QUARTELY REPORT JUNE 30, 2011
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q10-Q/A-1

 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 THE SECURITIES EXCHANGE ACT OF 1934
 
 
For the quarter ended SeptemberJune 30, 20122013
 
 
Commission file number 000-51770
 
 
 CMG HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)

Nevada 87-0733770
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)

 5601 Biscayne Boulevard333 Hudson Street, Suite 303  
 Miami, Florida, USA New York, New York
 3313710013
 (Address of principal executive offices) (Zip Code)
 
Registrant's telephone number including area code (305) 751-1667(646) 688-6381
 
---------------------------------------------------------------
---------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or small reporting company. See the definition of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filerNon-accelerated filer
Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No x
 
As of November 19, 2012,May 20, 2013, the aggregate market value of the Registrant’s voting and none-voting common stock held by non-affiliates of the registrant was approximately: $2,957,030$2,760,278 at $0.01 price per share, based on the closing price on the OTC Pink Sheets. As of November 19, 2012,May 20, 2013, there were 290,093,370294,650,743 shares of common stock of the registrant issued and 290,130,544294,650,743 outstanding.
 
Explanatory Note


CMG Holdings Group, Inc. (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amendment”) to the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2013 (the “Form 10-Q”), filed with the Securities and Exchange Commission on August 23, 2013 (the “Original Filing Date”), to remove the word "convertible" from the terms of the Infinity Alpha promissory note.  
No other changes have been made to the Form 10-Q. This Amendment speaks as of the Original Filing Date, does not reflect events that may have occurred subsequent to the Original Filing Date, and does not modify or update in any way disclosures made in the Form 10-Q.
 
1
 

CMG HOLDINGS GROUP, INC.
FORM 10-Q

TABLE OF CONTENTS

Item # Description Page Numbers
     
  PART I 3
     
ITEM 1 CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 3
     
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1611
     
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 1813
     
ITEM 4 CONTROLS AND PROCEDURES 2518
     
  PART II  
     
ITEM 1 LEGAL PROCEEDINGS 2518
     
ITEM 1A RISK FACTORS 2518
     
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 2518
     
ITEM 3 DEFAULTS UPON SENIOR SECURITIES 2519
     
ITEM 4 NINE SAFETY DISCLOSURES 2819
     
ITEM 5 OTHER INFORMATION 2819
     
ITEM 6 EXHIBITS 2819
     
  SIGNATURES 2820
     
     
EXHIBIT31.1
EXHIBIT 31.1		 
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
  
     
EXHIBIT 32.1
 
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
  


 
2
 
PART I

ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS


CMG HOLDINGS GROUP, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBERJUNE 30, 20122013 AND 20112012
CONTENTS

Consolidated Balance Sheets as of SeptemberJune 30, 20122013 and December 31, 20112012 (Unaudited)4
  
Consolidated Statements of Operations for the three months and nine months ended SeptemberJune 30, 2013 and 2012 and 2011for the six monnths ended June 30, 2013 and 2012 (Unaudited)5

Consolidated Statements of Cash Flows for the ninesix months ended SeptemberJune 30, 20122013 and 20112012 (Unaudited)6
  
Notes to Consolidated Financial Statements (Unaudited)7
 
 
3
 
 
CMG HOLDINGS, INC
CONSOLIDATED BALANCE SHEETS
(unaudited)(UNAUDITED)
 
  September 30, 2012  December 31, 2011 
ASSETS      
       
CURRENT ASSETS:      
Cash $465,944  $337,779 
Marketable securities  5,901   1,949 
Accounts receivable, net of allowance of $59,003 and $59,003 respectively  160,344   71,619 
Prepaid and Other Current Assets  58,833   58,058 
Current Assets Held for Sale  --   69,451 
Total current assets  691,022   538,856 
         
Investment – Cost Method  268,750   - 
Noncurrent Assets Held for Sale  --   6,000 
Intangible assets, net of accumulated amortization of $894,998 and $820,414, respectively  --   74,584 
TOTAL ASSETS $959,772  $619,440 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
CURRENT LIABILITIES:        
Client payable $11,317  $11,317 
Accounts payable  507,307   1,093,548 
Accounts payable – related party  56,045   169,550 
Accrued liabilities  1,317,847   1,130,817 
Deferred income  186,329   216,365 
Derivative liabilities  390,107   444,150 
Short term debt, net of unamortized discount of $131,334 and $183,110, respectively  155,149   1,211,389 
Line of credit  --   107,560 
Advances from related parties  79,132   86,328 
Current Liabilities Held for Sale  --   913,615 
         
TOTAL CURRENT LIABILITIES  2,703,233   5,384,639 
         
Notes Payable  637,000   -- 
Long term liabilities Held for Sale  --   1,245,843 
         
TOTAL LIABILITIES  3,340,233   6,630,482 
         
STOCKHOLDERS’ DEFICIT        
Preferred stock:        
Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; none issued and outstanding        
Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; 50,000 and 0 shares issued and outstanding  50   50 
Common Stock:        
450,000,000 shares authorized, par value $.001 per share; 275,922,221 and 124,811,383 shares issued, 275,959,395 and 124,774,209 outstanding  275,923   124,812 
         
Additional paid in capital  14,120,457   12,254,301 
         
Treasury Stock, 37,174 and 37,174 shares held, respectively.  37   37 
         
Accumulated deficit  (16,776,928)  (18,390,242)
         
TOTAL STOCKHOLDERS’ DEFICIT  (2,380,461)  (6,011,042)
         
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $959,772  $619,440 

   June 30, 2013  December 31, 2012 
ASSETS      
       
CURRENT ASSETS:      
Cash $536,332  $238,124 
Marketable securities  1,800,350   274,651 
Accounts receivable  199,864   252,567 
Prepaid assets  2,561   15,000 
Total Current Assets  2,539,107   780,342 
         
Other non-current assets  58,153   57,833 
TOTAL ASSETS $2,597,260  $838,175 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
CURRENT LIABILITIES:        
Accounts payable $ 420,274  $ 546,852 
Accounts payable – related party  71,600   19,625 
Accrued liabilities  791,322   722,549 
Deferred income  13,370   13,370 
Derivative liabilities  231,225   145,970 
Short term debt, net of unamortized discount of $0 and $47,012, respectively  246,469   150,431 
Total Current Liabilities  1,774,260   1,598,797 
         
Notes Payable, net of debt discount of $0 and $7,739, respectively  -   629,261 
TOTAL LIABILITIES  1,774,260   2,228,058 
         
STOCKHOLDERS’ EQUITY/(DEFICIT)        
Preferred stock:        
Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; none issued and outstanding  -   - 
Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; 50,000 and 50,000 shares issued and outstanding  50   50 
Common Stock:        
450,000,000 shares authorized, par value $.001 per share; 297,487,917 and 294,687,917 shares issued, 297,450,743 and 294,650,743 outstanding  297,414   294,614 
Additional paid in capital  14,493,141   14,469,341 
Treasury Stock, 37,174 and 37,174 shares held, respectively.  37   37 
Accumulated deficit  (13,967,642)  (16,153,925)
TOTAL STOCKHOLDERS’ EQUITY/(DEFICIT)  823,000   (1,389,883)
         
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $2,597,260  $838,175 
See accompanying notes to unaudited consolidated financial statements.

 
4
 
 
CMG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)(UNAUDITED)
 
  Three months ended Nine months ended 
  September 30, September 30, 
  2012  2011 2012 2011 
           
                 
Revenues $374,104  $513,999  $7,517,163  $5,914,368 
                 
Operating expenses:                
Cost of revenues  422,233   400,967   5,355,980   3,935,656 
Depreciation and amortization expense  --   74,583   74,850   223,749 
Operating expenses  794,688   1,324,952   2,752,554   2,938,127 
                 
                 
Operating income (loss)  (842,817)  (1,286,503)  (666,221)  (1,183,164) 
                 
                 
Other income (expense)                
Gain (loss) on derivative liability  (4,990)   (466,283)  (598,153)  1,936,650 
Gain (loss) on extinguishment of debt  75,618   -   75,618   - 
Unrealized gain (loss) on marketable securities  -   (8,153)  --   (30,057)
Other income (expense)  (19,083)  -   (19,083)  -- 
Interest expense  (103,167)  (252,866)  (790,992)  (719,214)
                 
Income (loss) from continuing operations  (894,439)   (2,013,805)  (1,998,831)   4,215 
Income (loss) from discontinued operations  (146,698)  (449,425)  (503,626)  (1,430,066)
Income (loss) on sale of discontinued operations  4,115,771   -   4,115,771   - 
Net Income (Loss) $3,074,634  $(2,463,230) $1,613,314  $(1,425,851)
                 
Basic and diluted income (loss) per common share for discontinued operations $0.01  $(0.03)  $0.02  $(0.00)
Basic and diluted income (loss) per common share for continuing operations $(0.00) $(0.01) $(0.01) $(0.02)
Total basic and diluted income (loss) per common share $0.00  $(0.04) $0.01  $(0.02)
                 
                 
Basic weighted average common shares outstanding  272,515,699   69,587,150   218,628,520   64,735,695 
Diluted weighted average common shares outstanding  293,562,646   69,587,150   239,675,467   64,735,695 
                 
  
For the Three Months Ended
June 30,
  
For the Six Months Ended
June 30,
 
  2013  2012  2013  2012 
             
REVENUES $4,369,640  $6,159,910  $5,392,809  $7,143,059 
                 
OPERATING EXPENSES                
   Cost of revenues  3,261,774   4,465,668   3,803,808   4,933,747 
   Depreciation and amortization  -   266   -   74,850 
   General and administrative  716,835   905,387   1,347,173   1,957,866 
      Total Operating Expenses  3,978,609   5,371,321   5,150,981   6,966,463 
 
OPERATING INCOME
  391,031   788,589   241,828   176,596 
                 
OTHER INCOME (EXPENSE)                
  Gain (loss) on derivative liability  69,771   (695,353)  12,842   (593,163)
   Other income (expense)  (5,400)  13,655   (5,400)  13,655 
  Unrealized gain on marketable securities  1,525,699   -   1,525,699   - 
   Gain on settlement of debt  610,400   -   610,400   - 
   Interest expense  (116,472)  (372,910)  (199,086)  (701,480)
       Total Other Income (Expense)  2,083,998   (1,054,608)   1,944,455   (1,280,988)
                 
Income (loss) from continuing operations  2,475,029   (266,019)  2,186,283   (1,104,392)
Loss from discontinued operations  -   (167,487)  -   (356,928)
                 
NET INCOME (LOSS) $2,475,029  $(433,506) $2,186,283  $(1,461,320)
                 
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE FROM DISCONTINED OPERATIONS $0.00  $(0.00) $0.00  $(0.00)
                 
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS $0.01  $(0.00) $0.01  $(0.01)
                 
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING  294,650,743     210,246,724     294,650,743     191,499,288 
                 
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING  313,396,748     210,246,724     313,396,748     191,499,288 
                 
                 
See accompanying notes to unaudited consolidated financial statements
 
 
5
 
 
CMG HOLDINGS GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)(UNAUDITED)
 
 Nine Months Ended  For the Six Months Ended 
 September 30,  June 30, 
 2012 2011  2013 2012 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Income (Loss) $1,613,314 $(1,425,851)
     
