10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2015

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 July 15, 2015, 81,517,530 shares of the registrant’s common stock were issued and outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheet as of March 31, 2015 and December 31, 2014 (unaudited)	2
	Consolidated Statement of Operations for the three months ended March 31, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	16
Item 4.	Controls and Procedures	16
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Mine Safety Disclosures	18
Item 5.	Other Information	18
Item 6.	Exhibits	19
SIGNATURES

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

The financial information set forth below with respect to the financial statements as of March 31, 2015 and 2014 and for the three month period ended March 31, 2015 and 2014 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 month period ended March 31, 2015 are not necessarily indicative of results to be expected for any subsequent period. Our fiscal year end is December 31.

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AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	March 31, 2015			December 31, 2014
ASSETS
Current Assets
Cash	$	760,277		$	1,672,901
Accounts receivable, net	23,918			261,676
Related party receivables	10,000			10,000
Marketable securities held in related party	13,800			13,800
Non-marketable securities held in related party	50,000			50,000
Subscription receivable	—			1,175,000
Prepaid expenses and other current assets	139,399			90,688
Total Current Assets	997,394			3,274,065
Property and equipment, net	568			651
Intangible assets, net	2,993,083			3,097,293
Goodwill	700,528			700,528
Total Assets	$	4,691,573		$	7,072,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	505,726		$	779,891
Billings in excess of costs	32,500			123,908
Notes and loans payable-current	24,000			24,000
Related party payables	—			228,983
Total Current Liabilities	562,226			1,156,782
Long Term Liabilities
Notes and loans payable-long term	43,800			51,800
Total Long Term Liabilities	43,800			51,800
Total Liabilities	606,026			1,208,582
STOCKHOLDERS’ EQUITY
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, none issued and outstanding, as of March 31, 2015 and December 31, 2014, respectively	—			—
Common stock, $0.00001 par value, 250,000,000 shares authorized, 79,467,530 and 77,817,861 issued and outstanding, as of March 31, 2015 and December 31, 2014, respectively	794			778
Treasury stock	(623,000		)	(623,000		)
Additional paid in capital	24,759,845			23,516,463
Accumulated deficit	(20,052,092		)	(17,030,286		)
Total Stockholders’ Equity	4,085,547			5,863,955
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,691,573		$	7,072,537

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months ended
	March 31, 2015			March 31, 2014
Revenue	$	101,038		$	42,527
Revenue from related party	—			3,125
Total revenues	101,038			45,652
Cost of revenues	462,131			41,153
Gross (loss) profit	(361,093		)	4,499
Operating expenses:
Selling and marketing	366,368			270,383
Research and development	142,282			130,624
General and administrative expenses	2,021,226			1,667,600
Amortization and depreciation	133,944			99,273
Total operating expenses	2,663,820			2,167,880
Operating loss	(3,024,913		)	(2,163,381		)
Other income (expense)
Interest income (expense)	3,107			(6,983		)
Total other income (expense)	3,107			(6,983		)
Net loss	$	(3,021,806	)	$	(2,170,364	)
Net loss per common share - basic and diluted	$	(0.04	)	$	(0.04	)
Weighted average common shares outstanding - basic and diluted	78,736,420			54,215,367

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Three Months ended
	March 31, 2015			March 31, 2014
Cash Flows from Operating Activities:
Net (loss)	$	(3,021,806	)	$	(2,170,364	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	133,944			99,273
Stock, option and warrant expense	559,793			849,148
Common stock issued for services	314,663			—
Amortization of debt discount	—			1,155
Changes in operating assets and liabilities:
Accounts receivable	237,758			(649,841		)
Related party receivable	—			(1,125		)
Prepaid expenses and other current assets	(48,713		)	(49,643		)
Accounts payable and accruals	(274,164		)	791,153
Billings in excess of costs	(91,408		)	11,321
Related party payables	(228,983		)	(156,424		)
Net cash used in operating activities	(2,418,916		)	(1,275,347		)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(29,650		)	(113,476		)
Net cash used in by investing activities	(29,650		)	(113,476		)
Cash Flows from Financing Activities:
Repayment of note payable	(8,000		)	(160,000		)
Issuance of common stock for cash	325,000			181,537
Collection of stock subscription receivable	1,175,000			—
Issuance of equity for cash exercise of options and warrants	43,942			13,000
Net cash provided by financing activities		1,535,942		34,537
Net decrease in cash	(912,624		)	(1,354,286		)
Cash - beginning of period	1,672,901			1,847,004
Cash - end of period	$	760,277		$	492,718
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	307		$	3,658
Income taxes paid		—			—

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2015 (Unaudited)

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited 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 July 10, 2015.

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, 2014 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 providing its customers with the most complete and inclusive web accessibility solution available.  The Company’s suite of technologies allows its customers to provide their site visitors with an enhanced web experience.  When implemented, the Company believes its solutions offer businesses the opportunity to reach more customers, improve brand image, and build additional brand loyalty.  In addition, the Company’s solutions provide organizations with the ability to comply with internationally accepted web content accessibility guidelines (WCAG) as well as United States, Canadian and United Kingdom accessibility laws.

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

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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, the Company follows ASC 845 and any potential revenue is recorded as other income.

NOTE 2: RELATED PARTY TRANSACTIONS

For the three months ended March 31, 2015 and 2014, there were revenues earned of $-0- and $3,125, respectively, for services performed for related parties.

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of March 31, 2015 resulting from the conversion of a $60,000 accounts receivable balance in 2014. In 2014, the Company invested $50,000 in Cannonball Red in return for 97,500 shares held as of March 31, 2015. Both companies are affiliated with related parties.

In summary, as of March 31, 2015 and December 31, 2014  the total balances of related party payables were $0 and $228,983, respectively.

As of March 31, 2015 and December 31, 2014, there were outstanding receivables of $10,000 and $10,000, respectively, for services performed for related parties.

NOTE 3: NOTES PAYABLE

As of March 31, 2015 and December 31, 2014, the Company had current and long term notes payable of $24,000 and $24,000 and $43,800 and $51,800, respectively as shown in the table below.

Notes and loans payable	March 31, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	43,800	$	51,800
Total	$	43,800	$	51,800

As of December 31, 2012, the Company had an outstanding loan to 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.  As of March 31, 2015 and December 31,  2014 the principal amount owing was $67,800 and $75,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $43,800 and $51,800, respectively, as the long-term portion of the note, respectively.

NOTE 4: STOCKHOLDERS’ EQUITY

As of March 31, 2015 and December 31, 2014, the Company had 79,467,530 and 77,817,861 shares of common stock issued and outstanding, respectively.

On January 15, 2015, the Company sold an additional 812,500 units under a private placement that had its initial close in December 2014 (the “December 2014 Private Placement”) to one institutional investor for gross proceeds of $325,000 with no commission payable. Each unit in the December 2014 Private Placement consisted of one share of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased.  The warrants have a term of five years and an exercise price of $0.60 per share.

On March 5, 2015, Paul Arena resigned as Chairman of the Board of Directors and Executive Chairman and was designated by AIM Group, Inc. as a consultant to the Company for the term of one year. On March 5, 2015, the Company and Mr. Arena, pursuant to a Separation and Release Agreement, agreed to the issuance of 500,000 restricted common shares in lieu of the January 27, 2014 issuance of 3,000,000 Performance Share Units. The agreement calls for the immediate release of 250,000

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common shares, or 50%, and up to 250,000 common shares, or 50%, be held in escrow until April 1, 2016 or until the Company’s 2015 audited financials are final. The 250,000 shares earned during the three months ended March 31, 2015 were valued and expensed at $117,500. The remaining 250,000 shares are not expected to be earned.

From January 1, 2015 through March 31, 2015, the Company also issued 109,899 shares of common stock pursuant to exercise of warrants for total proceeds of $43,942. The Company also issued 477,314 additional shares of common stock for services provided for a total expense of $197,163.

NOTE 5: OPTIONS

As of March 31, 2015 and December 31, 2014, the Company has granted options to purchase 13,302,900 and 11,434,350 shares of common stock, respectively.

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	Number of Options	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Exercisable	Intrinsic Value of Exercisable Options
Outstanding at December 31, 2014	11,434,350	$	0.47	3.79	5,635,250	$	460,941
Granted	2,368,550	0.44		4,81		—
Forfeited	500,000	0.40		3.83		—
Outstanding at March 31, 2015	13,302,900	$	0.47	3.75	7,061,300	$	446,189

The option grants during the three months ended March 31, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 2.67 to 3.26 years, expected volatility of 100%, risk free interest rate of 0.76% to 1.83%, and expected dividend yield of 0%.

