10-Q/A

UNITED STATES 
SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

FORM 10-Q/A

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission file number 333-177463

AudioEye, Inc.

(Exact name of registrant as specified in its charter)

Delaware	20-2939845
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
5210 East Williams Circle, Suite 500, Tucson, Arizona	85711
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:  866-331-5324

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the last 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

As of November 7, 2014, 70,602,753 shares of the registrant’s common stock were issued and outstanding.

TABLE OF CONTENTS

		Page
	Explanatory Note	1
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (unaudited)	2
	Consolidated Statements of Operations for the three and nine months ended September 30, 2014 and 2013 (unaudited)	3
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4.	Controls and Procedures	20
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	23
SIGNATURES

EXPLANATORY NOTE

The Registrant is filing this Amendment No. 1 on Form 10-Q/A (this “Amended Filing”) to its Quarterly Report on Form 10-Q for the three and six months ended September 30, 2014 as originally filed with the Securities and Exchange Commission on November 7, 2014 (“Original Filing”) to restate its consolidated balance sheet as of September 30, 2014, and its consolidated statement of operations and consolidated statement of cash flow for the three and nine months ended September 30, 2014.

In connection therewith, the Registrant hereby amends and replaces in their entirety Items 1, 2 and 4 in Part I, and Item 1A in Part II in the Original Filing. For the convenience of the reader, this Amended Filing sets forth the Original Filing, as modified where necessary to reflect the restatement and revisions.

The reasons for the restatement and the effect thereof is discussed in Footnote 2 to our consolidated financial statements.

As required by Rule 12b-15, the Registrant’s principal executive officer and principal financial officer are providing new currently dated certifications. Accordingly, the Registrant hereby amends Item 6 in Part II in the Original Filing to reflect the filing of the new certifications.

We are also separately amending our quarterly reports on Form 10-Q for the periods ending March 31, 2014 and June 30, 2014 in connection with the restatements of our interim financial statements for such periods.

Except as described above, this Amended Filing does not amend, update or change any other items or disclosures in the Original Filing and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Amended Filing speaks only as of the date the Original Filing was filed, and the Registrant has not undertaken herein to amend, supplement or update any information contained in the Original Filing to give effect to any subsequent events. Accordingly, this Amended Filing should be read in conjunction with the Registrant’s filings made with the SEC subsequent to the filing of the Original Filing, including any amendment to those filings.

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

The financial information set forth below with respect to the financial statements as of September 30, 2014 and 2013 and for the three and nine month periods ended September 30, 2014 and 2013 is unaudited. This financial information, in the opinion of our management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and nine month periods ended September 30, 2014 are not necessarily indicative of results to be expected for any subsequent period. Our fiscal year end is December 31.

1

AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	RestatedSeptember 30, 2014			December 31, 2013
ASSETS
Current Assets
Cash	$	2,151,849		$	1,847,004
Accounts receivable, net	400,118			569,297
Related party receivables	27,500			82,250
Prepaid assets and security deposits	167,873			—
Marketable securities	48,000			—
Total Current Assets	2,795,340			2,498,551
Property and equipment, net	1,450			3,847
Intangible assets, net	3,284,999			3,073,945
Goodwill	700,528			700,528
Total Assets	$	6,782,317		$	6,276,871
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	534,779		$	416,531
Billings in excess of costs	202,967
Notes and loans payable-current, net of unamortized discounts of $0 and $1,155, respectively	24,000			172,845
Related party payables	—			243,424
Related party loans	—			35,000
Total Current Liabilities	761,746			867,800
Long Term Liabilities
Notes and loans payable-long term	57,800			79,800
Total Long Term Liabilities	57,800			79,800
Total Liabilities	819,546			947,600
STOCKHOLDERS’ EQUITY
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, none issued and outstanding, as of September 30, 2014 and December 31, 2013	—			—
Common stock, $0.00001 par value, 250,000,000 shares authorized, 70,552,753 and 53,239,369 issued and outstanding, as of September 30, 2014 and December 31, 2013 respectively	705			532
Treasury stock	(623,000		)	(623,000		)
Additional paid-in capital	20,400,247			13,231,212
Accumulated deficit	(13,815,181		)	(7,279,473		)
Total Stockholders’ Equity	5,962,771			5,329,271
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	6,782,317		$	6,276,871

See Notes to Unaudited Consolidated Financial Statements

2

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	RestatedSeptember 30, 2014			September 30, 2013			RestatedSeptember 30, 2014			September 30, 2013
Revenue	$	186,641		$	344,414		$	279,364		$	748,693
Revenue from related party	1,125			37,125			5,375			57,375
Total revenues	187,766			381,539			284,739			806,068
Cost of revenues	264,459			130,771			639,924			226,561
Gross profit	(76,693		)	250,768			(355,185		)	579,507
Operating expenses:
Selling and marketing	546,265			117,893			1,068,353			167,509
Research and development	153,188			—			391,958			—
General and administrative expenses	1,548,851			889,095			4,352,398			1,880,726
Amortization and depreciation	132,104			89,823			347,954			269,135
Total operating expenses	2,380,408			1,096,811			6,160,663			2,317,370
Operating income (loss)	(2,457,101		)	(846,043		)	(6,515,848		)	(1,737,863		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)	(9,000		)	(12,000		)	(18,000		)
Interest expense	(416		)	(15,767		)	(7,860		)	(40,933		)
Total other income (expense)	(12,416		)	(24,767		)	(19,860		)	(58,933		)
Net income (loss)	$	(2,469,517	)	$	(870,810	)	$	(6,535,708	)	$	(1,796,796	)
Net income (loss) per common share - basic	$	(0.04	)	$	(0.02	)	$	(0.12	)	$	(0.04	)
Net income (loss) per common share - diluted	$	(0.03	)	$	(0.02	)	$	(0.10	)	$	(0.04	)
Weighted average common shares outstanding - basic	61,062,150			44,385,177			55,993,097			41,668,724
Weighted average common shares outstanding - diluted	70,568,775			44,385,177			68,499,722			41,668,724

See Notes to Unaudited Consolidated Financial Statements

3

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended
	RestatedSeptember 30, 2014			September 30, 2013
Cash Flows from Operating Activities:
Net income (loss)	$	(6,535,708	)	$	(1,796,796	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	347,954			269,135
Stock, option and warrant expense	1,538,557			593,019
Shares issued for services	778,927			50,000
Unrealized loss on marketable securities	12,000			18,000
Amortization of debt discount	1,155			—
Changes in operating assets and liabilities:
Accounts receivable	169,179			(104,394		)
Related party receivable	54,750			(72,000		)
Prepaid and other assets	(167,873		)	—
Accounts payable and accruals	79,762			146,857
Billings in excess of costs	202,967
Deferred revenue	—			(54,823		)
Related party payables	(243,424		)	274,583
Net cash used in operating activities	(3,761,754		)	(676,419		)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(556,611		)	(9,890		)
Net cash used in investing activities	(556,611		)	(9,890		)
Cash Flows from Financing Activities:
Repayment of note payable	(172,000		)	(218,000		)
Repayment of related party loans	(35,000		)	—
Borrowings on debt	—			502,500
Issuance of common stock for cash, net of issuance costs	1,305,689			426,346
Proceeds from exercise of options and warrants, net of issuance costs	3,524,521			37,188
Net cash provided by financing activities	4,623,210			748,034
Net increase in cash	304,845			61,725
Cash - beginning of period	1,847,004			11,710
Cash - end of period	$	2,151,849		$	73,435
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	7,444		$	24,967
Income taxes paid	—			—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of debt	$	—		$	1,709,291
Warrants issued for accrued payroll	21,514			1,073,751
Common stock issued for accounts payable	—			50,000
Accounts payable converted into debt	—			30,000
Debt discount from warrants issued with debt	—			6,930
Accounts receivable converted to marketable securities	60,000			—

See Notes to Unaudited Consolidated Financial Statements

4

AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements of AudioEye, Inc. and its wholly-owned subsidiary (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2013 as reported in the Company’s Annual Report on Form 10-K have been omitted.

Corporate Information and Background

AudioEye, Inc. was formed as a Delaware corporation on May 20, 2005. The Company focuses on working to improve the mobility, usability and accessibility of all Internet-based content through the development, sale, licensing and use of its proprietary accessibility technologies. Audio Internet® is a technology that utilizes patented architecture to deliver a fully accessible audio equivalent of a visual website or mobile website in a compliant format that can be navigated, utilized, interacted with, and transacted from, without the use of a monitor or mouse, by individuals with visual impairments. For individuals with hearing impairments, Audio Internet® provides captioning for websites, and the challenges of reaching those with other impairments are also addressed by the technology platform.

Complete with an ever-growing suite of utilities tailored to the needs of different disabled users, the AudioEye® Audio Internet® Accessibility Platform is a fully scalable cloud-based solution designed and developed to meet the needs and compliance mandates for an ever-growing demographic.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revenue Recognition

Revenue is recognized when all applicable recognition criteria have been met, which generally include: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. For software and technology development contracts, where applicable, the Company recognizes revenues on a percentage of completion method based upon several factors including but not limited to: (a) an estimate of total hours and milestones to complete; (b) the total hours completed; (c) the delivery of services rendered; (d) the change in estimates; and (e) the collectability of the contract.

Licensing revenues for intangible assets, including intellectual property such as patents and trademarks, are recognized when all applicable criteria have been met: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) the delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. Licensing revenues are recognized over the term of the contract or, in the case of a perpetual license, revenues are recognized in the period the criteria have been met. In transactions where the Company engages in a non-cash exchange for a license of the Company for the license of the Company’s customer, the Company follows ASC 845 and any potential revenues is recorded as other income.

NOTE 2:RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated its consolidated balance sheet as of September 30, 2014, and its consolidated statement of operations and consolidated statement of cash flows for the three and nine months ended September 30, 2014.

At the time the Company issued the financial statements subject to this restatement, the Company believed that it was relying on generally accepted accounting principles and properly applying those principles.  It remains the case that the Company relied upon the correct accounting principles in the accounting in those statements.  However, in conjunction certain changes in the management of the Company, as well as during the course of an internal review initiated by the Audit Committee at the Board of Directors during the first quarter and into the second quarter of 2015 (“Internal Review”), the

5

Company identified errors in the application of the accounting principles for revenue recognition and costing of non-monetary transactions related to its intellectual property portfolio.  Specifically, the Company had no prior cash sales of licenses of its patents as of March 31, 2014. To recognize revenue on a non-monetary exchange of a license of its patents for services or licenses to be provided by a counterparty, the Company looked to establish fair value of either the licensed patents or the services or licenses to be received. Based on the nature of the transactions, and after consultation with the Company’s auditors and another outside accounting firm, the Company applied ASC 845-10-30-1, holding that fair value of the services or licenses it would receive in each transaction was more clearly evident than the fair value of the asset surrendered.   This methodology was approved by Company’s auditors and another outside accounting firm; this is the correct methodology, and it was the methodology used by the Company.

Under ASC 845, fair value in a license-for-services or license-for-license contract in which the cost of the asset being surrendered is not determinable can rely on the fair value of the asset received if it is determinable. The subsequent licenses for services or licenses transactions, as such, might have in the alternative considered the fair value of the services or licenses being provided by the counterparties. However, the Company has now determined following its Internal Review that in applying this methodology it did not have sufficient support to establish the value of the services or licenses provided under the subsequent license-for-services or license-for-license transactions, did not adequately track the consulting services provided by the various counterparties, and did not have sufficient support to establish such services were actually provided as per the terms of the contracts.

The Company recorded these revenues as “non-monetary” transactions, and the actual cash position of the Company is unaffected by this restatement.

The restatement also reflects that the Company discovered following its Internal Review errors associated with the timing of revenues recognized under certain contracts in terms of the percentage of completion methodology.  In such cases, the Company has now learned that it did not maintain sufficient documentation to measure the production activities necessary for such computation.

Finally, the Company discovered, following its Internal Review, errors which impacted revenues recognized where collection of the sales price was not reasonably assured.

None of the adjustments necessary to correct the errors impacted net cash used in operating activities or the Company’s cash balance.

Following its Internal Review, the Company has determined that these errors resulted from material weakness in internal control over financial reporting as discussed under Part 1, Item 4.  In particular, the Company concluded that there was a misapplication of relevant accounting guidance and the absence of documentation to support transactions including the failure to trace the delivery of services. The following tables present the impact of the corrections on the previously reported unaudited quarterly financial information. The “As Reported” column in the tables below reflects balances previously reported by the Company in its quarterly report on Form 10-Q. The “Revisions” column shows the impact of adjustments made by the Company to reflect changes in presentation retrospectively as follows:

6

AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS – RESTATED

(UNAUDITED)

	As ReportedSeptember 30, 2014			Cumulative Revisions			Restated September 30, 2014
ASSETS
Current Assets
Cash	$	2,151,849					$	2,151,849
Accounts receivable, net	695,744			(295,626	)	(a)	400,118
Related party receivables	27,500						27,500
Prepaid assets and security deposits	5,189,330			(5,021,457	)	(b)	167,873
Marketable securities	48,000						48,000
Total Current Assets	8,112,423			(5,317,083	)		2,795,340
Property and equipment, net	1,450						1,450
Intangible assets, net	5,195,627			(1,910,628	)	(b)	3,284,999
Goodwill	700,528						700,528
Total Assets	$	14,010,028		(7,227,711	)		$	6,782,317
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	534,779					$	534,779
Billings in excess of costs	—			202,967		(c)	202,967
Notes and loans payable-current	24,000						24,000
Related party payables	—						—
Related party loans	—						—
Total Current Liabilities	558,779			202,967			761,746
Long Term Liabilities
Notes and loans payable-long term	57,800						57,800
Total Long Term Liabilities	57,800						57,800
Total Liabilities	616,579			202,967			819,546
STOCKHOLDERS’ EQUITY
Preferred stock	—						—
Common stock	705						705
Treasury stock	(623,000		)				(623,000		)
Additional paid-in capital	20,400,247						20,400,247
Accumulated deficit	(6,384,503		)	(7,430,678	)		(13,815,181		)
Total Stockholders’ Equity	13,393,449			(7,430,678	)		5,962,771
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,010,028		(7,227,711	)		$	6,782,317

(a)Revenues associated with collectability not reasonably assured

(b)Revenues associated with non-cash transactions

(c)Revenues associated with the timing of recognition under certain percentage of completion contracts

7

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS – RESTATED

(UNAUDITED)

	Nine Months Ended
	As ReportedSeptember 30, 2014			Cumulative  Revisions			RestatedSeptember 30, 2014
Revenue	$	8,877,955		(8,598,591	)	(a), (b), (c)	$	279,364
Revenue from related party	5,375						5,375
Total revenues	8,883,330			(8,598,591	)		284,739
Cost of revenues	1,460,453			(820,529	)	(b)	639,924
Gross profit	7,422,877			(7,778,062			(355,185		)
Operating expenses:
Selling and marketing	1,301,365			(233,012	)	(b)	1,068,353
Research and development	391,958						391,958
General and administrative expenses	4,352,398						4,352,398
Amortization and depreciation	462,326			(114,372	)	(b)	347,954
Total operating expenses	6,508,047			(347,384	)		6,160,663
Operating income (loss)	914,830			(7,430,678	)		(6,515,848		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)				(12,000		)
Interest expense	(7,860		)				(7,860		)
Total other income (expense)	(19,860		)				(19,860		)
Net income (loss)	$	894,970		(7,430,678	)		$	(6,535,708	)
Net income (loss) per common share - basic	$	0.02		(0.14	)		$	(0.12	)
Net income (loss) per common share - diluted	$	0.01		(0.11	)		$	(0.10	)
Weighted average common shares outstanding - basic	55,993,097						55,993,097
Weighted average common shares outstanding - diluted	68,499,722						68,499,722

(a)Revenues associated with collectability not reasonably assured

(b)Revenues associated with non-cash transactions

(c)Revenues associated with the timing of recognition under certain percentage of completion contracts

8

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS – RESTATED

(UNAUDITED)

	Three Months Ended
	As ReportedSeptember 30, 2014			Quarterly  Revisions			Restated  September 30, 2014
Revenue	$	4,836,286		(4,649,645	)	(a), (b), (c)	$	186,641
Revenue from related party	1,125						1,125
Total revenues	4,837,411			(4,649,645	)		187,766
Cost of revenues	1,084,988			(820,529	)	(b)	264,459
Gross profit	3,752,423			(3,829,116	)		(76,693		)
Operating expenses:
Selling and marketing	546,265						546,265
Research and development	153,188						153,188
General and administrative expenses	1,548,851						1,548,851
Amortization and depreciation	189,602			(57,498	)	(b)	132,104
Total operating expenses	2,437,906			(57,498	)		2,380,408
Operating income (loss)	1,314,517			(3,771,618	)		(2,457,101		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)				(12,000		)
Interest expense	(416		)				(416		)
Total other income (expense)	(12,416		)				(12,416		)
Net income (loss)	$	1,302,101		(3,771,618	)		$	(2,469,517	)
Net income (loss) per common share - basic	$	0.02		(0.06	)		$	(0.04	)
Net income (loss) per common share - diluted	$	0.02		(0.05	)		$	(0.03	)
Weighted average common shares outstanding - basic	61,062,150						61,062,150
Weighted average common shares outstanding - diluted	70,568,775						70,568,775

(a)Revenues associated with collectability not reasonably assured

(b)Revenues associated with non-cash transactions

(c)Revenues associated with the timing of recognition under certain percentage of completion contracts

9

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – RESTATED

(UNAUDITED)

	Nine Months Ended
	As ReportedSeptember 30, 2014			CumulativeRevisions			Restated  September 30, 2014
Cash Flows from Operating Activities:
Net income (loss)	$	894,970		(7,430,678	)		$	(6,535,708	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	462,326			(114,372	)	(b)	347,954
Stock, option and warrant expense	1,538,557						1,538,557
Shares issued for services	778,927						778,927
Unrealized loss on marketable securities	12,000						12,000
Amortization of debt discount	1,155						1,155
Licenses sold in exchange for licenses	(2,025,000		)	2,025,000		(b)	—
Licenses sold in exchange for prepaid services	(6,075,000		)	6,075,000		(b)	—
Changes in operating assets and liabilities:
Accounts receivable	(186,447		)	355,626		(a)	169,179
Related party receivable	54,750						54,750
Prepaid and other assets	885,670			(1,053,543	)	(b)	(167,873		)
Accounts payable and accruals	139,762			(60,000	)	(b)	79,762
Billings in excess of costs	—			202,967		(c)	202,967
Deferred revenue	—						—
Related party payables	(243,424		)				(243,424		)
Net cash used in operating activities	(3,761,754		)				(3,761,754		)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(556,611		)				(556,611		)
Net cash used in investing activities	(556,611		)				(556,611		)
Cash Flows from Financing Activities:
Repayment of note payable	(172,000		)				(172,000		)
Repayment of related party loans	(35,000		)				(35,000
Borrowings on debt	—						—
Issuance of common stock for cash, net of issuance costs	1,305,689						1,305,689
Proceeds from exercise of options and warrants, net of issuance costs	3,524,521						3,524,521
Net cash provided by financing activities	4,623,210						4,623,210
Net increase in cash	304,845						304,845
Cash - beginning of period	1,847,004						1,847,004
Cash - end of period	$	2,151,849					$	2,151,849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	7,444					$	7,444
Income taxes paid	—						—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of debt	$	—					$	—
Warrants issued for accrued payroll	21,514						21,514
Common stock issued for accounts payable	—						—
Accounts payable converted into debt	—						—
Debt discount from warrants issued with debt	—						—
Accounts receivable converted to marketable securities	60,000						60,000

(a)Revenues associated with collectability not reasonably assured

(b)Revenues associated with non-cash transactions

(c)Revenues associated with the timing of recognition under certain percentage of completion contracts

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NOTE 3: RELATED PARTY TRANSACTIONS

As of September 30, 2014 and December 31, 2013, related party loans totaled $0 and $35,000, respectively. The Company repaid $35,000 of related party loans during the nine months ended September 30, 2014.

