NOTE 7 — RELATED PARTY TRANSACTIONS

Dr. Carr Bettis, Executive Chairman and Chairman of Board of Directors

As of December 31, 2016 and 2015, the Company owed Dr. Bettis $20,575 and $72,944 in accrued salary, respectively. In addition, AudioEye sub-leases an office for the Company’s CEO Todd Bankofier from Verus Analytics, Inc, a company in which Dr. Bettis has a controlling interest in. The sub-lease amount is $500 per month totaling $6,000 and $1,000 in 2016 and 2015, respectively. The amount of $-0- and $1,000 in Rent Payable is included inside Accounts Payable within the Consolidated Balance Sheet as of December 31, 2016 and 2015, respectively. At December 31, 2016, an estimated $8,000 was due and accrued to Dr. Bettis for unreimbursed travel related expenses.

Sean Bradley, President, Chief Technology Officer, and Secretary

As of December 31, 2016 and 2015, the Company owed Sean Bradley $3,543 and 6,250 in accrued salary.

David Moradi

As of December 31, 2015 the Company owed David Moradi $70,000 in principal and $4,280 in accrued interest. During the year ended December 31, 2016, Mr. Moradi was paid in full. During the year ended December 31, 2016, the Company incurred a total of $44,912 legal expenses for services provided on corporate general matters by Anthion Management LLC, an entity affiliated with David Moradi.

Conversion of convertible notes payable

On April 18, 2016, the Company issued 2,506,849 shares of its common stock in settlement of an outstanding convertible note payable, issued in October 2015, for $200,000 and accrued interest $10,575 to KTK Capital, Inc., a material shareholder on a fully diluted basis.

On April 18, 2016, the Company issued 1,251,142 shares of its common stock in settlement of an outstanding convertible note payable, issued in October 2015, for $100,000 and accrued interest $5,096 to Equity Trust Custodian, FBO Alexandre Zynier IRA, an entity under the control of Alexandre Zynier, a member of the Company’s board of directors.

On April 18, 2016, the Company issued an aggregate of 18,353,310 warrants to purchase the Company’s common stock at $0.175 per share for five years in settlement of convertible notes payable, issued in October 2015, in aggregate of $1,475,000 and accrued interest of $66,678 to Anthion Partners and Anthion Partners II LLC; entities under common control with David Moradi.

Sales of common stock

In 2016, the Company sold to CSB IV Holdings, a company under the control of Carr Bettis, an aggregate of 2,607,143 shares of the Company’s common stock and warrants to acquire 292,000 shares of the Company’s common stock with a term of five years, an exercise price of $0.25 per share and is subject to anti-dilution protection, as defined, for net proceeds of $365,000.

In 2016, the Company sold to Ernest Purcell, a member of the Company’s Board of Directors, 1,607,137 shares of the Company’s common stock and warrants to acquire 180,000 shares of the Company’s common stock with a term of five years, an exercise price of $0.25 per share and is subject to anti-dilution protection, as defined, for net proceeds of $225,000.

In 2016, the Company sold to Todd Bankofier, the Company’s Chief Executive Officer, 178,571 shares of the Company’s common stock and warrants to acquire 20,000 shares of the Company’s common stock with a term of five years, an exercise price of $0.25 per share and is subject to anti-dilution protection, as defined, for net proceeds of $25,000.

In 2016, the Company sold to Anthon Capital Management, an entity under the control of David Moradi, 892,857 shares of the Company’s common stock and warrants to acquire 100,000 shares of the Company’s common stock with a term of five years, an exercise price of $0.25 per share and is subject to anti-dilution protection, as defined, for net proceeds of $125,000.

Other

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of December 31, 2014 resulting from the conversion of a $60,000 accounts receivable balance in 2014. Peartrack Security Systems is an entity whose Executive Chairman was former Company director, Edward Withrow III. In 2014, the Company invested $50,000 in Cannonball Red in return for 97,500 shares held as of December 31, 2014. Former CEO, Chief Innovation Officer and director Nathan Bradley had a material interest in Cannonball Red at the time of the transaction. At December 31, 2016, the Company recorded an impairment of $50,000 relating to the 97,500 shares of Cannonball Red to a net carrying value of $-0-.

In summary, as of December 31, 2016 and 2015, the total balances of related party payable were $32,118 and $153,474 (see Note 9), respectively.