10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES 

 EXCHANGE ACT OF 1934

For the transition period from o to o

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.)

	9070 South Rita Road, Suite 1450, Tucson, Arizona		85747
(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 o    No x

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 o    No x

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 May 14, 2013, 43,062,199 shares of the registrant’s common stock were issued and outstanding.

TABLE OF CONTENTS

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Consolidated Balance Sheet as of March 31, 2013 and December 31, 2012 (unaudited)	2
	Consolidated Operations for the three months ended March 31, 2013 and 2012 (unaudited)	3
	Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012 (unaudited)	4
	Condensed Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	10
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	14
Item 4.	Controls and Procedures	14
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	15
Item 1A.	Risk Factors	15
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
Item 3.	Defaults Upon Senior Securities	15
Item 4.	Mine Safety Disclosures	15
Item 5.	Other Information	15
Item 6.	Exhibits	16
SIGNATURES		17

PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

The financial information set forth below with respect to the financial statements as of March 31, 2013 and 2012 and for the three month period ended March 31, 2013 and 2012 is unaudited. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three month period ended March 31, 2013 are not necessarily indicative of results to be expected for any subsequent period. Our fiscal year end is December 31.

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AUDIOEYE, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
	March 31, 2013			December 31, 2012
ASSETS
Current Assets
Cash	$	93,420		$	11,710
Accounts receivable, net		13,000			16,256
Related party receivables		16,125			16,125
Marketable securities		21,000			30,000
Total Current Assets		143,545			74,091
Property and equipment, net		6,244			7,043
Intangible assets, net		3,361,264			3,448,221
Goodwill		700,528			700,528
Total Assets		4,211,581		$	4,229,883
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Accounts payable and accrued expenses	$	456,202		$	498,365
Deferred Revenue		44,443			54,823
Notes and loans payable-current		24,000			1,466,700
Related party payable		—			829,418
Total Current Liabilities		524,645			2,849,306
Long term liabilities
Notes and loans payable-long term		91,800			97,800
Related party loans		10,000			10,000
Total Long term Liabilities		101,800			107,800
Total Liabilities		626,445			2,957,106
STOCKHOLDERS’ DEFICIT
Common stock, $0.00001 par value, 100,000,000 shares authorized, 43,062,199 and 35,192,045 issued and outstanding, as of March 31, 2013 and December 31, 2012, respectively		431			352
Additional paid in capital		4,491,413			1,783,047
Accumulated deficit		(906,708	)		(510,622	)
Total Stockholders’ Deficit		3,585,136			1,272,777
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	4,211,581		$	4,229,883
See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
	For the Three Months ended
	March 31, 2013			March 31, 2012
Revenue	$	224,297		$	14,255
Revenue from related party		—			750
Cost of revenues		45,023			89,735
Gross Profit		179,274			(74,730	)
General and administrative expenses		541,393			172,846
Operating income (loss)		(362,119	)		(247,576	)
Other income (expense)
Unrealized gain (loss) on marketable securities		(9,000	)		25,500
Interest expense		(24,967	)		(3,536	)
Total other income (expense)		(33,967	)		21,964
Net (loss)	$	(396,086	)	$	(225,612	)
Net (loss) per common share - basic and diluted	$	(0.01	)	$	(0.01	)
Weighted average common shares outstanding - basic and diluted		36,965,057			30,005,185
See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Three Months ended
	March 31, 2013			March 31, 2012
Cash Flows from Operating Activities:
Net (loss)	$	(396,086	)	$	(225,612	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		89,593			3,455
Stock, option and warrant expense		169,756			—
Unrealized (gain) loss on investments		9,000			(25,500	)
Changes in operating assets and liabilities:
Accounts receivable		3,256			(11,877	)
Related party receivable		—			(750	)
Other assets		—			(3,271	)
Accounts payable and accruals		70,071			(28,782	)
Deferred revenue		(10,380	)		13,370
Related party payables		—			79,615
Net cash (used in) operating activities		(64,790	)		(199,352	)
Cash Flows from financing activities:
Repayment of note payable		(206,000	)		—
Proceeds from third party loans		352,500			244,000
Net cash provided by financing activities		146,500			244,000
Increase (decrease) in cash		81,710			44,648
Cash - beginning of period		11,710			32,156
Cash - end of period	$	93,420		$	76,804
NON-CASH FINANCING ACTIVITIES
Common stock issued for conversion of debt	$	1,692,932		$	—
Warrants issued for related party loans		829,418			—
Common Stock Issued to CMGO for debt repayment		241,339			—
Patents capitalized in accounts payable		1,837			3,470
Accounts payable converted into debt		30,000			—
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	24,967		$	—
Income taxes paid	$	—		$	—
See Notes to Unaudited Consolidated Financial Statements

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AUDIOEYE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 MARCH 31, 2013 (Unaudited)

NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

The accompanying unaudited interim financial statements of AudioEye, Inc., (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 filed with the SEC on Form 10-K.

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 fiscal year ended December 31, 2012 as reported in the Company’s Annual Report on Form 10-K have been omitted.

Corporate Organization

The Company was formed as a Delaware corporation on May 20, 2005. On March 31, 2010, CMG Holdings Group, Inc., (“CMGO”) acquired the Company. In connection with the acquisition, the former stockholders of the Company retained rights to receive cash from the exploitation of the Company’s technology, (the “Rights”) consisting of 50% of any cash received from income earned, settlements or judgments directly resulting from the Company’s patent strategy and a share of its net income for 2010, 2011 and 2012 from the exploitation of the Company’s technology.  The Rights were then contributed to a newly formed Nevada corporation, AudioEye Acquisition Corporation, (“AEAC”), in exchange for shares of AEAC.  During the period as a wholly-owned subsidiary of CMGO, the Company continued to expand its patent portfolio to protect its proprietary Internet content publication and distribution technology.

On June 22, 2011, CMGO entered into a Master Agreement with AEAC pursuant to which: (i) the stockholders of AEAC would acquire from the CMGO 80% of the Company’s capital stock, (the “Separation”) and (ii) CMGO would distribute to its stockholders, in the form of a dividend, 5% of the Company’s capital stock, (the “Spin-off”).  Pursuant to the Master Agreement, AEAC was required to arrange for the release of senior secured notes, (the “Senior Notes”) issued by CMGO in an aggregate principal amount of $1,025,000, which CMGO had been unable to service.  On August 15, 2012, the Company, CMGO and AEAC completed the Separation.  In connection with the Separation, AEAC arranged for the release of CMGO under the Senior Notes by payment to the holders thereof of $700,000, the delivery of a secured promissory note in the principal amount of $425,000 and the issuance of 1,500,000 shares of the common stock of AEAC.  On January 29, 2013, the Securities and Exchange Commission declared effective the Company’s registration statement on Form S-1 with respect to 1,500,259 shares of its common stock to be issued in the Spin-off. On February 6, 2013, the secured promissory note was repaid in full. On February 22, 2013, CMGO completed the Spin-off.