Net income (loss) from continuing operations $2,186,283  $(1,461,320)
Adjustments to reconcile net income (loss)          
to net cash provided by (used in) operating activities:          
Amortization of deferred financing costs -- 68,292 
Shares issued for services 194,100 116,437  - 222,020 
Loss on debt servicing 19,879 - 
Gain on sale of subsidiary (4,115,771) - 
Amortization of intangible assets 74,580 223,749  - 74,584 
Loss on settlement of debt - 288,618 
Unrealized loss on trading securities - 30,057 
Loss (gain) on derivatives 598,153 (1,936,650)
Loss on extinguishment of debt (75,618) - 
(Gain) loss on derivatives (12,842) 593,163 
Unrealized gain on marketable securities (1,525,699) - 
(Gain) on settlement of debt (610,400)  - 
Amortization of debt discount 659,280 528,330  149,874 596,841 
Bad debt  - 6,198 
Changes in:          
Accounts receivable (88,725) (66,770) 52,703  (946,335)
Prepaid expense and other current assets (4,727) (70,654) 12,439  (19,726)
Deferred income (30,036) 126,950  (320) (137,516) 
Accrued liabilities 943,444 957,099  68,773 700,218 
Accounts payable (63,292)  92,227  (126,578)  386,197 
Accounts payable, related party  (113,505)  --   51,975   (113,505) 
Cash used in continuing operations (388,924) (1,068,166)
Cash provided (used) by continuing operations 246,208  (99,181)
Cash provided by discontinued operations  73,625  (177,880)   -  137,372 
Net cash (used) provided by operating activities  (315,299)  (1,246,046)
Net cash provided by operating activities  246,208   38,191 
          
CASH FLOWS FROM INVESTING ACTIVITIES          
Cash transferred upon sale of Audio Eye, Inc.  (4,841)  - 
Cash used in continuing operations  (4,841)   -  - - 
Cash used in discontinued operations  -   (6,528)  -  (10,647)
Net cash used in investing activities  (4,841)  (6,528)  -  (10,647)
          
CASH FLOWS FROM FINANCING ACTIVITIES          
Payments on related parties debt (16,000) (35,110) -  (12,000)
Advances from related parties 8,804 - 
Payments on short term debt (52,500) -- 
Proceeds from issuance of debt 37,500 37,600  104,500 37,500 
Stock issued for cash   197,000 
Net borrowings on line of credit  2,361  23,370 
Net change in line of credit  -  2,361 
Cash provided by continuing operations 32,665 222,860  52,000 27,861 
Cash provided by discontinued operations  415,640  1,159,124   -  211,000 
Net cash provided by financing activities 448,305 1,381,984  52,000 238,861 
       
Net increase in cash  128,165  129,410  298,208  266,405 
     
Cash, beginning of period  337,779  9,013   238,124  337,779 
Cash, end of period $465,944 $138,423   536,332 $604,184 
          
Supplemental cash flow information:          
Interest paid $4,675 $68,571  $25,000 $4,735 
Non-cash investing activity:     
Reclassification of accrued liabilities into debt 545,000 -- 
Income taxes paid $- $- 
     
Non-cash investing and financing activity:     
Reclassification of accounts payable to short term debt $522,943 $219,900  $-  $472,943 
Preferred stock issued for inventory -- 3,240,502 
Reclassification of accrued interest to short term debt $- $64,103 
Discount on notes payable from derivative liability 596,019 257,500  $98,097 $517,970 
Discount on shares issued with notes payable 11,486 - 
Reclassification of derivative liabilities to additional paid-in capital $ -  $990,472 
Common stock issued for settlement of notes payable   250,648  $26,600 $628,735 
Common stock issued for convertible debt   52,000 
Reclassification of long term related parties debt to short term - 204,878 
Reclassification of derivative liabilities from additional paid-in-capital - 10,883,382 
Reclassification of derivative liabilities to additional paid-in capital 991,596 7,975,967 
Conversion of debt to equity 628,735 - 
Gain on debt restructure - 121,934 
 
See accompanying notes to unaudited consolidated financial statements.
 
 
6
 
 
CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 30, 2013

(UNAUDITED)
NOTE 1 –BASIS OF PRESENTATION


The accompanying unaudited interim consolidated financial statements of CMG Holdings Group, Inc. (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 contained in its 20112012 annual report on Form 10-K. In the opinion of management, these interim financial statements include 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 interim periods are not necessarily indicative of the results to be expected for the full year. Our future results of operations may change materially from the historical results of operations reflected in our historical financial statements. The unaudited consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements and footnotes of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report for the year ended December 31, 20112012 as filed with the Securities and Exchange Commission on Form 10-K. Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for fiscal year 2011,2012, as reported in the Form 10-K, have been omitted.

Principles of Consolidation

The consolidated financial statements include the accounts of CMG Holdings Group, Inc., CMG Acquisition, Inc., CMGO Capital, Inc., XA The Experiential Agency, Inc., CMGO Logistics, Inc., USaveCT and USaveNJ, after elimination of all significant inter-company accounts and transactions.

On August 17, 2012 the Company, AudioEye Acquisition Corporation and CMGO Investors, LLC finalized and completed their Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes and their Share Exchange. As a result, AudioEye, Inc., Empire Technologies, LLC (“Empire”) as part of a joint venture with LVS Health Innovations, Inc. (“LVS”) whereby AudioEye owns 50% of Empire are no longer included in the Consolidation of the financial statements.

Fair Value Measurements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC 820 were effective January 1, 2008. ASC 820 delays the effective date for nonfinancial assets and liabilities, except for items that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008.

As defined in ASC 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels of the fair value hierarchy defined by ASC 820 are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
7
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 1 – BASIS OF PRESENTATION (continued)
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.

7
CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION (continued)

The following table sets forth by level within the fair value hierarchy the Company’s financial assets and liabilities that were accounted for at fair value as of September 30, 2012 and December 31, 2011. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.
June 30, 2012 Level 1 Level 2 Level 3 Total 
June 30, 2013 Level 1 Level 2 Level 3 Total 
Marketable trading securities $5,901 $- $- $5,901  $1,800,350 $- $- $1,800,350 
         
Derivative Liabilities $- $- $390,107 $390,107  $- $- $215,101 $241,101 
                  
December 31, 2011 Level 1 Level 2 Level 3 Total 
December 31, 2012 Level 1 Level 2 Level 3 Total 
Marketable trading securities $1,949 $- $- $1,949  $3,000 $- $- $3,000 
         
Derivative Liabilities $- $- $444,150 $444,150  $- $- $145,970 $145,970 
Investments in Debt and Equity Securities

The Company applies the provisions of Accounting Standards Codification 320, “Investments – Debt and Equity Securities”, regarding marketable securities. The Company invests in securities that are intended to be bought and held principally for the purpose of selling them in the near term, and as a result, classifies such investments as trading securities. Trading securities are recorded at fair value on the balance sheet with changes in fair value being reflected as unrealized gains or losses in the current period. In addition, the Company classifies the cash flows from purchases, sales, and maturities of trading securities as cash flows from operating activities.

Details of the Company's marketable trading securities as of SeptemberJune 30, 20122013 and December 31, 20112012 are as follows:
  2012  2011 
Aggregate fair value $5,901  $1,949 
Gross unrealized holding gains  -   - 
Gross unrealized holding losses  --   33,057 
         
Proceeds from sales $   $-- 
Gross realized gains  -   -- 
Gross realized losses  -   -- 
Other than temporary impairment  -   -- 

Discontinued Operations
  June 30, 2013  December 31, 2012 
Aggregate fair value $1,800,350  $3,000 
Gross unrealized holding gains  1,525,699   - 
Gross unrealized holding losses  -   - 
Transfer of cost method investment to marketable securities    274,651     
         
Proceeds from sales $ -  $-- 
Gross realized gains  -   -- 
Gross realized losses  -   -- 
Other than temporary impairment  -   -- 
NOTE 2 – RELATED PARTY TRANSACTIONS

The Company had outstanding accounts payable to related parties of $71,600 and $19,625, as of June 30, 2013 and December 31, 2012, respectively. These payables represent legal and administrative fees paid on behalf of the Company by its officers.
In accordance with ASC 205-20, Presentation of Financial Statements – Discontinued Operations, we reported the results of our subsidiary, AudioEye Inc., as a discontinued operation. The application of ASC 205-20 is discussed in Note 2 below.8

NOTE 2 - SALE OF AUDIO EYE, INC. AND DISCONTINUED OPERATIONS

On August 17, 2012 the Company sold its subsidiary Audio Eye, Inc.  The Company will retain 15% of AudioEye, Inc. subject to transfer restrictions in accordance with the Agreement. The Company will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye, Inc.. AudioEye, Inc. has finalized a Royalty Agreement with the Company to pay to the Company 10% of cash received from income earned, settlements or judgments directly resulting from, AudioEye Inc’s patent enforcement and licensing strategy.  Additionally, AudioEye, Inc.  has finalized a Consulting Services Agreement with the Company whereby the Company will receive a commission of not less than 7.5% of all revenues received by AudioEye, Inc. after the closing date from all business, clients or other sources of revenue procured by the Company or its employees, officers or subsidiaries and directed to AudioEye, Inc. and 10% of net revenues obtained from a third party described in the agreement.
8
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 2 – SALE OF AUDIO EYE, INC. AND DISCONTINUED OPERATIONS (continued)
On August 21, 2012, the board of directors of the company declared October 26, 2012 as the record date for the dividend of 5% of Audio Eye, Inc. stock.  The dividend will be paid to the shareholders of record as of the close of business on October 26, 2012 and issued when AudioEye, Inc. completes its registration process and issues the share to the company.

As consideration for the sale, the purchaser repaid $1,075,000 of debt previously owed by CMG to the CMGO Investors group.  As a result of the sale of AudioEye, the net assets of AudioEye, Inc. and the related accrued interest of $203,590 were written off during the nine months ended September 30, 2012. In addition, the Company is currently holding 20% of AudioEye shares with a fair value of  $268,750. A gain of $4,115,771 was recorded for the sale of AudioEye as of the nine months ended September 30, 2012.

Gain on Sale of Audio Eye, Inc.   
Repayment of CMGO Debt $1,075,000 
Accrued Interest on CMGO Debt  203,590 
Shares of AudioEye, Inc. Retained  268,750 
Net Assets of AudioEye, Inc. Sold  2,568,431 
  $4,115,771 
As a result of the sale of AudioEye, the Company has classified the assets and liabilities of AudioEye, Inc. as held for sale at December 31, 2011 and has segregated its operating results and presented them separately as a discontinued operations for all periods presented. The results of operations for the nine months ended September 30, 2012 only reflect activity of AudioEye, Inc. up until the finalization of the sale on August 17, 2012.
A summarized operating result for discontinued operations is as follows:
  Three months ended  Nine months ended 
  9/30/2012  9/30/2011  9/30/2012  9/30/2011 
Revenues  (40,106)  (15,124)  (95,736)  (126,884)
Cost of revenues  40,160   261,029   198,568   365,788 
Depreciation and amortization expense  1,254   13,536   2,078   13,536 
Operating expenses  148,013   (95,066)   422,339   614,958 
                 
Operating Loss  149,321   164,375   527,249   867,398 
                 
Other income (expense)  (25,500)  --   -   -- 
Unrealized gain on marketable securities  28,500   (5,000)  24,000   6,000 
Interest Expense  (377)   (280,050)  (377)  (568,668)
                 
Net Loss from discontinued operations  146,698   449,425   503,626   1,430,066 


CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
(UNAUDITED)
(Unaudited)
NOTE 3– NOTES PAYABLE

Asher Enterprises, Inc.

NOTE 2 – SALE OF AUDIO EYE, INC. AND DISCONTINUED OPERATIONS (continued)
Summary of asset and liabilities of discontinued operations is as follows:

  8/17/12  12/31/2011 
Cash  4,841   27,425 
Receivables  47,429   10,901 
Receivables - related party  15,250   13,125 
Investments  42,000   18,000 
Intangibles  0   0 
Property and Equipment  7,688   6,000 
Total assets of discontinued operations  117,208   75,451 
         
Accounts payable and accrued liabilities  1,195,622   828,407 
Deferred income  114,378   12,308 
Short term debt  24,000   72,900 
Long term debt  1,351,640   1,245,843 
Total liabilities of discontinued operations  2,685,640   2,159,458 
NOTE 3 - EQUITY

Common Stock:

Shares Issued for Conversion of Debt

During the nine months ended September 30, 2012, the Company issued 127,260,838 shares of common stock to convert $628,735 of notes payable.