On January 5, 2015, the Company issued 37,500 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.43, and expire on January 5, 2020. The value on the grant date of the options was $10,357 and the option expense for the three months ended March 31, 2015 was determined to be $1,608.

On January 9, 2015, the Company issued 100,000 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.40, and expire on January 9, 2020. The value on the grant date of the options was $25,679 and the option expense for the three months ended March 31, 2015 was determined to be $3,799.

On February 2, 2015, the Company issued 17,500 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.59, and expire on February 2, 2020. The value on the grant date of the options was $6,183 and the option expense for the three months ended March 31, 2015 was determined to be $644.

On February 23, 2015, the Company issued 35,000 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.50, and expire on February 23, 2020. The value on the grant date of the options was $11,246 and the option expense for the three months ended March 31, 2015 was determined to be $739.

On March 5, 2015, the Company issued 150,000 options, which vest 33.33% immediately and 16.66% every 90 days thereafter, have an exercise price of $0.40, and expire on March 5, 2018. The value on the grant date of the options was $44,252 and the option expense for the three months ended March 31, 2015 was determined to be $16,852.

On March 12, 2015, the Company issued 1,981,550 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.44, and expire on March 12, 2020. The value on the grant date of the options was $609,722 and the option expense for the three months ended March 31, 2015 was determined to be $21,159.

On March 16, 2015, the Company issued 47,000 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.47, and expire on March 16, 2020. The value on the grant date of the options was $15,365 and the option expense for the three months ended March 31, 2015 was determined to be $421.

For the three months ended March 31, 2015, expense amortized for options issued prior to January 1, 2015 was $332,343.

For the three months ended March 31, 2015 and 2014, total stock compensation expense related to the options totaled $377,566 and $306,134, respectively. For the three months ended March 31, 2015 and 2014, stock compensation expense related to the options, warrants and performance stock units totaled $559,793 and $807,356, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2018 is $2,110,036 as of March 31, 2015.

NOTE 6: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of March 31, 2015 and December 31, 2014:

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	Number of Warrants	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Exercisable	Intrinsic Value of Exercisable Warrants
Outstanding at December 31, 2014	16,527,989	$	0.46	3.69	12,604,407	$	309,821
Exercised	109,855	0.40		—		—
Granted	353,125	0.52		—		—
Outstanding at March 31, 2015	16,771,259	$	0.44	3.45	14,071,488	$	467,316

The warrant grants during the three months ended March 31, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 1.50 to 3.26 years, expected volatility of 100%, risk free interest rate of 0.29% to 1.63%, and expected dividend yield of 0%.

On January 15, 2015, the Company sold an additional 812,500 units under the December 2014 Private Placement to one institutional investor for gross proceeds of $325,000 with no commission payable. Each unit in the December 2014 Private Placement consisted of one share of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased.  The warrants consisted of warrants to purchase up to 203,125 shares of the Company’s common stock. The warrants have a term of five years and an exercise price of $0.60 per share. The fair value on the grant date of the warrants was $76,629 and the expense for the three months ended March 31, 2015 was determined to be $0. As of March 31, 2015, these warrants have not been exercised.

On January 29, 2015, the Company issued three-year fully-vested warrants to purchase 150,000 shares of the Company’s common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $61,066 and the expense for the three months ended March 31, 2015 was determined to be $3,393. As of March 31, 2015, these warrants have not been exercised.

For the three months ended March 31, 2015 and 2014, the Company has incurred warrant-based expense of $54,741 and $405,569, respectively. For the three months ended March 31, 2015 and 2014, stock compensation expense related to the options, warrants and performance stock units totaled $559,793 and $807,356, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2018 is $2,110,036 as of March 31, 2015.

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NOTE 7: 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 March 5, 2015, Paul Arena resigned as Chairman of the Board of Directors and Executive Chairman and was designated by AIM Group, Inc. as a consultant to the Company for the term of one year. On March 5, 2015, the Company and Mr. Arena, pursuant to a Separation and Release Agreement, agreed to the issuance of 500,000 restricted common shares in lieu of the January 27, 2014 issuance of 3,000,000 PSUs.

Below is a table summarizing the Company’s outstanding performance share units as of March 31, 2015 and December 31, 2014:

				Wtd Avg.
	Number of PSUs	Wtd Avg. Grant Price		Remaining Term
Outstanding at December 31, 2014	4,500,000	$	0.40	2.00
Forfeited	3,000,000	0.33		2.67
Outstanding at March 31, 2015	1,500,000	$	0.54	1.00

For the three months ended March 31, 2015 and 2014, the Company has incurred performance share unit-based expense of $127,486 and $95,653, respectively. For the three months ended March 31, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $559,793 and $807,356, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through March 2018 is $2,110,036 as of March 31, 2015.

NOTE 8: INTANGIBLE ASSETS

As of March 31, 2015, 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:

	March 31,			December 31,
	2015			2014
Patents	$	3,611,380		$	3,611,380
Software Development Costs	388,125			388,125
Accumulated Amortization	(1,006,422		)	(902,212		)
Intangible Assets, Net	$	2,993,083		$	3,097,293

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. Software development costs are subject to annual impairment testing.

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Amortization expense totaled $104,210 and $99,273 for the three months ended March 31, 2015 and 2014, respectively.

NOTE 9: FAIR VALUE MEASUREMENTS

The following are the Company’s assets and liabilities, measured at fair value on a recurring basis, as of  March  31, 2015 and December 31, 2014:

	Fair Value		Fair Value Hierarchy
Marketable securities, March, 31, 2015	$	13,800	Level 1
Marketable securities, December 31, 2014	$	13,800	Level 1

Fair value is an estimate of the exit price, representing the amount that would be received to, sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction cost. Fair value measurement under generally accepted accounting principles provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1:Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3:Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

NOTE 10: SUBSEQUENT EVENTS

Effective April 24, 2015, Nathaniel Bradley resigned as Chief Executive Officer and President of the Company.  Effective with his resignation as Chief Executive Officer and President, the Company’s board of directors appointed Mr. Bradley to serve as Founder and Chief Innovation Officer as well as Treasurer of the Company. Effective May 1, 2015, Mr. Bradley agreed to reduce his annual base salary to $125,000.

Effective April 24, 2015, the Company’s board of directors appointed Sean Bradley to serve as President of the Company as well as continuing as Chief Technology Officer and Secretary. Effective May 1, 2015, Mr. Bradley agreed to reduce his annual base salary to $150,000.

Effective April 24, 2015, James Crawford resigned as Chief Operating Officer and Treasurer of the Company.

Also on April 24, 2015, the Company and Crawdad, LLC. (“Crawdad”), a limited liability company wholly owned by Mr. Crawford, entered into a Consulting Agreement pursuant to which Crawdad, through Mr. Crawford, is to provide certain consulting services to the Company for a period of 12 months for a consulting fee of $5,000 per month.

Commencing on May 1, 2015, the Company sold an aggregate of 175,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”) to 12 accredited investors at a purchase price of $10.00 per share (the “Purchase Price”) for proceeds of $1,750,000 in a private placement.  Each share of the Preferred Stock may be converted into shares of common stock of the Company by dividing the Purchase Price plus any accumulated dividends with respect to such share by an initial conversion price of $0.1754 (subject to adjustment for stock splits, stock dividends and similar actions).  The Company may redeem the Preferred Stock at any time for a per share amount equal to $12.50 plus accumulated dividends.  The Preferred Stock will bear a dividend of 5% of the purchase price when, as and if declared by the Board of Directors of the Company.

On May 18, 2015, the Company filed amended quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 31, 2014  to reflect the restatement of the Company’s financial statements for the restated periods and the change in management’s conclusion regarding the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting.

On June 2, 2015, the Company issued 150,000 options, which vest 33.33% immediately and 16.66% every 3 months thereafter, have an exercise price of $0.1625, and expire on June 2, 2018.

On June 2, 2015, the Company granted 1,250,000 shares of common stock and five-year warrants to purchase up to 2,000,000 shares of common stock at an exercise price of $0.16 per share.

On June 2, 2015, the Company granted 800,000 shares of common stock and five-year  warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $0.16 per share.

On June 15, 2015, the Company issued 500,000 options, which vest 50% immediately, 25% after one year and 1.04% every month thereafter, have an exercise price of $0.15, and expire on June 15, 2020.