In connection with the Separation, the Company entered into a Royalty Agreement with CMGO. Pursuant to the Royalty Agreement, for a period of five years, the Company will pay to CMGO 10% of cash received from income earned or settlements on judgments directly resulting from the Company’s patent enforcement and licensing strategy, whether received by the Company on any of its affiliates, net in either case of any direct costs or tax implications incurred in pursuit of such strategy as they relate to the patents described in the Master Agreement.  Additionally, the Company entered into a Services Agreement with CMGO whereby, without duplication to the amounts payable under the Royalty Agreement, for a period of 5 years, CMGO will receive a commission of 7.5% of all revenues received by the Company after the Separation from all business, clients or

5

other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to the Company and 10% of net revenues obtained from a specified customer.

On March 22, 2013, the Company and AEAC entered into an Agreement and Plan of Merger, (the “Merger Agreement”) pursuant to which AEAC would be merged with and into the Company, (the “Merger”) with the Company being the surviving entity.  Pursuant to the Merger Agreement, each share of AEAC common stock issued and outstanding immediately prior to the Merger effective date would be converted into .94134 share of the Company’s common stock and the outstanding convertible debentures of AEAC, (the “AEAC Debentures”) in the aggregate principal amount of $1,400,200, together with accrued interest thereon, would be assumed by the Company and then exchanged for the Company’s convertible debentures, (the “AE Debentures”).

Effective March 25, 2013, the Merger was completed.  In connection with the Merger, the stockholders of AEAC received on a pro rata basis the 24,004,143 shares of the Company’s common stock that were held by AEAC, and the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures.  The principal asset of AEAC was the Rights that had been contributed to AEAC by the Company’s former stockholders.  As a result of the Merger, the Rights have been extinguished.

NOTE 2: GOING CONCERN

As shown in the accompanying financial statements, the Company has incurred net losses of $396,086 and $225,612 for the quarters ended March 31, 2013 and 2012, respectively. In addition, the Company had an accumulated deficit of $906,708 and $510,622 and a working capital deficit of  and $381,100 and $2,775,215 as of March 31, 2013 and December 31, 2012, respectively. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. In response to these conditions, the Company is attempting to raise additional capital through the sale of equity securities, an offering of debt securities or borrowings from financial institutions or other third parties or a combination of the foreging.  No assurance can be given that the Company will be able to raise sufficient financing to implement its business plan.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 3: RELATED PARTY TRANSACTIONS

As of March 31, 2013 and December 31, 2012, Related Party Loans totaled $10,000 and $10,000, respectively.

As of March 31, 2013 and December 31, 2012, there were Related Party Payables of $0 and $829,418, respectively, for services performed by related parties.

As of March 31, 2013 and December 31, 2012, there were outstanding receivables of $16,125 and $16,125, respectively, for services performed for related parties.

For the three months ended March 31, 2013 and 2012, there were revenues earned of $0 and $750, respectively, for services performed for related parties.

NOTE 4: NOTES PAYABLE

As of December 31, 2012 and 2011, 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 third party.  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 third-party in the combined amount of

6

principal and accrued interest to date, for a total principal amount of $149,800.  The note is interest free, and is payable in monthly installments of $2,000 beginning November 1, 2011.  As of March 31, 2013 and December 31, 2012, the principal amount owing was $115,800 and $121,800, respectively, of which $24,000 and $24,000, has been recorded as the current portion of the note, and $91,800 and $97,800 as the long-term portion of the note, respectively.

On August 15, 2012, the Company issued a Secured Promissory Note to CMGO Investors LLC, the agent for the former holders of CMGO’s senior debt, in the amount of $425,000, related to the separation of the Company from its parent, which took place on August 17, 2012.  The note bore interest at 8% per annum.  Pursuant to an extension granted by the noteholder, the note was due on February 6, 2013.  The noteholder had the option to convert the principal and interest into 10% of the Company’s total issued and outstanding common shares as of the date of the notice to convert, but in no event more than 6,000,000 shares. On February 6, 2013, the Secured Promissory Note was repaid in full. Payment consisted of cash payments of $200,000, of which $16,339 was interest and $183,661 was principal. The balance of the principal of $241,339 was repaid with the issuance of 1,998,402 common shares of the Company, which represented 5.678562% of the outstanding shares on February 6, 2013.

During the period ended March 31, 2013, the Company borrowed an additional $382,500 of AEAC Debentures, $30,000 of which was accounts payable converted into debt. These notes bore interest at 8% per annum and are due one year from the date of issuance. The noteholders had the option to convert the principal and interest at an exercise price $0.25 per share.

In connection with the Merger that occurred March 22, 2013, the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures totalling $1,400,200 of principal and $67,732 of interest. These shares were issued for the conversion of total principal and accrued interest on the former AEAC Debentures.

NOTE 5: STOCKHOLDERS’ EQUITY

As of March 31, 2013 and December 31, 2012, the Company had 43,062,199 and 35,192,045 shares of common stock issued and outstanding, respectively.

On February 6, 2013 the Secured Promissory Note to CMGO Investors LLC was repaid in full. Payment consisted of cash payments of $200,000 of which $16,339 was interest and $183,661 was principal. The balance of the principal of $241,339 was repaid with the issuance of 1,998,402 common shares of the Company, which was 5.678562% of the outstanding shares on February 6, 2013.

In connection with the Merger that occurred March 22, 2013, the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures totalling $1,400,200 of principal and $67,732 of interest. These shares were issued for the conversion of total principal and accrued interest on the former AEAC Debentures.

NOTE 6: OPTIONS AND WARRANTS

As of March 31, 2013 the Company has 2,820,000 options issued and outstanding. The AudioEye, Inc. 2012 Incentive Compensation Plan has a total of 5,000,000 authorized shares and a balance of 2,180,000 shares remaining in the plan. These options were issued on December 19, 2012, vest 25% at each 6 month anniversary of the grant date, have an exercise price of $0.25 per share, and expire on December 19, 2017.

7

		Outstanding and Exercisable Options
				Remaining		Exercise Price		Weighted
		Number of		Contractual Life		times Number		Average		Intrinsic
Exercise Price		Shares		(in years)		of Shares		Exercise Price		Value
$	0.25		2,820,000		5	$	705,000	$	0.25	$	0
			2,820,000			$	705,050	$	0.25		0

The options were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 3.25 years, expected volatility of 250%, risk free interest rate of 0.39%, and expected dividend yield of 0%. The grant date fair value of the options were determined to be $688,005.

For the three months ended March 31, 2013, stock compensation expense related to the options totaled $86,006

On March 19, 2013, the Company’s board of directors approved the issuance of warrants to James Crawford, Nathaniel Bradley and Sean Bradley to purchase up to 464,593, 1,696,155 and 1,491,924, respectively, shares of Company common stock. The warrants have an issuance date of March 19, 2013, expire on March 19, 2018, have a strike price of $0.25 per share, and vest in 1/3 increments on the annual anniversaries of the issuance. The warrants to purchase up to an aggregate of 3,652,672 shares of common stock were valued at $913,168, which is the same amount as the related party payables forgiven. As of December 31, 2012, the Company had accrued $829, 418 of these payables.  As a result, warrant expense of $83,750 was recorded during the three months ended March 31, 2013.