Shares Issued for Services

During the nine months ended September 30, 2012, the Company engaged several consultants to perform services and issued 14,150,000 shares as compensation for services. The shares were valued at $194,100 and were recorded to expense as of September 30, 2012.

Shares Issued Related to Debt

On June 5, 2012, the Company issued 2,000,000 restricted common shares to modify the terms of a convertible note. A fee for debt servicing of $17,800 was recorded for the issuance of these shares.

In August 2012, the Company issued 1,100,000, 1,000,000 and 5,000,000 restricted common shares in exchange for an extension of the maturity date on the note owed to CMGO Investors, LLC. As the note was extinguished on August 17, 2012 as a part of the sale of AudioEye, Inc., a loss on debt extinguishment of $173,550 was recorded for the issuance of these shares.

On September 7, 2012, the Company issued 600,000 restricted common shares in conjunction with two convertible notes. A debt discount was recorded of $11,486 for the relative fair value of the shares.
9
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 - NOTES PAYABLE
Asher Enterprises, Inc.
On February 6,October 16, 2012 the company issued a convertible promissory note for $37,500$32,500 to Asher Enterprises, Inc.Asher. The convertible promissory note bears interest at 8% and is due on November 8, 2012July 18, 2013 and any amount not paid by November 8, 2012July 18, 2013 will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.  On September 7, 2012,

In conjunction with the issuance of the promissory note, $2,500 was recorded as debt discount. The discount is being amortized over the term of the note to interest expense. During April 2013, the Company assigned $39,000paid off the $32,500 note and accrued interest and penalties of its$10,000.  The discount balance was $0 and $1,809 as of June 30, 2013 and December 31, 2012, respectively.  Amortization of $34,909 was recognized as interest expense as of June 30, 2013.
On May 20, 2013 the company issued a convertible promissory note from Asher Enterprises, Inc.for $53,000 to Continental Equities, LLC.Asher. The convertible promissory note bears interest at 8% and is due on December 31, 2012.February 24, 2014 and any amount not paid by the due date will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date.

On October 4, 2011 the company issued a convertible promissory note for $45,000 to Asher Enterprises, Inc. The note is convertible at 50%58% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to theirthere being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As a result, the instrument was measured at fair value of the embedded conversion option and a full discount to the note was recorded on April 1, 2012. The entire principal balance was converted into common stock and the entire discount of $45,000 was amortized to interest expense during the nine months ended September 30, 2012.

On August 24, 2011 the company issued a convertible promissory note for $37,500 to Asher Enterprises, Inc. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. As a result, the instrument was measured at fair value of the embedded conversion option and a full discount to the note was recorded on February 20, 2012. See note 5 for additional information on the derivative liability The entire principal balance was converted into common stock and the entire discount of $37,500 was amortized to interest expense during the nine months ended September 30, 2012.

Hudson Capital Advisors, Inc.

On January 5, 2012, the Company modified its July 11, 2011 agreement with Hudson Capital Advisors, Inc. into a $100,000 convertible debenture note bearing interest at 2% due on January 5, 2013. The new note was convertible at the lowest trading price in the three days prior to the day that the Holder requests conversion, with a floor of $.01. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $87,614 on the date of the note. The discount will be amortized over the term of the note to interest expense. See note 5 for additional information on the derivative liability. The entire principal balance was converted into common stock and the entire discount of $87,614 was amortized to interest expense during the nine months ended September 30, 2012.

Braeden Storm Enterprises, Inc.

On January 5, 2012, the Company modified its July 6, 2011 agreement with Braeden Storm Enterprises, Inc. into a $90,000 convertible debenture note bearing interest at 2% due on January 6, 2013. The new note was convertible at the lowest trading price in the three days prior to the day that the Holder requests conversion, with a floor of $.01. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $79,254 on the date of the note. The discount will be amortized over the term of the note to interest expense. See note 5 for additional information on the derivative liability. The entire principal balance was converted into common stock and the entire discount of $79,254 was amortized to interest expense during the nine months ended September 30, 2012.

On February 10, 2012, the Company assigned $56,000 of its accounts payable from a third party to Braeden Storm Enterprises, Inc. The convertible promissory note bears interest at 10% due on April 15, 2013. The new note was convertible at 50% of the lowest trading price in the three days prior to the day that the Holder requests conversion. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a full discount on the date of the note. The entire principal balance was converted into common stock and the entire discount of $56,000 was amortized to interest expense during the nine months ended September 30, 2012.
10
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 - NOTES PAYABLE (Continued)

Martin Boyle

On January 5, 2012, the Company modified its September 2, 2011 agreement with Boyle into a $35,000 convertible debenture note bearing interest at 2% due on January 8, 2013. The new note was convertible at the lowest trading price in the three days prior to the day that the Holder requests conversion, with a floor of $.01. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $30,667 on the date of the note. The discount will be amortized over the term of the note to interest expense. See note 5 for additional information on the derivative liability. The entire principal balance was converted into common stock and the entire discount of $30,667 was amortized to interest expense during the nine months ended September 30, 2012.

Scott Baily

On January 8, 2012, the Company modified its October 2, 2011 agreement with Scott Baily into a $60,000 convertible debenture note bearing interest at 2% due on January 5 2013. The new note was convertible at the lowest trading price in the three days prior to the day that the Holder requests conversion, with a floor of $.01. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $52,685 on the date of the note. On April 26, 2012, the entire principal balance was converted into common stock and the entire discount of $52,685 was amortized to interest expense during the nine months ended September 30, 2012.

Grassy Knolls, LLC

On January 4, 2012, the Company modified its July 5, 2011 agreement with Grassy Knolls, LLC into a $72,000 convertible debenture note bearing interest at 2% due on January 4, 2013. The new note was convertible at the lowest trading price in the three days prior to the day that the Holder requests conversion, with a floor of $.01. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $70,375 on the date of the note. The entire principal balance was converted into common stock and the entire discount of $70,375 was amortized to interest expense during the nine months ended September 30, 2012.

CMGO Investors, LLC

During year ended December 31, 2010, the Company borrowed $1,075,000 under five 13% Senior Secured Convertible Extendible Notes from third parties that originally matured on October 1, 2011. The Company issued 7,100,000 shares of common stock to extend the maturity date of the note on April 13, 2012. This resulted in a loss on debt extinguishment of $173,550, and a debt discount of $6,509 which has been amortized into interest expense during the nine months ended September 30, 2012.As part of the sale of AudioEye, Inc. described in Note 2 on August 17, 2012, these notes were repaid by AEAC and the liability was eliminated from the company.

Aware Capital Consultants Inc.

As of December 31, 2011, the Company had an outstanding balance of notes payable due to Aware Capital Consultants Inc. of $15,000. The entire principal balance was converted into common stock and the remaining discount of $9,136 was amortized to interest expense during the nine months ended September 30, 2012.

Magna Group LLC.

On October 17, 2011, the Company assigned $148,000 of its accounts payable from a third party to Magna Group, LLC. The convertible promissory note bears interest at 10% due on October 17, 2012. The entire principal balance was converted into common stock and the remaining discount of $70,470 was amortized to interest expense during the nine months ended September 30, 2012.

On April 11, 2012, the Company assigned $50,000 of its accounts payable from a third party to Magna Group, LLC. The convertible promissory note bears interest at 10% due on April 13, 2013. The note is convertible at 58% of the lowest trading price in the three days prior to the conversion date. During the nine months ended September 30, 2012, the Company amortized $25,000 of the discount to interest expense.
11
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 4 - NOTES PAYABLE (Continued)

Hanover Holdings, LLC

On October 17, 2011, the Company issued a convertible promissory note for $50,000 to Hanover Holdings, LLC. During the nine months ended September 30, 2012, the Company converted $25,000 of the note into common stock and amortized $34,375 of the discount into interest expense.

On June 5, 2012, Hanover assigned the remaining $25,000 principal and related interest to Seymour Flicks and modified the terms of the note. The new $34,040 convertible debenture note, bearing interest at 10% and due June 5, 2013, is convertible at a 42% discount of the lowest trading price for the Company’s common stock during the three trading day period prior to the conversion date, with a floor of $0.009. The Company recognized a $7,451 loss on debt extinguishment in relation to the debt modification. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $34,040 on the date of the note of which $11,347 has been amortized into interest expense as of September 30, 2012.

As of September 30, 2012, the Company has an outstanding of notes payable due to Seymour Flicks of $34,040. During the nine months ended September 30, 2012, the Company amortized $11,347 of the discount to interest expense.

Paul Sherman Agreement

On May 12, 2012, the Company modified its July 24, 2011 agreement with Paul Sherman into a $9,943 convertible debenturepromissory note bearing interest at 2% and due on May 15, 2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to the Holder’sPaul Sherman’s request for conversion, but not to go below $.001.This convertible debenture has an outstanding balance of $9,943.$.001. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $8,875 on the date of the note. $3,328The discount is being amortized over the term of thisthe note to interest expense. The discount has been amortizedbalance was $0 and $3,376 as of SeptemberJune 30, 2012.2013 and December 31, 2012, respectively.  Amortization of $3,376 was recognized as interest expense as of June 30, 2013. The convertible promissory note has an outstanding balance of $9,943 and $9,943 as of June 30, 2013 and December 31, 2012, respectively.

Continental Equities, LLC

On September 7, 2012 the company issued a convertible promissory note for $50,000 to Continental Equities, LLC (“Continental”) for the assignment of an equivalent amount of the Company’s account payable to Continental. The convertible promissory note bears interest at 12% and is due on May 15, 2013, and any amount not paid by May 15, 2013 will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. 400,000 shares were issued in conjunction with this convertible promissory note.

On September 7, 2012 the company issued a convertible promissory note for $20,000 to Continental Equities, LLC for the assignment of an equivalent amount of the Company’s accrued interest to Continental. The note bears interest at 12% and is due on May 15, 2013 and any amount not paid by May 15, 2013 will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. 200,000 shares were issued in conjunction with this convertible promissory note.

The 600,000 shares issued in conjunction with the aforementioned promissory notes were recorded as a debt discount for $11,486, which represents the relative fair value of the shares with the note principal. During the nine months ended September 30, 2012, the Company amortized $1,436 of the debt discount to interest expense.

On September 7, 2012, the Company assigned $39,000 of its convertible note from Asher Enterprises, Inc. to Continental Equities, LLC. Theentire convertible promissory note, bearsplus accrued interest at 8% due on December 31, 2012. and penalties totaling $15,000 were repaid during April 2013.

The remaining convertible promissory note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date. The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instruments should be classified as liabilities. The fair value of the embedded conversion option resulted in a discount of $65,597 on the date of the note. The discount balance was fully amortized  as of June 30, 2013.  Amortization of $65,597 was recognized as interest expense as of June 30, 2013. The convertible promissory notes have an outstanding balance of $50,000 and $70,000 as of June 30, 2013 and December 31, 2012, respectively.

As inducement for entering into the convertible promissory notes, the Company issued 600,000 shares, which were recorded as a debt discount of $11,486, which represents the relative fair value of the shares with the note principal. The discount balance was $0 and $7,657 as of June 30, 2013 and December 31, 2012, respectively.  Amortization of $7,657 was recognized as interest expense as of June 30, 2013.

Connied, Inc.

