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 September 30, 2015

o TRANSITION 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 750, 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 November 13, 2015, 81,800,488 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 September, 2015 and December 31, 2014 (unaudited)	2
	Consolidated Statement of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited)	3
	Consolidated Statements of Cash Flows for the nine months ended September 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	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	21
Item 5.	Other Information	21
Item 6.	Exhibits	22
SIGNATURES		23

PART I — FINANCIAL INFORMATION

Item 1.  Financial Statements

The financial information set forth below with respect to the financial statements as of September 30, 2015 and 2014 and for the three and nine month periods ended September 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 nine month periods ended September 30, 2015 are not necessarily indicative of results to be expected for any subsequent period. Our fiscal year end is December 31.

1

AUDIOEYE, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	September 30, 2015			December 31, 2014
ASSETS
Current Assets
Cash	$	51,910		$	1,672,901
Accounts receivable, net		49,014			261,676
Related party receivables		54,250			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		79,037			90,688
Total Current Assets		298,011			3,274,065
Property and equipment, net		—			651
Intangible assets, net		2,789,832			3,097,293
Goodwill		700,528			700,528
TOTAL ASSETS	$	3,788,371		$	7,072,537
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable and accrued expenses	$	262,148		$	779,891
Billings in excess of costs		66,896			123,908
Notes and loans payable-current		24,000			24,000
Related party payables		2,500			228,983
Total Current Liabilities		355,544			1,156,782
Long Term Liabilities
Notes and loans payable-long term		29,800			51,800
Total Long Term Liabilities		29,800			51,800
Total Liabilities		385,344			1,208,582
Stockholders' Equity
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, 175,000 and -0- issued and outstanding, as of September 30, 2015 and December 31, 2014, respectively		2			—
Common stock, $0.00001 par value, 250,000,000 shares authorized,81,800,488,and 77,817,861 issued and outstanding, as of September 30, 2015 and December 31, 2014, respectively		818			778
Treasury stock		(623,000	)		(623,000	)
Additional paid in capital		27,515,795			23,516,463
Accumulated deficit		(23,490,588	)		(17,030,286	)
Total Stockholders’ Equity		3,403,027			5,863,955
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	3,788,371		$	7,072,537

See Notes to Unaudited Consolidated Financial Statements

2

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2015			2014			2015			2014
Revenue	$	108,685		$	186,641		$	314,146		$	279,364
Revenue from related party		—			1,125			—			5,375
Total revenues		108,685			187,766			314,146			284,739
Cost of revenues		321,755			264,459			1,178,388			639,924
Gross loss		(213,070	)		(76,693	)		(864,242	)		(355,185	)
Operating expenses:
Selling and marketing		171,594			546,265			747,990			1,068,353
Research and development		92,857			153,188			293,877			391,958
General and administrative expenses		(27,278	)		1,548,851			4,161,269			4,352,398
Amortization and depreciation		128,381			132,104			396,269			347,954
Total operating expenses		365,554			2,380,408			5,599,405			6,160,663
Operating loss		(578,624	)		(2,457,101	)		(6,463,647	)		(6,515,848	)
Other income (expense)
Unrealized loss on marketable securities		—			(12,000	)		—			(12,000	)
Interest income (expense) net		81			(416	)		3,345			(7,860	)
Total other income (expense)		81			(12,416	)		3,345			(19,860	)
Net loss	$	(578,543	)	$	(2,469,517	)	$	(6,460,302	)	$	(6,535,708	)
Deemed dividend on Series A Convertible preferred stock		-			-			(594,641	)		-
Net loss attributable to common stockholders		(578,543	)		(2,469,517	)		(7,054,943	)		(6,535,708	)
Net loss per common share – basic and diluted		(0.01	)		(0.04	)		(0.09	)		(0.12	)
Weighted average common shares outstanding – basic and diluted		81,800,488			61,062,150			80,007,507			55,993,097

See Notes to Unaudited Consolidated Financial Statements

3

AUDIOEYE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Nine Months Ended
	September 30, 2015			September 30, 2014
Cash Flows from Operating Activities:
Net loss	$	(6,460,302	)	$	(6,535,708	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		396,268			347,954
Stock, option and warrant expense		1,200,459			1,538,557
Common stock issued for services		679,972			778,927
Unrealized loss on marketable securities		0			12,000
Amortization of debt discount		0			1,155
Changes in operating assets and liabilities:
Accounts receivable		212,662			169,179
Related party receivable		(44,250	)		54,750
Prepaid expenses and other current assets		11,651			(167,873	)
Accounts payable and accruals		(517,743	)		79,792
Billings in excess of costs		(57,012	)		202,967
Related party payables		(226,483	)		(243,424	)
Net cash used in operating activities	$	(4,804,778	)	$	(3,761,724	)
Cash Flows from Investing Activities:
Cash paid for intangible assets		(88,156	)		(556,611	)
Net cash used in by investing activities	$	(88,156	)	$	(556,611	)
Cash Flows from Financing Activities:
Repayment of note payable		(22,000	)		(172,000	)
Repayment of related party loans		0			(35,000	)
Issuance of common stock for cash		325,000			1,305,689
Collection of stock subscription receivable		1,175,000			—
Issuance of preferred stock for cash		1,750,000			—
Proceeds from exercise of options and warrants, net of issuance costs		43,943			3,524,521
Net cash provided by financing activities	$	3,271,943		$	4,623,210
Net (decrease) increase in cash		(1,620,991	)		304,875
Cash - beginning of period		1,672,901			1,847,004
Cash - end of period	$	51,910		$	2,151,879
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	$	307		$	7,444
Income taxes paid		—			—
NONCASH INVESTING AND FINANCING ACTIVITIES
Warrants issued for accrued payroll		—			21,514
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

September 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 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. As of September 30, 2015, the Company had a working capital deficit of $57,533. In addition, the Company used net cash in operations of $4,804,778 during the nine months ended September 30, 2015.

Even with a 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.

5

NOTE 3: RELATED PARTY TRANSACTIONS

For the three and nine months ended September 30, 2015 and 2014, there were revenues earned of $-0- and $1,125 and $-0- and $5,375, respectively, for services performed for related parties.

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of September 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 September 30, 2015. Both companies were affiliated with related parties who resigned from the Company during the quarter.

In summary, as of September 30, 2015 and December 31, 2014 the total balances of related party payables were $2,500 and $228,983, respectively.

As of September 30, 2015 and December 31, 2014, there were outstanding receivables of $54,250 and $10,000, respectively, for amounts owing or services performed with related parties.

NOTE 4: NOTES PAYABLE

As of September 30, 2015 and December 31, 2014, the Company had current and long term notes payable of $24,000 and $24,000 and $29,800 and $51,800, respectively as shown in the table below.

Notes and loans payable	September 30, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	29,800	$	51,800
Total	$	29,800	$	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 consolidated 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 September 30, 2015 and December 31, 2014 the principal amount owing was $53,800 and $75,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $29,800 and $51,800, respectively, as the long-term portion of the note, respectively.

NOTE 5: STOCKHOLDERS’ EQUITY

As of September 30, 2015 and December 31, 2014, the Company had 81,800,488 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 three months ended March 31, 2015 were valued and expensed at $117,500. The remaining 250,000 shares are not expected to be earned.

6

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 September 30, 2015, the Company also issued 109,855 shares of common stock pursuant to exercise of warrants for total proceeds of $43,943. The Company also issued 2,810,272 additional shares of common stock for services provided for a total expense of $679,972 (in addition to the 250,000 common shares issued to Mr. Arena described above).

NOTE 6: OPTIONS

As of September 30, 2015 and December 31, 2014, the Company has outstanding options to purchase 10,305,834 and 11,434,350 shares of common stock, respectively.

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of Exercisable
	Options		Exercise Price		Term		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		4.81				—
Forfeited		4,147,066		0.45		---				—
Outstanding at September 30, 2015		10,305,834	$	0.45		3.21		5,902,396	$	---

The option grants during the nine months ended September 30, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 2.71 to 3.26 years, expected volatility of 100%, risk free interest rate of 01.05% to 1.75%, and expected dividend yield of 0%.

