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.