As of September 30, 2014 and December 31, 2013, there were related party payables of $0 and $243,424, respectively, for services performed by related parties. During the nine months ended September 30, 2014, the Company repaid $243,424 to related parties for services, payroll and reimbursable expenses.

As of September 30, 2014 and December 31, 2013, there were outstanding receivables of $27,500 and $82,250, respectively, for services performed for related parties.

For the three and nine months ended September 30, 2014 and 2013, there were revenues earned of $1,125 and $37,125 and $5,375 and $57,375, respectively, for services performed for related parties.

NOTE 4: NOTES PAYABLE

As of September 30, 2014 and December 31, 2013, the Company had the short term and long term notes payable as shown in the table below.

Notes and loans payable	September 30, 2014		December 31, 2013
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Note Payable (net of $0 and $1,155 discount, respectively)	—		148,845
Total	$	24,000	$	172,845
Long Term
Maryland TEDCO Note	$	57,800	$	79,800
Total	$	57,800	$	79,800

The Company previously had an outstanding loan from a third party in the amount of $74,900, which was originally issued during 2006 as part of an investment agreement.  The loan was unsecured and bore interest at 25% per year for four years. The Company had accrued interest of $74,900, which was included in accounts payable and accrued expenses on the balance sheet.  The note was in default until October 24, 2011, at which time the Company entered into a Termination and Release Agreement (“Release”) with the noteholder.  The terms of the Release, among other things, terminated the Investment Agreement between the parties, and required the Company to issue a Promissory Note to the noteholder in the combined amount of principal and accrued interest owed to date, for a total principal amount of $149,800 (the “Maryland TEDCO Note”).  The Maryland TEDCO Note is interest free, and is payable in monthly installments of $2,000 beginning November 1, 2011.  During the nine months ending September 30, 2014, the Company made cash payments of $22,000 on this note. As of September 30, 2014 and December 31, 2013, the principal amount owed was $81,800 and $103,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $57,800 and $79,800, respectively, as the long-term portion of the note.

On August 3, 2013, the Company borrowed $150,000 from a third party with a coupon rate of 10%, due on September 10, 2013 with a warrant to purchase 20,000 common shares that vested immediately with a strike price of $0.50. The warrant was valued at $6,930 on August 3, 2013 using a closing price that day of $0.47, a strike price of $0.50, term of 5 years, volatility of 100%, dividends of 0%, and a discount rate of 1.36%. The value of the warrant of $6,930 was reflected as a discount to the note for a net amount of $143,070.  For the year ended December 31, 2013, interest was accrued in the amount of $2,384 and $5,755 was recognized as amortization expense. During the nine months ending September 30, 2014, the note principal of $150,000 and interest of $3,658 was paid in full and $1,155 was recognized as amortization expenses.

NOTE 5: STOCKHOLDERS’ EQUITY

As of September 30, 2014 and December 31, 2013, the Company had 70,552,753 and 53,239,369 shares of common stock issued and outstanding, respectively.

On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the second closing of a private placement (the “Second Private Placement”). Placement fees of $18,463 were paid and the Company received net proceeds of $181,537. The units in the Second Private Placement consisted of 666,667 shares of the Company’s common stock and warrants to purchase an additional 666,667 shares of the Company’s common stock.  The warrants in the Second Private Placement have a term of five years and an exercise price of $0.40 per share.

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On February 3, 2014, the Company issued 44,307 shares of common stock valued at $13,292 and a five-year warrant to purchase 44,307 shares of common stock with a strike price of $0.40 for services. The Company used the Black-Scholes option pricing model to estimate the fair value of the warrants with a volatility of 100% and a risk free rate of 1.44% resulting in a fair value of $8,186, which was completely expensed in the current period. The warrant was issued to compensate for consulting services provided by a third-party. The shares were valued at the market price of the respective date of issuance.

On March 27, 2014, the Company filed a Certificate of Amendment to the Certificate of Incorporation increasing the authorized number of shares of Company common stock to 250,000,000 from 100,000,000.

On March 28, 2014, the Company issued 49,496 shares of common stock pursuant to the cashless exercise of 100,000 options.

From January 1, 2014 through March 31, 2014, the Company also issued 100,000 shares of common stock for services valued at $28,500 with no future period amortization and 1,300,000 shares of common stock pursuant to exercise of warrants for total proceeds of $13,000. The shares were valued at the market price of the respective date of issuance.

On June 30, 2014, the Company sold an aggregate of 2,766,667 units to three accredited investors for gross proceeds of $830,000 in the third closing of a private placement (the “Third Private Placement”). Placement fees of $55,848 were paid and the Company received net proceeds of $774,152. The units in the Third Private Placement consisted of 2,766,667 shares of the Company’s common stock and warrants to purchase an additional 2,766,667 shares of the Company’s common stock.  The warrants have a term of five years and an exercise price of $0.40 per share.

From April 1, 2014 through June 30, 2014, the Company also issued 1,071,916 shares of common stock for services for an expense of $354,835 with no future period amortization. Additionally, the Company issued 17,870 shares of common stock pursuant to the cashless exercise of 50,000 warrants.

In July 2014, the Company offered holders of a series of its warrants, including the warrants issued in the Second Private Placement and the Third Private Placement, the opportunity to exercise their warrants for a 10% discount to the stated exercise price in exchange for their agreement to exercise their warrants in full and for cash on or before July 31, 2014. Under the warrant exercise offer, in July 2014 the Company issued 10,027,002 shares of common stock pursuant to exercise of warrants for gross proceeds of $3,632,801 and net proceeds of $3,501,521 after investment banking fees of $131,280.

On July 17, 2014, the Company issued 34,459 shares of common stock pursuant to the cashless exercise of 75,000 common stock warrants.

From July 1, 2014 through September 30, 2014, the Company also issued 515,000 shares of common stock for services valued at $382,300 with no future period amortization.

In September 2014, the Company issued 20,000 shares of common stock pursuant to the exercise of 20,000 warrants at a strike price of $0.50 for proceeds of $10,000.

On September 30, 2014, the Company sold an aggregate of 700,000 units to two accredited investors for gross proceeds of $350,000 in the closing of a private placement (the “Summer Private Placement”). The units in the Summer Private Placement consisted of 700,000 shares of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased or an additional 175,000 shares of the Company’s common stock.  The warrants have a term of five years and an exercise price of $0.60 per share.

NOTE 6: OPTIONS

As of September 30, 2014 and December 31, 2013, the Company has 11,306,850 and 4,485,250 options to purchase shares of common stock issued and outstanding, respectively, as follows:

	Number of Options	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Intrinsic Value
Outstanding at December 31, 2013	4,485,250	$	0.38	3.96	$	105,410
Granted	7,096,600	0.51
Less Forfeited	100,000	0.79
Less Exercised	175,000	0.31
Outstanding at September 30, 2014	11,306,850	$	0.46	4.00	$	709,393

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The options were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation during the nine months ended September 30, 2014 include expected terms of 2.50 to 3.33 years, expected volatility of 100%, risk free interest rate of 0.83% to 1.76%, and expected dividend yield of 0%.

On January 27, 2014, the Company awarded 1,500,000 options, one third of which vested immediately, one third vest upon the Company reporting a minimum of $10 million in annualized revenues by the second anniversary of the grant date and one third vest upon the Company reporting a minimum of $20 million in annualized revenues by the third anniversary of the grant date, with an exercise price of $0.40 per share and an expiration date of January 27, 2019. The fair value on the grant date of the options was $303,562 and it is being recognized over the vesting period of the options.

On February 17, 2014, the Company awarded 55,000 options, which vest over three years, with an exercise price of $0.305 per share and an expiration date of February 17, 2019. The fair value on the grant date of the options was $10,556 and it is being recognized over the vesting period of the options.

On March 3, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.40 per share and an expiration date of March 3, 2019. The fair value on the grant date of the options was $36,935 and it is being recognized over the vesting period of the options.

On March 24, 2014, the Company awarded 2,522,100 options, which vest over three years, with the exception of 200,000 options issued to one individual that vested immediately upon grant. The options have an exercise price of $0.45 per share and an expiration date of March 24, 2019. The fair value on the grant date of the options was $724,948 and it is being recognized over the vesting period of the options.

On June 2, 2014 and June 9, 2014, the Company awarded 175,000 options, which vest over three years. The options have an exercise price of $0.33 per share and an expiration date of June 2, 2019 and June 9, 2019. The fair value on the grant date of the options was $35,834 and it is being recognized over the vesting period of the options.

On June 11, 2014 and June 30, 2014, the Company awarded 400,000 options, which vest over three years. The options have an exercise price of $0.33 and $0.34 per share and an expiration date of June 11, 2019 and June 30, 2019. The fair value on the grant date of the options was $68,830 and it is being recognized over the vesting period of the options.

On July 1, 2014, the Company awarded 262,500 options, which vest over three years. The options have an exercise price of $0.35 per share and an expiration date of July 1, 2019. The fair value on the grant date of the options was $54,788 and it is being recognized over the vesting period of the options.

On July 21, 2014, the Company awarded 22,000 options, which vest over three years. The options have an exercise price of $0.91 per share and an expiration date of July 21, 2019. The fair value on the grant date of the options was $12,882 and it is being recognized over the vesting period of the options.

On July 22, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.65 per share and an expiration date of July 22, 2019. The fair value on the grant date of the options was $97,876 and it is being recognized over the vesting period of the options.

On July 23, 2014, the Company awarded 125,000 options, which vest over three years. The options have an exercise price of $1.07 per share and an expiration date of July 23, 2019. The fair value on the grant date of the options was $80,905 and it is being recognized over the vesting period of the options.

On July 28, 2014, the Company awarded 75,000 options, which vest over three years. The options have an exercise price of $0.92 per share and an expiration date of July 28, 2019. The fair value on the grant date of the options was $42,981 and it is being recognized over the vesting period of the options.

On August 18, 2014, the Company awarded 60,000 options, which vest over three years. The options have an exercise price of $0.65 per share and an expiration date of August 18, 2019. The fair value on the grant date of the options was $25,067 and it is being recognized over the vesting period of the options.

On September 2, 2014, the Company awarded 130,000 options, which vest over three years. The options have an exercise price of $0.70 per share and an expiration date of September 2, 2019. The fair value on the grant date of the options was $58,548 and it is being recognized over the vesting period of the options.

On September 5, 2014, the Company awarded 1,220,000 options, which vest over three years. The options have an exercise price of between and $0.65 and $0.70 per share and an expiration date of September 5, 2019. The fair value on the grant date of the options was $593,826 and it is being recognized over the vesting period of the options.

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On September 8, 2014, the Company awarded 25,000 options, which vest over three years. The options have an exercise price of $0.775 per share and an expiration date of September 5, 2019. The fair value on the grant date of the options was $11,750 and it is being recognized over the vesting period of the options.

On September 12, 2014, the Company awarded 25,000 options, which vest over three years. The options have an exercise price of $0.78 per share and an expiration date of September 12, 2019. The fair value on the grant date of the options was $11,945 and it is being recognized over the vesting period of the options.

For the nine months ended September 30, 2014 and 2013, stock compensation expense related to options totaled totaled $1,000,526 and $458,765, respectively.

NOTE 7: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of September 30, 2014 and December 31, 2013:

	Number of Warrants	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Intrinsic Value
Outstanding at December 31, 2013	18,770,591	$	0.35	4.64	$	—
Granted	6,317,011	0.46
Less Exercised	11,397,002	0.36
Outstanding at September 30, 2014	13,690,600	$	0.40	3.68	$	984,178

The warrants were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation during the nine months ended September 30, 2014 include expected terms of 1.50 to 2.50 years, expected volatility of 100%, risk free interest rate of 0.29% to 1.76%, and expected dividend yield of 0%.

On January 27, 2014, the Company issued five-year fully-vested warrants to purchase 250,000 shares of common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $44,370 and was expensed during the nine months ended September 30, 2014.

On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the Second Private Placement.  The units in the Second Private Placement consisted of 666,667 shares of common stock and warrants to purchase an additional 666,667 shares of common stock, as well as 53,334 placement agent warrants.  The warrants in the Second Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $122,287.

On February 3, 2014, the Company issued 44,307 shares of common stock and five-year fully-vested warrants to purchase 44,307 shares of common stock with an exercise price of $0.40 per share for payment for services. The fair value on the grant date of the warrants was $8,186 and was expensed during the nine months ended September 30, 2014.

On March 24, 2014, the Company issued warrants to purchase 1,000,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by an affiliate of the warrant holder. The warrants have an exercise price of $0.40 per share and an expiration date of March 24, 2019. The fair value on the grant date of the warrants was $321,746 and it is being expensed over the expected vesting period of the warrants.

On June 30, 2014, the Company sold an aggregate of 2,766,667 units to three accredited investors for gross proceeds of $830,000 in the Third Private Placement.  The units in the Third Private Placement consisted of 2,766,667 shares of common stock and warrants to purchase an additional 2,766,667 shares of common stock, as well as 168,000 placement agent warrants.  The warrants in the Third Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $503,884.

On June 30, 2014, the Company issued three-year fully-vested warrants to purchase 100,000 shares of common stock with an exercise price of $0.35 per share for payment for services. The fair value on the grant date of the warrants was $13,202 and was expensed during the nine months ended September 30, 2014.

In July 2014, the Company offered holders of a series of its warrants, including the warrants issued in the Second Private Placement and the Third Private Placement, the opportunity to exercise their warrants for a 10% discount to the stated exercise price in exchange for their agreement to exercise their warrants in full and for cash on or before July 31, 2014. Under the warrant exercise offer, in July 2014 the Company warrants for 10,027,002 shares of common stock were exercised pursuant to this offer.

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On July 17, 2014, the Company issued five-year warrants to purchase 25,000 shares of common stock that vest over twelve months and have an exercise price of $0.85 per share for payment for services. The fair value on the grant date of the warrants was $12,426 and it is being expensed over the vesting period of the warrants.

On August 25, 2014, the Company issued warrants to purchase 500,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by the warrant holder. The warrants have an exercise price of $0.60 per share and an expiration date of August 25, 2017. The fair value on the grant date of the warrants was $198,374 and and it is being expensed over the expected vesting period of the warrants.

On August 27, 2014, the Company issued three-year fully-vested warrants to purchase 15,000 shares of common stock with an exercise price of $0.65 per share for payment for services. The fair value on the grant date of the warrants was $5,531 and it is being expensed over the vesting period of the warrants.

On August 29, 2014, the Company issued three-year fully-vested warrants to purchase 53,036 shares of common stock with an exercise price of $0.70 per share for the settlement of accrued payroll of $21,514. The fair value on the grant date of the warrants was $21,514.

On September 5, 2014, the Company issued five-year warrants to purchase 500,000 shares of common stock that vest over three years and have an exercise price of $0.79 per share for payment for services. The fair value on the grant date of the warrants was $253,999 and it is being expensed over the vesting period of the warrants.

On September 30, 2014, the Company sold an aggregate of 700,000 units to two accredited investors for gross proceeds of $350,000 in the Summer Private Placement.  The units in the Summer Private Placement consisted of 700,000 shares of common stock and warrants to purchase ¼ of a share for every share purchased or an additional 175,000 shares of common stock.  The warrants in the Summer Private Placement have a term of five years, an exercise price of $0.60 per share and a fair value determined to be $47,260.

