Large accelerated filer
o
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller
reporting company) |
Smaller reporting company
þ
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CALCULATION OF REGISTRATION FEE
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||||
Title of each Class of Security being registered
|
Amount to be
Registered (1) |
Proposed Maximum
Offering Price
Per Security
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Proposed Maximum
Aggregate
Offering Price
(2)
|
Amount of
Registration Fee (3) |
Shares of Common Stock, $0.00001 par value
|
1,500,259
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$0.00001
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$15.00
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$7.00
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(1)
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This registration statement relates to shares of common stock, par value $0.0 00 01 per share, of AudioEye, Inc., which will be distributed pursuant to a spin-off transaction to holders of common stock of CMG Holdings Group, Inc. The amount of the Registrant’s common stock to be registered is 1,500, 259 shares of common stock. To the extent additional shares of common stock may be issued or become issuable as a result of a stock split, stock dividend, or similar transaction involving the common stock while this registration statement is in effect, this registration statement hereby is deemed to cover all such additional shares of common stock in accordance with Rule 416 under the Securities Act of 1933.
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(2)
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Estimated solely for the purpose of determining the registration fee pursuant to Rule 457(f)(2) under the Securities Act, based on the book value of the common stock as of June 30, 2012 , the most recent practicable date.
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(3)
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Previously paid.
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·
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Audio Internet™
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·
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AudioEye™ Mobile
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·
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AudioEye™ Advertising
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·
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AudioEye™ Technology Licensing
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·
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AE’s revenue and collections may be materially adversely affected by the economic downturn.
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·
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AE has a limited operating history and its future performance is uncertain.
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·
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AE needs additional funds to implement its business plan.
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·
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AE’s financial condition may adversely affect its ability to continue as a going concern following the separation of AE from CMGO as described below.
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·
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improve strategic planning, increase management focus and streamline decision-making by providing the flexibility to implement the unique strategic plans of AE and CMGO , and to respond more effectively to different financial needs of each company and the changing economic environment.
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·
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allow AE and CMGO to adopt the capital structure, investment policy and dividend policy best suited to each business’ financial profile and business needs.
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·
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eliminate the financial overhang to AE from the existence of the Rights.
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·
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Prior to March 31, 2010, the business of AE was operated as a privately held stand-alone company until its acquisition by CMGO on that date, at which time AE’s operations were consolidated into CMGO as part of one publicly traded corporate organization;
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·
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Significant changes may occur in the cost structure, financing and business operations as a result of AE operating as a stand-alone company pursuant to the Separation. These changes may result in increased costs associated with reduced economies of scale, stand-alone costs for services currently provided and the legal, accounting, compliance and other costs associated with being a public company.
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Pre-Separation
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Post-Separation
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|||||||
Assets
|
$ | 113,732 | $ | 113,732 | ||||
Liabilities
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2,571,697 |
[1]
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3,801,704 |
[2]
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||||
Debt Ratio
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2261 | % | 3342 | % | ||||
[1]
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Includes related party debt of $ 1,245,840 , convertible into common stock of AE by August 31, 2013. To date, none of the debt has been converted.
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[2]
|
Includes the AE Debentures totaling $915,000 which will be exchanged for debentures of AE concurrently with the AEAC Distribution, and $425,000 promissory note issued by AE in connection with repayment of senior notes, convertible into common stock of AE within 2 years of issuance. .
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·
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AE may not be successful in entering into licensing relationships with its targeted customers on commercially acceptable terms; and
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·
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challenges to the validity of certain of AE’s patents underlying AE’s licensing opportunities.
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·
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substantially greater financial, technical and marketing resources;
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·
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a larger customer base;
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·
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better name recognition; and
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·
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more expansive product offerings.
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·
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AE’s applications for patents, trademarks and copyrights relating to its business may not be granted and, if granted, may be challenged or invalidated;
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·
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issued trademarks, copyrights, or patents may not provide AE with any competitive advantages;
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·
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AE’s efforts to protect AE’s intellectual property rights may not be effective in preventing misappropriation of AE’s technology; or
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·
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AE’s efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those AE develops.
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·
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unwillingness of consumers to shift to and use other such next-generation internet -based audio applications;
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·
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refusal to purchase AE’s products;
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·
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the need to educate potential customers about AE’s patent rights and AE’s product and service capabilities;
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·
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customers’ willingness to invest potentially substantial resources and infrastructures to take advantage of AE’s products;
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·
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customers’ budgetary constraints;
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·
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the timing of customers’ budget cycles; and
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·
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delays caused by customers’ internal review processes.
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·
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design, develop, launch and/or license AE’s planned products, services and technologies that address the increasingly sophisticated and varied needs of AE’s prospective customers; and
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·
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respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
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·
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the price of AE’s products
or services
relative to other products that seek to secure real-time communication;
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·
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the perception by users of the effectiveness of AE’s products
and services
;
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·
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AE’s ability to fund AE’s sales and marketing efforts; and
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·
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the effectiveness of AE’s sales and marketing efforts.
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·
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power loss, transmission cable cuts and other telecommunications failures;
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·
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damage or interruption caused by fire, earthquake, and other natural disasters;
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·
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computer viruses or software defects; and
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·
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physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond AE’s control.
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·
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the need for continued development of its financial and information management systems;
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·
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the need to manage relationships with future licensees, resellers, distributors and strategic partners;
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·
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the need to hire and retain skilled management, technical and other personnel necessary to support and manage AE’s business; and
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·
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the need to train and manage its employee base.
