CMG Holdings Group Inc (CMGO)

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CMG HOLDINGS GROUP, INC.
Most of these notes are at 2%, so dont think they will convert?

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.

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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.

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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 debenture note bearing interest at 2% due on May 15, 2013. The note is convertible at a price equal to the close price on the day prior to the Holder’s request for conversion, but not to go below $.001.This convertible debenture has an outstanding balance of $9,943. 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. $3,328 of this discount has been amortized as of September 30, 2012.

Continental Equities, LLC

On September 7, 2012 the company issued a convertible promissory note for $50,000 to Continental Equities, LLC for the assignment of an equivalent amount of the Company’s account payable 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. 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. The convertible promissory note bears interest at 8% due on December 31, 2012. 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. 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 $37,500 on the date of the note. $18,750 of this discount has been amortized as of September 30, 2012.

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 are convertible at $0.04 and $0.06, respectively, beginning 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.

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http://www.sec.gov/Archives/edgar/data/1346655/000117892412000188/f10q-cmgo.htm