For the nine months ended September 30, 2014 and 2013, the Company has incurred warrant-based expense of $189,172 and $59,254, respectively.

NOTE 8: PERFORMANCE SHARE UNITS

On January 27, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Paul Arena, the Company’s Executive Chairman. Mr. Arena was granted an award of up to an aggregate of 3,000,000 Performance Share Units (“PSUs”).  Each PSU represents the right to receive one share of the Company’s common stock.  The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

On September 5, 2014, the Company entered into Performance Share Unit Agreements under the AudioEye, Inc. 2015 Incentive Compensation Plan with two employees. Each was granted an award of up to an aggregate of 200,000 PSUs.  Each PSU represents the right to receive one share of the Company’s common stock.  The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

On September 30, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2015 Incentive Compensation Plan with one employee. The employee was granted an award of up to an aggregate of 100,000 PSUs.  Each PSU represents the right to receive one share of the Company’s common stock.  The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

Below is a table summarizing the Company’s outstanding performance share units as of September 30, 2014 and December 31, 2013:

	Number of PSUs	Wtd Avg. Grant Fair Value		Wtd Avg. Remaining Term
Outstanding at December 31, 2013	1,000,000	$	0.45	1.75
Granted	3,500,000	0.39
Outstanding at September 30, 2014	4,500,000	$	0.40	2.14

For the nine months ended September 30, 2014 and 2013, the Company has incurred performance share unit-based expense of $348,859 and $75,000, respectively.

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For the nine months ended September 30, 2014 and 2013, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $1,538,557 and $593,019, respectively. As of September 30, 2014, the aggregate stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2017 is $2,310,338.

NOTE 9: INTANGIBLE ASSETS

As of September 30, 2014, patents, technology and other intangibles with contractual terms were generally amortized over their estimated useful lives of five or ten years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

Prior to any impairment adjustment, intangible assets consisted of the following:

	RestatedSeptember 30,			December 31,
	2014			2013
Patents	$	3,602,454		$	3,563,343
Software Development Costs	517,500			—
Accumulated Amortization	(834,955		)	(489,398		)
Intangible Assets, Net	$	3,284,999		$	3,073,945

Software development costs and licensing intangible assets both have an estimated useful life of 3 years. Software development costs are incurred during the building of the Company’s Internet platform. Licensing costs are those costs incurred to use processes and technologies not developed by the Company. Both software development and licensing costs are subject to annual impairment testing. During the nine months ended September 30, 2014, $556,611 was capitalized as software development cost and patent acquisition costs.

Amortization expense totaled $345,557 and $266,738 for the nine months ended September 30, 2014 and 2013, respectively.

NOTE 10: INVESTMENTS

In March 2013, the Company was granted an aggregate of 300,000 common shares in Beta Music Group, Inc. (OTCBB: BEMG) for consulting services. Beta Music Group, Inc. has not yet established an active trading market for shares of common stock as of September 30, 2014. The Company has received the 300,000 common shares and assigned a value of $0 to those shares until a liquid trading market is established.

On June 27, 2014, the Company and Ecologic Transportation, Inc. agreed to convert $60,000 of accounts receivable owed to the Company into 600,000 shares of Ecologic Transportation, Inc. common stock at a rate of $0.10 per share. The Ecologic Transportation, Inc. common stock has a value of $0.08 per share as of September 30, 2014, with an aggregate value of $48,000 as of such date resulting in an unrealized loss on marketable securities of $12,000 for the nine months ended September 30, 2014. The shares of Ecologic Transportation, Inc. common stock are expected to be issued to the Company in the fourth quarter of 2014.

NOTE 11: SUBSEQUENT EVENTS

On October 3, 2014, the Company awarded 300,000 options, which vest twenty percent upon grant and twenty percent every ninety days thereafter. The options have an exercise price of $0.60 per share and an expiration date of October 3, 2017.

On October 10, 2014 the Company issued 50,000 shares of common stock for services.

On October 16, 2014, the Company awarded 37,500 options, which vest over three years. The options have an exercise price of $0.65 per share and an expiration date of October 16, 2019.

On October 20, 2014, the Company awarded 115,000 options, which vest over three years. The options have an exercise price of $0.61 per share and an expiration date of October 20, 2019.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, should be read in conjunction with our consolidated financial statements and related notes in Part I, Item 1 of this report.

As used in this quarterly report, the terms “we,” “us,” “our” and similar references refer to AudioEye, Inc. and our wholly-owned subsidiary, unless otherwise indicated.

Cautionary Note Regarding Forward-Looking Statements

Any statements in this Quarterly Report on Form 10-Q about our expectations, beliefs, plans, objectives, prospects, financial condition, assumptions or future events or performance are not historical facts and are “forward-looking statements” as that term is defined under the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “believe”, “anticipate”, “should”, “intend”, “plan”, “will”, “expects”, “estimates”, “projects”, “positioned”, “strategy”, “outlook” and similar words. You should read the statements that contain these types of words carefully. Such forward-looking statements are subject to a number of risks, uncertainties and other factors that could cause actual results to differ materially from what is expressed or implied in such forward-looking statements. There may be events in the future that we are not able to predict accurately or over which we have no control. Potential risks and uncertainties include, but are not limited to, those discussed in “Part I, Item 1A. Risk Factors” in our Annual Report filed on Form 10-K for the year ended December 31, 2013. We urge you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We do not undertake any obligation to release publicly any revisions to such forward-looking statements to reflect events or uncertainties after the date hereof or to reflect the occurrence of unanticipated events.

Overview

AudioEye, Inc. was formed as a Delaware corporation on May 20, 2005. We focus on working to improve the mobility, usability and accessibility of all Internet-based content through the development, sale, licensing and use of our proprietary accessibility technologies. Our Audio Internet® is a technology that utilizes patented architecture to deliver a fully accessible audio equivalent of a visual website or mobile website in a compliant format that can be navigated, utilized, interacted with, and transacted from, without the use of a monitor or mouse, by individuals with visual impairments. For individuals with hearing impairments, Audio Internet® provides captioning for websites, and the challenges of reaching those with other impairments are also addressed by the technology platform.

Complete with an ever-growing suite of utilities tailored to the needs of different disabled users, the AudioEye® Audio Internet® Accessibility Platform is a fully scalable cloud-based solution designed and developed to meet the needs and compliance mandates for an ever-growing demographic.

We have developed patented Internet content publication and distribution software that enables conversion of any media into accessible formats and allows for real time distribution to end users on any Internet-connected device. We have a patent portfolio comprised of six patents in the United States, as well as several pending U.S. patents.  Our portfolio includes a number of patents that describe unique systems and methods for navigating devices and Internet content, as well as publication and automated solutions that connect to any content management system, and can deliver a mobile, usable, and accessible user experience to any consumer device.

This patented technology is the foundation of our mission to become a leader in Internet accessibility, mobile audio Internet navigation, and multi-format publishing technology as well as Internet content publication and distribution software.  Our management believes that there is significant market opportunity for our services as most websites are developed with the assumption that users can see the site, with the result that visually-impaired users have difficulty using such websites. Accordingly, providing accessibility services for these websites has become a significant market opportunity, as there are approximately 33 million computer users who have some form of visual impairment.

In October 2010, Congress passed and the President signed into law the Twenty-First Century Communication and Video Accessibility Act of 2010, which mandates that all government websites (city, state and federal) be compliant and provide accessibility to persons with disabilities. As a result, our management believes that providing accessibility services for these government websites has become a significant market opportunity in view of the potential demand for our patented solution.

Our Annual Report on Form 10-K for the year ended December 31, 2013 provides additional information about our business and operations.

Results of Operations

The discussion of the results of our operations compares the three and nine months ended September 30, 2014 with the three and nine months ended September 30, 2013 and are not necessarily indicative of the results which may be expected for any subsequent

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period.  Our prospects should be considered in light of the risks, expenses and difficulties encountered by companies in similar positions.  We may not be successful in addressing these risks and difficulties.

Comparative for the Three Months ended September 30, 2014 and September 30, 2013

Revenue

For the three months ended September 30, 2014 and 2013, revenue was $186,641 and $344,414, respectively, consisting primarily of website design and maintenance. Revenues declined due to decreased demand for our services. Additionally, for the three months ended September 30, 2014 and 2013, revenue from related parties was $1,125 and $37,125, respectively, consisting primarily of revenue from various levels of website design and maintenance.

Cost of Sales

For the three months ended September 30, 2014 and 2013, cost of sales was $264,459 and $130,771, respectively, consisting primarily of sub-contracting to outside sources, direct labor and direct technology costs.

Gross Profit

The decline in revenue resulted in a gross profit of $(76,693) during the three months ended September 30, 2014 as compared to a gross profit of $250,768 for the three months ended September 30, 2013. Gross profit decreased as a result of increasing website design costs combined with lower revenues.

Selling and Marketing Expenses

Selling and marketing expenses were $546,265 and $117,893 for the three months ended September 30, 2014 and 2013, respectively. The increase results from the establishment of dedicated resources to actively sell and market our products and services.

Research and Development Expenses

Research and development expenses were $153,188 and $-0- for three months ended September 30, 2014 and 2013, respectively. Research and development expenses increased as a result of the establishment of a dedicated research and development group during 2013.

General and Administrative Expenses

General and administrative expenses were $1,548,851 and $889,095 for the three months ended September 30, 2014 and 2013, respectively. General and administrative expenses increased as a result of an increase in the number of employees and the associated benefits costs as well as increased stock, option and warrant expense.

Amortization and Depreciation

Amortization and depreciation expenses were $132,104 and $89,823 for the three months ended September 30, 2014 and 2013, respectively. The increase in expense was primarily related to an increase in software development amortization.

Other Expenses

Other expenses were charges of $12,416 and $24,767 for the three months ended September 30, 2014 and 2013, respectively.  The resulting change to expense was due to a minor increase in unrealized losses from marketable equity securities and a substantial decrease in interest expense.

Comparative for the Nine Months ended September 30, 2014 and September 30, 2013

Revenue

For the nine months ended September 30, 2014 and 2013, revenue was $279,364 and $748,693, respectively, consisting primarily of revenues from various levels of website design and maintenance. Revenues increased due to increased demand for our services. Additionally, for the nine months ended September 30, 2014 and 2013, revenue from related parties was $5,375 and $57,375, respectively, consisting primarily of revenue from various levels of website design and maintenance.

18

Cost of Sales

For the nine months ended September 30, 2014 and 2013, cost of sales was $639,924 and $226,561, respectively, consisting primarily of direct labor and direct technology costs.

Gross Profit

The decline in revenue resulted in a gross profit of $(355,185) during the nine months ended September 30, 2014 as compared to a gross profit of $579,507 for the nine months ended September 30, 2013. Gross profit decreased as a result of increased costs related to implementation resources and lower revenues.

Selling and Marketing Expenses

Selling and marketing expenses were $1,068,353 and $167,509 for the nine months ended September 30, 2014 and 2013, respectively.  The increase results from the establishment of dedicated resources to actively sell and market our products and services.

Research and Development Expenses

Research and development expenses were $391,958 and $-0- for nine months ended September 30, 2014 and 2013, respectively. Research and development expenses increased as a result of the establishment of a dedicated research and development group during 2013.

General and Administrative Expenses

General and administrative expenses were $4,352,398 and $1,880,726 for the nine months ended September 30, 2014 and 2013, respectively. General and administrative expenses increased as a result an increase in the number of employees and the associated benefits costs as well as increases in travel, professional service, occupancy and stock, option and warrant expense.

Amortization and Depreciation

Amortization and depreciation expenses were $347,954 and $269,135 for the nine months ended September 30, 2014 and 2013, respectively. The increase in expense was primarily related to increased software development amortization.

Other Expenses

Other expenses were charges of $19,860 and $58,933 for the nine months ended September 30, 2014 and 2013, respectively.  The resulting change to expense was due to decreases in unrealized losses from marketable equity securities and a substantial decrease in interest expense.

Liquidity and Capital Resources

Working Capital

	RestatedAt September 30,		At December 31,
	2014		2013
Current Assets	$	2,795,340	$	2,498,551
Current Liabilities	761,746		867,800
Working Capital	$	2,033,594	$	1,630,751

The working capital surplus for the periods ended September 30, 2014 and December 31, 2013 was $2,033,594 and $1,630,751, respectively. The increase in surplus was primarily due to an increase in capital raised.

Cash Flows

	For the nine months ended September 30,
	2014			2013
Net Cash Used in Operating Activities	$	(3,761,754	)	$	(679,419	)
Net Cash Used in Investing Activities	(556,611		)	(9,890		)
Net Cash Provided by Financing Activities	4,623,210			748,034
Net Increase in Cash	$	304,845		$	61,725

19

We had cash in the amounts of $2,151,849 and $1,847,004 as of September 30, 2014 and December 31, 2013, respectively.

In view of our working capital position, continuing operating losses and limited cash, we will be required to raise additional capital through the sale of equity or debt securities or borrowings from financial institutions or third parties or a combination of the foregoing to continue to fund operations.  We cannot assure you that we will be able to obtain sufficient funds on acceptable terms or at all. Without such funds, we will be unable to implement our business plan or continue operations.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States. Preparing financial statements requires our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by our management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

Our critical accounting policies, as described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, relate to capitalized legal patent costs, income taxes, business combinations, goodwill, intangible assets, share-based payments, revenue recognition, and research and other accounting descriptions. There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2013 except as set forth below.

Revenue is recognized when all applicable recognition criteria have been met, which generally include: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. For software and technology development contracts where applicable, we recognize revenues on a percentage of completion method based upon several factors including but not limited to: (a) an estimate of total hours and milestones to complete; (b) the total hours completed; (c) the delivery of services rendered; (d) the change in estimates; and (e) the collectability of the contract.

Licensing revenues for intangible assets, including intellectual property such as patents and trademarks, are recognized when all applicable criteria have been met: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) the delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. Licensing revenues are recognized over the term of the contract or, in the case of a perpetual license, revenues are recognized in the period the criteria have been met. In transactions where we engage in a non-cash exchange for a license of our company for the license of our customer, we follow ASC 845 and any potential revenue is recorded as other income.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow for timely decisions regarding required disclosure.  Our management carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure, controls and procedures were not effective as of June 30, 2014 due to omissions of disclosures in accordance with generally accepted accounting principles and errors existed in the effectiveness of the design and operations of our company’s internal controls and procedures for non-monetary transactions and non-monetary revenue recognition as described below.

Material Weakness

Our management has concluded that a material weakness exists in the effectiveness of the design and operations of our internal controls over financial reporting in the area of revenue recognition.  The material weakness relates to (i) a lack of sufficient accounting personnel who have the requisite U.S. GAAP knowledge with respect to non-monetary transactions and non-monetary revenue recognition; and (ii) we did not maintain an adequate financial reporting organizational structure to support the complexity and operating activities of our company resulting in a weakness in the controls related to the financial reporting and disclosures regarding revenue recognition, which have affected and could continue to affect our company’s ability to ensure reliable financial reports.  The errors in revenue recognition impacted the revenues associated with non-cash transactions, the timing of revenue

20

recognition on certain contracts utilizing the percentage of completion methodology and revenues on certain agreements where the price was not reasonably assured of collection.

Management’s Remediation Plan

We are committed to remediating the control deficiencies that constitute the 2014 material weaknesses by implementing changes to our internal control over financial reporting and in particular to the recognition of revenue and costing related to non-monetary transactions.  Our chief financial officer is responsible for implementing changes and improvements in the internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses.

To that end, we plan on achieving this primarily through additional training efforts as well as ensuring appropriate review of the related significant accounting policies by the members of management with the requisite level of knowledge, experience and training to appropriately apply GAAP, including outside accounting and consulting firms.  We plan to undertake additional review processes to ensure the related significant accounting policies are implemented and applied on a consistent basis throughout our company.

Additionally, any potential future license transaction revenues will be recorded as “Other Income” in future periods.

We have also implemented new operational management systems to capture all data required for the computation of revenue under the percentage of completion methodology.

Finally, we established new policies for customer acceptance to mitigate the issues surrounding the reasonableness of customer collections.

We believe these measures will remediate the control deficiencies.  However, we have not completed all of the corrective processes, procedures and related evaluation or remediation that we believe are necessary.  As we continue to evaluate and work to remediate the control deficiencies that resulted in the material weaknesses, we may determine to take additional measures to address the control deficiencies.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are currently involved in various routine disputes and allegations incidental to our business operations. While it is not possible to determine the ultimate disposition of these matters, our management believes that the resolution of all such pending or threatened litigation is not likely to have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

We have identified material weaknesses in our internal control over financial reporting, which have resulted in a restatement of our previously issued financial statements. If our remedial measures are insufficient to address the material weaknesses, or if additional material weaknesses or significant deficiencies in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain errors  and we could be required to further restate our financial results, which could adversely affect our stock price and result in an inability to maintain compliance with applicable stock exchange listing requirements.

We have concluded that there are material weaknesses in our internal control over financial reporting, as we did not maintain effective controls over the selection and application of accounting principles generally accepted in the United States (“GAAP”) related to revenue recognition for certain non-monetary transactions. Specifically, the members of our management team with the requisite level of accounting knowledge, experience and training commensurate with our financial reporting requirements did not analyze certain accounting issues at the level of detail required to ensure the proper application of GAAP in certain circumstances. One material weakness related to our failure to maintain effective internal controls over the accounting for revenue recognition. Our Quarterly Reports on Form 10-Q have been amended by an Amendments No. 1 on Form 10-Q/A to reflect the restatement of our financial statements for the restated periods and the change in management’s conclusion regarding the effectiveness of our disclosure controls and procedures and internal control over financial reporting as of March 31, June 30 and September 30, 2014.