NOTE 7: ACQUISITION OF AUDIOEYE, INC. BY AUDIOEYE ACQUISITION CORPORATION

On August 17, 2012  AEAC acquired 80% of AudioEye, Inc.  for $1,125,000 and 1,500,000 shares of AEAC common stock with a fair value of $375,000.

On August 17, 2012, the Company determined the fair value its patents to be $3,551,814. The following table sets forth the purchase price allocation for the acquisition of AudioEye, Inc. as of August 17, 2012:

Purchase Price Allocation
Purchase Price:	Cash	$	1,125,000
	1,500,000 shares of AEAC stock		375,000	$	1,500,000
Less: Net Assets (deficit)					2,752,342	*
Less: Identifiable Intangibles - Patents					(3,551,814	)
	Goodwill			$	700,528

Net Assets (deficit)
	Book Value
	at 08/17/12
Current Assets	$	109,521
Property, Plant & Equipment, net		7,688
Patents		—
Current Liabilities		(1,517,724	)
L/T Liabilities		(1,351,827	)
Contingent Liabilities (Note 2)		—
Net Assets (deficit)	$	(2,752,342	)*

8

In accordance with ASC 805, the Company has accounted for the combination using the Acquisition Method for the purpose of allocating the purchase price and determining goodwill. The fair value of the Company’s current tangible assets, property and equipment and liabilities approximated book value on the date of the acquisition. Therefore no adjustment has been made to the book value of the Company’s existing tangible assets and liabilities. The Company has determined that the value of goodwill is $700,528, based upon the Company’s enterprise allocation , less the Company’s net assets at the time of purchase, less any identifiable intangible assets, and is comprised of the expected synergies and intangible assets that do not qualify for separate recognition. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value net assets as of the Separation date of August 17, 2012, the purchase price allocation could change during the measurement period (not to exceed one year) if new information is obtained about facts and circumstances that existed as of the Separation date that, if known, would have resulted in the recognition of additional, or change in existing, assets and liabilities as of that date.

The Company has identified its patents as qualifying for separate recognition, in accordance with ASC 820.  In determining the fair market value associated with the patents, the Company used the Income Method. Inasmuch as the Company has previously determined that there existed an impairment of the patent based upon an analysis utilizing the Company’s historical cash flows, it was necessary for the Company to consider any identifiable future cash flows that were reliably estimable at the date of Separation. The Company has determined that the only identifiable revenue stream for future cash flows directly related to the patents at the date of the Separation are those related to the licensing of its technology to the US Government, more fully described below.  All other potential revenue is highly speculative, and/or not directly related to the patents at the date of the Separation. Based on the analysis performed, the Company determined the fair value of the patents on the date of separation to be $3,551,814.

NOTE 8: MERGER OF AUDIOEYE, INC. AND AUDIOEYE ACQUISITION CORPORATION

On March 22, 2013, the Company and AEAC entered into the Merger Agreement.  Pursuant to the Merger Agreement, each share of AEAC common stock issued and outstanding immediately prior to the Merger effective date would be converted into .94134 share of the Company’s common stock and the outstanding convertible debentures of AEAC, (the “AEAC Debentures”) in the aggregate principal amount of $1,400,200, together with accrued interest thereon of $67,732, would be assumed by the Company and then exchanged for convertible debentures of the Company, (the “AE Debentures”). Effective March 25, 2013, the Merger was completed.  In connection with the Merger, the stockholders of AEAC received on a pro rata basis the 24,004,143 shares of the Company’s common stock that were held by AEAC, and the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures.

This transaction was accounted for as a combination of entities under common control under ASC 805-10-15.  Accordingly, the historical financial statements have been adjusted retroactively assuming the transaction occurred on January 1, 2012.  The Company recorded the following net assets after elimination of intercompany receivables and payables between AudioEye, Inc.:

Assets
Cash	4,593
Intangible Assets	3,551,814
Goodwill	700,528
Total Assets	4,256,935
Liabilities
Accounts payable and accrued expenses	117,162
Net Assets	4,139,773

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NOTE 9: INTANGIBLE ASSETS

Prior to March 31, 2013, patents, technology and other intangibles with contractual terms were generally amortized over their estimated useful lives of ten years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

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

	March 31,			December 31,
	2013			2012
Patents	$	3,553,651		$	3,553,651
Accumulated Amortization		(192,387	)		(105,430	)
Intangible Assets, Net	$	3,361,264		$	3,448,221

Amortization expense totaled $88,794 and $0 for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively.

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

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.

The following discussion should be read in conjunction with our consolidated unaudited financial statements and the related notes for the three months ended March 31, 2013 and 2012 that appear in this quarterly  report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this quarterly  report.

Background

Our company was formed as a Delaware corporation on May 20, 2005. On March 31, 2010, CMG Holdings Group, Inc., (“CMGO”) acquired our company .  In connection with the acquisition, the former stockholders of our company retained rights to receive cash from the exploitation of our technology, (the “Rights”) consisting of 50% of any cash received from income earned, settlements or judgments directly resulting from our patent strategy and a share of our net income for 2010, 2011 and 2012 from the exploitation of the Company’s technology.  The Rights were then contributed to a newly formed Nevada corporation, AudioEye Acquisition Corporation, (“AEAC”), in exchange for shares of AEAC.  During the period as a wholly-owned subsidiary of

10

CMGO, we continued to expand our patent portfolio to protect our proprietary Internet content publication and distribution technology.

On June 22, 2011, CMGO entered into a Master Agreement with AEAC pursuant to which: (i) the stockholders of AEAC would acquire from the CMGO 80% of our capital stock, (the “Separation”) and (ii) CMGO would distribute to its stockholders, in the form of a dividend, 5% of our capital stock, (the “Spin-off”).  Pursuant to the Master Agreement, AEAC was required to arrange for the release of senior secured notes, (the “Senior Notes”) issued by CMGO in an aggregate principal amount of $1,025,000, which CMGO had been unable to service.  On August 15, 2012, we, CMGO and AEAC completed the Separation.  In connection with the Separation, AEAC arranged for the release of CMGO under the Senior Notes by payment to the holders thereof of $700,000, the delivery of a secured promissory note in the principal amount of $425,000 and the issuance of 1,500,000 shares of the common stock of AEAC.  On January 29, 2013, the Securities and Exchange Commission declared effective our registration statement on Form S-1 with respect to 1,500,259 shares of our common stock to be issued in the Spin-off. On February 6, 2013, the secured promissory note was repaid in full. On February 22, 2013, CMGO completed the Spin-off.

In connection with the Separation, we entered into a Royalty Agreement with CMGO. Pursuant to the Royalty Agreement, for a period of five years, we will pay to CMGO 10% of cash received from income earned or settlements on judgments directly resulting from our patent enforcement and licensing strategy, whether received by us on any of our affiliates, net in either case of any direct costs or tax implications incurred in pursuit of such strategy as they relate to the patents described in the Master Agreement.  Additionally, we entered into a Services Agreement with CMGO whereby, without duplication to the amounts payable under the Royalty Agreement, for a period of 5 years, CMGO will receive a commission of 7.5% of all revenues received by us after the Separation from all business, clients or other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to us and 10% of net revenues obtained from a specified customer.