For the three and nine months ended September 30, 2015 and 2014, total stock compensation expense related to the options totaled $(119,224) and $655,476 and $376,173 and $1,000,526, respectively. For the three and nine months ended September 30, 2015 and 2014, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $(299,811) and $1,200,459 and $311,149 and $1,538,557, respectively. The negative expense in the three months ended September 30, 2015 is the result of forfeitures of unvested options related to terminated employees exceeding the amortization of option expense for current employees, in addition to negative expense associated with executive PSUs. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through September 30, 2019 is $568,414 as of September 30, 2015.

NOTE 7: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of September 30, 2015 and December 31, 2014:

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of Exercisable
	Warrants		Exercise Price		Term		Exercisable		Warrants
Outstanding at December 31, 2014		16,527,989	$	0.44		3.69		12,604,407	$	309,821
Exercised		109,855		0.40		—				—
Granted		3,454,688		0.21		---
Forfeited		2,554,545		0.44		---				—
Outstanding at September 30, 2015		17,318,277		0.40		3.39		15,839,588	$	---

7

The warrant grants during the nine months ended September 30, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 3 to 5 years, expected volatility of 100%, risk free interest rate of 0.84% to 1.61%, and expected dividend yield of 0%.

For the three and nine months ended September 30, 2015 and 2014, the Company has incurred warrant-based expense of $20,962 and $491,148 and $(198,332) and $189,172, respectively.  For the three and nine months ended September 30, 2015 and 2014, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $(299,811) and $1,200,459 and $311,149 and $1,538,557, respectively. The negative expense in the three months ended September 30, 2015 is the result of forfeitures of unvested options related to terminated employees exceeding the amortization of option expense for current employees, in addition to negative expense associated with executive PSUs. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through September 30, 2019 is $568,414 as of September 30, 2015.

NOTE 8: PERFORMANCE SHARE UNITS

On April 1, 2013, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Nathaniel Bradley, the Company’s CEO; Mr. Sean Bradley, the Company’s Chief Technology Officer; and Mr. James Crawford, the Company’s Chief Operating Officer. Mr. Nathaniel Bradley was granted an award of up to an aggregate of 400,000 Performance Share Units (“PSU’s”); Mr. Sean Bradley was granted an award of up to an aggregate of 300,000 PSU’s; and Mr. Crawford was granted an award of up to an aggregate of 300,000 PSU’s.

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. There were three Performance Periods with the opportunity to earn a full award of PSU’s based on achievement of Performance Goals on a cumulative basis. There were no awards made in 2014.

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 September 30, 2015 and December 31, 2014:

	Number of		Wtd Avg.		Remaining
	PSUs		Grant Price		Term
Outstanding at December 31, 2014		4,500,000	$	0.40		2.00
Forfeited		3,000,000		0.33		---
Outstanding at September 30, 2015		1,500,000	$	0.54		1.00

For the three and nine months ended September 30, 2015 and 2014, the Company has incurred performance share unit-based expense of $(201,549) and $53,853 and $133,308 and $348,859, respectively.  For the three and nine months ended September 30, 2015 and 2014, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $(299,811) and $1,200,459 and $311,149 and $1,538,557, respectively. The negative expense in the three months ended September 30, 2015 is a result of management assessment that none of the performance units conditions granted to executives will be met, and therefore none will be earned resulting in a reversal of expense previously recorded. The remaining PSUs were granted to two management team members. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through September 30, 2019 is $568,414 as of September 30, 2015.

NOTE 9: INTANGIBLE ASSETS

As of September 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.

8

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

	September 30,			December 31,
	2015			2014
Patents	$	3,699,536		$	3,611,380
Software Development Costs		388,125			388,125
Accumulated Amortization		(1,297,829	)		(902,212	)
Intangible Assets, Net	$	2,789,832		$	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 $395,617 and $345,557 for the nine months ended September 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 September 30, 2015 and December 31, 2014:

	Fair Value		Fair Value Hierarchy
Marketable securities, September 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: COMMITMENTS

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 and warrants to purchase shares of the Company’s common stock. The total number of options per year are limited to 500,000 and any additional amounts due Dr. Bettis will be in the form of warrants. The number of options/warrants will be determined are 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. The overall commitment of $175,000 by the Company for Dr. Bettis’s salary remains the same, but the Agreement has been modified as discussed below in Note 12: Subsequent Events.

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NOTE 12: SUBSEQUENT EVENTS

Grant of Options to Board of Directors Chairing Committees. On October 24, 2015, Tony Coehlo, Ernest (Sandy) Purcell and Alex Zyngier, were each awarded 750,000 options for their service as independent members of the board of directors and board committee chairmen. The term of the options is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price is 0.044.

Grant of Options and Warrants to Executive Chairman, Employees, Advisor and New Member of Board of Directors; on October 26, the Executive Chairman, Dr. Carr Bettis was awarded 500,000 options and 250,000 warrants in lieu of cash compensation pursuant to his amended employment agreement. Dr, Bettis’s options and warrants have a 3 year term, 100% vested on grant date at an exercise price of 0.041. On November 4, 2015, three non-executive employees were awarded a total of 235,330 options,. These employee options have a 3 year term, 100% vested on the grant date at an exercise price will be determined by taking the 10 day average closing price from November 5, 2015 through November 18, 2015. On November 4, 2015 advisory board member Joyce Bender was awarded 100,000 options. The term of the option is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price will be determined by taking the 10 day average closing price from November 5, 2015 through November 18 2015. On November 10, 2015, Christine Griffin an independent member of the board of directors of the Company was awarded 500,000 options, The term of the options is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price will be determined by taking the 10 day average closing price from November 11, 2015 through November 24, 2015.

Appointment of Executive Officer. Effective November 4, 2015, Todd Bankofier, age 55, was appointed by the Board of Directors to the position of Chief Executive Officer of the Company. As a principal in Fairmont Capital Group (FCG) since 2008, Mr. Bankofier was responsible for day-to-day oversight of multiple asset holdings, including strategic planning, revenue generation, technology evolution, operational effectiveness and public relations for all FCG entities.

Change to Executive Officers Compensatory Agreement. On October 26, by resolution, the Board, with the consent of President and CTO Mr. Sean Bradley, agreed that it was in the best interests of the Company and its stockholders to award beginning October 1, 2015, $25,000 per year of Mr. Bradley’s base salary in the form of quarterly option awards, with a Black Scholes value of $6,250 per quarter. On November 4, 2015, the Board amended the employment agreement of Executive Chairman Dr. Carr Bettis, whose agreement currently requires his $175,000 salary to be paid entirely in the form of options and warrants. Dr. Bettis has voluntarily agreed to limit the number of options and warrants he receives to 750,000 per quarter, and to defer any additional owed compensation for up to a year, when he will be paid his deferred compensation either in the form of equity or cash, at the discretion of the Compensation Committee.

Note and Warrant Purchase Agreement. On October 9, 2015 (the “Initial Closing Date”), the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the issuance and sale of convertible promissory notes in an aggregate principal amount of up to $3,750,000 (the “Notes”) and warrants (the “Warrants”) to purchase up to an aggregate of 37,500,000 shares of common stock of the Company (the “Common Stock”) (the “Transaction”). Notes representing up to $2,500,000 in aggregate principal, and Warrants exercisable for up to 25,000,000 shares of Common Stock in the aggregate, may be issued and sold at one or more closings during the 30-day period immediately following the Initial Closing Date. The maximum of $2,500,000 in aggregate principal has been sold as of November 8, 2015. In addition, upon the election of any Investor within the three-year period immediately following the Initial Closing Date, any Investor may purchase an additional Note in the principal amount equal to 50% of the principal amount of the Notes purchased by such Investor at previous closings (the “Option Principal Amount”) and an additional Warrant with an aggregate exercise price equal to such Investor’s Option Principal Amount. The Notes mature three years from the date of issuance (the “Maturity Date”) and, until the Notes are repaid or converted into shares of the Company’s equity securities (“Equity Securities”), accrue payable-in-kind interest at the rate of 10% per annum.