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·
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regulatory developments in the United States and any foreign countries where AE may operate;
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·
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the recruitment or departure of key personnel;
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·
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quarterly or annual variations in AE ’s financial results or those of companies that are perceived to be similar to AE;
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·
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market conditions in the industries in which AE competes and issuance of new or changed securities;
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·
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analysts’ reports or recommendations;
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·
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the failure of securities analysts to cover AE ’s common stock or changes in financial estimates by analysts;
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·
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the inability to meet the financial estimates of analysts who follow AE ’s common stock;
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·
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the issuance of any additional securities by AE;
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·
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investor perception of AE and of the industry in which AE competes; and
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·
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general economic, political and market conditions.
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Post-Separation
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|||||||||
Class
|
Name
|
Shares
|
Pct
(1)
|
||||||
Common
|
Bradley Brothers, LLC
(2)
|
11,296,067 | 37.65 | % | |||||
Common
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James Crawford
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340,689 | 1.14 | % | |||||
Common
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Edward W. Withrow III
(3)
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1,129,607 | 3.76 | % | |||||
Common
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Constantine S. Potamianos
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— | — |
(1) |
Based on 30,005,185 shares outstanding. Does not include any shares issuable upon conversion of AE’s convertible notes issued to Nathaniel T. Bradley or the AE Debentures or in connection with any financing occurring after August 15, 2012.
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(2) |
Bradley Brothers, LLC is the record owner of 11,296,067 shares; Nathaniel Bradley and Sean Bradley are each 50% owners of Bradley Brothers, LLC, and share investment power with respect to such shares.
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(3) |
Huntington Chase Financial Group, LLC is the record owner of the shares. Mr. Withrow is the Managing Member of Huntington Chase Financial Group, LLC.
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·
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an individual citizen or resident of the United States,
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·
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a corporation (including any entity treated as a corporation for U.S. federal income tax purposes), partnership or other entity created or organized in or under the laws of the United States, any state or any political subdivision thereof,
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·
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an estate, the income of which is subject to United States federal income taxation regardless of the source of the income, or
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·
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a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all of its substantial decisions or which has elected to be treated as a United States person.
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·
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Audio Internet™
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·
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AudioEye™ Mobile
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|
·
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AudioEye™ Advertising
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·
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AudioEye™ Technology Licensing
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·
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The IP Group is charged with the development of additional intellectual property, development and implementation of a licensing strategy and the prosecution and enforcement of AE’s existing patent portfolio.
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·
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The Services Group is charged with the commercialization of AE ’s intellectual property , business development, and sales and marketing of AE’s services and product offerings.
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·
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Generate revenue through the sale of services and products to corporate publishers .
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·
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Generate revenue from the sale of services and products to consumer websites.
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·
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Generate revenue from the sale of services and products to federal, state and local governments.
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·
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Generate revenue from the sales of AudioEye Advertising technology.
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·
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Generate revenue from royalties from licensees of AE’s technology.
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· |
Generate revenue from settlements and judgments in connection with patent infringement enforcement of AE’s intellectual property.
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·
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Implementing a technology-licensing program to commercialize AE’s intellectual property, including the AE patented technology.
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·
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Developing revenues from licensing royalties from organizations that utilize AE’s patented technology and systems, to include potentially taking equity in or entering into joint ventures with such organizations.
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·
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Leveraging AE’s existing technology to develop a suite of products and services that can be sold directly to governments and corporate enterprises.
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· | AE Communications Technology Platform – Offered as Internet Cloud Software as a Service (SaaS) | ||
·
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Audio Internet™
|
||
·
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AudioEye™ Mobile
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||
·
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AudioEye™ Advertising
|
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· | AE Technology Licensing – Offered on an Equity and/or Royalty Licensing Basis | ||
·
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Digital Coupon
|
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·
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Mobile Advertising Solutions
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·
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Mobile Marketing Solutions
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·
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Counseling/ Behavioral Health Care
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·
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Medical Applications
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·
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Content Delivery Networks (CDN)
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·
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Mobile Networks
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·
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Others
|
||
· | AE Patent Enforcement and Patent Portfolio Licensing Program | ||
·
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Establishing Enforcement and Licensing Protocols to Combat Widespread Infringement
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·
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Pricing Models/Early Adopter License Strategy
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||
·
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Mobile Device Manufacturers
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·
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Mobile Marketing Providers
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||
·
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Other Device and Hardware Manufacturers
|
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· | AE Support and Interactive Services | ||
·
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Support Infrastructure for SaaS Model – Operated as a Revenue Center
|
||
·
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Customized S oftware and Development – Operated as a Revenue Center
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||
·
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Sales and Commercialization Support for all Divisions.
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·
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Corporate Publishers
|
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·
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Consumer Websites
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·
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Federal, State and Local Governments and Agencies
|
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·
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Mobile Advertisers
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·
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Mobile Device Manufacturers
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·
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Mobile Device Software Providers
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|
·
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Mobile Device Operating System Providers
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·
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Mobile Marketing Operations
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·
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Mobile Internet Access Providers
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·
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Internet Device Manufacturers
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·
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Satellite, GPS, and Automotive Device Manufacturers
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·
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Internet Browser Providers
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·
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Internet Media Service Providers
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·
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Internet Content Publishers
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·
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Internet Media Publishers
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·
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Internet Service Providers
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·
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Internet Search Providers
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·
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Internet E-commerce Providers
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·
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Internet Marketing Operations
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·
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Internet Accessibility Services Providers
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·
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U.S. Federal Government Internet Operations
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·
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U.S. State Governments Internet Operations
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·
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U.S. Departments, Bureaus, Agencies, and Territories Internet Operations
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·
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Native American Business Operations
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·
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Native American Governments
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·
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Content Delivery Networks (CDN)
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·
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Foreign Governments
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·
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Appliance Manufacturers
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·
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Healthcare Products Manufacturers
|
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·
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Prescription Medication Pharmacy Operations
|
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·
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Pharmaceutical Companies
|
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·
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“How To” Operations
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·
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User Manual Publishers
|
1.