On March 22, 2013, we and AEAC entered into an Agreement and Plan of Merger, (the “Merger Agreement”) pursuant to which AEAC would be merged with and into our company, (the “Merger”) with our company being the surviving entity.  Pursuant to the Merger Agreement, each share of AEAC common stock issued and outstanding immediately prior to the Merger effective date would be converted into .94134 share of our common stock and the outstanding convertible debentures of AEAC, (the “AEAC Debentures”) in the aggregate principal amount of $1,400,200, together with accrued interest thereon, would be assumed by us and then exchanged for convertible debentures of our company, (the “AE Debentures”).

Effective March 25, 2013, the Merger was completed.  In connection with the Merger, the stockholders of AEAC received on a pro rata basis the 24,004,143 shares of our common stock that were held by AEAC, and the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of our common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures.  The principal asset of AEAC was the Rights that had been contributed to AEAC by the former stockholders of our company.  As a result of the Merger, the Rights have been extinguished.

Overview

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

11

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

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

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

Results of Operations	Three Months Ended March 31,
	2013			2012
Revenue	$	224,297		$	14,255
Revenue from related party		—			750
Cost of Sales		45,023			89,735
Gross profit (loss)		179,274			(74,730	)
General and administrative expenses		541,393			172,846
Patent impairment expense		—			—
Operating (loss)		(362,119	)		(247,576	)
Unrealized gain (loss) on marketable securities		(9,000	)		25,500
Loss attributable to non-controlling interest		—			—
Interest expense		(24,967	)		(3,536	)
Net (loss)	$	(396,086	)	$	(225,612	)
Net (loss) per Weighted average common shares outstanding – basic and diluted	$	(0.01	)	$	(0.01	)

Revenue

For the three months ended March 31, 2013 and 2012, revenue in the amount of $224,297 and $14,255, respectively, consisted primarily of various levels of website design and maintenance. Revenues increased due to increased demand for our services. Additionally, for the three months ended March 31, 2013 and 2012, revenue from related party in the amount of $0 and $750, respectively, consisted primarily of various levels of website design and maintenance.

12

Cost of Sales

For the three months ended March 31, 2013 and 2012, cost of sales in the amount of $45,023 and $89,735, respectively, consisted primarily of sub-contracting to outside sources, direct labor and direct technology costs. Cost of sales decreased due to a reduction of sub-contracting costs and efficient implementation of our products.

Gross Profit

The increase in revenue and decrease in sub-contracting and direct labor resulted in a gross profit of $179,274 and a gross loss of $74,730 for the three months ended March 31, 2013 and 2012, respectively. Gross profit increased as a result of increasing sales combined with a reduction in sub-contracting costs and efficient implementation of our products.

General and Administrative Expenses

General and administrative expenses were $541,393 and $172,846 for the three months ended March 31, 2013 and 2012, respectively. General and administrative expenses increased as a result of increases in amortization, new employees and stock, option and warrant expense.

Liquidity and Capital Resources

Working Capital
	At March 31,			At December 31,
	2013			2012
Current Assets	$	143,545		$	74,091
Current Liabilities		524,645			2,849,306
Working Capital (Deficit)	$	(381,100	)	$	(2,775,215	)

The working capital deficit the three months ended March 31, 2013 and December 31, 2012 was $381,100 and $2,775,215, respectively. The decrease in deficit was primarily due to decreases in current portion of related party payables and notes and loans payable.

Cash Flows	For the three months ended
	March 31,
	2013			2012
Net Cash (Used in) Operating Activities	$	(64,790	)	$	(199,352	)
Net Cash Provided by Financing Activities		146,500			244,000
Increase (Decrease) in Cash	$	81,710		$	44,648

We had cash in the amount of $93,420 and $76,804 as of March 31, 2013 and 2012, respectively.

In view of our working capital deficit, continuing operating losses and limited cash position, 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.  We cannot assure you that we will be able to obtain sufficient funds at all or on acceptable terms.  Without such funds, we will be unable to implement our business plan or continue operations.

13

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

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, 2012, relate to capitalized legal patent costs, income taxes, business combinations, goodwill, intangible assets, share-based payments, revenue recognition, and research and other accounting descriptions. There have been no material changes to our critical accounting policies as disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

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 Chief Executive Officer and Chief 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 Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of March 31, 2013 in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles due to our management identifying a material weakness in lack of control processes in place that provide multiple levels of supervision and review as of March 31, 2013.  Please refer to our Annual Report on Form 10-K as filed with the SEC on April 15, 2013 for a complete descussion relating to the foregoing evaluation of our controls and procedures.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2013 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

14

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 1A. Risk Factors

Not applicable.

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

None.

Sales of Unregistered Securities

On February 6, 2013, we repaid the remaining principal under a Secured Promissory Note to CMGO Investors LLC with the issuance of 1,998,402 shares of our common stock. The offer and sale of the shares 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. The only consideration that we received in the transaction was the satisfaction of our obligation under the note.

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.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

15

Item 6. Exhibits

Exhibit No.	Description
10.1	Agreement and Plan of Merger dated as of March 22, 2013 between AudioEye, Inc. and AudioEye Acquisition Corporation (1)
31.1*	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

*         Filed herewith.

(1) Incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on March 27, 2013.

16

SIGNATURES

Pursuant to the requirements of the Section 13 or 15 or 15(d) 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 14th day of May 2013.

AUDIOEYE, INC.
By:	/s/ Nathaniel Bradley
	Nathaniel Bradley
	Chief Executive Officer and President
By:	/s/ Edward O’Donnell
	Edward O’Donnell
	Chief Financial Officer

17

EX-31.1

AudioEye 10-Q

Exhibit 31.1

CERTIFICATION

I, Nathaniel Bradley, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AudioEye, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our 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 report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this 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(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: May 14, 2013

/s/ Nathaniel Bradley

Nathaniel Bradley

Chief Executive Officer (Principal Executive Officer)

EX-31.2

AudioEye 10-Q

Exhibit 31.2

CERTIFICATION

I, Edward O’Donnell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of AudioEye, Inc.;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements and other financial information included in this 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 report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15-d-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 our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our 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 report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this 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(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

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

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

Date: May 14, 2013

/s/ Edward O’Donnell

Edward O’Donnell

Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

AudioEye 10-Q

Exhibit 32.1

CERTIFICATION

In connection with the periodic report of AudioEye, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2013 as filed with the Securities and Exchange Commission (the “Report”), we, Nathaniel Bradley, Chief Executive Officer (Principal Executive Officer) and Edward O’Donnell, Chief Financial Officer (Principal Financial and Accounting Officer) of the Company, hereby certify as of the date hereof, solely for purposes of Title 18, Chapter 63, Section 1350 of the United States Code, that to the best of our knowledge:

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

(2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the periods indicated.

