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 June 30, 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 31, 2015, 81,692,280 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 June 30, 2015 and December 31, 2014 (unaudited)	2
	Consolidated Statement of Operations for the three and six months ended June 30, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Cash Flows for the three and six months ended June 30, 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	18
Item 4.	Controls and Procedures	18
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	19
Item 1A.	Risk Factors	19
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
Item 3.	Defaults Upon Senior Securities	19
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
SIGNATURES

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

The financial information set forth below with respect to the financial statements as of June 30, 2015 and 2014 and for the three and six month periods ended June 30, 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 and six month periods ended June 30, 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)

	June 30, 2015			December 31, 2014
ASSETS
Current Assets
Cash	$	1,145,482		$	1,672,901
Accounts receivable, net	17,582			261,676
Related party receivables	8,000			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	115,070			90,688
Total Current Assets	1,349,934			3,274,065
Property and equipment, net	568			651
Intangible assets, net	2,859,139			3,097,293
Goodwill	700,528			700,528
Total Assets	$	4,910,169		$	7,072,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	551,963		$	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	608,463			1,156,782
Long Term Liabilities
Notes and loans payable-long term	35,800			51,800
Total Long Term Liabilities	35,800			51,800
Total Liabilities	644,263			1,208,582
STOCKHOLDERS’ EQUITY
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, 1,750,000 and -0- issued and outstanding, as of June 30, 2015 and December 31, 2014, respectively	2			—
Common stock, $0.00001 par value, 250,000,000 shares authorized, 81,638,176 and 77,817,861 issued and outstanding, as of June 30, 2015 and December 31, 2014, respectively	816			778
Treasury stock	(623,000		)	(623,000		)
Additional paid in capital	27,800,133			23,516,463
Accumulated deficit	(22,912,045		)	(17,030,286		)
Total Stockholders’ Equity	4,265,906			5,863,955
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	4,910,169		$	7,072,537

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30, 2015			June 30, 2014			June 30, 2015			June 30, 2014
Revenue	$	104,423		$	50,195		$	205,461		$	92,722
Revenue from related party	—			1,125			—			4,250
Total revenues	104,423			51,320			205,461			96,972
Cost of revenues	394,502			334,312			856,633			375,465
Gross loss	(290,079		)	(282,992		)	(651,172		)	(278,493		)
Operating expenses:
Selling and marketing	210,029			251,705			576,396			522,088
Research and development	58,738			108,146			201,020			238,770
General and administrative expenses	2,167,320			1,135,947			4,188,547			2,803,547
Amortization and depreciation	133,944			116,577			267,888			215,850
Total operating expenses	2,570,031			1,612,375			5,233,851			3,780,255
Operating loss	(2,860,110		)	(1,895,367		)	(5,885,023		)	(4,058,748		)
Other income (expense)
Interest income (expense)	157			(461		)	3,264			(7,444		)
Total other income (expense)	157			(461		)	3,264			(7,444		)
Net loss		(2,859,953	)		(1,895,828	)		(5,881,759	)		(4,066,192	)
Deemed dividend on Series A convertible preferred stock	(594,641		)	—			(594,641		)	—
Net loss attributable to common stockholders	$	(3,454,594	)	$	(1,895,828	)	$	(6,476,400	)	$	(4,066,192	)
Net loss per common share — basic and diluted	$	(0.04	)	$	(0.03	)	$	(0.08	)	$	(0.07	)
Weighted average common shares outstanding — basic and diluted	79,531,225			55,484,007			79,139,308			54,946,209

See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six Months ended
	June 30, 2015			June 30, 2014
Cash Flows from Operating Activities:
Net (loss)	$	(5,881,759	)	$	(4,066,192	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	267,888			215,850
Stock, option and warrant expense	1,500,270			1,227,408
Common stock issued for services	664,497			396,620
Amortization of debt discount	—			1,155
Changes in operating assets and liabilities:
Accounts receivable	246,094			30,355
Related party receivable	—			55,875
Prepaid expenses and other current assets	(24,382		)	(68,938		)
Accounts payable and accruals	(227,928		)	689,102
Billings in excess of costs	(91,408		)	17,772
Deferred revenue	—			600
Related party payables	(228,983		)	(156,424		)
Net cash used in operating activities	(3,775,711		)	(1,656,817		)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(29,650		)	(420,711		)
Net cash used in investing activities	(29,650		)	(420,711		)
Cash Flows from Financing Activities:
Repayment of note payable	(16,000		)	(164,000		)
Issuance of common stock for cash	325,000			895,689
Collection of stock subscription receivable	1,175,000			—
Issuance of preferred stock for cash	1,750,000			—
Issuance of equity for cash exercise of options and warrants	43,942			13,000
Net cash provided by financing activities	3,277,942			744,689
Net decrease in cash	(527,419		)	(1,332,839		)
Cash - beginning of period	1,672,901			1,847,004
Cash - end of period	$	1,145,482		$	514,165
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	307		$	7,444
Income taxes paid	—			—
Issuance of common stock for subscriptions receivable	—			60,000
Accounts receivable converted to marketable securities	—			60,000
Deemed dividend beneficial conversion feature on convertible preferred stock	594,641			—

See Notes to Unaudited Consolidated Financial Statements

4

AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 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: GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern.  For the three and six months ended June 30, 2015, the Company recorded net losses of $2,859,953 and $5,881,759, respectively.  As of June 30, 2015, the Company had $1,349,934 of current assets and $608,463 of current liabilities, netting to a working capital of $741,471.

During 2014, the Company focused on continuing development of its products, expanding its operations to meet expected sales, and generating new revenues primarily through the licensing of its technology.  The impact of that strategy was a significant increase in the Company’s operating expenses while its revenues lagged due to the length of the sales cycle for its product.   During 2015, the Company shifted strategy to focus more heavily on generating cash sales of its product and reducing expenses.  The impact of the expense reductions can be seen in both cost of revenues and total operating expenses.  Cost of revenues in the first quarter of 2015 was $462,131 while cost of revenue in the second quarter of 2015 was $394,502, a reduction of 15%.  Total operating expenses, exclusive of stock, option and warrant expense in the three months ended June 30, 2015 declined to $1,629,554 from $2,104,027 during the three months ended March 31, 2015, a reduction of 23%.  As these expense reductions occurred primarily during the three months ended June 30, 2015, the run rate impact on the Company is much greater.  Also, the 2015 operating expenses included one time costs associated with the restatement of previously filed financial statements as well as the exit costs of the previous Executive Chairman and Chief Financial Officer.