On July 1, 2015, the Company entered into an Executive Employment Agreement with Carr Bettis pursuant to which Dr. Bettis was employed as our Executive Chairman/Chairman of the Board.  The term of the Executive Employment Agreement is one year commencing July 1, 2015, terminable at will by either us or Dr. Bettis and subject to extension upon mutual agreement.  He is to receive a base annual salary of $175,000 during the employment period, paid at the end of every calendar quarter in the form of options to purchase shares of our common stock.  The number of options to be issued for each quarterly period will be determined by means of a Black Scholes valuation whereby the number of options issued would have a value at the time of issuance equal to the dollar value of Dr. Bettis’ base salary for each calendar quarter.  He is entitled to receive bonuses at the sole discretion of our board of directors or the compensation committee.  Dr. Bettis is also entitled to equity awards under our incentive compensation plans.

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 noes 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.

11

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, 2014. 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. The Company focuses on providing its customers with the most complete and inclusive web accessibility solution available.  The Company’s suite of technologies allows its customers to provide their site visitors with an enhanced web experience.  When implemented, the Company believes its solutions offer businesses the opportunity to reach more customers, improve brand image, and build additional brand loyalty.  In addition, the Company’s solutions provide organizations with the ability to comply with internationally accepted web content accessibility guidelines (WCAG) as well as Unted States, Canadian and United Kingdom accessibility laws.

The Company generates revenues through the sale of our software as a service (SaaS) technology platform, called the AudioEye Ally Platform, to website owners, publishers, developers, and operators and through the licensing of our intellectual property. When adopting the Company’s technology, clients implement the Ally+ Toolbar into their website.  The Ally+ Toolbar helps an organization put a face on the issue of web accessibility. It provides site visitors with access to a dedicated web accessibility Help Desk, WCAG-compliant and enhanced accessibility for individuals utilizing their own assistive technologies, as well as the optional Reader in the cloud.

Whether a user has a vision impairment, hearing impairment, color blindness, is learning to read, or simply wants to hear the website read to them, the Company’s Reader is a fully scalable, cloud-based technology that utilizes patented architecture to deliver a fully accessible audio-enabled user experience that can be navigated, utilized, interacted with, and transacted from, without the use of a monitor or mouse.. Using the Reader, site visitors can customize their user experience by listening to the website, using their keyboard to navigate, enlarging text, changing background and foreground colors, clicking to listen, among several other customizations.

12

For organizations that do not want a managed SaaS solution and prefer to achieve WCAG 2.0 Level AA compliance on their own, the Company’s cloud-based Developer Portal provides them with a comprehensive single-source solution for tracking & maintaining a compliance audit of their web environments.  The self-service solution allows client developers to detect compliance issues and fix those issues through the implementation of the AudioEye JavaScript library in the client’s front-end web environment.  The system is also able to automatically fix specific compliance issues, vastly reducing the number of outstanding issues that require manual remediation, inherently reducing cost and time to market. The same Software-as-a-Service (SaaS) Developer Portal is utilized by the Company’s developers when servicing the Company’s clients through its Ally+ managed service offering.

The Company provides its customers with detailed remediation (compliance fix) statistics and analytics that demonstrate Reader usage.  Organizations are thereby provided insight into the different ways in which site visitors are engaging with their website from a web accessibility perspective.

Our technology development was initiated at the University of Arizona Science & Technology Park in Tucson, Arizona. In 2006, we received technology development venture funding from the Maryland Technology Development Corporation (TEDCO), which contributed to the development of our platform strategy. TEDCO was created by the Maryland State Legislature in 1998 to facilitate the transfer and commercialization of technology from Maryland’s research universities and federal labs into the marketplace and to assist in the creation and growth of technology-based businesses in all regions of the State of Maryland, where we formerly had a technology development and administration office. Beginning in 2009, we engaged in a multi-year technology development program with the Eller College of Management’s Department of Management Information Systems at the University of Arizona.  In connection with our proprietary technology, our company has been issued a number of U.S. patents in two distinct patent families.  Today, an experienced team of in-house engineers, designers, and developers in our Atlanta, GA, and Tucson, AZ, offices develop the Company’s technology & software.

Our patented technology was a 2013 Edison Gold Award winner for innovation in the category of “Quality of Life.”

Our Annual Report filed on Form 10-K for the year ended December 31, 2014 provides additional information about our business and operations.

Results of Operations

Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”).

Results of Operations

	Three Months Ended March 31,
	2015			2014
Revenue	$	101,038		$	42,527
Revenue from related party	––			3,125
Total revenues	101,038			45,652
Cost of sales	462,131			41,153
Gross profit (loss)	(361,093		)	4,499
Operating expenses:
Selling & marketing	366,368			270,383
Research & development	142,282			130,624
General and administrative expenses	2,021,226			1,667,600
Amortization & depreciation	133,944			99,273
Operating (loss)	(3,024,913		)	(2,163,381		)
Interest income/(expense)	3,107			(6,983		)
Net (loss)	$	(3,021,806	)	$	(2,170,364	)
Net (loss) per weighted average common shares outstanding — basic and diluted	$	(0.04	)	$	(0.04	)

13

Revenue

For the three months ended March 31, 2015 and 2014, revenue was $101,038 and $42,527, respectively, consisting primarily of revenues from various levels of licensing, website design and maintenance. Revenues increased due to increased demand for our services. Additionally, for the three months ended March 31, 2015 and 2014, revenue from related party was $-0- and $3,125, respectively, consisting primarily of revenue from various levels of website design and maintenance.

Cost of Sales

For the three months ended March 31, 2015 and 2014, cost of sales was $462,131 and $41,153, respectively, consisting primarily of sub-contracting to outside sources, direct labor and direct technology costs.

Gross Profit/(Loss)

The increase in revenue was offset by the greater increase in our implementation costs resulted in a gross loss of $361,093 during the three months ended March 31, 2015 as compared to a gross profit of $4,499 for the three months ended March 31, 2014. Gross profit declined as a result of decreasing sales combined with higher costs of sales.

Selling and Marketing Expenses

Selling and marketing expenses were $366,368 and $270,383 for the three months ended March 31, 2015 and 2014, respectively.  The increase resulted from the establishment of dedicated resources to actively sell and market our products and services.

Research and Development Expenses

Research and development expenses were $142,282 and $130,624 for three months ended March 31, 2015 and 2014, respectively. Research and development expenses were fairly consistent from period to period and reflect the establishment of a dedicated internal research group.

General and Administrative Expenses

General and administrative expenses were $2,021,226 and $1,667,600 for the three months ended March 31, 2015 and 2014, respectively. General and administrative expenses increased as a result of increases in new employees and the associated benefits costs as well as increased stock option and warrant expense.

Amortization and Depreciation

Amortization and depreciation expenses were $133,944 and $99,273 for the three months ended March 31, 2015 and 2014, respectively. The increase in expense was primarily related to an increase in intellectual property amortization.

Other Income/Expenses

Other income and expenses were income of $3,107 and charges of $6,983 for the three months ended March 31, 2015 and 2014, respectively.  The resulting change was due to a decrease in interest expense.

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Liquidity and Capital Resources

Working Capital

	At March 31,		At December 31,
	2015		2014
Current Assets	$	997,394	$	3,274,065
Current Liabilities	562,226		1,156,782
Working Capital	$	435,168	$	2,117,283

The working capital surplus for the periods ended March 31, 2015 and December 31, 2014 was $435,168 and $2,712,981, respectively. The decrease in working capital was primarily due to a decrease in other assets associated with the settlement of a stock subscription receivable and a decrease in accounts payables and accrued expenses.

Cash Flows

	For the three months ended
	March 31,
	2015			2014
Net Cash (Used in) Operating Activities	$	(2,418,916	)	$	(1,275,347	)
Net Cash (Used in) Investing Activities	(29,650		)	(113,476
Net Cash Provided by Financing Activities	1,535,942			34,537
Increase (Decrease) in Cash	$	(912,624	)	$	(1,354,286	)

We had cash in the amount of $760,277 and $492,718 as of March 31, 2015 and 2014, respectively.

On January 15, 2015, we sold an additional 812,500 units under a private placement that had its initial close in December 2014 (the “December 2014 Private Placement”) to one institutional investor for gross proceeds of $325,000 with no commission payable. Each unit in the December 2014 Private Placement consisted of one share of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased.  The warrants have a term of five years and an exercise price of $0.60 per share.