|
Mobile and Internet Browser Solutions . A serious competitive threat to AE comes from the internet browsers that have already begun to infringe upon AE’s technology and have started to provide voice navigation and multi-format content consumption.
|
|
2.
|
Mobile Device Operating Solutions . AE’s management believes that this segment involves the highest volume and presence of technology infringement of apparatus and device claims of AE’s portfolio. In view of this segment also offering competing audio navigation and audio control of device features and functions, AE’s management has determined that this segment has the highest priority.
|
|
3.
|
Tablets and E-readers . Internet e-readers and tablet computers with competing functionalities and audio navigation commands and controls pose a potential competitive threat. Competitive analysis is ongoing; licensing strategy requires additional investment and focus in this area of ongoing competitive analysis.
|
#
|
ID
|
Status
|
Title
|
|||
1
|
US7966184 B2
|
Issued
|
System and method for audible website navigation
|
|||
2
|
US7653544 B2
|
Issued
|
Method and apparatus for website navigation by the visually impaired
|
|||
3
|
US8260616
|
Issued
|
System and method for Audio Content Generation
|
|||
4
|
US8046229
|
Issued
|
Method and Apparatus for website navigation by the visually impaired
|
5
|
13/483758
|
Pending
|
System and Method for Audio Content Generation
|
|||
6
|
13/280184
|
Pending
|
System and Method for Audio Content Management
|
|||
7
|
13/214347
|
Pending
|
System and Method for Audio Content Navigation
|
|||
8
|
13/545417
|
Pending
|
System and Method for Audio Content Navigation
|
·
|
Unique patented technology
. AE is focused on developing innovations in the field of networked and device- embedded audio technology. AE’s first patent family entitled “Method and Apparatus for Website Navigation by the Visually Impaired” U.S. patent # 7653544 filed in 2003 and issued on January 29, 2010 provides technology claims that cover audio content
|
navigation. AE’s second family of patents is entitled “System and Method for Audible Web Site Navigation.” AE’s key foundational patent, U.S. patent # 7966184 filed in 2007 and issued on June, 23 2011, includes additional mobile smartphone navigation and audio publishing capabilities. AE has filed continuations within both patent families keeping both open for the filing of continuations and continuations in part. AE owns a unique patent portfolio comprised of four issued patents in the United States, and four U.S. patents pending with three additional patents being drafted for filing with the U.S. Patent and Trademark Office in 2012/2013 . AE’s portfolio includes patents and pending patent applications in the United States with over 60 issued claims that canvass internet and mobile markets that support AE’s business and technology licensing process. | ||
·
|
Licensing business model
. AE is pursuing agreements under which AE will license its technology within key identified vertical end-markets including but not limited to the U.S. government , mobile carrier, higher education, digital couponing, content delivery networks, marketing organizations, e-learning organizations, ecommerce operations, device manufactures, internet technology, and communications.
|
|
·
|
Highly experienced inventors, technologist and product development team
. AE’s research and development team is comprised of experienced software, e-commerce, mobile marketing and internet broadcasting developers and technologists that have worked together as a team for over fifteen years. During their careers, this team has developed several technologies programs for Fortune 500 organizations ; federal , state and local governments in the United States; and several leading organizations in a wide range of end-markets.
|
Pro Forma Capitalization
|
Pro Forma
June 30, 2012
|
|||
Long term debt
|
$ | 2,695,640 | (1) (2) | |
Preferred Stock, $0. 00 001 par value, 10,000,000 shares authorized,
none issued and outstanding
|
$ |
—
|
||
Common stock, $0.00001 par value, 100,000,000 shares authorized,
30,005,185 issued and outstanding as of June 30, 2012
|
300 | |||
Additional paid in capital
|
( 300 | ) | ||
Total Liabilities and Stockholders' Equity
|
$ | 2,695,640 |
(1) |
Includes Note Payable to Nathaniel T. Bradley of $1,245,840, payable and/or convertible into AE common stock by August 31, 2013.
|
(2) |
Includes debentures of $915,000 (convertible into common stock of AE within 2 years of issuance) issued by AEAC and paid to CMGO, plus and note payable of $425,000 issued by AE to secure the release of the CMGO Senior Debt. Upon the AEAC Distribution, the debentures will be exchanged for the AE Debentures.
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Page
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35
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36
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37
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38
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39
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40
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41
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42
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43
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44
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45
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AUDIOEYE, INC.
|
|||||||||||||||
As of June 30, 2012
|
[1]
|
500,000 shares authorized, none issued
|
[2]
|
10,000,000 shares authorized , none issued
|
[3]
|
4,000,000 shares authorized, 2,546,483 shares issued and outstanding
|
[4]
|
100,000,000 shares authorized, 30,005,185 shares issued and outstanding resulting from sale of AE by CMGO to AEAC
|
[5]
|
Issuance by AEAC of $915,000 8% Convertible Debentures
|
[6]
|
Partial payment of Senior Notes to CMGO upon Separation
|
[7]
|
Issuance by AE of $425,000 Note Payable to Senior Noteholders upon Separation
|
[8]
|
Elimination of subsidiary equity and recording of goodwill due to business combination
|
[9]
|
Intercompany eliminations
|
[10]
|
Expenses to be incurred by AE in connection with the issuance and distribution of securities registered
|
AUDIOEYE, INC.
