As filed with the Securities and Exchange Commission on October 21, 2011
 File No. 333-___________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-1
 
 
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AudioEye, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
6794
(Primary Standard Industrial
Classification Code Number)
20-2939845
 (I.R.S.  Employer
Identification No.)
     
9070 S. Rita Rd Suite 1450
Tucson, Arizona 85747
(866) 331-5324
 
(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)
 
Nathaniel Bradley
9070 S. Rita Rd Suite 1450
Tucson, Arizona 85747
(866) 331-5324
(Name, address, including zip code and telephone number, including area code, of agent for service)
 
Copies to:
David L. Ficksman
TroyGould PC
1801 Century Park East, Suite 1600
Los Angeles, California 90067
 
Approximate date of commencement of proposed sale to public :  Approximate date of commencement of proposed sale to the public: As soon as practicable after the registration statement becomes effective.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), check the following box: o
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering: o
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:   o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering:   o
 
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and   “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one):
 
 
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
(Do not check if a smaller reporting company)
Smaller reporting
company þ
   

 
 

 
 
CALCULATION OF REGISTRATION FEE
Title of each Class of Security being registered
Amount to be Registered(1)
Proposed Maximum Offering Price
Per Security
Proposed Maximum Aggregate
Offering Price(2)
Amount of Registration Fee
Shares of Common Stock, $0.00001 par value
1,500,000
$0.0004
$600.00
$5.00

(1)
This registration statement relates to shares of common stock, par value $0.00001 per share, of AudioEye, Inc., which will be distributed pursuant to a spin-off transaction to holders of common stock of CMG Holdings Group, Inc. The amount of the Registrant’s common stock to be registered is 1,500,000 shares of common stock. To the extent additional shares of common stock may be issued or become issuable as a result of a stock split, stock dividend, or similar transaction involving the common stock while this registration statement is in effect, this registration statement hereby is deemed to cover all such additional shares of common stock in accordance with Rule 416 under the Securities Act of 1933.
(2)
Estimated solely for the purpose of determining the registration fee pursuant to Rule 457(f)(2) under the Securities Act, based on the par value of the common stock as of June 30, 2011, the most recent practicable date

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that the Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

 
 
EXPLANATORY NOTE
 
AudioEye, Inc. (“AE”), a wholly owned subsidiary of CMG Holdings Group, Inc. (“CMGO”), has filed this registration statement on Form S-1 to register the issuance of shares of its common stock, $0.00001 per share, which will be distributed on a pro rata basis to CMGO shareholders (the “Spinoff”).  In connection with a Master Agreement dated as of June 22, 2011 between CMGO and AudioEye Acquisition Corp. (“AEAC”) a Nevada corporation, the parties agreed, among other things that the shareholders of AEAC will exchange all of their shares of the capital stock of AEAC for 80% of the capital stock of AE (the “Share Exchange”) and CMGO will distribute to its shareholders in the form of a dividend 5% of the outstanding capital stock of AE (the “Spinoff Shares”).  Concurrently with the filing of this registration statement on Form S-1, CMGO has filed a proxy statement relating to a special meeting of CMGO shareholders to consider and vote on the Spinoff, the Share Exchange and related matters.
 

 
 
 

 

The information in the proxy statement/prospectus is not complete and may be changed. CMG Holdings Group, Inc. may not distribute the securities offered by the proxy statement/prospectus until this registration statement is effective with the Securities and Exchange Commission. The proxy statement/prospectus is not an offer to sell these securities and CMG Holdings Group, Inc. is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED OCTOBER 21, 2011
 
CMG Holdings Group, Inc.
 
October __, 2011
 
Dear Shareholder:
 
You are cordially invited to attend a special meeting of shareholders of CMG Holdings Group, Inc. (“CMGO”) to be held on ___________, 2011 at _______________________, Miami, Florida 33137 at 9:30 a.m., local time, and at any adjournment or postponement thereof.
 
CMGO intends to restructure its business by separating out AudioEye Inc. (subject to certain retained rights), currently a wholly owned subsidiary of CMGO (“AE”), from its other operations pursuant to a Master Agreement dated as of June 22, 2011 (the “Master Agreement”), between CMGO and AudioEye Acquisition Corp. (“AEAC”), a newly formed corporation which owns certain rights to the exploitation of AE’s patents.
 
Pursuant to the Master Agreement, the parties thereto agreed, among other things, that the shareholders of AEAC will exchange all of their shares of the capital stock of AEAC for 80% of the capital stock of AE and CMGO will distribute to its shareholders in the form of a dividend 5% of the capital stock of AE (the “Spinoff Shares”).  Pursuant to the Master Agreement, CMGO will retain approximately 15% of the outstanding capital stock of AE as of the closing.  Pursuant to a Royalty Agreement to be entered into on or before the distribution of the Spinoff Shares, AE will pay to CMGO 10% of cash received from income earned or settlements on judgments directly resulting from AE’s patent enforcement and licensing strategy, whether received by AE or any of its affiliates, net in either case of any direct costs or tax implications incurred in pursuit of such strategy as they relate to the patents described in the Master Agreement.  AE will also enter into a Services Agreement with CMGO whereby, without duplication to the amounts payable under the Royalty Agreement, CMGO will receive a commission of 7.5% of all revenues received by AE after the closing from all business, clients or other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to AE and 10% of net revenues obtained from a specified customer.  Within 90 days of the closing date, AE will deliver to CMGO 0.05% of AE’s capital stock outstanding as of the closing date as an initial services fee.  The transactions described in this paragraph are sometimes referred to in this prospectus/proxy statement as the “Separation”.
 
The board of directors of CMGO has unanimously approved the Separation, and recommends that shareholders vote “FOR” the Separation as further described in the proxy statement/prospectus.
 
Your vote is very important . Whether or not you plan to attend the special meeting in person, it is important that your shares be represented and voted at the special meeting. You may submit your proxy or voting instructions by completing, signing, dating and returning the proxy or voting instruction card if you request a paper copy of the proxy statement or by submitting your proxy or voting instructions over the Internet. We urge you to promptly submit your proxy or voting instructions in order to ensure your representation and the presence of a quorum at the special meeting. Please note that if you do not submit a proxy or voting instruction form or do not vote in person at the special meeting, the effect will be the same as a vote against the Separation or ratification of the Master Agreement.  In addition, if you “ABSTAIN” from voting on the Separation or on the ratification of the Master Agreement, the effect will be the same as a vote against each of these proposals .
 
The proxy statement/prospectus provides you with important information about the Separation. Please give this information your careful attention. In particular, you should read and consider carefully the discussion in the section entitled “Risk Factors ” beginning on page ___ of the proxy statement/prospectus .
 
Sincerely,
 
Alan Morel
 
Chairman and Chief Executive Officer
 
 
Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved the distribution of the shares of common stock of AE as described in the proxy statement/prospectus or passed upon the adequacy or accuracy of this proxy statement/prospectus. Any representation to the contrary is a criminal offense.
 
The proxy statement/prospectus is dated _________, 2011, and is first being mailed to shareholders of CMGO on or about _______________, 2011.
 
 
 
 

 

CMG HOLDINGS GROUP, INC.
 
5601 Biscayne Boulevard
 
Miami, Florida 33137
 
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
 
TO BE HELD ON ______________, 2011
 
To the Shareholders of CMG Holdings Group, Inc.:
 
The special meeting of shareholders of CMG Holdings Group, Inc., a Nevada corporation (“CMGO”), will be held on _____________, 2011 at _______________________, Miami, Florida 33137 at 9:30 a.m., local time, and at any adjournment or postponement thereof, to consider and vote on the following matters described in the proxy statement/prospectus:
 
1.           To consider and vote upon a proposal to approve the Separation and ratify the Master Agreement pursuant to which, subject to certain retained rights as more fully described in this proxy statement/prospectus, the shareholders of AudioEye Acquisition Corp. (“AEAC”) will exchange all of their shares of the capital stock of AEAC for 80% of the capital stock of AudioEye Inc. (“AE”), and CMGO will distribute to its shareholders on a pro rata basis in the form of a dividend 5% of the capital stock of AE (the “Separation”).  AEAC is a newly formed corporation which owns certain rights to the exploitation of AE’s patents.
 
2.           To consider and vote upon a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation.
 
3.           To transact such other business as may properly come before the special meeting, and any adjournments or postponements thereof.
 
The Separation is conditioned on approval by CMGO shareholders and satisfaction or waiver of all other conditions to the transactions as described in this proxy statement/prospectus.
 
The board of directors of CMGO has fixed the close of business on _______ __, 2011 as the record date for determining shareholders entitled to receive notice of and vote at the special meeting and at any adjournment or postponement thereof. At the close of business on the record date, there were __________ shares of CMGO common stock outstanding and entitled to vote.
 
All shareholders are cordially invited to attend the special meeting in person. Whether or not you plan to attend the special meeting, you are urged to promptly submit your proxy or voting instructions. If you attend the special meeting and wish to vote your own shares in person, you may withdraw your proxy at that time.
 
 
 
 

 

For the Board of Directors,
 
James Ennis
Secretary
 
_______    , 2011
 
After careful consideration, the board of directors of CMGO has unanimously determined that the Separation is advisable and in the best interests of CMGO and you, the CMGO shareholders. The board of directors of CMGO unanimously recommends that you vote “FOR” the Separation, and “FOR” the adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation .
 
In accordance with the rules approved by the United States Securities and Exchange Commission (“SEC”), we expect to send a Notice of Internet Availability of Proxy Materials on or about _______, 2011, and provide access to our proxy materials on the Internet, beginning on _______, 2011, for the holders of record and beneficial owners of our common stock as of the close of business on the record date.
 
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON ___________, 2011.
 
The proxy statement and proxy card are available at the following website: www._____________.com.
 
REFERENCES TO ADDITIONAL INFORMATION
 
This proxy statement/prospectus incorporates important information about CMG Holdings Group, Inc. (“CMGO”) that is not included in or delivered with this proxy statement/prospectus. For a listing of the documents incorporated by reference into this proxy statement/prospectus, see “Where You Can Find More Information.” You may obtain these documents through the website of the Securities and Exchange Commission (the “SEC”) at www.sec.gov. You may also request a copy of these documents at no cost by writing or telephoning CMGO at:
 
CMG Holdings Group, Inc.
 
5601 Biscayne Boulevard
 
Miami, Florida 33137
 
305-751-0558
 
To obtain timely delivery of such information, you must request such information no later than               , 2011.
 
 
 
 

 

TABLE OF CONTENTS
 
 
   Page
     
QUESTIONS AND ANSWERS  1  
     
 SUMMARY  6  
     
PROPOSAL NO. 1 - APPROVAL OF THE SEPARATION  10  
  Manner of Effecting the Separation  10  
  Management of AE  10  
  Interests of Certain persons in the Separatioin  10  
  Market for AE Common Stock  10  
  U.S. Federal Income Tax Consequences of the Separation  10  
  Conditions to the Separation  11  
  Absence of Apparaisal Rights  11  
  Distribution and Dividend Policy  12  
     
PROPOSAL NO. 2 - APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING  13  
     
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA  13  
     
RISK FACTORS  14  
     
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS  26  
     
 INFORMATION ABOUT THE SPECIAL MEETING OF CMGO STOCKHOLDERS  26  
  Date, Time and Place of the Special Meeting 26  
  Purpose of the Special Meeting 26  
  Recommendation of the Board of Directors of CMGO 27  
  Vote Required 27  
  Record Date; Shares Entitled to Vote; Quorum 27  
  Other Matters 28  
  To Attend the Special Meeting of CMGO Shareholders  28  
  Communications by CMGO Shareholders with CMGO 28  
     
THE PROPOSALS 28  
  Overview of the Separation 28  
  Reasons for the Separation 28  
  Regulatory Approvals Required for the Separation 29  
     
PROPOSAL NO. 1 - APPROVAL OF THE SEPARATION 30  
  Manner of Effecting the Separation 30  
  Management of AE 30  
  Interests of Certain Persons in the Separation 31  
  Conditions to the Separation 31  
     
PROPOSAL NO. 2 - APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING 33  
     
RELATIONSHIP BETWEEN CMGO AND AE AFTER THE SEPARATION 33  
  The Royalty Agreement 33  
  The Service Agreement 33  
 
 
i

 
 
DESCRIPTION OF MATERIAL INDEBTEDNESS 33  
     
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENSES 33  
  Consequences to CMGO 34  
  Consequences to CMGO Shareholders 34  
  Special Rules Applicable to Corporate Shareholders 35  
  Federal Income Tax Witholding 35  
  Consequences for Foreign Shareholders 35  
     
DISTRIBUTION AND DIVIDEND POLICY 36  
     
BUSINESS OF AE 36  
  AE's Business plan 38  
  Properties 45  
  General Information 45  
     
AE PRO FORMA CAPITALIZATION 45  
     
AE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS 46  
     
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR AE 58  
     
MANAGEMENT OF AE 61  
  Information Regarding Directors and Executive Officers of AE 61  
  Directors 61  
  Committees of the Board of Directors 62  
     
DIRECTOR COMPENSATION - FISCAL 2010 63  
     
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 63  
     
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 63  
     
MARKET PRICES AND RELATED STOCKHOLDER MATTERS 64  
     
DESCRITION OF AE CAPITAL STOCK 65  
     
LEGAL MATTERS 68  
     
EXPERTS 68  
     
OTHER MATTERS 68  
     
WHERE YOU CAN FIND MORE INFORMATION 68  
 
 
ii

QUESTIONS AND ANSWERS
 
Q:           What transactions are being proposed?
 
A:           The board of directors of CMGO has approved a plan to restructure its business by separating out AE by (a) distributing to the CMGO shareholders by way of dividend 5% of the outstanding capital stock of AE and (c) exchanging 80% of the capital stock of AE for all of the capital stock of AEAC.
 
Q:           When will the Separation occur?
 
A:           The Separation is expected to occur in the fourth quarter of 2011. The board of directors of CMGO will set the record date for the Separation after the special meeting. The timing of the Separation will ultimately depend upon the satisfaction or waiver of certain conditions, including obtaining shareholder approval of the Separation.
 
Q:           What will I receive in connection with the Separation?
 
A:           As a result of the Separation, you will be entitled to receive ___ share of AE common stock for every _____ shares of CMGO common stock held by you on the record date for the Separation.
 
Q:           What are the U.S. federal income tax consequences of the spin-off to CMGO shareholders?
 
A:           CMGO believes that the elements of the Separation represent taxable transactions to CMGO in connection with the exchange and to its shareholders in connection with the distribution of AE stock for U.S. federal income tax purposes.  For more information, see “The Separation — Material U.S. Federal Income Tax Consequences of the Spin-Off,” included elsewhere in this prospectus/proxy statement.
 
Q:           What will be the relationship between CMGO and AE following the spin-off?
 
A:           Prior to the spin-off, AE is a wholly owned subsidiary of CMGO.  Following the spin-off, CMGO will retain approximately a 15% interest in AE and receive certain payments and other consideration pursuant to a Services Agreement and Royalty Agreement.  See “Certain Relationships and Related Party Transactions—Relationships Between CMGO and AE.”
 
Q:           Will I receive physical certificates representing shares of common stock of AE?
 
A:           In connection with the spin-off transaction, AE will issue physical certificates representing shares of its common stock to stockholders of CMGO as of the Record Date with the assistance of its transfer agent who will also act as the distribution agent.  For CMGO stockholders who have shares in “street name” CMGO will electronically issue shares to their bank or brokerage firm on their behalf.
 
Q:           Will I receive fractional shares of AE common stock in connection with the Separation?
 
A:           No fractional shares of AE common stock will be issued in connection with the Separation.  Instead, in the case of a fractional share, there will be a rounding up to the next whole share with the aggregate amount of the additional shares to be so issued to reduce the amount of shares otherwise to be retained by CMGO.
 
Q:           Will I still own my shares of CMGO after the completion of the transactions?
 
A:           Yes.  The Separation will not affect the ownership of your CMGO shares.
 
Q:           How will the rights of CMGO stockholders change following the Separation?
 
 
1

 
 
A:           Upon the Separation, CMGO shareholders as of the record date for the Separation will also become stockholders of AE. The rights of the stockholders of AE following the Separation will be governed by the Delaware General Corporation Law (the “DGCL”) and the provisions of the certificate of incorporation and bylaws of AE as described in this proxy statement/prospectus.
 
Q:           When will I be able to trade shares of AE common stock?
 
A:           At present, there is no public market for the common stock of AE.  We anticipate that AE will become subject to quotation on the OTCQB, the OTC Bulletin Board or the new BX Venture Market established by NASDAQ following the effective date of the Separation.
 
Q:           Who will pay the costs of the Separation?
 
A:           AE will pay all costs associated with the Separation that are incurred prior to the Separation. All costs relating to the Separation incurred after the Separation will be borne by the party incurring such costs.
 
Q:           What items of business am I being asked to vote on at the special meeting?
 
A:           At the special meeting, you will be asked to consider and vote on the following proposals:
 
·  
a proposal to approve the Separation including the ratification of the Master Agreement (Proposal No. 1);
 
·  
a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation (Proposal No. 2).
 
Q:           What will be the effect on the proposals if the Separation is not approved by CMGO shareholders?
 
A:           A condition to the Separation is that the Separation has been approved by CMGO shareholders. Even if shareholder approval of the Separation has been obtained, the Separation will not proceed unless all other required conditions to the Separation have been satisfied or waived.
 
Q:           How does the board of directors of CMGO recommend that I vote?
 