However, even with the greater focus on cash revenue generation and the ongoing cost reductions, the conditions described in the first paragraph, above, raise substantial doubt about the Company’s ability to continue as a going concern.    While the Company has been successful in raising capital in the past, there is no assurance that it will be successful at raising additional capital in the future. Additionally, if the Company’s plans are not achieved and/or if significant unanticipated events occur, the Company may have to further modify its business plan.

NOTE 3: RELATED PARTY TRANSACTIONS

For the three and six months ended June 30, 2015 and 2014, there were revenues earned of $-0- and $1,125 and $-0- and $4,250, respectively, for services performed for related parties.

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of June 30, 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 June 30, 2015. Both companies are affiliated with related parties.

In summary, as of June 30, 2015 and December 31, 2014  the total balances of related party payables were $0 and $228,983, respectively.

As of June 30, 2015 and December 31, 2014, there were outstanding receivables of $8,000 and $10,000, respectively, for services performed for related parties.

NOTE 4: NOTES PAYABLE

As of June 30, 2015 and December 31, 2014, the Company had current and long term notes payable of $24,000 and $24,000 and $35,800 and $51,800, respectively as shown in the table below.

Notes and loans payable	June 30, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	35,800	$	51,800
Total	$	35,800	$	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 June 30, 2015 and December 31,  2014 the principal amount owing was $59,800 and $75,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $35,800 and $51,800, respectively, as the long-term portion of the note, respectively.

NOTE 5: STOCKHOLDERS’ EQUITY

As of June 30, 2015 and December 31, 2014, the Company had 81,638,176 and 77,817,861 shares of common stock issued and outstanding, respectively.

On December 31, 2014, the Company sold an aggregate of 6,687,500 units to ten accredited investors for gross proceeds of $2,675,000 in the closing of a private placement.  Of this amount, $1,175,000 was recorded as a Subscription Receivable as of December 21, 2014.  Such subscription receivable was collected in 2015.

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

6

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 six months ended June 30, 2015 were valued and expensed at $117,500. The remaining 250,000 shares are not expected to be earned.

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 an 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. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it contained a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $594,641. The beneficial conversion feature was fully amortized and recorded as a deemed dividend.

From January 1, 2015 through June 30, 2015, the Company also issued 109,855 shares of common stock pursuant to exercise of warrants for total proceeds of $43,942. The Company also issued 2,647,960 additional shares of common stock for services provided for a total expense of $546,998.

NOTE 6: OPTIONS

As of June 30, 2015 and December 31, 2014, the Company has granted options to purchase 13,363,400 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	3,018,550	0.38		6.05		—
Forfeited	1,089,500	0.48		4.22		—
Outstanding at June 30, 2015	13,363,400	$	0.45	3.51	7,369,780	$	—

The option grants during the six months ended June 30, 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 six months ended June 30, 2015 was determined to be $3,329.

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 six months ended June 30, 2015 was determined to be $8,067.

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 six months ended June 30, 2015 was determined to be $1,671.

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 six months ended June 30, 2015 was determined to be $2,609.

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 six months ended June 30, 2015 was determined to be $24,207.

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 six months ended June 30, 2015 was determined to be $122,501.

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 six months ended June 30, 2015 was determined to be $2,975.

On June 2, 2015, the Company issued 150,000 options, which vest 33.33% immediately and 16.66% every 90 days thereafter, have an exercise price of $0.16, and expire on June 2, 2018. The value on the grant date of the options was $14,359 and the option expense for the six months ended June 30, 2015 was determined to be $5,521.

On June 15, 2015, the Company issued 500,000 options, which vest 50% immediately and 25% after one year and 1.04% every month thereafter, have an exercise price of $0.15, and expire on June 15, 2020. The value on the grant date of the options was $45,245 and the option expense for the six months ended June 30, 2015 was determined to be $23,087.

For the six months ended June 30, 2015, expense amortized for options issued prior to January 1, 2015 was $580,732.

For the three and six months ended June 30, 2015 and 2014, total stock compensation expense related to the options totaled $397,134 and $290,158 and $774,700 and $624,353, respectively. For the three and six months ended June 30, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $940,477 and $378,260 and $1,500,270 and $1,227,408, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through June 30, 2019 is $2,481,863 as of June 30, 2015.

NOTE 7: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of June 30, 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	16,527,990	$	0.44	3.69	12,604,407	$	309,821
Exercised	109,855	0.40		—		—
Granted	3,353,125	0.20		—		—
Outstanding at June 30, 2015	19,771,260	$	0.40	3.46	16,327,737	$	—

The warrant grants during the six months ended June 30, 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 six months ended June 30, 2015 was determined to be $0. As of June 30, 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 six months ended June 30, 2015 was determined to be $8,481. As of June 30, 2015, these warrants have not been exercised.

On June 2, 2015, the Company issued three-year fully-vested warrants to purchase 3,000,000 shares of the Company’s common stock with an exercise price of $0.160 per share. The fair value on the grant date of the warrants was $358,510 and the expense for the six months ended June 30, 2015 was determined to be $358,510. As of June 30, 2015, these warrants have not been exercised.

For the three and six months ended June 30, 2015 and 2014, the Company has incurred warrant-based expense of $415,445 and $13,302 and $470,187 and $387,504, respectively. For the three and six months ended June 30, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $940,477 and $378,260 and $1,500,270 and $1,227,408, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through June 30, 2019 is $2,481,863 as of June 30, 2015.

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NOTE 8: PERFORMANCE SHARE UNITS

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

On 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 June 30, 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 June 30, 2015	1,500,000	$	0.54	1.00

For the three and six months ended June 30, 2015 and 2014, the Company has incurred performance share unit-based expense of $127,897 and $13,302 and $255,384 and $387,504, respectively.  For the three and six months ended June 30, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $940,477 and $378,260 and $1,500,270 and $1,227,408, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through June 30, 2019 is $2,481,863 as of June 30, 2015.