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, 2014, relate to capitalized legal patent costs, income taxes, 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, 2014 except as set forth below.

15

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.

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 March 31, 2015 due to omissions of disclosures in accordance with generally accepted accounting principles that have been substantially corrected as of May 18, 2015. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on July 10, 2015 for a complete discussion relating to the foregoing evaluation of our controls and procedures.

Changes in Internal Control over Financial Reporting

There have been improvements in our internal controls over financial reporting that occurred after the year ended December 31, 2014.  In the first quarter of 2015, we implemented the processes to effectively and accurately compute the revenues associated with non cash transactions and the  revenues earned under the percentage of completion methodology.  Additionally, we implemented processes to mitigate the issue of sales to customers where collections were not reasonably assured.

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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

In April 2015, two purported shareholder class action lawsuits were filed against us and our officer Nathaniel Bradley and former officer Edward O’Donnell in the U.S. District Court for the District of Arizona. The plaintiffs allege various causes of action against the defendants arising from our announcement that our previously issued financial results for the first three quarters of 2014 and the guidance for the fourth quarter of 2014 and the full year of 2014 could no longer be relied upon.  The complaints seek, among other relief, compensatory damages and plaintiff’s counsel’s fees and experts’ fees. The Court has not yet appointed a lead plaintiff or lead counsel, and we have not yet responded to the complaints. We believe that the lawsuits have no merit and intend to mount a vigorous defense. Given the current stage of the proceedings in this case, our management currently cannot assess the probability of losses, or reasonably estimate the range of losses, related to these matters.

Item 1A. Risk Factors

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, 2014.

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

Sales of Unregistered Securities

On January 15, 2015, we sold an additional 812,500 units under a private placement that had its initial close in December 2014 (the “December 2014 Private Placement”) to one institutional investor for gross proceeds of $325,000 with no commission payable. Each unit in the December 2014 Private Placement consisted of one share of our common stock and warrants to purchase ¼ of a share for every common share purchased.  The warrants 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 Rule 506 of Regulation D promulgated thereunder. We determined that the investors were accredited based on representations made by the investors to us.

Use of Proceeds from Public Offering of Common Stock

None.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

None.

Item 3. Defaults Upon Senior Securities

None.

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Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

18

Item 6. Exhibits

Exhibit No.	Description
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 pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2*	Certification of the 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.

19

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 16 day of July, 2015.

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

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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 for the period ended March 31, 2015 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: July 16, 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 for the period ended March 31, 2015 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: July 16, 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 March 31, 2015 (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: July 16, 2015	By:	/s/ Carr Bettis
		Name:	Carr Bettis
		Title:	Principal Executive Officer

EX-32.2

Exhibit 32.2

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 March 31, 2015 (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: July 16, 2015	By:	/s/ Donald Weinstein
		Name:	Donald Weinstein
		Title:	Chief Financial Officer

XML

STOCKHOLDERS' EQUITY (Details)							3 Months Ended
	Jul. 15, 2015 shares	Mar. 05, 2015 shares	Jan. 15, 2015 USD ($) item $ / shares shares	Jan. 15, 2015 USD ($) item $ / shares shares	Sep. 30, 2014 shares	Jan. 27, 2014 shares	Mar. 31, 2015 USD ($) shares	Mar. 31, 2014 USD ($)	Dec. 31, 2014 shares
STOCKHOLDERS' EQUITY
Common Stock, shares issued							79,467,530		77,817,861
Common Stock, shares outstanding							79,467,530		77,817,861
Stockholders' Equity
Units sold to accredited investors (in shares)			812,500	812,500
Number of accredited investors | item			1	1
Proceeds from sale of units to accredited investors | $			$ 325,000	$ 325,000
Commissions payable from sale to institutional investors | $			$ 0
Units sold to accredited investors, number of common shares			1		1
Number of common shares that can be purchased against each warrant issued to institutional investor			0.25	0.25
Term of warrants issued to accredited investor			5 years	5 years
Exercise price of units (in dollars per share) | $ / shares			$ 0.60	$ 0.60
Common stock issued for services (in shares)							727,314
Expenses related to common stock issued for service | $							$ 314,663
Common stock issued for exercise of warrants (in shares)							109,899
Issuance of equity for cash exercise of options and warrants | $							$ 43,942	$ 13,000
Mr. Arena | PSUs
Stockholders' Equity
Number of units granted (in shares)						3,000,000
Mr. Arena | Restricted Shares
Stockholders' Equity
Number of options awarded		500,000
Percentage of restricted shares issued		50.00%
Percentage of shares held in escrow		50.00%
Mr. Arena | Restricted Shares | Expected results
Stockholders' Equity
Shares are not expected to be earned	250,000
Mr. Arena | Restricted Shares | Maximum
Stockholders' Equity
Shares held in escrow		250,000
Mr. Arena | Restricted Shares | Immediate vesting
Stockholders' Equity
Number of options awarded		250,000
Stock option expense | $							$ 117,500
AIM | Mr. Arena
Stockholders' Equity
Term of consulting agreement		1 year

XML

STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2015

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 4: STOCKHOLDERS’ EQUITY

As of March 31, 2015 and December 31, 2014, the Company had 79,467,530 and 77,817,861 shares of common stock issued and outstanding, respectively.

On January 15, 2015, the Company sold an additional 812,500 units under a private placement that had its initial close in December 2014 (the “December 2014 Private Placement”) to one institutional investor for gross proceeds of $325,000 with no commission payable. Each unit in the December 2014 Private Placement consisted of one share of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased.  The warrants have a term of five years and an exercise price of $0.60 per share.

On March 5, 2015, Paul Arena resigned as Chairman of the Board of Directors and Executive Chairman and was designated by AIM Group, Inc. as a consultant to the Company for the term of one year. On March 5, 2015, the Company and Mr. Arena, pursuant to a Separation and Release Agreement, agreed to the issuance of 500,000 restricted common shares in lieu of the January 27, 2014 issuance of 3,000,000 Performance Share Units. The agreement calls for the immediate release of 250,000 common shares, or 50%, and up to 250,000 common shares, or 50%, be held in escrow until April 1, 2016 or until the Company’s 2015 audited financials are final. The 250,000 shares earned during the three months ended March 31, 2015 were valued and expensed at $117,500. The remaining 250,000 shares are not expected to be earned.

From January 1, 2015 through March 31, 2015, the Company also issued 109,899 shares of common stock pursuant to exercise of warrants for total proceeds of $43,942. The Company also issued 477,314 additional shares of common stock for services provided for a total expense of $197,163.

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INTANGIBLE ASSETS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Intangible Assets
Accumulated Amortization	$ (1,006,422)		$ (902,212)
Intangible Assets, Net	2,993,083		3,097,293
Amortization expense	$ 104,210	$ 99,273
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	$ 3,611,380		3,611,380
Software Development Costs
Intangible Assets
Estimated useful lives of intangibles assets	3 years
Intangible Assets, Gross	$ 388,125		$ 388,125
Licensing
Intangible Assets
Estimated useful lives of intangibles assets	3 years

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PERFORMANCE SHARE UNITS (Details) - USD ($)					3 Months Ended
	Mar. 31, 2015	Mar. 05, 2015	Dec. 31, 2014	Jan. 27, 2014	Mar. 31, 2015	Mar. 31, 2014
Wtd Avg. Remaining Term
Stock compensation expense related to the options and warrants					$ 559,793	$ 807,356
Total stock compensation expense to be amortized through March 2018	$ 2,110,036				$ 2,110,036
PSUs
Number of PSUs
Number of shares, beginning					4,500,000
Forfeited					3,000,000
Number of shares, ending	1,500,000		4,500,000		1,500,000
Wtd Avg. Grant Price
Weighted average exercise price, beginning (in dollars per share)					$ 0.40
Forfeited (in dollars per share)					0.33
Weighted average exercise price, ending (in dollars per share)	$ 0.54		$ 0.40		$ 0.54
Wtd Avg. Remaining Term
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsWeightedAverageRemainingContractualTermsGrantsInPeriod	1 year		2 years
Forfeited					2 years 8 months 1 day
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsWeightedAverageRemainingContractualTermsGrantsInPeriod	1 year		2 years
Stock compensation expense related to the options and warrants					$ 127,486	$ 95,653
Mr. Arena | Restricted Shares
PERFORMANCE SHARE UNITS
Number of options awarded		500,000
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
AIM | Mr. Arena
PERFORMANCE SHARE UNITS
Term of Consulting Agreement		1 year