A:           The board of directors of CMGO has unanimously approved the Separation and has determined that these actions are advisable and in the best interests of CMGO and its shareholders. The board of directors of CMGO unanimously recommends that you vote your shares “FOR” approval of the Separation, and “FOR” the adjournment proposal.
 
Q:           What votes are required?
 
A:           The Separation. The affirmative vote of a majority of the outstanding shares of CMGO common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to approve the Separation. If you “ABSTAIN” from voting on approval of the Separation, the effect will be the same as a vote against the Separation. Please note that shareholder approval of the Separation is not required by applicable law, although it is a condition to the completion of the Separation. See “The Proposals—Proposal No. 1—Approval of the Separation—Conditions to the Separation.” CMGO will not complete the Separation as contemplated in this proxy statement/ prospectus if CMGO’s shareholders do not approve the Separation at the special meeting. However, if shareholder approval is not obtained, CMGO reserves the right to consider and implement without shareholder approval, if permitted by applicable law, other restructuring plans in the future, and such plans may be substantially similar to the transactions proposed in this proxy statement/prospectus.
 
 
2

 
 
Adjournment of the Special Meeting. The affirmative vote of a majority of the outstanding shares of CMGO common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation. If you “ABSTAIN” from voting on approval of the adjournment, the effect will be the same as a vote against the adjournment of the special meeting.
 
Q:           How many shares of CMGO common stock must be present or represented to conduct business at the special meeting?
 
A:           The holders of a majority in voting power of the outstanding shares of CMGO common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting and any adjournments or postponements thereof. If you submit a proxy or voting instructions, your shares will be counted for purposes of determining the presence of a quorum, even if you “ABSTAIN” from voting your shares on the proposals. If a quorum is not present at the special meeting, the special meeting may be adjourned until a quorum is obtained.
 
Q:           Who is entitled to vote at the special meeting?
 
A:           Only shareholders of record at the close of business on _______________, 2011, the record date for the special meeting, will be entitled to notice of and to vote at the special meeting. At the close of business on the record date for the special meeting, __________ shares of CMGO common stock were outstanding and entitled to vote.
 
As of the close of business on the record date for the special meeting, executive officers and directors of CMGO held an aggregate of _______ shares of CMGO common stock, which represents approximately ___% of all shares entitled to vote at the special meeting.
 
Q:           What is the difference between a “stockholder of record” and a “beneficial stockholder”?
 
A:           Whether you are a stockholder of record or a beneficial stockholder depends on how you hold your shares of CMGO common stock.
 
Stockholders of Record. If your shares of CMGO common stock are registered directly in your name with CMGO’s transfer agent, Corporate Stock Transfer, Inc., you are considered the stockholder of record with respect to those shares, and the proxy materials for the special meeting are being mailed to you directly by CMGO.
 
Beneficial Stockholders. Most of CMGO’s shareholders hold their shares through a bank, broker or other nominee (that is, in “street name”) rather than directly in their own name. If you hold your shares of CMGO common stock in street name, you are a “beneficial stockholder,” and the proxy materials are being mailed to you by the organization holding your shares. This organization, or its nominee, is considered the stockholder of record for purposes of voting at the special meeting. As a beneficial stockholder, you have the right to instruct that organization on how to vote the shares held in your account.
 
Q:           May I vote in person?
 
A:           If you are a stockholder of record as of the close of business on the record date for the special meeting, you may attend the special meeting and vote your shares of CMGO common stock in person rather than signing and returning your proxy card or otherwise providing your proxy instructions.  Your name will be verified against the list of shareholders of record on the record date for the special meeting prior to your being admitted to the special meeting.
 
 
3

 
 
If you are a beneficial stockholder, you are also invited to attend the special meeting but you may not vote these shares of CMGO common stock in person at the special meeting unless you obtain a “legal proxy” from the bank, broker or other nominee, giving you the right to vote the shares at the special meeting. You will be asked to provide proof of beneficial ownership on the record date for the special meeting, such as your most recent account statement, a copy of the voting instruction form provided by your bank, broker or other nominee, or other similar evidence of ownership, prior to your being admitted to the special meeting.
 
If you do not comply with the procedures outlined above, you will not be admitted to the special meeting. Even if you plan to attend the special meeting, it is recommended that you submit your proxy or voting instructions in advance of the special meeting as described below so that your vote will be counted if you later decide not to attend the special meeting.
 
Q:           How can I vote my shares without attending the special meeting?
 
A:           Whether you are a stockholder of record or a beneficial stockholder, you may direct how your shares of CMGO common stock are voted without attending the special meeting. If you are a stockholder of record, you may submit a proxy to instruct how your shares of CMGO common stock are to be voted at the special meeting. You can submit a proxy by mail by completing, signing, dating and returning the proxy card if you request a paper copy of the proxy statement or by Internet by following the instructions provided on the proxy card. If you are a beneficial stockholder, you may submit voting instructions to your bank, broker or other nominee to instruct how your shares of CMGO common stock are to be voted at the special meeting. Your voting instructions can be submitted by mail by completing, signing, dating and returning the voting instruction form enclosed with the proxy materials you received or by telephone or Internet, if those voting options are available to you, by following the instructions provided on the voting instruction form.
 
Q:           May I change or revoke my proxy or voting instructions?
 
A:           You have the power to revoke or change your proxy or voting instructions before your shares of CMGO common stock are voted at the special meeting.  If you are a stockholder of record, you may do this by submitting a written notice of revocation to CMGO’s Secretary, by submitting a duly executed written proxy bearing a date that is later than the date of your original proxy or by submitting a later dated proxy electronically via the Internet. A previously submitted proxy will not be voted if the stockholder of record who executed it is present at the special meeting and votes the shares of CMGO common stock represented by the proxy in person at the special meeting. If you are a beneficial stockholder, you may change your vote by submitting new voting instructions to your bank, broker or other nominee, or, if you have obtained a legal proxy from your bank, broker or other nominee giving you the right to vote your shares of CMGO common stock, by attending the special meeting and voting in person.  Please note that attendance at the special meeting will not by itself constitute revocation of a proxy.
 
Q:           How will my shares be voted if I do not provide specific instructions in the proxy or voting instruction form I submit?
 
A:           If you submit a proxy or voting instruction form but do not indicate your specific voting instructions on one or more of the proposals listed in the notice of the special meeting, your shares of CMGO common stock will be voted as recommended by the board of directors of CMGO on those proposals and, in the case of a proxy, as the proxyholders may determine in their discretion with respect to any other matters properly presented for a vote at the special meeting.
 
Q:           If my shares are held in “street name” by a bank, broker or other nominee, how will my shares be voted?
 
 
4

 
 
A:           You should instruct your bank, broker or other nominee how to vote your shares of CMGO common stock, following the directions provided to you. If you do not instruct your broker, your broker will generally not have the discretion to vote your shares of CMGO common stock without your instructions on matters that are not considered routine. CMGO believes that the Separation proposal, and the proposal to adjourn the special meeting are each considered not to be routine matters. Therefore, your broker cannot vote shares of CMGO common stock that it holds in “street name” on any of the proposals unless you return the voting instruction form you received from your broker.  Accordingly, CMGO does not believe that there will be any broker non-votes occurring in connection with any of the proposals at the special meeting.   Please note, however, that if you properly return the voting instruction form to your broker but do not indicate how you want your shares of CMGO common stock to be voted, CMGO believes your shares of CMGO common stock generally will be voted “FOR” all of the proposals listed in the notice for the special meeting.
 
Q:           Am I entitled to dissenters’ or appraisal rights?
 
A:           Under Nevada law, you are not entitled to dissenters’ or appraisal rights in connection with the Separation.
 
Q:           What if I want to transfer my shares of CMGO common stock?
 
A:           You should consult with your financial advisor, such as your broker, bank or tax advisor. Neither CMGO nor AE makes recommendations concerning the purchase, retention or sale of shares of CMGO common stock or of the AE common stock you will receive if the Separation is completed.
 
The record date for the special meeting is earlier than the record date for the Separation. Therefore, if you sell your shares of CMGO common stock after the record date of the special meeting, but prior to the record date for the Separation (which has yet been determined), you will retain the right to vote at the special meeting, but the right to receive AE common stock in connection with the Separation will transfer with the shares of CMGO common stock.
 
Q:           As a CMGO shareholder, what should I consider in deciding whether to vote in favor of the Separation?
 
A:           You should carefully review this proxy statement/prospectus, including the section entitled “Risk Factors” which sets forth certain risks and uncertainties related to the Separation and certain risks and uncertainties to which AE will be subject if these transactions are implemented.
 
Q:           Who is paying for this proxy solicitation?
 
A:           CMGO is making this solicitation but AE will pay the entire cost of preparing and distributing these proxy materials.  CMGO’s directors, executive officers and other employees may also solicit proxies or votes in person, by telephone or by other means of communication. Directors, executive officers and employees will not be paid any additional compensation for soliciting proxies. CMGO will also reimburse banks, brokers and other nominees for their costs in forwarding proxy materials to CMGO’s beneficial stockholders.
 
Q:           Who can help answer my questions?
 
A:           If you have any questions or need further assistance in voting your shares of CMGO common stock, or if you need additional copies of this proxy statement/prospectus or the proxy card, please contact:
 
CMG Holdings Group, Inc.
5601 Biscayne Boulevard
Miami, Florida 33137
Attention: Investor Relations
Telephone number: 305-751-0588
 
 
 
5

 
 
SUMMARY
 
This summary highlights selected information contained or incorporated by reference in this proxy statement/prospectus and may not contain all of the information that is important to you.  This summary is not intended to be complete and reference is made to, and this summary is qualified in its entirety by, the more detailed information contained or incorporated by reference in this proxy statement/prospectus.  To fully understand the restructuring of CMGO’s business, including the Separation, and for a more complete description of the terms of the Separation, you should read carefully this proxy statement/prospectus, together with the documents referred to in this proxy statement/prospectus.  Unless the context otherwise requires, references in this proxy statement/prospectus to “CMGO” shall be deemed to refer to CMG Holdings Group, Inc. prior to completion of the Separation.
 
Information about the Companies
 
CMG Holdings Group, Inc.
 
CMG Holdings Group, Inc.  (CMGO.PK) is referred to in this proxy statement/prospectus as CMGO.  CMG Holdings Group, Inc. was incorporated in Nevada in July 2004 under the name of Pebble Beach Enterprises, Inc.  CMGO’s principal executive offices are located at 5601 Biscayne Boulevard, Miami, Florida 33137.
 
CMGO’s Business
 
Overview
 
CMG Holdings Group, Inc. is a marketing communications holding company focused on the acquisition and operation of organizations in the alternative advertising, interactive marketing, sports, entertainment, Internet content publication and distribution technology sectors.  CMGO was formed by a core group of principals who have held senior level positions with several of the largest and most successful companies in the entertainment and marketing management industry.  CMGO delivers custom marketing solutions to optimize profitability by concentrating its resources in those segments of the marketing communications and entertainment industry.  CMGO operates in the sectors of talent management, event management, and commercial rights.
 
For the year ended December 31, 2010, CMGO’s gross revenues from continuing operations were $4,972,093.  For the six months ended June 30, 2011, CMGO’s gross revenues from continuing operations were $5,512,129.
 
AudioEye, Inc.
 
On March 31, 2010, CMGO acquired AE.  AE has developed patented internet content publication and distribution software that enables conversion of any media into accessible formats and allows for real time distribution to end users on any internet connected device.
 
In October 2010, Congress passed and President Obama signed into law the 21st Century Communication and Video Accessibility Act which mandates that all government websites (city, state, and federal) to be compliant and have accessibility to Americans with disabilities. As a result, providing accessibility services for these websites has become a significant market opportunity in view of the potential demand for AE’s patented solution.
 
AE’s principal executive offices are and will continue to be located at 9070 Rita Rd #1450, Tucson, AZ 85747, and its telephone number is (866) 331-5324.
 
 
6

 
 
Risks Associated with the Separation
 
The Separation poses a number of risks to CMGO shareholders.  CMGO shareholders will receive shares of AE as a result of the Separation, but its equity interest in AC will be reduced from 100% to approximately 15%.  After the Separation, AE will be subject to various risks associated with its business.  Some of these risks include:
 
Risks Relating to the Separation
 
·  
The historical and pro forma financial information included in this proxy statement/prospectus is not necessarily representative of the results AE would have achieved as a separate, publicly traded company.
 
·  
The Separation could give rise to liabilities, disputes, increased costs or other unfavorable effects that may not have otherwise arisen.
 
Risks Relating to AE’s Business
 
·  
AE’s revenue and collections may be materially adversely affected by the economic downturn.
 
·  
AE’s current senior management is not expected to work full time for AE subsequent to the Separation.
 
·  
AE has a limited operating history and its future performance is uncertain.
 
·  
AE needs additional funds to implement its business plan.
 
These and other risks relating to the Separation and the business of AE following the Separation are discussed in greater detail under the caption “Risk Factors.” You should read and consider all of these risks carefully.
 
The Special Meeting of CMGO Shareholders
 
Date, Time and Place .  The special meeting of CMGO shareholders will be held on  ___________, 2011, at _______________________, Miami, Florida 33137 at 9:30 a.m.  local time, and at any adjournment or postponement thereof.
 
Purpose of the Special Meeting .  At the special meeting, CMGO’s shareholders will be asked to consider and vote upon (i) a proposal to approve the Separation and the Master Agreement; and (ii) a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation.
 
Record Date; Shares Entitled to Vote; Quorum .  Only shareholders of record at the close of business on ____________________, 2011, the record date for the special meeting, will be entitled to notice of and to vote at the special meeting.  At the close of business on the record date for the special meeting, __________ shares of CMGO common stock were outstanding and entitled to vote.  As of the close of business on the record date for the special meeting, executive officers and directors of CMGO held an aggregate of _______ shares of CMGO common stock, which represents approximately ____% of all shares of CMGO common stock entitled to vote at the special meeting.  The presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of CMGO common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the meeting and any adjournments or postponements thereof.
 
 
7

 
 
Vote Required
 
The Separation .  The affirmative vote of a majority of the outstanding shares of CMGO common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to approve the Separation.  If you “ABSTAIN” from voting on approval of the Separation, the effect will be the same as a vote against the Separation.  Shareholder approval of the Separation is not required by applicable law, although it is a condition to the completion of the Separation.  See “The Proposals—Proposal No.  1—Approval of the Separation—Conditions to the Separation.” CMGO will not complete the Separation as contemplated in this proxy statement/prospectus if CMGO’s shareholders do not approve the Separation at the special meeting.  However, if shareholder approval is not obtained, CMGO reserves the right to consider, and implement without shareholder approval if permitted by applicable law, other restructuring plans in the future, and such plans may be substantially similar to the transactions proposed in this proxy statement/prospectus.
 
Adjournment of the Special Meeting .  The affirmative vote of a majority of the outstanding shares of CMGO common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation.  If you “ABSTAIN” from voting on approval of the adjournment, the effect will be the same as a vote against the adjournment of the special meeting.
 
Overview of the Separation
 
Upon satisfaction or waiver of the conditions to the Separation, CMGO will effect the Separation by distributing to its stockholders on a pro rata basis 5% of the outstanding shares of AE common stock and completing the Share Exchange with AEAC.  Each CMGO shareholder as of the record date for the Separation will receive ____ share of AE common stock for every _____ shares of CMGO common stock such stockholder owns on this record date.  See “Proposal No.  1—Approval of the Separation—Manner of Effecting the Separation.”  The Separation is expected to occur in the fourth quarter of 2011.
 
CMGO’s board of directors believes that separating a significant portion of AE from the remainder of CMGO is in the best interests of CMGO and its shareholders.  In connection with the purchase of AE by CMGO, the former stockholders of AE retained rights (the “Rights”) to receive cash from the exploitation of AE’s technology. These Rights consist of 50% of any cash received from income earned, settlements or judgments directly resulting from AE’s patent strategy, net of any direct costs or tax implications incurred in payment of the patent strategy.  Additionally, the holder of the Rights are entitled to a share of AE’s net income for 2010, 2011, 2012 and 2013 based on a specified formula.  The holders of the Rights have contributed the Rights to AEAC.  CMGO also has issued Senior Secured Notes (the “Senior Notes”) in an aggregate principal amount of $1,075,000 which CMGO may be unable to service.  The Senior Notes are secured by all of the assets of CMGO, including AE.  There is a significant risk that unless the Senior Notes are kept current and serviced, the holders of the Senior Notes will foreclose and take possession of AE or its assets.  Accordingly, the existence of the Rights and the obligations under the Senior Notes have made it difficult for CMGO to finance its business plan including exploiting AE’s technology.  Pursuant to the Master Agreement, AE will acquire all of the capital stock of AEAC and AEAC will be required to arrange for the release of CMGO under the Senior Notes, probably through the purchase of the Senior Notes by AEAE, its shareholders and/or other persons whose participation may be arranged by AEAC.  Additionally, the Separation is expected to:
 
·  
improve strategic planning, increase management focus and streamline decision-making by providing the flexibility to implement the unique strategic plans of each company and to respond more effectively to different financial needs of each company and the changing economic environment.
 
 
8

 
 
·  
allow CMGO and AE to adopt the capital structure, investment policy and dividend policy best suited to each business’ financial profile and business needs.
 
·  
eliminate the financial overhang to AE from the existence of the Rights.
 
·  
extinguish CMGO’s obligations under the Senior Notes and the risk to CMGO from the enforcement by the holders of the Senior Notes.
 