21

Our non-monetary intellectual property licensing plan may not be realized. If our intellectual property licensing plan proves to be unsuccessful, our business may fail to generate royalty revenues.

Our intellectual licensing plan is subject to all of the risks inherent in the establishment of a new business. We have yet to receive patent royalty payments related to the non-monetary intellectual property licensing agreements and we cannot assure you about future collections of royalties.

Except for the risk factors listed above there have been no material changes from the risk factors disclosed in Item 1.A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Sales of Unregistered Securities

In July 2014, we offered holders of a series of our warrants, including the warrants issued in the Second Private Placement and the Third Private Placement, the opportunity to exercise their warrants for a 10% discount to the stated exercise  price in exchange for their agreement to exercise their warrants in full and for cash on or before July 31, 2014. Under the warrant exercise offer, in July 2014 we issued 10,027,002 shares of common stock pursuant to exercise of warrants for gross proceeds of $3,632,801 and net proceeds of $3,501,521 after investment banking fees of $131,280.

From July 1, 2014 through September 30, 2014, we also issued 515,000 shares of common stock for services valued at $382,300 with no future period amortization.

In September 2014, we issued 20,000 shares of common stock pursuant to the exercise of 20,000 warrants at a strike price of $0.50 for proceeds of $10,000.

On July 17, 2014, we issued five-year warrants to purchase 25,000 shares of common stock that vest over twelve months and have an exercise price of $0.85 per share for payment for services.

On August 25, 2014, we issued warrants to purchase 500,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by us during the 12-month period immediately following the date of grant to customers introduced by the warrant holder. The warrants have an exercise price of $0.60 per share and an expiration date of August 25, 2017.

On August 27, 2014, we issued three-year fully-vested warrants to purchase 15,000 shares of common stock with an exercise price of $0.65 per share for payment for services.

On August 29, 2014, we issued three-year fully-vested warrants to purchase 53,036 shares of common stock with an exercise price of $0.70 per share for payment for services.

On September 5, 2014, we issued five-year warrants to purchase 500,000 shares of common stock that vest over three years and have an exercise price of $0.79 per share for payment for services.

On September 30, 2014, we sold an aggregate of 700,000 units to two accredited investors for gross proceeds of $350,000 in the closing of a private placement (the “Summer Private Placement”), which are being used for general working capital purposes. The units in the Summer Private Placement consisted of 700,000 shares of our common stock and warrants to purchase ¼ of a share for every share purchased or an additional 175,000 shares of our common stock.  The warrants in the Summer Private Placement have a term of five years and an exercise price of $0.60 per share.

The offer and sale of the securities set forth above were exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder. The Company determined that the investors were accredited based on representations made by the investors to the Company

Use of Proceeds from Public Offering of Common Stock

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

None.

22

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit No.	Description
4.1	Form of Warrant (Summer Private Placement) (1)
10.1	AudioEye, Inc. 2015 Incentive Compensation Plan (1)
31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

*Filed herewith.

(1)Incorporated by reference to our quarterly report on Form 10-Q, filed with the U.S. Securities and Exchange Commission on November 7, 2014.

23

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 18th day of May 2015.

AUDIOEYE, INC.
By:	/s/ Sean Bradley
	Sean Bradley
	President
By:	/s/ Donald Weinstein
	Donald Weinstein
	Chief Financial Officer

24

EX-31.1

Exhibit 31.1

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Carr Bettis, Principal Executive Officer of AudioEye, Inc. (the “Registrant”), certify that:

1.I have reviewed this Quarterly Report on Form 10-Q/A for the period ended September 30, 2014 of AudioEye, Inc. (the “Quarterly Report”);

2.Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

3.Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;

4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and

(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.The Registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:   May 18, 2015	By:	/s/ Carr Bettis
		Name:	Carr Bettis
		Title:	Principal Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION UNDER SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Donald Weinstein, Chief Financial Officer of AudioEye, Inc. (the “Registrant”), certify that:

1.I have reviewed this Quarterly Report on Form 10-Q/A for the period ended September 30, 2014 of AudioEye, Inc. (the “Quarterly Report”);

2.Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

3.Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report;

4.The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Annual Report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and

(d)Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and

5.The Registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date:   May 18, 2015	By:	/s/ Donald Weinstein
		Name:	Donald Weinstein
		Title:	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing by AudioEye, Inc. (the “Registrant”) of its Quarterly Report on Form 10-Q/A for the period ended September 30, 2014 (the “Quarterly Report”) with the Securities and Exchange Commission, I, Carr Bettis, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i)The Quarterly Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

Date:   May 18, 2015	By:	/s/ Carr Bettis
		Name:	Carr Bettis
		Title:	Principal Executive Officer

CERTIFICATION UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing by AudioEye, Inc. (the “Registrant”) of its Quarterly Report on Form 10-Q/A for the period ended September 30, 2014 (the “Quarterly Report”) with the Securities and Exchange Commission, I, Donald Weinstein, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i)The Quarterly Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii)The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

A signed original of this written statement required by Section 906 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.

Date:   May 18, 2015	By:	/s/ Donald Weinstein
		Name:	Donald Weinstein
		Title:	Chief Financial Officer

XML

PERFORMANCE SHARE UNITS (Details) (USD $)	9 Months Ended		0 Months Ended		12 Months Ended	0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 05, 2014	Dec. 31, 2013	Jan. 27, 2014
Wtd Avg. Remaining Term
Stock compensation expense related to the options and warrants	$ 1,538,557	$ 593,019
Total stock compensation expense to be amortized through March 2017	2,310,338		2,310,338
PSUs
PERFORMANCE SHARE UNITS
Number of employees granted	1		1	2
Performance share unit agreement granted (in shares)	3,500,000		100,000	200,000
Number of shares issued for each performance share unit			1	1
Number of PSUs
Number of shares, beginning	1,000,000		4,500,000
Granted (in shares)	3,500,000		100,000	200,000
Number of shares, ending	4,500,000		4,500,000		1,000,000
Wtd Avg. Grant Price
Weighted average exercise price, beginning (in dollars per share)	$ 0.45		$ 0.40
Granted (in dollars per share)	$ 0.39
Weighted average exercise price, ending (in dollars per share)	$ 0.40		$ 0.40		$ 0.45
Wtd Avg. Remaining Term
Outstanding at the beginning of the period	2 years 1 month 21 days				1 year 9 months
Outstanding at the end of the period	2 years 1 month 21 days				1 year 9 months
Stock compensation expense related to the options and warrants	$ 348,859	$ 75,000
Mr. Arena | PSUs
PERFORMANCE SHARE UNITS
Performance share unit agreement granted (in shares)						3,000,000
Number of shares issued for each performance share unit						1
Number of PSUs
Granted (in shares)						3,000,000

XML

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details 2) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenue	$ 186,641	$ 344,414	$ 279,364	$ 748,693
Revenue from related party	1,125	37,125	5,375	57,375
Total revenues	187,766	381,539	284,739	806,068
Cost of revenues	264,459	130,771	639,924	226,561
Gross profit	(76,693)	250,768	(355,185)	579,507
Operating expenses:
Selling and marketing	546,265	117,893	1,068,353	167,509
Research and development	153,188		391,958
General and administrative expenses	1,548,851	889,095	4,352,398	1,880,726
Amortization and depreciation	132,104	89,823	347,954	269,135
Total operating expenses	2,380,408	1,096,811	6,160,663	2,317,370
Operating income (loss)	(2,457,101)	(846,043)	(6,515,848)	(1,737,863)
Other income (expense)
Unrealized loss on marketable securities	(12,000)	(9,000)	(12,000)	(18,000)
Interest expense	(416)	(15,767)	(7,860)	(40,933)
Total other income (expense)	(12,416)	(24,767)	(19,860)	(58,933)
Net income (loss)	(2,469,517)	(870,810)	(6,535,708)	(1,796,796)
Net income (loss) per common share - basic	$ (0.04)	$ (0.02)	$ (0.12)	$ (0.04)
Net income (loss) per common share - diluted	$ (0.03)	$ (0.02)	$ (0.10)	$ (0.04)
Weighted average common shares outstanding - basic	61,062,150	44,385,177	55,993,097	41,668,724
Weighted average common shares outstanding - diluted	70,568,775	44,385,177	68,499,722	41,668,724
As Reported
Revenue	4,836,286		8,877,955
Revenue from related party	1,125		5,375
Total revenues	4,837,411		8,883,330
Cost of revenues	1,084,988		1,460,453
Gross profit	3,752,423		7,422,877
Operating expenses:
Selling and marketing	546,265		1,301,365
Research and development	153,188		391,958
General and administrative expenses	1,548,851		4,352,398
Amortization and depreciation	189,602		462,326
Total operating expenses	2,437,906		6,508,047
Operating income (loss)	1,314,517		914,830
Other income (expense)
Unrealized loss on marketable securities	(12,000)		(12,000)
Interest expense	(416)		(7,860)
Total other income (expense)	(12,416)		(19,860)
Net income (loss)	1,302,101		894,970
Net income (loss) per common share - basic	$ 0.02		$ 0.02
Net income (loss) per common share - diluted	$ 0.02		$ 0.01
Weighted average common shares outstanding - basic	61,062,150		55,993,097
Weighted average common shares outstanding - diluted	70,568,775		68,499,722
Cumulative Revisions | Error in revenue recognition and non-monetary intellectual property portfolio
Revenue	(4,649,645)		(8,598,591)
Total revenues	(4,649,645)		(8,598,591)
Cost of revenues	(820,529)		(820,529)
Gross profit	(3,829,116)		(7,778,062)
Operating expenses:
Selling and marketing			(233,012)
Amortization and depreciation	(57,498)		(114,372)
Total operating expenses	(57,498)		(347,384)
Operating income (loss)	(3,771,618)		(7,430,678)
Other income (expense)
Net income (loss)	$ (3,771,618)		$ (7,430,678)
Net income (loss) per common share - basic	$ (0.06)		$ (0.14)
Net income (loss) per common share - diluted	$ (0.05)		$ (0.11)

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2014

NOTES PAYABLE

NOTES PAYABLE

NOTE 4: NOTES PAYABLE

As of September 30, 2014 and December 31, 2013, the Company had the short term and long term notes payable as shown in the table below.

Notes and loans payable	September 30, 2014		December 31, 2013
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Note Payable (net of $0 and $1,155 discount, respectively)	—		148,845
Total	$	24,000	$	172,845
Long Term
Maryland TEDCO Note	$	57,800	$	79,800
Total	$	57,800	$	79,800

The Company previously had an outstanding loan from a third party in the amount of $74,900, which was originally issued during 2006 as part of an investment agreement.  The loan was unsecured and bore interest at 25% per year for four years. The Company had accrued interest of $74,900, which was included in accounts payable and accrued expenses on the balance sheet.  The note was in default until October 24, 2011, at which time the Company entered into a Termination and Release Agreement (“Release”) with the noteholder.  The terms of the Release, among other things, terminated the Investment Agreement between the parties, and required the Company to issue a Promissory Note to the noteholder in the combined amount of principal and accrued interest owed to date, for a total principal amount of $149,800 (the “Maryland TEDCO Note”).  The Maryland TEDCO Note is interest free, and is payable in monthly installments of $2,000 beginning November 1, 2011.  During the nine months ending September 30, 2014, the Company made cash payments of $22,000 on this note. As of September 30, 2014 and December 31, 2013, the principal amount owed was $81,800 and $103,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $57,800 and $79,800, respectively, as the long-term portion of the note.

On August 3, 2013, the Company borrowed $150,000 from a third party with a coupon rate of 10%, due on September 10, 2013 with a warrant to purchase 20,000 common shares that vested immediately with a strike price of $0.50. The warrant was valued at $6,930 on August 3, 2013 using a closing price that day of $0.47, a strike price of $0.50, term of 5 years, volatility of 100%, dividends of 0%, and a discount rate of 1.36%. The value of the warrant of $6,930 was reflected as a discount to the note for a net amount of $143,070.  For the year ended December 31, 2013, interest was accrued in the amount of $2,384 and $5,755 was recognized as amortization expense. During the nine months ending September 30, 2014, the note principal of $150,000 and interest of $3,658 was paid in full and $1,155 was recognized as amortization expenses.

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STOCKHOLDERS' EQUITY (Details) (USD $)	0 Months Ended		1 Months Ended	3 Months Ended				9 Months Ended		0 Months Ended	1 Months Ended	0 Months Ended
	Jul. 17, 2014	Mar. 28, 2014	Sep. 30, 2014	Sep. 30, 2014	Jun. 30, 2014	Jun. 30, 2014	Mar. 31, 2014	Sep. 30, 2014	Sep. 30, 2013	Oct. 10, 2014	Jul. 31, 2014	Feb. 03, 2014	Sep. 30, 2014	Jun. 30, 2014	Jan. 30, 2014	Jan. 30, 2014 item	Mar. 27, 2014	Dec. 31, 2013
STOCKHOLDERS' EQUITY
Common Stock, shares issued	34,459	49,496	70,552,753	70,552,753				70,552,753					70,552,753					53,239,369
Common Stock, shares outstanding			70,552,753	70,552,753				70,552,753					70,552,753					53,239,369
Common stock issued for services (in shares)							100,000
Expenses related to common stock issued for service							$ 28,500
Stockholders' Equity
Strike price (in dollars per share)			$ 0.50	$ 0.50				$ 0.50					$ 0.50
Common Stock, shares authorized			250,000,000	250,000,000				250,000,000					250,000,000				250,000,000	250,000,000
Common Stock, shares authorized before amendment																	100,000,000
Common Stock, shares issued	34,459	49,496	70,552,753	70,552,753				70,552,753					70,552,753					53,239,369
Common shares for the exercise of options	75,000	100,000	20,000
Common stock issued for services (in shares)							100,000
Expenses related to common stock issued for service							28,500
Common stock issued for exercise of warrants (in shares)						50,000	1,300,000
Proceeds from exercise of warrants			10,000				13,000	3,524,521	37,188
Amortization period				0 years		0 years
Value of shares issued for services				382,300		354,835
Common Stock, shares issued			20,000	515,000	1,071,916	17,870
Subsequent Event
STOCKHOLDERS' EQUITY
Common stock issued for services (in shares)										50,000
Stockholders' Equity
Common stock issued for services (in shares)										50,000
Warrants
Stockholders' Equity
Gross proceeds from exercise of warrants											3,632,801
Proceeds from exercise of warrants											3,501,521
Private placement cost											131,280
Discount percent											10.00
Shares exercised								11,397,002			10,027,002
Warrants granted on February 3, 2014 | Warrants
STOCKHOLDERS' EQUITY
Common stock issued for services (in shares)												44,307
Stockholders' Equity
Common stock value												13,292
Warrants to purchase shares												44,307
Term of warrant												5 years
Strike price (in dollars per share)												$ 0.40
Value of warrants												8,186
Common stock issued for services (in shares)												44,307
Volatility (as a percent)												100.00%
Risk-free interest rate (as a percent)												1.44%
Accredited investors
Stockholders' Equity
Units sold to accredited investors (in shares)													700,000	2,766,667		666,667
Number of accredited investors			2	2	3	3		2					2	3	2	2
Proceeds from sale of units to accredited investors													350,000	830,000		200,000
Units sold to accredited investors, number of common shares													700,000	2,766,667		666,667
Percent of common shares available to purchase with the purchase of a common share of stock			0.25%	0.25%				0.25%					0.25%
Additional number of shares of common stock included with the units sold to agents													175,000	168,000		53,334
Units sold to accredited investors, number of warrants													700,000	2,766,667		666,667
Term of warrants issued to accredited investor													5 years	5 years		5 years
Exercise price of units (in dollars per share)													$ 0.60	$ 0.40		$ 0.40
Value of warrants			47,260	47,260	503,884	503,884		47,260					47,260	503,884
Private placement cost														55,848	18,463
Net proceeds from sale of units to accredited investors														$ 774,152		$ 181,537

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NOTES PAYABLE (Details) (USD $)	9 Months Ended		0 Months Ended		12 Months Ended	0 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Oct. 24, 2011	Aug. 03, 2013	Dec. 31, 2013	Oct. 24, 2011
Notes Payable
Short Term	$ 24,000				$ 172,845
Long Term	57,800				79,800
Discount	0				1,155
Strike price (in dollars per share)	$ 0.50
Amortization expense	345,557	266,738
Maryland TEDCO Note
Notes Payable
Short Term	24,000				24,000
Long Term	57,800				79,800
Carrying amount of debt	81,800				103,800
Face amount of debt			149,800			149,800
Monthly payments			2,000
Repayment of Principal	22,000
Note
Notes Payable
Short Term					148,845
Discount	0			6,930	1,155
Carrying amount of debt				143,070
Interest rate				10.00%
Accrued interest					2,384
Face amount of debt				150,000
Warrants to purchase shares				20,000
Strike price (in dollars per share)				$ 0.50
Share price (in dollars per share)				$ 0.47
Term				5 years
Volatility (as a percent)				100.00%
Dividends (as a percent)				0.00%
Discount rate (as a percent)				1.36%
Amortization expense	1,155				5,755
Payment of accrued interest	3,658
Repayment of Principal	150,000
Loans Payable
Notes Payable
Carrying amount of debt			74,900			74,900
Interest rate			25.00%			25.00%
Due date from the date of issuance						4 years
Accrued interest			$ 74,900			$ 74,900