Date: May 14, 2013

/s/ Nathaniel Bradley

Nathaniel Bradley

Chief Executive Officer (Principal Executive Officer)

/s/ Edward O’Donnell

Edward O’Donnell

Chief Financial Officer (Principal Financial and Accounting Officer)

XML

ACQUISTION OF AUDIOEYE, INC BY AUDIOEYE ACQUISITION CORPORATION (Details) (AudioEye Inc., USD $)	Aug. 17, 2012
AudioEye Inc.
Purchase price	$ 1,500,000
Net assets	2,752,342
Identifiable Intangibles - Patents	(3,551,814)
Goodwill	$ 700,528

XML

NOTES PAYABLE

3 Months Ended

Mar. 31, 2013

Notes Payable [Abstract]

NOTES PAYABLE

NOTE 4: NOTES PAYABLE

As of December 31, 2012 and 2011, 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 third party.  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 third-party in the combined amount of principal and accrued interest to date, for a total principal amount of $149,800.  The note is interest free, and is payable in monthly installments of $2,000 beginning November 1, 2011.  As of March 31, 2013 and December 31, 2012, the principal amount owing was $115,800 and $121,800, respectively, of which $24,000 and $24,000, has been recorded as the current portion of the note, and $91,800 and $97,800 as the long-term portion of the note, respectively.

On August 15, 2012, the Company issued a Secured Promissory Note to CMGO Investors LLC, the agent for the former holders of CMGO’s senior debt, in the amount of $425,000, related to the separation of the Company from its parent, which took place on August 17, 2012.  The note bore interest at 8% per annum.  Pursuant to an extension granted by the noteholder, the note was due on February 6, 2013.  The noteholder had the option to convert the principal and interest into 10% of the Company’s total issued and outstanding common shares as of the date of the notice to convert, but in no event more than 6,000,000 shares. On February 6, 2013, the Secured Promissory Note was repaid in full. Payment consisted of cash payments of $200,000, of which $16,339 was interest and $183,661 was principal. The balance of the principal of $241,339 was repaid with the issuance of 1,998,402 common shares of the Company, which represented 5.678562% of the outstanding shares on February 6, 2013.

During the period ended March 31, 2013, the Company borrowed an additional $382,500 of AEAC Debentures, $30,000 of which was accounts payable converted into debt. These notes bore interest at 8% per annum and are due one year from the date of issuance. The noteholders had the option to convert the principal and interest at an exercise price $0.25 per share.

In connection with the Merger that occurred March 22, 2013, the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures totalling $1,400,200 of principal and $67,732 of interest. These shares were issued for the conversion of total principal and accrued interest on the former AEAC Debentures.

XML

INTANGIBLE ASSETS (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013 Patents	Dec. 31, 2012 Patents
Intangible assets, gross			$ 3,553,651	$ 3,553,651
Accumulated Amortization			(192,387)	(105,430)
Intangible assets, net			3,361,264	3,448,221
Amortization expense	$ 88,794	$ 0

XML

RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 3: RELATED PARTY TRANSACTIONS

As of March 31, 2013 and December 31, 2012, Related Party Loans totaled $10,000 and $10,000, respectively.

As of March 31, 2013 and December 31, 2012, there were Related Party Payables of $0 and $829,418, respectively, for services performed by related parties.

As of March 31, 2013 and December 31, 2012, there were outstanding receivables of $16,125 and $16,125, respectively, for services performed for related parties.

For the three months ended March 31, 2013 and 2012, there were revenues earned of $0 and $750, respectively, for services performed for related parties.

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Current Assets
Cash	$ 93,420	$ 11,710
Accounts receivable, net	13,000	16,256
Related party receivables	16,125	16,125
Marketable securities	21,000	30,000
Total Current Assets	143,545	74,091
Property and equipment, net	6,244	7,043
Intangible assets, net	3,361,264	3,448,221
Goodwill	700,528	700,528
Total Assets	4,211,581	4,229,883
Current Liabilities
Accounts payable and accrued expenses	456,202	498,365
Deferred Revenue	44,443	54,823
Notes and loans payable-current	24,000	1,466,700
Related party payable		829,418
Total Current Liabilities	524,645	2,849,306
Long term liabilities
Notes and loans payable - long term	91,800	97,800
Related party loans	10,000	10,000
Total Long term Liabilities	101,800	107,800
Total Liabilities	626,445	2,957,106
STOCKHOLDERS' DEFICIT
Common stock, $0.00001 par value, 100,000,000 shares authorized, 43,062,199 and 35,192,045 issued and outstanding, as of March 31, 2013 and December 31, 2012 respectively	431	352
Additional paid in capital	4,491,413	1,783,047
Accumulated deficit	(906,708)	(510,622)
Total Stockholders' Deficit	3,585,136	1,272,777
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$ 4,211,581	$ 4,229,883

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ORGANIZATION AND BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2013

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., (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 filed with the SEC on Form 10-K.

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 fiscal year ended December 31, 2012 as reported in the Company’s Annual Report on Form 10-K have been omitted.

Corporate Organization

The Company was formed as a Delaware corporation on May 20, 2005. On March 31, 2010, CMG Holdings Group, Inc., (“CMGO”) acquired the Company. In connection with the acquisition, the former stockholders of the Company retained rights to receive cash from the exploitation of the Company’s technology (the “Rights”) consisting of 50% of any cash received from income earned, settlements or judgments directly resulting from the Company’s patent strategy and a share of its net income for 2010, 2011 and 2012 from the exploitation of the Company’s technology.  The Rights were then contributed to a newly formed Nevada corporation, AudioEye Acquisition Corporation, (“AEAC”), in exchange for shares of AEAC.  During the period as a wholly-owned subsidiary of CMGO, the Company continued to expand its patent portfolio to protect its proprietary Internet content publication and distribution technology.

On June 22, 2011, CMGO entered into a Master Agreement with AEAC pursuant to which: (i) the stockholders of AEAC would acquire from the CMGO 80% of the Company’s capital stock, (the “Separation”) and (ii) CMGO would distribute to its stockholders, in the form of a dividend, 5% of the Company’s capital stock (the “Spin-off”).  Pursuant to the Master Agreement, AEAC was required to arrange for the release of senior secured notes, (the “Senior Notes”) issued by CMGO in an aggregate principal amount of $1,025,000, which CMGO had been unable to service.  On August 15, 2012, the Company, CMGO and AEAC completed the Separation.  In connection with the Separation, AEAC arranged for the release of CMGO under the Senior Notes by payment to the holders thereof of $700,000, the delivery of a secured promissory note in the principal amount of $425,000 and the issuance of 1,500,000 shares of the common stock of AEAC.  On January 29, 2013, the Securities and Exchange Commission declared effective the Company’s registration statement on Form S-1 with respect to 1,500,259 shares of its common stock to be issued in the Spin-off. On February 6, 2013, the secured promissory note was repaid in full. On February 22, 2013, CMGO completed the Spin-off.

In connection with the Separation, the Company entered into a Royalty Agreement with CMGO. Pursuant to the Royalty Agreement, for a period of five years, the Company will pay to CMGO 10% of cash received from income earned or settlements on judgments directly resulting from the Company’s patent enforcement and licensing strategy, whether received by the Company on any of its affiliates, net in either case of any direct costs or tax implications incurred in pursuit of such strategy as they relate to the patents described in the Master Agreement.  Additionally, the Company entered into a Services Agreement with CMGO whereby, without duplication to the amounts payable under the Royalty Agreement, for a period of 5 years, CMGO will receive a commission of 7.5% of all revenues received by the Company after the Separation from all business, clients or other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to the Company and 10% of net revenues obtained from a specified customer.