Finally, CMGO has been unable or unwilling to fund AE’s operations and its negative cash flows.  AE has been funded by AE’s President, Nathaniel Bradley, through a series of loans evidenced by promissory notes from AE (the “Funding Notes”) currently in the aggregate principal amount of approximately $1,084,223.72.   Mr. Bradley has indicated that he does not intend to continue providing funding to AE unless the Separation is approved.
 
The CMGO board of directors considered a number of potentially negative factors in evaluating the separation, including risks relating to the creation of a new public company and possible increased costs and one-time separation costs, but concluded that the potential benefits of the separation outweighed these factors.  For more information, see the sections entitled “The Distribution — Reasons for the Distribution” and “Risk Factors” included elsewhere in this prospectus.
 
Relationship Between CMGO and AE the Separation
 
Pursuant to the Master Agreement, CMGO will retain 15% of the outstanding capital stock of AE as of the closing.  Pursuant to a Royalty Agreement, AE will pay to CMGO 10% of cash received from income earned or settlements on judgments directly resulting from AE’s patent enforcement and licensing strategy, whether received by AE on any of its affiliates, net in either case of any direct costs or tax implications incurred in pursuit of such strategy as they relate to the patents described in the Master Agreement.  Additionally, AE will enter into a services agreement with CMGO whereby, without duplication to the amounts payable under the Royalty Agreement, CMGO will receive a commission of 7.5% of all revenues received by AE after the closing from all business, clients or other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to AE and 10% of net revenues obtained from a specified customer.  Within 90 days of the closing date, AE will deliver to CMGO 0.05% of AE’s capital stock outstanding as of the closing date as an initial services fee.
 
 
 
9

 
PROPOSAL NO. 1—APPROVAL OF THE SEPARATION
 
  Manner of Effecting the Separation
 
In the Separation, CMGO stockholders as of the record date for the Separation will receive ____ share of AE common stock for every _____ shares of CMGO common stock such stockholder owns on this record date.
 
Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209, 303-282-4800, will serve as the distribution agent for the Separation.  On the distribution date for the Separation, CMGO’s transfer agent will electronically issue shares of AE common stock to holders of CMGO common stock who hold such shares on the record date for the Separation, or to such stockholders’ bank, broker or other nominee on such stockholders’ behalf by way of direct registration in book-entry form.  As soon as practicable after the distribution date for the Separation, an account statement will be mailed to each holder of CMGO common stock who holds such shares on the record date, stating the number of shares of AE common stock received by such shareholder in the Separation.
 
  Management of AE
 
The Chief Executive Officer of AE will be Nathaniel Bradley, currently President and Chief Operating Officer of AE.  The remaining AE management team, including Sean Bradley, Chief Technology Officer, will continue to be the management team of AE.  See “Management of AE.”
 
  Interests of Certain Persons in the Separation
 
As of the record date for the special meeting, directors and executive officers of CMGO beneficially owned approximately ___% of the outstanding shares of CMGO common stock.  Executive officers of AE who own shares of CMGO common stock as of the record date for the Separation will receive a distribution of shares of AE common stock on the same basis as other CMGO stockholders.  Certain executive officers of AE are the majority shareholders of AEAC and will receive shares of AE pursuant to the Share Exchange.  See “Security Ownership of Certain Beneficial Owners and Management.”
 
  Market for AE Common Stock
 
There is no current public market for AE common stock.  Upon completion of the Separation, it is expected that at some date AE common stock will trade on the OTCQB, OTC Bulletin Board or the new BX Venture Market operated by NASDAQ although no assurance can be given that such trading will take place or the date thereof.
 
Immediately following the Separation, AE is expected to have 30,000,000 shares of common stock outstanding.  No shares of preferred stock of AE will be issued or outstanding at the time of the Separation.  Immediately following the Separation, it is expected that AE will have approximately ____________ holders of record of shares of its common stock based on the number of holders of record of shares of CMGO common stock on ___________, 2011.
 
  U.S. Federal Income Tax Consequences of the Separation
 
CMGO believes that all elements of the transaction will give rise to taxable events including the distribution of AE common stock to its shareholders.  The distribution will be treated as a taxable distribution in an amount equal to the sum of the fair market value of AE shares on the distribution date and any cash received in lieu of fractional shares.  This sum will be treated as a taxable dividend to the extent of any current year earnings and profits of CMGO, including gain resulting from both the distribution and the exchange of AE shares for shares of AEAC, with any excess treated as a non-taxable return of capital to the extent of a CMGO holder’s tax basis in CMGO common stock and any remaining excess treated as capital gain.  For more information, see “The Separation — Material U.S. Federal Income Tax Consequences of the Spin-Off,” included elsewhere in this prospectus/proxy statement.
 
 
10

 
 
All holders of shares of CMGO common stock should read “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the Separation” for a more complete discussion of the U.S. federal income tax consequences of the Separation and “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Considerations Relating to AE” for a more complete discussion of the U.S. federal income tax consequences of the acquisition, ownership and disposition of AE common stock that will be received in the Separation.   All holders of shares of CMGO common stock are urged to consult with their tax advisors regarding the tax consequences of the Separation to them, including the effects of U.S. federal, state and local, non-U.S. and other tax laws .
 
  Conditions to the Separation
 
The Separation is conditioned upon the satisfaction or waiver of the following conditions:
 
·  
CMGO’s shareholders shall have approved the Separation;
 
·  
the restructuring of CMGO’s business as described in this proxy statement/prospectus shall have been completed;
 
·  
no stop order shall be in effect with respect to AE’s registration statement on Form S-1 filed with the SEC to register under the Securities Act of 1933, as amended (the “Securities Act”), the distribution of shares of AE common stock in the Separation;
 
·  
CMGO and AE shall have obtained all material authorizations, consents, approvals and clearances of third parties to complete the Separation;
 
·  
no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a government, regulatory or administrative agency or commission, and no statute, rule, regulation or executive order promulgated or enacted by any governmental authority, shall be in effect preventing the completion of the Separation;
 
·  
the Services Agreement and the Royalty Agreement shall have been executed and delivered by CMGO and AE;
 
·  
the obligations of CMGO under the Senior Notes will be extinguished; and
 
·  
no litigation or proceeding challenging or seeking to restrain the Separation shall be pending or threatened.
 
In the event of any waiver of a material condition or abandonment, deferral or modification of the Separation, CMGO will provide its stockholders with additional written offering/proxy materials or a revised proxy statement/prospectus or will make other requisite filings with the SEC, as appropriate, if CMGO determines that the event or events constitute a material change to this proxy statement/prospectus.
 
  Absence of Appraisal Rights
 
CMGO shareholders will not be entitled to dissenters’ or appraisal rights as a result of the Separation.
 
 
11

 
 
Distribution and Dividend Policy
 
AE does not anticipate paying dividends on its common stock in the foreseeable future.  AE anticipates that the agreements governing indebtedness it will incur will restrict AE’s ability to pay dividends or make distributions to its stockholders.  Any future determination to pay dividends will be at the discretion of the board of directors of AE and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the board of directors of AE deems relevant.  See “Distribution and Dividend Policy.”
 
 
 
12

 
PROPOSAL NO. 2—APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING
 
CMGO may propose to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation.
 
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
 
The following tables set forth selected historical per share data for CMGO and selected unaudited pro forma per share data after giving effect to the Separation of AE.  You should read the historical per share data in conjunction with the historical financial information provided herein under the caption “Selected Financial Information and Other Data” and the selected historical financial statements and related notes of CMGO that are incorporated into this proxy statement/prospectus by reference.  The pro forma per share amounts have been computed using the assumptions described in, and should be read in conjunction with, the pro forma financial information provided under the caption “AE Unaudited Pro Forma Consolidated Financial Statements.”
 
The unaudited pro forma consolidated financial data are presented for informational purposes only.  You should not rely on the pro forma financial data as an indication of the financial position or results of operations of future periods or the results that actually would have been realized had the Separation occurred prior to the periods presented.
 
Historical Per Share Data of CMGO
 
 
As of or For the
                   
 
Six Months
                   
 
Ended
 
As of or For the Year Ended December 31,
 
 
June 30, 2011
   
2010
   
2009
 
2008
 
Income (loss) from continuing operations
  $ 1,037,379     $ (4,191,682 )   $ (1,672,494 )   $ (3,669,874 )
Basic
    0.02       (0.10 )     (0.05 )     (0.16 )
Diluted
    0.02       (0.10 )     (0.05 )     (0.16 )
Dividends
    -       -       -       -  
Book value per share(1)
    (0.02 )     (0.06 )     (0.02 )     (0.01 )
                                 
(1) The historical book value per share data presented is computed by dividing stockholders’ equity at the end of the period by the number of shares outstanding at the end of the period.
 

 
Pro Forma Per Share Data of CMGO
 
 
As of or For the
                   
 
Six Months
                   
 
Ended
 
As of or For the Year Ended December 31,
 
 
June 30, 2011
   
2010
   
2009
 
2008
 
Income (loss) from continuing operations
  $ 1,767,363     $ (3,350,494 )   $ (1,672,494 )   $ (3,669,874 )
Basic
    0.03       (0.09 )     (0.05 )     (0.16 )
Diluted
    0.03       (0.09 )     (0.05 )     (0.16 )
Dividends
    -       -       -       -  
Book value per share(1)
    (0.001 )     (0.08 )     (0.02 )     (0.01 )
                                 
(1) The pro forma book value per share data presented is computed by dividing the pro forma stockholders’ equity at the end of the period by the number of pro forma shares outstanding at the end of the period.
 
 
 
13

 
 
RISK FACTORS
 
Before you vote, you should carefully consider the risks related to the Separation described below and the other information contained in this proxy statement/prospectus or in CMGO’s documents incorporated by reference herein.  See “Where You Can Find More Information.”  The risks and uncertainties described below are not the only ones facing AE.  If any of the following risks actually are realized, AE’s business, financial position or results of operations could be materially adversely affected, the value of AE common stock could decline and you could lose all or part of your investment.
 
Risks Related to the Separation
 
AE’s inability to obtain material consents of third parties may have a material adverse effect on AE’s ability to consummate the Separation
 
There are third-party approvals that must be obtained to consummate the restructuring of CMGO’s business in connection with the Separation, including consents from the holders of the Senior Notes who must agree to release CMGO from its obligations thereunder.
 
The historical and pro forma financial information included in this proxy statement/prospectus does not purport to be indicative of the results AE would have achieved as a separate, publicly traded company and may not be a reliable indicator of future results.
 
·  
Prior to the Separation, the business of AE was operated by CMGO as part of one corporate organization and was not operated as a stand-alone companies;
 
·  
Significant changes may occur in the cost structure, financing and business operations as a result of AE operating as a stand-alone company.  These changes may result in increased costs associated with reduced economies of scale, stand-alone costs for services currently provided and the legal, accounting, compliance and other costs associated with being a public company.
 
The pro forma financial information included in this proxy statement/prospectus includes adjustments based upon available information believed to be reasonable to reflect these factors.  However, the assumptions may change and actual results may differ.  In addition, the pro forma financial information does not include adjustments for estimated general and administrative expenses.
 
The Separation could give rise to liabilities, disputes, increased costs or other unfavorable effects that may not have otherwise arisen, which could have a material adverse effect on the business, financial position or results of operations of AE.
 
The agreements to be entered into in connection with the Separation, including the Services Agreement and the Royalty Agreement, have been negotiated in the context of AE’s separation from CMGO while AE is still a part of CMGO.  Accordingly, these agreements may not reflect terms that may have been obtained from unaffiliated third parties.  AE may have received better terms under similar agreements from third parties.
 
After AE’s spin-off from CMGO, AE may be unable to make the changes necessary to operate effectively as a separate public entity.
 
Following the Separation, CMGO will have no obligation to provide financial, operational or organizational assistance to AE.  As a separate public entity, AE will be subject to, and responsible for, regulatory compliance, including periodic public filings with the SEC, as well as generally applicable tax and accounting rules.  AE may be unable to successfully implement the changes necessary to operate as an independent public entity.
 
 
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AE expects to incur increased costs relating to operating as an independent company that could adversely affect its cash flow and results of operations.
 
AE expects that the obligations of being a public company, including substantial public reporting and related auditor fees and obligations will require new expenditures, place new demands on AE management and may require the hiring of additional personnel.  AE may need to implement additional systems that require new expenditures in order to adequately function as a public company.  Such expenditures could adversely affect AE’s business, financial condition and plan of operations.
 
The Separation will give rise to possibly significant tax liabilities to CMGO on its exchange of AE common stock for AEAC stock and other consideration as well as a tax liability to CMGO and to the CMGO shareholders on the distribution of 5% of the AE common stock to them.
 
CMGO generally will recognize gain in an amount equal to the excess of (i) the fair market value of the AEAC common stock and other consideration received (ii) over the tax basis of the AE common stock that it transfers in exchange therefor plus gain equal to the excess of the (iii) the fair market value, if any, of the AE common stock over its (iv) tax basis that CMGO distributes to the CMGO stockholders.  In addition, each CMGO shareholder who will receive AE common stock in such distribution generally would be treated as having received a taxable distribution equal to the fair market value of the AE stock received and any cash for fractional shares of which all or a portion will be treated as a dividend to the extent of the stockholder’s ratable share of CMGO’s current and accumulated earnings and profits (as increased to reflect any current income, including any gain, recognized by CMGO on the Separation).  The balance, if any, of the distribution would be treated as a nontaxable return of capital to the extent of the CMGO shareholder’s tax basis in its CMGO stock, with any remaining amount being taxed as capital gain.  For more information, see “The Spin-Off Transaction - Material U.S. Federal Income Tax Consequences of the Spin-Off,” included elsewhere in this prospectus.
 
The Separation was not the result of arm’s length negotiations.
 
The Separation was established by CMGO, in consultation with AE management, with the intention of maximizing the value to current CMGO’s shareholders.  Accordingly, the terms for us may not be as favorable as would have resulted from negotiations among unrelated third parties.
 
The Separation will result in a reduced equity interest in AE for CMGO.
 
As a result of the Separation, CMGO’s equity interest in AE will be reduced form 100% to approximately 15%, although CMGO will have certain retained rights pursuant to the Royalty Agreement and the Services Agreement.
 
Risks Relating to AE’s Business and Industry
 
AE is dependent on certain members of its management and technical team.
 
Investors in AE common stock must rely upon the ability, expertise, judgment and discretion of its management and the success of its technical team in exploiting its technology.  AE’s performance and success are dependent, in part, upon key members of our management and technical team, including Nathaniel Bradley, AE’s Chief Executive Officer, and Sean Bradley, AE’s Chief Technical Officer, and the departure of such key persons could be detrimental to our future success.  A significant percentage of the common stock of will be held by members of AE’s management.  There can be no assurance that AE’s management will remain in place.  The loss of any of AE’s management and technical team members could have a material adverse effect on AE’s results of operations and financial condition, as well as on the market price of AE’s common stock.  It is anticipated that the current senior management of AE consisting of Nathaniel Bradley and Sean Bradley will work for AE on a part-time basis subsequent to the Separation in that they will also be employed by a different technology company which AE believes to be non-competitive to AE.  See “Management.”
 
 
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AE’s future development and operations require substantial capital, and AE may be unable to obtain needed capital or financing on satisfactory terms, which would prevent AE from fully developing its business and generating revenues.
 
AE’s business is capital intensive and AE anticipates that it will need to raise significant amounts of capital to meet AE’s funding requirements.  AE expects its capital outlays and operating expenditures to increase substantially over at least the next several years as AE implements its business plan.  AE expect that AE will need to raise substantial additional capital, through future private or public equity offerings, strategic alliances or debt financing.  AE’s future capital requirements will depend on many factors, including:  market conditions, sales force cost, cost of litigation in enforcing AE’s patents, and IT development and acquisition costs.
 
AE does not currently have any commitments for future external funding and AE does not expect to generate any significant revenue from its business for some period of time.  Additional financing may not be available on favorable terms, or at all.  Even if AE succeeds in selling additional securities to raise funds, at such time, the ownership percentage of AE’s existing stockholders would be diluted, and new investors may demand rights, preferences or privileges senior to those of existing stockholders.  If AE raises additional capital through debt financing, the financing may involve covenants that restrict its business activities.  If AE is not able to obtain financing when needed, AE may be unable to carry out its business plan.  As a result, AE may have to significantly limit its operations and its business, financial condition and results of operations would be materially harmed.
 
Current economic and credit conditions could adversely affect AE’s plan of operations.
 
AE’s ability to secure additional financing and satisfy its financial obligations under indebtedness outstanding from time to time will depend upon its future operating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, many of which are beyond its control.  The prolonged continuation or worsening of current credit market conditions would have a material adverse affect on its ability to secure financing on favorable terms, if at all.
 
AE’s revenue and collections may be materially adversely affected by the economic downturn.
 
A continuation or worsening of the recent economic downturn could result in reduced demand for AE’s services and products which could have a material adverse effect on AE’s business financial position or results of operations.
 
AE could be materially adversely affected by its level of indebtedness.
 
Prior to completion of the Separation, AE will be required to finance the repayment of the Senior Notes which may involve the borrowing of funds.  AE will also be obligated to repay the notes issued to Nathaniel Bradley in connection with his funding of AE’s operations to date.
 
An increase in market interest rates could increase AE’s interest costs on existing and future debt and could adversely affect its stock price.
 
If interest rates increase, so could AE’s interest costs for any new debt.  This increased cost could make the financing of any acquisition more costly.  AE may incur variable interest rate indebtedness in the future.  Rising interest rates could limit AE’s ability to refinance existing debt when it matures, or cause AE to pay higher interest rates upon refinancing and increased interest expense on refinanced indebtedness.
 
