AudioEye, Inc.
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(Exact name of registrant as specified in its charter) |
Delaware
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20-2939845
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(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
9070 South Rita Road, Suite 1450, Tucson, Arizona
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85747
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(Address of principal executive offices)
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(Zip Code) |
Registrant’s telephone number, including area code:
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866-331-5324
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Title of Each Class | Name of Each Exchange On Which Registered | ||||
N/A
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N/A
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N/A
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(Title of class)
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
x
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TABLE OF CONTENTS
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1
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13
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F-1
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Audio Internet™
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AudioEye™ Mobile
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AudioEye™ Advertising
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AudioEye™ Technology Licensing
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Audio Internet
is a technology that utilizes our patented architecture to deliver a facsimile of a visual or mobile website in an audio format that can be navigated, utilized, interacted with, and transacted from without the use of a monitor, mouse or other gestural forms of user input. The conversion of social media sites and other dynamic e-commerce and e-learning sites have been another focal point of our development effort. Our sales and marketing effort is organized within clear-targeted verticals including, but not limited to, e-commerce, social media, news and entertainment publishers, corporate sites, products sites, mobile marketing campaigns, advertising, and promotional websites.
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AudioEye Advertising
utilizes our patented architecture to deliver voice activation, rich media response, higher value impressions and superior conversion. Our sales and marketing effort is organized around our ad network platform. Any ad can be converted into an AudioEye-enabled ad through our automated creation process. End users can then click, keystroke or speak to respond to the audio prompts. Our advertising technology is scalable across ad networks.
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AudioEye Mobile
utilizes our patented architecture, coordinated with any mobile device, to deliver simple, intuitive and faster access to mobile device content while remaining eyes and hands-free. Our goal is to open doors to the mobile web using our patented solutions for audio mobile marketing. Our sales and marketing effort is organized around sales through existing licensees.
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The
Services Group
is charged with the commercialization of our intellectual property, business development, and sales and marketing of our services and product offerings.
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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 our existing patent portfolio.
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Generating revenue through the sale of services and products to corporate publishers.
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Generating revenue from the sale of services and products to consumer websites.
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Generating revenue from the sale of services and products to federal, state and local governments.
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Generating revenue from the sales of AudioEye Advertising technology.
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Generating revenue from royalties secured from licensees of our technology.
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Generating revenue from settlements and judgments stemming from the enforcement of our intellectual property rights.
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Implementing a technology-licensing program to commercialize our intellectual property, including our patented technology.
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Developing revenues from licensing royalties obtained from organizations that utilize our patented technology and systems, potentially including equity arrangements or entering into joint ventures with such organizations.
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Leveraging our existing technology to develop a suite of products and services that can be sold directly to governments and corporate enterprises.
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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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AudioEye™ Advertising
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Technology Licensing – Offered on an Equity and/or Royalty Licensing Basis
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Digital Coupon
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Mobile Advertising Solutions
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Mobile Marketing Solutions
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Counseling/Behavioral Health Care
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Medical Applications
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Content Delivery Networks (CDN)
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Mobile Networks
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Others
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Support and Interactive Services
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Support Infrastructure for SaaS Model – Operated as a Revenue Center
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Customized Software and Development – Operated as a Revenue Center
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Sales and Commercialization Support for all Divisions.
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Patent Enforcement and Patent Portfolio Licensing Program
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Establishing Enforcement and Licensing Protocols to Combat Infringement
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Pricing Models/Early Adopter License Strategy
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Mobile Device Manufacturers
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Mobile Marketing Providers
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Other Device and Hardware Manufacturers
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Federal, State and Local Governments and Agencies
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Corporate Publishers
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Consumer Websites
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Mobile Advertisers
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Mobile Device Manufacturers
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Mobile Device Software Providers
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Mobile Device Operating System Providers
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Mobile Marketing Operations
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Mobile Internet Access Providers
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Internet Device Manufacturers
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Satellite, GPS and Automotive Device Manufacturers
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Internet Browser Providers
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Internet Media Service Providers
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Internet Content Publishers
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Internet Media Publishers
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Internet Service Providers
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Internet Search Providers
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Internet E-commerce Providers
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Internet Marketing Operations
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Internet Accessibility Services Providers
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U.S. Federal Government Internet Operations
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U.S. State Governments Internet Operations
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U.S. Departments, Bureaus, Agencies and Territories Internet Operations
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Native American Business Operations
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Native American Governments
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Content Delivery Networks (CDN)
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Foreign Governments
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Appliance Manufacturers
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Healthcare Products Manufacturers
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Prescription Medication Pharmacy Operations
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Pharmaceutical Companies
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“How To” Operations
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User Manual Publishers
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1.
