AudioEye (AEYE) 10-Q14 May 142014 Q1 Quarterly reportFinancial data

Company Profile

Document_and_Entity_Informatio

Document and Entity Information	3 Months Ended
Document and Entity Information	Mar. 31, 2014	14-May-14
Document And Entity Information	'	'
Entity Registrant Name	'AUDIOEYE INC	'
Entity Central Index Key	'0001362190	'
Document Type	'10-Q	'
Document Period End Date	31-Mar-14	'
Amendment Flag	'false	'
Current Fiscal Year End Date	'--12-31	'
Entity Current Reporting Status	'Yes	'
Entity Filer Category	'Smaller Reporting Company	'
Entity Common Stock, Shares Outstanding	'	55,517,709
Document Fiscal Period Focus	'Q1	'
Document Fiscal Year Focus	'2014	'

CONSOLIDATED_BALANCE_SHEETS

CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2014	Dec. 31, 2013
Current Assets	'	'
Cash	$492,718	$1,847,004
Accounts receivable, net	1,295,051	569,297
Related party receivables	83,375	82,250
Prepaid assets & security deposits	49,643	'
Total Current Assets	1,920,787	2,498,551
Property and equipment, net	3,048	3,847
Intangible assets, net	3,830,823	3,073,945
Goodwill	700,528	700,528
Total Assets	6,455,186	6,276,871
Current Liabilities	'	'
Accounts payable and accrued expenses	1,275,184	416,531
Notes and loans payable-current, net of discount of $0 and $1,155, respectively	24,000	172,845
Related party payable	87,000	243,424
Related party loans	35,000	35,000
Total Current Liabilities	1,421,184	867,800
Long Term Liabilities	'	'
Notes and loans payable-long term	69,800	79,800
Total Long Term Liabilities	69,800	79,800
Total Liabilities	1,490,984	947,600
STOCKHOLDERS' EQUITY	'	'
Preferred stock, $0.00001 par value, 10,000,000 shares authorized, none issued and outstanding, as of March 31, 2014 and December 31, 2013, respectively	'	'
Common stock, $0.00001 par value, 250,000,000 shares authorized, 55,399,839 and 53,239,369 issued and outstanding, as of March 31, 2014 and December 31, 2013 respectively	554	532
Treasury stock	-623,000	-623,000
Additional paid in capital	14,274,875	13,231,212
Accumulated deficit	-8,688,227	-7,279,473
Total Stockholders' Deficit	4,964,202	5,329,271
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$6,455,186	$6,276,871

CONSOLIDATED_BALANCE_SHEETS_Pa

CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
CONSOLIDATED BALANCE SHEETS	'	'
Notes and loans payable-current, discount amount	$0	$1,155
Preferred Stock, par value (in dollars per share)	$0.00	$0.00
Preferred Stock, shares authorized	10,000,000	10,000,000
Preferred Stock, shares issued	0	0
Preferred Stock, shares outstanding	0	0
Common Stock, par value (in dollars per share)	$0.00	$0.00
Common Stock, shares authorized	250,000,000	250,000,000
Common Stock, shares issued	55,399,839	53,239,369
Common Stock, shares outstanding	55,399,839	53,239,369

CONSOLIDATED_STATEMENTS_OF_OPE

CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	Mar. 31, 2014	Mar. 31, 2013
CONSOLIDATED STATEMENTS OF OPERATIONS	'	'
Revenue	$1,029,761	$223,172
Revenue from related party	3,125	1,125
Total revenues	1,032,886	224,297
Cost of revenues	41,153	45,023
Gross profit	991,733	179,274
Operating expenses:	'	'
Selling & marketing	495,383	7,750
Research & development	130,624	'
General and administrative expenses	1,667,600	444,050
Amortization & depreciation	99,897	89,593
Total operating expenses	2,393,504	541,393
Operating income (loss)	-1,401,771	-362,119
Other income (expense)	'	'
Unrealized gain (loss) on marketable securities	'	-9,000
Interest expense	-6,983	-24,967
Total other income (expense)	-6,983	-33,967
Net (loss)	($1,408,754)	($396,086)
Net (loss) per common share - basic and diluted (in dollars per share)	($0.03)	($0.01)
Weighted average common shares outstanding - basic and diluted (in shares)	54,215,367	36,965,057

CONSOLIDATED_STATEMENTS_OF_CAS

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	Mar. 31, 2014	Mar. 31, 2013
Cash Flows from Operating Activities:	'	'
Net (loss)	($1,408,754)	($396,086)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:	'	'
Depreciation and amortization	99,897	89,593
Stock, option and warrant expense	849,148	169,756
Unrealized (gain) loss on investments	'	9,000
Amortization of debt discount	1,155	'
Changes in operating assets and liabilities:	'	'
Accounts receivable	-725,754	3,256
Related party receivable	-1,125	'
Prepaid & other assets	-49,643	'
Accounts payable and accruals	116,153	70,071
Deferred revenue	'	-10,380
Related party payables	-156,424	'
Net cash (used in) operating activities	-1,275,347	-64,790
Cash Flows from Investing Activities:	'	'
Cash paid for intangible assets	-113,476	'
Net cash (used in) by investing activities	-113,476	'
Cash Flows from Financing Activities:	'	'
Repayment of note payable	-160,000	-206,000
Issuance of common stock for cash	181,537	'
Issuance of equity for cash exercise of options and warrants	13,000	'
Proceeds from third party loans	'	352,500
Net cash provided by financing activities	34,537	146,500
Increase (decrease) in cash	-1,354,286	81,710
Cash - beginning of period	1,847,004	11,710
Cash - end of period	492,718	93,420
NON-CASH FINANCING ACTIVITIES	'	'
Common stock issued for conversion of debt	'	1,692,932
Warrants issued for related party loans	'	829,418
Common stock issued to CMGO for debt repayment	'	241,339
Patents capitalized in accounts payable	'	1,837
Accounts payable converted into debt	'	30,000
Intangible assets purchased with accounts payable	742,500	'
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION	'	'
Interest paid	$3,658	$24,967