 
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AE intends to seek acquisitions and other strategic opportunities, which may result in the use of a significant amount of management resources or significant costs, and AE may not be able to fully realize the potential benefit of such transactions.
 
AE intends to seek acquisitions and other strategic opportunities.  Accordingly, it may often be engaged in evaluating potential transactions and other strategic alternatives.  In addition, from time to time, it may engage in discussions that may result in one or more transactions.  Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transaction, AE may devote a significant amount of its management resources to such a transaction, which could negatively impact its operations.  In addition, AE may incur significant costs in connection with seeking acquisitions or other strategic opportunities regardless of whether the transaction is completed and in combining its operations if such a transaction is completed.  In the event that AE consummates an acquisition or strategic alternative in the future, there is no assurance that it would fully realize the potential benefit of such a transaction.
 
AE does not expect to pay any dividends for the foreseeable future, which will affect the extent to which `AE’s investors realize any future gains on their investment.
 
It is anticipated that AE will be prohibited by the terms of its debt agreements from paying dividends to holders of its common stock, and AE does not anticipate that it will pay any dividends to holders of its common stock in the foreseeable future.  Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.
 
AE may commence additional legal proceedings against third parties who AE believes are infringing on its intellectual property rights, and if AE is forced to litigate to defend its intellectual property rights, or to defend claims by third parties against AE relating to intellectual property rights, legal fees and court injunctions could adversely affect AE’s financial condition or end its business.
 
At present AE does not have any active or pending litigation.  AE is aware of certain companies that are currently violating its patents.  AE expects the number of companies violating its patents to grow in number as the market develops new uses of voice controlled Internet usage and consumers begin to increase their adoption of the technology and integrate it into their daily lives.  AE foresees the potential need to enter into active litigation to defend the enforcement of its patents.  AE expects such litigation and the appeals process to be time-consuming and costly, which may adversely affect AE’s financial condition and ability to operate its business.  AE cannot assure you that any of the potential lawsuits will result in a final outcome that is favorable to AE or its stockholders.
 
AE expects to allocate a significant amount of its existing cash on hand towards the fees and expenses associated with these litigation matters.  AE anticipates that these legal proceedings could continue for several years and may require significant expenditures for legal fees and other expenses.  In the event AE is not successful through appeal and does not subsequently obtain monetary and injunctive relief, these litigation matters may significantly reduce AE’s financial resources and have a material impact on its ability to continue its operations.  The time and effort required of AE’s management to effectively pursue these litigation matters may adversely affect AE’s ability to operate its business, since time spent on matters related to the lawsuits will take away from the time spent on managing and operating its business.
 
 
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AE may or may not be able to capitalize on potential market opportunities related to AE’s licensing strategy or AE’s patent portfolio.
 
In order to capitalize on AE’s patent portfolio, AE’s business strategy calls for AE to enter into licensing relationships with the leading companies in AE’s target market in order to reach a larger end-user base than AE could reach through sales and marketing efforts.  Although AE may enter into certain settlement and license agreements, there can be no assurance that AE will be able to continue to capitalize on its patent portfolio or any potential market opportunity in the foreseeable future.  AE’s inability to generate licensing revenues associated with the potential market opportunity could result from a number of factors, including, but not limited to:
 
·  
AE may not be successful in entering into licensing relationships with its targeted customers on commercially acceptable terms; and
 
·  
challenges to the validity of certain of AE’s patents underlying AE’s licensing opportunities.
 
AE has and will experience competition as more companies seek to provide products and services similar to AE’s products and services, and because larger and better-financed competitors may affect its ability to operate its business and achieve profitability, its business may fail.
 
AE expects competition for its products and services to be intense.  AE expects to compete directly against other companies offering similar security products and services that will compete directly with its proposed products and services.  AE also expects that it will compete against established vendors within the IP-telephony, mobility, fixed-mobile convergence and unified communications markets.  These companies may incorporate other competitive technologies into their product offerings, whether developed internally or by third parties.  For the foreseeable future, substantially all of AE’s competitors are likely to be larger, better-financed companies that may develop products superior to AE’s proposed products, which could create significant competitive advantages for those companies.  AE’s future success depends on its ability to compete effectively with its competitors.  As a result, AE may have difficulty competing with larger, established competitors.  Generally, these competitors have:
 
·  
substantially greater financial, technical and marketing resources;
 
·  
a larger customer base;
 
·  
better name recognition; and
 
·  
more expansive product offerings.
 
These competitors are likely to command a larger market share than AE, which may enable them to establish a stronger competitive position, in part, through greater marketing opportunities.  Further, AE’s competitors may be able to respond more quickly to new or emerging technologies and changes in user preferences and to devote greater resources to developing and operating networks of affinity websites.  These competitors may develop products or services that are comparable or superior.  If AE fails to address competitive developments quickly and effectively, AE may not be able to remain a viable entity.
 
If AE is not able to adequately protect its patented rights, its operations would be negatively impacted.
 
AE’s ability to compete largely depends on the superiority, uniqueness and value of its technology and intellectual property.  To protect its intellectual property rights, AE will rely on a combination of patent, trademark, copyright and trade secret laws, confidentiality agreements with its employees and third parties, and protective contractual provisions.  AE can give no assurances that infringement or invalidity claims (or claims for indemnification resulting from infringement claims) will not be asserted or prosecuted against it or that any such assertions or prosecutions will not materially adversely affect its business.
 
Regardless of whether these or any future claims are valid or can be successfully asserted, defending against such claims could cause AE to incur significant costs, could jeopardize or substantially delay a successful outcome in any future litigation, and could divert resources away from its other activities.  In addition, assertion of infringement claims could result in injunctions that prevent AE from distributing its products.  In addition to challenges against AE’s existing patents, any of the following could also reduce the value of AE’s intellectual property now, or in the future:
 
 
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·  
AE’s applications for patents, trademarks and copyrights relating to its business may not be granted and, if granted, may be challenged or invalidated;
 
·  
issued trademarks, copyrights, or patents may not provide AE with any competitive advantages;
 
·  
AE’s efforts to protect AE’s intellectual property rights may not be effective in preventing misappropriation of AE’s technology; or
 
·  
AE’s efforts may not prevent the development and design by others of products or technologies similar to or competitive with, or superior to those AE develops.
 
Also, AE may not be able to effectively protect its intellectual property rights in certain foreign countries where AE may do business in the future or from which competitors may operate.  Obtaining patents will not necessarily protect AE technology or prevent AE’s international competitors from developing similar products or technologies.  AE’s inability to adequately protect its patented rights would have a negative impact on its operations and revenues.
 
In addition, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related businesses are uncertain and still evolving.  Because of the growth of the Internet and Internet related businesses, patent applications are continuously and simultaneously being filed in connection with Internet-related technology.  There are a significant number of U.S. and foreign patents and patent applications in AE’s areas of interest, and AE believes that there has been, and is likely to continue to be, significant litigation in the industry regarding patent and other intellectual property rights
 
The burdens of being a public company may adversely affect AE’s ability to pursue litigation.
 
As a public company, AE’s management must devote substantial time, attention and financial resources to comply with U.S. securities laws.  This may have a material adverse effect on management’s ability to effectively and efficiently pursue litigation as well as AE’s other business initiatives.  In addition, AE’s disclosure obligations under U.S. securities laws require AE to disclose information publicly that will be available to future litigation opponents.  AE may, from time to time, be required to disclose information that will have a material adverse affect on its litigation strategies.  This information may enable AE’s litigation opponents to develop effective litigation strategies that are contrary to AE’s interests.
 
The current regulatory environment for AE’s services remains unclear.
 
AE can give no assurance that its planned product offerings will be in compliance with local, state and/or U.S. federal laws or other laws.  Further, AE can give no assurance that AE will not unintentionally violate such laws or that such laws will not be modified, or that new laws will be enacted in the future which would cause AE to be in violation of such law.  The use of the Internet and private IP networks to provide voice, video and other forms of real-time, two-way communications services is a relatively recent development.  Although the provisioning of such services is currently permitted by U.S. law and is largely unregulated within the United States, several foreign governments have adopted laws and/or regulations that could restrict or prohibit the provisioning of voice communications services over the Internet or private IP networks.  More aggressive domestic or international regulation of the Internet in general, and Internet telephony providers and services specifically, may materially and adversely affect AE’s business, financial condition, operating results and future prospects, particularly if increased numbers of governments impose regulations restricting the use and sale of IP telephony services.
 
 
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AE’s business greatly depends on the growth of mobile services, streaming video, file transfer and remote desktop and other next-generation Internet-based applications.
 
The Internet may ultimately prove not to be a viable commercial marketplace for such applications for a number of reasons, including:
 
·  
unwillingness of consumers to shift to and use other such next-generation Internet-based audio applications;
 
·  
refusal to purchase AE’s products;
 
·  
perception by the licensees of product quality and performance;
 
·  
limitations on access and ease of use;
 
·  
congestion leading to delayed or extended response times;
 
·  
inadequate development of Internet infrastructure to keep pace with increased levels of use; and
 
·  
increased government regulations.
 
If the market AE’s mobile services, audio control of the Internet browser, file transfer and remote desktop does not grow as anticipated, AE’s business would be adversely affected.
 
While other next-generation Internet-based applications has grown rapidly in personal and professional use, there can be no assurance the adoption of AE’s product and services will grow at a comparable rate.
 
AE expects that it will experience long and unpredictable sales cycles, which may impact its operating results.
 
AE expect that its sales cycles will be long and unpredictable due to a number of uncertainties such as:
 
·  
the need to educate potential customers about AE’s patent rights and AE’s product and service capabilities;
 
·  
customers’ willingness to invest potentially substantial resources and infrastructures to take advantage of AE’s products;
 
·  
customers’ budgetary constraints;
 
·  
the timing of customers’ budget cycles; and
 
·  
delays caused by customers’ internal review processes.
 
AE expects that it will be substantially dependent on a concentrated number of customers.
 
If AE is unable to establish, maintain or replace its relationships with customers and develop a diversified customer base, AE’s revenues may fluctuate and AE’s growth may be limited.
 
 
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If AE does not successfully develop its planned products and services in a cost-effective manner to customer demand in the rapidly evolving market for Internet and IP-based communications services, AE’s business may fail.
 
The market for communications services is characterized by rapidly changing technology, evolving industry standards, changes in customer needs, and frequent new service and product introductions.  AE’s future success will depend, in part, on its ability to use new technologies effectively, to continue to develop its technical expertise, to enhance its existing services and to develop new services that meet changing customer needs on a timely and cost-effective basis.  AE may not be able to adapt quickly enough to changing technology, customer requirements and industry standards.  If AE fails to use new technologies effectively, to develop AE’s technical expertise and new services, or to enhance existing services on a timely basis, either internally or through arrangements with third parties, AE’s product and service offerings may fail to meet customer needs, which would adversely affect AE’s revenues and prospects for growth.
 
In addition, if AE is unable, for technological, legal, financial or other reasons, to adapt in a timely manner to changing market conditions or customer requirements, AE could lose customers, strategic alliances and market share.  Sudden changes in user and customer requirements and preferences, the frequent introduction of new products and services embodying new technologies and the emergence of new industry standards and practices could render AE’s existing products, services and systems obsolete.  The emerging nature of products and services in the technology and communications industry and their rapid evolution will require that AE continually improves the performance, features and reliability of AE’s products and services.  AE’s success will depend, in part, on AE’s ability to:
 
·  
design, develop, launch and/or license AE’s planned products, services and technologies that address the increasingly sophisticated and varied needs of AE’s prospective customers; and
 
·  
respond to technological advances and emerging industry standards and practices on a cost-effective and timely basis.
 
The development of AE’s planned products and services and other patented technology involves significant technological and business risks and requires substantial expenditures and lead-time.  AE may be unable to use new technologies effectively.  Updating AE’s technology internally and licensing new technology from third parties may also require AE to incur significant additional expenditures.
 
If AE’s products do not gain market acceptance, AE may not be able to fund future operations.
 
A number of factors may affect the market acceptance of AE’s planned products or any other products AE develops or acquires, including, among others:
 
·  
the price of AE’s products relative to other products that seek to secure real-time communication;
 
·  
the perception by users of the effectiveness of AE’s products;
 
·  
AE’s ability to fund AE’s sales and marketing efforts; and
 
·  
the effectiveness of AE’s sales and marketing efforts.
 
If AE’s products do not gain market acceptance, AE may not be able to fund future operations, including the development of new products and/or AE’s sales and marketing efforts for AE’s current products, which inability would have a material adverse effect on AE’s business, financial condition and operating results
 
 
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AE’s products are highly technical and may contain undetected errors, which could cause harm to AE’s reputation and adversely affect AE’s business.
 
AE’s products are highly technical and complex and, when deployed, may contain errors or defects.  Despite testing, some errors in AE’s products may only be discovered after a product has been installed and used by customers.  Any errors or defects discovered in AE’s products after commercial release could result in failure to achieve market acceptance, loss of revenue or delay in revenue recognition, loss of customers and increased service and warranty cost, any of which could adversely affect AE’s business, operating results and financial condition.  In addition, AE could face claims for product liability, tort or breach of warranty.  The performance of AE’s products could have unforeseen or unknown adverse effects on the networks over which they are delivered as well as on third-party applications and services that utilize AE’s services, which could result in legal claims against us, harming AE’s business.  Furthermore, AE expects to provide implementation, consulting and other technical services in connection with the implementation and ongoing maintenance of AE’s products, which typically involves working with sophisticated software, computing and communications systems.  AE expects that its contracts with customers will contain provisions relating to warranty disclaimers and liability limitations, which may not be upheld.  Defending a lawsuit, regardless of its merit, is costly and may divert management’s attention and adversely affect the market’s perception of AE and its products.  In addition, if AE’s business liability insurance coverage proves inadequate or future coverage is unavailable on acceptable terms or at all, AE’s business, operating results and financial condition could be adversely impacted.
 
Malfunctions of third-party communications infrastructure, hardware and software expose AE to a variety of risks we cannot control.
 
AE’s business will depend upon the capacity, reliability and security of the infrastructure owned by third parties that AE will use to deploy its offerings.  AE has no control over the operation, quality or maintenance of a significant portion of that infrastructure or whether or not those third parties will upgrade or improve their equipment.  AE depends on these companies to maintain the operational integrity of AE’s connections.  If one or more of these companies is unable or unwilling to supply or expand its levels of service to us in the future, AE’s operations could be severely interrupted.  Also, to the extent the number of users of networks utilizing AE’s future products suddenly increases, the technology platform and secure hosting services which will be required to accommodate a higher volume of traffic may result in slower response times or service interruptions.  System interruptions or increases in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users.  In addition, users depend on real-time communications; outages caused by increased traffic could result in delays and system failures.  These types of occurrences could cause users to perceive that AE’s solution does not function properly and could therefore adversely affect AE’s ability to attract and retain licensees, strategic partners and customers.
 
System failure or interruption or AE’s failure to meet increasing demands on AE’s systems could harm AE’s business.
 
The success of AE’s license and service offerings will depend on the uninterrupted operation of various systems, secure data centers, and other computer and communication networks that AE establishes.  To the extent the number of users of networks utilizing AE’s future products suddenly increases, the technology platform and hosting services which will be required to accommodate a higher volume of traffic may result in slower response times, service interruptions or delays or system failures.  AE’s systems and operations will also be vulnerable to damage or interruption from:
 
·  
power loss, transmission cable cuts and other telecommunications failures;
 
·  
damage or interruption caused by fire, earthquake, and other natural disasters;
 
 
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·  
computer viruses or software defects; and
 
·  
physical or electronic break-ins, sabotage, intentional acts of vandalism, terrorist attacks and other events beyond AE’s control.
 
System interruptions or failures and increases or delays in response time could result in a loss of potential or existing users and, if sustained or repeated, could reduce the appeal of the networks to users.  These types of occurrences could cause users to perceive that AE’s solution does not function properly and could therefore adversely affect AE’s ability to attract and retain licensees, strategic partners and customers.
 
AE’s ability to sell its solutions will be dependent on the quality of AE’s technical support, and AE’s failure to deliver high-quality technical support services could have a material adverse effect on AE’s sales and results of operations.
 
If AE does not effectively assist its customers in deploying its products, succeed in helping its customers quickly resolve post-deployment issues and provide effective ongoing support, or if potential customers perceive that AE may not be able achieve to the foregoing, AE’s ability to sell its products would be adversely affected, and its reputation with potential customers could be harmed.  In addition, as AE expands its operations internationally, its technical support team will face additional challenges, including those associated with delivering support, training and documentation in languages other than English.  As a result, AE’s failure to deliver and maintain high-quality technical support services to its customers could result in customers choosing to use AE’s competitors’ products in the future.
 
AE will need to recruit and retain additional qualified personnel to successfully grow its business.
 
AE’s future success will depend in part on its ability to attract and retain qualified operations, marketing and sales personnel as well as engineers.  Inability to attract and retain such personnel could adversely affect AE’s business.  Competition for engineering, sales, marketing and executive personnel is intense, particularly in the technology and Internet sectors.  AE can provide no assurance that it will attract or retain such personnel.
 
Growth of internal operations and business may strain AE’s financial resources.
 
AE may need to significantly expand the scope of its operating and financial systems in order to build its business.  AE’s growth rate may place a significant strain on its financial resources for a number of reasons, including, but not limited to, the following:
 
·  
the need for continued development of its financial and information management systems;
 
·  
the need to manage relationships with future licensees, resellers, distributors and strategic partners;
 
·  
the need to hire and retain skilled management, technical and other personnel necessary to support and manage AE’s business; and
 
·  
the need to train and manage its employee base.
 