|
||||||||||||
For the Six Months Ended June 30, 2012
|
AudioEye
|
||||||||||||||||
Historical
|
Pro Forma
|
|||||||||||||||
June 30,
|
AEAC
|
Pro Forma
|
June 30,
|
|||||||||||||
2012
|
Consolidation
|
Adjustments
|
2012
|
|||||||||||||
(unaudited)
|
|
|
|
|||||||||||||
Revenue
|
$ | 54,128 | $ | — | $ | — | $ | 54,128 | ||||||||
Revenue from related party
|
1,500 | — | — | 1,500 | ||||||||||||
Cost of revenues
|
153,031 | — | — | 153,031 | ||||||||||||
Gross Profit
|
(97,403 | ) | — | — | (97,403 | ) | ||||||||||
General and administrative expenses
|
287,853 | — | — | [3] | 287,853 | |||||||||||
Operating income (loss)
|
(385,256 | ) | — | — | (385,256 | ) | ||||||||||
Other income (expense)
|
21,000 | — | (17,094 | ) [1] | (23,864 | ) | ||||||||||
(27,770 | ) [2] | |||||||||||||||
Net (loss)
|
$ | (364,256 | ) | $ | — | $ | (44,864 | ) | $ | (409,120 | ) | |||||
Net (loss) per common share - basic and diluted
|
$ | (0.14 | ) | $ | (0.01 | ) | ||||||||||
Weighted average common shares outstanding - basic and diluted
|
2,546,483 | 30,005,185 |
[1]
|
Interest on Note Payable = $425,000 x 8% x 181 days (360 day/yr) = $17,094
|
[2]
|
Interest on Debentures = $915,000 x 8% x 181 days (365 day/yr) = $27,770
|
[3]
|
$155,007 of expenses to be incurred by AE in connection with the issuance and distribution of securities registered are not included because they are non-recurring and are not expected to have a continuing impact on the registrant
|
AUDIOEYE, INC.
|
||||||||||||||||
For the Year Ended December 31, 2011
|
||||||||||||||||
AudioEye
|
||||||||||||||||
Historical
|
Pro Forma
|
|||||||||||||||
December 31,
|
AEAC
|
Pro Forma
|
December 31,
|
|||||||||||||
2011
|
Consolidation
|
Adjustments
|
2011
|
|||||||||||||
(audited)
|
|
|
|
|||||||||||||
Revenue
|
$ | 125,521 | $ | — | $ | — | $ | 125,521 | ||||||||
Revenue from related party
|
12,500 | — | — | 12,500 | ||||||||||||
Cost of revenues
|
641,124 | — | — | 641,124 | ||||||||||||
Gross Profit
|
$ | (503,103 | ) | $ | — | $ | — | $ | (503,103 | ) | ||||||
General and administrative expenses
|
810,341 | — | — | [3] | 810,341 | |||||||||||
Patent impairment expense
|
147,908 | — | — | 147,908 | ||||||||||||
Operating income (loss)
|
(1,461,352 | ) | — | — | (1,461,352 | ) | ||||||||||
Other income (expense)
|
(283,050 | ) | — | (34,000 | ) [1] | (390,250 | ) | |||||||||
(73,200 | ) [2] | |||||||||||||||
Net (loss)
|
$ | (1,774,402 | ) | $ | — | $ | (107,200 | ) | $ | (1,851,602 | ) | |||||
Net (loss) per common share - basic and diluted
|
$ | (0.69 | ) | $ | (0.06 | ) | ||||||||||
Weighted average common shares outstanding - basic and diluted
|
2,546,483 | 30,005,185 |
[1]
|
Interest on Note Payable = $425,000 x 8% = $34,000
|
[2]
|
Interest on Debentures = $915,000 x 8% = $73,200
|
[3]
|
$155,007 of expenses to be incurred by AE in connection with the issuance and distribution of securities registered are not included because they are non-recurring and are not expected to have a continuing impact on the registrant
|
AUDIOEYE, INC.
|
|||||||||
June 30,
|
December 31,
|
December 31,
|
||||||||||
2012
|
2011
|
2010
|
||||||||||
(unaudited)
|
||||||||||||
ASSETS
|
||||||||||||
Current Assets
|
||||||||||||
Cash
|
$ | 25,953 | 27,426 | $ | 3,611 | |||||||
Accounts receivable, net
|
25,911 | 11,637 | 22,343 | |||||||||
Related party receivables
|
14,750 | 13,125 | — | |||||||||
Marketable securities
|
39,000 | 18,000 | 14,000 | |||||||||
Total Current Assets
|
105,614 | 70,188 | 39,954 | |||||||||
Property and equipment, net
|
8,118 | 7,998 | 13,551 | |||||||||
Intangible assets, net
|
— | — | 52,839 | |||||||||
TOTAL ASSETS
|
$ | 113,732 | 78,186 | $ | 106,344 | |||||||
Current Liabilities
|
||||||||||||
Accounts payable and accrued expenses
|
$ | 374,588 | 368,790 | $ | 502,685 | |||||||
Unearned income
|
77,276 | 13,195 | — | |||||||||
Notes and loans payable-current
|
24,000 | 24,000 | 74,900 | |||||||||
Related party payable
|
525,193 | 398,270 | — | |||||||||
Total Current Liabilities
|
1,001,057 | 804,255 | 577,585 | |||||||||
Long term liabilities
|
||||||||||||
Notes and loans payable-long term
|
109,800 | 121,800 | — | |||||||||
Related party loans
|
1,460,840 | 1,245,840 | — | |||||||||
Total Long term Liabilities
|
1,570,640 | 1,367,640 | — | |||||||||
Total Liabilities
|
2,571,697 | 2,171,895 | 577,585 | |||||||||
STOCKHOLDERS’ DEFICIT
|
||||||||||||
Preferred Stock, $0.00001 par value, 500,000 shares authorized, none issued and outstanding
|
— | — | — | |||||||||
Common stock, $0.00001 par value, 4,000,000 shares authorized, 2,546,483, 2,546,483 and 2,546,483 issued and outstanding as of June 30, 2012, December 31, 2011 and December 31, 2010, respectively
|
25 | 25 | 25 | |||||||||
Additional paid in capital
|
1,118,958 | 1,118,958 | 997,024 | |||||||||
Accumulated deficit
|
(3,562,247 | ) | (3,197,991 | ) | (1,453,589 | ) | ||||||
Total AudioEye, Inc. Stockholders’ Deficit
|