NOTE 9: INTANGIBLE ASSETS

As of June 30, 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:

	June 30,			December 31,
	2015			2014
Patents	$	3,641,030		$	3,611,380
Software Development Costs	388,125			388,125
Accumulated Amortization	(1,170,016		)	(902,212		)
Intangible Assets, Net	$	2,859,139		$	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 $267,805 and $214,253 for the six months ended June 30, 2015 and 2014, respectively.

NOTE 10: FAIR VALUE MEASUREMENTS

The following are the Company’s assets and liabilities, measured at fair value on a recurring basis, as of June 30, 2015 and December 31, 2014:

	Fair Value		Fair Value Hierarchy
Marketable securities, June 30, 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 11: SUBSEQUENT EVENTS

On July 1, 2015, the Company entered into an Executive Employment Agreement with Carr Bettis pursuant to which Dr. Bettis was employed as the Company’s 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 the Company 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 the Company’s 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 the Company’s board of directors or the compensation committee.  Dr. Bettis is also entitled to equity awards under the Company’s incentive compensation plans.

During the month of July, 2015, the Company issued 54,104 common shares for services under consulting and referral agreements.

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

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

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

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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. We focus on providing our customers with the most complete and inclusive web accessibility solution available.  Our suite of technologies allows our customers to provide their site visitors with an enhanced web experience.  When implemented, we believe that our solutions offer businesses the opportunity to reach more customers, improve brand image, and build additional brand loyalty.  In addition, our 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.

We generate 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 our 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, our Reader is a full- 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.

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For organizations that do not want a managed SaaS solution and prefer to achieve WCAG 2.0 Level AA compliance on their own, our cloud-based Developer Portal provides them with a comprehensive single-source solution for tracking and 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 our developers when servicing the our clients through our Ally+ managed service offering.

We provide our 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 our technology and 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”).  The discussion of the results of our operations compares the three and six months ended June 30, 2015 with the three and six months ended June 30, 2014 and are not necessarily indicative of the results which may be expected for any subsequent period.  Our prospects should be considered in light of the risks, expenses and difficulties encountered by companies in similar positions.  We may not be successful in addressing these risks and difficulties.

Comparative for the Three Months ended June 30, 2015 and June 30, 2014

Results of Operations

	Three Months Ended June 30,
	2015			2014
Revenue	$	104,423		$	50,195
Revenue from related party	—			1,125
Total revenues	104,423			51,320
Cost of sales	394,502			334,312
Gross loss	(290,079		)	(282,992		)
Operating expenses:
Selling & marketing	210,029			251,705
Research & development	58,738			108,146
General and administrative expenses	2,167,320			1,135,947
Amortization & depreciation	133,944			116,577
Operating loss	(2,860,110		)	(1,895,367		)
Interest income/(expense)	157			(461		)
Net (loss)		(2,859,953	)		(1,895,828	)
Deemed dividend on Series A convertible preferred stock	(594,641		)	—
Net loss attributable to common stockholders	$	(3,454,594	)	$	(1,895,828	)
Net (loss) per weighted average common shares outstanding — basic and diluted	$	(0.04	)	$	(0.03	)

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Revenue

For the three months ended June 30, 2015 and 2014, revenue was $104,423 and $50,195, 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 June 30, 2015 and 2014, revenue from related party was $-0- and $1,125, respectively, consisting primarily of revenue from various levels of website design and maintenance.

Cost of Sales

For the three months ended June 30, 2015 and 2014, cost of sales was $394,502 and $334,312, respectively, consisting primarily of sub-contracting to outside sources, direct labor and direct technology costs.

Gross Loss

The increase in revenue was offset by the greater increase in our implementation costs resulting in a gross loss of $290,079 and $282,992 during the three months ended June 30, 2015 and 2014, respectively.  Gross loss increased as a result of increased costs of sales offsetting the increase in revenues.

Selling and Marketing Expenses

Selling and marketing expenses were $210,029 and $251,705 for the three months ended June 30, 2015 and 2014, respectively.  The decrease resulted from the reduction primarily in staffing levels.

Research and Development Expenses

Research and development expenses were $58,738 and $108,146 for three months ended June 30, 2015 and 2014, respectively. Research and development expenses declined from period to period and reflect the material completion of our product.

General and Administrative Expenses

General and administrative expenses were $2,167,320 and $1,135,947 for the three months ended June 30, 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 $116,577 for the three months ended June 30, 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 $157 and charges of $461 for the three months ended June 30, 2015 and 2014, respectively.  The resulting change was due to a decrease in interest expense.

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Comparative for the Six Months ended June 30, 2015 and June 30, 2014

Results of Operations

	Six Months Ended June 30,
	2015			2014
Revenue	$	205,461		$	92,722
Revenue from related party	—			4,250
Total revenues	205,461			96,972
Cost of sales	856,633			375,465
Gross profit (loss)	(651,172		)	278,493
Operating expenses:
Selling & marketing	576,396			522,088
Research & development	201,020			238,770
General and administrative expenses	4,188,547			2,803,547
Amortization & depreciation	267,888			215,850
Operating (loss)	(5,885,023		)	(4,058,748		)
Interest income/(expense)	3,264			(7,444		)
Net (loss)	(5,881,759		)	(4,066,192		)
Deemed dividend on Series A convertible preferred stock	(594,641		)	—
Net loss attributable to common stockholders	$	(6,476,400	)	$	(4,066,192	)
Net (loss) per weighted average common shares outstanding — basic and diluted	$	(0.08	)	$	(0.07	)

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Revenue

For the six months ended June 30, 2015 and 2014, revenue was $205,461 and $92,722, 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 six months ended June 30, 2015 and 2014, revenue from related party was $-0- and $4,250, respectively, consisting primarily of revenue from various levels of website design and maintenance.

Cost of Sales

For the six months ended June 30, 2015 and 2014, cost of sales was $856,633 and $375,465, respectively, consisting primarily of sub-contracting to outside sources, direct labor and direct technology costs.

Gross Loss

The increase in revenue was offset by the greater increase in our implementation costs resulting in a gross loss of $651,172 during the six months ended June 30, 2015 as compared to a gross loss of $278,493 for the six months ended June 30, 2014.