The addition of new infrastructure services, networks, vertical categories and affinity websites and the attention they demand, may also strain AE’s management resources.
 
 
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Risks Related to the Market for AE’s Common Stock
 
The market price and trading volume of AE securities may be limited or volatile and may face negative pressure.
 
There is currently no trading market for AE’s shares of common stock.  Investors may decide to dispose of some or all of the AE’s common stock that they receive in the spin-off.  It is expected that AE’s common stock issued in the spin-off will be trading publicly for the first time at some date following the effective date of the Separation although no assurance can be given as to such date or that such trading will occur at all.  Until, and possibly even after, orderly trading markets develop for these securities, there may be significant fluctuations in price.  It is not possible to accurately predict how investors in AE’s securities will behave after a trading market develops.  The market price for AE’s common stock following the spin-off may be more volatile than the market price of CMGO’s common stock before the spin-off.  The market price of AE’s common stock could fluctuate significantly for many reasons, including the risks identified in this proxy statement/prospectus or reasons unrelated to AE’s performance.  These factors may result in short- or long-term negative pressure on the value of the AE’s common stock.
 
AE stock price may be volatile, and purchasers of our common stock could incur substantial losses.
 
If and when a trading market for AE stock occurs, AE stock price may be volatile.  The stock market in general has experienced extreme volatility that has often been unrelated to the operating performance of particular companies.  As a result of this volatility, investors may not be able to sell their common stock.  The market price for AE common stock may be influenced by many factors, including, but not limited to:
 
·  
regulatory developments in the United States and foreign countries where we operate;
 
·  
the recruitment or departure of key personnel;
 
·  
quarterly or annual variations in AE financial results or those of companies that are perceived to be similar to AE;
 
·  
market conditions in the industries in which AE competes and issuance of new or changed securities;
 
·  
analysts’ reports or recommendations;
 
·  
the failure of securities analysts to cover AE common stock or changes in financial estimates by analysts;
 
·  
the inability to meet the financial estimates of analysts who follow AE common stock;
 
·  
the issuance of any additional securities by AE;
 
·  
investor perception of AE and of the industry in which AE competes; and
 
·  
general economic, political and market conditions.
 
 
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A substantial number of shares of AE common stock may be sold into the market at any time.  This could cause the market price of our common stock to drop significantly, even if our business is doing well.
 
All of the shares being registered pursuant to AE’s registration statement will be freely tradable without restrictions or further registration under the federal securities laws, except for shares owned by AE’s “affiliates” as that term is defined in Rule 144 under the Securities Act of 1933, as amended (the “Securities Act”).  The remaining shares of common stock outstanding after the effective date of this registration statement, including the shares issued in the Share Exchange are restricted securities as defined in Rule 144 under the Securities Act.  Restricted securities may be sold in the U.S. public market only if registered under the Securities Act or if they qualify for an exemption from registration, including by reason of Rule 144 under the Securities Act.  All of AE’s restricted shares will be eligible for sale in the public market beginning after the effective date, provided that such restricted shares have been held for at least six months, subject in certain circumstances to the volume, manner of sale and other limitations under Rule 144.  Sales of a substantial number of shares of AE’s common stock, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of AE’s common stock.
 
Risks Relating to AE’s Charter Documents and Capital Structure
 
The concentration of AE capital stock ownership among its largest stockholders and their affiliates, will limit AE’s other stockholders’ ability to influence corporate matters.
 
The current shareholders of AEAC will own not less than 80% of AE’s outstanding common stock, before giving effect to any shares issued or issuable in connection with any financing of AE.  Consequently, these shareholders will have significant influence over all matters that require approval by AE’s stockholders, including the election of directors and approval of significant corporate transactions.  This concentration of ownership will limit a stockholder’s ability to influence corporate matters, and as a result, actions may be taken that a stockholder may not view as beneficial.
 
Provisions of AE’s Certificate of Incorporation and by-laws could discourage potential acquisition proposals and could deter or prevent a change in control.
 
Some provisions in AE’s articles of incorporation and by-laws, as well as statutes, may have the effect of delaying, deferring or preventing a change in control.  These provisions, including those providing for the possible issuance of shares of AE preferred stock, which may be divided into series and with the preferences, limitations and relative rights to be determined by the Board of Directors, and the right of the board of directors to amend the by-laws, may make it more difficult for other persons, without the approval of AE’s board of directors, to make a tender offer or otherwise acquire a substantial number of shares of AE common stock or to launch other takeover attempts that a stockholder might consider to be in his or her best interest.  These provisions could limit the price that some investors might be willing to pay in the future for shares of AE’s common stock.
 
Delaware law may delay or prevent takeover attempts by third parties and therefore inhibit AE’s stockholders from realizing a premium on their stock.
 
AE will be subject to the anti-takeover provisions of Section 203 of the DGCL.  This section prevents any stockholder who owns 15% or more of AE’s outstanding common stock from engaging in certain business combinations with AE for a period of three years following the time that the stockholder acquired such stock ownership unless certain approvals were or are obtained from AE’s board of directors or the holders of 66 2/3% of AE’s outstanding common stock (excluding the shares of AE common stock owned by the 15% or more stockholder).  AE’s board of directors can use these and other provisions to discourage, delay or prevent a change in the control of AE or a change in AE’s management.  Any delay or prevention of a change of control transaction or a change in AE’s board of directors or management could deter potential acquirors or prevent the completion of a transaction in which AE’s stockholders could receive a substantial premium over the then current market price for their shares.  These provisions could also limit the price that investors might be willing to pay for shares of AE common stock.
 
 
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This proxy statement/prospectus and the documents incorporated by reference herein contain forward-looking statements and information.  Any statements that do not relate to historical or current facts or matters are forward-looking statements.
 
Examples of forward-looking statements include all statements regarding the expected future financial position, results of operations, cash flows, liquidity, financing plans, business strategy, budgets, the impact of reductions in reimbursements and other changes in government reimbursement programs, the timing and impact of the Separation, the expected amounts and timing of dividends and distributions, the expected or intended tax treatment for the Separation and transactions related thereto, the outcome and costs of litigation, projected expenses and capital expenditures, competitive position, growth opportunities and potential acquisitions, plans and objectives of management for future operations and compliance with and changes in governmental regulations.  You can identify some of the forward-looking statements by the use of forward-looking words such as “anticipate,” “believe,” “plan,” “estimate,” “expect,” “intend,” “should,” “may” and other similar expressions, although not all forward-looking statements contain these identifying words.
 
You are cautioned that any forward-looking statements made in this proxy statement/prospectus or the documents incorporated by reference herein are not guarantees of future performance and that you should not place undue reliance on any of such forward-looking statements.  The forward-looking statements are based on the information currently available and are applicable only as of the date on the cover of this proxy statement/prospectus or, in the case of forward-looking statements incorporated by reference, as of the date of the filing that includes the forward-looking statements.  Forward-looking statements involve known and unknown risks and uncertainties that may cause actual results in future periods to differ materially from those projected or contemplated in the forward-looking statements.  You should carefully consider the risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, including those set forth under the heading “Risk Factors” and those described in CMGO’s filings with the SEC, including CMGO’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010 and CMGO’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31 and June 30, 2011.  Neither CMGO nor AE intend, nor do they undertake any obligation, to update the forward-looking statements to reflect future events or circumstances.
 
INFORMATION ABOUT THE SPECIAL MEETING OF CMGO STOCKHOLDERS
 
This proxy statement/prospectus is being furnished to you in connection with the solicitation of proxies by CMGO’s board of directors for use at the special meeting for the purposes described in this proxy statement/prospectus and in the accompanying notice of special meeting of stockholders.
 
  Date, Time and Place of the Special Meeting
 
The special meeting will be held on ______________, 2010 at _______________________, Miami Florida, 33137, at 9:30 a.m., local time, and at any adjournment or postponement thereof.
 
  Purpose of the Special Meeting
 
At the special meeting, you will be asked to consider and vote on the following proposals:
 
·  
a proposal to approve the Separation and ratify the Master Agreement (Proposal No. 1);
 
·  
a proposal to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation (Proposal No. 2); and
 
 
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·  
such other business as may properly come before the special meeting or any postponement or adjournment thereof.
 
  Recommendation of the Board of Directors of CMGO
 
The board of directors of CMGO has unanimously approved the Separation, including the Master Agreement, and has determined that these actions are advisable and in the bests interests of CMGO and its stockholders.  CMGO’s board of directors unanimously recommends that CMGO stockholders vote “FOR” Proposal No.  1 to approve the Separation, and “FOR” Proposal No. 2 to approve adjournment of the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation or adopt the agreement and plan of merger.
 
  Vote Required
 
The Separation .  The affirmative vote of a majority of outstanding shares of CMGO common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to approve the Separation.  If you “ABSTAIN” from voting on approval of the Separation, the effect will be the same as a vote against the Separation.  Shareholder approval of the Separation is not required by applicable law, although it is a condition to the completion of the Separation.  See “The Proposals—Proposal No.  1—Approval of the Separation—Conditions to the Separation.” CMGO will not complete the Separation as contemplated in this proxy statement/prospectus if CMGO’s stockholders do not approve the Separation at the special meeting.  However, if shareholder approval is not obtained, CMGO reserves the right to consider, and implement without stockholder approval if permitted by applicable law, other restructuring plans in the future, and such plans may be substantially similar to the transactions proposed in this proxy statement/prospectus.
 
Adjournment of the Special Meeting .  The affirmative vote of a majority of outstanding shares of CMGO common stock present, either in person or represented by proxy, at the special meeting and entitled to vote on the proposal is required to adjourn the special meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the Separation.  If you “ABSTAIN” from voting on the adjournment, the effect will be the same as a vote against the adjournment of the special meeting.
 
  Record Date; Shares Entitled to Vote; Quorum
 
Only shareholders of record at the close of business on _____________, 2011, the record date for the special meeting, will be entitled to notice of and to vote at the special meeting.  At the close of business on the record date for the special meeting, __________ shares of CMGO common stock were outstanding and entitled to vote.  The holders of a majority in voting power of the outstanding shares of CMGO common stock entitled to vote at the special meeting will constitute a quorum for the transaction of business at the special meeting and any adjournments or postponements thereof.
 
If your shares are held in “street name” by a bank, broker or other nominee, you should follow the directions provided to you to have your shares voted at the special meeting.  If you do not instruct your broker, your broker will generally not have the discretion to vote your shares without your instructions on matters that are not considered routine.  CMGO believes that the Separation proposal is considered not to be a routine matter.  Therefore, your broker cannot vote shares of CMGO common stock that it holds in “street name” on any of the proposal unless you return the voting instruction form you received from your broker.  Accordingly, CMGO does not believe that there will be any broker non-votes occurring in connection with any of the proposals at the special meeting.  Please note, however, that if you properly return the voting instruction form to your broker but do not indicate how you want your shares to be voted, CMGO believes your shares generally will be voted “FOR” all of the proposals listed in the notice for the special meeting.
 
 
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Other Matters
 
As of the date of this proxy statement/prospectus, the board of directors of CMGO is not aware of any business to be acted upon at the special meeting of CMGO stockholders other than as described in this proxy statement/prospectus.  If any other matters should properly come before the special meeting, or any adjournment or postponement thereof, the persons named in the proxy will have discretion to vote on such other matters in accordance with their best judgment.
 
  To Attend the Special Meeting of CMGO Shareholders
 
Only shareholders as of the close of business on the record date for the special meeting, authorized proxy holders and CMGO’s guests may attend the special meeting.  Your name will be verified against the list of shareholders of record on the record date for the special meeting prior to your being admitted to the special meeting.  If you are not a shareholder of record but hold shares in “street name” through a bank, broker or other nominee, you should provide proof of beneficial ownership on the record date for the special meeting, such as your most recent account statement, a copy of the voting instruction card provided by your bank, broker or nominee, or other similar evidence of ownership.  If you do not comply with the procedures outlined above, you will not be admitted to the special meeting.
 
If you attend the special meeting in person, you will be permitted to vote your shares in person rather than signing and returning your proxy card or providing other proxy or voting instructions.  Please note, however, that if your shares are held in “street name,” you may not vote your shares in person at the special meeting unless you receive a “legal proxy” from your bank, broker or other nominee giving you the right to vote the shares at the special meeting.
 
  Communications by CMGO Shareholders with CMGO
 
Any written revocation of a proxy or other communications in connection with this proxy statement/prospectus and any requests for additional copies of this proxy statement/prospectus or the proxy card should be addressed to CMG Holdings Group, Inc., 5601 Biscayne Boulevard, Miami, Florida 33137, Attention: Investor Relations.  If you have any questions or need further assistance in voting your shares of CMGO common stock, please call CMGO at 305-751-0558.
 
Your vote is important.  Please sign, date and return your proxy card or submit your proxy and/or voting instructions by telephone or through the Internet promptly.
 
THE PROPOSALS
 
  Overview of the Separation
 
Pursuant to the restructuring plan approved by the board of directors of CMGO to separate out AE, upon satisfaction or waiver of the conditions to the Separation, CMGO will effect the Separation by distributing to its stockholders on a pro rata basis 5% of the outstanding shares of AE common stock and completing the Share Exchange with the shareholders of AEAC.  Each CMGO shareholder as of the record date for the Separation will receive _____ share of AE common stock for every _____ shares of CMGO common stock such shareholder owns on this record date based on _____ shares outstanding as of ____________________.  In connection with both the Separation, cash will be paid in lieu of fractional shares.  The Separation is expected to occur in the fourth quarter of 2011.
 
 
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Reasons for the Separation
 
CMGO’s board of directors believes that separating a significant portion of AE from the remainder of CMGO is in the best interests of CMGO and its shareholders.  In connection with the purchase of AE by CMGO, the former stockholders of AE retained Rights to receive cash from the exploitation of AE’s technology.  These rights consist of 50% of any cash received from income earned, settlements or judgments directly resulting from AE’s patent strategy, net of any direct costs on tax implications incurred in payment of the patent strategy.  Additionally, the former stockholders are entitled to a share of AE’s net income for 2010, 2011, 2012 and 2013 based on a specified formula.  CMGO also has issued Senior Notes in an aggregate principal amount of $1,075,000 which CMGO may be unable to service.  The Senior Notes are secured by all of the assets of CMGO, including AE.  The existence of the Rights and the obligations under the Senior Notes has made it difficult for CMGO to finance its business plan including exploiting AE’s technology.  The holders of the Rights have contributed the Rights to AEAC.  Pursuant to the Master Agreement, AE will acquire all of the capital stock of AEAC and AEAC will be required to arrange for the release of CMGO under the Senior Notes, probably through the purchase of the Senior Notes by AEAC, its shareholders and/or other persons whose participation may be arranged by AEAC.  Additionally, such separation is expected to:
 
·  
improve strategic planning, increase management focus and streamline decision-making by providing the flexibility to implement the unique strategic plans of each company and to respond more effectively to different financial needs of each company and the changing economic environment; and
 
·  
allow CMGO and AE to adopt the capital structure, investment policy and dividend policy best suited to each business’ financial profile and business needs.
 
·  
eliminate the financial overhang to AE from the existence of the Rights.
 
·  
Extinguish CMGO’s obligations under the Senior Notes and the risk to CMGO from the enforcement by the holders of the Senior Notes.
 
Finally, CMGO has been unable or unwilling to fund AE’s operations and its negative cash flows.  AE has been funded by AE’s President, Nathaniel Bradley, through a series of loans evidenced by the Funding Notes currently in the aggregate principal amount of approximately $1,084,223.72. .  The terms of the Funding Notes are as follows: Principal and interest convertible to common stock of AE within 24 months at $0.25 per share; annual interest rate of 7%.  Mr. Bradley has indicated that he does not intend to continue providing funding to AE unless the Separation is approved.
 
The CMGO board of directors considered a number of potentially negative factors in evaluating the separation, including risks relating to the creation of a new public company and possible increased costs and one-time separation costs, but concluded that the potential benefits of the separation outweighed these factors.
 
  Regulatory Approvals Required for the Separation
 
CMGO does not believe that any other material federal or state regulatory approvals will be required in connection with the Separation.
 
 
 
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PROPOSAL NO. 1—APPROVAL OF THE SEPARATION
 
Holders of CMGO common stock are being asked to approve the Separation.  CMGO shareholders should read carefully this proxy statement/prospectus in its entirety for more detailed information concerning the Separation.
 
  Manner of Effecting the Separation
 
In the event CMGO shareholders approve the Separation, each CMGO stockholder as of the record date for the Separation will receive ___ share of AE common stock for every _____ shares of CMGO common stock such stockholder owns on this record date.  The timing of the Separation will ultimately depend upon the satisfaction or waiver of certain conditions, including obtaining stockholder approval of the Separation and completing the debt financing transactions.  See “—Conditions to the Separation.”
 
Corporate Stock Transfer, Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, Colorado 80209, 303-282-4800, will serve as the distribution agent for the Separation.  On the distribution date for the Separation, , CMGO’s transfer agent will electronically issue shares of AE common stock to holders of CMGO common stock who hold such shares on the record date for the Separation, or to such stockholders’ bank, broker or other nominee on such stockholders’ behalf by way of direct registration in book-entry form.  As soon as practicable after the distribution date for the Separation, an account statement will be mailed to each holder of CMGO common stock who holds such shares on the record date for the Separation, stating the number of shares of AE common stock received by such stockholder in the Separation.  All shares of AE common stock so distributed will be fully paid and nonassessable and the holders thereof will not be entitled to preemptive rights.  See “Description of AE Capital Stock.”
 