(2,443,264 | ) | (2,079,008 | ) | (456,540 | ) | ||||||
Non-controlling interest
|
(14,701 | ) | (14,701 | ) | (14,701 | ) | ||||||
Total Stockholders’ Deficit
|
2,457,965 | (2,093,709 | ) | (471,241 | ) | |||||||
TOTAL LIABILITIES AND
STOCKHOLDERS’ DEFICIT
|
$ | 113,732 | $ | 78,186 | $ | 106,344 |
See Notes to Consolidated Financial Statements
|
(unaudited)
|
||||||||||||||||
For the 6 months ended
|
For the 12 months ended
|
|||||||||||||||
06/30/2012
|
06/30/2011
|
12/31/2011
|
12/31/2010
|
|||||||||||||
Revenue
|
$ | 54,128 | $ | 112,019 | $ | 125,521 | $ | 328,397 | ||||||||
Revenue from related party
|
1,500 | — | 12,500 | 19,850 | ||||||||||||
Cost of revenues
|
153,031 | 323,196 | 641,124 | 429,705 | ||||||||||||
Gross Profit
|
(97,403 | ) | (211,177 | ) | (503,103 | ) | (81,458 | ) | ||||||||
General and administrative expenses
|
287,853 | 423,860 | 810,341 | 644,908 | ||||||||||||
Patent impairment expense
|
— | — | 147,908 | — | ||||||||||||
Operating income (loss)
|
(385,256 | ) | (635,037 | ) | (1,461,352 | ) | (726,366 | ) | ||||||||
Other Expenses
|
||||||||||||||||
Unrealized gain (loss) on marketable securities
|
21,000 | 19,500 | (3,000 | ) | (78,000 | ) | ||||||||||
Loss attributable to non-controlling interest
|
— | — | — | 14,701 | ||||||||||||
Interest expense
|
— | (114,447 | ) | (280,050 | ) | (42,641 | ) | |||||||||
Total Other Expenses
|
21,000 | (94,947 | ) | (283,050 | ) | (105,940 | ) | |||||||||
Net (loss)
|
$ | (364,256 | ) | $ | (729,984 | ) | $ | (1,744,402 | ) | $ | (832,306 | ) | ||||
Net (loss) per common share - basic and diluted
|
$ | (0.14 | ) | $ | (0.29 | ) | $ | (0.69 | ) | $ | (0.33 | ) | ||||
Weighted average common shares outstanding -
basic and diluted
|
2,546,483 | 2,546,483 | 2,546,483 | 2,510,568 |
See Notes to Consolidated Financial Statements
|
AUDIOEYE, INC.
|
||||||||||||
For the 6 months ended
|
For the 12 months ended
|
|||||||||||||||
6/30/2012
|
6/30/2011
|
12/31/2011
|
12/31/2010
|
|||||||||||||
Cash Flows from Operating Activities:
|
||||||||||||||||
Net loss
|
$ | (364,256 | ) | $ | (729,984 | ) | $ | (1,744,402 | ) | $ | (832,306 | ) | ||||
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
||||||||||||||||
Depreciation and amortization
|
1,648 | 7,129 | 13,111 | 7,933 | ||||||||||||
Unrealized (gain) loss on investments
|
(21,000 | ) | (19,500 | ) | 3,000 | 78,000 | ||||||||||
Bad debt expense
|
— | — | 2,153 | 87,000 | ||||||||||||
Patent impairment expense
|
— | — | 147,908 | — | ||||||||||||
Loss attributable to non-controlling interest
|
— | — | — | (14,701 | ) | |||||||||||
Changes in operating assets and liabilities:
|
||||||||||||||||
Accounts receivable
|
(14,274 | ) | (58,757 | ) | 1,553 | (99,464 | ) | |||||||||
Related party receivable
|
(1,625 | ) | — | (13,125 | ) | — | ||||||||||
Fees and interest incurred on debt
|
— | — | 280,050 | — | ||||||||||||
Accounts payable and accrued expenses
|
5,798 | 182,484 | (58,995 | ) | 443,827 | |||||||||||
Unearned income
|
64,081 | — | 13,195 | — | ||||||||||||
Related party payables
|
126,923 | — | 398,270 | — | ||||||||||||
Net cash used in operating activities
|
(202,705 | ) | (618,628 | ) | (957,282 | ) | (329,711 | ) | ||||||||
Cash Flows from Investing Activities:
|
||||||||||||||||
Cash paid for computer equipment
|
(1,768 | ) | — | — | (11,287 | ) | ||||||||||
Cash paid for patent costs
|
— | (74,536 | ) | (102,627 | ) | (31,447 | ) | |||||||||
Net cash used in financing activities
|
(1,768 | ) | (74,536 | ) | (102,627 | ) | (42,734 | ) | ||||||||
Cash Flow from Financing Activities:
|
||||||||||||||||
Proceeds from related party loans
|
215,000 | 734,224 | 1,087,724 | — | ||||||||||||
Repayment of notes and loans payable
|
(12,000 | ) | — | (4,000 | ) | — | ||||||||||
Repayment of related party loans
|
— | — | — | (100,000 | ) | |||||||||||
Capital contribution from parent
|
— | — | — | 470,000 | ||||||||||||
Net cash provided by financing activities
|
203,000 | 734,224 | 1,083,724 | 370,000 | ||||||||||||
Increase (decrease) in cash
|
(1,473 | ) | 41,060 | 23,815 | (2,445 | ) | ||||||||||
Cash - beginning of period
|
27,426 | 3,611 | 3,611 | 6,056 | ||||||||||||
Cash - end of period
|
$ | 25,953 | $ | 44,671 | $ | 27,426 | $ | 3,611 | ||||||||
NON-CASH INVESTING AND FINANCING ACTIVITIES
|
||||||||||||||||
Conversion of debt for common stock
|
$ | — | $ | — | $ | — | $ | 112,500 | ||||||||
Gain on troubled debt restructuring with related party
|
$ | — | $ | — | $ | 121,934 | $ | — | ||||||||
Interest reclassed to principal
|
$ | — | $ | — | $ | 74,900 | $ | — | ||||||||
Marketable securities received for accounts receivable
|
$ | — | $ | 7,000 | $ | 7,000 | $ | 33,000 | ||||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||||||||||
Interest paid
|
$ | — | $ | — | $ | 9,679 | $ | 23,916 | ||||||||
Income taxes paid
|
$ | — | $ | — | $ | — | $ | — |
See Notes to Consolidated Financial Statements
|
AUDIOEYE, INC.