On March 22, 2013, the Company and AEAC entered into an Agreement and Plan of Merger (the “Merger Agreement”) pursuant to which AEAC would be merged with and into the Company, (the “Merger”) with the Company being the surviving entity.  Pursuant to the Merger Agreement, each share of AEAC common stock issued and outstanding immediately prior to the Merger effective date would be converted into .94134 share of the Company’s common stock and the outstanding convertible debentures of AEAC (the “AEAC Debentures”) in the aggregate principal amount of $1,400,200, together with accrued interest thereon, would be assumed by the Company and then exchanged for the Company’s convertible debentures, (the “AE Debentures”).

Effective March 25, 2013, the Merger was completed.  In connection with the Merger, the stockholders of AEAC received on a pro rata basis the 24,004,143 shares of the Company’s common stock that were held by AEAC, and the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures.  The principal asset of AEAC was the Rights that had been contributed to AEAC by the Company’s former stockholders.  As a result of the Merger, the Rights have been extinguished.

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OPTIONS AND WARRANTS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013
Share-based compensation - options	$ 86,006
Warrants:
Issuance of warrants. number of shares	3,652,672
Value of warrants	913,168
Warrant expense	$ 83,750
Jim Crawford
Warrants:
Issuance of warrants. number of shares	464,593
Date of exercisable	Mar. 19, 2013
Date of expiration of warrants	2018-03-19
Strike price	0.25
Nathaniel Bradley
Warrants:
Issuance of warrants. number of shares	1,696,155
Date of exercisable	Mar. 19, 2013
Date of expiration of warrants	2018-03-19
Strike price	0.25
Sean Bradley
Warrants:
Issuance of warrants. number of shares	1,491,924
Date of exercisable	Mar. 19, 2013
Date of expiration of warrants	2018-03-19
Strike price	0.25
2012 Incentive Compensation Plan
Authorized shares in plan	5,000,000
Options issued and outstanding	2,820,000
Balance of shares remaining in plan for disbursement	2,180,000
Options vesting term	VEST 25% AT EACH 6 MONTH ANNIVERSARY OF THE GRANT DATE
Vesting period of options, anniversary date of grant date	6 months
Option valuation method	BLACK-SCHOLES PRICING MODEL
Expected term	3 years 3 months
Expected volatility	250.00%
Risk-free interest rate	0.39%
Expected dividend yield	0.00%
Grant date fair value of options	$ 688,005

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ACQUISTION OF AUDIOEYE, INC BY AUDIOEYE ACQUISITION CORPORATION (Details Narrative) (AudioEye Inc., USD $)	12 Months Ended
	Dec. 31, 2012
AudioEye Inc.
Effective date of acquisition	Aug. 17, 2012
Percentage of outstanding shares acquired	80.00%
Cash paid for entity	$ 1,125,000
Stock issued for acquisition	$ 375,000
Stock issued for acquisition, shares	1,500,000

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GOING CONCERN

3 Months Ended

Mar. 31, 2013

Going Concern

GOING CONCERN

NOTE 2: GOING CONCERN

As shown in the accompanying financial statements, the Company has incurred net losses of $396,086 and $225,612 for the quarters ended March 31, 2013 and 2012, respectively. In addition, the Company had an accumulated deficit of $906,708 and $510,622 and a working capital deficit of  and $381,100 and $2,775,215 as of March 31, 2013 and December 31, 2012, respectively. These conditions raise substantial doubt as to the Company’s ability to continue as a going concern. In response to these conditions, the Company is attempting to raise additional capital through the sale of equity securities, an offering of debt securities or borrowings from financial institutions or other third parties or a combination of the foregoing.  No assurance can be given that the Company will be able to raise sufficient financing to implement its business plan.  The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Common Stock, par value	$ 0.00001	$ 0.00001
Common Stock, shares authorized	100,000,000	100,000,000
Common Stock, shares issued	43,062,199	35,192,045
Common Stock, shares outstanding	43,062,199	35,192,045

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MERGER OF AUDIOEYE, INC. AND AUDIOEYE ACQUISITION CORPORATION (Tables)

3 Months Ended

Mar. 31, 2013

Merger Of Audioeye Inc. And Audioeye Acquisition Corporation Tables

Schedule of net assets - merger

Assets
Cash	4,593
Intangible Assets	3,551,814
Goodwill	700,528
Total Assets	4,256,935
Liabilities
Accounts payable and accrued expenses	117,162
Net Assets	4,139,773

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 14, 2013
Document And Entity Information
Entity Registrant Name	AudioEye Inc
Entity Central Index Key	0001362190
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		43,062,199
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

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INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2013

Intangible Assets Tables

Schedule of intangible assets, prior to impairment adjustments

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

	March 31,			December 31,
	2013			2012
Patents	$	3,553,651		$	3,553,651
Accumulated Amortization		(192,387	)		(105,430	)
Intangible Assets, Net	$	3,361,264		$	3,448,221

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CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement [Abstract]
Revenue	$ 224,297	$ 14,255
Revenue from related party		750
Cost of revenues	45,023	89,735
Gross Profit	179,274	(74,730)
General and administrative expenses	541,393	172,846
Operating income (loss)	(362,119)	(247,576)
Other income (expense)
Unrealized gain (loss) on marketable securities	(9,000)	25,500
Interest expense	(24,967)	(3,536)
Total other income (expense)	(33,967)	21,964
Net (loss)	$ (396,086)	$ (225,612)
Net (loss) per common share - basic and diluted	$ (0.01)	$ (0.01)
Weighted average common shares outstanding - basic and diluted	36,965,057	30,005,185

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ACQUISTION OF AUDIOEYE, INC BY AUDIOEYE ACQUISITION CORPORATION

3 Months Ended

Mar. 31, 2013

Acquistion Of Audioeye Inc By Audioeye Acquisition Corporation

ACQUISTION OF AUDIOEYE, INC BY AUDIOEYE ACQUISITION CORPORATION

NOTE 7: ACQUISITION OF AUDIOEYE, INC. BY AUDIOEYE ACQUISITION CORPORATION

On August 17, 2012  AEAC acquired 80% of AudioEye, Inc. for $1,125,000 and 1,500,000 shares of AEAC common stock with a fair value of $375,000.