ORGANIZATION_AND_BASIS_OF_PRES

ORGANIZATION AND BASIS OF PRESENTATION	3 Months Ended
ORGANIZATION AND BASIS OF PRESENTATION	Mar. 31, 2014
ORGANIZATION AND BASIS OF PRESENTATION	'
ORGANIZATION AND BASIS OF PRESENTATION	'
	NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION

	The accompanying unaudited interim financial statements of AudioEye, Inc. and its wholly-owned subsidiary (collectively, the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2014.

	In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements that would substantially duplicate the disclosures contained in the audited financial statements for the year ended December 31, 2013 as reported in the Company’s Annual Report on Form 10-K have been omitted.

	Corporate Information and Background

	AudioEye, Inc. was formed as a Delaware corporation on May 20, 2005. The Company focuses on working to improve the mobility, usability and accessibility of all Internet-based content through the development, sale, licensing and use of its proprietary accessibility technologies. Audio Internet® is a technology that utilizes patented architecture to deliver a fully accessible audio equivalent of a visual website or mobile website in a compliant format that can be navigated, utilized, interacted with, and transacted from, without the use of a monitor or mouse, by individuals with visual impairments. For individuals with hearing impairments, Audio Internet® provides captioning for websites, and the challenges of reaching those with other impairments are also addressed by the technology platform.

	Complete with an ever-growing suite of utilities tailored to the needs of different disabled users, the AudioEye® Audio Internet® Accessibility Platform is a fully scalable cloud-based solution designed and developed to meet the needs and compliance mandates for an ever-growing demographic.

	Reclassification

	Certain prior year amounts have been reclassified to conform to the current year presentation.

	Revenue Recognition

	Revenue is recognized when all applicable recognition criteria have been met, which generally include: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. For software and technology development contracts where applicable, the Company recognizes revenues on a percentage of completion method based upon several factors including but not limited to: (a) an estimate of total hours and milestones to complete; (b) the total hours completed; (c) the delivery of services rendered; (d) the change in estimates; and (e) the collectability of the contract.

	Licensing revenues for intangible assets, including intellectual property such as patents and trademarks, are recognized when all applicable criteria have been met: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) the delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. Licensing revenues are recognized over the term of the contract or, in the case of a perpetual license, revenues are recognized in the period the criteria have been met. In transactions where the Company engages in a non-cash exchange for a license of the Company for the license of the Company’s customer, the Company follows ASC 985-605 and ASC 958-845-10. The licenses received from the Company’s customers are sold, licensed or leased in a different line of business from the Company license delivered to the Company’s customers in the exchange. The fair value of the technology or products exchanged or received is determinable within reasonable limits and used to determine vendor-specific objective evidence with the purpose to enhance product offerings for the sale or license to third parties. The Company uses fair value guidance of the vendor-specific objective evidence of fair value (“VSOE”) under ASC 985-605. The contracts are then evaluted for commercial substance, including that the licenses received by the Company in the exchange are expected, at the time of the exchange, to be deployed and used by the software vendor and the value ascribed to the transaction reasonably reflects such expected use. For the three months ended March 31, 2014, the Company sold one license for cash of $225,000 and exchanged the same license to three other customers for licenses to their intellectual property. The three licenses exhanged were determined to meet the aforementioned criteria and were each recognized as revenue and intangible assets for $225,000 each for a total of $675,000.

RELATED_PARTY_TRANSACTIONS

RELATED PARTY TRANSACTIONS	3 Months Ended
RELATED PARTY TRANSACTIONS	Mar. 31, 2014
RELATED PARTY TRANSACTIONS	'
RELATED PARTY TRANSACTIONS	'
	NOTE 2: RELATED PARTY TRANSACTIONS

	As of March 31, 2014 and December 31, 2013, related party loans totaled $35,000 and $35,000, respectively.

	As of March 31, 2014 and December 31, 2013, there were related party payables of $87,000 and $243,424, respectively, for services performed by related parties. During the three months ended March 31, 2014, the Company repaid $156,424 to related parties for services, payroll and reimburseable expenses.

	As of March 31, 2014 and December 31, 2013, there were outstanding receivables of $83,375 and $82,250, respectively, for services performed for related parties.

	For the three months ended March 31, 2014 and 2013, there were revenues earned of $3,125 and $1,125, respectively, for services performed for related parties.

NOTES_PAYABLE

NOTES PAYABLE	3 Months Ended
	Mar. 31, 2014
NOTES PAYABLE	'
NOTES PAYABLE	'
	NOTE 3: NOTES PAYABLE

	As of March 31, 2014 and December 31, 2013, the Company had the current and long term notes payable of $24,000 and $172,845 and $69,800 and $79,800, respectively as shown in the table below.