|
||||||||||||||||
PERIOD FROM DECEMBER 31, 2009 TO DECEMBER 31, 2011
|
NON-CONTROLLING
|
||||||||||||||||||||||||
COMMON STOCK
|
PAID IN
|
ACCUMULATED
|
||||||||||||||||||||||
SHARES
|
AMOUNT
|
CAPITAL
|
INTEREST
|
(DEFICIT)
|
TOTAL
|
|||||||||||||||||||
Balance, December 31, 2009
|
2,241,626 | 22 | 414,527 | — | (621,283 | ) | (206,734 | ) | ||||||||||||||||
Conversion of debt for common stock
|
304,857 | 3 | 112,497 | — | — | 112,500 | ||||||||||||||||||
Capital contribution from parent
|
— | — | 470,000 | — | — | 470,000 | ||||||||||||||||||
Loss attributable to non-controlling interest
|
— | — | — | (14,701 | ) | — | (14,701 | ) | ||||||||||||||||
Net loss
|
— | — | — | — | (832,306 | ) | (832,306 | ) | ||||||||||||||||
Balance, December 31, 2010
|
2,546,483 | 25 | 997,024 | (14,701 | ) | (1,453,589 | ) | (471,241 | ) | |||||||||||||||
Gain on troubled debt restructuring with related party
|
— | — | 121,934 | — | 121,934 | |||||||||||||||||||
Net loss
|
— | — | — | — | (1,744,402 | ) | (1,744,402 | ) | ||||||||||||||||
Balance, December 31, 2011
|
2,546,483 | 25 | 1,118,958 | (14,701 | ) | (3,197,991 | ) | (2,093,709 | ) | |||||||||||||||
Net loss
|
— | — | — | — | (364,256 | ) | (364,256 | ) | ||||||||||||||||
Balance, June 30, 2012
|
2,546,483 | $ | 25 | $ | 1,118,958 | $ | (14,701 | ) | $ | (3,562,247 | ) | $ | (2,457,965 | ) |
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. |
Fair Value
|
Fair Value
Hierarchy
|
||||
Marketable securities, June 30, 2012
|
$ | 39,000 |
Level 1
|
||
Marketable securities, December 31, 2011
|
$ | 18,000 |
Level 1
|
||
Marketable securities, December 31, 2010
|
$ | 14,000 |
Level 1
|
June 30
|
December 31
|
December 31
|
||||||||||
2012
|
2011
|
2010
|
||||||||||
Computer & Peripherals
|
$ | 24,318 | $ | 22,550 | $ | 22,550 | ||||||
Accumulated Deprecation
|
(16,200 | ) | (14,552 | ) | (8.999 | ) | ||||||
Property Plant & Equipment, Net
|
$ | 8,118 | $ | 7,998 | $ | 13,551 |
June 30,
|
December 31,
|
December 31,
|
||||||||||
2012
|
2011
|
2010
|
||||||||||
Patents
|
$ | — | $ | 157,865 | $ | 55,678 | ||||||
Domains
|
— | 440 | — | |||||||||
Accumulated Amortization
|
— | (10,397 | ) | (2,839 | ) | |||||||
Intangible Assets, Net
|
$ | — | $ | 147,908 | $ | 52,839 |
Deferred tax assets:
|
June 30, 2012
|
December 31, 2011
|
December 31, 2010
|
|||||||||
Net operating loss carry forwards
|
$ | 990,000 | $ | 870,000 | $ | 325,000 | ||||||
Less valuation allowance
|
(990,000 | ) | (870,000 | ) | (325,000 | ) | ||||||
Net deferred tax asset
|
$ | — | $ | — | $ | — |
1. | CMG will retain 15% of the Company subject to transfer restrictions following the Spin-off. | |
2. | Pursuant to the Spin-off, CMG will distribute to its stockholders, in the form of a dividend, 5% of the capital stock of the Company. |
3. |
The Company entered into a Royalty Agreement with CMG to pay to CMG 10% of cash received from income earned, settlements or judgments directly resulting from the Company’s patent enforcement and licensing strategy whether received by the Company or any of its affiliates, net of any direct costs or tax implications incurred in pursuit of such strategy pertaining to the patents as fully described in the agreement.