On April 11, 2011 the Company assigned $135,000 of its account payable from a third party to Connied, Inc. (“Connied”). On May 3, 2011, the Company amended the assigned account payable to add a conversion feature. The new note was convertible at 50% of the average of the five lowest closing prices for the Company's stock during the previous 30 trading days. On the same date, the Company issued 1,388,889 shares of common stock with a fair value of $97,222 to settle $50,000 of the note. The difference between the fair value of the common stock and the debt was recorded as a loss on settlement of debt during the year ended December 31, 2011. The remaining balance of $85,000 was recorded as short term debt. The note bears interest at 20% and is due on May 2, 2013.
9
CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2013
(UNAUDITED)
NOTE 2– NOTES PAYABLE (Continued)
The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrumentembedded conversion feature should be classified as a liability.liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with the change in fair value recorded to earnings. The addition of the embedded conversion option resulted in a full discount to the note of $37,500$85,000 on May 3, 2011. The discount is being amortized over the dateterm of the note. $18,750 of thisnote to interest expense. The discount has been amortizedbalance was $0 and $34,170 as of SeptemberJune 30, 2012.2013 and December 31, 2012, respectively.  Amortization of $23,63734,170 was recognized as interest expense as of June 30, 2013.  The convertible promissory note has an outstanding balance of $85,000 and $85,000 as of June 30, 2013 and December 31, 2012, respectively.

Alan Morell

On September 26, 2012, the Company issued two convertible promissory notes for $112,000 and $525,000 to Alan Morell for outstanding amounts owed for the Company’s line of credit and accrued salary, to Alan Morell respectively. The notes bear interest at 2% and are due on April 4, 2013 and April 26, 2014, respectively. The notes arebecame convertible at $0.04 and $0.06, respectively, beginningas of November 15, 2012.
Additionally, during the nine months ended September 30, 2012, the Company amortized $19,835 of discounts related to other notes not mentioned above to interest expense.
12
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 - DERIVATIVE LIABILITIES

The Company has various convertible instruments outstanding more fully described in Note 4.  Becauseanalyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be issueddelivered upon settlement cannot be determined under these instruments, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other of its share-settleable instruments. As a result, under ASC 815-15 “Derivatives and Hedging”, all other share-settleable instruments must be classified as liabilities.
Embedded Derivative Liabilities in Convertible Notes
During the nine months ended September 30, 2012, the Company recognized new derivative liabilities of $734,839 as a result of new convertible debt issuances.  The fair value of these derivative liabilities exceeded the principal balance of the related notes payable by $138,820 whichabove conversion options. The embedded conversion feature was recorded as a loss on derivatives for the nine months ended September 30, 2012.
As a result of conversion of notes payable described in Note 4, the Company reclassified $991,596 of derivative liabilities to equity and $256,619 to gain/loss on extinguishment of debt.
The fair value of the Company’s embedded derivative liabilities was $390,107 as of September 30, 2012 and $445,256 was recognized as a loss on derivatives due to change in fair value of the liability.
Warrants

899,000 A Warrants and 899,000 B warrants were issued to individuals in the fiscal year 2011. The Company determined that the instruments embedded in the warrants should be classified as liabilities.

Under ASC 815-15 “Derivatives and Hedging” the liabilities were subsequently measured at fair value at inception and on the enddate of each reporting periodconversion with the change in fair value recorded to earnings.  The fair value of all outstanding warrants as of September 30, 2012 was $62,329 and $50,656 was recognized as loss on derivative.
The following table summarizes the derivative liabilities included in the consolidated balance sheet:

Derivative Liabilities
Balance at December 31, 2011444,150
ASC 815-15 additions734,839
Change in fair value459,333
ASSC 815-15 deletions(1,248,215)
Balance at September 30, 2012390,107
The following table summarizes the derivative gain or loss recorded as a resultaddition of the derivative liabilities above:

Gain/(Loss) on Derivative Liability
Change in fair value459,333
Excess of fair value of liabilities over note payable138,820
Balance at September 30, 2012598,153

The Company values its warrant derivatives and all other share settable instrument using the Black-Scholes option pricing model. Assumption used include (1) 0.01% to 1.96% risk-free interest rate, (2) life is the remaining contractual life of the instrument (3) expected volatility 278% to 319%, (4) zero expected dividends, (5) exercise price as set forthembedded conversion options resulted in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.
13
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

NOTE 5 - LEGAL PROCEEDINGS
We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

On April 21, 2011, the Company was served with a lawsuit that was filed in Clark County, Nevada against the Company by A to Z Holdings, LLC and seven other individuals or entities. The complaint alleges, among other things, that the Company’s Board of Directors did not have the power to designate series A and B preferred stock without amending the articles of incorporation. The complaint also alleges any such amendment would require shareholder approval and filing of a proxy statement. On April 20, 2012, the Company settled with A to Z Holdings, LLC and seven other individuals or entities for $10,000. The Company has accrued this settlement liability as of September 30, 2012.

On July 6, 2011, the Company was served with a lawsuit filed in the Circuit Court for the County of Multnomah, Oregon. The complaint alleges breach of contract and entitlement to consulting fees from the Company. The Company disagrees with the allegations contained in the Complaint and intends to vigorously defend the matter and otherwise enforce its rights with respectdiscount to the matter.notes of $27,573 on November 15, 2012. The Company has retained counsel and is prepared to defend this lawsuit. The Company believes that the claimsdiscounts are frivolous pursuant tobeing amortized over the terms of the contract.notes to interest expense. During June 2013, the Company issued 2,800,000 shares of common stock to settle the $637,000 note. This resulted in a gain on settlement of debt of 610,400. The case has been settleddiscount balances were $0 and $7,739 as of September 28,June 30, 2013 and December 31, 2012, for $30,000. The Company has accrued for this liabilityrespectively.  Amortization of $7,739 was recognized as interest expense as of SeptemberJune 30, 2012.2013.  The convertible promissory notes have an outstanding balance of $0 and $637,000 as of June 30, 2013 and December 31, 2012, respectively.
Infinite Alpha

On April 29, 2013 the company issued a promissory note for $51,500 to Infinite Alpha. The promissory note is unsecured, bears interest at 20%, and is due on demand. Any amounts not paid on demand will incur a 24% interest rate.
NOTE 7 - RELATED PARTY TRANSACTIONS4- DERIVATIVE LIABILITIES

From timeThe Company has various convertible instruments outstanding more fully described in Note 2.  Because the number of shares to timebe issued upon settlement cannot be determined under these instruments, the Company borrows money fromcannot determine whether it will have sufficient authorized shares at a given date to settle any other of its officers. share-settleable instruments. As a result, under ASC 815-15 “Derivatives and Hedging”, all other share-settleable instruments must be classified as liabilities.
Embedded Derivative Liabilities in Convertible Notes
During the ninesix months ended SeptemberJune 30, 2013 and the year ended December 31, 2012, the Company received advancesrecognized new derivative liabilities of $8,804$98,097 and repaid $16,000$734,839, respectively, as a result of new convertible debt issuances.  The Company recognized a $6,770 gain on derivative related to these related parties. These advances bear no interestconvertible notes for the six months ended June 30, 2013. The fair value of the Company’s embedded derivative liabilities was $225,290 and are due on demand. As of$133,963 at June 30, 2013 and December 31, 2011 and September 30, 2012, the Company owed $86,328 and $79,132 as short term related party debt to three officers, respectively.
Warrants

During the ninefiscal year 2011, 899,000 A Warrants and 899,000 B warrants were issued to individuals. The Company determined that the instruments embedded in the warrants should be classified as liabilities.  Under ASC 815-15 “Derivatives and Hedging” the liabilities were subsequently measured at fair value at the end of each reporting period with the change in fair value recorded to earnings. The fair value of all outstanding warrants as of June 30, 2013 and December 31, 2012 was $5,935 and $12,007, respectively.  The Company recognized a $6,072 gain on derivative related to the warrants for the six months ended SeptemberJune 30, 2012, the Company owes $56,045 of reimbursable expenses paid for by an officer of the Company.2013.
 
NOTE 8 - SEGMENTS

We have three reportable segments: event marketing, commercial rights and consulting services, which are comprised within our specialist marketing service offerings. The profitability measure employed for allocating resources to operating divisions and assessing operating division performance are revenues and operating income, excludingfollowing table summarizes the impact of restructuring and other reorganization-related charges (reversals) and long-lived asset impairment and other charges, if applicable. Summarized financial information concerning our reportable segments is shownderivative liabilities included in the following table.consolidated balance sheet:

  
Nine months ended
September 30,
 
  2012  2011 
Revenue:      
Event marketing $7,379,466  $5,803,384 
Commercial rights  137,697   110,984 
Total revenues from continuing operations  7,517,163   5,914,368 
Consulting services (discontinued)  95,736   126,884 
Total revenues $7,612,899  $6,041,252 
         
Operating income (loss)        
Event marketing $281,231  $(24,942) 
Commercial rights  (947,452)  (1,158,222)
Total operating income from continuing operations  (666,221)  (1,183,164)
Consulting services (discontinued)  (527,249)  (984,212)
Total Operating loss $(1,193,470) $(2,167,376)
Derivative Liabilities   
Balance at December 31, 2012 $145,970 
ASC 815-15 additions  98,097 
Change in fair value  67,384 
ASC 815-15 deletions  (80,226)
Balance at June 30, 2013  $231,225 
     

Assets September 30, 2012  December 31, 2011 
Event marketing $685,105  $535,760 
Commercial rights  274,667   8,229 
Consulting services (discontinued)  --   75,451 
Total $959,772  $619,440 
1410
CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 30, 2013

(UNAUDITED)
NOTE 9 - SALE OF CREATIVE MANAGEMENT OF DELAWARE, INC.4- DERIVATIVE LIABILITIES (Continued)

On June 25, 2012,The following table summarizes the Company,derivative gain or loss recorded as a result of desiringthe derivative liabilities above:

Gain/(Loss) on Derivative Liability
  
For the Six Months Ended
June 30,
 
  2013  2012 
Change in fair value  67,384   494,587 
Convertible debt settled in cash  (80,226)    
Excess of fair value of liabilities over note payable  -   98,576 
Total (Gain)/Loss on Derivative Liability  (12,842)   593,163 

The Company values its warrant derivatives and all other share settable instrument using the Black-Scholes option pricing model. Assumption used include (1) 0.01% to exit1.96% risk-free interest rate, (2) life is the remaining contractual life of the instrument (3) expected volatility 71% to 426%, (4) zero expected dividends, (5) exercise price as set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.
NOTE 5 – EARNINGS PER SHARE

A reconciliation of the components of basic and diluted net income per common share is presented in the tables below:

  For the six months ended  For the three months ended 
  June 30, 2013  June 30, 2013 
     Weighted        Weighted    
     Average        Average    
     Shares  Per     Shares  Per 
  Income  Outstanding  Share  Income  Outstanding  Share 
Basic:                  
Income attributable to common stock  2,186,283   294,650,743   0.01   2,475,029   294,650,743   0.01 
                         
Effect of Dilutive Securities:                        
Convertible Debt  -   18,746,005       -   18,746,005     
                         
Diluted:                        
Income attributable to common stock, including assumed conversions  2,186,283   313,396,748   0.01   2,475,029   313,396,748   0.01 

Potentially dilutive securities excluded from the talent management business, sold its wholly owned subsidiary Creative Managementcomputation of Delaware, Inc. (formerly Creative Management Group, Inc.) to Creative Management Global, Inc. pursuant to a Stock Purchase Agreement. The Purchase Priceweighted average diluted shares of this Agreement calls for Creative Management Global, Inc. to pay tocommon stock because the Company as considerationimpact of these potentially dilutive securities was anti dilutive totaled 1,798,000 for the shares of Creative Management of Delaware, Inc., a royalty paymentthree and deferred payment. The royalty payment is effective as of the closing of this agreement and for asix month period of nineteen (19) months of 10% of cash or other payment received as gross revenues less direct costs earned. The remainder of the purchase price, following payment of the royalty payments, will consist of a final payment the Company by Creative Management Global, Inc. in the amount of One Hundred Thirty Three Thousand ($133,000). The final payment will be paid after Creative Management Global, Inc. year-end 2013 financial statements are completed and audited by an independent accounting firm and will reflect the total company gross revenues less direct costs for the years 2012, andended June 30, 2013. No assets have been sold in this transaction and, as a result, no gain has been recorded in the sale of this subsidiary as of the nine months ended September 30, 2012.