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FAIR VALUE MEASUREMENTS (Details) - USD ($)	Mar. 31, 2015	Dec. 31, 2014
Fair value
Marketable securities held in related party	$ 13,800	$ 13,800
Fair Value, Inputs, Level 1
Fair value
Marketable securities held in related party	$ 13,800	$ 13,800

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SUBSEQUENT EVENTS (Details)									3 Months Ended		6 Months Ended
	Jul. 01, 2015 USD ($)	Jun. 15, 2015 $ / shares shares	Jun. 02, 2015 $ / shares shares	May. 01, 2015 USD ($) item $ / shares shares	Apr. 24, 2015 USD ($)	Jan. 29, 2015 shares	Jan. 15, 2015 USD ($) item $ / shares shares	Jan. 15, 2015 USD ($) item $ / shares shares	Mar. 31, 2015 USD ($) shares	Mar. 31, 2014 USD ($)	Jun. 30, 2015 USD ($) shares
Subsequent event
Number of accredited investors | item							1	1
Proceeds from sale of units to accredited investors | $							$ 325,000	$ 325,000
Exercise price of units (in dollars per share) | $ / shares							$ 0.60	$ 0.60
Common stock issued						150,000	203,125	203,125
Term of warrant						3 years
Common stock issued for services									727,314
Proceeds from exercise of warrants | $									$ 43,942	$ 13,000
Options
Subsequent event
Number of options awarded									2,368,550
Subsequent Event
Subsequent event
Number of accredited investors | item				12
Proceeds from sale of units to accredited investors | $				$ 1,750,000
Dividend rate (as a percent)				5.00%
Common stock issued for exercise of warrants (in shares)											109,855
Proceeds from exercise of warrants | $											$ 43,942
Subsequent Event | Consulting And Referral Agreements
Subsequent event
Common stock issued for services											532,960
Subsequent Event | Series A Convertible Preferred Stock
Subsequent event
Shares Issued				175,000
Share price (in dollars per share) | $ / shares				$ 10.00
Conversion price (in dollars per share) | $ / shares				0.1754
Redemption Price (in dollars per share) | $ / shares				$ 12.50
Subsequent Event | Options | Options Granted On 2 June 2015 Member
Subsequent event
Number of options awarded			150,000
Exercise price of units (in dollars per share) | $ / shares			$ 0.1625
Subsequent Event | Options | Options Granted On 2 June 2015 Member | Immediate vesting
Subsequent event
Vesting percentage			33.33%
Subsequent Event | Options | Options Granted On 2 June 2015 Member | Vesting every three months
Subsequent event
Vesting percentage			16.66%
Vesting period			3 months
Subsequent Event | Options | Options Granted On 15 June 2015 Member
Subsequent event
Number of options awarded		500,000
Exercise price of units (in dollars per share) | $ / shares		$ 0.15
Subsequent Event | Options | Options Granted On 15 June 2015 Member | Vesting after one year
Subsequent event
Vesting percentage		25.00%
Vesting period		1 year
Subsequent Event | Options | Options Granted On 15 June 2015 Member | Vesting every month
Subsequent event
Vesting percentage		1.04%
Subsequent Event | Options | Options Granted On 15 June 2015 Member | Immediate vesting
Subsequent event
Vesting percentage		50.00%
Subsequent Event | Nathaniel Bradley
Subsequent event
Base salary | $					$ 125,000
Subsequent Event | Sean Bradley
Subsequent event
Base salary | $					$ 150,000
Subsequent Event | James Crawford
Subsequent event
Term of consulting agreement					12 months
Consulting agreement monthly fee amount | $					$ 5,000
Subsequent Event | Carr Bettis
Subsequent event
Base salary | $	$ 175,000
Employment contract period	1 year
Exercise price of units (in dollars per share) | $ / shares			$ 0.16
Common stock issued			1,250,000
Term of warrant			5 years
Subsequent Event | Carr Bettis | Maximum
Subsequent event
Issuance of warrants (in shares)			2,000,000
Subsequent Event | Mr. Purcell
Subsequent event
Exercise price of units (in dollars per share) | $ / shares			$ 0.16
Common stock issued			800,000
Term of warrant			5 years
Subsequent Event | Mr. Purcell | Maximum
Subsequent event
Issuance of warrants (in shares)			1,000,000

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NOTES PAYABLE

3 Months Ended

Mar. 31, 2015

NOTES PAYABLE

NOTES PAYABLE

NOTE 3: NOTES PAYABLE

As of March 31, 2015 and December 31, 2014, the Company had current and long term notes payable of $24,000 and $24,000 and $43,800 and $51,800, respectively as shown in the table below.

Notes and loans payable	March 31, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	43,800	$	51,800
Total	$	43,800	$	51,800

As of December 31, 2012, the Company had an outstanding loan to 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.  As of March 31, 2015 and December 31,  2014 the principal amount owing was $67,800 and $75,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $43,800 and $51,800, respectively, as the long-term portion of the note, respectively.

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CONSOLIDATED BALANCE SHEETS - USD ($)	Mar. 31, 2015	Dec. 31, 2014
Current Assets
Cash	$ 760,277	$ 1,672,901
Accounts receivable, net	23,918	261,676
Related party receivables	10,000	10,000
Marketable securities held in related party	13,800	13,800
Non-marketable securities held in related party	50,000	50,000
Subscription receivable		1,175,000
Prepaid expenses and other current assets	139,399	90,688
Total Current Assets	997,394	3,274,065
Property and equipment, net	568	651
Intangible assets, net	2,993,083	3,097,293
Goodwill	700,528	700,528
Total Assets	4,691,573	7,072,537
Current Liabilities
Accounts payable and accrued expenses	505,726	779,891
Billings in excess of costs	32,500	123,908
Notes and loans payable-current	24,000	24,000
Related party payables	0	228,983
Total Current Liabilities	562,226	1,156,782
Long Term Liabilities
Notes and loans payable-long term	43,800	51,800
Total Long Term Liabilities	43,800	51,800
Total Liabilities	$ 606,026	$ 1,208,582
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, none issued and outstanding, as of March 31, 2015 and December 31, 2014, respectively
Common stock, $0.00001 par value, 250,000,000 shares authorized, 79,467,530 and 77,817,861 issued and outstanding, as of March 31, 2015 and December 31, 2014, respectively	$ 794	$ 778
Treasury stock	(623,000)	(623,000)
Additional paid in capital	24,759,845	23,516,463
Accumulated deficit	(20,052,092)	(17,030,286)
Total Stockholders' Equity	4,085,547	5,863,955
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 4,691,573	$ 7,072,537

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ORGANIZATION AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2015

ORGANIZATION AND BASIS OF PRESENTATION

ORGANIZATION AND BASIS OF PRESENTATION

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited 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 July 10, 2015.

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, 2014 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 providing its customers with the most complete and inclusive web accessibility solution available.  The Company’s suite of technologies allows its customers to provide their site visitors with an enhanced web experience.  When implemented, the Company believes its solutions offer businesses the opportunity to reach more customers, improve brand image, and build additional brand loyalty.  In addition, the Company’s solutions provide organizations with the ability to comply with internationally accepted web content accessibility guidelines (WCAG) as well as United States, Canadian and United Kingdom accessibility laws.

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, the Company follows ASC 845 and any potential revenue is recorded as other income.

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2015

FAIR VALUE MEASUREMENTS

Schedule of fair value of marketable securities

	Fair Value		Fair Value Hierarchy
Marketable securities, March, 31, 2015...........................................................................	$	13,800	Level 1
Marketable securities, December 31, 2014.......................................................................	$	13,800	Level 1

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NOTES PAYABLE (Details) - USD ($)	Oct. 24, 2011	Oct. 24, 2011	Mar. 31, 2015	Dec. 31, 2014	Dec. 31, 2012
Notes Payable
Short Term			$ 24,000	$ 24,000
Long Term			43,800	51,800
Maryland TEDCO Note
Notes Payable
Short Term			24,000	24,000
Long Term			43,800	51,800
Carrying amount of debt			$ 67,800	$ 75,800
Face amount of debt	$ 149,800	$ 149,800
Monthly payments		$ 2,000
Loans Payable
Notes Payable
Carrying amount of debt					$ 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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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2015

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 2: RELATED PARTY TRANSACTIONS

For the three months ended March 31, 2015 and 2014, there were revenues earned of $-0- and $3,125, respectively, for services performed for related parties.