Selling and Marketing Expenses

Selling and marketing expenses were $576,396 and $522,088 for the six months ended June 30, 2015 and 2014, respectively.  The increase resulted from the establishment of dedicated resources to actively sell and market our products and services which exceeded the reduction in staffing costs.

Research and Development Expenses

Research and development expenses were $201,020 and $238,770 for six months ended June 30, 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 $4,188,547 and $2,803,547 for the six months ended June 30, 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 $267,888 and $215,850 for the six months ended June 30, 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 $3,264 and charges of $7,444 for the six months ended June 30, 2015 and 2014, respectively.  The resulting change was due to a decrease in interest expense.

Liquidity and Capital Resources

Working Capital

	At June 30,		At December 31,
	2015		2014
Current Assets	$	1,349,934	$	3,274,065
Current Liabilities	608,463		1,156,782
Working Capital	$	741,471	$	2,117,283

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The working capital surplus for the periods ended June 30, 2015 and December 31, 2014 was $741,471 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 six months ended
	June 30,
	2015			2014
Net Cash Used in Operating Activities	$	(3,775,711	)	$	(1,656,817	)
Net Cash Used in Investing Activities	(29,650		)	(420,711		)
Net Cash Provided by Financing Activities	3,277,942			744,689
Net Decrease in Cash	$	(527,419	)	$	(1,332,839	)

We had cash in the amount of $1,145,482 and $1,672,901 as of June 30, 2015 and December 31, 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 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.

On May 1, 2015, we 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 our common stock 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). We 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 our board of directors.

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.

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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 June 30, 2015 due to omissions of disclosures in accordance with generally accepted accounting principles. 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 May 1, 2015, we 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 our common stock 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). We 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 our board of directors.

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.

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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.

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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 12th day of August, 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 June 30, 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: August 12, 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 June 30, 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: August 12, 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 for the period ended June 30, 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: August 12, 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 for the period ended June 30, 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: August 12, 2015	By:	/s/ Donald Weinstein
		Name:	Donald Weinstein
		Title:	Chief Financial Officer

XML

SUBSEQUENT EVENTS (Details) - Subsequent Event - Equity Award [Domain] - USD ($)		1 Months Ended
	Jul. 01, 2015	Jul. 31, 2015
Subsequent event
Shares issued for services vendor consulting and referral		54,104
Carr Bettis
Subsequent event
Base salary	$ 175,000
Employment contract period	1 year

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Revenue from related party	$ 0	$ 1,125	$ 0	$ 4,250
Cost method investment	50,000		50,000		$ 50,000
Related party payables	0		0		228,983
Related party receivables	$ 8,000		$ 8,000		10,000
Peartrack Security Systems
Shares owned	60,000		60,000
Ecologic Transportation
Conversion of accounts receivable					60,000
Cannonball Red
Shares owned	97,500		97,500
Cost method investment					$ 50,000

XML

NOTES PAYABLE

6 Months Ended

Jun. 30, 2015

NOTES PAYABLE

NOTES PAYABLE

NOTE 4: NOTES PAYABLE

As of June 30, 2015 and December 31, 2014, the Company had current and long term notes payable of $24,000 and $24,000 and $35,800 and $51,800, respectively as shown in the table below.

Notes and loans payable	June 30, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	35,800	$	51,800
Total	$	35,800	$	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 June 30, 2015 and December 31,  2014 the principal amount owing was $59,800 and $75,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $35,800 and $51,800, respectively, as the long-term portion of the note, respectively.

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WARRANTS (Details)								3 Months Ended		6 Months Ended
	Jun. 02, 2015 USD ($) $ / shares shares	May. 01, 2015 USD ($) item	Jan. 29, 2015 USD ($) $ / 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	Jun. 30, 2015 USD ($) $ / shares shares	Jun. 30, 2014 USD ($)	Jun. 30, 2015 USD ($) $ / shares shares	Jun. 30, 2014 USD ($)
Warrants rights
Units sold to accredited investors (in shares) | shares					812,500
Number of accredited investors | item		12		1	1
Proceeds from sale of units to accredited investors		$ 1,750,000			$ 325,000
Commissions payable from sale to institutional investors					$ 0
Units sold to accredited investors, number of common shares | shares					1
Number of common shares that can be purchased against each warrant issued to institutional investor | shares					0.25
Term of warrants issued to accredited investor					5 years
Exercise price of units (in dollars per share) | $ / shares					$ 0.60
Share based compensation expense								$ 940,477	$ 1,500,270	$ 378,260	$ 1,227,408
Unamortized Share based compensation expense								$ 2,481,863		$ 2,481,863
Warrants
Number of warrants
Number of shares, beginning | shares										16,527,990
Number of shares, exercised | shares										109,855
Number of shares, granted | shares										3,353,125
Number of shares, ending | shares						16,527,990		19,771,260		19,771,260
Exercisable | shares						12,604,407		16,327,737		16,327,737
Weighted average exercise price
Weighted average exercise price, beginning (in dollars per share) | $ / shares										$ 0.44
Weighted average exercise price, exercised (in dollars per share) | $ / shares										0.40
Weighted average exercise price, granted (in dollars per share) | $ / shares										0.20
Weighted average exercise price, ending (in dollars per share) | $ / shares						$ 0.44		$ 0.40		$ 0.40
"Wtd Avg. Remaining Term "
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsOutstandingWeightedAverageRemainingContractualTerms						3 years 8 months 9 days				3 years 5 months 16 days
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsOutstandingWeightedAverageRemainingContractualTerms						3 years 8 months 9 days				3 years 5 months 16 days
Intrinsic Value
Outstanding at beginning of the period										$ 309,821
Outstanding at end of the period						$ 309,821
Warrants rights
Expected volatility (as a percent)										100.00%
Expected dividend yield (as a percent)										0.00%
Share based compensation expense								$ 415,445	$ 470,187	$ 13,302	$ 387,504
Unamortized Share based compensation expense								$ 2,481,863		$ 2,481,863
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%
Warrants granted on January 15, 2015
Warrants rights
Expenses for grant of warrants										$ 0
Units sold to accredited investors (in shares) | shares				812,500
Number of accredited investors | item				1	1
Proceeds from sale of units to accredited investors				$ 325,000
Commissions payable from sale to institutional investors					$ 0
Units sold to accredited investors, number of common shares | shares							1
Number of common shares that can be purchased against each warrant issued to institutional investor | shares				0.25
Warrants to purchase shares | shares				203,125	203,125
Term of warrants issued to accredited investor				5 years
Exercise price of units (in dollars per share) | $ / shares				$ 0.60
Grant date fair value of warrants				$ 76,629	$ 76,629
Warrants granted on January 29, 2015
Warrants rights
Expenses for grant of warrants										8,481
Term of warrant			3 years
Warrants to purchase shares | shares			150,000
Strike price (in dollars per share) | $ / shares			$ 0.40
Grant date fair value of warrants			$ 61,066
Warrants granted on June 2, 2015
Warrants rights
Expenses for grant of warrants										$ 358,510
Term of warrant	3 years
Warrants to purchase shares | shares	3,000,000
Strike price (in dollars per share) | $ / shares	$ 0.160
Grant date fair value of warrants	$ 358,510