	Notes and loans payable	March 31, 2014		December 31, 2013

	Short Term
	Maryland TEDCO Note	$	24,000	$	24,000
	Note Payable (net of $0 and $1,155 discount, resepectively)	—		148,845
	Total	$	24,000	$	172,845
	Long Term
	Maryland TEDCO Note	$	69,800	$	79,800
	Total	$	69,800	$	79,800

	As of December 31, 2012, the Company had an outstanding loan to a third party in the amount of $74,900, which was originally issued during 2006 as part of an investment agreement. The loan was unsecured and bore interest at 25% per year for four years. The Company had accrued interest of $74,900, which was included in accounts payable and accrued expenses on the balance sheet. The note was in default until October 24, 2011, at which time the Company entered into a Termination and Release Agreement (“Release”) with the noteholder. The terms of the Release, among other things, terminated the Investment Agreement between the parties, and required the Company to issue a Promissory Note to the noteholder in the combined amount of principal and accrued interest owed to date, for a total principal amount of $149,800 (the “Maryland TEDCO Note”). The Maryland TEDCO Note is interest free, and is payable in monthly installments of $2,000 beginning November 1, 2011. As of March 31, 2014 and December 31, 2013 the principal amount owing was $93,800 and $103,800, respectively, of which $24,000 and $24,000, respectively, has been recorded as the current portion of the note, and $69,800 and $79,800, respectively, as the long-term portion of the note, respectively.

	On August 3, 2013, the Company borrowed $150,000 with a coupon rate of 10%, due on September 10, 2013 with a warrant to purchase 20,000 common shares, that vested immediately with a strike price of $0.50. The warrant was valued at $6,930 on August 3, 2013 using a closing price that day of $0.47, a strike price of $0.50, term of 5 years, volatility of 100%, dividends of 0%, and a discount rate of 1.36%. The value of the warrant of $6,930 is reflected as a discount to the note for a net amount of $143,070. For the year ended December 31, 2013, interest was accrued in the amount of $2,384 and $5,755 was recognzied as amortization expense. During the quarter ending March 31, 2014, the note principal of $150,000 and interest of $3,658 was paid in full and $1,155 was recognized as amortization expenses.

STOCKHOLDERS_EQUITY

STOCKHOLDERS' EQUITY	3 Months Ended
STOCKHOLDERS' EQUITY	Mar. 31, 2014
STOCKHOLDERS' EQUITY	'
STOCKHOLDERS' EQUITY	'
	NOTE 4: STOCKHOLDERS’ EQUITY

	As of March 31, 2014 and December 31, 2013, the Company had 55,399,839 and 53,239,369 shares of common stock issued and outstanding, respectively.

	On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the second closing of a private placement (the “Second Private Placement”). Placement fees were paid and the company received net proceeds of $181,537. The units in the Second Private Placement consisted of 666,667 shares of the Company’s common stock and warrants to purchase an additional 666,667 shares of the Company’s common stock. The warrants in the Second Private Placement have a term of five years and an exercise price of $0.40 per share.

	On February 3, 2014, the Company issued 44,307 shares of common stock valued at $13,292 and a five-year warrant to purchase 44,307 shares of common stock with a strike price of $0.40, volatility of 100% and a risk free rate of 1.44% and a fair value of $9,103, which was completely expensed in the current period. The warrant was issued to compensate for consulting services provided by a third-party. The shares were valued at the market price of the respective date of issuance.

	On March 27, 2014, the Company filed a Certificate of Amendment to the Certificate of Incorporation increasing the authorized number of shares of Company common stock to 250,000,000 from 100,000,000.

	On March 28, 2014, the Company issued 49,496 shares of common stock pursuant to the cashless exercise of 100,000 options.

	From January 1, 2014 through March 31, 2014, the Company also issued 100,000 shares of common stock for services for an expense of $28,500 with no future period amortization and 1,300,000 shares of common stock pursuant to exercise of warrants for total proceeds of $13,000. The shares were valued at the market price of the respective date of issuance.

OPTIONS

OPTIONS	3 Months Ended
	Mar. 31, 2014
OPTIONS.	'
OPTIONS	'
	NOTE 5: OPTIONS

	As of March 31, 2014 and December 31, 2013, the Company has 8,712,350 and 4,485,250 options issued and outstanding, respectively.

		Number of	Wtd Avg.		Wtd Avg.	Intrinsic
		Options	Exercise Price		Remaining	Value
					Term
	Outstanding at December 31, 2013	4,485,250	$	0.38	3.96	$	99,070

	Granted	4,327,100	0.43		5.17	—
	Less Exercised	100,000	0.25		—	—

	Outstanding at March 31, 2014	8,712,350	$	0.41	4.31	$	489,225

	The options were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 2.67 to 2.88 years, expected volatility of 100%, risk free interest rate of 1.54% to 1.76%, and expected dividend yield of 0%.

	On January 27, 2014, the Company awarded 1,500,000 options, one third of which vested immediately, one third upon the Company reporting a minimum of $10 million in annualized revenues by the 2nd anniversary and one third upon the Company reporting a minimum of $20 million in annualized reveunes by the 3rd anniversary from the grant date, with an exercise price of $0.40 per share and an expiration date of January 27, 2019. The fair value on the grant date of the options was $274,463 and the option expense for three months ended March 31, 2014 was determined to be $91,488.

	On February 17, 2014, the Company awarded 55,000 options, which vest over three years, with an exercise price of $0.305 per share and an expiration date of February 17, 2019. The fair value on the grant date of the options was $9,752 and the option expense for three months ended March 31, 2014 was determined to be $582.

	On March 3, 2014, the Company awarded 250,000 options, of which 20% vested immediately and 20% vest every 90 days thereafter, with an exercise price of $0.40 per share and an expiration date of March 3, 2019. The fair value on the grant date of the options was $37,805 and the option expense for three months ended March 31, 2014 was determined to be $7,561.

	On March 24, 2014, the Company awarded 1,522,100 options, which vest over three years,with the exception of 200,000 options issued to one individual that vested immediately upon grant. The options have an exercise price of $0.45 per share and an expiration date of March 24, 2019. The value on the grant date of the options was $675,775 and the option expense for three months ended March 31, 2014 was determined to be $60,501.