If the Company sells Equity Securities in a single transaction or series of related transactions for cash of at least $2,000,000 (excluding the conversion of the Notes and excluding the shares of Common Stock to be issued upon exercise of the Warrants) on or before the Maturity Date (the “Equity Financing”), all of the unpaid principal on the Notes plus accrued interest shall be automatically converted at the closing of the Equity Financing into a number of shares of the same class or series of Equity Securities as are issued and sold by the Company in such Equity Financing (or a class or series of Equity Securities identical in all respects to and ranking pari-passu with the class or series of Equity Securities issued and sold in such Equity Financing) as is determined by dividing (i) the principal and accrued and unpaid interest amount of the Notes by (ii) 60% of the price per share at which such Equity Securities are issued and sold in such Equity Financing. The Notes, if not converted, shall be due and payable in full on the Maturity Date. The Notes contain customary events of default provisions. In connection with the issuance of the Notes, on October 9, 2015, the Company entered into a Security Agreement with the Investors (the “Security Agreement”) pursuant to which the Company granted a security interest in all of its assets to the Investors as collateral for the Company’s obligations under the Notes. The Warrants are exercisable at $0.10 per share and expire 60 months following the date of issuance. The Warrants are subject to anti-dilution protection, subject to certain customary exceptions.

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Under the Purchase Agreement, the Company has agreed to use its reasonable best efforts to prepare and file with the SEC registration statement within 90 days of the Initial Closing Date, covering the resale by the Investors of any Common Stock previously issued to the Investors, and any Common Stock into which the Notes and any convertible promissory notes previously issued to the Investors are convertible and any Common Stock for which the Warrants or any warrants previously issued to the Investors are exercisable.

The foregoing description of the Transaction and summary of the terms of the Purchase Agreement, Security Agreement, Notes, Warrants and related transactions does not purport to be complete and are subject to, and qualified in their entirety by, reference to the 8-K filed on October 16, 2015 together with the complete text of the (i) Purchase Agreement filed as Exhibit 10.1; (ii) Security Agreement filed as Exhibit 10.2; (iii) form of Note issued in the Transaction filed as Exhibit 4.1; and (iv) form of Warrant issued in the Transaction filed as Exhibit 4.2, each of which is incorporated herein by reference.

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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. 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.

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

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

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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, the Company’s 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 the Company’s developers when servicing the Company’s clients through its Ally+ managed service offering.

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

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

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

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

Results of Operations

Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”). The discussion of the results of our operations compares the three and nine months ended September 30, 2015 with the three and nine months ended September 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 September 30, 2015 and September 30, 2014

Results of Operations

	Three Months Ended
	September 30,
	2015			2014
Revenue		108,685		$	186,641
Revenue from related party		—			1,125
Total revenues		108,685			187,766
Cost of sales		321,755			264,459
Gross loss		(213,070	)		(76,693	)
Operating expenses:
Selling & marketing		171,594			546,265
Research & development		92,857			153,188
General and administrative expenses		(27,278	)		1,548,851
Amortization & depreciation		128,381			132,104
Operating loss		365,554			(2,457,101	)
Unrealized loss on marketable securities		0			(12,000	)
Interest income/(expense)		81			(416	)
Net (loss)	$	(578,543	)	$	(2,469,517	)
Deemed dividend on Series A Convertible preferred stock		-			-
Net loss attributable to common stockholders		(578,543	)		(2,469,517	)
Net loss per common share – basic and diluted		(0.01	)		(0.04	)
Weighted average common shares outstanding – basic and diluted		81,800,488			61,062,150

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Revenue

For the three months ended September 30, 2015 and 2014, revenue was $108,685 and $187,766, respectively, consisting primarily of revenues from various levels of licensing, website design and maintenance. Revenues decreased due to a change of marketing focus to eliminate non-cash transactions. Additionally, for the three months ended September 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 September 30, 2015 and 2014, cost of sales was $321,755 and $264,459, respectively, consisting primarily of sub-contracting to outside sources, direct labor and direct technology costs.

Gross Loss

An increase in our implementation costs resulted in a gross loss of $213,071 and $76,693 during the three months ended September 30, 2015 and 2014, respectively. Gross loss increased as a result of increased costs of sales together with the decrease in revenues.

Selling and Marketing Expenses

Selling and marketing expenses were $171,594 and $546,265 for the three months ended September 30, 2015 and 2014, respectively.  The decrease resulted from the reduction primarily in staffing levels.

Research and Development Expenses

Research and development expenses were $92,857 and $153,188 for three months ended September 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 $(27,278) and $1,548,851 for the three months ended September 30, 2015 and 2014, respectively. General and administrative expenses decreased as a result of employee staff reductions and the associated benefits costs as well as increased stock option and warrant expense recapture due to the forfeiture of unvested awards.

Amortization and Depreciation

Amortization and depreciation expenses were $128,381 and $132,104 for the three months ended September 30, 2015 and 2014, respectively. The decrease in expense was primarily related to a decrease in intellectual property amortization.

Other Income/Expenses

Other income and expenses were income of $81 and charges of $12,416 for the three months ended September 30, 2015 and 2014, respectively.  The resulting change was due to a decrease in interest expense and no further unrealized loss on marketable securities.

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Comparative for the Nine Months ended September 30, 2015 and September 30, 2014

Results of Operations

	Nine Months Ended
	September 30,
	2015			2014
Revenue	$	314,146		$	279,364
Revenue from related party		—			5,375
Total revenues		314,146			284,739
Cost of sales		1,178,388			639,924
Gross profit (loss)		(864,242	)		(355,185	)
Operating expenses:
Selling & marketing		747,990			1,068,353
Research & development		293,877			391,958
General and administrative expenses		4,161,269			4,352,398
Amortization & depreciation		396,269			347,954
Total Operating Expenses		5,599,405			6,160,663
Operating (loss)		(6,463,647	)		(6,515,848	)
Unrealized loss on marketable securities		—			(12,000	)
Interest income/(expense)		3,345			(7,860	)
Net (loss)	$	(6,460,302	)	$	(6,535,708	)
Deemed dividend on Series A Convertible preferred stock		(594,641	)		-
Net loss attributable to common stockholders		(7,054,943	)		(6,535,708	)
Net loss per common share – basic and diluted		(0.09	)		(0.12	)
Weighted average common shares outstanding – basic and diluted		80,007,507			55,993,097

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Revenue

For the nine months ended September 30, 2015 and 2014, revenue was $314,146 and $284,739, respectively, consisting primarily of revenues from various levels of licensing, website design and maintenance. Revenues increased slightly due to demand for our platform implementation. Additionally, for the nine months ended September 30, 2015 and 2014, revenue from related party was $-0- and $5,375, respectively, consisting primarily of revenue from various levels of website design and maintenance.

Cost of Sales

For the nine months ended September 30, 2015 and 2014, cost of sales was $1,178,388 and $639,924, respectively, consisting primarily of sub-contracting to outside sources, direct labor and direct technology costs.

Gross Loss

The increase in our implementation costs resulted in a gross loss of $864,242 during the nine months ended September 30, 2015 as compared to a gross loss of $355,185 for the nine months ended September 30, 2014.

Selling and Marketing Expenses

Selling and marketing expenses were $747,990 and $1,068,353 for the nine months ended September 30, 2015 and 2014, respectively.  The decrease resulted from the establishment of dedicated resources to actively sell and market our products (away from third-party contractors) together with the reduction in staffing costs.

Research and Development Expenses

Research and development expenses were $293,877 and $391,958 for nine months ended September 30, 2015 and 2014, respectively. Research and development expenses were down from the prior year period and reflect the establishment of a dedicated internal research group.

General and Administrative Expenses

General and administrative expenses were $4,161,269 and $4,352,398 for the nine months ended September 30, 2015 and 2014, respectively. General and administrative expenses decrease as a result of staff reductions and the associated benefits costs as well as recapture of expense related to forfeitures of unvested stock options and warrants.