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Mobile and Internet Browser Solutions.
A serious competitive threat to us comes from the Internet browsers that we believe may have already begun to infringe upon our technology and have started to provide voice navigation and multi-format content consumption.
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2.
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Mobile Device Operating Solutions.
Our management believes that this segment may involve the highest volume and presence of technology infringement of apparatus and device claims of our patent portfolio. In view of this segment also offering competing audio navigation and audio control of device features and functions, our management has determined that this segment has the highest priority.
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3.
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Tablets and E-readers.
Internet e-readers and tablet computers with competing functionalities and audio navigation commands and controls pose a potential competitive threat. Our competitive analysis is ongoing; licensing strategy requires additional investment and focus in this area of ongoing competitive analysis.
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#
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ID
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Status
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Title
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1
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US7966184 B2
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Issued
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System and method for audible website navigation
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2
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US7653544 B2
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Issued
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Method and apparatus for website navigation by the visually impaired
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3
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US8260616
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Issued
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System and method for Audio Content Generation
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4
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US8046229
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Issued
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Method and Apparatus for website navigation by the visually impaired
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5
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US8296150
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Issued
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System and Method for Audio Content Navigation
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6
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13/483758
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Pending
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System and Method for Audio Content Generation
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7
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13/280184
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Pending
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System and Method for Audio Content Management
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8
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13/545417
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Pending
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System and Method for Audio Content Navigation
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Unique patented technology
. We are focused on developing innovations in the field of networked and device-embedded audio technology. Our first patent family entitled “Method and Apparatus for Website Navigation by the Visually Impaired” U.S. patent #7,653,544 filed in 2003 and issued on January 29, 2010 provides technology claims that cover audio content navigation. Our second family of patents is entitled “System and Method for Audible Web Site Navigation.” Our key foundational patent, U.S. patent #7,966,184 filed in 2007 and issued on June 23, 2011, includes additional mobile smartphone navigation and audio publishing capabilities. We have filed continuations within both patent families keeping both open for the filing of continuations and continuations in part. We own a unique patent portfolio comprised of five issued patents in the United States, and three U.S. patents pending with three additional patents being drafted for filing with the U.S. Patent and Trademark Office in 2013. Our portfolio includes patents and pending patent applications in the United States with over 60 issued claims that encompass Internet and mobile markets that support our business and technology licensing process
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Licensing business model
. We are pursuing agreements under which we will license our 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, e-commerce operations, device manufactures, internet technology, and communications.
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Highly experienced inventors, technologists and product development team
. Our team is comprised of experienced software, e-commerce, mobile marketing and Internet broadcasting developers and technologists that have worked together 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.
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our applications for patents, trademarks and copyrights relating to our business may not be granted and, if granted, may be challenged or invalidated;
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issued trademarks, copyrights, or patents may not provide us with any competitive advantages;
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our efforts to protect our intellectual property rights may not be effective in preventing misappropriation of our technology; or
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our efforts may not prevent the development and design by others of products or technologies similar to, competitive with, or superior to those that we develop.
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we may not be successful in entering into licensing relationships with our targeted customers on commercially acceptable terms; and
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challenges to the validity of certain of our patents that underlie the licensing opportunities.
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substantially greater financial, technical and marketing resources;
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a larger customer base;
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better name recognition; and
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more expansive product offerings.
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unwillingness of consumers to shift to and use other such next-generation Internet-based audio applications;
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refusal to purchase our products and services;
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perception by the licensees with respect to product and service quality and performance;
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limitations on access and ease of use;
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congestion leading to delayed or extended response times;
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inadequate development of Internet infrastructure to keep pace with increased levels of use; and
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increased government regulations.
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the need to educate potential customers about our patent rights and our product and service capabilities;
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customers’ willingness to invest potentially substantial resources and infrastructures to take advantage of our products and services;
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customers’ budgetary constraints;
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the timing of customers’ budget cycles; and
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delays caused by customers’ internal review processes.
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design, develop, launch and/or license our planned products, services and technologies that address the increasingly sophisticated and varied needs of our prospective customers; and
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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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the price of our products or services relative to other competitive products;
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the perception by users of the effectiveness of our products and services;
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our ability to fund our sales and marketing efforts; and
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the effectiveness of our sales and marketing efforts.
