, such
as occurred as of December 31, 2019 and 2020, could have a material adverse effect on our business, operating results and stock
price. Moreover, effective internal control is necessary for us to provide reliable financial reports and prevent fraud. If we
cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would
if an effective control environment existed, and our business and reputation with investors may be harmed. We may also face claims
by our investors, which could harm our business and financial condition.
Risks Relating to Our Charter Documents
and Capital Structure
We are close to being controlled
by a small number of “insider” stockholders, which could determine corporate and stockholder action on significant
matters.
As of February 3, 2021, our directors and executive officers
beneficially owned an aggregate of 4,114,782 of our outstanding shares of common stock and 60,000 shares of our outstanding shares
of Series A Convertible Preferred Stock, which represents approximately 41% of the aggregate voting power of our outstanding shares
of common stock and Series A Preferred Stock on an as-converted basis. Through their collective ownership of our outstanding
stock, such holders, if they were to act together, would be close to controlling the voting of our shares at all meetings of stockholders
and, because the common stock does not have cumulative voting rights, to determining the outcome of the election of all of our
directors and determining corporate and stockholder action on other matters.
Provisions of our Certificate of
Incorporation and bylaws could discourage potential acquisition proposals and could deter or prevent a change in control.
Some provisions in
our Certificate of Incorporation and bylaws, as well as statutes, may have the effect of delaying, deterring or preventing a change
in control. These provisions, including those providing for the possible issuance of shares of our preferred stock, which may be
divided into series and with the preferences, limitations and relative rights to be determined by our board of directors, and the
right of the board of directors to amend the bylaws, may make it more difficult for other persons, without the approval of our
board of directors, to make a tender offer or otherwise acquire a substantial number of shares of our common stock or to launch
other takeover attempts that a stockholder might consider to be in his or her best interest. These provisions could limit the price
that some investors might be willing to pay in the future for shares of our common stock.
Delaware law may delay or prevent
takeover attempts by third parties and therefore inhibit our stockholders from realizing a premium on their stock.
We are subject to the
anti-takeover provisions of Section 203 of the Delaware General Corporation Law. These provisions prevent any stockholder
who owns 15% or more of our outstanding shares of common stock from engaging in certain business combinations with us for a period
of three years following the time that the stockholder acquired such stock ownership unless certain approvals were or are obtained
from our board of directors or from the holders of 66 2/3% of our outstanding shares of common stock (excluding the shares of our
common stock owned by the 15% or more stockholder). Our board of directors can use these and other provisions to discourage, delay
or prevent a change in the control of our company or a change in our management. Any delay or prevention of a change of control
transaction or a change in our board of directors or management could deter potential acquirers or prevent the completion of a
transaction in which our stockholders could receive a substantial premium over the then current market price of our shares. These
provisions could also limit the price that investors might be willing to pay for shares of our common stock.
Failure to manage growth effectively
could adversely affect our business, results of operations and financial condition.
The success of our
future operating activities will depend upon our ability to expand our support system to meet the demands of our growing business.
Any failure by our management to effectively anticipate, implement, and manage changes required to sustain our growth would have
a material adverse effect on our business, financial condition, and results of operations. We cannot assure you that we will be
able to successfully operate acquired businesses (if any), become profitable in the future, or effectively manage any other change.
The elimination of the monetary liability
of our directors under Delaware law and the existence of indemnification rights held by our directors, officers and employees may
result in substantial expenditures by us and may discourage lawsuits against our directors, officers and employees.
Our Certificate of
Incorporation contains specific provisions that eliminate the liability of our directors for monetary damages to our company and
stockholders and requires indemnification of our directors and officers to the extent provided by Delaware law. Our bylaws also
contain provisions that require the indemnification of our directors, officers and employees. We may also have contractual indemnification
obligations under our employment agreements with our officers. The foregoing limitation of liability and indemnification obligations
could result in our company incurring substantial expenditures to cover the cost of settlement or damage awards against directors
and officers, which we may be unable to recoup. These provisions and resultant costs may also discourage our company from bringing
a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative
litigation by our stockholders against our directors and officers even though such actions, if successful, might otherwise benefit
our company and our stockholders.