No fractional shares of AE common stock will be issued in connection with the Separation.  Instead, in the case of a fractional share, there will be a rounding up to the next whole share with the aggregate amount of the additional shares to be so issued to reduce the amount of shares otherwise to be retained by CMGO.
 
CMGO shareholders will not be required to pay for shares of AE common stock received in the Separation, to surrender or exchange shares of CMGO common stock in order to receive shares of AE common stock, or to take any other action in connection with the Separation.  For an explanation of the U.S. federal income tax consequences of the Separation, including the effect of receiving AE common stock, cash in lieu of fractional shares and/or the cash distribution, see “Material U.S. Federal Income Tax Consequences—U.S. Federal Income Tax Consequences of the Separation—U.S. Holders of CMGO Common Stock.”
 
In order to be entitled to receive shares of AE common stock in the Separation, you must be a holder of CMGO common stock at the close of business on the record date for the Separation.  The board of directors of CMGO has not yet set a record date for the Separation but will do so after the special meeting.
 
In connection with the Separation, AE and CMGO will enter into a number of agreements that govern the Separation and the ongoing relationship between the two companies.  See “Relationship Between AE CMGO After the Separation.”
 
  Management of AE
 
It is expected that the current management team of AE will continue to serve after the Separation.  The management team includes Nathaniel Bradley, Chief Executive Officer, and Sean Bradley, Chief Technical Officer.
 
 
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Interests of Certain Persons in the Separation
 
As of the record date for the special meeting, directors and executive officers of CMGO beneficially owned approximately ___% of the outstanding shares of CMGO common stock.  Directors and executive officers of AE who own shares of CMGO common stock as of the record date for the Separation will receive a distribution of shares of AE common stock and the cash distribution on the same basis as other CMGO stockholders.  See “Security Ownership of Certain Beneficial Owners and Management.”
 
Additionally, certain executive officers of AE currently own a majority of the shares of AEAC and will become majority shareholders of AE upon the Separation as a result of the Share Exchange.  See “SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT.”
 
  Market for AE Common Stock; Trading of AE Common Stock Following the Separation
 
There is no current public market for AE common stock at some date after the Separation.  AE expects to have the shares of its common stock to be issued in connection with the Separation to be traded on the OTCQB, OTC Bulletin Board, on the BX Venture Market established by NASDAQ, although no assurances can be given as to whether or when such trading may occur.
 
Immediately following the Separation, AE is expected to have 30,000,000 shares of common stock issued and outstanding.  No shares of preferred stock of AE will be issued or outstanding at the time of the Separation.
 
  Conditions to the Separation
 
The Separation is conditioned upon the satisfaction or waiver of the following conditions:
 
·  
CMGO’s shareholders shall have approved the Separation;
 
·  
the restructuring of CMGO’s business as described in this proxy statement/prospectus shall have been completed;
 
·  
no stop order shall be in effect with respect to AE’s registration statement on Form S-1 filed with the SEC to register under the Securities Act the distribution of shares of AE common stock in the Separation;
 
·  
CMGO and AE shall have obtained all material authorizations, consents, approvals and clearances of third parties to complete the Separation;
 
·  
no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a government, regulatory or administrative agency or commission, and no statute, rule, regulation or executive order promulgated or enacted by any governmental authority, shall be in effect preventing the consummation of the Separation;
 
·  
the obligations of CMGO under the Senior Notes will be extinguished;
 
·  
the Consulting Agreement and the Royalty Agreement shall have been executed and delivered by AE and CMGO; and
 
·  
no litigation or proceeding challenging or seeking to restrain the Separation shall be pending or threatened.
 
 
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The fulfillment of the foregoing conditions will not create any obligation on CMGO’s part to effect the Separation.  In the event of any waiver of a material condition or abandonment, deferral or modification of the Separation, CMGO will provide its stockholders with additional written offering/proxy materials or a revised proxy statement/prospectus or will make other requisite filings with the SEC, as appropriate, if CMGO determines that the event or events constitute a material change to this proxy statement/prospectus.
 
  Absence of Appraisal Rights
 
CMGO shareholders will not be entitled to dissenters’ or appraisal rights as a result of the Separation.
 
THE BOARD OF DIRECTORS OF CMGO UNANIMOUSLY RECOMMENDS THAT CMGO SHAREHOLDERS VOTE “FOR” PROPOSAL NO.  1 TO APPROVE THE SEPARATION.
 
 
 
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PROPOSAL NO. 2 – APPROVAL OF ADJOURNMENT OF THE SPECIAL MEETING
 
If there are insufficient votes at the time of the special meeting to approve Proposal No. 1, the Separation, CMGO may propose to adjourn the special meeting to a later date, if necessary, to solicit additional proxies.
 
THE BOARD OF DIRECTORS OF CMGO UNANIMOUSLY RECOMMENDS THAT HOLDERS OF CMGO COMMON STOCK VOTE “FOR” PROPOSAL NO. 2 TO APPROVE THE ADJOURNMENT OF THE SPECIAL MEETING.
 
RELATIONSHIP BETWEEN CMGO AND AE AFTER THE SEPARATION
 
  The Royalty Agreement
 
AE will pay CMGO 10% of cash received from income earned, settlement on judgments directly resulting from AE’s patent enforcement and decisive strategy whether received by AE or any of its affiliates, net of any direct costs or tax implications incurred in pursuit of such strategy as they relate to the patents described in the Master Agreement.
 
  The Services Agreement
 
Without duplication of amounts payable under the Royalty Agreement, CMGO will receive a commission of 7.5% of all revenues received by AE after the closing from all business, clients or other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to AE and 10% of net revenues obtained from a specified customer.  Within 90 days of the closing date, AE will deliver to CMGO 0.05% of AE’s outstanding capital stock as of the closing date as an initial services fee.
 
DESCRIPTION OF MATERIAL INDEBTEDNESS
 
As a condition to the Separation, AE will be required to assume or otherwise pay the obligations under the Senior Notes.  Additionally, AE will be obligated to repay the Funding Notes issued to Nathaniel Bradley, AE’s Chief Executive Officer, to evidence amounts loaned by him to AE to fund its operations which as of the date of this prospectus/proxy statement are in the aggregate amount of $1,084,223.72 .  The terms of the Funding Notes are as follows: Principal and interest convertible to common stock of AE within 24 months at $0.25 per share; annual interest rate of 7%
 
MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES
 
The following discussion describes certain United States federal income tax consequences of the Separation.  The discussion is for general information only and does not purport to consider all aspects of federal income taxation that may be relevant to the CMGO stockholders or CMGO.  The discussion applies only to United States persons, not to foreign stockholders (as defined below), except as specifically set forth.  The consequences to any particular stockholder may differ depending upon that stockholder’s own circumstances and tax position.  The discussion deals only with shares held as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”), and does not address matters that may be relevant to stockholders in light of their particular circumstances.  It also does not address matters that may be relevant to certain stockholders subject to special treatment under the Code, such as financial institutions, insurance companies, S corporations, partnerships and other pass-through entities, trusts, stockholders liable for the alternative minimum tax, dealers in securities or currencies, traders who elect to apply a mark-to-market method of accounting, tax-exempt organizations, U.S. expatriates, directors, employees, former employees or other persons who acquired their shares as compensation, including upon the exercise of employee stock options, and persons who are holding shares as part of a straddle, conversion, constructive sale, hedge or hedging or other integrated transaction. The discussion does not consider the effect of any applicable estate tax, gift tax, state, local or foreign tax laws.  In addition, this discussion is based upon the Code, applicable U.S. Treasury regulations, administrative pronouncements and judicial decisions in effect on the date of this document, all of which are subject to change, possibly with retroactive effect.   Each stockholder is urged to consult his or her tax advisor as to the particular tax consequences to such stockholder of the distribution, including the applications of state, local and foreign tax laws and possible tax law changes.
 
 
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TO COMPLY WITH IRS CIRCULAR 230, YOU ARE HEREBY NOTIFIED THAT: (A) ANY DISCUSSION OF FEDERAL TAX ISSUES CONTAINED OR REFERRED TO HEREIN IS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED BY YOU, FOR THE PURPOSES OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON YOU UNDER THE CODE; (B) SUCH DISCUSSION IS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE MATTERS ADDRESSED BY THE WRITTEN ADVICE HEREIN; AND (C) YOU SHOULD SEEK ADVICE BASED ON YOUR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
 
  Consequences to CMGO.
 
CMGO will recognize gain on the exchange of AE shares for shares of AEAC and other consideration received to the extent that the value of the AEAC shares and other consideration received exceed the tax basis of the AE shares exchanged therefor.  The distribution of AE shares to CMGO shareholders will also give rise to gain to the extent that the fair market value of such AE shares exceeds their tax basis to CMGO. (Additional gain to CMGO may also arise under the consolidated return regulations to the extent of the excess loss account, if any, with respect to AE as a subsidiary of CMGO.) This gain will be included in determining whether CMGO has current year “earnings and profits.”  If the gain results in CMGO having current year earnings and profits (and accumulated earnings and profits), it will affect the tax treatment of the distribution to CMGO stockholders as described below.
 
  Consequences to CMGO Shareholders.
 
A CMGO shareholder will be treated as having received a distribution in an amount equal to the sum of the fair market value on the distribution date of AE shares distributed to such stockholder and any cash received in lieu of fractional shares.  This distribution will be taxable as a dividend to the extent of CMGO’s current year earnings and profits (and accumulated earnings and profits, if any) allocable to such stockholder’s CMGO shares.  For certain U.S. non-corporate taxpayers, dividend income is currently taxed for federal income tax purposes at the same rate as net long-term capital gain.  The excess of the fair market value of AE shares and any cash received over the allocable portion of CMGO’s current year and accumulated earnings and profits, if any, will be treated first as a non-taxable return of capital causing a reduction (but not below zero) in the adjusted tax basis in the stockholder’s CMGO shares, with any remaining excess taxable as capital gain.  CMGO is presently unable to make a determination as to whether the gain to CMGO from the exchange and distribution will result in CMGO having current year earnings and profits such that all or a portion of the amounts treated as a distribution will be taxed as a dividend.  The shareholder’s basis in AE shares received in the distribution will generally equal the fair market value of such shares as of the distribution date.  The shareholder’s holding period with respect to CMGO shares received will begin on the distribution date.
 
The actual tax impact of the distribution will be affected by a number of factors that are unknown at this time, including CMGO’s final taxable income loss for 2011, the gain CMGO recognizes upon the exchange and distribution and the fair market value on the distribution date of the AE shares distributed to you.  Thus, a definitive calculation of the U.S. federal income tax impact on you from the distribution will not be possible until after the close of CMGO’s 2011 taxable year.  CMGO will notify you after year-end 2011 of the tax attributes and amount of the distribution to you on IRS Form 1099-DIV.
 
 
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Special Rules Applicable to Corporate Shareholders .
 
To the extent that the distribution to a corporate shareholder is treated as a dividend under the rules described above, such stockholder may be eligible for the dividends received deduction.  The dividends received deduction is subject to certain limitations.   Corporate stockholders should consult their own tax advisors as to the tax consequences of dividend treatment in their particular circumstances.
 
  Federal Income Tax Withholding.
 
To prevent backup federal income tax withholding equal to 28% of the distribution, each non-corporate shareholder who is not a foreign stockholder (as defined below) and who does not otherwise establish an exemption from backup withholding must notify the distribution agent of the stockholder’s correct taxpayer identification number (employer identification number or social security number), or certify that the taxpayer is awaiting a taxpayer identification number, and provide certain other information by completing, under penalties of perjury, Internal Revenue Service (“IRS”) Form W-9.  Failure to timely provide the correct taxpayer identification number on Form W-9 may subject such stockholder to a $50 penalty imposed by the IRS.  A shareholder that is a foreign shareholder should generally complete and sign an appropriate IRS Form W-8BEN in order to avoid backup withholding.  For this purpose, a “foreign stockholder” is any stockholder that is not:
 
·  
an individual citizen or resident of the United States,
 
·  
a corporation (including any entity treated as a corporation for U.S. federal income tax purposes), partnership or other entity created or organized in or under the laws of the United States, any state or any political subdivision thereof,
 
·  
an estate, the income of which is subject to United States federal income taxation regardless of the source of the income, or
 
·  
a trust whose administration is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all of its substantial decisions or which has elected to be treated as a United States person.
 
  Consequences for Foreign Shareholders.  
 
The treatment, for U.S. federal income tax purposes, of the distribution as a dividend, a tax-free return of capital or as capital gain for foreign shareholders will be determined in the manner described above under the caption “Consequences to the CMGO Shareholders.”  To the extent that amounts received by a foreign shareholder are treated as dividends, such dividends will generally be subject to withholding of United States federal income tax at the rate of 30%, or such lower rate as may be specified by an applicable income tax treaty or other exemption, provided CMGO has received proper certification of the application of such income tax treaty.  A foreign shareholder that is eligible for a reduced rate of U.S. federal withholding tax under an income tax treaty may obtain a refund or credit of any excess amounts withheld by filing an appropriate claim for a refund with the IRS.  Amounts treated as dividends that are effectively connected with a foreign shareholder’s conduct of a trade or business in the United States and, if provided in an applicable income tax treaty, are attributable to a permanent establishment in the United States, are not subject to U.S. federal withholding tax, but generally are instead taxed in the manner applicable to U.S. persons, as described above.  In that case, CMGO will not have to withhold U.S. federal withholding tax if the foreign shareholder complies with the applicable certification and disclosure requirements.  In addition, dividends received by a foreign corporation that are effectively connected with the conduct of a trade or business in the United States may be subject to a branch profits tax at a 30% rate, or a lower rate specified in an applicable income tax treaty.
 
 
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In order to obtain a reduced rate of withholding pursuant to a tax treaty, a foreign shareholder must deliver to the distribution agent before any payment is made to the shareholder a properly completed and executed IRS Form W-8BEN with respect to the foreign shareholder and, in the case of a foreign stockholder that is neither an individual nor a corporation, the foreign shareholder may be required to deliver both a Form W-8IMY and an appropriate Form W-8BEN or Form W-9 with respect to the partners, members, beneficiaries or owners (and their beneficial owners) of the foreign shareholder.  In order to obtain an exemption from withholding on the grounds that the gross proceeds paid pursuant to the offer are effectively connected with the conduct of a trade or business within the United States or otherwise exempt, a foreign stockholder must deliver to the distribution agent before any payment is made to the shareholder a properly completed and executed IRS Form W-8ECI or IRS Form W-8EXP, as applicable.  CMGO and the distribution agent will determine a shareholder’s status as a foreign stockholder and eligibility for a reduced rate of, or exemption from, withholding by reference to any outstanding certificates or statements concerning eligibility for a reduced rate of, or exemption from, withholding (e.g., IRS Form W-8BEN, IRS Form W-8ECI or IRS Form W-8EXP) unless the facts and circumstances indicate that reliance is not warranted.
 
Because the distribution agent cannot determine whether distributions to a particular foreign shareholder will qualify for sale or exchange treatment, the distribution agent will withhold 30% of any gross payments made to a foreign shareholder (as if such payments were a dividend) unless a reduced rate of withholding or an exemption from withholding is applicable.   Foreign shareholders should consult their own tax advisors regarding their entitlement to benefits under an applicable income tax treaty or other exemption and the manner of claiming the benefits of such treaty or other exemption.
 
Information Reporting
 
A copy of this prospectus will be provided to CMGO shareholders and to the IRS (except with respect to shareholders that are exempt from the information reporting rules, such as corporations).
 
DISTRIBUTION AND DIVIDEND POLICY
 
AE does not anticipate paying dividends on its common stock in the foreseeable future.  AE anticipates that any credit agreement it expects to enter will restrict AE’s ability to pay dividends or make distributions to its stockholders.  Any future determination to pay dividends will be at the discretion of the board of directors of AE and will depend on the financial position, results of operations, cash flows, capital requirements, debt covenants, applicable law and other factors as the board of directors of AE deems relevant.
 
BUSINESS OF AE
 
Corporate Overview and History
 
Founded in 2003, AE provides device embedded audio navigation and Internet content publication and distribution software that enables conversion of any media into accessible formats and allows for real time distribution to end users on any Internet connected device.  AE’s focus is to create a more comprehensive access to devices, Internet, print, broadcast and other media to all people regardless of their network connection, device, location, or disabilities.  AE’s solutions include comprehensive E-Learning and E-Commerce systems, as well as varieties of Internet publishing products and services that enable customers to create and deliver highly scalable web-based applications.
 
AE provides technology that facilitates information accessibility via the web, mobile phones, and other devices for all people, with a special emphasis on those that have physical, learning, or visual impairment, as well internet novices such as seniors, non-English readers, and children.  AE owns the “Method and Apparatus for Website Navigation by the Visually Impaired” and “Method and System for Audible Website Navigation” patent portfolios which protect the rights to its proprietary technology, AE believes this technology is an indispensable component of the internet accessibility industry as it exists today.
 
 
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AE was acquired by CMGO in March 20, 2010.
 
Patents Overview – General
 
The U.S. Patent Act, 35 U.S.C. § 1 secures for a limited time to inventors the exclusive right to their discoveries.  A patent is a document issued by the federal government that grants to its owner a legally enforceable right to exclude others from practicing the invention described and claimed in the document.  The value of a patent is closely tied to the value of the technological contribution of the material disclosed within the patent.  Over the past three decades, patents have become the major asset class for many large corporations.  These intellectual property assets are an essential part of the corporations’ competitive advantage and the foundation for new products and even new industries.
 