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of March 31, 2015 resulting from the conversion of a $60,000 accounts receivable balance in 2014. In 2014, the Company invested $50,000 in Cannonball Red in return for 97,500 shares held as of March 31, 2015. Both companies are affiliated with related parties.

In summary, as of March 31, 2015 and December 31, 2014  the total balances of related party payables were $0 and $228,983, respectively.

As of March 31, 2015 and December 31, 2014, there were outstanding receivables of $10,000 and $10,000, respectively, for services performed for related parties.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Mar. 31, 2015	Dec. 31, 2014
CONSOLIDATED BALANCE SHEETS
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	79,467,530	77,817,861
Common Stock, shares outstanding	79,467,530	77,817,861

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NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2015

NOTES PAYABLE

Schedule of current and long term notes payable

Notes and loans payable	March 31, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	43,800	$	51,800
Total	$	43,800	$	51,800

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Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2015	Jul. 15, 2015
Document And Entity Information
Entity Registrant Name	AUDIOEYE INC
Entity Central Index Key	0001362190
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		81,517,530
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2015

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OPTIONS (Tables)

3 Months Ended

Mar. 31, 2015

OPTIONS.

Summary of the Company's outstanding and exercisable options

	Number of Options	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Exercisable	Intrinsic Value of Exercisable Options
Outstanding at December 31, 2014	11,434,350	$	0.47	3.79	5,635,250	$	460,941
Granted	2,368,550	0.44		4,81		—
Forfeited	500,000	0.40		3.83		—
Outstanding at March 31, 2015	13,302,900	$	0.47	3.75	7,061,300	$	446,189

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue	$ 101,038	$ 42,527
Revenues from related party	0	3,125
Total revenues	101,038	45,652
Cost of revenues	462,131	41,153
Gross (Loss) Profit	(361,093)	4,499
Operating expenses:
Selling and marketing	366,368	270,383
Research and development	142,282	130,624
General and administrative expenses	2,021,226	1,667,600
Amortization and depreciation	133,944	99,273
Total operating expenses	2,663,820	2,167,880
Operating loss	(3,024,913)	(2,163,381)
Other income (expense)
Interest income (expense)	3,107	(6,983)
Total other income (expense)	3,107	(6,983)
Net loss	$ (3,021,806)	$ (2,170,364)
Net loss per common share - basic and diluted (in dollars per share)	$ (0.04)	$ (0.04)
Weighted average common shares outstanding - basic and diluted (in shares)	78,736,420	54,215,367

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PERFORMANCE SHARE UNITS

3 Months Ended

Mar. 31, 2015

PERFORMANCE SHARE UNITS

PERFORMANCE SHARE UNITS

NOTE 7: 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 March 5, 2015, Paul Arena resigned as Chairman of the Board of Directors and Executive Chairman and was designated by AIM Group, Inc. as a consultant to the Company for the term of one year. On March 5, 2015, the Company and Mr. Arena, pursuant to a Separation and Release Agreement, agreed to the issuance of 500,000 restricted common shares in lieu of the January 27, 2014 issuance of 3,000,000 PSUs.

Below is a table summarizing the Company’s outstanding performance share units as of March 31, 2015 and December 31, 2014:

				Wtd Avg.
	Number of PSUs	Wtd Avg. Grant Price		Remaining Term
Outstanding at December 31, 2014	4,500,000	$	0.40	2.00
Forfeited	3,000,000	0.33		2.67
Outstanding at March 31, 2015	1,500,000	$	0.54	1.00

For the three months ended March 31, 2015 and 2014, the Company has incurred performance share unit-based expense of $127,486 and $95,653, respectively. For the three months ended March 31, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $559,793 and $807,356, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through March 2018 is $2,110,036 as of March 31, 2015.

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WARRANTS

3 Months Ended

Mar. 31, 2015

WARRANT

WARRANTS

NOTE 6: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of March 31, 2015 and December 31, 2014:

	Number of Warrants	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Exercisable	Intrinsic Value of Exercisable Warrants
Outstanding at December 31, 2014	16,527,989	$	0.46	3.69	12,604,407	$	309,821
Exercised	109,855	0.40		—		—
Granted	353,125	0.52		—		—
Outstanding at March 31, 2015	16,771,259	$	0.44	3.45	14,071,488	$	467,316

The warrant grants during the three months ended March 31, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 1.50 to 3.26 years, expected volatility of 100%, risk free interest rate of 0.29% to 1.63%, and expected dividend yield of 0%.

On January 15, 2015, the Company sold an additional 812,500 units under the December 2014 Private Placement to one institutional investor for gross proceeds of $325,000 with no commission payable. Each unit in the December 2014 Private Placement consisted of one share of the Company’s common stock and warrants to purchase ¼ of a share for every common share purchased.  The warrants consisted of warrants to purchase up to 203,125 shares of the Company’s common stock. The warrants have a term of five years and an exercise price of $0.60 per share. The fair value on the grant date of the warrants was $76,629 and the expense for the three months ended March 31, 2015 was determined to be $0. As of March 31, 2015, these warrants have not been exercised.

On January 29, 2015, the Company issued three-year fully-vested warrants to purchase 150,000 shares of the Company’s common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $61,066 and the expense for the three months ended March 31, 2015 was determined to be $3,393. As of March 31, 2015, these warrants have not been exercised.

For the three months ended March 31, 2015 and 2014, the Company has incurred warrant-based expense of $54,741 and $405,569, respectively. For the three months ended March 31, 2015 and 2014, stock compensation expense related to the options, warrants and performance stock units totaled $559,793 and $807,356, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2018 is $2,110,036 as of March 31, 2015.

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RELATED PARTY TRANSACTIONS (Details) - USD ($)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Dec. 31, 2014
Revenue from related party	$ 0	$ 3,125
Cost method investment	50,000		$ 50,000
Related party payables	0		228,983
Related party receivables	$ 10,000		10,000
Peartrack Security Systems
Shares owned	60,000
Ecologic Transportation
Conversion of accounts receivable			60,000
Cannonball Red
Shares owned	97,500
Cost method investment			$ 50,000

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WARRANTS (Tables)

3 Months Ended

Mar. 31, 2015

WARRANT

Summary of the Company's outstanding warrants

	Number of Warrants	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Exercisable	Intrinsic Value of Exercisable Warrants
Outstanding at December 31, 2014	16,527,989	$	0.46	3.69	12,604,407	$	309,821
Exercised	109,855	0.40		—		—
Granted	353,125	0.52		—		—
Outstanding at March 31, 2015	16,771,259	$	0.44	3.45	14,071,488	$	467,316

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SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2015

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 10: SUBSEQUENT EVENTS

Effective April 24, 2015, Nathaniel Bradley resigned as Chief Executive Officer and President of the Company.  Effective with his resignation as Chief Executive Officer and President, the Company’s board of directors appointed Mr. Bradley to serve as Founder and Chief Innovation Officer as well as Treasurer of the Company. Effective May 1, 2015, Mr. Bradley agreed to reduce his annual base salary to $125,000.

Effective April 24, 2015, the Company’s board of directors appointed Sean Bradley to serve as President of the Company as well as continuing as Chief Technology Officer and Secretary. Effective May 1, 2015, Mr. Bradley agreed to reduce his annual base salary to $150,000.

Effective April 24, 2015, James Crawford resigned as Chief Operating Officer and Treasurer of the Company.

Also on April 24, 2015, the Company and Crawdad, LLC. (“Crawdad”), a limited liability company wholly owned by Mr. Crawford, entered into a Consulting Agreement pursuant to which Crawdad, through Mr. Crawford, is to provide certain consulting services to the Company for a period of 12 months for a consulting fee of $5,000 per month.

Commencing on May 1, 2015, the Company sold an aggregate of 175,000 shares of Series A Convertible Preferred Stock (the “Preferred Stock”) to 12 accredited investors at a purchase price of $10.00 per share (the “Purchase Price”) for proceeds of $1,750,000 in a private placement.  Each share of the Preferred Stock may be converted into shares of common stock of the Company by dividing the Purchase Price plus any accumulated dividends with respect to such share by an initial conversion price of $0.1754 (subject to adjustment for stock splits, stock dividends and similar actions).  The Company may redeem the Preferred Stock at any time for a per share amount equal to $12.50 plus accumulated dividends.  The Preferred Stock will bear a dividend of 5% of the purchase price when, as and if declared by the Board of Directors of the Company.