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power loss, transmission cable cuts and other telecommunications failures;
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damage or interruption caused by fire, earthquake, and other natural disasters;
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computer viruses or software defects; and
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physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond our control.
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the need for continued development of our financial and information management systems;
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the need to manage relationships with future licensees, resellers, distributors and strategic partners;
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the need to hire and retain skilled management, technical and other personnel necessary to support and manage our business; and
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the need to train and manage our employee base.
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regulatory developments in the United States and any foreign countries where we may operate;
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the recruitment or departure of key personnel;
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quarterly or annual variations in our financial results or those of companies that are perceived to be similar to us;
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market conditions in the industries in which we compete and issuance of new or changed securities;
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analysts’ reports or recommendations;
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the failure of securities analysts to cover our common stock or changes in financial estimates by analysts;
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the inability to meet the financial estimates of analysts who follow our common stock;
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the issuance of any additional securities by us;
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investor perception of us and of the industry in which we compete; and
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general economic, political and market conditions.
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Results of Operations
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Year Ended
December 31,
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2012
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2011
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Revenue
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$ | 279,062 | $ | 125,521 | ||||
Revenue from related party
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3,000 | 12,500 | ||||||
Cost of Sales
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265,330 | 641,124 | ||||||
Gross profit (loss)
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16,732 | (503,103 | ) | |||||
General and administrative expenses
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823,228 | 810,341 | ||||||
Patent impairment expense
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— | 147,908 | ||||||
Operating (loss)
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(806,496 | ) | (1,461,352 | ) | ||||
Unrealized gain (loss) on marketable securities
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12,000 | (3,000 | ) | |||||
Loss attributable to non-controlling interest
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Interest expense
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(98,543 | ) | (280,050 | ) | ||||
Net (loss)
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$ | (893,039 | ) | $ | (1,744,402 | ) | ||
Net (loss) per Weighted average common shares outstanding – basic and diluted
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$ | (0.03 | ) | $ | (0.06 | ) |
Working Capital
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At December 31, | |||||||
2012
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2011
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Current Assets
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$ | 246,928 | $ | 70,188 | ||||
Current Liabilities
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1,719,520 | 804,255 | ||||||
Working Capital (Deficit)
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$ | (1,472,592 | ) | $ | (734,067 | ) |
For the year ended
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December 31,
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2012
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2011
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Net Cash (Used in) Operating Activities
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$ | (250,951 | ) | $ | (957,282 | ) | ||
Net Cash Provided by (Used in) Investing Activities
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(2,928 | ) | (102,627 | ) | ||||
Net Cash Provided by Financing Activities
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237,600 | 1,083,724 | ||||||
Increase (Decrease) in Cash
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$ | (16,279 | ) | $ | 23,815 |
Name |
Age
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Director/Position | ||||
Nathaniel Bradley
James Crawford
Sean Bradley
Constantine Potamianos
Edward O’Donnell
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36
31
31
47
47
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Chief Executive Officer, President and Director
Chief Operating Officer, Treasurer and Director
Chief Technology Officer, Vice President, Secretary and Director
Chief Legal Officer, General Counsel
Chief Financial Officer
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Craig Columbus
Dr. Carr Bettis
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46
49
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Chairman of the Board, Director
Director
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Edward Withrow, III
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47
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Director
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SUMMARY COMPENSATION TABLE
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Name and Principal Position
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Year
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Salary
($)
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Bonus
($)
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Stock Awards
($)
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Option
Awards
($)
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Non-Equity
Incentive Plan
Compensation
($)
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Nonqualified
Deferred
Compensation
Earnings
($)
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All Other
Compensation
($)
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Total
($)
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Nathaniel Bradley
Chief Executive Officer, President and Director
(1)
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2012
2011
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$211,250
$206,539
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None
None
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None
None
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$30,502
(1)
None
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None
None
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None
None
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None
None
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$241,752
$206,536
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Sean Bradley
Chief Technology Officer, Vice President, Secretary and Director
(2)
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2012
2011
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$176,042
$191,734
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None
None
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None
None
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$30,502
(2)
None
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None
None
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None
None
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None
None
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$206,544
$191,734
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James Crawford
Chief Operating Officer, Treasurer and Director
(3)
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2012
2011
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$74,111
$39,537
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None
None
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None
None
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$146,409
(3)
None
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None
None
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None
None
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None
None
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$220,520
$39,537
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(1)
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Nathaniel Bradley
was granted
125,000
options on December 19, 2012, with a total value of $
30,502
.
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(2)
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Sean Bradley
was granted 125,000 options on December 19, 2012, with a total value of $
30,502
.