	On March 28, 2014, 100,000 options were exercised in a cashless manner and 49,496 shares of common stock were issued.

	For the three months ended March 31, 2014 expense amortized for options issued prior to January 1, 2014 was $146,002.

	For the three months ended March 31, 2014 and 2013, stock compensation expense related to the options totaled $306,134 and $86,006, respectively. For the three months ended March 31, 2014 and 2013, stock compensation expense related to the options, warrants and performance stock units totaled $807,356 and $86,006, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2017 is $2,402,590 as of March 31, 2014.

WARRANTS

3 Months Ended

Mar. 31, 2014

WARRANTS

NOTE 6: WARRANTS

Below is a table summarizing the Company’s outstanding warrants as of March 31, 2014 and December 31, 2013:

Number of

Wtd Avg.

Intrinsic

Warrants

Exercise Price

Remaining

Value

Term

Outstanding at December 31, 2013

18,770,591

0.35

4.64

—

Granted

2,014,308

0.4

4.16

—

Less Exercised

1,300,000

0.01

—

Outstanding at March 31, 2014

19,484,899

0.38

4.32

1,918,848

The warrants were valued using the Black-Scholes pricing model. Significant assumptions used in the valuation include expected term of 3.17 years, expected volatility of 100%, risk free interest rate of 1.55% to 1.76%, and expected dividend yield of 0%.

On November 16, 2013, the Company issued warrants to purchase1,300,000 of common stock which vested immediately and have an exercise price of $0.01 per share and expire on December 13, 2018. The fair value on the grant date of the options was $331,287 and the expense for year ended December 31, 2013 was determined to be $331,286. As of March 31, 2014, these warrants have been exercised in their entirety.

On January 27, 2014, the Company issued five-year fully-vested warrants to purchase 250,000 shares of the Company’s common stock with an exercise price of $0.40 per share. The fair value on the grant date of the warrants was $49,469 and the expense for the three months ended March 31, 2014 was determined to be $49,469. As of March 31, 2014, these warrants have not been exercised.

On January 30, 2014, the Company sold an aggregate of 666,667 units to two accredited investors for gross proceeds of $200,000 in the Second Private Placement. The units in the Second Private Placement consisted of 666,667 shares of the Company’s common stock and warrants to purchase an additional 666,667 shares of the Company’s common stock, as well as 53,334 placement agent warrants. The warrants in the Second Private Placement have a term of five years, an exercise price of $0.40 per share and a fair value determined to be $136,707. As of March 31, 2014, these warrants have not been exercised.

On February 3, 2014, the Company issued 44,307 shares of common stock and five-year fully-vested warrants to purchase 44,307 shares of common stock with an exercise price of $0.40 per share for payment for services. The fair value on the grant date of the warrants was $9,103 and the expense for the three months ended March 31, 2014 was determined to be $9,103. As of March 31, 2014, these warrants have not been exercised.

On March 24, 2014, the Company issued warrants to purchase 1,000,000 shares of common stock. The warrants vest as follows: one warrant share for every $10 of gross sales by the Company during the 12-month period immediately following the date of grant to customers introduced by an affiliate of the warrant holder. The warrants have an exercise price of $0.40 per share and an expiration date of March 24, 2019. The fair value on the grant date of the warrants was $346,997 and the warrant expense for March 31, 2014 was determined to be $346,997. As of March 31, 2014, these warrants have not been exercised.

For the three months ended March 31, 2014 and 2013, the Company has incurred warrant-based expense of $405,569 and $0, respectively. For the three months ended March 31, 2014 and 2013, stock compensation expense related to the options, warrants and performance stock units totaled $807,356 and $86,006, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2017 is $2,402,590 as of March 31, 2014.

PERFORMANCE_SHARE_UNITS

PERFORMANCE SHARE UNITS	3 Months Ended
	Mar. 31, 2014
PERFORMANCE SHARE UNITS	'
PERFORMANCE SHARE UNITS	'
	NOTE 7: PERFORMANCE SHARE UNITS

	On January 27, 2014, the Company entered into a Performance Share Unit Agreement under the AudioEye, Inc. 2013 Incentive Compensation Plan with Paul Arena, the Company’s Executive Chairman. Mr. Arena was granted an award of up to an aggregate of 3,000,000 Performance Share Units (“PSUs”). Each PSU represents the right to receive one share of the Company’s common stock. The number of PSUs for a performance period will be determined by the level of achievement of performance goals in accordance with the terms and provisions of the Performance Share Unit Agreement.

	Below is a table summarizing the Company’s outstanding performance share units as of March 31, 2014 and December 31, 2013:

					Wtd Avg.
		Number of	Wtd Avg.		Remaining
		PSUs	Grant Price		Term
	Outstanding at December 31, 2013	1,000,000	$	0.45	2

	Granted	3,000,000	0.33		2.67

	Outstanding at March 31, 2014	4,000,000	$	0.36	2.5

	For the three months ended March 31, 2014 and 2013, the Company has incurred performance share unit-based expense of $95,653 and $0, respectively. For the three months ended March 31, 2014 and 2013, stock compensation expense related to the options, warrants and performance stock units totaled $807,356 and $86,006, respectively. The total stock compensation expense related to the options, warrants and performance stock units to be amortized through March 2017 is $2,402,590 as of March 31, 2014.