Amortization and Depreciation

Amortization and depreciation expenses were $396,269 and $347,954 for the nine months ended September 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 $3,345 and charges of $19,860 for the nine months ended September 30, 2015 and 2014, respectively.  The resulting change was due to a decrease in interest expense and the elimination of any further unrealized loss on marketable securities.

Liquidity and Capital Resources

Working Capital

	At September 30,			At December 31,
	2015			2014
Current Assets	$	298,011		$	3,274,065
Current Liabilities		355,544			1,156,782
Working Capital	$	(57,533	)	$	2,117,283

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The working capital (deficit)/surplus for the periods ended September 30, 2015 and December 31, 2014 was $(57,533) and $2,117,283 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.

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. As of September 30, 2015, the Company had a working capital deficit of $57,533. In addition, the Company used net cash in operations of $4,804,778 during the nine months ended September 30, 2015.

Even with a 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.

Cash Flows

	For the nine months ended
	September 30,
	2015			2014
Net Cash (Used in) Operating Activities	$	(4,804,778	)	$	(3,761,754	)
Net Cash (Used in) Investing Activities		(88,156	)		(556,611	)
Net Cash Provided by Financing Activities		3,271,943			4,623,210
Increase (Decrease) in Cash	$	(1,620,991	)	$	304,845

We had cash in the amount of $51,910 and $1,672,901 as of September 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 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 October 9, 2015 (the “Initial Closing Date”), we entered into a Note and Warrant Purchase Agreement with certain investors for the issuance and sale of convertible promissory notes in an aggregate principal amount of up to $3,750,000 and warrants to purchase up to an aggregate of 37,500,000 shares of common stock of the Company as more fully described in the Subsequent Events discussion above (the “October 2015 Private Placement”). $2,500,000 in aggregate principal has been sold as of November 8, 2015. In view of the recent capital raises, management believes that it has sufficient liquidity to implement the business plan and continue operations into the foreseeable future.

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 September 30, 2015 due to omissions of disclosures in accordance with generally accepted accounting principles that have been substantially corrected as of May 18, 2015. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2014 as filed with the SEC on July 10, 2015 for a complete discussion relating to the foregoing evaluation of our controls and procedures.

Changes in Internal Control over Financial Reporting

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

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

We are currently involved in various routine disputes and allegations incidental to our business operations. While it is not possible to determine the ultimate disposition of these matters, our management believes that the resolution of all such pending or threatened litigation is not likely to have a material adverse effect on our financial position or results of operations

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

Item 1A. Risk Factors

There have been no material changes from the risk factors disclosed in Item 1.A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2014.

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

Sales of Unregistered Securities

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

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.

On October 9, 2015 (the “Initial Closing Date”), we entered into a Note and Warrant Purchase Agreement with certain investors for the issuance and sale of convertible promissory notes in an aggregate principal amount of up to $3,750,000 and warrants to purchase up to an aggregate of 37,500,000 shares of common stock of the Company as more fully described in the Subsequent Events discussion above. $2,500,000 in aggregate principal has been sold as of November 8, 2015.

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 Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certification of the Principal Executive Officer and Principal 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.

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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 16 day of November, 2015.

AUDIOEYE, INC.
By:	/s/ Carr Bettis
	Carr Bettis
	Executive Chairman
By:	/s/  Sean Bradley
	Sean Bradley
	President

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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 September 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: November 16, 2015	By:	/s/ Carr Bettis
		Name:	Carr Bettis
		Title:	Principal Executive Officer and Principal 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 September 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: November 16, 2015	By:	/s/ Carr Bettis
		Name:	Carr Bettis
		Title:	Principal Executive Officer and Principal Financial Officer

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COMMITMENTS (Details Textual )	1 Months Ended
	Jul. 31, 2015 USD ($) shares
Commitments And Contingencies [Line Items]
Officers' Compensation	$ 175,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Net of Forfeitures, Total | shares	500,000

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WARRANTS (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Number of warrants
Expected volatility (as a percent)			100.00%
Expected dividend yield (as a percent)			0.00%
Share based compensation expense	$ (299,811)	$ 311,149	$ 1,200,459	$ 1,538,557
Unamortized Share based compensation expense	568,414		$ 568,414
Minimum
Number of warrants
Risk-free interest rate (as a percent)			0.84%
Expected term			3 years
Maximum
Number of warrants
Risk-free interest rate (as a percent)			1.61%
Expected term			5 years
Warrants
Number of warrants
Share based compensation expense	20,962	$ (198,332)	$ 491,148	$ 189,172
Unamortized Share based compensation expense	$ 568,414		$ 568,414

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GOING CONCERN (Details Textual) - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Working Capital Amount	$ 57,533
Company used net cash in operations	$ (4,804,778)	$ (3,761,724)

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INTANGIBLE ASSETS (Details Textual) - Software Development Costs - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Finite-Lived Intangible Assets [Line Items]
Finite-Lived Intangible Asset, Useful Life	3 years
Finite-Lived Intangible Assets, Gross	$ 395,617	$ 345,557

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NOTES PAYABLE

9 Months Ended

Sep. 30, 2015

Notes Payable [Abstract]

NOTES PAYABLE

NOTE 4: NOTES PAYABLE

As of September 30, 2015 and December 31, 2014, the Company had current and long term notes payable of $24,000 and $24,000 and $29,800 and $51,800, respectively as shown in the table below.

Notes and loans payable	September 30, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	29,800	$	51,800
Total	$	29,800	$	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 consolidated 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 September 30, 2015 and December 31, 2014 the principal amount owing was $53,800 and $75,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $29,800 and $51,800, respectively, as the long-term portion of the note, respectively.

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STOCKHOLDERS' EQUITY (Details Textual)				1 Months Ended	3 Months Ended	9 Months Ended		12 Months Ended
	May. 01, 2015 USD ($) $ / shares shares	Mar. 05, 2015 USD ($) shares	Jan. 15, 2015 USD ($) $ / shares shares	Jan. 27, 2014 shares	Mar. 31, 2015 shares	Sep. 30, 2015 USD ($) shares	Sep. 30, 2014 USD ($) shares	Dec. 31, 2014 USD ($) shares
Class of Stock [Line Items]
Units sold to accredited investors (in shares)			812,500
Number of accredited investors item			1
Proceeds from sale of units to accredited investors | $	$ 1,750,000		$ 325,000
Subscription Receivable | $						$ 0		$ 1,175,000
Exercise Price Of Units | $ / shares			$ 0.60
Common Stock, Shares, Issued						81,800,488		77,817,861
Common Stock, Shares, Outstanding						81,800,488		77,817,861
Proceeds from Issuance of Warrants | $						$ 43,943	$ 3,524,521
Stock Issued During Period, Shares, Issued for Services						2,810,272
Stock Issued During Period Value Warrants Exercised						109,855
Common Stock Issuance Costs | $						$ 679,972	778,927
Intrinsic value of beneficial conversion feature | $	$ 594,641					$ 594,641	$ 0
Term of warrants issued to accredited investor			5 years
Units sold to accredited investors, number of common shares			1				1
Preferred Stock, Dividend Rate, Percentage	5.00%
Shares Not Expected To Be Earned						250,000
Mr. Arena
Class of Stock [Line Items]
Number of options awarded		500,000
Number of units granted (in shares)				3,000,000
Common Stock Issuance Costs | $						$ 250,000
Stock Issued During Period, Value, Restricted Stock Award, Gross | $		$ 250,000
Mr. Arena | Restricted Stock
Class of Stock [Line Items]
Percentage of restricted shares issued		50.00%
Percentage of shares held in escrow		50.00%
Shares are not expected to be earned					250,000
Adjustments to Additional Paid in Capital, Share-based Compensation, Requisite Service Period Recognition, Total | $						$ 117,500
Maximum | Mr. Arena | Restricted Stock
Class of Stock [Line Items]
Shares held in escrow		250,000
Accredited investors
Class of Stock [Line Items]
Units sold to accredited investors (in shares)								6,687,500
Proceeds from sale of units to accredited investors | $								$ 2,675,000
Subscription Receivable | $								$ 1,175,000
Convertible Preferred Stock
Class of Stock [Line Items]
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