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(3)
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James Crawford
was granted 600,000 options on December 19, 2012, with a total value of $
146,409
.
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Name
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Grant Date
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Estimated
Future Payments under Equity Incentive Plan Awards (1) Target ($) |
All Other Stock
Awards: Number of Shares of Stock or Units (#) |
All Other
Option Awards: Number of Shares Underlying Options (#)(1) |
Exercise Price
of Option Awards ($/Share) |
Grant Date
Fair Value of Stock and Option Awards ($)(2) |
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Nathaniel Bradley
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12/19/12
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— | — | 125,000 | $ | 0.275 | $ | 30,465 | |||||||||||||||
Sean Bradley
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12/19/12
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— | — | 125,000 | $ | 0.275 | $ | 30,465 | |||||||||||||||
James Crawford
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12/19/12
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— | — | 175,000 | $ | 0.25 | $ | 42,703 | |||||||||||||||
12/19/12
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— | — | 425,000 | $ | 0.25 | $ | 103,706 |
(1)
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The amounts in the column under “All Other Option Awards” represent shares underlying options awarded, each of which vest over time.
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(2)
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The amounts in the column under “Grant Date Fair Value of Option Awards” represent the fair value of the awards on the date of grant, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, Compensation — Stock Compensation.
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Number of
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Number of
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Number of
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||||||||||||||||||||||
securities
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securities
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shares or
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Market value
|
|||||||||||||||||||||
underlying
|
underlying
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units of
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of shares or
|
|||||||||||||||||||||
Named
|
unexercised
|
unexercised
|
Option
|
Option
|
stock that
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units of stock
|
||||||||||||||||||
Executive
|
options (#)
|
options (#)
|
Exercise
|
Epiration
|
have not
|
that have not
|
||||||||||||||||||
Officer
|
Exercisable
|
Unexercisable
|
Price ($)
|
Date
|
vested (#)
|
vested ($)
|
||||||||||||||||||
Nathaniel Bradley
|
— | 125,000 | $ | 0.275 |
12/18/17
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— | $ | 30,465 | ||||||||||||||||
Sean Bradley
|
— | 125,000 | $ | 0.275 |
12/18/17
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— | $ | 30,465 | ||||||||||||||||
|
||||||||||||||||||||||||
James
Crawford
|
— | 600,000 | $ | 0.25 |
12/18/17
|
— | $ | 146,409 |
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●
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each person known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock;
|
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●
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each of our officers and directors; and
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●
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all of our officers and directors as a group.
|
Name and Address of Beneficial Owner (1)
|
Amount of
Beneficial Ownership
|
Approximate
Percentage of
Outstanding
Common Stock (2)
|
||||||
CMG Holdings Group, Inc. (3)
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6,001,042
|
13.94
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%
|
|||||
CMGO Investors LLC (4)
|
3,410,410
|
7.92
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%
|
|||||
Dr. Carr Bettis (5)
|
3,365,730
|
(6)
|
7.82
|
%
|
||||
Nathaniel Bradley
|
5,651,034
|
(7)
|
13.12
|
%
|
||||
Sean Bradley
|
5,650,620
|
(8)
|
13.12
|
%
|
||||
Craig Columbus (9)
|
1,557,050
|
(10)
|
3.62
|
%
|
||||
James Crawford
|
340,689
|
*
|
||||||
Edward O’Donnell
|
0
|
*
|
||||||
Constantine Potamianos
|
0
|
(11)
|
*
|
|||||
Edward Withrow III (12)
|
1,129,607
|
(13)
|
2.62
|
%
|
||||
All directors and executive officers as a group (8 individuals)
|
17,694,730
|
40.30
|
%
|
*
|
Less than one percent.
|
(1)
|
Unless otherwise indicated, the business address of each of the individuals is
9070 S Rita Road, Suite 1450, Tucson, AZ 85747
.
|
(2)
|
Based on 43,062,199 shares of our common stock issued and outstanding as of April 15, 2013.
|
(3)
|
CMG Holding Group, Inc.’s business address is 333 Hudson Street, Suite 303, New York, NY 10013.
|
(4)
|
CMGO Investors, LLC business address is 3483 South Federal Highway, Unit A, Boynton Beach, FL 33435.
|
(5)
|
Dr. Bettis’ business address is 16211 N. Scottsdale Rd, Ste A6A-472, Scottsdale, AZ 85254.