|
|
4. |
The Company entered into a Services Agreement with CMG whereby CMG will receive a commission of not less than 7.5% of all revenues received by the Company after the closing date from all business, clients, or other sources of revenue procured by CMG or its employees, officers or subsidiaries, and directed to the Company, and 10% of net revenues obtained from a third party described in the agreement.
|
|
5. | The Company finalized the release of the obligations of CMG under CMG’s 13% Senior Secured Convertible Extendible Notes with an aggregate principal balance of $1,075,000. |
Six Months Ended
|
Year Ended
|
|||||||||||||||
June 30,
|
December 31,
|
|||||||||||||||
2012
|
2011
|
2011
|
2010
|
|||||||||||||
Revenue
|
$ | 54,128 | $ | 112,019 | $ | 125,521 | $ | 328,397 | ||||||||
Revenue from related party
|
1,500 | - | 12,500 | 19,850 | ||||||||||||
Cost of Sales
|
153,031 | 323,196 | 641,124 | 429,705 | ||||||||||||
Gross profit (loss)
|
(97,403 | ) | (211,177 | ) | (503,103 | ) | (81,458 | ) | ||||||||
General and administrative expenses
|
287,853 | 423,860 | 810,341 | 644,908 | ||||||||||||
Patent impairment expense
|
— | — | 147,908 | — | ||||||||||||
Operating (loss)
|
(385,256 | ) | (635,037 | ) | (1,461,352 | ) | (726,366 | ) | ||||||||
Unrealized gain (loss) on marketable securities
|
21,000 | 19,500 | (3,000 | ) | (78,000 | ) | ||||||||||
Loss attributable to non-controlling interest
|
— | — | — | 14,701 | ||||||||||||
Interest expense
|
— | (114,447 | ) | (280,050 | ) | (42,641 | ) | |||||||||
Net (loss)
|
$ | (364,256 | ) | $ | (729,984 | ) | $ | (1,744,402 | ) | $ | (832,306 | ) |
·
|
a decrease in website design services of $ 36.515;
|
|
·
|
a decrease in website hosting fees of $ 19,876 for monthly hosting of client websites;
|
|
·
|
a decrease in amortization expense related to patent costs of $4,326;
|
|
·
|
a dec rease in sub-contracted design fees of $ 167,100 due to the creation and development of additional software; and
|
|
·
|
an increase in direct labor and other related expenses of $1,260 for additional staff support .
|
·
|
a decrease in website development services of $ 102,113 ;
|
|
·
|
a decrease in website hosting fees of $ 108,114 for monthly hosting of client websites;
|
|
·
|
an increase in amortization expense related to patent costs of $4,454;
|
|
·
|
an increase in sub-contracted design fees of $ 75,733 due to the creation and development of additional software;
|
·
|
a decrease in bartered services expense of $23,249;
|
|
·
|
an increase in direct labor of $ 138,562 for additional staff support; and
|
|
·
|
an increase in website hosting expenses of $15,918.
|
·
|
an increase in professional fees of $127,500 due primarily to $97,500 for the services of a valuation consultant in 2011;
|
|
·
|
an increase in legal, accounting and audit fees of $23,161 resulting from the CMGO acquisition in March 2010 and additional audit requirements;
|
|
·
|
a decrease in bad debt expense of $84,847, resulting from the initial allowance for doubtful accounts in expensed in 2010 of $87,000, compared to $2,153 of uncollectible receivables expensed in 2011;
|
|
·
|
an increase in executive salaries and wages of $77,615, primarily due to an increase in executive compensation as provided for in the employment agreements entered into and commencing April 1, 2010;
|
|
·
|
an increase in rent expense of $15,611 due to additional office space leased in 2011; and
|
|
·
|
a decrease in other general and administrative expenses of $6,391.
|
Name
|
Age
|
Director/Position
|
||
Edward W. Withrow III
|
47
|
Director
|
||
Nathaniel T. Bradley
|
36
|
Director, Chief Executive Officer , President
|
||
Sean Bradley
|
31
|
Director, Chief Technology Officer, Vice President, Secretary
|
||
James Crawford
|
31
|
Director, Chief Operating Officer, Treasurer
|
||
Constantine S. Potamianos
|
46
|
Chief Legal Officer, General Counsel
|
||
Post Separation/
Pre-Debt Conversion
|
||||||||||
Class
|
Name
|
Shares
|
Pct
(1)
|
|||||||
Common
|
Nathaniel T. Bradley
|
5,648,034
|
(2)(3)
|
18.82
|
% | |||||
Common
|
Sean Bradley
|
5,648,034
|
(3)
|
18.82
|
% | |||||
Common
|
Edward W. Withrow III
|
1,129,607
|
(4)
|
3.76
|
% | |||||
Common
|
James Crawford
|
340,689
|
1.14
|
% | ||||||
Common
|
Constantine S. Potamianos
|
—
|
—
|
(1) |
Based on 30,005,185 shares outstanding.
|
(2) |
Does not include any shares issuable upon conversion of AE’s convertible notes issued to Nathaniel T. Bradley or the AE Debentures.
|
(3) |
Bradley Brothers, LLC is the record owner of 11,296,067 shares; Nathaniel T. Bradley and Sean Bradley are each 50% owners of Bradley Brothers, LLC, and share investment power with respect to such shares.
|
(4) |
Huntington Chase Financial Group, LLC is the record owner of the shares. Mr. Withrow is its Managing Member.