Role Of Patents Within The Internet Accessibility Industry
 
Patent protection is one of the most important issues for many emerging companies such as AE that operate in the electronic commerce industry.  The software publishing industry exhibits a rapid rate of technological advancement and therefore patents play a key role in determining competitive positioning.  Small innovative software publishers often find that competitors have copied elements of their products and therefore diligent patent filing protects such companies from aggressive competition.
 
New software publishing markets are quickly developing as a result of advancements by the semiconductor and telecommunications industries.  Faster semiconductor chips and wireless networks allow software publishers to explore new software capabilities and uses.  Ford’s Sync system, developed by Microsoft, allows drivers to get directions, send text messages, receive traffic alerts and make phone calls while driving in their car.  Similarly, Apple’s iPhone smartphone (as well as the similar products from other manufacturers) is bringing internet-based content and sophisticated software to consumers’ pockets.  Each of these innovations opens up new settings, or platforms, in which users interact with software that enhances their daily lives.  It will be difficult for all but the largest software companies to develop software across all these platforms, leading to increasing specialization and differentiation between software publishers.
 
Background of Prior Art and Conventional Technology
 
Conventional solutions have been developed to help visually impaired users use websites, but these systems often require software and hardware to be installed on the user's computer.  Many of these solutions simply use screen reading technology alone or in combination with print magnifying software applications.  Management of AE believes that these systems are costly, unwieldy, and inconvenient.  Furthermore, because such technology is installed on the user's computer, visually impaired users cannot effectively use conventional computer files anywhere except at their own computers.  As a consequence, websites and other computer files are often inaccessible to visually impaired users anywhere except at home.  Unfortunately, these systems also have drawbacks.  For one, only text is played back to the user while graphics, music, images are not.  Additionally, large files or those having multiple nesting layers turn the system into a giant automated voice response system, which is difficult to understand, navigate, and can be very frustrating to a user.
 
Description Of AE’s Patented Audio Internet Product Line
 
AE’s patented invention relates to a server-side method and apparatus that enables users to navigate audibly websites and hear high-quality streaming audio narration and descriptions of websites.  The patented invention involves creating an audible website corresponding to an original website by utilizing voice talent and automated conversion methods to read and describe web content and create audio files for each section within an original website, and then assigning a hierarchy and navigation system based on the original website design.  To implement the system, a program is installed on the home page of an original website which plays a tone upon a user's visit indicating that the website is accessible with the present invention.  Upon hearing the tone, a user presses a key on the keyboard to exit the original website and enter the audible website.  Audible narration is played through the user's computer, reading text and describing non-text information, such as images.  The narration includes menus for navigating the site which have a hierarchy substantially similar to that of the original website.  Users navigate the website menus and move from webpage to webpage by making keystroke or audible commands.
 
 
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AE’s technology allows users to navigate the Internet and mobile devices solely by listening to audio prompts and performing simple commands from any Internet enabled device or mobile smartphone.  AE’s technologies represent a significant breakthrough in streaming technology in that they have the ability to keep the streaming connection “alert”, awaiting a keystroke command even after extended periods of inactivity.
 
The AE technology recognizes the possibility to operate the Internet as a spoken medium by cataloging each section of a website into an audio “filing cabinet.”  All the menu items and corresponding content on a given website can be easily converted to a series of audio files using web-based media creation software.  Site owners have the option of personalizing content by reading and recording specific sections via the human voice or relying on state-of-the-art computer generated voices.  Once all content is converted accordingly, all the individual audio files are woven together and connected by AE’s Audio Internet intuitive keystroke navigation system, allowing users to “Surf By Sound.”
 
Since the solution is network-based, users can seamlessly utilize the AE software across all their potential internet points of entry - school, home, office, library or mobile device.  This is a major advantage over local devices and provides portability while removing technical boundaries.  The solution is triggered by clicking on a hyperlink on a web page, or automatically upon accessing an AE enabled site.  The AE Navigation Player will launch and allow users to listen to the page or website so that anyone, regardless of vision, age, or computer skill level, can experience the Audio Internet.
 
  AE’s Business Plan
 
AE’s focus is to create more comprehensive access to devices, Internet, print, broadcast and other media. AudioEye’s solutions and technology include comprehensive E-Learning and E-Commerce systems that enable interaction between brands and consumers. AudioEye has created a variety of Internet publishing products and Internet cloud based software services that enable customers to create and deliver highly scalable web-based applications leveraging the company’s intellectual property.
 
The first business objective is the creation of value through the monetization of AudioEye’s extensive patent portfolio and intellectual property ownership. A software licensing strategy is underway in which large infringers are being approached for license of the AudioEye technologies. A comprehensive licensing strategy is being constructed by AudioEye’s patent counsel, SNR Denton, along with an advisory council and third party consultants. The process of identifying and tracking infringement in the market verticals of device manufacturers, smart phones, Internet software service providers, Content Delivery Networks, and others is an ongoing task at AudioEye and several corporate resources have full time focus on this area of AudioEye’s development.
 
The second focus of AE is licensing technology in exchange for equity ownership in technology areas AE agrees to let others develop the market for.
 
The third and final area of focus and effort of AudioEye is the development of its Government and Mobile Media network of customers and rich media Internet broadcast applications.
 
AudioEye is in its infancy and management believes Mobile as a major driver of growth for AE’s audio based technology platforms as users connect and command the Internet browser, and devices using sound and sound based navigation over the mobile Internet enabled by our technologies.
 
 
38

 
 
AE’s Strategy
 
AE is in the business of the development and commercial exploitation of its intellectual property.  The Company has two distinct business units:
 
The IP Group is charged with the development of additional intellectual property, development and implementation of a licensing strategy and the prosecution and enforcement of AE’s existing Patent portfolio.
 
AE Services Group is charged with the commercialization of the AE Intellectual Property, business development, and sales & marketing of its services & product offerings.
 
The Company’s business model is built on the commercialization of its intellectual property in three distinct areas;
 
·  
Generate revenue through the sale of services and products to the U.S. Government.  .
 
·  
Generate revenue from the sale of services and products to consumer websites.
 
·  
Generate revenue from licensing royalties/ and from settlement of patent infringement enforcement
 
AE’s strategy is to establish AE as the leading provider of audio technologies with revenues derived through technology license, platform Software as a Service (SaaS) product sales, technology support services, and comprehensive technology enforcement strategy.  Key operational objectives currently include:
 
·  
Implementing a technology-licensing program to commercialize AE’s intellectual property, including the AudioEye patented technology.
 
·  
Taking equity in and develop revenues from licensing royalties within organizations that utilize AE’s patented technology and systems.
 
·  
Leveraging AE’s existing technology to develop a suite of products that can be sold directly to governments and corporate enterprises.
 
License and Service Offerings
 
AE plans to offer a diversified portfolio of license and service offerings focused on securing AE’s technology within devices and over the Internet, including:
 
 
1.
Internet Cloud Software as a Service (SaaS)
 
a.  Mobile Audio Applications
b.  Internet Audio Applications
c.  Audio Device Navigation Solutions

2.           AE Technology Licensing – Equity with Royalty Licensing
a.  
Digital Coupon
b.  
Counseling
c.  
Content Delivery Networks (CDN)
d.  
Mobile Networks
e.  
Others

 
39

 
 
3.           AE Patent Enforcement and Patent Portfolio Licensing Program
a.  
Establishing enforcement and Licensing Protocols – Widespread Infringement
b.  
Pricing Models/Early Adopter license strategy
c.  
Mobile device manufactures
d.  
Mobile Marketing Providers
e.  
Device and Hardware Manufactures
f.  
Other enforcement strategy

4.           AE Support and Interactive Services
a.  
Support infrastructure for SaaS model – revenue center
b.  
Customized AE software and development – revenue center
c.  
Sales and commercialization support for all divisions.

Customers
 
Licensing customers
 
AE’s patent portfolio provides ownership of claims within the field of Internet based and device embedded audio navigation technologies.  AE plans to license the exclusive ability to provide these products in the U.S. in a broad array of industry and product verticals.  The strategy of AE’s technology program is to identify infringing organizations that have reduced to practice and have successfully monetized the AE inventions with the objective to develop licensing programs for infringing operations with the use of litigation as a last resort means of protecting the intellectual property as required by U.S. law.  These organizations include but are not limited to the following:
 
·  
Mobile Device Manufacturers
 
·  
Mobile Device Software Providers
 
·  
Mobile Device Operating System Providers
 
·  
Mobile Marketing Operations
 
·  
Mobile Internet Access Providers
 
·  
Internet Device Manufacturers
 
·  
Satellite, GPS, and Automotive Device Manufacturers
 
·  
Internet Browser Providers
 
·  
Internet Media Service Providers
 
·  
Internet Content Publishers
 
·  
Internet Media Publishers
 
·  
Internet Service Providers
 
·  
Internet Search Providers
 
·  
Internet Ecommerce Providers
 
·  
Internet Marketing Operations
 
 
40

 
 
·  
Internet Accessibility Services Providers
 
·  
U.S. Federal Government Internet Operations
 
·  
U.S. State Governments Internet Operations
 
·  
U.S. Departments, Bureaus, Agencies, and Territories Internet Operations
 
·  
Native American Business Operations
 
·  
Native American Governments
 
·  
Content Delivery Networks (CDN)
 
·  
Foreign Governments
 
·  
Appliance Manufacturers
 
·  
Healthcare Products Manufacturers
 
·  
Prescription Medication Pharmacy Operations
 
·  
Pharmaceutical Companies
 
·  
“How To” Operations
 
·  
User Manual Publishers
 
AE technology serves a broad landscape of clientele with the claims of AE’s issued and pending technology patents and its technology applications.  The strategy is to hire, partner with, and secure relationships with licensing professionals and value added reseller operations that specialize in addressing each of the above mentioned market verticals.  Through value added resellers, licensing operations, and strategic partnerships, AE plans to license its technology, software, and patents in a highly scalable, profitable and sustainable infrastructure.
 
The licensing offering is also tailored for startup and emerging technology service companies that desire a license to AE’s technology in exchange for equity and ongoing royalty payments to AE.  AE plans to secure customized software development and service contracts that add specialized revenue streams from these partner organizations.
 
2011 Progression of Equity, Royalty, and Service Contract Licensing Model
 
AE is currently in discussions with a top 10 U.S. business college for the development of business focused on marketing AE solutions and technology to approximately 10,000 higher education organizations in the U.S.
 
AE is currently establishing a partnership with a top tier Content Delivery Network (CDN) for the development of a business focused on the marketing AE technologies through CDN sales channels.
 
 
41

 
 
Business to Government Direct Sales Business Model
 
The patent portfolio owned by AE and its Internet software platform enables mobility, usability and accessibility, and is primarily marketed through marketing partnerships, resellers, and licensed operations.  This strategy enables addressing of the broad markets covered by AE’s technology and allows for a depth and market penetration that AE could never approach on its own.
 
AE believes there exists in the U.S. Government a market with which AE has elected to pursue and develop directly.  Further, management believes that this direct connection with the government market will allow AE to improve reseller and partner based channel support services in a more efficient manner.  AE believes this tactic provides AE’s management team the ability to better anticipate the needs of and respond to AE’s reseller network and partners with improvements and innovations in its products and services.
 
Management believes that barriers to entry to competition are steeper because of required certifications such as AudioEye’s U.S. General Services Administration (GSA) listing and API development of AudioEye’s Software as a Service SaaS offering being substantial advantages in this marketplace.  Also, AE believes that the potential for perpetual revenue generation, the data value appreciation that occurs over time and cyclical turn of government business all contribute to ideal long term conditions that make this a good market for AE to conduct direct sales.
 
The American’s with Disabilities Act of 1973, requires that individuals with disabilities, who are members of the public seeking information or services from a Federal department or agency, have access to and use of information and data that is comparable to that provided to the public without disabilities.  The Federal government also requires vendors selling to the government be Section 508 compliant, unless covered by a provable exception.  Canada and the European Union have similar requirements.
 
Elderly and print impaired individuals need the internet's critical access to fundamental state, local and federal government services and information such as tax forms, social programs, emergency services and legislative representatives.  In addition, the roughly 120,000 federal employees with disabilities require Internet accessibility for workplace productivity.  AE's category-creating audio browser provides an intuitive Internet experience across all internet-enabled devices without imposing any additional costs on end users.  For government site administrators, AE's media creation tools are so easy to use that sites can be made accessible and maintained as part of any web management process.
 
www.section508.gov
 
In October 2010, Congress passed and President Obama signed into law, the 21st Century Communications Act.  AE has partnered with GSA processors to generate the necessary membership listing and United States General Services Administration and have processed and met all the requirements for listing on the gsaadvantage.gov website.  AudioEye anticipates issuance of its GSA number and complete GSA Advantage Listing in its fourth quarter of 2011.
 
Marketing and Sales
 
AE plans to employ a leveraged, partner-oriented, marketing strategy for its technology licenses and software offerings.  AE expects the marketing strategy will primarily be focused on value added resellers, partners, and licensed operations.  AE plans to directly market its Audio Internet software as a service platform to its U.S. Government customers.
 
Competition
 
AE believes its technology and solutions will compete primarily against various proprietary solutions of large search and browser market players.  AE groups these solutions into three main categories:
 
 
42

 
 
1.           Mobile and Internet Browser solutions.  A serious competitive threat to AE comes from the Internet browsers that have already begun to infringe upon AE’s technology and have started to provide voice navigation and multi-format content consumption.
 
2.           Mobile Device Operating solutions.  Management believes that this segment involves the highest volume and presence of technology infringement of apparatus and device claims of AE’s portfolio.  In view of this segment also offering competing audio navigation and audio control of device features and functions, management has determined that this segment has the highest priority.
 
3.   Internet e-readers and tablet computers with competing functionalities and audio navigation commands and controls pose a potential competitive threat.  Competitive analysis is ongoing; licensing strategy requires additional investment and focus in this area of ongoing competitive analysis.
 
Intellectual Property and Patent Rights
 
AE’s intellectual property is primarily comprised of trade secrets, patented know-how, issued and pending patents, copyrights and technological innovation.
 
AE has a portfolio comprised of three patents in the United States, as well as several pending U.S. patents.  AE’s portfolio includes a number of patents that describe unique systems and methods for navigating devices and Internet content, as well as publication and automated solutions that connect to any content management system, and can deliver a mobile, usable, and accessible user experience to any consumer device.  AE’s software and technology solutions also have direct sales potential that can be expanded but are currently focused on U.S. Government.  AE has extensive indirect sales channels developed through a network of value added resellers, partners and licensed operations that make up the majority of the projected sales volume.
 
The following is a list of AE’s patents.  The patents have been extended and cover a period from 2002 through 2026.
 
#
ID
 
Title
1
US7966184 B2
 
System and method for audible website navigation
2
US7653544 B2
 
Method and apparatus for website navigation by the visually impaired
3
US20100095210 A1
 
Method and apparatus for website navigation by the visually impaired
4
US20070208687 A1
 
System and method for audible website navigation
5
US20050033577 A1
 
Method and apparatus for website navigation by the visually impaired

Government Regulation
 
In July of 2011 Congress passed and President Obama signed into law, the 21st Century Communications Act, AE believes that its patents are pertinent to the development of the government-accessible market as well as to the solution to Internet publishers and device manufactures compliance to Sections 508 and 504 of the Americans with Disabilities Act.  Although these mandates cover aspects of accessibility, AE’s product positioning is centered in audio technology that enables mobility, usability and accessibility.  In addition to the federal mandates for technology adoption, AE has focused on providing comprehensive features and capabilities that bolster its value propositions and product demand creation through distribution of AE’s useful and one-of-a-kind technologies.
 
Competitive Strengths
 
AE’s management believes the following competitive strengths will enable AE’s success in the marketplace:
 
 
43

 
 
·  
Unique patented technology .  AE is focused on developing innovations in the field of networked and device embedded audio technology.  AE’s first patent family entitled “Method and Apparatus for Website Navigation by the Visually Impaired” U.S. patent # 7653544 filed in 2003 and issued on January 29, 2010 provides technology claims that cover audio content navigation.  AE’s second family of patents is entitled “System and Method for Audible Web Site Navigation.”  AE’s key foundational patent, U.S. patent # 7966184 filed in 2007 and issued on June, 23 2011, includes additional mobile smartphone navigation and audio publishing capabilities.  On June 28, 2011 AE received notice of allowance on a third patent, a continuation of U.S. Patent #7653544 adding 20 more claims in a new patent sharing the title of the parent ‘544 patent, “Method and Apparatus for Website Navigation by the Visually Impaired.”  Upon receipt of notice of allowance AE paid issuance fees and awaits final issuance and patent number from the U.S.P.T.O.
 
 
AE has filed continuations within both patent families keeping both open for the filing of continuations and continuations in part.  AE owns a unique patent portfolio comprised of three issued patents in the United States, as well as 2 U.S. patents pending with 5 patents being drafted for filing with the U.S.P.T.O.  AE’s portfolio includes patents and pending patent applications in the United States with over 60 issued claims that canvass Internet and mobile markets that support AE’s business and technology licensing process.
 
 
Current United States Patents pending patent applications owned and being prosecuted by AE:
 
 
Continuation Application Serial No.  13/098,677
 
 
Title: SYSTEM AND METHOD FOR AUDIO CONTENT GENERATION
 
 
Continuation application filed with the U.S. Patent and Trademark Office on May 2, 2011
 
 
Continuation Application Serial No.  12/637,512
 
 
Title: "SYSTEM AND METHOD FOR AUDIO CONTENT NAVIGATION"
 
 
Continuation application filed with the U.S. Patent and Trademark Office on August 25, 2011
 
·  
Licensing business model .  AE is pursuing agreements under which AE will license its technology within key identified vertical end-markets including but not limited to U.S. Government, mobile carrier, higher education, digital couponing, content delivery networks, marketing organizations, elearning organizations, ecommerce operations, device manufactures, Internet technology, and communications.
 