INTANGIBLE_ASSETS

INTANGIBLE ASSETS	3 Months Ended
	Mar. 31, 2014
INTANGIBLE ASSETS	'
INTANGIBLE ASSETS	'
	NOTE 8: INTANGIBLE ASSETS

	As of March 31, 2014, patents, technology and other intangibles with contractual terms were generally amortized over their estimated useful lives of five or ten years. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

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

		March 31,			December 31,
		2014			2013

	Patents	$	3,564,319		$	3,563,343
	Software Development Costs	180,000			—
	Licensing	675,000			—
	Accumulated Amortization	(588,496		)	(489,398		)
	Intangible Assets, Net	$	3,830,823		$	3,073,945

	Software development costs and licensing intangible assets both have an estimated useful life of 3 years. Software development costs are incurred during the building of the Company’s Internet platform. Licensing costs are those costs incurred to use processes and technologies not developed by the Company. Both software development and licensing costs are subject to annual impairment testing. During the three months ended March 31, 2014, $180,000 was capitalized as software development cost. During the three months ended March 31, 2014, a total of $675,000 of licenses were purchased by exchanging the Company’s own licenses and were accounted for as a non-cash transaction in accordance with ASC 985-845. See Note 1 for more details.

	Amortization expense totaled $99,098 and $88,794 for the three months ended March 31, 2014 and 2013, respectively.

SUBSEQUENT_EVENTS

SUBSEQUENT EVENTS	3 Months Ended
SUBSEQUENT EVENTS	Mar. 31, 2014
SUBSEQUENT EVENTS	'
SUBSEQUENT EVENTS	'
	NOTE 9: SUBSEQUENT EVENTS

	From April 1, 2014 through May 14, 2014, the Company has issued 100,000 shares of common stock for services for an expense of $49,500 with no future period amortization and 17,870 shares of common stock pursuant to cashless exercise of warrants.

ORGANIZATION_AND_BASIS_OF_PRES1

ORGANIZATION AND BASIS OF PRESENTATION (Policies)	3 Months Ended
ORGANIZATION AND BASIS OF PRESENTATION (Policies)	Mar. 31, 2014
ORGANIZATION AND BASIS OF PRESENTATION	'
Reclassification	'
	Reclassification

	Certain prior year amounts have been reclassified to conform to the current year presentation.
Revenue Recognition	'
	Revenue Recognition

	Revenue is recognized when all applicable recognition criteria have been met, which generally include: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. For software and technology development contracts where applicable, the Company recognizes revenues on a percentage of completion method based upon several factors including but not limited to: (a) an estimate of total hours and milestones to complete; (b) the total hours completed; (c) the delivery of services rendered; (d) the change in estimates; and (e) the collectability of the contract.

	Licensing revenues for intangible assets, including intellectual property such as patents and trademarks, are recognized when all applicable criteria have been met: (a) persuasive evidence of an existing arrangement; (b) a fixed or determinable price; (c) the delivery has occurred or service has been rendered; and (d) the collectability of the sales price is reasonably assured. Licensing revenues are recognized over the term of the contract or, in the case of a perpetual license, revenues are recognized in the period the criteria have been met. In transactions where the Company engages in a non-cash exchange for a license of the Company for the license of the Company’s customer, the Company follows ASC 985-605 and ASC 958-845-10. The licenses received from the Company’s customers are sold, licensed or leased in a different line of business from the Company license delivered to the Company’s customers in the exchange. The fair value of the technology or products exchanged or received is determinable within reasonable limits and used to determine vendor-specific objective evidence with the purpose to enhance product offerings for the sale or license to third parties. The Company uses fair value guidance of the vendor-specific objective evidence of fair value (“VSOE”) under ASC 985-605. The contracts are then evaluted for commercial substance, including that the licenses received by the Company in the exchange are expected, at the time of the exchange, to be deployed and used by the software vendor and the value ascribed to the transaction reasonably reflects such expected use. For the three months ended March 31, 2014, the Company sold one license for cash of $225,000 and exchanged the same license to three other customers for licenses to their intellectual property. The three licenses exhanged were determined to meet the aforementioned criteria and were each recognized as revenue and intangible assets for $225,000 each for a total of $675,000.

NOTES_PAYABLE_Tables

NOTES PAYABLE (Tables)	3 Months Ended
NOTES PAYABLE (Tables)	Mar. 31, 2014
NOTES PAYABLE	'
Schedule of current and long term notes payable	'


	Notes and loans payable	March 31, 2014		December 31, 2013

	Short Term
	Maryland TEDCO Note	$	24,000	$	24,000
	Note Payable (net of $0 and $1,155 discount, resepectively)	—		148,845
	Total	$	24,000	$	172,845
	Long Term
	Maryland TEDCO Note	$	69,800	$	79,800
	Total	$	69,800	$	79,800

OPTIONS_Tables

OPTIONS (Tables)	3 Months Ended
	Mar. 31, 2014
OPTIONS.	'
Summary of the Company's outstanding options	'


		Number of	Wtd Avg.		Wtd Avg.	Intrinsic
		Options	Exercise Price		Remaining	Value
					Term
	Outstanding at December 31, 2013	4,485,250	$	0.38	3.96	$	99,070

	Granted	4,327,100	0.43		5.17	—
	Less Exercised	100,000	0.25		—	—

	Outstanding at March 31, 2014	8,712,350	$	0.41	4.31	$	489,225

WARRANTS_Tables

WARRANTS (Tables)	3 Months Ended
WARRANTS (Tables)	Mar. 31, 2014
WARRANTS	'
Summary of the Company's outstanding warrants	'


		Number of	Wtd Avg.		Wtd Avg.	Intrinsic
		Warrants	Exercise Price		Remaining	Value
					Term
	Outstanding at December 31, 2013	18,770,591	$	0.35	4.64	—