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NOTES PAYABLE (Details Textual) - USD ($)	1 Months Ended
	Oct. 24, 2011	Sep. 30, 2015	Dec. 31, 2014	Dec. 31, 2012
Debt Instrument [Line Items]
Loan Term Period	4 years
Notes and Loans Payable, Current, Total		$ 24,000	$ 24,000
Long-term Debt, Total		29,800	51,800
Loans Payable
Debt Instrument [Line Items]
Long-term Debt, Gross				$ 74,900
Debt Instrument, Interest Rate, Stated Percentage				25.00%
Interest Payable, Current				$ 74,900
Maryland TEDCO Note
Debt Instrument [Line Items]
Debt Instrument, Periodic Payment, Total	$ 2,000
Long-term Debt, Gross		53,800	75,800
Debt Instrument, Face Amount	$ 149,800
Notes and Loans Payable, Current, Total		24,000	24,000
Long-term Debt, Total		$ 29,800	$ 51,800

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OPTIONS (Details) - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures
Outstanding, Weighted Average Remaining Term	3 years 2 months 16 days	3 years 9 months 14 days
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding
Outstanding at beginning of the period (in shares)	11,434,350
Number of options awarded	3,018,550
Less Forfeited (in shares)	4,147,066
Outstanding at the end of the period (in shares)	10,305,834	11,434,350
Exercisable (in shares)	5,902,396	5,635,250
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average 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)	0.45
Outstanding at end of the period (in dollars per share)	$ 0.45	$ 0.47
Share-based Compensation Arrangement by Share-based Payment Award, Options, Additional Disclosures
Granted Weighted Average Remaining Term	4 years 9 months 22 days
Forfeited, Weighted Average. Remaining Term	0 years
Share Based Compensation Arrangement by Share Based Payment Award Options, Intrinsic Value
Outstanding at beginning of the period, Intrinsic Value (in dollars)	$ 460,941
Outstanding at end of the period, Intrinsic Value (in dollars)	$ 0	$ 460,941

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OPTIONS (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Allocated Share-based Compensation Expense	$ (299,811)	$ 311,149	$ 1,200,459	$ 1,538,557
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate			100.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate			0.00%
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Total	568,414		$ 568,414
Maximum
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			5 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate			1.61%
Minimum
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			3 years
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate			0.84%
Options
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Allocated Share-based Compensation Expense	$ (119,224)	$ 655,476	$ 376,173	$ 1,000,526
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Beginning Balance	10,305,834		10,305,834		11,434,350
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Volatility Rate			100.00%
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate			0.00%
Options | Maximum
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			3 years 3 months 4 days
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate			1.75%
Options | Minimum
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Term			2 years 8 months 16 days
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Risk Free Interest Rate			1.05%

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RELATED PARTY TRANSACTIONS

9 Months Ended

Sep. 30, 2015

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

NOTE 3: RELATED PARTY TRANSACTIONS

For the three and nine months ended September 30, 2015 and 2014, there were revenues earned of $-0- and $1,125 and $-0- and $5,375, respectively, for services performed for related parties.

The Company holds 60,000 shares in Peartrack Security Systems, formerly Ecologic Transportation, as of September 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 September 30, 2015. Both companies were affiliated with related parties who resigned from the Company during the quarter.

In summary, as of September 30, 2015 and December 31, 2014 the total balances of related party payables were $2,500 and $228,983, respectively.

As of September 30, 2015 and December 31, 2014, there were outstanding receivables of $54,250 and $10,000, respectively, for amounts owing or services performed with related parties.

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WARRANTS (Details) - Warrant - USD ($)	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Number of warrants
Number of shares, beginning	16,527,989
Number of shares, exercised	109,855
Number of shares, granted	3,454,688
Number of shares, Forfeited	2,554,545
Number of shares, ending	17,318,277	16,527,989
Weighted average exercise price
Weighted average exercise price, beginning (in dollars per share)	$ 0.44
Weighted average exercise price, exercised (in dollars per share)	0.40
Weighted average exercise price, granted (in dollars per share) | $ / shares	0.21
Weighted average exercise price, Forfeited (in dollars per share)	0.44
Weighted average exercise price, ending (in dollars per share)	$ 0.40	$ 0.44
Weighted Average Remaining Term
Wtd Avg. Remaining Term	3 years 4 months 20 days	3 years 8 months 8 days
Exercisable
Exercisable | shares, beginning	12,604,407
Exercisable | shares, ending	15,839,588	12,604,407
Intrinsic Value
Outstanding at beginning of the period	$ 309,821
Outstanding at ending of the period	$ 0	$ 309,821

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SUBSEQUENT EVENTS (Details Textual) - USD ($)				1 Months Ended
	Nov. 10, 2015	Nov. 04, 2015	Oct. 09, 2015	Oct. 26, 2015	Oct. 24, 2015
Tony Coehlo
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					750,000
Ernest (Sandy) Purcell
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					750,000
Alex Zyngier
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					750,000
Dr. Carr Bettis
Subsequent Event [Line Items]
Deferred Compensation Arrangement with Individual, Recorded Liability		$ 175,000
Christine Griffen
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	500,000
Vesting percentage	50.00%
Vesting period	5 years
Joyce Bender
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		100,000
Vesting percentage		50.00%
Vesting period		5 years
Mr. Bradley
Subsequent Event [Line Items]
Deferred Compensation Arrangement with Individual, Recorded Liability				$ 25,000
Deferred Compensation Arrangement with Individual, Compensation Expense				$ 6,250
Three Non-Executive Employees
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		235,330
Vesting percentage		100.00%
Vesting period		3 years
Options and Warrants | Dr. Carr Bettis
Subsequent Event [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				500,000
Vesting percentage				100.00%
Vesting period				3 years
Share-based Compensation Arrangements by Share-based Payment Award, Options, Exercises in Period, Weighted Average Exercise Price				$ 0.041
Warrants In Cash Compensation					250,000
Note and Warrant Purchase Agreement
Subsequent Event [Line Items]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			37,500,000
Debt Instrument, Face Amount			$ 3,750,000
Debt Instrument, Interest Rate, Stated Percentage			10.00%
Subsequent Event
Subsequent Event [Line Items]
Share Based Compensation Arrangement By Share Based Payment Award AwardVesting Rights Description					12.5% vest each 30 days thereafter
Subsequent Event | Joyce Bender
Subsequent Event [Line Items]
Share Based Compensation Arrangement By Share Based Payment Award AwardVesting Rights Description	12.5% vest each 30 days thereafter
Subsequent Event | Note and Warrant Purchase Agreement
Subsequent Event [Line Items]
Notes and Warrants Exercisable Description			Notes representing up to $2,500,000 in aggregate principal, and Warrants exercisable for up to 25,000,000 shares of Common Stock in the aggregate, may be issued and sold at one or more closings during the 30-day period immediately following the Initial Closing Date

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CONSOLIDATED BALANCE SHEETS - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Current Assets
Cash	$ 51,910	$ 1,672,901
Accounts receivable, net	49,014	261,676
Related party receivables	54,250	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	0	1,175,000
Prepaid expenses and other current assets	79,037	90,688
Total Current Assets	298,011	3,274,065
Property and equipment, net	0	651
Intangible assets, net	2,789,832	3,097,293
Goodwill	700,528	700,528
TOTAL ASSETS	3,788,371	7,072,537
Current Liabilities
Accounts payable and accrued expenses	262,148	779,891
Billings in excess of costs	66,896	123,908
Notes and loans payable-current	24,000	24,000
Related party payables	2,500	228,983
Total Current Liabilities	355,544	1,156,782
Long Term Liabilities
Notes and loans payable-long term	29,800	51,800
Total Long Term Liabilities	29,800	51,800
Total Liabilities	385,344	1,208,582
Stockholders' Equity
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, 175,000 and -0- issued and outstanding, as of September 30, 2015 and December 31, 2014, respectively	2	0
Common stock, $0.00001 par value, 250,000,000 shares authorized, 81,800,488, and 77,817,861 issued and outstanding, as of September 30, 2015 and December 31, 2014, respectively	818	778
Treasury stock	(623,000)	(623,000)
Additional paid in capital	27,515,795	23,516,463
Accumulated deficit	(23,490,588)	(17,030,286)
Total Stockholders’ Equity	3,403,027	5,863,955
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 3,788,371	$ 7,072,537