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OPTIONS (Details) (USD $)	0 Months Ended		1 Months Ended	9 Months Ended		12 Months Ended	0 Months Ended
	Jul. 17, 2014	Mar. 28, 2014	Sep. 30, 2014	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013	Jan. 27, 2014	Feb. 17, 2014	Mar. 03, 2014	Mar. 24, 2014	Jun. 09, 2014	Jun. 02, 2014	Jun. 30, 2014	Jun. 11, 2014	Jul. 01, 2014	Jul. 21, 2014	Jul. 22, 2014	Jul. 23, 2014	Jul. 28, 2014	Aug. 18, 2014	Sep. 02, 2014	Sep. 05, 2014	Sep. 08, 2014	Sep. 12, 2014	Mar. 31, 2014
Number of options:
Less Exercised (in shares)	75,000	100,000	20,000
Significant assumptions used in the valuation
Share based compensation expense				$ 1,538,557	$ 593,019
Exercise Price (in dollars per share)			$ 0.50	$ 0.50
Common shares for the exercise of options	75,000	100,000	20,000
Common Stock, shares issued	34,459	49,496	70,552,753	70,552,753		53,239,369
Options
Options
Options issued and outstanding			11,306,850	11,306,850		4,485,250
Number of options:
Outstanding at beginning of the period (in shares)				4,485,250
Granted (in shares)				7,096,600
Less Forfeited (in shares)				100,000
Less Exercised (in shares)				175,000
Outstanding at the end of the period (in shares)			11,306,850	11,306,850		4,485,250
Wtd Avg. Exercise Price
Outstanding at beginning of the period (in dollars per share)				$ 0.38
Granted (in dollars per share)				$ 0.51
Less Forfeited (in dollars per share)				$ 0.79
Less Exercised (in dollars per share)				$ 0.31
Outstanding at end of the period (in dollars per share)			$ 0.460	$ 0.460		$ 0.38
Wtd Avg. Remaining Term
Outstanding at beginning of the period, wtd Avg. Remaining Term				4 years		3 years 11 months 16 days
Outstanding at end of the period, wtd Avg. Remaining Term				4 years		3 years 11 months 16 days
Intrinsic Value
Outstanding at beginning of the period, Intrinsic Value (in dollars)				105,410																					709,393
Outstanding at end of the period, Intrinsic Value (in dollars)						105,410																			709,393
Significant assumptions used in the valuation
Expected volatility (as a percent)				100.00%
Expected dividend yield (as a percent)				0.00%
Share based compensation expense				1,000,526	458,765
Number of options awarded				7,096,600
Common shares for the exercise of options				175,000
Options | Minimum
Significant assumptions used in the valuation
Expected term				2 years 6 months
Risk-free interest rate (as a percent)				0.83%
Options | Maximum
Significant assumptions used in the valuation
Expected term				3 years 3 months 29 days
Risk-free interest rate (as a percent)				1.76%
Options | Options issued on January 27, 2014
Number of options:
Granted (in shares)							1,500,000
Significant assumptions used in the valuation
Grant date fair value of options							303,562
Number of options awarded							1,500,000
Exercise Price (in dollars per share)							$ 0.40
Options | Options issued on January 27, 2014 | Immediate vesting
Significant assumptions used in the valuation
Vesting percentage							33.33%
Options | Options issued on January 27, 2014 | Vesting upon company reporting minimum $10 million in annualized revenue by 2nd anniversary
Significant assumptions used in the valuation
Vesting percentage							33.33%
Minimum annualized revenues reported by 2nd anniversary from the grant date							10,000,000
Options | Options issued on January 27, 2014 | Vesting upon company reporting minimum $20 million in annualized revenue by 3rd anniversary
Significant assumptions used in the valuation
Vesting percentage							33.33%
Minimum annualized revenues reported by 3nd anniversary from the grant date							20,000,000
Options | Options issued on February 17, 2014
Number of options:
Granted (in shares)								55,000
Significant assumptions used in the valuation
Grant date fair value of options								10,556
Number of options awarded								55,000
Exercise Price (in dollars per share)								$ 0.305
Vesting period								3 years
Options | Options issued on March 3, 2014
Number of options:
Granted (in shares)									250,000
Significant assumptions used in the valuation
Grant date fair value of options									36,935
Number of options awarded									250,000
Exercise Price (in dollars per share)									$ 0.40
Options | Options issued on March 3, 2014 | Immediate vesting
Significant assumptions used in the valuation
Vesting percentage									20.00%
Options | Options issued on March 3, 2014 | Vesting every 90 days
Significant assumptions used in the valuation
Vesting percentage									20.00%
Options | Options issued on March 24, 2014
Number of options:
Granted (in shares)										2,522,100
Significant assumptions used in the valuation
Grant date fair value of options										724,948
Number of options awarded										2,522,100
Exercise Price (in dollars per share)										$ 0.45
Vesting period										3 years
Options | Options issued on March 24, 2014 | One individual
Number of options:
Granted (in shares)										200,000
Significant assumptions used in the valuation
Number of options awarded										200,000
Options | Options Granted on 2 June and 9 June 2014 [Member]
Number of options:
Granted (in shares)											175,000	175,000
Significant assumptions used in the valuation
Grant date fair value of options											35,834	35,834
Number of options awarded											175,000	175,000
Exercise Price (in dollars per share)											$ 0.33	$ 0.33
Vesting period											3 years	3 years
Options | Options Granted on 11June and 30 June 2014 [Member]
Number of options:
Granted (in shares)													400,000	400,000
Significant assumptions used in the valuation
Grant date fair value of options													68,830	68,830
Number of options awarded													400,000	400,000
Exercise Price (in dollars per share)													$ 0.34	$ 0.33
Vesting period													3 years	3 years
Options | Options Granted On 1 July 2014 Member
Number of options:
Granted (in shares)															262,500
Significant assumptions used in the valuation
Grant date fair value of options															54,788
Number of options awarded															262,500
Exercise Price (in dollars per share)															$ 0.35
Vesting period															3 years
Options | Options Granted On 21 July 2014 Member
Number of options:
Granted (in shares)																22,000
Significant assumptions used in the valuation
Grant date fair value of options																12,882
Number of options awarded																22,000
Exercise Price (in dollars per share)																$ 0.91
Vesting period																3 years
Options | Options Granted On 22 July 2014 Member
Number of options:
Granted (in shares)																	250,000
Significant assumptions used in the valuation
Grant date fair value of options																	97,876
Number of options awarded																	250,000
Exercise Price (in dollars per share)																	$ 0.65
Options | Options Granted On 22 July 2014 Member | Immediate vesting
Significant assumptions used in the valuation
Vesting percentage																	20.00%
Options | Options Granted On 22 July 2014 Member | Vesting every 90 days
Significant assumptions used in the valuation
Vesting percentage																	20.00%
Options | Options Granted On 23 July 2014 Member
Number of options:
Granted (in shares)																		125,000
Significant assumptions used in the valuation
Grant date fair value of options																		80,905
Number of options awarded																		125,000
Exercise Price (in dollars per share)																		$ 1.07
Vesting period																		3 years
Options | Options Granted On 28 July 2014 Member
Number of options:
Granted (in shares)																			75,000
Significant assumptions used in the valuation
Grant date fair value of options																			42,981
Number of options awarded																			75,000
Exercise Price (in dollars per share)																			$ 0.92
Vesting period																			3 years
Options | Options Granted On 18 August 2014 Member
Number of options:
Granted (in shares)																				60,000
Significant assumptions used in the valuation
Grant date fair value of options																				25,067
Number of options awarded																				60,000
Exercise Price (in dollars per share)																				$ 0.65
Vesting period																				3 years
Options | Options Granted On 2 September 2014 Member
Number of options:
Granted (in shares)																					130,000
Significant assumptions used in the valuation
Grant date fair value of options																					58,548
Number of options awarded																					130,000
Exercise Price (in dollars per share)																					$ 0.70
Vesting period																					3 years
Options | Options Granted On 5 September 2014 Member
Number of options:
Granted (in shares)																						1,220,000
Significant assumptions used in the valuation
Grant date fair value of options																						593,826
Number of options awarded																						1,220,000
Vesting period																						3 years
Options | Options Granted On 5 September 2014 Member | Minimum
Significant assumptions used in the valuation
Exercise Price (in dollars per share)																						$ 0.65
Options | Options Granted On 5 September 2014 Member | Maximum
Significant assumptions used in the valuation
Exercise Price (in dollars per share)																						$ 0.70
Options | Options Granted On 8 September 2014 Member
Number of options:
Granted (in shares)																							25,000
Significant assumptions used in the valuation
Grant date fair value of options																							11,750
Number of options awarded																							25,000
Exercise Price (in dollars per share)																							$ 0.775
Vesting period																							3 years
Options | Options Granted On 12 September 2014 Member
Number of options:
Granted (in shares)																								25,000
Significant assumptions used in the valuation
Grant date fair value of options																								$ 11,945
Number of options awarded																								25,000
Exercise Price (in dollars per share)																								$ 0.78
Vesting period																								3 years

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WARRANTS (Details) (Warrants, USD $)	1 Months Ended	9 Months Ended	12 Months Ended
	Jul. 31, 2014	Sep. 30, 2014	Dec. 31, 2013
Warrants
Number of warrants
Number of shares, beginning		18,770,591
Number of shares, granted		6,317,011
Number of shares, less exercised	10,027,002	11,397,002
Number of shares, ending		13,690,600	18,770,591
Weighted average exercise price
Weighted average exercise price, beginning (in dollars per share)		$ 0.35
Weighted average exercise price, granted (in dollars per share)		$ 0.46
Weighted average exercise price, less exercised (in dollars per share)		$ 0.36
Weighted average exercise price, ending (in dollars per share)		$ 0.40	$ 0.35
"Wtd Avg. Remaining Term "
Outstanding at beginning of the period		3 years 8 months 5 days	4 years 7 months 21 days
Outstanding at end of the period		3 years 8 months 5 days	4 years 7 months 21 days
Intrinsic Value
Outstanding at end of the period		$ 984,178

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2014

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 3: RELATED PARTY TRANSACTIONS

As of September 30, 2014 and December 31, 2013, related party loans totaled $0 and $35,000, respectively. The Company repaid $35,000 of related party loans during the nine months ended September 30, 2014.

As of September 30, 2014 and December 31, 2013, there were related party payables of $0 and $243,424, respectively, for services performed by related parties. During the nine months ended September 30, 2014, the Company repaid $243,424 to related parties for services, payroll and reimbursable expenses.

As of September 30, 2014 and December 31, 2013, there were outstanding receivables of $27,500 and $82,250, respectively, for services performed for related parties.

For the three and nine months ended September 30, 2014 and 2013, there were revenues earned of $1,125 and $37,125 and $5,375 and $57,375, respectively, for services performed for related parties.

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WARRANTS (Details 2) (USD $)	3 Months Ended	9 Months Ended		0 Months Ended			1 Months Ended	0 Months Ended
	Mar. 31, 2014	Sep. 30, 2014	Sep. 30, 2013	Jun. 30, 2014	Sep. 30, 2014	Jan. 30, 2014 item	Jul. 31, 2014	Mar. 24, 2014	Jan. 27, 2014	Feb. 03, 2014	Jul. 17, 2014	Aug. 25, 2014	Aug. 27, 2014	Aug. 29, 2014	Sep. 05, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)		$ 0.50			$ 0.50
Stock compensation expense related to the options and warrants		$ 1,538,557	$ 593,019
Common stock issued for services (in shares)	100,000
Debt discount for warrants issued with debt			6,930
Warrants granted on June 30, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)				$ 0.35
Grant date fair value of warrants				13,202
Warrants to purchase shares				100,000
Term of warrant				3 years
Accredited investors
Significant assumptions used in the valuation
Grant date fair value of options						122,287
Grant date fair value of warrants		47,260		503,884	47,260
Units sold to accredited investors (in shares)				2,766,667	700,000	666,667
Number of accredited investors to whom the entity sold units		2		3	2	2
Proceeds from sale of units to accredited investors				830,000	350,000	200,000
Number of shares of common stock included with the units sold				2,766,667	700,000	666,667
Percent Of Common Shares Available To Purchase With The Purchase Of A Common Share Of Stock		0.25%			0.25%
Additional number of shares of common stock included with the units sold				2,766,667		666,667
Number of shares of warrants included with the units sold				2,766,667	700,000	666,667
Additional number of shares of common stock included with the units sold to agents				168,000	175,000	53,334
Term of warrants issued to accredited investor				5 years	5 years	5 years
Exercise price of units (in dollars per share)				$ 0.40	$ 0.60	$ 0.40
Warrants
Significant assumptions used in the valuation
Expected volatility (as a percent)		100.00%
Expected dividend yield (as a percent)		0.00%
Stock compensation expense related to the options and warrants		189,172	59,254
Discount percent							10.00
Shares exercised		11,397,002					10,027,002
Warrants | Warrants granted on March 24, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)								$ 0.40
Grant date fair value of warrants								321,746
Warrants to purchase shares								1,000,000
Number of warrants, which will vest for every specified dollars of gross sales								1
Amount of gross sales for which one warrant share will vest								10
Period immediately following the issue date during which warrants will vest for every specified dollars of gross sales								12 months
Warrants | Warrants granted on January 27, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)									$ 0.40
Stock compensation expense related to the options and warrants		44,370
Grant date fair value of warrants									44,370
Warrants to purchase shares									250,000
Term of warrant									5 years
Warrants | Warrants granted on February 3, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)										$ 0.40
Stock compensation expense related to the options and warrants		8,186
Grant date fair value of warrants										8,186
Common stock issued for services (in shares)										44,307
Warrants to purchase shares										44,307
Term of warrant										5 years
Warrants | Warrants granted on June 30, 2014
Significant assumptions used in the valuation
Stock compensation expense related to the options and warrants		13,202
Warrants | Warrants granted on July 17, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)											$ 0.85
Grant date fair value of warrants											12,426
Warrants to purchase shares											25,000
Vesting period											12 months
Term of warrant											5 years
Warrants | Warrants granted on August 25, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)												$ 0.60
Grant date fair value of warrants												198,374
Warrants to purchase shares												500,000
Number of warrants, which will vest for every specified dollars of gross sales												1
Amount of gross sales for which one warrant share will vest												10
Period immediately following the issue date during which warrants will vest for every specified dollars of gross sales												12 months
Warrants | Warrants granted on August 27, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)													$ 0.65
Grant date fair value of warrants													5,531
Warrants to purchase shares													15,000
Term of warrant													3 years
Warrants | Warrants granted on August 29, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)														$ 0.70
Stock compensation expense related to the options and warrants		21,514
Grant date fair value of warrants														21,514
Warrants to purchase shares														53,036
Term of warrant														3 years
Accrued salary converted amount														21,514
Warrants | Warrants granted on September 5, 2014
Significant assumptions used in the valuation
Strike price (in dollars per share)															$ 0.79
Grant date fair value of warrants															$ 253,999
Warrants to purchase shares															500,000
Vesting period															3 years
Term of warrant															5 years
Warrants | Minimum
Significant assumptions used in the valuation
Expected term		1 year 6 months
Risk-free interest rate (as a percent)		0.29%
Warrants | Maximum
Significant assumptions used in the valuation
Expected term		2 years 6 months
Risk-free interest rate (as a percent)		1.76%

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CONSOLIDATED BALANCE SHEETS (USD $)	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Dec. 31, 2012
Current Assets
Cash	$ 2,151,849	$ 1,847,004	$ 73,435	$ 11,710
Accounts receivable, net	400,118	569,297
Related party receivables	27,500	82,250
Prepaid assets and security deposits	167,873
Marketable securities	48,000
Total Current Assets	2,795,340	2,498,551
Property and equipment, net	1,450	3,847
Intangible assets, net	3,284,999	3,073,945
Goodwill	700,528	700,528
Total Assets	6,782,317	6,276,871
Current Liabilities
Accounts payable and accrued expenses	534,779	416,531
Billings in excess of costs	202,967
Notes and loans payable-current, net of unamortized discounts of $0 and $1,155, respectively	24,000	172,845
Related party payable	0	243,424
Related party loans	0	35,000
Total Current Liabilities	761,746	867,800
Long Term Liabilities
Notes and loans payable-long term	57,800	79,800
Total Long Term Liabilities	57,800	79,800
Total Liabilities	819,546	947,600
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, none issued and outstanding, as of September 30, 2014 and December 31, 2013
Common stock, $0.00001 par value, 250,000,000 shares authorized, 70,552,753 and 53,239,369 issued and outstanding, as of September 30, 2014 and December 31, 2013 respectively	705	532
Treasury stock	(623,000)	(623,000)
Additional paid-in capital	20,400,247	13,231,212
Accumulated deficit	(13,815,181)	(7,279,473)
Total Stockholders' Deficit	5,962,771	5,329,271
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 6,782,317	$ 6,276,871

XML

ORGANIZATION AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2014

ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited consolidated interim financial statements of AudioEye, Inc. and its wholly-owned subsidiary (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014.

In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2013 as reported in the Company’s Annual Report on Form 10-K have been omitted.

Corporate Information and Background

AudioEye, Inc. was formed as a Delaware corporation on May 20, 2005. The Company focuses on working to improve the mobility, usability and accessibility of all Internet-based content through the development, sale, licensing and use of its proprietary accessibility technologies. Audio Internet® is a technology that utilizes patented architecture to deliver a fully accessible audio equivalent of a visual website or mobile website in a compliant format that can be navigated, utilized, interacted with, and transacted from, without the use of a monitor or mouse, by individuals with visual impairments. For individuals with hearing impairments, Audio Internet® provides captioning for websites, and the challenges of reaching those with other impairments are also addressed by the technology platform.