NOTE 10 – RESIGNATION OF CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD.

On September 26, 2012, Alan Morell officially resigned as Chief Executive Officer and Director of the Company. In conjunction with the resignation, Mr. Morell was issued a convertible note for $525,000 representing the amount of accrued salary owed to him by the company up to the date of resignation. The note bears interest at 2% and is due on April 26, 2014. The note is convertible beginning on November 15, 2012 at a conversion price of $0.06 per share. In further connection with the resignation, the Company assumed all obligations related to the Smith Barney Credit Line that was secured by Mr. Morell’s security accounts and issued another convertible note to Morell for $112,000. The note bears interest at 2% and is due on April 4, 2013. The note is convertible beginning on November 15, 2012 at a conversion price of $0.04 per share.

NOTE 116 - SUBSEQUENT EVENTS

Magna Group, LLC

On April 11, 2012,During August 2013, the Company assigned $50,000entered into a Termination Agreement and Release (the “Agreement”) with Continental Investments Group (Continental), the holder of its accountsa $85,000 convertible note payable from a third party to Magna Group, LLC. On October 3, 2012,of the Company issued 5,358,910and the holder of 2,500,000 shares of restricted common stockstock.  The Agreement calls for the termination and cancellation of a Sale and Purchase agreement, whereby the Company agreed to settle remaining $50,000issue 50,000 Series B Convertible Preferred Stock in exchange for 20,000 cartoon animated Cels. The Agreement also calls for the cancellation of the $85,000 convertible note and accruedrelated interest of $2,839.

Hanover Holdings, LLC

On October 17, 2011,and the Company issued a convertible promissory note for $50,000Continental to Hanover Holdings, LLC. On June 5, 2012return the Company assigned the remaining $25,000 and accrued interest of the note to Seymor Flick. On October 5, 2012, the company issued 5,673,2392,500,000 shares of restricted common stock to settle the remaining $25,000 and remaining accrued interest $9,034 of the convertible promissory note.stock.

Asher Enterprises, Inc.

On October 16, 2012 the company issued a convertible promissory note for $32,500 to Asher Enterprises, Inc. The note bears interest at 8% and is due on July 18, 2012 and any amount not paid by July 18, 2012 will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days.

Continental Equities, LLC

On October 1, 2012, the Company issued 1,176,471 shares of common stock to settle $10,000 of the $37,500 convertible debenture note (see note 4).

On October 9, 2012, the Company issued 1,142,857 shares of common stock to settle $10,000 of the convertible debenture note.

On October 22, 2012, the Company issued 819,672 shares of common stock to settle the $5,000 of the convertible debenture note.
 
1511
 
 
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

In addition to historical information, this Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which includes, but are not limited to, statements concerning expectations as to our revenues, expenses, and net income, our growth strategies and plans, the timely development and market acceptance of our products and technologies, the competitive nature of and anticipated growth in our markets, our ability to achieve cost reductions, the status of evolving technologies and their growth potential, the adoption of future industry standards, expectations as to our financing and liquidity requirements and arrangements, the need for additional capital, and other matters that are not historical facts. These forward-looking statements are based on our current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by it. Words such as “anticipates”, “appears”, “believe,”, “expects”, “intends”, “plans”, “believes, “seeks”, “assume,” “estimates”, “may”, “will” and variations of these words or similar expressions are intended to identify forward-looking statements. All statements in this Quarterly Report regarding our future strategy, future operations, projected financial position, estimated future revenue, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. Therefore, actual results could differ materially and adversely from those results expressed in any forward-looking statements, as a result of various factors. Readers are cautioned not to place undue reliance on forward-looking statements, which are based only upon information available as of the date of this report. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this Quarterly Report was filed with the Securities and Exchange Commission (“SEC”). We expressly disclaim any obligation to revise or update publicly any forward-looking statements even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders. Unless the context indicates otherwise, the terms “Company”, “Corporate”, “CMGO”, “our”, and “we” refer to CMG Holdings Group, Inc. and its subsidiaries.

RESULTS OF OPERATIONS FOR THE THREE MONTH PERIOD ENDED SEPTEMBERJUNE 30, 20122013

Gross revenues decreased from $513,9996,159,910 for the three months ended SeptemberJune 30, 20112012 to $374,014$4,369,640 for the three months ended SeptemberJune 30, 2012.2013. The decrease in revenues was mainly due to organic revenues that were recorded in the second quarter of 2012 compared from existing clientsmarket and new client business revenueseconomic conditions in our event marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA)  that  were serviced inas well as the third quarter during year 2011.sale of Audio Eye on August 17, 2012.  


Cost of revenue increaseddecreased from $400,967$4,465,668 for the three months ended SeptemberJune 30, 20112012 to $422,233$3,261,774 for the three months ended SeptemberJune 30, 2012.2013. The increasedecrease in cost of goods sold was due to additional organic growth from existing clients as well as new client business wins generated that were secured during the third quarter of 2012market and economic conditions in our eventsevent marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA). Cost  as well as the sale of sales increased as it was related to the organic revenues and new business revenues serviced during third quarter of 2012 within our events marketing, event management public relations and consulting business of XA, The Experiential Agency, Inc. (XA).Audio Eye on August 17, 2012.  

Operating expenses decreased from $1,324,952$5,371,321 for the three months ended SeptemberJune 30, 20112012 to $794,688$3,978,609 for the three months ended SeptemberJune 30, 2012.2013. The decrease in operating expenses is mainly due to fewer expenses incurred associated to spinoff transaction related to AudioEye, Inc. and lower operating expenses related to the talent agency business that was sold to Creative Management Global.

The net loss of $2,463,230$433,506 for the three months ended SeptemberJune 30, 2011 increased2012 decreased to a net income of $3,074,634$2,475,029 for the three months ended SeptemberJune 30, 2012.2013.  The increasedecrease in net income wasoperating expenses is mainly due to the recorded gain on the sale of AudioEye, Inc. As consideration for the sale, the $1,075,000 of debt previously owed by CMGfewer expenses incurred associated to the CMGO Investors Group was repaid. As a result of the sale of AudioEye, the net assets ofspinoff transaction related to AudioEye, Inc. and lower operating expenses related to the related accrued interest of $203,590 were written off during the nine months ended September 30, 2012.talent agency business that was sold to Creative Management Global.  In addition, the Company is currently holding 20%realized a gain on settlement of AudioEye shares with a fair valuedebt of $268,750. A gain of $4,115,771 was recorded$610,400 for the sale of AudioEye as of the ninethree months ended SeptemberJune 30, 2012.2013.

This gain on discontinued asset sale was offset by additional operating expenses associated with AudioEye, Inc. discontinued operations, and the non-operating expenses regarding losses on derivative liabilities, operating expenses and cost of revenues regarding event management XA, The Experiential Agency, Inc. (XA) to service new clients during the second quarter of 2012 that was not reflective in third quarter of 2011. There were also additional overhead legal expenses associated with corporate overhead that was in third quarter 2012 that was not reflective in 2011 third quarter.
16
 
RESULTS OF OPERATIONS FOR THE NINESIX MONTH PERIOD ENDED SEPTEMBERJUNE 30, 20122013

Gross revenues increaseddecreased from $5,914,368$7,143,059 for the ninesix months ended SeptemberJune 30, 20112012 to $7,517,163$5,392,809 for the ninesix months ended SeptemberJune 30, 2012.2013. The increasedecrease in revenues was mainly due to additional organic growth from existing clients as well as new client business wins generated that were secured during the second quarter of 2012market and economic conditions in our eventsevent marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA). Organic revenues  as well as the sale of Audio Eye on August 17, 2012.  
Cost of revenue decreased from $4,933,747 for the six months ended June 30, 2012 to $3,803,808 for thesix months ended June 30, 2013. The decrease in cost of goods sold was due to market and new business revenues were serviced during first three quarters of 2012 withineconomic conditions in our eventsevent marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA).

Cost of revenue increased from $3,935,656 for the nine months ended September 30, 2011 to $5,355,980 for the nine months ended September 30, 2012. The increase in cost of goods sold was due to additional organic growth from existing clients  as well as new client business wins generated that were secured during the second quartersale of 2012 in our events marketing, event management, public relations and consulting business of XA, The Experiential Agency, Inc. (XA). Cost of sales increased as it was related to the organic revenues and new business revenues serviced during first three quarters of 2012 within our events marketing, event management public relations and consulting business of XA, The Experiential Agency, Inc. (XA).Audio Eye on August 17, 2012.  

Operating expenses decreased from $2,938,127$6,966,463 for the ninesix months ended SeptemberJune 30, 20112012 to $2,752,554$5,150,981 for the ninesix months ended SeptemberJune 30, 2012.2013. The decrease in operating expenses is mainly due to the elimination of overheadfewer expenses incurred associated to spinoff transaction related to AudioEye, Inc. and lower operating expenses related to the initial launch of digital media initiativetalent agency business that were included in nine month totals for year 2011 that were not eliminated during nine months 2012.was sold to Creative Management Global.

The net loss of $1,425,8511,461,320 for the ninesix months ended SeptemberJune 30, 2011 increased2012 decrease to a net income of $1,613,314$2,186,283 for the ninesix months ended SeptemberJune 30, 2012.2013.  The increasedecrease in net income wasoperating expenses is mainly due to the recorded gain on the sale of AudioEye, Inc. As consideration for the sale, the $1,075,000 of debt previously owed by CMGfewer expenses incurred associated to the CMGO Investors Group was repaid. As a result of the sale of AudioEye, the net assets ofspinoff transaction related to AudioEye, Inc. and lower operating expenses related to the related accrued interest of $203,590 were written off during the nine months ended September 30, 2012.talent agency business that was sold to Creative Management Global.  In addition, the Company is currently holding 20%realized a gain on settlement of AudioEye shares with a fair valuedebt of $268,750. A gain of $4,115,771 was recorded$610,400 for the sale of AudioEye as of the ninesix months ended SeptemberJune 30, 2012. This gain on discontinued asset sale was offset by additional operating expenses associated with AudioEye, Inc. discontinued operations, and the non-operating expenses regarding losses on derivative liabilities, operating expenses and cost of revenues regarding event management XA, The Experiential Agency, Inc. (XA) to service new clients during the second quarter of 2012 that was not reflective in first quarter of 2011. There were also additional overhead legal expenses associated with corporate overhead that was in third quarter 2012 that was not reflective in 2011 third quarter.
2013.

12
 
LIQUIDITY AND CAPITAL RESOURCES:

As of SeptemberJune 30, 2012,2013, the Company’s cash on hand was $465,944.$536,332.

Cash used inprovided by operations for the ninesix months ended SeptemberJune 30, 20112012 was $1,246,046,$38,191, as compared to cash used inprovided by operations of $315,299$246,208 for the ninesix months ended SeptemberJune 30, 2012.2013. This change is primarily due to amortization of intangible assets, stock expenses for services, changes regarding derivative liabilities, changes in debt discounts, deferred revenue and accrued expenses related to the increase in operating expenses due to operations from the event marketing, public relations, and consulting business of XA.  In addition, the Company realized a gain on settlement of debt of $610,400 for the six months ended June 30, 2013.

Cash used in investing activities for the ninesix months ended SeptemberJune 30, 20112012 was $6,528$10,647 as compared cash used in investing activities of $4,841$0 for the ninesix months ended SeptemberJune 30, 2012.2013.

Cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20112012 was $1,381,984,$238,861, as compared to $448,305$52,000 provided for the ninesix months ended SeptemberJune 30, 2012.2013. The decrease during the ninesix months ended SeptemberJune 30, 2012,2013, was primarily due to the less money advanceddecrease by related parties and no proceeds from stock issuances as compared with the prior year.$211,000 in cash provided by discontinued operations.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth as of September 27, 2012,June 30, 2013, information with respect to the beneficial ownership of the Company’s Common Stock by (i) each person known by the Company to own beneficially 5% or more of such stock, (ii) each Director of the Company who owns any Common Stock, and (iii) all Directors and Officers as a group, together with their percentage of beneficial holdings of the outstanding shares. The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.

 
17
SECURITY OWNERSHIP OF MANAGEMENT:OWNERSHIP:

Title of Class Name Shares Percent  Name Shares Percent 
              
Common Stock Alan Morell 18,622,944 6.8% Alan Morell 18,622,944 6.3%
              
Common Stock James J. Ennis 11,955,944 4.4% Jeffrey Devlin 0 0%
                
Common Stock Michael Vandetty 10,945,944 4.0%
         
All Directors and Executive Officers  41,524,832  15.2%
All Directors, Executive Officers and 5% shareholdersAll Directors, Executive Officers and 5% shareholders  18,622,944  6.3%

These tables are based upon 275,959,395294,650,743 shares outstanding as of SeptemberJune 30, 20122013 and information derived from our stock records. Unless otherwise indicated in the footnotes to these tables and subject to community property laws where applicable, we believe unless otherwise noted that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.

(1)
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned, subject to community property laws where applicable. The number and percentage of shares beneficially owned are based on 275,959,395 shares of common stock outstanding as of September 30, 2012. The address for those individuals for which an address is not otherwise indicated is: c/o CMG Holdings Group, Inc., 5601 Biscayne Boulevard, Miami, Florida 33137, USA.
13
 
(2)Mr. Morell owns 3,500,000 shares of The Company directly, and is the beneficial owner of additional 6,607,000 shares owned by Commercial Rights Intl Corp. for a total of 10,107,000 shares.

(3)Mr. Ennis owns 1,500,000 shares of The Company directly, and is the beneficial owner of an additional 2,000,000 shares owned by Hastings Creek Group, Inc. for a total of 3,500,000 shares.

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS

CURRENT ECONOMIC CONDITIONS AND THE GLOBAL FINANCIAL CRISIS MAY HAVE AN IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION IN WAYS THAT WE CURRENTLY CANNOT PREDICT

The global economy has experienced a significant contraction, with an unprecedented lack of consumer credit within the credit markets and the shift away from discretionary spending within the marketing, communications. The decrease in the economic activity in the United States and in the commercial sectors in which we conduct business could adversely affect our financial condition and results of operations. Continued tightness within the credit markets, volatility, instability and economic weakness of our clients marketing budgets and decrease in discretionary consumer spending associated with our clients business spending may result in a reduction in our revenues.

BUSINESS COULD BE ADVERSELY AFFECTED IF IT LOSES KEY CLIENTS AND KEY MANAGEMENT

The Company’s loss of one or more significant clients could materially affect results of the Company on a consolidated basis. Our Management is critically important to ongoing results of the Company because, as in any service business, success of the Company is mainly dependent upon the leadership of key executives and management. If key executives were to leave any of our operating divisions, the relationships that the Company has with its clients could be adversely affected.
18
COMPETITION FOR CLIENTS IN HIGHLY COMPETITIVE INDUSTRIES

The Company operates in a very competitive industry characterized by numerous firms of varying sizes, with no group of firms having dominant positions in the marketplace. Competitive factors include creative expertise, executive management’s, personal relationships, quality and reliability of service and expertise in particular niche areas of the marketplace. In addition, our company’s principal asset is its people, barriers to entry are minimal, and relatively small firms may be on occasion able to take some portion of a client’s business from a larger competitor. While many of the Company’s client relationships are long-standing, clients may at times place their marketing services businesses up for competitive review from time to time, including at times when clients enter into strategic transactions. To the extent that the Company fails to maintain existing clients or attract new clients, the Company’s business, financial condition and operating results may be affected in a materially adverse manner.

ABILITY TO GENERATE NEW BUSINESS FROM NEW AND EXISTING CLIENTS MAY BE LIMITED

To increase revenues, the Company needs to obtain additional clients, generate demand for additional services from existing clients and partner with external marketing firms to mutually service as single or multiple of clients. The company’s ability to generate demand for its services from new clients, additional demand from existing clients partner with external marketing firms to mutually service as single or multiple of clients is subject to clients’ requirements, pre-existing vendor relationships, financial condition, strategic plans and internal resources, as well as the quality of the Company’s employees, services and reputation and the breadth of its services. To the extent the Company cannot generate new business from new and existing clients due to these limitations; it will limit the Company’s ability to grow its business and to increase its revenues.

REVENUES ARE SUSCEPTIBLE TO DECLINES AS A RESULT OF GENERAL ADVERSE ECONOMIC DEVELOPMENTS

The marketing communications services industry is cyclical and is subject to the negative effects of economic downturns. The Company’s marketing services operations are also exposed to the risk of clients changing their business plans and/or reducing their marketing budgets. As a result, if the U.S. markets and economies continue to weaken, our businesses, financial condition and gross revenues are likely to be negatively affected may be suspect to declines from quarter to quarter or from year to year.

BENEFITS EXPECTED FROM CURRENT ACQUISITION OR PRIOR ACQUISITIONS MADE IN THE FUTURE MAY NOT BE REALIZED

The Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using any available cash from operations, through incurrence of debt or bridge financing or by issuing equity, which may have a dilutive impact on its existing shareholders. At any given time the Company may be engaged in a number of discussions that may result in one or more material acquisitions. These opportunities require confidentiality and may involve negotiations that require quick responses by the Company. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of its securities. The success of acquisitions or strategic investments depends on the effective integration of newly acquired businesses into the Company’s current operations. Such integration is subject to risks and uncertainties, including realization of anticipated synergies and cost savings, the ability to retain and attract personnel and clients, the diversion of management’s attention from other business concerns, and undisclosed or potential legal liabilities of the acquired company. The Company may not realize the strategic and financial benefits that it expects from any of its past acquisitions, or any future acquisitions.

14
BUSINESS COULD BE ADVERSELY AFFECTED IF IT LOSES OR FAILS TO ATTRACT KEY EMPLOYEES

Our executive management and our employees, including creative, research, media, account and their skills and relationships with clients, are among the Company’s most critically important assets. An important aspect of the Company’s competitiveness is its ability to retain key employee and executive management. The compensation for these key employees is an essential factor in attracting and retaining them and the Company may not offer a level of compensation sufficient to attract and retain these key employees. If the Company fails to hire and retain a sufficient number of these key employees, it may not be able to compete effectively.

BUSINESS EXPOSED TO THE RISK OF CLIENT MEDIA ACCOUNT DEFAULTS

The Company often incurs expenses on behalf of its clients in order to secure a variety of opportunities in exchange for which it receives a fee. While the Company acts to prevent against default on payment for these services and have historically had a very low incidence of default, the Company is still exposed to the risk of significant uncollectible receivables from our clients.
 
19
SUBJECT TO REGULATIONS THAT COULD RESTRICT ITS ACTIVITIES OR NEGATIVELY IMPACT ITS REVENUES

Marketing communications businesses are subject to government regulation, both domestic and foreign. There has been an increasing tendency in the United States on the part of advertisers to resort to litigation and self-regulatory bodies to challenge comparative advertising on the grounds that the advertising is false and deceptive. Moreover, there has recently been an expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to advertising for certain products. Representatives within government bodies, both domestic and foreign, continue to initiate proposals to ban the advertising of specific products and to impose taxes on or deny deductions for advertising which, if successful, may have an adverse effect on advertising expenditures and consequently the Company’s revenues.

THE RESULTS OF OPERATIONS ARE SUBJECT TO CURRENCY FLUCTUATION RISKS

Although the Company’s financial results are reported in U.S. dollars, a portion of its revenues and operating costs may be denominated in currencies other than the US dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and other currencies, may affect the Company’s financial results and competitive position.

COMPANY DIRECTORS AND EXECUTIVE OFFICERS BENEFICIALLY OWN A SUBSTANTIAL PERCENTAGE OF THE COMPANY’S OUTSTANDING COMMON STOCK, WHICH GIVES THEM CONTROL OVER CERTAIN MAJOR DECISIONS ON WHICH STOCKHOLDERS MAY VOTE, WHICH MAY DISCOURAGE AN ACQUISITION OF THE COMPANY

In the aggregate, the directors and executive officers as a group collectively own approximately 22% of the Company’s outstanding shares. The interests of the Company’s management may differ from the interests of other stockholders and as a result, the Company’s executive management may have the ability to control virtually all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders may vote, including electing or defeating the election of directors; amending or preventing amendment of the Company’s certificate of incorporation or bylaws; effecting or preventing a merger, sale of assets or other corporate transaction; and controlling the outcome of any other matter submitted to the stockholders for vote. The Company’s management’s stock ownership may discourage a potential acquirer from seeking to acquire shares of the Company’s common stock or otherwise attempting to obtain control of the Company, which in turn could reduce the Company’s stock price or prevent the Company’s stockholders from realizing a premium over the Company’s stock price.

OUTSTANDING INDEBTEDNESS; SECURITY INTEREST AND UNREGISTERED SALES OF EQUITY SECURITIES

Asher Enterprises, Inc.

On April 1, 2010,October 16, 2012 the Company entered intocompany issued a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providingconvertible promissory note for the sale and issuance of (i) $725,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants$32,500 to purchase 3,625,000 shares of the Company’s Common Stock.Asher. The Noteconvertible promissory note bears interest at 8% and is due on July 18, 2013 and any amount not paid by July 18, 2013 will incur a rate of 13% per annum payable quarterly.22% interest rate. The entire amountnote is convertible at 50% of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5%average of the principal amountlowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to their being no explicit limit to the number of shares to be delivered upon settlement of the outstanding Notes. above conversion options.

In conjunction with the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtednessissuance of the Company, whether currently existing or issued inpromissory note, $2,500 was recorded as debt discount. The discount is being amortized over the future. The Notes are secured by a security interest in allterm of the assets of the Company and the Company's subsidiaries pursuantnote to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction,interest expense. During April 2013, the Company paid off the placement agent 10%$32,500 note and accrued interest and penalties of $10,000.  The discount balance was $0 and $1,809 as of June 30, 2013 and December 31, 2012, respectively.  Amortization of $34,909 was recognized as interest expense as of June 30, 2013.

On May 20, 2013 the company issued a convertible promissory note for $53,000 to Asher. The convertible promissory note bears interest at 8% and is due on February 24, 2014 and any amount not paid by the due date will incur a 22% interest rate. The note is convertible at 58% of the gross proceeds and warrants to purchase 942,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation Daverage of the Securities Actlowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of 1933, as amended.shares to be delivered upon settlement of the above conversion options.
 
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Paul Sherman Agreement

On April 23, 2010,May 12, 2012, the Company enteredmodified its July 24, 2011 agreement with Paul Sherman into a Note Purchase Agreement with CMGO Investors,$9,943 convertible promissory note bearing interest at 2% and due on May 15, 2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to Paul Sherman’s request for conversion, but not to go below $.001. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $8,875 on the date of the note. The discount is being amortized over the term of the note to interest expense. The discount balance was $0 and $3,376 as of June 30, 2013 and December 31, 2012, respectively.  Amortization of $3,376 was recognized as interest expense as of June 30, 2013. The convertible promissory note has an outstanding balance of $9,943 and $9,943 as of June 30, 2013 and December 31, 2012, respectively.