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ORGANIZATION AND BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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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PERFORMANCE SHARE UNITS (Details Textual) - USD ($)		1 Months Ended		3 Months Ended		9 Months Ended
	Mar. 05, 2015	Jan. 27, 2014	Apr. 01, 2013	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Wtd Avg. Remaining Term
Stock compensation expense related to the options and warrants				$ (299,811)	$ 311,149	$ 1,200,459	$ 1,538,557
Total stock compensation expense to be amortized through June 30, 2019				568,414		568,414
Mr. Arena | Restricted Shares
Wtd Avg. Remaining Term
Number of options awarded	500,000
PSUs
Wtd Avg. Remaining Term
Stock compensation expense related to the options and warrants				$ (201,549)	$ 133,308	$ 53,853	$ 348,859
PSUs | Mr. Arena | PSUs
Wtd Avg. Remaining Term
Performance share unit agreement granted (in shares)	3,000,000
PSUs | Chief Executive Officer
Wtd Avg. Remaining Term
Performance share unit agreement granted (in shares)		3,000,000	400,000
PSUs | Officer
Wtd Avg. Remaining Term
Performance share unit agreement granted (in shares)			300,000
PSUs | Chief Operating Officer
Wtd Avg. Remaining Term
Performance share unit agreement granted (in shares)			300,000

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PERFORMANCE SHARE UNITS (Tables)

9 Months Ended

Sep. 30, 2015

Performance Share Units Disclosure [Abstract]

Summary of outstanding performance share units

	Number of		Wtd Avg.		Remaining
	PSUs		Grant Price		Term
Outstanding at December 31, 2014		4,500,000	$	0.40		2.00
Forfeited		3,000,000		0.33		---
Outstanding at September 30, 2015		1,500,000	$	0.54		1.00

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INTANGIBLE ASSETS (Details) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Intangible Assets
Accumulated Amortization	$ (1,297,829)	$ (902,212)
Intangible Assets, Net	2,789,832	3,097,293
Patents
Intangible Assets
Intangible Assets, Gross	3,699,536	3,611,380
Software Development Costs
Intangible Assets
Intangible Assets, Gross	$ 388,125	$ 388,125

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FAIR VALUE MEASUREMENTS (Tables)

9 Months Ended

Sep. 30, 2015

Fair Value Disclosures [Abstract]

Schedule of fair value of marketable securities

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

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GOING CONCERN

9 Months Ended

Sep. 30, 2015

Going Concern [Abstract]

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. As of September 30, 2015, the Company had a working capital deficit of $57,533. In addition, the Company used net cash in operations of $4,804,778 during the nine months ended September 30, 2015.

Even with a 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	Sep. 30, 2015	Dec. 31, 2014
Preferred Stock, Par or Stated Value Per Share	$ 0.00001	$ 0.00001
Preferred Stock, Shares Authorized	10,000,000	10,000,000
Preferred Stock, Shares Issued	175,000	0
Preferred Stock, Shares Outstanding	175,000	0
Common Stock, Par or Stated Value Per Share	$ 0.00001	$ 0.00001
Common Stock, Shares Authorized	250,000,000	250,000,000
Common Stock, Shares, Issued	81,800,488	77,817,861
Common Stock, Shares, Outstanding	81,800,488	77,817,861

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SUBSEQUENT EVENTS

9 Months Ended

Sep. 30, 2015

Subsequent Events [Abstract]

SUBSEQUENT EVENTS

NOTE 12: SUBSEQUENT EVENTS

Grant of Options to Board of Directors Chairing Committees. On October 24, 2015, Tony Coehlo, Ernest (Sandy) Purcell and Alex Zyngier, were each awarded 750,000 options for their service as independent members of the board of directors and board committee chairmen. The term of the options is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price is 0.044.

Grant of Options and Warrants to Executive Chairman, Employees, Advisor and New Member of Board of Directors; on October 26, the Executive Chairman, Dr. Carr Bettis was awarded 500,000 options and 250,000 warrants in lieu of cash compensation pursuant to his amended employment agreement. Dr, Bettis’s options and warrants have a 3 year term, 100% vested on grant date at an exercise price of 0.041. On November 4, 2015, three non-executive employees were awarded a total of 235,330 options,. These employee options have a 3 year term, 100% vested on the grant date at an exercise price will be determined by taking the 10 day average closing price from November 5, 2015 through November 18, 2015. On November 4, 2015 advisory board member Joyce Bender was awarded 100,000 options. The term of the option is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price will be determined by taking the 10 day average closing price from November 5, 2015 through November 18 2015. On November 10, 2015, Christine Griffin an independent member of the board of directors of the Company was awarded 500,000 options, The term of the options is 5 years, 50% of the options vested on grant date, and 12.5% vest each 30 days thereafter. The exercise price will be determined by taking the 10 day average closing price from November 11, 2015 through November 24, 2015.

Appointment of Executive Officer. Effective November 4, 2015, Todd Bankofier, age 55, was appointed by the Board of Directors to the position of Chief Executive Officer of the Company. As a principal in Fairmont Capital Group (FCG) since 2008, Mr. Bankofier was responsible for day-to-day oversight of multiple asset holdings, including strategic planning, revenue generation, technology evolution, operational effectiveness and public relations for all FCG entities.

Change to Executive Officers Compensatory Agreement. On October 26, by resolution, the Board, with the consent of President and CTO Mr. Sean Bradley, agreed that it was in the best interests of the Company and its stockholders to award beginning October 1, 2015, $25,000 per year of Mr. Bradley’s base salary in the form of quarterly option awards, with a Black Scholes value of $6,250 per quarter. On November 4, 2015, the Board amended the employment agreement of Executive Chairman Dr. Carr Bettis, whose agreement currently requires his $175,000 salary to be paid entirely in the form of options and warrants. Dr. Bettis has voluntarily agreed to limit the number of options and warrants he receives to 750,000 per quarter, and to defer any additional owed compensation for up to a year, when he will be paid his deferred compensation either in the form of equity or cash, at the discretion of the Compensation Committee.

Note and Warrant Purchase Agreement. On October 9, 2015 (the “Initial Closing Date”), the Company entered into a Note and Warrant Purchase Agreement (the “Purchase Agreement”) with certain investors (the “Investors”) for the issuance and sale of convertible promissory notes in an aggregate principal amount of up to $3,750,000 (the “Notes”) and warrants (the “Warrants”) to purchase up to an aggregate of 37,500,000 shares of common stock of the Company (the “Common Stock”) (the “Transaction”). Notes representing up to $2,500,000 in aggregate principal, and Warrants exercisable for up to 25,000,000 shares of Common Stock in the aggregate, may be issued and sold at one or more closings during the 30-day period immediately following the Initial Closing Date. The maximum of $2,500,000 in aggregate principal has been sold as of November 8, 2015. In addition, upon the election of any Investor within the three-year period immediately following the Initial Closing Date, any Investor may purchase an additional Note in the principal amount equal to 50% of the principal amount of the Notes purchased by such Investor at previous closings (the “Option Principal Amount”) and an additional Warrant with an aggregate exercise price equal to such Investor’s Option Principal Amount. The Notes mature three years from the date of issuance (the “Maturity Date”) and, until the Notes are repaid or converted into shares of the Company’s equity securities (“Equity Securities”), accrue payable-in-kind interest at the rate of 10% per annum.