Complete with an ever-growing suite of utilities tailored to the needs of different disabled users, the AudioEye® Audio Internet® Accessibility Platform is a fully scalable cloud-based solution designed and developed to meet the needs and compliance mandates for an ever-growing demographic.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revenue Recognition

Revenue is recognized when all applicable recognition criteria have been met, which generally include: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. For software and technology development contracts, where applicable, the Company recognizes revenues on a percentage of completion method based upon several factors including but not limited to: (a) an estimate of total hours and milestones to complete; (b) the total hours completed; (c) the delivery of services rendered; (d) the change in estimates; and (e) the collectability of the contract.

Licensing revenues for intangible assets, including intellectual property such as patents and trademarks, are recognized when all applicable criteria have been met: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) the delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. Licensing revenues are recognized over the term of the contract or, in the case of a perpetual license, revenues are recognized in the period the criteria have been met. In transactions where the Company engages in a non-cash exchange for a license of the Company for the license of the Company’s customer, the Company follows ASC 845 and any potential revenues is recorded as other income.

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INVESTMENTS (Details) (USD $)	3 Months Ended			9 Months Ended		1 Months Ended	0 Months Ended
	Sep. 30, 2014	Mar. 31, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Mar. 31, 2013	Jun. 27, 2014
Common stock issued for services (in shares)		100,000
Marketable Securities, Unrealized Gain (Loss)	$ (12,000)		$ (9,000)	$ (12,000)	$ (18,000)
Beta Music Group Inc Member
Common stock issued for services (in shares)						300,000
Cash paid by the Company				0
Ecologic Transportation Inc Member
Share price (in dollars per share)	$ 0.08			$ 0.08			$ 0.10
Amount of accounts receivable to be converted into shares of common stock							60,000
Accounts receivable converted into shares of common stock							600,000
Common Stock, Value, Outstanding	48,000			48,000
Marketable Securities, Unrealized Gain (Loss)				$ 12,000

XML

PERFORMANCE SHARE UNITS (Tables)

9 Months Ended

Sep. 30, 2014

PERFORMANCE SHARE UNITS

Summary of outstanding performance share units

	Number of PSUs	Wtd Avg. Grant Fair Value		Wtd Avg. Remaining Term
Outstanding at December 31, 2013	1,000,000	$	0.45	1.75
Granted	3,500,000	0.39
Outstanding at September 30, 2014	4,500,000	$	0.40	2.14

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SUBSEQUENT EVENTS (Details) (USD $)	3 Months Ended	9 Months Ended	0 Months Ended
	Mar. 31, 2014	Sep. 30, 2014	Oct. 10, 2014	Oct. 20, 2014	Oct. 16, 2014	Oct. 03, 2014
Subsequent event
Common stock issued for services (in shares)	100,000
Options
Subsequent event
Number of options awarded		7,096,600
Subsequent Event
Subsequent event
Common stock issued for services (in shares)			50,000
Subsequent Event | Options
Subsequent event
Number of options awarded				115,000	37,500	300,000
Vesting period				3 years	3 years
Exercise price of units (in dollars per share)				$ 0.61	$ 0.65	$ 0.60
Subsequent Event | Options | Options Vested on Grant Date
Subsequent event
Vesting percentage						20.00%
Subsequent Event | Options | Vesting every 90 days
Subsequent event
Vesting percentage						20.00%

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RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (USD $)	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Dec. 31, 2012
Current Assets
Cash	$ 2,151,849	$ 1,847,004	$ 73,435	$ 11,710
Accounts receivable, net	400,118	569,297
Related party receivables	27,500	82,250
Prepaid assets and security deposits	167,873
Marketable securities	48,000
Total Current Assets	2,795,340	2,498,551
Property and equipment, net	1,450	3,847
Intangible assets, net	3,284,999	3,073,945
Goodwill	700,528	700,528
Total Assets	6,782,317	6,276,871
Current Liabilities
Accounts payable and accrued expenses	534,779	416,531
Billings in excess of costs	202,967
Notes and loans payable-current	24,000	172,845
Related party payable	0	243,424
Related party loans	0	35,000
Total Current Liabilities	761,746	867,800
Long Term Liabilities
Notes and loans payable-long term	57,800	79,800
Total Long Term Liabilities	57,800	79,800
Total Liabilities	819,546	947,600
STOCKHOLDERS' EQUITY
Preferred stock
Common stock	705	532
Treasury stock	(623,000)	(623,000)
Additional paid-in capital	20,400,247	13,231,212
Accumulated deficit	(13,815,181)	(7,279,473)
Total Stockholders' Deficit	5,962,771	5,329,271
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	6,782,317	6,276,871
As Reported
Current Assets
Cash	2,151,849	1,847,004
Accounts receivable, net	695,744
Related party receivables	27,500
Prepaid assets and security deposits	5,189,330
Marketable securities	48,000
Total Current Assets	8,112,423
Property and equipment, net	1,450
Intangible assets, net	5,195,627
Goodwill	700,528
Total Assets	14,010,028
Current Liabilities
Accounts payable and accrued expenses	534,779
Notes and loans payable-current	24,000
Total Current Liabilities	558,779
Long Term Liabilities
Notes and loans payable-long term	57,800
Total Long Term Liabilities	57,800
Total Liabilities	616,579
STOCKHOLDERS' EQUITY
Common stock	705
Treasury stock	(623,000)
Additional paid-in capital	20,400,247
Accumulated deficit	(6,384,503)
Total Stockholders' Deficit	13,393,449
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	14,010,028
Cumulative Revisions | Error in revenue recognition and non-monetary intellectual property portfolio
Current Assets
Accounts receivable, net	(295,626)
Prepaid assets and security deposits	(5,021,457)
Total Current Assets	(5,317,083)
Intangible assets, net	(1,910,628)
Total Assets	(7,227,711)
Current Liabilities
Billings in excess of costs	202,967
Total Current Liabilities	202,967
Long Term Liabilities
Total Liabilities	202,967
STOCKHOLDERS' EQUITY
Accumulated deficit	(7,430,678)
Total Stockholders' Deficit	(7,430,678)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ (7,227,711)

XML

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

9 Months Ended

Sep. 30, 2014

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

NOTE 2:RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

The Company has restated its consolidated balance sheet as of September 30, 2014, and its consolidated statement of operations and consolidated statement of cash flows for the three and nine months ended September 30, 2014.

At the time the Company issued the financial statements subject to this restatement, the Company believed that it was relying on generally accepted accounting principles and properly applying those principles.  It remains the case that the Company relied upon the correct accounting principles in the accounting in those statements.  However, in conjunction certain changes in the management of the Company, as well as during the course of an internal review initiated by the Audit Committee at the Board of Directors during the first quarter and into the second quarter of 2015 (“Internal Review”), the Company identified errors in the application of the accounting principles for revenue recognition and costing of non-monetary transactions related to its intellectual property portfolio.  Specifically, the Company had no prior cash sales of licenses of its patents as of March 31, 2014. To recognize revenue on a non-monetary exchange of a license of its patents for services or licenses to be provided by a counterparty, the Company looked to establish fair value of either the licensed patents or the services or licenses to be received. Based on the nature of the transactions, and after consultation with the Company’s auditors and another outside accounting firm, the Company applied ASC 845-10-30-1, holding that fair value of the services or licenses it would receive in each transaction was more clearly evident than the fair value of the asset surrendered.   This methodology was approved by Company’s auditors and another outside accounting firm; this is the correct methodology, and it was the methodology used by the Company.

Under ASC 845, fair value in a license-for-services or license-for-license contract in which the cost of the asset being surrendered is not determinable can rely on the fair value of the asset received if it is determinable. The subsequent licenses for services or licenses transactions, as such, might have in the alternative considered the fair value of the services or licenses being provided by the counterparties. However, the Company has now determined following its Internal Review that in applying this methodology it did not have sufficient support to establish the value of the services or licenses provided under the subsequent license-for-services or license-for-license transactions, did not adequately track the consulting services provided by the various counterparties, and did not have sufficient support to establish such services were actually provided as per the terms of the contracts.

The Company recorded these revenues as “non-monetary” transactions, and the actual cash position of the Company is unaffected by this restatement.

The restatement also reflects that the Company discovered following its Internal Review errors associated with the timing of revenues recognized under certain contracts in terms of the percentage of completion methodology.  In such cases, the Company has now learned that it did not maintain sufficient documentation to measure the production activities necessary for such computation.

Finally, the Company discovered, following its Internal Review, errors which impacted revenues recognized where collection of the sales price was not reasonably assured.

None of the adjustments necessary to correct the errors impacted  net cash used in operating activities or the Company’s cash balance.

Following its Internal Review, the Company has determined that these errors resulted from material weakness in internal control over financial reporting as discussed under Part 1, Item 4.  In particular, the Company concluded that there was a misapplication of relevant accounting guidance and the absence of documentation to support transactions including the failure to trace the delivery of services. The following tables present the impact of the corrections on the previously reported unaudited quarterly financial information. The “As Reported” column in the tables below reflects balances previously reported by the Company in its quarterly report on Form 10-Q. The “Revisions” column shows the impact of adjustments made by the Company to reflect changes in presentation retrospectively as follows:

AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS – RESTATED

(UNAUDITED)

	As Reported September 30, 2014			Cumulative Revisions			Restated September 30, 2014
ASSETS
Current Assets
Cash	$	2,151,849					$	2,151,849
Accounts receivable, net	695,744			(295,626	)	(a)	400,118
Related party receivables	27,500						27,500
Prepaid assets and security deposits	5,189,330			(5,021,457	)	(b)	167,873
Marketable securities	48,000						48,000
Total Current Assets	8,112,423			(5,317,083	)		2,795,340
Property and equipment, net	1,450						1,450
Intangible assets, net	5,195,627			(1,910,628	)	(b)	3,284,999
Goodwill	700,528						700,528
Total Assets	$	14,010,028		(7,227,711	)		$	6,782,317
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	534,779					$	534,779
Billings in excess of costs	—			202,967		(c)	202,967
Notes and loans payable-current	24,000						24,000
Related party payables	—						—
Related party loans	—						—
Total Current Liabilities	558,779			202,967			761,746
Long Term Liabilities
Notes and loans payable-long term	57,800						57,800
Total Long Term Liabilities	57,800						57,800
Total Liabilities	616,579			202,967			819,546
STOCKHOLDERS’ EQUITY
Preferred stock	—						—
Common stock	705						705
Treasury stock	(623,000		)				(623,000		)
Additional paid-in capital	20,400,247						20,400,247
Accumulated deficit	(6,384,503		)	(7,430,678	)		(13,815,181		)
Total Stockholders’ Equity	13,393,449			(7,430,678	)		5,962,771
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,010,028		(7,227,711	)		$	6,782,317

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS – RESTATED

(UNAUDITED)

	Nine Months Ended
	As Reported September 30, 2014			Cumulative  Revisions			Restated September 30, 2014
Revenue	$	8,877,955		(8,598,591	)	(a), (b), (c)	$	279,364
Revenue from related party	5,375						5,375
Total revenues	8,883,330			(8,598,591	)		284,739
Cost of revenues	1,460,453			(820,529	)	(b)	639,924
Gross profit	7,422,877			(7,778,062			(355,185		)
Operating expenses:
Selling and marketing	1,301,365			(233,012	)	(b)	1,068,353
Research and development	391,958						391,958
General and administrative expenses	4,352,398						4,352,398
Amortization and depreciation	462,326			(114,372	)	(b)	347,954
Total operating expenses	6,508,047			(347,384	)		6,160,663
Operating income (loss)	914,830			(7,430,678	)		(6,515,848		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)				(12,000		)
Interest expense	(7,860		)				(7,860		)
Total other income (expense)	(19,860		)				(19,860		)
Net income (loss)	$	894,970		(7,430,678	)		$	(6,535,708	)
Net income (loss) per common share - basic	$	0.02		(0.14	)		$	(0.12	)
Net income (loss) per common share - diluted	$	0.01		(0.11	)		$	(0.10	)
Weighted average common shares outstanding - basic	55,993,097						55,993,097
Weighted average common shares outstanding - diluted	68,499,722						68,499,722

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS – RESTATED

(UNAUDITED)

	Three Months Ended
	As Reported September 30, 2014			Quarterly  Revisions			Restated  September 30, 2014
Revenue	$	4,836,286		(4,649,645	)	(a), (b), (c)	$	186,641
Revenue from related party	1,125						1,125
Total revenues	4,837,411			(4,649,645	)		187,766
Cost of revenues	1,084,988			(820,529	)	(b)	264,459
Gross profit	3,752,423			(3,829,116	)		(76,693		)
Operating expenses:
Selling and marketing	546,265						546,265
Research and development	153,188						153,188
General and administrative expenses	1,548,851						1,548,851
Amortization and depreciation	189,602			(57,498	)	(b)	132,104
Total operating expenses	2,437,906			(57,498	)		2,380,408
Operating income (loss)	1,314,517			(3,771,618	)		(2,457,101		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)				(12,000		)
Interest expense	(416		)				(416		)
Total other income (expense)	(12,416		)				(12,416		)
Net income (loss)	$	1,302,101		(3,771,618	)		$	(2,469,517	)
Net income (loss) per common share - basic	$	0.02		(0.06	)		$	(0.04	)
Net income (loss) per common share - diluted	$	0.02		(0.05	)		$	(0.03	)
Weighted average common shares outstanding - basic	61,062,150						61,062,150
Weighted average common shares outstanding - diluted	70,568,775						70,568,775

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – RESTATED

(UNAUDITED)

	Nine Months Ended
	As Reported September 30, 2014			Cumulative Revisions			Restated  September 30, 2014
Cash Flows from Operating Activities:
Net income (loss)	$	894,970		(7,430,678	)		$	(6,535,708	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	462,326			(114,372	)	(b)	347,954
Stock, option and warrant expense	1,538,557						1,538,557
Shares issued for services	778,927						778,927
Unrealized loss on marketable securities	12,000						12,000
Amortization of debt discount	1,155						1,155
Licenses sold in exchange for licenses	(2,025,000		)	2,025,000		(b)	—
Licenses sold in exchange for prepaid services	(6,075,000		)	6,075,000		(b)	—
Changes in operating assets and liabilities:
Accounts receivable	(186,447		)	355,626		(a)	169,179
Related party receivable	54,750						54,750
Prepaid and other assets	885,670			(1,053,543	)	(b)	(167,873		)
Accounts payable and accruals	139,762			(60,000	)	(b)	79,762
Billings in excess of costs	—			202,967		(c)	202,967
Deferred revenue	—						—
Related party payables	(243,424		)				(243,424		)
Net cash used in operating activities	(3,761,754		)				(3,761,754		)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(556,611		)				(556,611		)
Net cash used in investing activities	(556,611		)				(556,611		)
Cash Flows from Financing Activities:
Repayment of note payable	(172,000		)				(172,000		)
Repayment of related party loans	(35,000		)				(35,000
Borrowings on debt	—						—
Issuance of common stock for cash, net of issuance costs	1,305,689						1,305,689
Proceeds from exercise of options and warrants, net of issuance costs	3,524,521						3,524,521
Net cash provided by financing activities	4,623,210						4,623,210
Net increase in cash	304,845						304,845
Cash - beginning of period	1,847,004						1,847,004
Cash - end of period	$	2,151,849					$	2,151,849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	7,444					$	7,444
Income taxes paid	—						—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of debt	$	—					$	—
Warrants issued for accrued payroll	21,514						21,514
Common stock issued for accounts payable	—						—
Accounts payable converted into debt	—						—
Debt discount from warrants issued with debt	—						—
Accounts receivable converted to marketable securities	60,000						60,000

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
CONSOLIDATED BALANCE SHEETS
Notes and loans payable-current, discount amount	$ 0	$ 1,155
Preferred Stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Common Stock, shares authorized	250,000,000	250,000,000
Common Stock, shares issued	70,552,753	53,239,369
Common Stock, shares outstanding	70,552,753	53,239,369

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2014

ORGANIZATION AND BASIS OF PRESENTATION

Reclassification

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revenue Recognition

Revenue Recognition

Revenue is recognized when all applicable recognition criteria have been met, which generally include: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. For software and technology development contracts, where applicable, the Company recognizes revenues on a percentage of completion method based upon several factors including but not limited to: (a) an estimate of total hours and milestones to complete; (b) the total hours completed; (c) the delivery of services rendered; (d) the change in estimates; and (e) the collectability of the contract.