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OPTIONS (Details) - USD ($)											3 Months Ended		6 Months Ended
	Jun. 15, 2015	Jun. 02, 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	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Significant assumptions used in the valuation
Share based compensation expense											$ 940,477	$ 1,500,270	$ 378,260	$ 1,227,408
Total stock compensation expense to be amortized through June 30, 2019											$ 2,481,863
Options
Options
Options issued and outstanding										11,434,350	13,363,400		11,434,350
Number of options:
Outstanding at beginning of the period (in shares)													11,434,350
Granted (in shares)													3,018,550
Less Forfeited (in shares)													1,089,500
Outstanding at the end of the period (in shares)										11,434,350	13,363,400		13,363,400
Exercisable (in shares)										5,635,250	7,369,780
Wtd Avg. Exercise Price
Outstanding at beginning of the period (in dollars per share)													$ 0.47
Granted (in dollars per share)													0.38
Less Forfeited (in dollars per share)													0.48
Outstanding at end of the period (in dollars per share)										$ 0.47	$ 0.45		$ 0.45
Wtd Avg. Remaining Term
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2										3 years 9 months 15 days			3 years 6 months 4 days
Granted, Wtd Avg. Remaining Term													6 years 18 days
Forfeited, Wtd Avg. Remaining Term													4 years 2 months 19 days
SharebasedCompensationArrangementBySharebasedPaymentAwardOptionsOutstandingWeightedAverageRemainingContractualTerm2										3 years 9 months 15 days			3 years 6 months 4 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)										$ 460,941
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											$ 397,134	$ 774,700	$ 290,158	$ 624,353
Number of options awarded													3,018,550
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													$ 3,329
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													$ 8,067
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													$ 1,671
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													$ 2,609
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													$ 24,207
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													$ 122,501
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													$ 2,975
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 Granted On 2 June 2015 Member
Number of options:
Granted (in shares)		150,000
Significant assumptions used in the valuation
Grant date fair value of options		$ 14,359
Share based compensation expense													$ 5,521
Number of options awarded		150,000
Exercise price (in dollars per share)		$ 0.16
Options | Options Granted On 2 June 2015 Member | Immediate vesting
Significant assumptions used in the valuation
Vesting percentage													33.33%
Options | Options Granted On 2 June 2015 Member | Vesting every 90 days
Significant assumptions used in the valuation
Vesting percentage													16.66%
Vesting period													90 days
Options | Options Granted On 15 June 2015 Member
Number of options:
Granted (in shares)	500,000
Significant assumptions used in the valuation
Grant date fair value of options	$ 45,245
Share based compensation expense													$ 23,087
Number of options awarded	500,000
Exercise price (in dollars per share)	$ 0.15
Options | Options Granted On 15 June 2015 Member | Immediate vesting
Significant assumptions used in the valuation
Vesting percentage													50.00%
Options | Options Granted On 15 June 2015 Member | Vesting every month
Significant assumptions used in the valuation
Vesting percentage													1.04%
Options | Options Granted On 15 June 2015 Member | Vesting after one year
Significant assumptions used in the valuation
Vesting percentage													25.00%
Vesting period													1 year
Options | Options issued prior to January 1, 2015
Significant assumptions used in the valuation
Share based compensation expense													$ 580,732

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PERFORMANCE SHARE UNITS (Details) - USD ($)				3 Months Ended		6 Months Ended
	Mar. 05, 2015	Dec. 31, 2014	Jan. 27, 2014	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
Wtd Avg. Remaining Term
Stock compensation expense related to the options and warrants				$ 940,477	$ 1,500,270	$ 378,260	$ 1,227,408
Total stock compensation expense to be amortized through June 30, 2019				$ 2,481,863		$ 2,481,863
PSUs
Number of PSUs
Number of shares, beginning						4,500,000
Forfeited						3,000,000
Number of shares, ending		4,500,000		1,500,000		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)		$ 0.40		$ 0.54		$ 0.54
Wtd Avg. Remaining Term
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsWeightedAverageRemainingContractualTermsGrantsInPeriod		2 years				1 year
Forfeited						2 years 8 months 1 day
ShareBasedCompensationArrangementByShareBasedPaymentAwardEquityInstrumentsOtherThanOptionsWeightedAverageRemainingContractualTermsGrantsInPeriod		2 years				1 year
Stock compensation expense related to the options and warrants				$ 127,897	$ 255,384	$ 113,302	$ 387,504
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

XML

INTANGIBLE ASSETS (Details) - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
Intangible Assets
Accumulated Amortization	$ (1,170,016)		$ (902,212)
Intangible Assets, Net	2,859,139		3,097,293
Amortization expense	$ 267,805	$ 214,253
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	$ 3,641,030		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

XML

RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2015

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

NOTE 3: RELATED PARTY TRANSACTIONS

For the three and six months ended June 30, 2015 and 2014, there were revenues earned of $-0- and $1,125 and $-0- and $4,250, respectively, for services performed for related parties.

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of June 30, 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 June 30, 2015. Both companies are affiliated with related parties.