	Granted	2,014,308	0.4		4.16	—
	Less Exercised	1,300,000	0.01		—	—

	Outstanding at March 31, 2014	19,484,899	$	0.38	4.32	$	1,918,848

PERFORMANCE_SHARE_UNITS_Tables

PERFORMANCE SHARE UNITS (Tables)	3 Months Ended
PERFORMANCE SHARE UNITS (Tables)	Mar. 31, 2014
PERFORMANCE SHARE UNITS	'
Summary of outstanding performance share units	'


					Wtd Avg.
		Number of	Wtd Avg.		Remaining
		PSUs	Grant Price		Term
	Outstanding at December 31, 2013	1,000,000	$	0.45	2

	Granted	3,000,000	0.33		2.67

	Outstanding at March 31, 2014	4,000,000	$	0.36	2.5

INTANGIBLE_ASSETS_Tables

INTANGIBLE ASSETS (Tables)	3 Months Ended
	Mar. 31, 2014
INTANGIBLE ASSETS	'
Schedule of intangible assets	'


		March 31,			December 31,
		2014			2013

	Patents	$	3,564,319		$	3,563,343
	Software Development Costs	180,000			—
	Licensing	675,000			—
	Accumulated Amortization	(588,496		)	(489,398		)
	Intangible Assets, Net	$	3,830,823		$	3,073,945

ORGANIZATION_AND_BASIS_OF_PRES2

ORGANIZATION AND BASIS OF PRESENTATION (Details) (USD $)	3 Months Ended
	Mar. 31, 2014
	item
ORGANIZATION AND BASIS OF PRESENTATION	'
Number of licenses sold for cash	1
Cash amount received from sold of license	$225,000
Number of customers who have exchanged license	3
Number of licenses exchanged	3
Each license exchanged amount	225,000
Cumulative license exchanged amount	$675,000

RELATED_PARTY_TRANSACTIONS_Det

RELATED PARTY TRANSACTIONS (Details) (USD $)	3 Months Ended
RELATED PARTY TRANSACTIONS (Details) (USD $)	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
RELATED PARTY TRANSACTIONS	'	'	'
Related party loans	$35,000	'	$35,000
Related party payable	87,000	'	243,424
Payment to related party	156,424	'	'
Related party receivables	83,375	'	82,250
Revenue from related party	$3,125	$1,125	'

NOTES_PAYABLE_Details

NOTES PAYABLE (Details) (USD $)	3 Months Ended			0 Months Ended			0 Months Ended	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Oct. 24, 2011	Mar. 31, 2014	Dec. 31, 2013	Aug. 03, 2013	Mar. 31, 2014	Dec. 31, 2013	Dec. 31, 2012
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Maryland TEDCO Note	Maryland TEDCO Note	Maryland TEDCO Note	Note Payable	Note Payable	Note Payable	Loans Payable
Notes Payable	'	'	'	'	'	'	'	'	'	'
Short Term	$24,000	'	$172,845	'	$24,000	$24,000	'	'	$148,845	'
Long Term	69,800	'	79,800	'	69,800	79,800	'	'	'	'
Discount	0	'	1,155	'	'	'	6,930	0	1,155	'
Carrying amount of debt	'	'	'	'	93,800	103,800	143,070	'	'	74,900
Interest rate	'	'	'	'	'	'	10.00%	'	'	25.00%
Due date from the date of issuance	'	'	'	'	'	'	'	'	'	'4 years
Accrued interest	'	'	'	'	'	'	'	'	2,384	74,900
Face amount of debt	'	'	'	149,800	'	'	150,000	'	'	'
Monthly payments	'	'	'	2,000	'	'	'	'	'	'
Warrants to purchase shares	'	'	'	'	'	'	20,000	'	'	'
Strike price (in dollars per share)	'	'	'	'	'	'	$0.50	'	'	'
Share price (in dollars per share)	'	'	'	'	'	'	$0.47	'	'	'
Term	'	'	'	'	'	'	'5 years	'	'	'
Volatility (as a percent)	'	'	'	'	'	'	100.00%	'	'	'
Dividends (as a percent)	'	'	'	'	'	'	0.00%	'	'	'
Discount rate (as a percent)	'	'	'	'	'	'	1.36%	'	'	'
Amortization expense	99,098	88,794	'	'	'	'	'	1,155	5,755	'
Payment of accrued interest	'	'	'	'	'	'	'	3,658	'	'
Repayment of Principal	'	'	'	'	'	'	'	$150,000	'	'