On August 17, 2012, the Company determined the fair value its patents to be $3,551,814. The following table sets forth the purchase price allocation for the acquisition of AudioEye, Inc. as of August 17, 2012:

Purchase Price Allocation
Purchase Price:	Cash	$	1,125,000
	1,500,000 shares of AEAC stock		375,000	$	1,500,000
Less: Net Assets (deficit)					2,752,342	*
Less: Identifiable Intangibles - Patents					(3,551,814	)
	Goodwill			$	700,528

Net Assets (deficit)
	Book Value
	at 08/17/12
Current Assets	$	109,521
Property, Plant & Equipment, net		7,688
Patents		—
Current Liabilities		(1,517,724	)
L/T Liabilities		(1,351,827	)
Contingent Liabilities (Note 2)		—
Net Assets (deficit)	$	(2,752,342	)*

In accordance with ASC 805, the Company has accounted for the combination using the Acquisition Method for the purpose of allocating the purchase price and determining goodwill. The fair value of the Company’s current tangible assets, property and equipment and liabilities approximated book value on the date of the acquisition. Therefore no adjustment has been made to the book value of the Company’s existing tangible assets and liabilities. The Company has determined that the value of goodwill is $700,528, based upon the Company’s enterprise allocation , less the Company’s net assets at the time of purchase, less any identifiable intangible assets, and is comprised of the expected synergies and intangible assets that do not qualify for separate recognition. While the Company uses its best estimates and assumptions as part of the purchase price allocation process to value net assets as of the Separation date of August 17, 2012, the purchase price allocation could change during the measurement period (not to exceed one year) if new information is obtained about facts and circumstances that existed as of the Separation date that, if known, would have resulted in the recognition of additional, or change in existing, assets and liabilities as of that date.

The Company has identified its patents as qualifying for separate recognition, in accordance with ASC 820.  In determining the fair market value associated with the patents, the Company used the Income Method. Inasmuch as the Company has previously determined that there existed an impairment of the patent based upon an analysis utilizing the Company’s historical cash flows, it was necessary for the Company to consider any identifiable future cash flows that were reliably estimable at the date of Separation. The Company has determined that the only identifiable revenue stream for future cash flows directly related to the patents at the date of the Separation are those related to the licensing of its technology to the US Government, more fully described below.  All other potential revenue is highly speculative, and/or not directly related to the patents at the date of the Separation. Based on the analysis performed, the Company determined the fair value of the patents on the date of separation to be $3,551,814.

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OPTIONS AND WARRANTS

3 Months Ended

Mar. 31, 2013

Options And Warrants

OPTIONS AND WARRANTS

NOTE 6: OPTIONS AND WARRANTS

As of March 31, 2013 the Company has 2,820,000 options issued and outstanding. The AudioEye, Inc. 2012 Incentive Compensation Plan has a total of 5,000,000 authorized shares and a balance of 2,180,000 shares remaining in the plan. These options were issued on December 19, 2012, vest 25% at each 6 month anniversary of the grant date, have an exercise price of $0.25 per share, and expire on December 19, 2017.

		Outstanding and Exercisable Options
				Remaining		Exercise Price		Weighted
		Number of		Contractual Life		times Number		Average		Intrinsic
Exercise Price		Shares		(in years)		of Shares		Exercise Price		Value
$	0.25		2,820,000		5	$	705,000	$	0.25	$	0
			2,820,000			$	705,050	$	0.25		0

The options were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 3.25 years, expected volatility of 250%, risk free interest rate of 0.39%, and expected dividend yield of 0%. The grant date fair value of the options were determined to be $688,005.

For the three months ended March 31, 2013, stock compensation expense related to the options totaled $86,006

On March 19, 2013, the Company’s board of directors approved the issuance of warrants to James Crawford, Nathaniel Bradley and Sean Bradley to purchase up to 464,593, 1,696,155 and 1,491,924, respectively, shares of Company common stock. The warrants have an issuance date of March 19, 2013, expire on March 19, 2018, have a strike price of $0.25 per share, and vest in 1/3 increments on the annual anniversaries of the issuance. The warrants to purchase up to an aggregate of 3,652,672 shares of common stock were valued at $913,168, which is the same amount as the related party payables forgiven. As of December 31, 2012, the Company had accrued $829, 418 of these payables.  As a result, warrant expense of $83,750 was recorded during the three months ended March 31, 2013.

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OPTIONS AND WARRANTS (Details) (2012 Incentive Compensation Plan, USD $)	3 Months Ended
	Mar. 31, 2013
2012 Incentive Compensation Plan
Number of options:
Options issued and outstanding	2,820,000
Weighted Average Exercise Price:
Weighted Average Exercise Price of Options outstanding, ending	$ 0.25
Outstanding and exercisable options:
Weighted average remaining contractual life	5 years
Exercise price times number of shares	$ 705,000
Intrinsic value	$ 0

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ORGANIZATION AND BASIS OF PRESENTATION (Details Narrative) (USD $)	3 Months Ended	6 Months Ended	12 Months Ended
	Mar. 31, 2013 AudioEye Acquisition Corporation	Jun. 30, 2011 AudioEye Acquisition Corporation	Dec. 31, 2012 AudioEye Acquisition Corporation	Mar. 22, 2013 AudioEye Acquisition Corporation	Mar. 31, 2013 CMG Holdings Group, Inc.	Jun. 22, 2011 CMG Holdings Group, Inc.	Mar. 31, 2010 CMG Holdings Group, Inc.
Former stockholders right to receive cash from income earned (percent)							50.00%
Percentage of outstanding shares acquired		80.00%
Aggregate principal amount of senior notes, to be released						$ 1,025,000
Cash payment of senior notes, released			700,000
Issuance of secured promissory note			425,000
Issuance of shares for debt			1,500,000
Issuance of shares in spin-off	1,500,529
Stockholders dividend to be distributed as the Spin-Off						5.00%
Royalty agreement, percent					10.00%
Commission agreement, percent					7.50%
Merger with AEAC conversion rate of stock	$ 0.94134
Merger with AEAC, debentures assumed				1,400,200
Shares issued to AEAC share holders				24,004,143
Shares issued to AEAC debenture holders				$ 5,871,752

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OPTIONS (Tables)

3 Months Ended

Mar. 31, 2013

Options Tables

Schedule of options activity

		Outstanding and Exercisable Options
				Remaining		Exercise Price		Weighted
		Number of		Contractual Life		times Number		Average		Intrinsic
Exercise Price		Shares		(in years)		of Shares		Exercise Price		Value
$	0.25		2,820,000		5	$	705,000	$	0.25	$	0
			2,820,000			$	705,050	$	0.25		0

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MERGER OF AUDIOEYE, INC. AND AUDIOEYE ACQUISITION CORPORATION

3 Months Ended

Mar. 31, 2013

Merger Of Audioeye Inc. And Audioeye Acquisition Corporation

MERGER OF AUDIOEYE, INC. AND AUDIOEYE ACQUISITION CORPORATION

NOTE 8: MERGER OF AUDIOEYE, INC. AND AUDIOEYE ACQUISITION CORPORATION

On March 22, 2013, the Company and AEAC entered into the Merger Agreement.  Pursuant to the Merger Agreement, each share of AEAC common stock issued and outstanding immediately prior to the Merger effective date would be converted into .94134 share of the Company’s common stock and the outstanding convertible debentures of AEAC, (the “AEAC Debentures”) in the aggregate principal amount of $1,400,200, together with accrued interest thereon of $67,732, would be assumed by the Company and then exchanged for convertible debentures of the Company, (the “AE Debentures”). Effective March 25, 2013, the Merger was completed.  In connection with the Merger, the stockholders of AEAC received on a pro rata basis the 24,004,143 shares of the Company’s common stock that were held by AEAC, and the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures.