In summary, as of June 30, 2015 and December 31, 2014  the total balances of related party payables were $0 and $228,983, respectively.

As of June 30, 2015 and December 31, 2014, there were outstanding receivables of $8,000 and $10,000, respectively, for services performed for related parties.

XML

FAIR VALUE MEASUREMENTS (Details) - USD ($)	Jun. 30, 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

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2015	Dec. 31, 2014
Current Assets
Cash	$ 1,145,482	$ 1,672,901
Accounts receivable, net	17,582	261,676
Related party receivables	8,000	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	115,070	90,688
Total Current Assets	1,349,934	3,274,065
Property and equipment, net	568	651
Intangible assets, net	2,859,139	3,097,293
Goodwill	700,528	700,528
Total Assets	4,910,169	7,072,537
Current Liabilities
Accounts payable and accrued expenses	551,963	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	608,463	1,156,782
Long Term Liabilities
Notes and loans payable-long term	35,800	51,800
Total Long Term Liabilities	35,800	51,800
Total Liabilities	644,263	$ 1,208,582
STOCKHOLDERS' EQUITY
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, 1,750,000 and -0- issued and outstanding, as of June 30, 2015 and December 31, 2014, respectively	2
Common stock, $0.00001 par value, 250,000,000 shares authorized, 81,638,176 and 77,817,861 issued and outstanding, as of June 30, 2015 and December 31, 2014, respectively	816	$ 778
Treasury stock	(623,000)	(623,000)
Additional paid in capital	27,800,133	23,516,463
Accumulated deficit	(22,912,045)	(17,030,286)
Total Stockholders' Equity	4,265,906	5,863,955
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 4,910,169	$ 7,072,537

XML

ORGANIZATION AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 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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INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2015

INTANGIBLE ASSETS

Schedule of intangible assets

	June 30,			December 31,
	2015			2014
Patents	$	3,641,030		$	3,611,380
Software Development Costs	388,125			388,125
Accumulated Amortization	(1,170,016		)	(902,212		)
Intangible Assets, Net	$	2,859,139		$	3,097,293

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GOING CONCERN (Details) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2015	Mar. 31, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014	Dec. 31, 2014
GOING CONCERN
Net income (loss)	$ (2,859,953)		$ (1,895,828)	$ (5,881,759)	$ (4,066,192)
Current assets	1,349,934			1,349,934		$ 3,274,065
Current liabilities	608,463			608,463		$ 1,156,782
Working capital amount	741,471			741,471
Cost of revenues	$ 394,502	$ 462,131	$ 334,312	$ 856,633	$ 375,465
Reduction in cost of revenue (as a percent)	15.00%
Operating expense exclusive of stock, option and warrant expense	$ 1,629,554	$ 2,104,027
Reduction in operating expense exclusive of stock, option and warrant expense (as a percent)	23.00%

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GOING CONCERN

6 Months Ended

Jun. 30, 2015

GOING CONCERN

GOING CONCERN

NOTE 2: GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which contemplates the continuation of the Company as a going concern.  For the three and six months ended June 30, 2015, the Company recorded net losses of $2,859,953 and $5,881,759, respectively.  As of June 30, 2015, the Company had $1,349,934 of current assets and $608,463 of current liabilities, netting to a working capital of $741,471.

During 2014, the Company focused on continuing development of its products, expanding its operations to meet expected sales, and generating new revenues primarily through the licensing of its technology.  The impact of that strategy was a significant increase in the Company’s operating expenses while its revenues lagged due to the length of the sales cycle for its product.   During 2015, the Company shifted strategy to focus more heavily on generating cash sales of its product and reducing expenses.  The impact of the expense reductions can be seen in both cost of revenues and total operating expenses.  Cost of revenues in the first quarter of 2015 was $462,131 while cost of revenue in the second quarter of 2015 was $394,502, a reduction of 15%.  Total operating expenses, exclusive of stock, option and warrant expense in the three months ended June 30, 2015 declined to $1,629,554 from $2,104,027 during the three months ended March 31, 2015, a reduction of 23%.  As these expense reductions occurred primarily during the three months ended June 30, 2015, the run rate impact on the Company is much greater.  Also, the 2015 operating expenses included one time costs associated with the restatement of previously filed financial statements as well as the exit costs of the previous Executive Chairman and Chief Financial Officer.

However, even with the greater focus on cash revenue generation and the ongoing cost reductions, the conditions described in the first paragraph, above, raise substantial doubt about the Company’s ability to continue as a going concern.    While the Company has been successful in raising capital in the past, there is no assurance that it will be successful at raising additional capital in the future. Additionally, if the Company’s plans are not achieved and/or if significant unanticipated events occur, the Company may have to further modify its business plan.

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares	Jun. 30, 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	1,750,000	0
Preferred Stock, shares outstanding	1,750,000	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	81,638,176	77,817,861
Common Stock, shares outstanding	81,638,176	77,817,861

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

6 Months Ended

Jun. 30, 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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Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2015	Jul. 31, 2015
Document And Entity Information
Entity Registrant Name	AUDIOEYE INC
Entity Central Index Key	0001362190
Document Type	10-Q
Document Period End Date	Jun. 30, 2015
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		81,692,280
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2015

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NOTES PAYABLE (Tables)

6 Months Ended

Jun. 30, 2015

NOTES PAYABLE

Schedule of current and long term notes payable

Notes and loans payable	June 30, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	35,800	$	51,800
Total	$	35,800	$	51,800