Continental Equities, LLC

On September 7, 2012 the company issued a Delaware limited liability company, providingconvertible promissory note for $50,000 to Continental Equities, LLC (“Continental”) for the sale and issuanceassignment of (i) $125,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 625,000 sharesan equivalent amount of the Company’s Common Stock.account payable to Continental. The Noteconvertible promissory note bears interest at 12% and is due on May 15, 2013, any amount not paid by May 15, 2013 will incur a rate22% interest rate.

On September 7, 2012 the company issued a convertible promissory note for $20,000 to Continental Equities, LLC for the assignment of 13% per annum payable quarterly. The entirean equivalent amount of the Note, together with allCompany’s accrued but unpaid interest thereon,to Continental. The entire convertible promissory note, plus accrued interest and penalties totaling $15,000, were repaid during April 2013.

The remaining convertible promissory note is dueconvertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date. The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and payableHedging” and determined that the instruments should be classified as liabilities. The fair value of the embedded conversion option resulted in fulla discount of $65,597 on July 28, 2011; provided that, so longthe date of the note. The discount balance was fully amortized as there is no continuing Event of Default,June 30, 2013.  Amortization of $65,597 was recognized as interest expense as of June 30, 2013. The convertible promissory notes have an outstanding balance of $50,000 and $70,000 as of June 30, 2013 and December 31, 2012, respectively.

As inducement for entering into the convertible promissory notes, the Company may in its sole discretion extendissued 600,000 shares, which were recorded as a debt discount of $11,486, which represents the Maturity Date for a period of three months by paying an extension fee equal to 5%relative fair value of the principal amountshares with the note principal. The discount balance was $0 and $7,657 as of June 30, 2013 and December 31, 2012, respectively.  Amortization of $7,657 was recognized as interest expense as of June 30, 2013.

Connied, Inc.

On April 11, 2011 the Company assigned $135,000 of its account payable from a third party to Connied, Inc. (“Connied”). On May 3, 2011, the Company amended the assigned account payable to add a conversion feature. The new note was convertible at 50% of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtednessaverage of the five lowest closing prices for the Company's stock during the previous 30 trading days. On the same date, the Company whether currently existing or issued in the future. The Notes are secured by1,388,889 shares of common stock with a security interest in allfair value of $97,222 to settle $50,000 of the assetsnote. The difference between the fair value of the Companycommon stock and the Company's subsidiaries pursuant todebt was recorded as a Security Agreement and Subsidiary Guarantee.loss on settlement of debt during the year ended December 31, 2011. The Notes are convertible into sharesremaining balance of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share.$85,000 was recorded as short term debt. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 162,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

On June 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $150,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 750,000 shares of the Company’s Common Stock. The Notenote bears interest at 20% and is due on May 2, 2013.

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a rateliability due to their being no explicit limit to the number of 13% per annum payable quarterly. The entire amountshares to be delivered upon settlement of the Note, togetherabove conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with all accrued but unpaid interest thereon, is due and payablethe change in full on September 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equalfair value recorded to 5%earnings. The addition of the principal amountembedded conversion option resulted in a full discount to the note of $85,000 on May 3, 2011. The discount is being amortized over the term of the note to interest expense. The discount balance was $0 and $34,170 as of June 30, 2013 and December 31, 2012, respectively.  Amortization of $34,170 was recognized as interest expense as of June 30, 2013.  The convertible promissory note has an outstanding Notes. In the eventbalance of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right$85,000 and $85,000 as of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the CompanyJune 30, 2013 and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 195,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.December 31, 2012, respectively.

On June 18, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $50,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 250,000 shares of the Company’s Common Stock. The Note bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on September 18, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 65,000 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.
 
 
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Alan Morell

On September 26, 2012, the Company issued two convertible promissory notes for $112,000 and $525,000 to Alan Morell for outstanding amounts owed for the Company’s line of credit and accrued salary, respectively. The notes bear interest at 2% and are due on April 4, 2013 and April 26, 2014, respectively. The notes became convertible at $0.04 and $0.06, respectively, as of November 15, 2012.

The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with the change in fair value recorded to earnings.  The addition of the embedded conversion options resulted in a discount to the notes of $27,573 on November 15, 2012. The discounts are being amortized over the terms of the notes to interest expense. During June 2013, the Company issued 2,800,000 shares of common stock to settle the $637,000 note. This resulted in a gain on settlement of debt of 610,400. The discount balances were $0 and $7,739 as of June 30, 2010,2013 and December 31, 2012, respectively.  Amortization of $7,739 was recognized as interest expense as of June 30, 2013.  The convertible promissory notes have an outstanding balance of $0 and $637,000 as of June 30, 2013 and December 31, 2012, respectively.
Infinite Alpha

On April 29, 2013 the Company entered intocompany issued a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providingpromissory note for the sale and issuance of (i) $20,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants$51,500 to purchase 125,000 shares of the Company’s Common Stock.Infinite Alpha. The Notepromissory note is unsecured, bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon,20%, and is due and payable in full on September 30, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date fordemand. Any amounts not paid on demand will incur a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear24% interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 32,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.rate.

SALE OF SUBSIDIARIES

On June 22, 2011 the Company entered into a Master Agreement subject to shareholder approval as may be required under applicable law and subject to closing conditions with AudioEye Acquisition Corp., a Nevada corporation pursuant to which the shareholders of AudioEye Acquisition Corp. will exchange 100% of the stock in AudioEye Acquisition Corp. for 80% of the capital stock of AudioEye, Inc. The Company will retain 15% of AudioEye Inc. subject to transfer restrictions in accordance with the Master Agreement. The Company will distribute to its shareholders on the closing date, in the form of a dividend, 5% of the capital stock of AudioEye, Inc. in accordance with provisions of the Agreement. AudioEye, Inc. will pay to the Company 10% of cash received from income earned, settlements or judgments directly resulting from the AudioEye, Inc. patent enforcement and licensing strategy whether received by, AudioEye, Inc. or any of its affiliates, net of any direct costs or tax implications incurred in pursuit of such strategy pertaining to the patents as fully described in the Agreement. AudioEye Inc. will enter into a consulting agreement with the Company whereby the Company will receive a commission of not less than 7.5% of all revenues received by AudioEye, Inc. after the closing date from all business, clients or other sources of revenue procured by the Company or its employees, officers or subsidiaries and directed to AudioEye, Inc. and 10% of net revenues obtained from a third party described in the agreement. AudioEye, Inc. will arrange the release of the obligations of the Company under outstanding 13% Senior Secured Convertible Extendable Notes due in 2011 with a current aggregate balance of $1,075,000 pursuant to a novation or other form of release of such obligation which shall include a termination of any security interest on any post Spin Off assets of the Company. The Company believes that such a distribution, when combined with the other transactions contemplated in the Agreement, will allow AudioEye, Inc. to raise capital and grow its business in such manner as it no longer can as a subsidiary of the Company, thus generating increased value for the Company’s stockholders. October 24, 2011, AudioEye, Inc. filed a registration statement to register the issuance of shares of its common stock, which will be distributed on a pro rata basis to the Company’s shareholders. In connection with a Master Agreement dated as of June 22, 2011 between the Company and AudioEye Acquisition Corporation, the parties agreed, among other things that the shareholders of AudioEye Acquisition Corporation will exchange all of their shares of the capital stock of AudioEye Acquisition Corporation for 80% of the capital stock of AudioEye, Inc. and the Company will distribute to its shareholders in the form of a dividend 5% of the outstanding capital stock of AudioEye, Inc. Concurrently with the filing of the registration statement, the Company has filed a proxy statement relating to a special meeting of the Company shareholders to consider and vote on the spinoff, the share exchange and related matters.

On April 13, 2012, related to the Company’s amendment of its Jun 22, 2011 Master agreement with AudioEye Acquisition Corporation on April 13, 2012, the Company signed an Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes between AudioEye Acquisition Corporation, CMGO Investors LLC and the Company. The Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes are scheduled to close on or before May 31, 2012, time being of the essence, in accordance with the Amended Master Agreement, On April 13, 2012. The Company amended the Jun 22, 2011 Master agreement with AudioEye Acquisition Corporation pursuant to which the shareholders of AudioEye Acquisition Corporation will acquire 80% of the capital stock of AudioEye, Inc. from the Company, and the Company will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye, Inc. The parties have concluded that it is in the best interests of all shareholders to amend the Master Agreement to separate the Spin-off and Share Exchange and to cause the satisfaction and release of the Notes to be effective as soon as practicable but no later than the closing of the Share Exchange.
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On August 17, 2012 the Company, AudioEye Acquisition Corporation and CMGO Investors, LLC finalized and completed their Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes and their Share Exchange pursuant to their Amended Master Agreement in order to allow the payment by AudioEye, Inc. of the Company’s outstanding Note and to cause the release of the Notes and security therefore. Pursuant to the Amended Master Agreement: The Company will retain 15% of AudioEye, Inc. subject to transfer restrictions in accordance with the Agreement. The Company will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye, Inc. in accordance with provisions of the Agreement. AudioEye, Inc.  has finalized a Royalty Agreement with the Company to pay to the Company 10% of cash received from income earned, settlements or judgments directly resulting from, AudioEye, Inc.’s patent enforcement and licensing strategy whether received by, AudioEye, Inc.  or any of its affiliates, net of any direct costs or tax implications incurred in pursuit of such strategy pertaining to the patents as fully described in the Agreement. AudioEye, Inc. has finalized a Consulting Services Agreement with the Company whereby the Company will receive a commission of not less than 7.5% of all revenues received by AudioEye, Inc. after the closing date from all business, clients or other sources of revenue procured by the Company or its employees, officers or subsidiaries and directed to AudioEye, Inc. and 10% of net revenues obtained from a third party described in the agreement. AudioEye, Inc. has finalized the release of the obligations of the Company under the Notes pursuant to a novation or other form of release of such obligation which shall include a termination of any security interest on any post Spin Off assets of the Company.

On June 25, 2012, the Company, as a result of desiring to exit from the talent management business, has sold its wholly owned subsidiary Creative Management of Delaware, Inc. (formerly Creative Management Group, Inc.) to Creative Management Global, Inc. pursuant to a Stock Purchase Agreement. Creative Management is a talent management agency that provides custom marketing solutions that optimize profitability by concentrating in the sector of talent management. Creative Management has managed the careers of entertainment figures and personalities throughout sectors of literary, television, media training, image marketing, endorsements, licensing, contract negotiations and speaking appearances. On June 19, 2012, CMG Holdings Group, Inc. changed the name of its subsidiary, Creative Management Group, Inc. to Creative Management Partners Group, Inc. On June 20, 2012 CMG Holdings Group, Inc. changed the name of Creative Management Partners Group, Inc. to Creative Management of Delaware, Inc. The Purchase Price this Agreement calls for Global, Inc. to pay to the Company as consideration for the shares of Creative Management, a royalty payment and deferred payment. The Royalty Payment is effective as of the closing of this agreement and for a period of nineteen (19) months, pays 10% of cash or other forms of payment or compensation received as Gross Revenues less Direct Costs earned pursuit to the sectors of management of entertainment figures and personalities throughout sectors of literary, television, media training, image marketing, endorsements, licensing, contract negotiations and speaking appearances. The remainder of the Purchase Price, following payment of the Royalty Payments, will consist of a final payment the Company by Global, Inc. in the amount of One Hundred Thirty Three Thousand ($133,000). The final payment will be paid after Creative Management’s year-end 2013 financial statements are completed and audited by an independent accounting firm and that will reflect the total Company Gross Revenues less Direct Costs for the years 2012, and 2013.


PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT TO ATTRACT AND RETAIN OFFICERS AND DIRECTORS

The Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public entity, the Company expects these new rules and regulations to increase compliance costs in 2010 and beyond and to make certain activities more time consuming and costly. As a public entity, the Company also expects that these new rules and regulations may make it more difficult and expensive for the Company to obtain director and officer liability insurance in the future and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for the Company to attract and retain qualified persons to serve as directors or as executive officers.