On May 18, 2015, the Company filed amended quarterly reports on Form 10-Q for the periods ended March 31, June 30 and September 31, 2014  to reflect the restatement of the Company’s financial statements for the restated periods and the change in management’s conclusion regarding the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting.

On June 2, 2015, the Company issued 150,000 options, which vest 33.33% immediately and 16.66% every 3 months thereafter, have an exercise price of $0.1625, and expire on June 2, 2018.

On June 2, 2015, the Company granted 1,250,000 shares of common stock and five-year warrants to purchase up to 2,000,000 shares of common stock at an exercise price of $0.16 per share.

On June 2, 2015, the Company granted 800,000 shares of common stock and five-year  warrants to purchase up to 1,000,000 shares of common stock at an exercise price of $0.16 per share.

On June 15, 2015, the Company issued 500,000 options, which vest 50% immediately, 25% after one year and 1.04% every month thereafter, have an exercise price of $0.15, and expire on June 15, 2020.

On July 1, 2015, the Company entered into an Executive Employment Agreement with Carr Bettis pursuant to which Dr. Bettis was employed as our Executive Chairman/Chairman of the Board.  The term of the Executive Employment Agreement is one year commencing July 1, 2015, terminable at will by either us or Dr. Bettis and subject to extension upon mutual agreement.  He is to receive a base annual salary of $175,000 during the employment period, paid at the end of every calendar quarter in the form of options to purchase shares of our common stock.  The number of options to be issued for each quarterly period will be determined by means of a Black Scholes valuation whereby the number of options issued would have a value at the time of issuance equal to the dollar value of Dr. Bettis’ base salary for each calendar quarter.  He is entitled to receive bonuses at the sole discretion of our board of directors or the compensation committee.  Dr. Bettis is also entitled to equity awards under our incentive compensation plans.

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INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2015

INTANGIBLE ASSETS

INTANGIBLE ASSETS

NOTE 8: INTANGIBLE ASSETS

As of March 31, 2015, 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:

	March 31,			December 31,
	2015			2014
Patents	$	3,611,380		$	3,611,380
Software Development Costs	388,125			388,125
Accumulated Amortization	(1,006,422		)	(902,212		)
Intangible Assets, Net	$	2,993,083		$	3,097,293

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. Software development costs are subject to annual impairment testing.

Amortization expense totaled $104,210 and $99,273 for the three months ended March 31, 2015 and 2014, respectively.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 9: FAIR VALUE MEASUREMENTS

The following are the Company’s assets and liabilities, measured at fair value on a recurring basis, as of  March  31, 2015 and December 31, 2014:

	Fair Value		Fair Value Hierarchy
Marketable securities, March, 31, 2015...........................................................................	$	13,800	Level 1
Marketable securities, December 31, 2014.......................................................................	$	13,800	Level 1

Fair value is an estimate of the exit price, representing the amount that would be received to, sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction cost. Fair value measurement under generally accepted accounting principles provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1:Unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2:Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

Level 3:Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

3 Months Ended

Mar. 31, 2015

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, the Company follows ASC 845 and any potential revenue is recorded as other income.

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INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2015

INTANGIBLE ASSETS

Schedule of intangible assets

	March 31,			December 31,
	2015			2014
Patents	$	3,611,380		$	3,611,380
Software Development Costs	388,125			388,125
Accumulated Amortization	(1,006,422		)	(902,212		)
Intangible Assets, Net	$	2,993,083		$	3,097,293

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OPTIONS (Details) - USD ($)										3 Months Ended
	Mar. 31, 2015	Mar. 16, 2015	Mar. 12, 2015	Mar. 05, 2015	Feb. 23, 2015	Feb. 02, 2015	Jan. 09, 2015	Jan. 05, 2015	Dec. 31, 2014	Mar. 31, 2015	Mar. 31, 2014	Jan. 29, 2015
Significant assumptions used in the valuation
Share based compensation expense										$ 559,793	$ 807,356
Exercise price (in dollars per share)												$ 0.40
Total stock compensation expense to be amortized through March 2018	$ 2,110,036
Options
Options
Options issued and outstanding	13,302,900								11,434,350	11,434,350
Number of options:
Outstanding at beginning of the period (in shares)										11,434,350
Granted (in shares)										2,368,550
Less Forfeited (in shares)										500,000
Outstanding at the end of the period (in shares)	13,302,900								11,434,350	13,302,900
Exercisable (in shares)	7,061,300								5,635,250
Wtd Avg. Exercise Price
Outstanding at beginning of the period (in dollars per share)										$ 0.47
Granted (in dollars per share)										0.44
Less Forfeited (in dollars per share)										0.40
Outstanding at end of the period (in dollars per share)	$ 0.47								$ 0.47	$ 0.47
Wtd Avg. Remaining Term
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2	3 years 9 months								3 years 9 months 15 days
Granted, Wtd Avg. Remaining Term										4 years 9 months 22 days
Forfeited, Wtd Avg. Remaining Term										3 years 9 months 29 days
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2	3 years 9 months								3 years 9 months 15 days
Intrinsic Value
Outstanding at beginning of the period, Intrinsic Value (in dollars)										$ 460,941
Outstanding at end of the period, Intrinsic Value (in dollars)	$ 446,189								$ 460,941	$ 446,189
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										$ 377,566	$ 306,134
Number of options awarded										2,368,550
Options | Minimum
Significant assumptions used in the valuation
Expected term										2 years 8 months 1 day
Risk-free interest rate (as a percent)										0.76%
Options | Maximum
Significant assumptions used in the valuation
Expected term										3 years 3 months 4 days
Risk-free interest rate (as a percent)										1.83%
Options | Options Granted On 5 January 2015 Member
Number of options:
Granted (in shares)								37,500
Significant assumptions used in the valuation
Grant date fair value of options								$ 10,357
Share based compensation expense										$ 1,608
Number of options awarded								37,500
Exercise price (in dollars per share)								$ 0.43
Options | Options Granted On 5 January 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage										2.01%
Options | Options Granted On 5 January 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage										50.00%
Vesting period										1 year
Options | Options Granted On 9 January 2015 Member
Number of options:
Granted (in shares)							100,000
Significant assumptions used in the valuation
Grant date fair value of options							$ 25,679
Share based compensation expense										$ 3,799
Number of options awarded							100,000
Exercise price (in dollars per share)							$ 0.40
Options | Options Granted On 9 January 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage										2.01%
Options | Options Granted On 9 January 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage										50.00%
Vesting period										1 year
Options | Options Granted On 2 February 2015 Member
Number of options:
Granted (in shares)						17,500
Significant assumptions used in the valuation
Grant date fair value of options						$ 6,183
Share based compensation expense										$ 644
Number of options awarded						17,500
Exercise price (in dollars per share)						$ 0.59
Options | Options Granted On 2 February 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage										2.01%
Options | Options Granted On 2 February 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage										50.00%
Vesting period										1 year
Options | Options Granted On 23 February 2015 Member
Number of options:
Granted (in shares)					35,000
Significant assumptions used in the valuation
Grant date fair value of options					$ 11,246
Share based compensation expense										$ 739
Number of options awarded					35,000
Exercise price (in dollars per share)					$ 0.50
Options | Options Granted On 23 February 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage										2.01%
Options | Options Granted On 23 February 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage										50.00%
Vesting period										1 year
Options | Options Granted On 5 March 2015 Member
Number of options:
Granted (in shares)				150,000
Significant assumptions used in the valuation
Grant date fair value of options				$ 44,252
Share based compensation expense										$ 16,852
Number of options awarded				150,000
Exercise price (in dollars per share)				$ 0.40
Options | Options Granted On 5 March 2015 Member | Immediate vesting
Significant assumptions used in the valuation
Vesting percentage										33.33%
Options | Options Granted On 5 March 2015 Member | Vesting every 90 days
Significant assumptions used in the valuation
Vesting percentage										16.66%
Vesting period										90 days
Options | Options Granted On 12 March 2015 Member
Number of options:
Granted (in shares)			1,981,550
Significant assumptions used in the valuation
Grant date fair value of options			$ 609,722
Share based compensation expense										$ 21,159
Number of options awarded			1,981,550
Exercise price (in dollars per share)			$ 0.44
Options | Options Granted On 12 March 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage										2.01%
Options | Options Granted On 12 March 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage										50.00%
Vesting period										1 year
Options | Options Granted On 16 March 2015 Member
Number of options:
Granted (in shares)		47,000
Significant assumptions used in the valuation
Grant date fair value of options		$ 15,365
Share based compensation expense										$ 421
Number of options awarded		47,000
Exercise price (in dollars per share)		$ 0.47
Options | Options Granted On 16 March 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage										2.01%
Options | Options Granted On 16 March 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage										50.00%
Vesting period										1 year
Options | Options issued prior to January 1, 2015
Significant assumptions used in the valuation
Share based compensation expense										$ 332,343