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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014	Jun. 30, 2015	Jun. 30, 2014
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenue	$ 104,423	$ 50,195	$ 205,461	$ 92,722
Revenues from related party	0	1,125	0	4,250
Total revenues	104,423	51,320	205,461	96,972
Cost of revenues	394,502	334,312	856,633	375,465
Gross loss	(290,079)	(282,992)	(651,172)	(278,493)
Operating expenses:
Selling and marketing	210,029	251,705	576,396	522,088
Research and development	58,738	108,146	201,020	238,770
General and administrative expenses	2,167,320	1,135,947	4,188,547	2,803,547
Amortization and depreciation	133,944	116,577	267,888	215,850
Total operating expenses	2,570,031	1,612,375	5,233,851	3,780,255
Operating loss	(2,860,110)	(1,895,367)	(5,885,023)	(4,058,748)
Other income (expense)
Interest income (expense)	157	(461)	3,264	(7,444)
Total other income (expense)	157	(461)	3,264	(7,444)
Net loss	(2,859,953)	(1,895,828)	(5,881,759)	(4,066,192)
Deemed dividend on Series A convertible preferred stock	(594,641)		(594,641)
Net loss attributable to common stockholders	$ (3,454,594)	$ (1,895,828)	$ (6,476,400)	$ (4,066,192)
Net loss per common share - basic and diluted (in dollars per share)	$ (0.04)	$ (0.03)	$ (0.08)	$ (0.07)
Weighted average common shares outstanding - basic and diluted (in shares)	79,531,225	55,484,007	79,139,308	54,946,209

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WARRANTS

6 Months Ended

Jun. 30, 2015

WARRANT

WARRANTS

NOTE 7: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of June 30, 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	16,527,990	$	0.44	3.69	12,604,407	$	309,821
Exercised	109,855	0.40		—		—
Granted	3,353,125	0.20		—		—
Outstanding at June 30, 2015	19,771,260	$	0.40	3.46	16,327,737	$	—

The warrant grants during the six months ended June 30, 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 six months ended June 30, 2015 was determined to be $0. As of June 30, 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 six months ended June 30, 2015 was determined to be $8,481. As of June 30, 2015, these warrants have not been exercised.

On June 2, 2015, the Company issued three-year fully-vested warrants to purchase 3,000,000 shares of the Company’s common stock with an exercise price of $0.160 per share. The fair value on the grant date of the warrants was $358,510 and the expense for the six months ended June 30, 2015 was determined to be $358,510. As of June 30, 2015, these warrants have not been exercised.

For the three and six months ended June 30, 2015 and 2014, the Company has incurred warrant-based expense of $415,445 and $13,302 and $470,187 and $387,504, respectively. For the three and six months ended June 30, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $940,477 and $378,260 and $1,500,270 and $1,227,408, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through June 30, 2019 is $2,481,863 as of June 30, 2015.

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OPTIONS

6 Months Ended

Jun. 30, 2015

OPTIONS.

OPTIONS

NOTE 6: OPTIONS

As of June 30, 2015 and December 31, 2014, the Company has granted options to purchase 13,363,400 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	3,018,550	0.38		6.05		—
Forfeited	1,089,500	0.48		4.22		—
Outstanding at June 30, 2015	13,363,400	$	0.45	3.51	7,369,780	$	—

The option grants during the six months ended June 30, 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 six months ended June 30, 2015 was determined to be $3,329.

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 six months ended June 30, 2015 was determined to be $8,067.

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 six months ended June 30, 2015 was determined to be $1,671.

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 six months ended June 30, 2015 was determined to be $2,609.

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 six months ended June 30, 2015 was determined to be $24,207.

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 six months ended June 30, 2015 was determined to be $122,501.

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 six months ended June 30, 2015 was determined to be $2,975.

On June 2, 2015, the Company issued 150,000 options, which vest 33.33% immediately and 16.66% every 90 days thereafter, have an exercise price of $0.16, and expire on June 2, 2018. The value on the grant date of the options was $14,359 and the option expense for the six months ended June 30, 2015 was determined to be $5,521.

On June 15, 2015, the Company issued 500,000 options, which vest 50% immediately and 25% after one year and 1.04% every month thereafter, have an exercise price of $0.15, and expire on June 15, 2020. The value on the grant date of the options was $45,245 and the option expense for the six months ended June 30, 2015 was determined to be $23,087.

For the six months ended June 30, 2015, expense amortized for options issued prior to January 1, 2015 was $580,732.

For the three and six months ended June 30, 2015 and 2014, total stock compensation expense related to the options totaled $397,134 and $290,158 and $774,700 and $624,353, respectively. For the three and six months ended June 30, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $940,477 and $378,260 and $1,500,270 and $1,227,408, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through June 30, 2019 is $2,481,863 as of June 30, 2015.

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS

Schedule of fair value of marketable securities

	Fair Value		Fair Value Hierarchy
Marketable securities, June 30, 2015	$	13,800	Level 1
Marketable securities, December 31, 2014	$	13,800	Level 1

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OPTIONS (Tables)

6 Months Ended

Jun. 30, 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	3,018,550	0.38		6.05		—
Forfeited	1,089,500	0.48		4.22		—
Outstanding at June 30, 2015	13,363,400	$	0.45	3.51	7,369,780	$	—

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2015

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

NOTE 10: FAIR VALUE MEASUREMENTS

The following are the Company’s assets and liabilities, measured at fair value on a recurring basis, as of June 30, 2015 and December 31, 2014:

	Fair Value		Fair Value Hierarchy
Marketable securities, June 30, 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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PERFORMANCE SHARE UNITS

6 Months Ended

Jun. 30, 2015

PERFORMANCE SHARE UNITS

PERFORMANCE SHARE UNITS

NOTE 8: PERFORMANCE SHARE UNITS

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

On 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 June 30, 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 June 30, 2015	1,500,000	$	0.54	1.00

For the three and six months ended June 30, 2015 and 2014, the Company has incurred performance share unit-based expense of $127,897 and $13,302 and $255,384 and $387,504, respectively.  For the three and six months ended June 30, 2015 and 2014, stock compensation expense related to the options, warrants and performance share units totaled $940,477 and $378,260 and $1,500,270 and $1,227,408, respectively. The total stock compensation expense related to the options, warrants and performance share units to be amortized through June 30, 2019 is $2,481,863 as of June 30, 2015.

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INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2015

INTANGIBLE ASSETS

INTANGIBLE ASSETS

NOTE 9: INTANGIBLE ASSETS

As of June 30, 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:

	June 30,			December 31,
	2015			2014
Patents	$	3,641,030		$	3,611,380
Software Development Costs	388,125			388,125
Accumulated Amortization	(1,170,016		)	(902,212		)
Intangible Assets, Net	$	2,859,139		$	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 $267,805 and $214,253 for the six months ended June 30, 2015 and 2014, respectively.