|
(6)
|
Dr. Bettis is the Managing Member of CSB IV US Holdings, LLC, the record owner of 2,800,927 shares. Dr. Bettis is also co-trustee of the J. Carr & Stephanie V. Bettis Revocable Trust, the record owner of 564,803 shares. The total shares beneficially held by Dr. Bettis are 3,365,730 shares.
|
(7)
|
Includes 5,648,033 shares held by Bradley Brothers, LLC, 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. Does not include 5,186,860 shares issued on December 20, 2012 related to the conversion of our debt owed to Nathaniel Bradley. The conversion shares were issued to Mr. Bradley’s designees. Mr. Bradley has no investment or voting power over said shares and is not deemed to be the beneficial owner thereof.
|
(8)
|
Includes 5,648,033 shares held by Bradley Brothers, LLC, 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.
|
(9)
|
Mr. Columbus’ business address is c/o First Allied Asset Management, 655 W. Broadway, 11
th
Floor, San Diego, CA 92101.
|
(10)
|
Mr. Columbus is Managing Member of Columbus Investments, the record owner of 1,557,050 shares.
|
(11)
|
Does not include 514,604 shares held by Mr. Potamianos’ spouse individually, to which shares Mr. Potamianos disavows any interest.
|
(12)
|
Mr. Withrow’s business address is c/o Huntington Chase Financial Group, LLC, 1327 Ocean Avenue, Suite M, Santa Monica, CA 90401.
|
(13)
|
Mr. Withrow is the Managing Member of Huntington Chase Financial Group, LLC, the record owner of 1,129,607 shares.
|
Plan Category
|
(a)
Number of securities to
be issued upon exercise of outstanding options, warrants and rights |
(b)
Weighted-average
exercise price of outstanding options, warrants and rights |
(c)
Number of securities
remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
|||||||||
Equity compensation plans approved by security holders
|
2,820,000 | $ | 0.25 | 2,180,000 | ||||||||
Equity compensation plans not approved by security holders
|
- | - | - | |||||||||
Total
|
2,820,000 | $ | 0.25 | 2,180,000 |
Year Ended
|
||||||||
December 31,
2012
$
|
December 31,
2011
$
|
|||||||
Audit Fees
|
$ | 33,212 | $ | 18,000 | ||||
Audit Related Fees
|
- | - | ||||||
Tax Fees
|
- | - | ||||||
All Other Fees
|
- | - | ||||||
Total
|
$ | 33,212 | $ | 18,000 |
Exhibit
No. |
Description
|
|
3.1
|
Certificate of Incorporation of AudioEye, Inc. (1)
|
|
3.2
|
Certificate of Amendment of the Certificate of Incorporation of AudioEye, Inc. (1)
|
3.3
|
Certificate of Amendment of the Certificate of Incorporation of AudioEye, Inc. (2)
|
|
3.4
|
By-laws of AudioEye, Inc. (1)
|
|
10.1
|
Master Agreement dated as of September 22, 2011 between CMG Holdings Group, Inc. and AudioEye Acquisition Corporation (1)
|
|
10.2
|
Form of Royalty Agreement between CMG Holdings Group, Inc. and AudioEye, Inc. (1)
|
|
10.3
|
Form of Services Agreement between CMG Holdings Group, Inc. and AudioEye, Inc. (1)
|
|
10.4
|
Convertible Promissory Note dated August 31, 2011 between AudioEye, Inc. and Nathaniel Bradley (3)
|
|
10.5
|
Termination and Release Agreement dated October 24, 2011 between Maryland Technology Development Corp. and AudioEye, Inc. (4)
|
|
10.6
|
Promissory Note dated October 24, 2011 between Maryland Technology Development Corp. and AudioEye, Inc. (4)
|
|
10.7
|
Customer Contract dated August 24, 2011 between Kenneth G. Mills Foundation and AudioEye, Inc. for E-Commerce Multi-Media Development Services (4)
|
|
10.8
|
Customer Contract dated December 29, 2010 between NextMed Management Services Inc. and AudioEye, Inc, for Software Development Services (4)
|
|
10.9
|
Customer Contract dated June 9, 2010 between Southern Arizona Attraction Alliance and AudioEye, Inc. for Custom Website Development (4)
|
|
10.10
|
Senior Secured Promissory Note of AudioEye, Inc., dated August 15, 2012 (2)
|
|
10.11
|
Security Agreement, dated as of August 15, 2012, among AudioEye, Inc., AudioEye Acquisition Corporation and CMGO Investors, LLC (2)
|
|
10.12
|
AudioEye, Inc. 2012 Incentive Compensation Plan effective December 19, 2012 (5)
|
|
10.13
|
Agreement and Plan of Merger dated as of March 22, 2013 between AudioEye, Inc. and AudioEye Acquisition Corporation (6)
|
|
14.1*
|
||
21.1*
|
||
23.1*
|
||
31.1*
|
||
31.2*
|
||
32.1*
|
||
32.1*
|
101.INS
|
|
XBRL Instance Document
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
*
|
Filed herewith.