|
·
|
the board of directors approved the transaction in which the stockholder became an interested stockholder prior to the date the interested stockholder attained such status;
|
·
|
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholders owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
|
·
|
the business combination is approved by a majority of the board of directors and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
|
Item
|
Amount
|
|||
SEC Registration Fee
|
$ | 7.00 | ||
Printing Fees and Expenses
|
10,000.00 | |||
Accounting Fees and Expenses
|
35,000.00 | |||
Legal Fees and Expenses
|
100,000.00 | |||
Transfer Agent Fees
|
5,000.00 | |||
Miscellaneous
|
5,000.00 | |||
Total
|
$ | 155,007.00 |
Exhibit No.
|
Description
|
|
3.1*
|
Certificate of Incorporation of AudioEye, Inc. , as amended
|
|
3.2*
|
By-laws of AudioEye, Inc.
|
|
3.3
|
||
5.1
|
||
10.1*
|
Master Agreement dated as of September 22, 2011 between CMG Holdings Group, Inc. and AudioEye Acquisition Corp oration
|
|
10.2*
|
Form of Royalty Agreement between CMG Holdings Group, Inc. and AudioEye, Inc.
|
|
10.3*
|
Form of Services Agreement between CMG Holdings Group, Inc. and AudioEye, Inc.
|
10.4*
|
Form of Share Exchange Agreement among the stockholder s of AudioEye Acquisition Corp oration and CMG Holdings Group, Inc.
|
|
10.5*
|
Convertible Promissory Note dated August 31, 2011 between AudioEye, Inc. and Nathaniel T. Bradley .
|
|
10.6*
|
Termination and Release Agreement dated October 24, 2011 between Maryland Technology Development Corp. and AudioEye, Inc.
|
|
10.7*
|
Promissory Note dated October 24 2011 between Maryland Technology Development Corp. and AudioEye, Inc.
|
|
10.8*
|
Customer Contract dated August 24, 2011 between Kenneth G. Mills Foundation and AudioEye, Inc. for E-Commerce Multi-Media Development Services
|
|
10.9*
|
Customer Contract dated December 29, 2010 between NextMed Management Services Inc. and AudioEye, Inc, for Software Development Services
|
|
10.10*
|
Customer Contract dated June 9, 2010 between Southern Arizona Attraction Alliance and AudioEye, Inc. for Custom Website Development
|
|
10.11
|
||
10.12
|
||
23.1
|
Consent of MaloneBailey, LLP
|
|
23.2
|
Consent of TroyGould PC
(included in Exhibit 5.1, above)
|
|
* Previously filed
|
AUDIOEYE, INC. | ||
By: |
/
s/ Nathaniel T. Bradley
|
|
Name: Nathaniel T. Bradley
|
||
Title: President and Chief Executive Officer
|
Signature
|
Title
|
Date
|
||
/s/ Nathaniel T. Bradley
|
President and Chief Executive Officer
|
October 1, 2012
|
||
Nathaniel T. Bradley
|
(Principal Executive Officer)
|
|||
/s/ Sean Bradley
|
Chief Technical Officer, Vice President , Secretary and Director
|
October 1, 2012
|
||
Sean Bradley
|
||||
/s/ James Crawford
|
Chief Operating Officer, Treasurer and Director
|
October 1 , 2012
|
||
James Crawford
|
||||
/s/ Edward W. Withrow III
|
Director
|
October 1 , 2012
|
||
Edward W. Withrow III
|
||||
State of Delaware
Secretary of State
Division of Corporations
Delivered 10:32 AM 08/17/2012
FILED 10:32 AM 08/17/2012
SRV 120946235 - 3974015 FILE |
James Ennis
|
|
Chief Financial Officer and Director
|
Very truly yours,
|
|
/s/ TROYGOULD PC
|
$425,000
|
Tucson, Arizona
|
AUDIOEYE, INC.
|
||||
By:
|
/s/ Nathaniel T. Bradley
|
|||
Name:
|
Nathaniel T. Bradley
|
|||
Title:
|
President and Chief Executive Officer
|
|||
Address for Holder:
32 SE Second Avenue, Unit 218
Delray Beach, Florida 33444
Attention: Craig Boden
|
If to the Company
or Guarantor:
|
||
AudioEye Acquisition Corp.
1327 Ocean Avenue, Suite M
Santa Monica, CA 90401
Attention: Nathaniel T. Bradley
Facsimile No: (520) 844-2989
|
||
With a copy to:
|
||
TroyGould PC
1801 Century Park East, Suite 1600
Los Angeles, California 90067
Attention: David L. Ficksman, Esq.
Facsimile No: (310) 789-1490
|
||
If to the Secured Parties, to:
|
||
CMG Investors, LLC
32 SE Second Avenue, Unit 218
Delray Beach, FL 33444
Attention: Craig Boden
|
|
|
AUDIOEYE, INC.
|
||
|
|
|
|
|
|
|
By:
|
/s/
Nathaniel Bradley
|
|
|
|
|
Name:
|
Nathaniel Bradley
|
|
|
|
Title:
|
President
|
|
|
|
|
|
AUDIOEYE ACQUISITION CORP.
|
||||
By:
|
/s/
Nathaniel Bradley
|
|||
Name:
|
Nathaniel Bradley
|
|||
Title:
|
President
|
|||
CMGO INVESTORS, LLC
|
||||
By:
|
/s/ Craig Boden
|
|||
Name:
|
Craig Boden
|
|||
Title:
|
Manager
|
Principal Place of Business of Debtors:
|
9070 S. Rita Road
|
Suite 1450
|
|
Tucson, Arizona 85747
|
|
Locations Where Collateral is Located or Stored:
|
Tucson, Arizona;
|
Chicago, Illinois
|