This transaction was accounted for as a combination of entities under common control under ASC 805-10-15.  Accordingly, the historical financial statements have been adjusted retroactively assuming the transaction occurred on January 1, 2012.  The Company recorded the following net assets after elimination of intercompany receivables and payables between AudioEye, Inc.:

Assets
Cash	4,593
Intangible Assets	3,551,814
Goodwill	700,528
Total Assets	4,256,935
Liabilities
Accounts payable and accrued expenses	117,162
Net Assets	4,139,773

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INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2013

Intangible Assets

INTANGIBLE ASSETS

NOTE 9: INTANGIBLE ASSETS

Prior to March 31, 2013, patents, technology and other intangibles with contractual terms were generally amortized over their estimated useful lives of ten years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

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

	March 31,			December 31,
	2013			2012
Patents	$	3,553,651		$	3,553,651
Accumulated Amortization		(192,387	)		(105,430	)
Intangible Assets, Net	$	3,361,264		$	3,448,221

Amortization expense totaled $88,794 and $0 for the three months ended March 31, 2013 and the year ended December 31, 2012, respectively.

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ACQUISTION OF AUDIOEYE, INC BY AUDIOEYE ACQUISITION CORPORATION (Tables)

3 Months Ended

Mar. 31, 2013

Acquistion Of Audioeye Inc By Audioeye Acquisition Corporation Tables

Schedulke of purchase price allocation

Purchase Price Allocation
Purchase Price:	Cash	$	1,125,000
	1,500,000 shares of AEAC stock		375,000	$	1,500,000
Less: Net Assets (deficit)					2,752,342	*
Less: Identifiable Intangibles - Patents					(3,551,814	)
	Goodwill			$	700,528

Schedule of net asset (deficit)

Net Assets (deficit)
	Book Value
	at 08/17/12
Current Assets	$	109,521
Property, Plant & Equipment, net		7,688
Patents		—
Current Liabilities		(1,517,724	)
L/T Liabilities		(1,351,827	)
Contingent Liabilities (Note 2)		—
Net Assets (deficit)	$	(2,752,342	)*

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NOTES PAYABLE (Details Narrative) (USD $)				3 Months Ended			3 Months Ended		3 Months Ended
	Mar. 31, 2013	Dec. 31, 2012	Mar. 31, 2013 AEAC Debentures	Mar. 31, 2013 AudioEye Acquisition Corporation	Dec. 31, 2012 Loans Payable	Dec. 31, 2011 Loans Payable	Mar. 31, 2013 Promisssory Note to Third Party	Dec. 31, 2012 Promisssory Note to Third Party	Mar. 31, 2013 Secured Promissory Note	Mar. 31, 2013 Secured Promissory Note Maximum Number of Shares
Carrying amount of debt					$ 74,900	$ 74,900	$ 115,800	$ 121,800
Face amount of debt			382,500				149,800		425,000
Interest rate			8.00%			25.00%			8.00%
Date of issuance							Oct. 24, 2011		Aug. 15, 2012
Current portion of debt							24,000	24,000
Long-term portion of debt	91,800	97,800					91,800	97,800
Monthly payments							2,000
Debt conversion - number of shares										6,000,000
Debt conversion - percent of total issued and outstanding commn shares as of conversion date									10.00%
Due date of debt									Feb. 06, 2013
Issuance date of shares for the coversion of debt									Feb. 06, 2013
Repayment of debt									183,661
Payment of accrued interest									16,339
Total payments on debt									200,000
Principal amount of debt converted to common shares				1,400,200					241,339
Accrued interest of debt converted to common shares				$ 67,732
Number of common shares issued for conversion of debt				5,871,752					1,998,402
Common shares issued for conversion of debt, percentage of total common shares outstanding									5.67856%
Conversion option of principal and interest (per share)			$ 0.25

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ACQUISTION OF AUDIOEYE, INC BY AUDIOEYE ACQUISITION CORPORATION (Details 1) (AudioEye Inc., USD $)	Aug. 17, 2012
AudioEye Inc.
Current Assets	$ 109,521
Property, Plant & Equipment, net	7,688
Current Liabilities	(1,517,724)
L/T Liabilities	(1,351,827)
Net assets	$ 2,752,342

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Cash flows from Operating Activities:
Net (loss)	$ (396,086)	$ (225,612)
Adjustments to reconcile net loss to net cash
Depreciation and amortization	89,593	3,455
Stock, option and warrant expense	169,756
Unrealized (gain) loss on investments	9,000	(25,500)
Changes in operating assets and liabilities
Accounts receivable	3,256	(11,877)
Related party receivable		(750)
Other assets		(3,271)
Accounts payable and accruals	70,071	(28,782)
Deferred revenue	(10,380)	13,370
Related party payables		79,615
Net cash (used in) operating activities	(64,790)	(199,352)
Cash Flow from financing activities:
Repayment of note payable	(206,000)
Proceeds from third party loans	352,500	244,000
Net cash provided by financing activities	146,500	244,000
Increase (decrease) in cash	81,710	44,648
Cash - beginning of period	11,710	32,156
Cash - end of period	93,420	76,804
NON-CASH FINANCING ACTIVITIES
Common stock issued for conversion of debt	1,692,932
Warrants issued for related party loans	829,418
Common Stock Issued to CMGO for debt repayment	241,339
Patents capitalized in accounts payable	1,837	3,470
Accounts payable converted into debt	30,000
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid	24,967
Income taxes paid

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STOCKHOLDERS' EQUITY

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS' EQUITY

NOTE 5: STOCKHOLDERS’ EQUITY

As of March 31, 2013 and December 31, 2012, the Company had 43,062,199 and 35,192,045 shares of common stock issued and outstanding, respectively.

On February 6, 2013 the Secured Promissory Note to CMGO Investors LLC was repaid in full. Payment consisted of cash payments of $200,000 of which $16,339 was interest and $183,661 was principal. The balance of the principal of $241,339 was repaid with the issuance of 1,998,402 common shares of the Company, which was 5.678562% of the outstanding shares on February 6, 2013.

In connection with the Merger that occurred March 22, 2013, the former holders of the AEAC Debentures received an aggregate of 5,871,752 shares of the Company’s common stock pursuant to their conversion of all of the AE Debentures issued to replace the AEAC Debentures totalling $1,400,200 of principal and $67,732 of interest. These shares were issued for the conversion of total principal and accrued interest on the former AEAC Debentures.

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MERGER OF AUDIOEYE, INC. AND AUDIOEYE ACQUISITION CORPORATION (Details Narrative) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Assets
Goodwill	$ 700,528	$ 700,528
AudioEye Inc.
Assets
Cash		4,593
Intangible Assets		3,551,814
Goodwill		700,528
Total Assets		4,256,935
Liabilities
Accounts payable and accrued expenses		117,162
Net Assets		$ 4,139,773

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GOING CONCERN (Details Narrative) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Going Concern Details Narrative
Working Capital Deficit	$ 381,100	$ 2,775,215