STOCKHOLDERS_EQUITY_Details

STOCKHOLDERS' EQUITY (Details) (USD $)	0 Months Ended	3 Months Ended			0 Months Ended
	Mar. 28, 2014	Mar. 31, 2014	Mar. 27, 2014	Dec. 31, 2013	Feb. 03, 2014	Jan. 30, 2014
					Warrants granted on February 3, 2014	Accredited investors
					Warrants	item
STOCKHOLDERS' EQUITY	'	'	'	'	'	'
Common Stock, shares issued	49,496	55,399,839	'	53,239,369	'	'
Common Stock, shares outstanding	'	55,399,839	'	53,239,369	'	'
Common stock issued for services (in shares)	'	100,000	'	'	44,307	'
Expenses related to common stock issued for service	'	$28,500	'	'	'	'
Stockholders' Equity	'	'	'	'	'	'
Units sold to accredited investors (in shares)	'	'	'	'	'	666,667
Number of accredited investors	'	'	'	'	'	2
Proceeds from sale of units to accredited investors	'	'	'	'	'	200,000
Units sold to accredited investors, number of common shares	'	'	'	'	'	666,667
Units sold to accredited investors, number of warrants	'	'	'	'	'	666,667
Number of shares of warrants included with the units sold	'	'	'	'	'	'5 years
Exercise price of units (in dollars per share)	'	'	'	'	'	$0.40
Common stock value	'	'	'	'	13,292	'
Warrants to purchase shares	'	'	'	'	44,307	'
Term of warrant	'	'	'	'	'5 years	'
Strike price (in dollars per share)	'	'	'	'	$0.40	'
Value of warrants	'	'	'	'	9,103	'
Common Stock, shares authorized	'	250,000,000	250,000,000	250,000,000	'	'
Common Stock, shares authorized before amendment	'	'	100,000,000	'	'	'
Common Stock, shares issued	49,496	55,399,839	'	53,239,369	'	'
Common shares for the exercise of options	100,000	'	'	'	'	'
Common stock issued for services (in shares)	'	100,000	'	'	44,307	'
Expenses related to common stock issued for service	'	28,500	'	'	'	'
Common stock issued for exercise of warrants (in shares)	'	1,300,000	'	'	'	'
Proceeds from exercise of warrants	'	13,000	'	'	'	'
Net proceeds from sale of units to accredited investors	'	'	'	'	'	$181,537
Volatility (as a percent)	'	'	'	'	100.00%	'
Risk-free interest rate (as a percent)	'	'	'	'	1.44%	'

OPTIONS_Details

OPTIONS (Details) (USD $)

0 Months Ended

3 Months Ended

12 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

Mar. 28, 2014

Mar. 31, 2014

Mar. 31, 2013

Dec. 31, 2013

Mar. 31, 2014

Mar. 31, 2013

Dec. 31, 2013

Mar. 31, 2014

Jan. 27, 2014

Mar. 31, 2014

Jan. 27, 2014

Feb. 17, 2014

Mar. 31, 2014

Mar. 03, 2014

Mar. 31, 2014

Mar. 03, 2014

Mar. 24, 2014

Mar. 31, 2014

Mar. 24, 2014

Mar. 31, 2014

Options

Minimum

Maximum

Options issued on January 27, 2014

Options issued on February 17, 2014

Options issued on March 3, 2014

Options issued on March 24, 2014

Options issued prior to January 1, 2014

Immediate vesting

Vesting upon company reporting minimum $10 million in annualized revenue by 2nd anniversary

Vesting upon company reporting minimum $20 million in annualized revenue by 3rd anniversary

Immediate vesting

Vesting every 90 days

One individual

Options

Options issued and outstanding

8,712,350

4,485,250

Number of options:

Outstanding at beginning of the period (in shares)

4,485,250

Granted (in shares)

4,327,100

1,500,000

55,000

250,000

1,522,100

200,000

Less Exercised (in shares)

100,000

Outstanding at the end of the period (in shares)

8,712,350

4,485,250

Wtd Avg. Exercise Price

Outstanding at beginning of the period (in dollars per share)

$0.38

Granted (in dollars per share)

$0.43

Less Exercised (in dollars per share)

$0.25

Outstanding at end of the period (in dollars per share)

$0.41

$0.38

Wtd Avg. Remaining Term

Outstanding at beginning of the period, wtd Avg. Remaining Term

'4 years 3 months 22 days

'3 years 11 months 16 days

Granted, Wtd Avg. Remaining Term

'5 years 2 months 1 day

Outstanding at end of the period, wtd Avg. Remaining Term

'4 years 3 months 22 days

'3 years 11 months 16 days

Intrinsic Value

Outstanding at beginning of the period, Intrinsic Value (in dollars)

$99,070

Outstanding at end of the period, Intrinsic Value (in dollars)

489,225

99,070

Significant assumptions used in the valuation

Expected term

'2 years 8 months 1 day

'2 years 10 months 17 days

Expected volatility (as a percent)

100.00%

Risk-free interest rate (as a percent)

1.54%

1.76%

Expected dividend yield (as a percent)

0.00%

Grant date fair value of options

274,463

9,752

37,805

675,775

Share based compensation expense

807,356

86,006

306,134

86,006

91,488

582

7,561

60,501

146,002

Number of options awarded

4,327,100

1,500,000

55,000

250,000

1,522,100

200,000

Vesting percentage

33.33%

20.00%

Minimum annualized revenues reported by 2nd anniversary from the grant date

10,000,000

Minimum annualized revenues reported by 3nd anniversary from the grant date

20,000,000

Exercise Price (in dollars per share)

$0.43

$0.40

$0.31

$0.40

$0.45

Vesting period

'3 years

Common shares for the exercise of options

100,000

Common Stock, shares issued

49,496

55,399,839

53,239,369

Unamortized Share based compensation expense

$2,402,590

WARRANTS_Details

WARRANTS (Details) (Warrant, USD $)	3 Months Ended	12 Months Ended
WARRANTS (Details) (Warrant, USD $)	Mar. 31, 2014	Dec. 31, 2013
Warrant	'	'
Number of warrants	'	'
Number of shares, beginning	18,770,591	'
Number of shares, granted	2,014,308	'
Number of shares, less exercised	1,300,000	'
Number of shares, ending	19,484,899	18,770,591
Weighted average exercise price	'	'
Weighted average exercise price, beginning (in dollars per share)	$0.35	'
Weighted average exercise price, granted (in dollars per share)	$0.40	'
Weighted average exercise price, less exercised (in dollars per share)	$0.01	'
Weighted average exercise price, ending (in dollars per share)	$0.38	$0.35
"Wtd Avg. Remaining Term "	'	'
Outstanding at beginning of the period	'4 years 3 months 25 days	'4 years 7 months 20 days
Granted	'4 years 1 month 28 days	'
Outstanding at end of the period	'4 years 3 months 25 days	'4 years 7 months 20 days
Intrinsic Value	'	'
Outstanding at end of the period	$1,918,848	'