Licensing revenues for intangible assets, including intellectual property such as patents and trademarks, are recognized when all applicable criteria have been met: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) the delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. Licensing revenues are recognized over the term of the contract or, in the case of a perpetual license, revenues are recognized in the period the criteria have been met. In transactions where the Company engages in a non-cash exchange for a license of the Company for the license of the Company’s customer, the Company follows ASC 845 and any potential revenues is recorded as other income.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 07, 2014
Document And Entity Information
Entity Registrant Name	AUDIOEYE INC
Entity Central Index Key	0001362190
Document Type	10-Q/A
Document Period End Date	Sep. 30, 2014
Amendment Flag	true
Amendment Description	The Registrant is filing this Amendment No. 1 on Form 10-Q/A (this "Amended Filing") to its Quarterly Report on Form 10-Q for the three and six months ended September 30, 2014 as originally filed with the Securities and Exchange Commission on November 7, 2014 ("Original Filing") to restate its consolidated balance sheet as of September 30, 2014, and its consolidated statement of operations and consolidated statement of cash flow for the three and nine months ended September 30, 2014. In connection therewith, the Registrant hereby amends and replaces in their entirety Items 1, 2 and 4 in Part I, and Item 1A in Part II in the Original Filing. For the convenience of the reader, this Amended Filing sets forth the Original Filing, as modified where necessary to reflect the restatement and revisions. The reasons for the restatement and the effect thereof is discussed in Footnote 2 to our consolidated financial statements. As required by Rule 12b-15, the Registrant's principal executive officer and principal financial officer are providing new currently dated certifications. Accordingly, the Registrant hereby amends Item 6 in Part II in the Original Filing to reflect the filing of the new certifications. We are also separately amending our quarterly reports on Form 10 Q for the periods ending March 31, 2014 and June 30, 2014 in connection with the restatements of our interim financial statements for such periods. Except as described above, this Amended Filing does not amend, update or change any other items or disclosures in the Original Filing and does not purport to reflect any information or events subsequent to the filing thereof. As such, this Amended Filing speaks only as of the date the Original Filing was filed, and the Registrant has not undertaken herein to amend, supplement or update any information contained in the Original Filing to give effect to any subsequent events. Accordingly, this Amended Filing should be read in conjunction with the Registrant's filings made with the SEC subsequent to the filing of the Original Filing, including any amendment to those filings.
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		70,602,753
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2014

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RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Tables)

9 Months Ended

Sep. 30, 2014

RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS

Schedule of error corrections and prior period adjustments

AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS – RESTATED

(UNAUDITED)

	As Reported September 30, 2014			Cumulative Revisions			Restated September 30, 2014
ASSETS
Current Assets
Cash	$	2,151,849					$	2,151,849
Accounts receivable, net	695,744			(295,626	)	(a)	400,118
Related party receivables	27,500						27,500
Prepaid assets and security deposits	5,189,330			(5,021,457	)	(b)	167,873
Marketable securities	48,000						48,000
Total Current Assets	8,112,423			(5,317,083	)		2,795,340
Property and equipment, net	1,450						1,450
Intangible assets, net	5,195,627			(1,910,628	)	(b)	3,284,999
Goodwill	700,528						700,528
Total Assets	$	14,010,028		(7,227,711	)		$	6,782,317
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	534,779					$	534,779
Billings in excess of costs	—			202,967		(c)	202,967
Notes and loans payable-current	24,000						24,000
Related party payables	—						—
Related party loans	—						—
Total Current Liabilities	558,779			202,967			761,746
Long Term Liabilities
Notes and loans payable-long term	57,800						57,800
Total Long Term Liabilities	57,800						57,800
Total Liabilities	616,579			202,967			819,546
STOCKHOLDERS’ EQUITY
Preferred stock	—						—
Common stock	705						705
Treasury stock	(623,000		)				(623,000		)
Additional paid-in capital	20,400,247						20,400,247
Accumulated deficit	(6,384,503		)	(7,430,678	)		(13,815,181		)
Total Stockholders’ Equity	13,393,449			(7,430,678	)		5,962,771
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	14,010,028		(7,227,711	)		$	6,782,317

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS – RESTATED

(UNAUDITED)

	Nine Months Ended
	As Reported September 30, 2014			Cumulative  Revisions			Restated September 30, 2014
Revenue	$	8,877,955		(8,598,591	)	(a), (b), (c)	$	279,364
Revenue from related party	5,375						5,375
Total revenues	8,883,330			(8,598,591	)		284,739
Cost of revenues	1,460,453			(820,529	)	(b)	639,924
Gross profit	7,422,877			(7,778,062			(355,185		)
Operating expenses:
Selling and marketing	1,301,365			(233,012	)	(b)	1,068,353
Research and development	391,958						391,958
General and administrative expenses	4,352,398						4,352,398
Amortization and depreciation	462,326			(114,372	)	(b)	347,954
Total operating expenses	6,508,047			(347,384	)		6,160,663
Operating income (loss)	914,830			(7,430,678	)		(6,515,848		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)				(12,000		)
Interest expense	(7,860		)				(7,860		)
Total other income (expense)	(19,860		)				(19,860		)
Net income (loss)	$	894,970		(7,430,678	)		$	(6,535,708	)
Net income (loss) per common share - basic	$	0.02		(0.14	)		$	(0.12	)
Net income (loss) per common share - diluted	$	0.01		(0.11	)		$	(0.10	)
Weighted average common shares outstanding - basic	55,993,097						55,993,097
Weighted average common shares outstanding - diluted	68,499,722						68,499,722

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS – RESTATED

(UNAUDITED)

	Three Months Ended
	As Reported September 30, 2014			Quarterly  Revisions			Restated  September 30, 2014
Revenue	$	4,836,286		(4,649,645	)	(a), (b), (c)	$	186,641
Revenue from related party	1,125						1,125
Total revenues	4,837,411			(4,649,645	)		187,766
Cost of revenues	1,084,988			(820,529	)	(b)	264,459
Gross profit	3,752,423			(3,829,116	)		(76,693		)
Operating expenses:
Selling and marketing	546,265						546,265
Research and development	153,188						153,188
General and administrative expenses	1,548,851						1,548,851
Amortization and depreciation	189,602			(57,498	)	(b)	132,104
Total operating expenses	2,437,906			(57,498	)		2,380,408
Operating income (loss)	1,314,517			(3,771,618	)		(2,457,101		)
Other income (expense)
Unrealized loss on marketable securities	(12,000		)				(12,000		)
Interest expense	(416		)				(416		)
Total other income (expense)	(12,416		)				(12,416		)
Net income (loss)	$	1,302,101		(3,771,618	)		$	(2,469,517	)
Net income (loss) per common share - basic	$	0.02		(0.06	)		$	(0.04	)
Net income (loss) per common share - diluted	$	0.02		(0.05	)		$	(0.03	)
Weighted average common shares outstanding - basic	61,062,150						61,062,150
Weighted average common shares outstanding - diluted	70,568,775						70,568,775

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS – RESTATED

(UNAUDITED)

	Nine Months Ended
	As Reported September 30, 2014			Cumulative Revisions			Restated  September 30, 2014
Cash Flows from Operating Activities:
Net income (loss)	$	894,970		(7,430,678	)		$	(6,535,708	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	462,326			(114,372	)	(b)	347,954
Stock, option and warrant expense	1,538,557						1,538,557
Shares issued for services	778,927						778,927
Unrealized loss on marketable securities	12,000						12,000
Amortization of debt discount	1,155						1,155
Licenses sold in exchange for licenses	(2,025,000		)	2,025,000		(b)	—
Licenses sold in exchange for prepaid services	(6,075,000		)	6,075,000		(b)	—
Changes in operating assets and liabilities:
Accounts receivable	(186,447		)	355,626		(a)	169,179
Related party receivable	54,750						54,750
Prepaid and other assets	885,670			(1,053,543	)	(b)	(167,873		)
Accounts payable and accruals	139,762			(60,000	)	(b)	79,762
Billings in excess of costs	—			202,967		(c)	202,967
Deferred revenue	—						—
Related party payables	(243,424		)				(243,424		)
Net cash used in operating activities	(3,761,754		)				(3,761,754		)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(556,611		)				(556,611		)
Net cash used in investing activities	(556,611		)				(556,611		)
Cash Flows from Financing Activities:
Repayment of note payable	(172,000		)				(172,000		)
Repayment of related party loans	(35,000		)				(35,000
Borrowings on debt	—						—
Issuance of common stock for cash, net of issuance costs	1,305,689						1,305,689
Proceeds from exercise of options and warrants, net of issuance costs	3,524,521						3,524,521
Net cash provided by financing activities	4,623,210						4,623,210
Net increase in cash	304,845						304,845
Cash - beginning of period	1,847,004						1,847,004
Cash - end of period	$	2,151,849					$	2,151,849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	7,444					$	7,444
Income taxes paid	—						—
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of debt	$	—					$	—
Warrants issued for accrued payroll	21,514						21,514
Common stock issued for accounts payable	—						—
Accounts payable converted into debt	—						—
Debt discount from warrants issued with debt	—						—
Accounts receivable converted to marketable securities	60,000						60,000

(a) Revenues associated with collectability not reasonably assured

(b) Revenues associated with non-cash transactions

(c) Revenues associated with the timing of recognition under certain percentage of completion contracts

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue	$ 186,641	$ 344,414	$ 279,364	$ 748,693
Revenue from related party	1,125	37,125	5,375	57,375
Total revenues	187,766	381,539	284,739	806,068
Cost of revenues	264,459	130,771	639,924	226,561
Gross profit	(76,693)	250,768	(355,185)	579,507
Operating expenses:
Selling and marketing	546,265	117,893	1,068,353	167,509
Research and development	153,188		391,958
General and administrative expenses	1,548,851	889,095	4,352,398	1,880,726
Amortization and depreciation	132,104	89,823	347,954	269,135
Total operating expenses	2,380,408	1,096,811	6,160,663	2,317,370
Operating income (loss)	(2,457,101)	(846,043)	(6,515,848)	(1,737,863)
Other income (expense)
Unrealized loss on marketable securities	(12,000)	(9,000)	(12,000)	(18,000)
Interest expense	(416)	(15,767)	(7,860)	(40,933)
Total other income (expense)	(12,416)	(24,767)	(19,860)	(58,933)
Net income (loss)	$ (2,469,517)	$ (870,810)	$ (6,535,708)	$ (1,796,796)
Net income (loss) per common share - basic	$ (0.04)	$ (0.02)	$ (0.12)	$ (0.04)
Net income (loss) per common share - diluted	$ (0.03)	$ (0.02)	$ (0.10)	$ (0.04)
Weighted average common shares outstanding - basic	61,062,150	44,385,177	55,993,097	41,668,724
Weighted average common shares outstanding - diluted	70,568,775	44,385,177	68,499,722	41,668,724

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WARRANTS

9 Months Ended

Sep. 30, 2014

WARRANTS.

WARRANTS

NOTE 7: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of September 30, 2014 and December 31, 2013:

	Number of Warrants	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Intrinsic Value
Outstanding at December 31, 2013	18,770,591	$	0.35	4.64	$	—
Granted	6,317,011	0.46
Less Exercised	11,397,002	0.36
Outstanding at September 30, 2014	13,690,600	$	0.40	3.68	$	984,178

The warrants were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation during the nine months ended September 30, 2014 include expected terms of 1.50 to 2.50 years, expected volatility of 100%, risk free interest rate of 0.29% to 1.76%, and expected dividend yield of 0%.

On January 27, 2014, the Company issued five-year fully-vested warrants to purchase 250,000 shares of common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $44,370 and was expensed during the nine months ended September 30, 2014.

On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the Second Private Placement.  The units in the Second Private Placement consisted of 666,667 shares of common stock and warrants to purchase an additional 666,667 shares of common stock, as well as 53,334 placement agent warrants.  The warrants in the Second Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $122,287.

On February 3, 2014, the Company issued 44,307 shares of common stock and five-year fully-vested warrants to purchase 44,307 shares of common stock with an exercise price of $0.40 per share for payment for services. The fair value on the grant date of the warrants was $8,186 and was expensed during the nine months ended September 30, 2014.

On March 24, 2014, the Company issued warrants to purchase 1,000,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by an affiliate of the warrant holder. The warrants have an exercise price of $0.40 per share and an expiration date of March 24, 2019. The fair value on the grant date of the warrants was $321,746 and it is being expensed over the expected vesting period of the warrants.

On June 30, 2014, the Company sold an aggregate of 2,766,667 units to three accredited investors for gross proceeds of $830,000 in the Third Private Placement.  The units in the Third Private Placement consisted of 2,766,667 shares of common stock and warrants to purchase an additional 2,766,667 shares of common stock, as well as 168,000 placement agent warrants.  The warrants in the Third Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $503,884.

On June 30, 2014, the Company issued three-year fully-vested warrants to purchase 100,000 shares of common stock with an exercise price of $0.35 per share for payment for services. The fair value on the grant date of the warrants was $13,202 and was expensed during the nine months ended September 30, 2014.

In July 2014, the Company offered holders of a series of its warrants, including the warrants issued in the Second Private Placement and the Third Private Placement, the opportunity to exercise their warrants for a 10% discount to the stated exercise price in exchange for their agreement to exercise their warrants in full and for cash on or before July 31, 2014. Under the warrant exercise offer, in July 2014 the Company warrants for 10,027,002 shares of common stock were exercised pursuant to this offer.

On July 17, 2014, the Company issued five-year warrants to purchase 25,000 shares of common stock that vest over twelve months and have an exercise price of $0.85 per share for payment for services. The fair value on the grant date of the warrants was $12,426 and it is being expensed over the vesting period of the warrants.

On August 25, 2014, the Company issued warrants to purchase 500,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by the warrant holder. The warrants have an exercise price of $0.60 per share and an expiration date of August 25, 2017. The fair value on the grant date of the warrants was $198,374 and and it is being expensed over the expected vesting period of the warrants.

On August 27, 2014, the Company issued three-year fully-vested warrants to purchase 15,000 shares of common stock with an exercise price of $0.65 per share for payment for services. The fair value on the grant date of the warrants was $5,531 and it is being expensed over the vesting period of the warrants.

On August 29, 2014, the Company issued three-year fully-vested warrants to purchase 53,036 shares of common stock with an exercise price of $0.70 per share for the settlement of accrued payroll of $21,514. The fair value on the grant date of the warrants was $21,514.

On September 5, 2014, the Company issued five-year warrants to purchase 500,000 shares of common stock that vest over three years and have an exercise price of $0.79 per share for payment for services. The fair value on the grant date of the warrants was $253,999 and it is being expensed over the vesting period of the warrants.

On September 30, 2014, the Company sold an aggregate of 700,000 units to two accredited investors for gross proceeds of $350,000 in the Summer Private Placement.  The units in the Summer Private Placement consisted of 700,000 shares of common stock and warrants to purchase ¼ of a share for every share purchased or an additional 175,000 shares of common stock.  The warrants in the Summer Private Placement have a term of five years, an exercise price of $0.60 per share and a fair value determined to be $47,260.

For the nine months ended September 30, 2014 and 2013, the Company has incurred warrant-based expense of $189,172 and $59,254, respectively.

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OPTIONS

9 Months Ended

Sep. 30, 2014

OPTIONS.

OPTIONS

NOTE 6: OPTIONS

As of September 30, 2014 and December 31, 2013, the Company has 11,306,850 and 4,485,250 options to purchase shares of common stock issued and outstanding, respectively, as follows:

	Number of Options	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Intrinsic Value
Outstanding at December 31, 2013	4,485,250	$	0.38	3.96	$	105,410
Granted	7,096,600	0.51
Less Forfeited	100,000	0.79
Less Exercised	175,000	0.31
Outstanding at September 30, 2014	11,306,850	$	0.46	4.00	$	709,393

The options were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation during the nine months ended September 30, 2014 include expected terms of 2.50 to 3.33 years, expected volatility of 100%, risk free interest rate of 0.83% to 1.76%, and expected dividend yield of 0%.

On January 27, 2014, the Company awarded 1,500,000 options, one third of which vested immediately, one third vest upon the Company reporting a minimum of $10 million in annualized revenues by the second anniversary of the grant date and one third vest upon the Company reporting a minimum of $20 million in annualized revenues by the third anniversary of the grant date, with an exercise price of $0.40 per share and an expiration date of January 27, 2019. The fair value on the grant date of the options was $303,562 and it is being recognized over the vesting period of the options.

On February 17, 2014, the Company awarded 55,000 options, which vest over three years, with an exercise price of $0.305 per share and an expiration date of February 17, 2019. The fair value on the grant date of the options was $10,556 and it is being recognized over the vesting period of the options.

On March 3, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.40 per share and an expiration date of March 3, 2019. The fair value on the grant date of the options was $36,935 and it is being recognized over the vesting period of the options.

On March 24, 2014, the Company awarded 2,522,100 options, which vest over three years, with the exception of 200,000 options issued to one individual that vested immediately upon grant. The options have an exercise price of $0.45 per share and an expiration date of March 24, 2019. The fair value on the grant date of the options was $724,948 and it is being recognized over the vesting period of the options.

On June 2, 2014 and June 9, 2014, the Company awarded 175,000 options, which vest over three years. The options have an exercise price of $0.33 per share and an expiration date of June 2, 2019 and June 9, 2019. The fair value on the grant date of the options was $35,834 and it is being recognized over the vesting period of the options.

On June 11, 2014 and June 30, 2014, the Company awarded 400,000 options, which vest over three years. The options have an exercise price of $0.33 and $0.34 per share and an expiration date of June 11, 2019 and June 30, 2019. The fair value on the grant date of the options was $68,830 and it is being recognized over the vesting period of the options.

On July 1, 2014, the Company awarded 262,500 options, which vest over three years. The options have an exercise price of $0.35 per share and an expiration date of July 1, 2019. The fair value on the grant date of the options was $54,788 and it is being recognized over the vesting period of the options.

On July 21, 2014, the Company awarded 22,000 options, which vest over three years. The options have an exercise price of $0.91 per share and an expiration date of July 21, 2019. The fair value on the grant date of the options was $12,882 and it is being recognized over the vesting period of the options.

On July 22, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.65 per share and an expiration date of July 22, 2019. The fair value on the grant date of the options was $97,876 and it is being recognized over the vesting period of the options.

On July 23, 2014, the Company awarded 125,000 options, which vest over three years. The options have an exercise price of $1.07 per share and an expiration date of July 23, 2019. The fair value on the grant date of the options was $80,905 and it is being recognized over the vesting period of the options.