If the Company sells Equity Securities in a single transaction or series of related transactions for cash of at least $2,000,000 (excluding the conversion of the Notes and excluding the shares of Common Stock to be issued upon exercise of the Warrants) on or before the Maturity Date (the “Equity Financing”), all of the unpaid principal on the Notes plus accrued interest shall be automatically converted at the closing of the Equity Financing into a number of shares of the same class or series of Equity Securities as are issued and sold by the Company in such Equity Financing (or a class or series of Equity Securities identical in all respects to and ranking pari passu with the class or series of Equity Securities issued and sold in such Equity Financing) as is determined by dividing (i) the principal and accrued and unpaid interest amount of the Notes by (ii) 60% of the price per share at which such Equity Securities are issued and sold in such Equity Financing. The Notes, if not converted, shall be due and payable in full on the Maturity Date. The Notes contain customary events of default provisions. In connection with the issuance of the Notes, on October 9, 2015, the Company entered into a Security Agreement with the Investors (the “Security Agreement”) pursuant to which the Company granted a security interest in all of its assets to the Investors as collateral for the Company’s obligations under the Notes. The Warrants are exercisable at $0.10 per share and expire 60 months following the date of issuance. The Warrants are subject to anti-dilution protection, subject to certain customary exceptions.

Under the Purchase Agreement, the Company has agreed to use its reasonable best efforts to prepare and file with the SEC registration statement within 90 days of the Initial Closing Date, covering the resale by the Investors of any Common Stock previously issued to the Investors, and any Common Stock into which the Notes and any convertible promissory notes previously issued to the Investors are convertible and any Common Stock for which the Warrants or any warrants previously issued to the Investors are exercisable.

The foregoing description of the Transaction and summary of the terms of the Purchase Agreement, Security Agreement, Notes, Warrants and related transactions does not purport to be complete and are subject to, and qualified in their entirety by, reference to the 8-K filed on October 16, 2015 together with the complete text of the (i) Purchase Agreement filed as Exhibit 10.1; (ii) Security Agreement filed as Exhibit 10.2; (iii) form of Note issued in the Transaction filed as Exhibit 4.1; and (iv) form of Warrant issued in the Transaction filed as Exhibit 4.2, each of which is incorporated herein by reference.

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Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2015	Nov. 13, 2015
Document Information [Line Items]
Entity Registrant Name	AUDIOEYE INC
Entity Central Index Key	0001362190
Current Fiscal Year End Date	--12-31
Document Period End Date	Sep. 30, 2015
Document Type	10-Q
Amendment Flag	false
Entity Filer Category	Smaller Reporting Company
Trading Symbol	AEYE
Entity Common Stock, Shares Outstanding		81,800,488
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2015

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ORGANIZATION AND BASIS OF PRESENTATION (Policies)

9 Months Ended

Sep. 30, 2015

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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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CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014
Revenue	$ 108,685	$ 186,641	$ 314,146	$ 279,364
Revenue from related party	0	1,125	0	5,375
Total revenues	108,685	187,766	314,146	284,739
Cost of revenues	321,755	264,459	1,178,388	639,924
Gross loss	(213,070)	(76,693)	(864,242)	(355,185)
Operating expenses:
Selling and marketing	171,594	546,265	747,990	1,068,353
Research and development	92,857	153,188	293,877	391,958
General and administrative expenses	(27,278)	1,548,851	4,161,269	4,352,398
Amortization and depreciation	128,381	132,104	396,269	347,954
Total operating expenses	365,554	2,380,408	5,599,405	6,160,663
Operating loss	(578,624)	(2,457,101)	(6,463,647)	(6,515,848)
Other income (expense)
Unrealized loss on marketable securities	0	(12,000)	0	(12,000)
Interest income (expense) net	81	(416)	3,345	(7,860)
Total other income (expense)	81	(12,416)	3,345	(19,860)
Net loss	(578,543)	(2,469,517)	(6,460,302)	(6,535,708)
Deemed dividend on Series A Convertible preferred stock	0	0	(594,641)	0
Net loss attributable to common stockholders	$ (578,543)	$ (2,469,517)	$ (7,054,943)	$ (6,535,708)
Net loss per common share - basic and diluted	$ (0.01)	$ (0.04)	$ (0.09)	$ (0.12)
Weighted average common shares outstanding - basic and diluted	81,800,488	61,062,150	80,007,507	55,993,097

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WARRANTS

9 Months Ended

Sep. 30, 2015

Warrants Abstract [Abstract]

WARRANTS

NOTE 7: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of September 30, 2015 and December 31, 2014:

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of Exercisable
	Warrants		Exercise Price		Term		Exercisable		Warrants
Outstanding at December 31, 2014		16,527,989	$	0.44		3.69		12,604,407	$	309,821
Exercised		109,855		0.40		—				—
Granted		3,454,688		0.21		---
Forfeited		2,554,545		0.44		---				—
Outstanding at September 30, 2015		17,318,277		0.40		3.39		15,839,588	$	---

The warrant grants during the nine months ended September 30, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 3 to 5 years, expected volatility of 100%, risk free interest rate of 0.84% to 1.61%, and expected dividend yield of 0%.

For the three and nine months ended September 30, 2015 and 2014, the Company has incurred warrant-based expense of $20,962 and $491,148 and $(198,332) and $189,172, respectively. For the three and nine months ended September 30, 2015 and 2014, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $(299,811) and $1,200,459 and $311,149 and $1,538,557, respectively. The negative expense in the three months ended September 30, 2015 is the result of forfeitures of unvested options related to terminated employees exceeding the amortization of option expense for current employees, in addition to negative expense associated with executive PSUs. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through September 30, 2019 is $568,414 as of September 30, 2015.

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OPTIONS

9 Months Ended

Sep. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

OPTIONS

NOTE 6: OPTIONS

As of September 30, 2015 and December 31, 2014, the Company has outstanding options to purchase 10,305,834 and 11,434,350 shares of common stock, respectively.

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of Exercisable
	Options		Exercise Price		Term		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		4.81				—
Forfeited		4,147,066		0.45		---				—
Outstanding at September 30, 2015		10,305,834	$	0.45		3.21		5,902,396	$	---

The option grants during the nine months ended September 30, 2015 were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 2.71 to 3.26 years, expected volatility of 100%, risk free interest rate of 01.05% to 1.75%, and expected dividend yield of 0%.

For the three and nine months ended September 30, 2015 and 2014, total stock compensation expense related to the options totaled $(119,224) and $655,476 and $376,173 and $1,000,526, respectively. For the three and nine months ended September 30, 2015 and 2014, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $(299,811) and $1,200,459 and $311,149 and $1,538,557, respectively. The negative expense in the three months ended September 30, 2015 is the result of forfeitures of unvested options related to terminated employees exceeding the amortization of option expense for current employees, in addition to negative expense associated with executive PSUs. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through September 30, 2019 is $568,414 as of September 30, 2015.

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INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of intangible assets

	September 30,		December 31,
	2015		2014
Patents	$	3,699,536	$	3,611,380
Software Development Costs		388,125		388,125
Accumulated Amortization		(1,297,829)		(902,212)
Intangible Assets, Net	$	2,789,832	$	3,097,293

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NOTES PAYABLE (Tables)

9 Months Ended

Sep. 30, 2015

Notes Payable [Abstract]

Schedule of current and long term notes payable

Notes and loans payable	September 30, 2015		December 31, 2014
Short Term
Maryland TEDCO Note	$	24,000	$	24,000
Total	$	24,000	$	24,000
Long Term
Maryland TEDCO Note	$	29,800	$	51,800
Total	$	29,800	$	51,800

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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2015

Fair Value Disclosures [Abstract]

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 September 30, 2015 and December 31, 2014:

			Fair Value
	Fair Value		Hierarchy
Marketable securities, September 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

9 Months Ended

Sep. 30, 2015

Performance Share Units Disclosure [Abstract]

PERFORMANCE SHARE UNITS

NOTE 8: PERFORMANCE SHARE UNITS

On April 1, 2013, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Nathaniel Bradley, the Company’s CEO; Mr. Sean Bradley, the Company’s Chief Technology Officer; and Mr. James Crawford, the Company’s Chief Operating Officer. Mr. Nathaniel Bradley was granted an award of up to an aggregate of 400,000 Performance Share Units (“PSU’s”); Mr. Sean Bradley was granted an award of up to an aggregate of 300,000 PSU’s; and Mr. Crawford was granted an award of up to an aggregate of 300,000 PSU’s.