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SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2015

SUBSEQUENT EVENTS

SUBSEQUENT EVENTS

NOTE 11: SUBSEQUENT EVENTS

On July 1, 2015, the Company entered into an Executive Employment Agreement with Carr Bettis pursuant to which Dr. Bettis was employed as the Company’s 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 the Company 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 the Company’s 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 the Company’s board of directors or the compensation committee.  Dr. Bettis is also entitled to equity awards under the Company’s incentive compensation plans.

During the month of July, 2015, the Company issued 54,104 common shares for services under consulting and referral agreements.

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PERFORMANCE SHARE UNITS (Tables)

6 Months Ended

Jun. 30, 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 June 30, 2015	1,500,000	$	0.54	1.00

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NOTES PAYABLE (Details) - USD ($)	Oct. 24, 2011	Oct. 24, 2011	Jun. 30, 2015	Dec. 31, 2014	Dec. 31, 2012
Notes Payable
Short Term			$ 24,000	$ 24,000
Long Term			35,800	51,800
Maryland TEDCO Note
Notes Payable
Short Term			24,000	24,000
Long Term			35,800	51,800
Carrying amount of debt			$ 59,800	$ 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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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	6 Months Ended
	Jun. 30, 2015	Jun. 30, 2014
Cash Flows from operating activities:
Net (loss)	$ (5,881,759)	$ (4,066,192)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	267,888	215,850
Stock, option and warrant expense	1,500,270	1,227,408
Common stock issued for services	664,497	396,620
Amortization of debt discount		1,155
Changes in operating assets and liabilities:
Accounts receivable	246,094	30,355
Related party receivable		55,875
Prepaid expenses and other current assets	(24,382)	(68,938)
Accounts payable and accruals	(227,928)	689,102
Billings in excess of costs	(91,408)	17,772
Deferred revenue		600
Related party payables	(228,983)	(156,424)
Net cash used in operating activities	(3,775,711)	(1,656,817)
Cash Flows from investing activities:
Cash paid for intangible assets	(29,650)	(420,711)
Net cash used in investing activities	(29,650)	(420,711)
Cash Flows from financing activities:
Repayment of note payable	(16,000)	(164,000)
Issuance of common stock for cash	325,000	895,689
Collection of stock subscription receivable	1,175,000
Issuance of preferred stock for cash	1,750,000
Issuance of equity for cash exercise of options and warrants	43,942	13,000
Net cash provided by financing activities	3,277,942	744,689
Net decrease in cash	(527,419)	(1,332,839)
Cash - beginning of period	1,672,901	1,847,004
Cash - end of period	1,145,482	514,165
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	307	7,444
NON-CASH FINANCING ACTIVITIES
Issuance of common stock for subscriptions receivable		60,000
Accounts receivable converted to marketable securities		$ 60,000
Deemed dividend beneficial conversion feature on convertible preferred stock	$ 594,641

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STOCKHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2015

STOCKHOLDERS' EQUITY

STOCKHOLDERS' EQUITY

NOTE 5: STOCKHOLDERS’ EQUITY

As of June 30, 2015 and December 31, 2014, the Company had 81,638,176 and 77,817,861 shares of common stock issued and outstanding, respectively.

On December 31, 2014, the Company sold an aggregate of 6,687,500 units to ten accredited investors for gross proceeds of $2,675,000 in the closing of a private placement.  Of this amount, $1,175,000 was recorded as a Subscription Receivable as of December 21, 2014.  Such subscription receivable was collected in 2015.

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 six months ended June 30, 2015 were valued and expensed at $117,500. The remaining 250,000 shares are not expected to be earned.

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 an 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. The Company evaluated the convertible preferred stock under FASB ASC 470-20-30 and determined it contained a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $594,641. The beneficial conversion feature was fully amortized and recorded as a deemed dividend.

From January 1, 2015 through June 30, 2015, the Company also issued 109,855 shares of common stock pursuant to exercise of warrants for total proceeds of $43,942. The Company also issued 2,647,960 additional shares of common stock for services provided for a total expense of $546,998.

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STOCKHOLDERS' EQUITY (Details)						6 Months Ended		12 Months Ended
	Jul. 15, 2015 shares	May. 01, 2015 USD ($) item $ / shares shares	Mar. 05, 2015 shares	Jan. 15, 2015 USD ($) item $ / shares shares	Jan. 27, 2014 shares	Jun. 30, 2015 USD ($) shares	Jun. 30, 2014 USD ($)	Dec. 31, 2014 USD ($) item shares
STOCKHOLDERS' EQUITY
Common Stock, shares issued						81,638,176		77,817,861
Common Stock, shares outstanding						81,638,176		77,817,861
Stockholders' Equity
Units sold to accredited investors (in shares)				812,500
Number of accredited investors | item		12		1
Proceeds from sale of units to accredited investors | $		$ 1,750,000		$ 325,000
Subscription receivable | $								$ 1,175,000
Dividend rate (as a percent)		5.00%
Commissions payable from sale to institutional investors | $				$ 0
Units sold to accredited investors, number of common shares				1
Number of common shares that can be purchased against each warrant issued to institutional investor				0.25
Term of warrants issued to accredited investor				5 years
Exercise price of units (in dollars per share) | $ / shares				$ 0.60
Common stock issued for services (in shares)						2,647,960
Expenses related to common stock issued for service | $						$ 664,497	$ 396,620
Common stock issued for exercise of warrants (in shares)						109,855
Issuance of equity for cash exercise of options and warrants | $						$ 43,942	$ 13,000
Intrinsic value of beneficial conversion feature | $		$ 594,641				594,641
Series A Convertible Preferred Stock
Stockholders' Equity
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
Accredited investors
Stockholders' Equity
Units sold to accredited investors (in shares)								6,687,500
Number of accredited investors | item								10
Proceeds from sale of units to accredited investors | $								$ 2,675,000
Subscription receivable | $								$ 1,175,000
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

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WARRANTS (Tables)

6 Months Ended

Jun. 30, 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	16,527,990	$	0.44	3.69	12,604,407	$	309,821
Exercised	109,855	0.40		—		—
Granted	3,353,125	0.20		—		—
Outstanding at June 30, 2015	19,771,260	$	0.40	3.46	16,327,737	$	—