THERE IS CURRENTLY NO LIQUID TRADING MARKET FOR THE COMPANY’S COMMON STOCK AND THE COMPANY CANNOT ENSURE THAT ONE WILL EVER DEVELOP OR BE SUSTAINED

The Company’s common stock is currently approved for quotation on the OTCQB trading under the symbol CMGO.PK. However, there is limited trading activity and not currently a liquid trading market. There is no assurance as to when or whether a liquid trading market will develop, and if such a market does develop, there is no assurance that it will be maintained. Furthermore, for companies whose securities are quoted on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the “OTCQB”), it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital. As a result, purchasers of the Company’s common stock may have difficulty selling their shares in the public market, and the market price may be subject to significant volatility.
 
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THE COMPANY’S STOCK PRICE MAY BE VOLATILE

The market price of the Company’s common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond the Company’s control, including the following: technological innovations or new products and services by the Company or its competitors; additions or departures of key personnel; limited “public float” following the Reorganization , in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for the common stock; the Company’s ability to execute its business plan; operating results that fall below expectations; loss of any strategic relationship; industry developments; economic and other external factors; and period-to-period fluctuations in the Company’s financial results. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s common stock.

OFFERS OR AVAILABILITY FOR SALE OF A SUBSTANTIAL NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK MAY CAUSE THE PRICE OF THE COMPANY’S COMMON STOCK TO DECLINE OR COULD AFFECT THE COMPANY’S ABILITY TO RAISE ADDITIONAL WORKING CAPITAL

If the Company’s current stockholders seek to sell substantial amounts of common stock in the public market either upon expiration of any required holding period under Rule 144 or pursuant to an effective registration statement, it could create a circumstance commonly referred to as “overhang,” in anticipation of which the market price of the Company’s common stock could fall substantially. The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for the Company to raise additional financing in the future through sale of securities at a time and price that the Company deems acceptable.

THE COMPANY’S COMMON STOCK IS CURRENTLY DEEMED TO BE “PENNY STOCK”, WHICH MAKES IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES

The Company’s common stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.

THE ELIMINATION OF MONETARY LIABILITY AGAINST THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES UNDER NEVADA LAW AND THE EXISTENCE OF INDEMNIFICATION RIGHTS TO THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES MAY RESULT IN SUBSTANTIAL EXPENDITURES BY THE COMPANY AND MAY DISCOURAGE LAWSUITS AGAINST THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES

The Company’s certificate of incorporation does not contain any specific provisions that eliminate the liability of directors for monetary damages to the Company and the Company’s stockholders; however, the Company is prepared to give such indemnification to its directors and officers to the extent provided by Nevada law. The Company may also have contractual indemnification obligations under its employment agreements with its executive officers. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and resultant costs may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by the Company’s stockholders against the Company’s directors and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.
 
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ITEM 4: CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of the end of the period covered by this report and concluded that our disclosure controls and procedures were not effective to ensure that all material information required to be disclosed in this Quarterly Report on Form 10-Q has been made known to them in a timely fashion. We are in the process of improving our internal control over financial reporting in an effort to remediate these deficiencies through improved supervision and training of our accounting staff. These deficiencies have been disclosed to our Board of Directors. We believe that this effort is sufficient to fully remedy these deficiencies and we are continuing our efforts to improve and strengthen our control processes and procedures. Our Chief Executive Officer, Chief Financial Officer and directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No change in the Company’s internal control over financial reporting occurred during the month ended SeptemberJune 30, 2012,2013, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.


PART II

ITEM 1 – LEGAL PROCEEDINGS

We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.


In February, 2011, the Company was served with a lawsuit filed by a former employee in the United States District Court for the Southern District of Florida. The complaint alleges breach of employee contract and entitlement to additional equity in the Company. The complaint has been dismissed on September 2, 2011 with prejudice, as to the Company and is therefore no longer a potential liability for the Company.

On April 21, 2011, the Company was served with a lawsuit that was filed in Clark County, Nevada against the Company by A to Z Holdings, LLC and seven other individuals or entities. The complaint alleges, among other things, that the Company’s Board of Directors did not have the power to designate series A and B preferred stock without amending the articles of incorporation. This lawsuitThe complaint also alleges any such amendment would require shareholder approval and filing of a proxy statement. On April 20, 2012, the Company settled with A to Z Holdings, LLC and seven other individuals or entities for $10,000. The Company has been settled for $10,000 and has been accrued forthis settlement liability as of SeptemberJune 30, 2012.2013.

On July 6, 2011, the Company was served with a lawsuit filed in the Circuit Court for the County of Multnomah, Oregon. The complaint alleges breach of contract and entitlement to consulting fees from the Company. This lawsuitThe case was settled in 2012 for $30,000. The Company has been settled for $30,000 and has been accrued for this liability as of SeptemberJune 30, 2012.2013.

ITEM 1A – RISK FACTORS

The Company is a smaller reporting company and is therefore not required to provide this information.

ITEM 2: UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None

CAPITAL INVESTMENT CMGO INVESTORS, LLC.

On April 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $725,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 3,625,000 shares of the Company’s Common Stock. The Note bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 942,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.
 
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On April 23, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $125,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 625,000 shares of the Company’s Common Stock. The Note bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 28, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 162,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

On June 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $150,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 750,000 shares of the Company’s Common Stock. The Note bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on September 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 195,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

On June 18, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $50,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 250,000 shares of the Company’s Common Stock. The Note bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on September 18, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 65,000 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

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On June 30, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $20,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 125,000 shares of the Company’s Common Stock. The Note bears interest at a rate of 13% per annum payable quarterly. The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on September 30, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes. In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%. The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future. The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee. The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share. The warrants are exercisable for seven years at an exercise price of $0.10 per share. The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions. In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision. The investors also received certain registration rights pursuant to a Registration Rights Agreement. In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 32,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.

On April 13, 2012, the Company signed an Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes between AudioEye Acquisitions Corporation, CMGO Investors LLC and the Company. The Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes are scheduled to close on or before May 31, 2012, time being of the essence, in accordance with the Amended Master Agreement, On April 13, 2012. The Company amended the Jun 22, 2011 Master agreement with AudioEye Acquisitions Corporation pursuant to which the shareholders of AudioEye Acquisitions Corporation will acquire 80% of the capital stock of AudioEye, Inc. from the Company, and the Company will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of Audioeye, Inc. The parties have concluded that it is in the best interests of all shareholders to amend the Master Agreement to separate the Spin-off and Share Exchange and to cause the satisfaction and release of the Notes to be effective as soon as practicable but no later than the closing of the Share Exchange.

On August 17, 2012 the Company, AudioEye Acquisition Corporation and CMGO Investors, LLC finalized and completed their Option, Note Purchase, Modification and Escrow Agreement for the Purchase of the Convertible Notes and their Share Exchange pursuant to their Amended Master Agreement in order to allow the payment by AudioEye of the Company’s outstanding Note and to cause the release of the Notes and security therefore. Pursuant to the Amended Master Agreement: The Company will retain 15% of AudioEye subject to transfer restrictions in accordance with the Agreement. The Company will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye in accordance with provisions of the Agreement. AudioEye has finalized a Royalty Agreement with the Company to pay to the Company 10% of cash received from income earned, settlements or judgments directly resulting from, AudioEye’s patent enforcement and licensing strategy whether received by, AudioEye or any of its affiliates, net of any direct costs or tax implications incurred in pursuit of such strategy pertaining to the patents as fully described in the Agreement. AudioEye has finalized a Consulting Services Agreement with the Company whereby the Company will receive a commission of not less than 7.5% of all revenues received by AudioEye after the closing date from all business, clients or other sources of revenue procured by the Company or its employees, officers or subsidiaries and directed to AudioEye and 10% of net revenues obtained from a third party described in the agreement. AudioEye has finalized the release of the obligations of the Company under the Notes pursuant to a novation or other form of release of such obligation which shall include a termination of any security interest on any post Spin Off assets of the Company.

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ITEM 3 – DEFAULT UPON SENIOR SECURITIES

None
 
ITEM 4 – MINE SAFETY DISCLOSURES
 
None

ITEM 5 – OTHER INFORMATION

None
On June 22, 2011 the Registrant entered into a Master Agreement (hereinafter the “Agreement”) with AudioEye Acquisition Corp., a Nevada corporation (hereinafter “AudioEye Acquisition”) pursuant to which: (i) the shareholders of AudioEye Acquisition acquired from the Registrant 80% of the capital stock of AudioEye and (ii) the Registrant has on February 21, 2013 distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye.

On August 21, 2012, the Board of Directors of the Registrant declared October 26, 2012 as the dividend date in accordance with the provisions of the June 22, 2011 Master Agreement, which is 5% of the capital stock of AudioEye, Inc (hereinafter "AudioEye").  AudioEye has obtained an active S1 registration completing the required registration process on January 29, 2013.  In accordance with the provisions of the Master Agreement, the dividend, which is 5% of AudioEye’s common stock was paid to the shareholders of record as of the close of business on October 26, 2012. AudioEye, inc. issued the shares on February 21, 2013.
 
On April 5, 2012 the Registrant and AudioEye Acquisition amended their Agreement in order to separate the Spin-off and Share Exchange so as to allow the payment by AudioEye Acquisition of the outstanding Registrant Note and to cause the release of the Notes upon final payment which was made by AudioEye Acquisition allowing it to proceed with closing of the Share Exchange with AudioEye,inc which is now underway.
On February 21, 2013 AudioEye, Inc. distributed 15% or its common stock to Registrant and 5% to shareholders of record of Registrant as of the October 26, 2012 dividend date in accordance with the provisions of the June 22, 2011 Master Agreement, which is 5% of the capital stock of AudioEye, Inc.
1.  The Registrant will retain 15% of the capital stock of AudioEye, Inc. subject to transfer restrictions in accordance with the provisions of the Master Agreement.

2.  The Registrant has distributed on February 21, 2013 to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye, Inc. in accordance with provisions of the Agreement.

ITEM 6 – EXHIBITS

Exhibit No. Document Description

 31.1Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.  Filed with the original Form 10-Q on August 23, 2013 .

 
 32.1Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.   Filed with the original Form 10-Q on August 23, 2013.

Reports on Form 8-K:

The Company filed a Form 8-K on August 1, 2012 - Item 8.01 - Extension of Note Modification Purchase Agreement.
The Company filed a Form 8-K on August 7, 2012 - Item 8.01 - Extension of Note Modification Purchase Agreement.
The Company filed a Form 8-K on August 17, 2012 - Item 2.01 and Item 9.01 - Completion of Acqusition or Disposition of Assets - Sale of Subsidiary.
The Company filed a Form 8-K on August 22, 2012 - Item 7.01 and Item 8.01 - Regulation FD Disclosure - Notice of Record Date.
The Company filed a Form 8-K on September 4, 2012 - Item 7.01 - Regulation FD Disclosure - Explanation of the Delay in Filing the Form 10-Q for the three months ended June 30, 2012.
The Company filed a Form 8-K on September 28, 2012 - Item 5.02 and Item 9.01 - Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers - Retirement of Alan Morell as the CEO and Chairman of the Registrant.
 
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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
  
 CMG HOLDINGS GROUP, INC.
 (Registrant)
  
  
Date: November 19, 2012August  28 , 2013By: /s/ JAMES J. ENNISJEFFREY DEVLIN
 James J. EnnisJeffrey Devlin
 Chief Executive Officer, Chief Financial Officer and Chairman of the Board

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
SIGNATURE NAME TITLE DATE
       
/s/James J. EnnisJeffrey Devlin James J. EnnisJeffrey Devlin CEO, CFO & Chairman of the Board November 19, 2012August  28 , 2013
       
/s/Michael VandettyMichael VandettySecretary & DirectorNovember 19, 2012
       

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