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. There were three Performance Periods with the opportunity to earn a full award of PSU’s based on achievement of Performance Goals on a cumulative basis. There were no awards made in 2014.

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 September 30, 2015 and December 31, 2014:

	Number of		Wtd Avg.		Remaining
	PSUs		Grant Price		Term
Outstanding at December 31, 2014		4,500,000	$	0.40		2.00
Forfeited		3,000,000		0.33		---
Outstanding at September 30, 2015		1,500,000	$	0.54		1.00

For the three and nine months ended September 30, 2015 and 2014, the Company has incurred performance share unit-based expense of $(201,549) and $53,853 and $133,308 and $348,859, respectively. For the three and nine months ended September 30, 2015 and 2014, aggregate stock compensation expense related to the options, warrants and performance stock units totaled $(299,811) and $1,200,459 and $311,149 and $1,538,557, respectively. The negative expense in the three months ended September 30, 2015 is a result of management assessment that none of the performance units conditions granted to executives will be met, and therefore none will be earned resulting in a reversal of expense previously recorded. The remaining PSUs were granted to two management team members. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through September 30, 2019 is $568,414 as of September 30, 2015.

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INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2015

Goodwill and Intangible Assets Disclosure [Abstract]

INTANGIBLE ASSETS

NOTE 9: INTANGIBLE ASSETS

As of September 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:

	September 30,		December 31,
	2015		2014
Patents	$	3,699,536	$	3,611,380
Software Development Costs		388,125		388,125
Accumulated Amortization		(1,297,829)		(902,212)
Intangible Assets, Net	$	2,789,832	$	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 $395,617 and $345,557 for the nine months ended September 30, 2015 and 2014, respectively.

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COMMITMENTS

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS

NOTE 11: COMMITMENTS

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 and warrants to purchase shares of the Company’s common stock. The total number of options per year are limited to 500,000 and any additional amounts due Dr. Bettis will be in the form of warrants. The number of options/warrants will be determined are 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. The overall commitment of $175,000 by the Company for Dr. Bettis’s salary remains the same, but the Agreement has been modified as discussed below in Note 12: Subsequent Events.

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PERFORMANCE SHARE UNITS (Details) - Performance Shares [Member] - $ / shares	9 Months Ended	12 Months Ended
	Sep. 30, 2015	Dec. 31, 2014
Number of PSUs
Number of shares, beginning	4,500,000
Number of shares, Forfeited	3,000,000
Number of shares, ending	1,500,000	4,500,000
Weighted Average, Grant Price
Weighted average exercise price, beginning (in dollars per share)	$ 0.40
Weighted average exercise price, Forfeited (in dollars per share)	0.33
Weighted average exercise price, ending (in dollars per share)	$ 0.54	$ 0.40
Weighted Average Remaining Term
Weighted Average Remaining Term, Forfeited	0 years
Weighted Average Remaining Term, Outstanding	1 year	2 years

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WARRANTS (Tables)

9 Months Ended

Sep. 30, 2015

Warrants Abstract [Abstract]

Summary of the Company's outstanding warrants

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of Exercisable
	Warrants		Exercise Price		Term		Exercisable		Warrants
Outstanding at December 31, 2014		16,527,989	$	0.44		3.69		12,604,407	$	309,821
Exercised		109,855		0.40		—				—
Granted		3,454,688		0.21		---
Forfeited		2,554,545		0.44		---				—
Outstanding at September 30, 2015		17,318,277		0.40		3.39		15,839,588	$	---

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RELATED PARTY TRANSACTIONS (Details Textual) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2015	Sep. 30, 2014	Dec. 31, 2014
Revenue from Related Parties	$ 0	$ 1,125	$ 0	$ 5,375
Cost method investment	50,000		50,000		$ 50,000
Related party payables	2,500		2,500		228,983
Related party receivables	$ 54,250		$ 54,250		10,000
Peartrack Security Systems
Shares owned	60,000		60,000
Ecologic Transportation
Conversion of accounts receivable					60,000
Cannonball Red
Cost method investment					$ 50,000
Shares owned	97,500		97,500

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	9 Months Ended
	Sep. 30, 2015	Sep. 30, 2014
Cash Flows from Operating Activities:
Net loss	$ (6,460,302)	$ (6,535,708)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	396,268	347,954
Stock, option and warrant expense	1,200,459	1,538,557
Common stock issued for services	679,972	778,927
Unrealized loss on marketable securities	0	12,000
Amortization of debt discount	0	1,155
Changes in operating assets and liabilities:
Accounts receivable	212,662	169,179
Related party receivable	(44,250)	54,750
Prepaid expenses and other current assets	11,651	(167,873)
Accounts payable and accruals	(517,743)	79,792
Billings in excess of costs	(57,012)	202,967
Related party payables	(226,483)	(243,424)
Net cash used in operating activities	(4,804,778)	(3,761,724)
Cash Flows from Investing Activities:
Cash paid for intangible assets	(88,156)	(556,611)
Net cash used in by investing activities	(88,156)	(556,611)
Cash Flows from Financing Activities:
Repayment of note payable	(22,000)	(172,000)
Repayment of related party loans	0	(35,000)
Issuance of common stock for cash	325,000	1,305,689
Collection of stock subscription receivable	1,175,000	0
Issuance of preferred stock for cash	1,750,000	0
Proceeds from exercise of options and warrants, net of issuance costs	43,943	3,524,521
Net cash provided by financing activities	3,271,943	4,623,210
Net (decrease) increase in cash	(1,620,991)	304,875
Cash - beginning of period	1,672,901	1,847,004
Cash - end of period	51,910	2,151,879
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid	307	7,444
Income taxes paid	0	0
NONCASH INVESTING AND FINANCING ACTIVITIES
Warrants issued for accrued payroll	0	21,514
Accounts receivable converted to marketable securities	0	60,000
Deemed Dividend beneficial conversion feature on convertible preferred stock	$ 594,641	$ 0

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2015

Stockholders' Equity Attributable to Parent [Abstract]

STOCKHOLDERS' EQUITY

NOTE 5: STOCKHOLDERS’ EQUITY

As of September 30, 2015 and December 31, 2014, the Company had 81,800,488 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 three months ended March 31, 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 September 30, 2015, the Company also issued 109,855 shares of common stock pursuant to exercise of warrants for total proceeds of $43,943. The Company also issued 2,810,272 additional shares of common stock for services provided for a total expense of $679,972  (in addition to the 250,000 common shares issued to Mr. Arena described above).

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NOTES PAYABLE (Details) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Notes Payable
Short Term	$ 24,000	$ 24,000
Long Term	29,800	51,800
Maryland TEDCO Note
Notes Payable
Short Term	24,000	24,000
Long Term	$ 29,800	$ 51,800

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FAIR VALUE MEASUREMENTS (Details) - USD ($)	Sep. 30, 2015	Dec. 31, 2014
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities held in related party	$ 13,800	$ 13,800
Fair Value, Inputs, Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities held in related party	$ 13,800	$ 13,800

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OPTIONS (Tables)

9 Months Ended

Sep. 30, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Compensation, Stock Options, Activity

									Intrinsic
					Wtd Avg.				Value
	Number of		Wtd Avg.		Remaining				of Exercisable
	Options		Exercise Price		Term		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		4.81				—
Forfeited		4,147,066		0.45		---				—
Outstanding at September 30, 2015		10,305,834	$	0.45		3.21		5,902,396	$	---