|
(1)
|
Incorporated by reference to Form S-1, filed with the U.S. Securities and Exchange Commission (the “SEC”) on October 21, 2011.
|
(2)
|
Incorporated by reference to Form S-1/A, filed with the SEC on October 1, 2012.
|
(3)
|
Incorporated by reference to Form S-1/A, filed with the SEC on January 3, 2012.
|
(4)
|
Incorporated by reference to Form S-1/A, filed with the SEC on February 10, 2012.
|
(5)
|
Incorporated by reference to Form S-1/A, filed with the SEC on January 11, 2013.
|
(6)
|
Incorporated by reference to Form 8-K, filed with the SEC on March 27, 2013.
|
AUDIOEYE, INC. | |||
By: |
/
s/ Nathaniel Bradley
|
||
Nathaniel Bradley
|
|||
Chief Executive Officer and President
|
|||
(Principal Executive Officer)
|
Signature
|
Title
|
Date
|
||
/s/ Dr. Carr Bettis
|
Director
|
April 15, 2013
|
||
Dr. Carr Bettis
|
||||
/s/ Nathaniel Bradley
|
Chief Executive Officer and President
|
April 15, 2013
|
||
Nathaniel Bradley
|
(Principal Executive Officer)
|
|||
/s/ Edward O’Donnell
|
Chief Financial Officer
|
April 15, 2013
|
||
Edward O’Donnell
|
||||
/s/ Sean Bradley
|
Chief Technical Officer, Vice President,
Secretary and Director |
April 15, 2013
|
||
Sean Bradley
|
||||
/s/ Craig Columbus
|
Chairman of the Board and Director
|
April 15, 2013
|
||
Craig Columbus
|
||||
/s/ James Crawford
|
Chief Operating Officer, Treasurer and
|
April 15, 2013
|
||
James Crawford
|
Director
|
|||
/s/ Edward Withrow III
|
Director
|
April 15, 2013
|
||
Edward Withrow III
|
F-2
|
||
F-3
|
||
F-4
|
||
F-5
|
||
F-6
|
||
F-7
|
For the year ended
|
||||||||
December 31, 2012
|
December 31, 2011
|
|||||||
Revenue
|
$ | 279,062 | $ | 125,521 | ||||
Revenue from related party
|
3,000 | 12,500 | ||||||
Cost of revenues
|
265,330 | 641,124 | ||||||
Gross Profit
|
16,732 | (503,103 | ) | |||||
General and administrative expenses
|
823,228 | 810,341 | ||||||
Patent impairment expense
|
- | 147,908 | ||||||
Operating income (loss)
|
(806,496 | ) | (1,461,352 | ) | ||||
Other income (expense)
|
||||||||
Unrealized gain (loss) on marketable securities
|
12,000 | (3,000 | ) | |||||
Interest expense
|
(98,543 | ) | (280,050 | ) | ||||
Total other income (expense)
|
(86,543 | ) | (283,050 | ) | ||||
Net (loss)
|
$ | (893,039 | ) | $ | (1,744,402 | ) | ||
Net (loss) per common share - basic and diluted
|
$ | (0.03 | ) | $ | (0.06 | ) | ||
Weighted average common shares outstanding -
basic and diluted
|
30,161,501 | 30,005,184 |
COMMON STOCK | PAID IN | NON-CONTROLLING | ACCUMULATED | |||||||||||||||||||||
SHARES | AMOUNT | CAPITAL | INTEREST | (DEFICIT) | TOTAL | |||||||||||||||||||
Balance, December 31, 2010
|
30,005,184 | 300 | 996,749 | (14,701 | ) | (1,453,589 | ) | (471,241 | ) | |||||||||||||||
Related party gain on troubled debt restructuring
|
- | - | 121,934 | - | - | 121,934 | ||||||||||||||||||
Net loss
|
- | - | - | - | (1,744,402 | ) | (1,744,402 | ) | ||||||||||||||||
Balance, December 31, 2011
|
30,005,184 | 300 | 1,118,683 | (14,701 | ) | (3,197,991 | ) | (2,093,709 | ) | |||||||||||||||
Stock, option & warrant expense
|
- | - | 12,103 | - | - | 12,103 | ||||||||||||||||||
Capital contribution for services
|
20,000 | 20,000 | ||||||||||||||||||||||