WARRANTS_Details_2

WARRANTS (Details 2) (USD $)

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

12 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

0 Months Ended

3 Months Ended

Mar. 28, 2014

Mar. 31, 2014

Mar. 31, 2013

Jan. 30, 2014

Mar. 31, 2014

Mar. 31, 2013

Nov. 16, 2013

Dec. 31, 2013

Mar. 24, 2014

Mar. 31, 2014

Jan. 27, 2014

Mar. 31, 2014

Feb. 03, 2014

Mar. 31, 2014

Accredited investors

Warrants

item

Warrants granted on November 16, 2013

Warrants granted on March 24, 2014

Warrants granted on January 27, 2014

Warrants granted on February 3, 2014

Minimum

Maximum

Significant assumptions used in the valuation

Expected term

'3 years 2 months 1 day

Expected volatility (as a percent)

100.00%

Risk-free interest rate (as a percent)

1.55%

1.76%

Expected dividend yield (as a percent)

0.00%

Issuance of warrants (in shares)

1,300,000

Strike price (in dollars per share)

$0.01

$0.40

Grant date fair value of options

$136,707

$331,287

Stock compensation expense related to the options and warrants

807,356

86,006

405,569

331,286

346,997

49,469

9,103

Grant date fair value of warrants

346,997

49,469

9,103

Common stock issued for services (in shares)

100,000

44,307

Warrants to purchase shares

1,000,000

250,000

44,307

Number of warrants, which will vest for every specified dollars of gross sales

Amount of gross sales for which one warrant share will vest

Period immediately following the issue date during which warrants will vest for every specified dollars of gross sales

'12 months

Number of options exercised

100,000

Term of warrant

'5 years

Units sold to accredited investors (in shares)

666,667

Number of accredited investors to whom the entity sold units

Proceeds from sale of units to accredited investors

200,000

Number of shares of common stock included with the units sold

666,667

Additional number of shares of common stock included with the units sold

666,667

Number of shares of warrants included with the units sold

666,667

Additional number of shares of common stock included with the units sold to agents

53,334

Term of warrants issued to accredited investor

'5 years

Exercise price of units (in dollars per share)

$0.40

Total stock compensation expense to be amortized through March 2017

$2,402,590

PERFORMANCE_SHARE_UNITS_Detail

PERFORMANCE SHARE UNITS (Details) (USD $)	3 Months Ended				12 Months Ended	0 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013	Jan. 27, 2014
			PSUs	PSUs	PSUs	Mr. Arena
						PSUs
PERFORMANCE SHARE UNITS	'	'	'	'	'	'
Performance share unit agreement granted (in shares)	'	'	3,000,000	'	'	3,000,000
Number of shares issued for each performance share unit	'	'	'	'	'	1
Number of PSUs	'	'	'	'	'	'
Number of shares, beginning	'	'	1,000,000	'	'	'
Granted (in shares)	'	'	3,000,000	'	'	3,000,000
Number of shares, ending	'	'	4,000,000	'	1,000,000	'
Wtd Avg. Grant Price	'	'	'	'	'	'
Weighted average exercise price, beginning (in dollars per share)	'	'	$0.45	'	'	'
Granted (in dollars per share)	'	'	$0.33	'	'	'
Weighted average exercise price, ending (in dollars per share)	'	'	$0.36	'	$0.45	'
Wtd Avg. Remaining Term	'	'	'	'	'	'
Outstanding at the beginning of the period	'	'	'2 years 6 months	'	'2 years	'
Granted	'	'	'2 years 8 months 1 day	'	'	'
Outstanding at the end of the period	'	'	'2 years 6 months	'	'2 years	'
Stock compensation expense related to the options and warrants	$807,356	$86,006	$95,653	$0	'	'
Total stock compensation expense to be amortized through March 2017	$2,402,590	'	'	'	'	'

INTANGIBLE_ASSETS_Details

INTANGIBLE ASSETS (Details) (USD $)	3 Months Ended
INTANGIBLE ASSETS (Details) (USD $)	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Intangible Assets	'	'	'
Accumulated Amortization	($588,496)	'	($489,398)
Intangible Assets, Net	3,830,823	'	3,073,945
Amortization expense	99,098	88,794	'
Minimum	'	'	'
Intangible Assets	'	'	'
Estimated useful lives of intangibles assets	'5 years	'	'
Maximum	'	'	'
Intangible Assets	'	'	'
Estimated useful lives of intangibles assets	'10 years	'	'
Patents	'	'	'
Intangible Assets	'	'	'
Intangible Assets, Gross	3,564,319	'	3,563,343
Software Development Costs	'	'	'
Intangible Assets	'	'	'
Estimated useful lives of intangibles assets	'3 years	'	'
Intangible Assets, Gross	180,000	'	'
Capitalized cost	180,000	'	'
Licensing	'	'	'
Intangible Assets	'	'	'
Estimated useful lives of intangibles assets	'3 years	'	'
Intangible Assets, Gross	675,000	'	'
Total licenses purchased as a non-cash transaction	$675,000	'	'

SUBSEQUENT_EVENTS_Details

SUBSEQUENT EVENTS (Details) (USD $)	3 Months Ended	1 Months Ended
	Mar. 31, 2014	14-May-14
	Mar. 31, 2014	Subsequent events
Subsequent event	'	'
Common stock issued for services (in shares)	100,000	100,000
Expenses related to common stock issued for service	$28,500	$49,500
Amortization period	'	'0 years
Common stock issued for exercise of warrants (in shares)	1,300,000	17,870