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash Flows from operating activities:
Net (loss)	$ (3,021,806)	$ (2,170,364)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	133,944	99,273
Stock, option and warrant expense	559,793	849,148
Common stock issued for services	314,663
Amortization of debt discount		1,155
Changes in operating assets and liabilities:
Accounts receivable	237,758	(649,841)
Related party receivable		(1,125)
Prepaid expenses and other current assets	(48,713)	(49,643)
Accounts payable and accruals	(274,164)	791,153
Billings in excess of costs	(91,408)	11,321
Related party payables	(228,983)	(156,424)
Net cash used in operating activities	(2,418,916)	(1,275,347)
Cash Flows from investing activities:
Cash paid for intangible assets	(29,650)	(113,476)
Net cash used in by investing activities	(29,650)	(113,476)
Cash Flows from financing activities:
Repayment of note payable	(8,000)	(160,000)
Issuance of common stock for cash	325,000	181,537
Collection of stock subscription receivable	1,175,000
Issuance of equity for cash exercise of options and warrants	43,942	13,000
Net cash provided by financing activities	1,535,942	34,537
Net decrease in cash	(912,624)	(1,354,286)
Cash - beginning of period	1,672,901	1,847,004
Cash - end of period	760,277	492,718
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$ 307	$ 3,658

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OPTIONS

3 Months Ended

Mar. 31, 2015

OPTIONS.

OPTIONS

NOTE 5: OPTIONS

As of March 31, 2015 and December 31, 2014, the Company has granted options to purchase 13,302,900 and 11,434,350 shares of common stock, respectively.

	Number of Options	Wtd Avg. Exercise Price		Wtd Avg. Remaining Term	Exercisable	Intrinsic Value of Exercisable Options
Outstanding at December 31, 2014	11,434,350	$	0.47	3.79	5,635,250	$	460,941
Granted	2,368,550	0.44		4,81		—
Forfeited	500,000	0.40		3.83		—
Outstanding at March 31, 2015	13,302,900	$	0.47	3.75	7,061,300	$	446,189

The option grants during the three months ended March 31, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 2.67 to 3.26 years, expected volatility of 100%, risk free interest rate of 0.76% to 1.83%, and expected dividend yield of 0%.

On January 5, 2015, the Company issued 37,500 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.43, and expire on January 5, 2020. The value on the grant date of the options was $10,357 and the option expense for the three months ended March 31, 2015 was determined to be $1,608.

On January 9, 2015, the Company issued 100,000 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.40, and expire on January 9, 2020. The value on the grant date of the options was $25,679 and the option expense for the three months ended March 31, 2015 was determined to be $3,799.

On February 2, 2015, the Company issued 17,500 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.59, and expire on February 2, 2020. The value on the grant date of the options was $6,183 and the option expense for the three months ended March 31, 2015 was determined to be $644.

On February 23, 2015, the Company issued 35,000 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.50, and expire on February 23, 2020. The value on the grant date of the options was $11,246 and the option expense for the three months ended March 31, 2015 was determined to be $739.

On March 5, 2015, the Company issued 150,000 options, which vest 33.33% immediately and 16.66% every 90 days thereafter, have an exercise price of $0.40, and expire on March 5, 2018. The value on the grant date of the options was $44,252 and the option expense for the three months ended March 31, 2015 was determined to be $16,852.

On March 12, 2015, the Company issued 1,981,550 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.44, and expire on March 12, 2020. The value on the grant date of the options was $609,722 and the option expense for the three months ended March 31, 2015 was determined to be $21,159.

On March 16, 2015, the Company issued 47,000 options, which vest 50% after one year and 2.01% every month thereafter, have an exercise price of $0.47, and expire on March 16, 2020. The value on the grant date of the options was $15,365 and the option expense for the three months ended March 31, 2015 was determined to be $421.

For the three months ended March 31, 2015, expense amortized for options issued prior to January 1, 2015 was $332,343.

For the three months ended March 31, 2015 and 2014, total stock compensation expense related to the options totaled $377,566 and $306,134, respectively. For the three months ended March 31, 2015 and 2014, stock compensation expense related to the options, warrants and performance stock units totaled $559,793 and $807,356, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2018 is $2,110,036 as of March 31, 2015.

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WARRANTS (Details)							1 Months Ended	3 Months Ended
	Mar. 31, 2015 USD ($) $ / shares shares	Jan. 29, 2015 USD ($) $ / shares shares	Jan. 15, 2015 USD ($) item $ / shares shares	Jan. 15, 2015 USD ($) item $ / shares shares	Dec. 31, 2014 USD ($) $ / shares shares	Sep. 30, 2014 shares	Mar. 31, 2015 USD ($) $ / shares shares	Mar. 31, 2015 USD ($) $ / shares shares	Mar. 31, 2014 USD ($)
Warrants rights
Expenses for grant of warrants							$ 0	$ 3,393
Units sold to accredited investors (in shares) | shares			812,500	812,500
Number of accredited investors | item			1	1
Proceeds from sale of units to accredited investors			$ 325,000	$ 325,000
Commissions payable from sale to institutional investors			$ 0
Units sold to accredited investors, number of common shares | shares			1			1
Number of common shares that can be purchased against each warrant issued to institutional investor | shares			0.25	0.25
Term of warrant		3 years
Warrants to purchase shares | shares		150,000	203,125	203,125
Term of warrants issued to accredited investor			5 years	5 years
Exercise price of units (in dollars per share) | $ / shares			$ 0.60	$ 0.60
Strike price (in dollars per share) | $ / shares		$ 0.40
Grant date fair value of warrants		$ 61,066	$ 76,629	$ 76,629
Share based compensation expense								559,793	$ 807,356
Unamortized Share based compensation expense	$ 2,110,036						$ 2,110,036	$ 2,110,036
Warrants
Number of warrants
Number of shares, beginning | shares								16,527,989
Number of shares, exercised | shares								109,855
Number of shares, granted | shares								353,125
Number of shares, ending | shares	16,771,259				16,527,989		16,771,259	16,771,259
Exercisable | shares	14,071,488				12,604,407		14,071,488	14,071,488
Weighted average exercise price
Weighted average exercise price, beginning (in dollars per share) | $ / shares								$ 0.46
Weighted average exercise price, exercised (in dollars per share) | $ / shares								0.40
Weighted average exercise price, granted (in dollars per share) | $ / shares								0.52
Weighted average exercise price, ending (in dollars per share) | $ / shares	$ 0.44				$ 0.46		$ 0.44	$ 0.44
"Wtd Avg. Remaining Term "
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsOutstandingWeightedAverageRemainingContractualTerms	3 years 5 months 12 days				3 years 8 months 9 days
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsOutstandingWeightedAverageRemainingContractualTerms	3 years 5 months 12 days				3 years 8 months 9 days
Intrinsic Value
Outstanding at beginning of the period								$ 309,821
Outstanding at end of the period	$ 467,316				$ 309,821		$ 467,316	$ 467,316
Warrants rights
Expected volatility (as a percent)								100.00%
Expected dividend yield (as a percent)								0.00%
Share based compensation expense								$ 54,741	$ 405,569
Unamortized Share based compensation expense	$ 2,110,036						$ 2,110,036	$ 2,110,036
Minimum | Warrants
Warrants rights
Expected term								1 year 6 months
Risk-free interest rate (as a percent)								0.29%
Maximum | Warrants
Warrants rights
Expected term								3 years 3 months 4 days
Risk-free interest rate (as a percent)								1.63%

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PERFORMANCE SHARE UNITS (Tables)

3 Months Ended

Mar. 31, 2015

PERFORMANCE SHARE UNITS

Summary of outstanding performance share units

				Wtd Avg.
	Number of PSUs	Wtd Avg. Grant Price		Remaining Term
Outstanding at December 31, 2014	4,500,000	$	0.40	2.00
Forfeited	3,000,000	0.33		2.67
Outstanding at March 31, 2015	1,500,000	$	0.54	1.00