Acquisition of non-controlling interest
|
- | - | (14,701 | ) | 14,701 | - | - | |||||||||||||||||
Forgiveness of related party accrued interest
|
- | - | 84,581 | - | - | 84,581 | ||||||||||||||||||
Issuance of stock related to conversion of debt
|
5,186,860 | 52 | 1,296,663 | - | - | 1,296,715 | ||||||||||||||||||
Net loss
|
- | - | - | - | (893,039 | ) | (893,039 | ) | ||||||||||||||||
Balance, December 31, 2012
|
35,192,044 | $ | 352 | $ | 2,517,329 | $ | - | $ | (4,091,030 | ) | $ | (1,573,349 | ) |
For the year ended
|
||||||||
December 31, 2012
|
December 31, 2011
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net (loss)
|
$ | (893,039 | ) | $ | (1,744,402 | ) | ||
Adjustments to reconcile net loss to net cash
|
||||||||
Depreciation and amortization
|
3,883 | 13,111 | ||||||
Stock, option and warrant expense
|
12,103 | - | ||||||
Unrealized (gain) loss on investments
|
(12,000 | ) | 3,000 | |||||
Bad debt expense
|
- | 2,153 | ||||||
Patent Impairment expense
|
- | 147,908 | ||||||
Changes in operating assets and liabilities:
|
||||||||
Accounts receivable
|
(4,619 | ) | 1,553 | |||||
Related party receivable
|
(3,000 | ) | (13,125 | ) | ||||
Fees and interest incurred on debt
|
- | 280,050 | ||||||
Accounts payable and accruals
|
172,945 | (58,995 | ) | |||||
Deferred revenue
|
41,628 | 13,195 | ||||||
Related party payables
|
431,148 | 398,270 | ||||||
Net cash (used in) operating activities
|
(250,951 | ) | (957,282 | ) | ||||
Cash Flows from investing activities:
|
||||||||
Cash (paid for) computer equipment
|
(2,928 | ) | - | |||||
Cash (paid for) patent costs
|
- | (102,627 | ) | |||||
Net cash (used in) investing activities
|
(2,928 | ) | (102,627 | ) | ||||
Cash Flow from financing activities:
|
||||||||
Proceeds from related party loans
|
12,500 | 1,087,724 | ||||||
Repayment of related party loans
|
(2,500 | ) | - | |||||
Repayment of note payable
|
(24,000 | ) | (4,000 | ) | ||||
Net advances to affiliates
|
251,600 | - | ||||||
Net cash provided by financing activities
|
237,600 | 1,083,724 | ||||||
Increase (decrease) in cash
|
(16,279 | ) | 23,815 | |||||
Cash - beginning of period
|
27,426 | 3,611 | ||||||
Cash - end of period
|
$ | 11,147 | $ | 27,426 | ||||
NON-CASH FINANCING ACTIVITIES
|
||||||||
Notes Payable acquired from related party
|
$ | 425,000 | $ | - | ||||
Conversion of notes payable and interest into common stock
|
1,296,715 | - | ||||||
Forgiveness of related party accrued interest
|
84,581 | - | ||||||
Accounts payable converted into notes payable
|
50,000 | - | ||||||
Marketable securities received for accounts receivable
|
- | 7,000 | ||||||
Gain on troubled debt restructuring with related party
|
- | 121,934 | ||||||
Interest reclassed to principal
|
- | 74,900 | ||||||
Acquisition of non-controlling interest
|
14,701 | - | ||||||
Capital contribution for services
|
20,000 | - | ||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
Interest paid
|
$ | 2,864 | $ | 9,679 | ||||
Income taxes paid
|
$ | - | $ | - |
1.
|
CMG would retain 15% of the Company.
|
2.
|
CMG would 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.
|
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.