On July 28, 2014, the Company awarded 75,000 options, which vest over three years. The options have an exercise price of $0.92 per share and an expiration date of July 28, 2019. The fair value on the grant date of the options was $42,981 and it is being recognized over the vesting period of the options.

On August 18, 2014, the Company awarded 60,000 options, which vest over three years. The options have an exercise price of $0.65 per share and an expiration date of August 18, 2019. The fair value on the grant date of the options was $25,067 and it is being recognized over the vesting period of the options.

On September 2, 2014, the Company awarded 130,000 options, which vest over three years. The options have an exercise price of $0.70 per share and an expiration date of September 2, 2019. The fair value on the grant date of the options was $58,548 and it is being recognized over the vesting period of the options.

On September 5, 2014, the Company awarded 1,220,000 options, which vest over three years. The options have an exercise price of between and $0.65 and $0.70 per share and an expiration date of September 5, 2019. The fair value on the grant date of the options was $593,826 and it is being recognized over the vesting period of the options.

On September 8, 2014, the Company awarded 25,000 options, which vest over three years. The options have an exercise price of $0.775 per share and an expiration date of September 5, 2019. The fair value on the grant date of the options was $11,750 and it is being recognized over the vesting period of the options.

On September 12, 2014, the Company awarded 25,000 options, which vest over three years. The options have an exercise price of $0.78 per share and an expiration date of September 12, 2019. The fair value on the grant date of the options was $11,945 and it is being recognized over the vesting period of the options.

For the nine months ended September 30, 2014 and 2013, stock compensation expense related to options totaled totaled $1,000,526 and $458,765, respectively.

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INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2014

INTANGIBLE ASSETS

Schedule of intangible assets

	Restated September 30,			December 31,
	2014			2013
Patents	$	3,602,454		$	3,563,343
Software Development Costs	517,500			—
Accumulated Amortization	(834,955		)	(489,398		)
Intangible Assets, Net	$	3,284,999		$	3,073,945

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NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2014

NOTES PAYABLE

Schedule of current and long term notes payable

Notes and loans payable	September 30, 2014		December 31, 2013
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Note Payable (net of $0 and $1,155 discount, respectively)	—		148,845
Total	$	24,000	$	172,845
Long Term
Maryland TEDCO Note	$	57,800	$	79,800
Total	$	57,800	$	79,800

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INVESTMENTS

9 Months Ended

Sep. 30, 2014

INVESTMENTS

INVESTMENTS

NOTE 10: INVESTMENTS

In March 2013, the Company was granted an aggregate of 300,000 common shares in Beta Music Group, Inc. (OTCBB: BEMG) for consulting services. Beta Music Group, Inc. has not yet established an active trading market for shares of common stock as of September 30, 2014. The Company has received the 300,000 common shares and assigned a value of $0 to those shares until a liquid trading market is established.

On June 27, 2014, the Company and Ecologic Transportation, Inc. agreed to convert $60,000 of accounts receivable owed to the Company into 600,000 shares of Ecologic Transportation, Inc. common stock at a rate of $0.10 per share. The Ecologic Transportation, Inc. common stock has a value of $0.08 per share as of September 30, 2014, with an aggregate value of $48,000 as of such date resulting in an unrealized loss on marketable securities of $12,000 for the nine months ended September 30, 2014. The shares of Ecologic Transportation, Inc. common stock are expected to be issued to the Company in the fourth quarter of 2014.

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PERFORMANCE SHARE UNITS

9 Months Ended

Sep. 30, 2014

PERFORMANCE SHARE UNITS

PERFORMANCE SHARE UNITS

NOTE 8: PERFORMANCE SHARE UNITS

On January 27, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Paul Arena, the Company’s Executive Chairman. Mr. Arena was granted an award of up to an aggregate of 3,000,000 Performance Share Units (“PSUs”).  Each PSU represents the right to receive one share of the Company’s common stock.  The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

On September 5, 2014, the Company entered into Performance Share Unit Agreements under the AudioEye, Inc. 2015 Incentive Compensation Plan with two employees. Each was granted an award of up to an aggregate of 200,000 PSUs.  Each PSU represents the right to receive one share of the Company’s common stock.  The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

On September 30, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2015 Incentive Compensation Plan with one employee. The employee was granted an award of up to an aggregate of 100,000 PSUs.  Each PSU represents the right to receive one share of the Company’s common stock.  The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

Below is a table summarizing the Company’s outstanding performance share units as of September 30, 2014 and December 31, 2013:

	Number of PSUs	Wtd Avg. Grant Fair Value		Wtd Avg. Remaining Term
Outstanding at December 31, 2013	1,000,000	$	0.45	1.75
Granted	3,500,000	0.39
Outstanding at September 30, 2014	4,500,000	$	0.40	2.14

For the nine months ended September 30, 2014 and 2013, the Company has incurred performance share unit-based expense of $348,859 and $75,000, respectively.

For the nine months ended September 30, 2014 and 2013, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $1,538,557 and $593,019, respectively. As of September 30, 2014, the aggregate stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2017 is $2,310,338.

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2014

INTANGIBLE ASSETS

INTANGIBLE ASSETS

NOTE 9: INTANGIBLE ASSETS

As of September 30, 2014, patents, technology and other intangibles with contractual terms were generally amortized over their estimated useful lives of five or ten years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

Prior to any impairment adjustment, intangible assets consisted of the following:

	Restated September 30,			December 31,
	2014			2013
Patents	$	3,602,454		$	3,563,343
Software Development Costs	517,500			—
Accumulated Amortization	(834,955		)	(489,398		)
Intangible Assets, Net	$	3,284,999		$	3,073,945

Software development costs and licensing intangible assets both have an estimated useful life of 3 years. Software development costs are incurred during the building of the Company’s Internet platform. Licensing costs are those costs incurred to use processes and technologies not developed by the Company. Both software development and licensing costs are subject to annual impairment testing. During the nine months ended September 30, 2014, $556,611 was capitalized as software development cost and patent acquisition costs.

Amortization expense totaled $345,557 and $266,738 for the nine months ended September 30, 2014 and 2013, respectively.

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2014

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 11: SUBSEQUENT EVENTS

On October 3, 2014, the Company awarded 300,000 options, which vest twenty percent upon grant and twenty percent every ninety days thereafter. The options have an exercise price of $0.60 per share and an expiration date of October 3, 2017.

On October 10, 2014 the Company issued 50,000 shares of common stock for services.

On October 16, 2014, the Company awarded 37,500 options, which vest over three years. The options have an exercise price of $0.65 per share and an expiration date of October 16, 2019.

On October 20, 2014, the Company awarded 115,000 options, which vest over three years. The options have an exercise price of $0.61 per share and an expiration date of October 20, 2019.

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INTANGIBLE ASSETS (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Intangible Assets
Accumulated Amortization	$ (834,955)		$ (489,398)
Intangible Assets, Net	3,284,999		3,073,945
Amortization expense	345,557	266,738
Minimum
Intangible Assets
Estimated useful lives of intangibles assets	5 years
Maximum
Intangible Assets
Estimated useful lives of intangibles assets	10 years
Patents
Intangible Assets
Intangible Assets, Gross	3,602,454		3,563,343
Software Development Costs
Intangible Assets
Estimated useful lives of intangibles assets	3 years
Intangible Assets, Gross	517,500
Patents and software Development Costs
Intangible Assets
Capitalized cost	$ 556,611
Licensing
Intangible Assets
Estimated useful lives of intangibles assets	3 years

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WARRANTS (Tables)

9 Months Ended

Sep. 30, 2014

WARRANTS.

Summary of the Company's outstanding warrants

	Number of Warrants	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Intrinsic Value
Outstanding at December 31, 2013	18,770,591	$	0.35	4.64	$	—
Granted	6,317,011	0.46
Less Exercised	11,397,002	0.36
Outstanding at September 30, 2014	13,690,600	$	0.40	3.68	$	984,178

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RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS (Details) (USD $)	1 Months Ended	3 Months Ended			9 Months Ended
	Sep. 30, 2014	Sep. 30, 2014	Mar. 31, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Cash Flows from Operating Activities:
Net income (loss)		$ (2,469,517)		$ (870,810)	$ (6,535,708)	$ (1,796,796)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization					347,954	269,135
Stock, option and warrant expense					1,538,557	593,019
Shares issued for services					778,927	50,000
Unrealized loss on marketable securities		12,000		9,000	12,000	18,000
Amortization of debt discount					1,155
Changes in operating assets and liabilities:
Accounts receivable					169,179	(104,394)
Related party receivable					54,750	(72,000)
Prepaid and other assets					(167,873)
Accounts payable and accruals					79,762	146,857
Billings in excess of costs					202,967
Deferred revenue						(54,823)
Related party payables					(243,424)	274,583
Net cash used in operating activities					(3,761,754)	(676,419)
Cash Flows from Investing Activities:
Cash paid for intangible assets					(556,611)	(9,890)
Net cash used in investing activities					(556,611)	(9,890)
Cash Flows from Financing Activities:
Repayment of note payable					(172,000)	(218,000)
Repayment on related party loans					(35,000)
Borrowings on debt						502,500
Issuance of common stock for cash, net of issuance costs					1,305,689	426,346
Proceeds from exercise of options and warrants, net of issuance costs	10,000		13,000		3,524,521	37,188
Net cash provided by financing activities					4,623,210	748,034
Net increase in cash					304,845	61,725
Cash - beginning of period			1,847,004		1,847,004	11,710
Cash - end of period	2,151,849	2,151,849		73,435	2,151,849	73,435
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid					7,444	24,967
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of debt						1,709,291
Warrants issued for accrued payroll					21,514	1,073,751
Common stock issued for accounts payable						50,000
Accounts payable converted into debt						30,000
Debt discount for warrants issued with debt						6,930
Accounts receivable converted to marketable securities					60,000
As Reported
Cash Flows from Operating Activities:
Net income (loss)		1,302,101			894,970
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization					462,326
Stock, option and warrant expense					1,538,557
Shares issued for services					778,927
Unrealized loss on marketable securities		12,000			12,000
Amortization of debt discount					1,155
Licenses sold in exchange for licenses					(2,025,000)
Licenses sold in exchange for prepaid services					(6,075,000)
Changes in operating assets and liabilities:
Accounts receivable					(186,447)
Related party receivable					54,750
Prepaid and other assets					885,670
Accounts payable and accruals					139,762
Related party payables					(243,424)
Net cash used in operating activities					(3,761,754)
Cash Flows from Investing Activities:
Cash paid for intangible assets					(556,611)
Net cash used in investing activities					(556,611)
Cash Flows from Financing Activities:
Repayment of note payable					(172,000)
Repayment on related party loans					(35,000)
Issuance of common stock for cash, net of issuance costs					1,305,689
Proceeds from exercise of options and warrants, net of issuance costs					3,524,521
Net cash provided by financing activities					4,623,210
Net increase in cash					304,845
Cash - beginning of period			1,847,004		1,847,004
Cash - end of period	2,151,849	2,151,849			2,151,849
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid					7,444
NON-CASH INVESTING AND FINANCING ACTIVITIES
Warrants issued for accrued payroll					21,514
Accounts receivable converted to marketable securities					60,000
Cumulative Revisions | Error in revenue recognition and non-monetary intellectual property portfolio
Cash Flows from Operating Activities:
Net income (loss)		(3,771,618)			(7,430,678)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization					(114,372)
Licenses sold in exchange for licenses					2,025,000
Licenses sold in exchange for prepaid services					6,075,000
Changes in operating assets and liabilities:
Accounts receivable					355,626
Prepaid and other assets					(1,053,543)
Accounts payable and accruals					(60,000)
Billings in excess of costs					$ 202,967

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash Flows from Operating Activities:
Net income (loss)	$ (6,535,708)	$ (1,796,796)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	347,954	269,135
Stock, option and warrant expense	1,538,557	593,019
Shares issued for services	778,927	50,000
Unrealized loss on marketable securities	12,000	18,000
Amortization of debt discount	1,155
Changes in operating assets and liabilities:
Accounts receivable	169,179	(104,394)
Related party receivable	54,750	(72,000)
Prepaid and other assets	(167,873)
Accounts payable and accruals	79,762	146,857
Billings in excess of costs	202,967
Deferred revenue		(54,823)
Related party payables	(243,424)	274,583
Net cash used in operating activities	(3,761,754)	(676,419)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(556,611)	(9,890)
Net cash used in investing activities	(556,611)	(9,890)
Cash Flows from Financing Activities:
Repayment of note payable	(172,000)	(218,000)
Repayment on related party loans	(35,000)
Borrowings on debt		502,500
Issuance of common stock for cash, net of issuance costs	1,305,689	426,346
Proceeds from exercise of options and warrants, net of issuance costs	3,524,521	37,188
Net cash provided by financing activities	4,623,210	748,034
Net increase in cash	304,845	61,725
Cash - beginning of period	1,847,004	11,710
Cash - end of period	2,151,849	73,435
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	7,444	24,967
NON-CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued for conversion of debt		1,709,291
Warrants issued for accrued payroll	21,514	1,073,751
Common stock issued for accounts payable		50,000
Accounts payable converted into debt		30,000
Debt discount for warrants issued with debt		6,930
Accounts receivable converted to marketable securities	$ 60,000

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2014

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 5: STOCKHOLDERS’ EQUITY

As of September 30, 2014 and December 31, 2013, the Company had 70,552,753 and 53,239,369 shares of common stock issued and outstanding, respectively.

On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the second closing of a private placement (the “Second Private Placement”). Placement fees of $18,463 were paid and the Company received net proceeds of $181,537. The units in the Second Private Placement consisted of 666,667 shares of the Company’s common stock and warrants to purchase an additional 666,667 shares of the Company’s common stock.  The warrants in the Second Private Placement have a term of five years and an exercise price of $0.40 per share.

On February 3, 2014, the Company issued 44,307 shares of common stock valued at $13,292 and a five-year warrant to purchase 44,307 shares of common stock with a strike price of $0.40 for services. The Company used the Black-Scholes option pricing model to estimate the fair value of the warrants with a volatility of 100% and a risk free rate of 1.44% resulting in a fair value of $8,186, which was completely expensed in the current period. The warrant was issued to compensate for consulting services provided by a third-party. The shares were valued at the market price of the respective date of issuance.

On March 27, 2014, the Company filed a Certificate of Amendment to the Certificate of Incorporation increasing the authorized number of shares of Company common stock to 250,000,000 from 100,000,000.

On March 28, 2014, the Company issued 49,496 shares of common stock pursuant to the cashless exercise of 100,000 options.

From January 1, 2014 through March 31, 2014, the Company also issued 100,000 shares of common stock for services valued at $28,500 with no future period amortization and 1,300,000 shares of common stock pursuant to exercise of warrants for total proceeds of $13,000. The shares were valued at the market price of the respective date of issuance.

On June 30, 2014, the Company sold an aggregate of 2,766,667 units to three accredited investors for gross proceeds of $830,000 in the third closing of a private placement (the “Third Private Placement”). Placement fees of $55,848 were paid and the Company received net proceeds of $774,152. The units in the Third Private Placement consisted of 2,766,667 shares of the Company’s common stock and warrants to purchase an additional 2,766,667 shares of the Company’s common stock.  The warrants have a term of five years and an exercise price of $0.40 per share.

From April 1, 2014 through June 30, 2014, the Company also issued 1,071,916 shares of common stock for services for an expense of $354,835 with no future period amortization. Additionally, the Company issued 17,870 shares of common stock pursuant to the cashless exercise of 50,000 warrants.

In July 2014, the Company offered holders of a series of its warrants, including the warrants issued in the Second Private Placement and the Third Private Placement, the opportunity to exercise their warrants for a 10% discount to the stated exercise price in exchange for their agreement to exercise their warrants in full and for cash on or before July 31, 2014. Under the warrant exercise offer, in July 2014 the Company issued 10,027,002 shares of common stock pursuant to exercise of warrants for gross proceeds of $3,632,801 and net proceeds of $3,501,521 after investment banking fees of $131,280.

On July 17, 2014, the Company issued 34,459 shares of common stock pursuant to the cashless exercise of 75,000 common stock warrants.

From July 1, 2014 through September 30, 2014, the Company also issued 515,000 shares of common stock for services valued at $382,300 with no future period amortization.

In September 2014, the Company issued 20,000 shares of common stock pursuant to the exercise of 20,000 warrants at a strike price of $0.50 for proceeds of $10,000.

On September 30, 2014, the Company sold an aggregate of 700,000 units to two accredited investors for gross proceeds of $350,000 in the closing of a private placement (the “Summer Private Placement”). The units in the Summer Private Placement consisted of 700,000 shares of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased or an additional 175,000 shares of the Company’s common stock.  The warrants have a term of five years and an exercise price of $0.60 per share.

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RELATED PARTY TRANSACTIONS (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
RELATED PARTY TRANSACTIONS
Related party loans	$ 0		$ 0		$ 35,000
Repayment of related party loans			35,000
Related party payable	0		0		243,424
Payment to related party			243,424
Related party receivables	27,500		27,500		82,250
Revenue from related party	$ 1,125	$ 37,125	$ 5,375	$ 57,375

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OPTIONS (Tables)

9 Months Ended

Sep. 30, 2014

OPTIONS.

Summary of the Company's outstanding options

	Number of Options	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Intrinsic Value
Outstanding at December 31, 2013	4,485,250	$	0.38	3.96	$	105,410
Granted	7,096,600	0.51
Less Forfeited	100,000	0.79
Less Exercised	175,000	0.31
Outstanding at September 30, 2014	11,306,850	$	0.46	4.00	$	709,393