|
|
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, December 31, 2012
|
$ | 30,000 |
Level 1
|
|||
Marketable securities, December 31, 2011
|
$ | 18,000 |
Level 1
|
December 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
Computer & Peripherals
|
$ | 25,478 | $ | 22,550 | ||||
Accumulated Deprecation
|
(18,435 | ) | (14,552 | ) | ||||
Property Plant & Equipment, Net
|
$ | 7,043 | $ | 7,998 |
December 31,
|
December 31,
|
|||||||
2012
|
2011
|
|||||||
Patents
|
$ | - | $ | 157,865 | ||||
Domains
|
- | 440 | ||||||
Accumulated Amortization
|
- | (10,397 | ) | |||||
Intangible Assets, Net
|
$ | - | $ | 147,908 |
Deferred tax assets:
|
December 31, 2012
|
December 31, 2011
|
||||||
Net operating loss carry forwards
|
$ | 1,170,000 | $ | 870,000 | ||||
Less valuation allowance
|
(1,170,000 | ) | (870,000 | ) | ||||
Net deferred tax asset
|
$ | - | $ | - |
Outstanding and Exercisable Options
|
||||||||||||||||||||
Remaining
|
Exercise Price
|
Weighted
|
||||||||||||||||||
Number of
|
Contractual Life
|
times Number
|
Average
|
Intrinsic
|
||||||||||||||||
Exercise Price
|
Shares
|
(in years)
|
of Shares
|
Exercise Price
|
Value
|
|||||||||||||||
$0.25
|
2,820,000 | 5 | $ | 705,000 | $ | 0.25 | $ | 0 | ||||||||||||
2,820,000 | $ | 705,050 | $ | 0.25 | 0 |
1. | Compliance with Applicable Laws, Rules and Regulations. |
2. | Avoidance of Conflicts of Interest. |
3. |
Bribes, Kickbacks and Gifts.
|
4. |
Confidential Information.
|
5. |
Insider Trading.
|
6. |
Public Disclosure of Information Required by the Securities Laws.
|
● |
Establishing and maintaining disclosure controls and procedures and internal control over financial reporting that, among other things, ensure that material information relating to the Company is made known to them on a timely basis;
|
|
● |
Designing the Company’s internal control over financial reporting to provide reasonable assurances that the Company’s financial statements are fairly presented in conformity with generally accepted accounting principles;
|
|
● |
Evaluating the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting;
|
|
● |
Disclosing (i) specified deficiencies and weaknesses in the design or operation of the Company’s internal control over financial reporting, (ii) fraud that involves management or other employees who have a significant role in the Company’s internal control over financial reporting, and (iii) specified changes relating to the Company’s internal control over financial reporting; and
|
● |
Providing certifications in the Company’s annual and quarterly reports regarding the above items and other specified matters.
|
7. |
Record-Keeping.
|
8. |
Corporate Opportunities.
|
9. |
Competition and Fair Dealing.
|
10. |
Protection and Proper Use of Company Assets.
|
11. |
Discrimination and Harassment.
|
12. |
Health and Safety.
|
13. |
Waivers and Amendments of the Code of Business Conduct and Ethics.
|
14. |
Enforcement of the Code of Business Conduct and Ethics.
|
15. |
Compliance Procedures; Reporting Misconduct or Other Ethical Violations.
|
Chief Financial Officer
:
|
(866) 331-5324
|
Legal Counsel
:
|
(866) 331-5324
|
(a) |
has read and understands the AudioEye, Inc. Code of Business Conduct and Ethics (the “
Code of Ethics
”);
|
|
(b) |
understands that AudioEye, Inc.’s Chief Financial Officer and legal counsel are available to answer any questions the undersigned has regarding the Code of Ethics; and
|
|
(c) |
will continue to comply with the Code of Ethics for as long as the undersigned is subject thereto.
|
Signature: | |||||
Date: | |||||
Print Name: |
Name | Jurisdiction of Organization | |||
Empire Technologies, LLC (1) | Arizona | |||
(1) 100% owned
|
10350 Richmond Ave., Suite 800 • Houston, TX 77042 • 713.343.4200
|
|
15 Maiden Lane, Suite 1003 • New York, NY 10038 • 212.406.7272
|
|
www.malonebailey.com
|
|
Registered Public Company Accounting Oversight Board • AICPA |
Date: April 15, 2013
|
By:
|
/s/ Nathaniel Bradley | |
Name: Nathaniel Bradley | |||
Title: Chief Executive Officer |
Date: April 15, 2013
|
By:
|
/s/ Edward O’Donnell | |
Name: Edward O’Donnell | |||
Title: Chief Financial Officer |
Date: April 15, 2013
|
By:
|
/s/ Nathaniel Bradley | |
Name: Nathaniel Bradley
|
|||
Title: Chief Executive Officer |
Date: April 15, 2013
|
By:
|
/s/ Edward O’Donnell | |
Name: Edward O’Donnell | |||
Title: Chief Financial Officer |