·  
Highly experienced inventors, technologist and product development team .  AE’s research and development team is comprised of experienced software developed, ecommerce, mobile marketing and Internet broadcasting that have worked together as a team for over fifteen years.  During their careers, this team has developed several technologies programs for fortune 500 organizations, state, federal and local governments in the U.S. and several leading organizations in a wide range of end-markets.
 
Employees
 
As of August 31, 2011, AE had six full-time employees. AE has outsourced technology development team with over 100 developers available through 8 year relationship with AE.
 
Legal Proceedings
 
AE is not party to any legal proceedings.  However, from time to time in the future, AE may be subject to various lawsuits, claims and proceedings that arise in the normal course of business, including employment, commercial, environmental, safety and health matters.  It is not presently possible to determine whether any such matters will have a material adverse effect on our consolidated financial position, results of operations, or liquidity.  In the future, AE may from time to time commence litigation to enforce its patents.
 
 
44

 
 
Prop ertie s
 
AE’s principal executive offices will continue to be located at 9070 S. Rita Rd Tucson, Arizona 85747 and its telephone number will continue to be (866) 331-5324, consisting of approximately 800 square feet with a satellite office in Chicago, IL. consisting of approximately 1,700 square feet, each pursuant to lease arrangements.
 
  General Information
 
It will maintain a website at www.audioeye.com.  Following the Separation, AE will file reports with the SEC.  Through its website, AE will make available free of charge, as soon as reasonably practicable after such information has been filed or furnished to the SEC, each of its filings with the SEC, including its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act.  In addition, investors and other members of the public will be able to read and copy any materials AE files or furnishes with the SEC at the SEC’s Public Reference at 100 F Street, NE, Washington, DC 20549.  Information concerning the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330.  This information, and any other reports, proxy and information statements or other information filed or furnished with the SEC by issuers, can also be obtained free of charge on the Internet site maintained by the SEC, www.sec.gov.
 
Reporting Policies
 
Following the Separation, AE will become subject to the information reporting requirements of the Exchange Act, pursuant to which AE will file periodic reports, proxy statements and other information, including audited financial statements, with the SEC.  Such filings will be publicly available to AE’s stockholders.
 
AE PRO FORMA CAPITALIZATION
 
The following table sets forth the unaudited pro forma capitalization of AE at June 30, 2011 which gives effect to the Separation as if the Separation occurred on June 30, 2011.
 
   
Pro Forma
June, 2011
 
Long term debt (1)
  $ 2,159,223  
         
Preferred Stock, $0.001 par value, 10,000,000 shares authorized,
  $ -  
 none issued and outstanding
       
Common stock, $0.001 par value, 100,000,000 shares authorized,
    25  
30,000,000 issued and outstanding as of June 30, 2011 (2)
       
Additional paid in capital
    997,024  
Non-controlling interest
    (14,701 )
Retained earnings
    (2,183,573 )
Total Stockholders' Equity
  $ (1,201,225 )
         
(1) Includes $1,075,000 Senior debt assumed by AE from CMGO, and $1,084,223 due to N. Bradley, convertible into common stock at $0.25 by August 31, 2013.
 
(2) Upon conversion of N. Bradley Note, approximately 6,000,000 additional shares of common stock will be issued, for an approximate total of 36,000,000 common shares issued. AE intends to amend its Certificate of Incorporation to change the par value of its capital stock and increase the authorized shares of Common Stock and Preferred Stock.
 
         
         
 
 
45

 
 
AE PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
 
The following financial statements reflect the unaudited pro forma consolidated balance sheet of AE as of June 30, 2011, and audited consolidated balance sheet of AE as of December 31, 2010 and 2009, as if the Separation had occurred on June 30, 2011, and also reflect the audited consolidated income statement of AE for the years ended December 31, 2009 and 2010, and for the six months ended June 30, 2011 as if the Separation had occurred on June 30, 2011.  The pro forma adjustments are preliminary and have been made solely for purposes of developing the pro forma financial information for illustrative purposes necessary to comply with the requirements of the SEC.  The actual results reported in periods following the transactions may differ significantly from that reflected in these pro forma financial statements for a number of reasons, including differences between the assumptions used to prepare these pro forma financial statements and actual amounts and cost savings from operating efficiencies.  In addition, no adjustments have been made to the unaudited pro forma consolidated income statements for non-recurring items related to the transactions.  As a result, the pro forma financial information does not purport to be indicative of what the financial condition or results of operations would have been had the transactions been completed on the applicable dates of this pro forma financial information.  The pro forma financial statements are based upon the historical financial statements of CMGO and do not purport to project future financial condition and results of operations after giving effect to the transactions.
 
The accompanying pro forma consolidated financial statements should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations for AE.”
 
 
 
46

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 

 
Board of Directors
AudioEye, Inc.
Dover, Delaware

We have audited the accompanying consolidated balance sheets of AudioEye, Inc. and its subsidiary ( collectively, the Company”) as of December 31, 2010 and 2009 and the related consolidated statements of operations, stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AudioEye, Inc. as of December 31, 2010 and 2009 and the consolidated results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that AudioEye, Inc. will continue as a going concern. As discussed in Note 3 to the consolidated financial statements, AudioEye, Inc. suffered losses from operations and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 3. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ MaloneBailey, LLP
www.malonebailey.com
Houston, Texas

October 19, 2011

 
 
47

 
 
AUDIOEYE, INC.
 
CONSOLIDATED BALANCE SHEETS
 
   
   
    June 30, 2011     December 31, 2010     December 31, 2009  
    (Unaudited)              
ASSETS
                 
Current Assets
                 
Cash
  $ 44,671     $ 3,611     $ 6,056  
Accounts receivable, net
    74,100       22,343       68,879  
Marketable securities
    40,500       14,000       33,000  
Total Current Assets
    159,271       39,954       107,935  
                         
Property and equipment, net
    10,748       13,551       7,533  
                         
Intangible assets, net
    123,049       52,839       24,056  
                 TOTAL ASSETS   $ 293,068     $ 106,344     $ 139,524  
                         
                         
LIABILITIES AND STOCKHOLDERS' DEFICIT
                       
                         
Current Liabilities
                       
Accounts payable and accrued expenses
  $ 685,169     $ 502,685     $ 61,358  
  Notes payable
    74,900       74,900       184,900  
  Related party loans payable
    734,224       -       100,000  
Total Current Liabilities
    1,494,293       577,585       346,258  
                         
STOCKHOLDERS' DEFICIT
                       
Preferred Stock, $0.00001 par value, 500,000
    -       -       -  
 shares authorized, none issued and outstanding
                       
Common stock, $0.00001 par value, 4,000,000 shares
    25       25       22  
authorized, 2,546,483, 2,546,483 and 2,241,626
                       
issued and outstanding as of June 30, 2011 ,
                       
 December 31, 2010, and December 31, 2009, respectively
                       
Additional paid in capital
    997,024       997,024       414,527  
Non-controlling interest
    (14,701 )     (14,701 )     -  
Retained earnings
    (2,183,573 )     (1,453,589 )     (621,283 )
                         
Total Stockholders' Deficit
    (1,201,225 )     (471,241 )     (206,734 )
                         
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
  $ 293,068     $ 106,344     $ 139,524  
                         
                         
                         
See Notes to Consolidated Financial Statements
 
 
 
 
48

 
 
AUDIOEYE, INC.
 
CONSOLIDATED INCOME STATEMENTS
 
   
   
(unaudited)
       
   
For the 6 months ended
   
For the 12 months ended
 
   
06/30/2011
   
06/30/2010
   
12/31/2010
   
12/31/2009
 
   
 
   
 
   
 
   
 
 
Revenue
  $ 112,019     $ 137,167     $ 328,397     $ 452,986  
Revenue from related party
    -       -       19,850       -  
Cost of revenues
    323,196       173,464       429,705       167,719  
                                 
Gross Profit
    (211,177 )     (36,297 )     (81,458 )     285,267  
                                 
General and administrative expenses
    423,860       206,397       644,908       111,179  
                                 
Operating income (loss)
    (635,037 )     (242,694 )     (726,366 )     174,088  
                                 
Other Expenses
                               
Unrealized gain (loss) on securities
    19,500       (31,500 )     (78,000 )     (201,000 )
Loss attributable to non-controlling interest
    -       -       14,701       -  
Interest expense
    (114,447 )     (33,278 )     (42,641 )     (18,725 )
Total Other Expenses
    (94,947 )     (64,778 )     (105,940 )     (219,725 )
                                 
Net (loss)
  $ (729,984 )   $ (307,472 )   $ (832,306 )   $ (45,637 )
                                 
                                 
Net (loss) per common share - basic and diluted
  $ (0.29 )   $ (0.12 )   $ (0.33 )   $ (0.02 )
                                 
Weighted average common shares outstanding  basic and diluted
    2,546,483       2,474,058       2,510,568       2,058,064  
                                 
                                 
See Notes to Consolidated Financial Statements
 
 
 
49

 
 
AUDIOEYE, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
   
   
(unaudited)
       
   
For the 6 months ended
   
For the 12 months ended
 
   
06/30/2011
   
06/30/2010
   
12/31/2010
   
12/31/2009
 
Cash Flows from Operating Activities:
                       
Net loss
  $ (729,984 )   $ (307,472 )   $ (832,306 )   $ (45,637 )
Adjustments to reconcile net loss to net cash
                               
provided by (used in) operating activities:
                               
Depreciation and amortization
    7,129       3,983       7,933       2,404  
Unrealized gain (loss) on investments
    (19,500 )     31,500       78,000       201,000  
Bad debt expense
    -       22,500       87,000       -  
Loss attributable to non-controlling interest
    -       -       (14,701 )     -  
Changes in operating assets and liabilities:
                               
Accounts receivable
    (58,757 )     (49,086 )     (99,464 )     (302,879 )
Accounts payable and accrued expenses
    182,484       20,389       443,827       21,408  
Net cash provided by (used in)  operating activities
    (618,628 )     (278,186 )     (329,711 )     (123,704 )
                                 
Cash Flows from Investing Activities:
                               
Cash paid for computer equipment
    -       (11,287 )     (11,287 )     (8,376 )
Cash paid for patent costs
    (74,536 )     (8,853 )     (31,447 )     (24,231 )
Net cash used in financing activities
    (74,536 )     (20,140 )     (42,734 )     (32,607 )
                                 
Cash Flow from financing activities:
                               
Proceeds from related party loans
    734,224       -       -       55,700  
Proceeds from sale of common stock
    -       -       -       100,000  
Repayment of related party loans
    -       (100,000 )     (100,000 )     -  
Capital contribution from parent
    -       470,000       470,000       -  
Net cash provided by financing activities
    734,224       370,000       370,000       155,700  
                                 
Increase (decrease) in cash
    41,060       71,674       (2,445 )     (611 )
Cash - beginning of period
    3,611       6,056       6,056       6,667  
                                 
Cash - end of period
  $ 44,671     $ 77,730     $ 3,611     $ 6,056  
                                 
NON-CASH INVESTING AND FINANCING ACTIVITIES
                         
Conversion of debt for common stock
  $ -     $ 112,500     $ 112,500     $ -  
Marketable securities received for receivables
  $ 7,000     $ -     $ 33,000     $ 97,500  
                                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                 
Interest paid
  $ -     $ 23,916     $ 23,916     $ -  
Income taxes paid
  $ -     $ -     $ -     $ -  
                                 
 
See Notes to Consolidated Financial Statements
 
 
50

 
 
AUDIOEYE, INC.
 
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
 
PERIOD FROM JANUARY 1, 2009 TO JUNE 30, 2011
 
                                     
   
COMMON STOCK
   
PAID IN
   
NON-CONTROLLING
   
ACCUMULATED
   
 
 
   
SHARES
   
AMOUNT
   
CAPITAL
   
INTEREST
   
(DEFICIT)
   
TOTAL
 
   
 
   
 
               
 
   
 
 
Balance, January 1, 2009
    1,908,292     $ 19     $ 314,530     $ -     $ (575,646 )   $ (261,097 )
                                                 
Issuance of common stock for cash, July, 2009
    333,334       3       99,997       -       -       100,000  
                                                 
Net loss
    -       -       -       -       (45,637 )     (45,637 )
                                                 
Balance, December 31, 2009
    2,241,626       22       414,527       -       (621,283 )     (206,734 )
                                                 
Conversion of debt for common stock
    304,857       3       112,497       -       -       112,500  
                                                 
Capital contribution from parent
    -       -       470,000       -       -       470,000  
                                                 
Loss attributable to non-controlling interest
    -       -       -       (14,701 )     -       (14,701 )
                                                 
Net loss
    -       -       -       -       (832,306 )     (832,306 )
                                                 
Balance, December 31, 2010
    2,546,483       25       997,024       (14,701 )     (1,453,589 )     (471,241 )
                                                 
Net loss
    -       -       -       -       (729,984 )     (729,984 )
                                                 
Balance, June 30, 2011
    2,546,483     $ 25     $ 997,024     $ (14,701 )   $ (2,183,573 )   $ (1,201,225 )
                                                 
                                                 
See Notes to Consolidated Financial Statements
 
 
 
 
51

 
 
AUDIOEYE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009, DECEMBER 31, 2010 AND
JUNE 30, 2011 (unaudited)

 
NOTE 1: OVERVIEW

AudioEye, Inc. (“we”, “our” or the “Company”) was incorporated on May 20, 2005 in the state of Delaware. 

The Company has developed patented, Internet content publication and distribution software that enables conversion of any media into accessible formats and allows for real time distribution to end users on any Internet connected device. The company’s focus is to create more comprehensive access to Internet, print, broadcast and other media to all people regardless of their network connection, device, location, or disabilities.

On March 31, 2010, the Company was acquired by CMG Holdings Group, Inc., a Nevada corporation (“CMG”). The Company has developed patented (one is U.S. patent number 7653544 as well as three additional pending patents) internet content publication and distribution software that enables conversion of any media into accessible formats and allows for real time distribution to end users on any internet connected device.

NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
This summary of significant accounting policies is presented to assist in understanding the Company’s financial statements.  These accounting policies conform to accounting principles, generally accepted in the United States of America, and have been consistently applied in the preparation of the financial statements.

Principles of Consolidation and Non-Controlling Interest
The consolidated financial statements include the accounts of the Company and its 50% owned subsidiary, Empire Technologies, LLC (“Empire”).  All significant inter-company accounts and transactions have been eliminated. In October 2010, AudioEye, Inc. formed Empire as part of a joint venture with LVS Health Innovations, Inc. (“LVS”) whereby AudioEye owns 50% of Empire.  Empire is considered a variable interest entity as defined by ASC 805-10 “Business Combinations”.  AudioEye is the primary beneficiary of Empire as defined by ASC 805-10 and therefore consolidates the accounts of Empire.

During the year ended December 31, 2010, the Company has recorded $14,701 of loss attributable to the non-controlling interest in Empire.  During the six months ended June 30, 2011, Empire had no activity.  Empire had no assets or liabilities as of June 30, 2011 and December 31, 2010.

Use of Estimates
The preparation of financial statements, in conformity with generally accepted accounting principles in the United States of America, requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

Revenue Recognition
Sales are recognized when revenue is realized or realizable and has been earned. Most revenue transactions represent sales of services. Our policy is to recognize revenue when services are preformed and/or the project is completed.

 
52

 
 
Under the terms of the Company’s standard agreement for website design and development, revenue is recognized upon completion of the project. Revenue received prior to project completion is recognized as deferred revenue.

Under the terms of the Company’s standard agreement for website hosting, revenue is recognized as services are provided.  Invoices are generated, and revenue is recognized on a monthly basis.

Fiscal Year End
The Company has a fiscal year ending on December 31.

Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.

Marketable Securities
Marketable securities consist of common stock holdings of publicly traded companies.  These securities are marked to market at the end of each reporting period based on the closing price of the security at each balance sheet date.  Changes in fair value are recorded as unrealized gains or losses in the consolidated statement of operations.

Allowance for Doubtful Accounts
We establish an allowance for bad debts through a review of several factors including historical collection experience, current aging status of the customer accounts, and financial condition of our customers. We do not generally require collateral for our accounts receivable. There was an allowance for doubtful accounts of $87,000, $87,000 and $0 as of June 30, 2011, December 31, 2010 and 2009.

Property, Plant and Equipment
Property and equipment are carried at the cost of acquisition or construction and depreciated over the estimated useful lives of the assets. Costs associated with repairs and maintenance are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency of our property and equipment are capitalized and depreciated over the remaining life of the related asset. Gains and losses on dispositions of equipment are reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 5 to 7 years.

Impairment of Long-Lived Assets
The Company’s long-lived assets, including intangibles, are reviewed for impairment whenever events or changes in circumstances indicate that the historical-cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the asset by comparing the undiscounted future net cash flows expected to result from the asset to its carrying value. If the carrying value exceeds the undiscounted future net cash flows of the asset, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived asset. No impairment losses have been recognized since inception.

Patent Costs
Legal costs incurred in connection with the development of pending patents are capitalized and amortized over the shorter of the economic or legal life of the patent.  During the six months ended June 30, 2011 and the years ended December 31, 2010 and 2009, $74,096, $31,447 and $24,231, respectively, were capitalized to patent costs.
 
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to reverse.

 
53

 
 
We have net operating loss carryforwards available to reduce future taxable income. Future tax benefits for these net operating loss carryforwards are recognized to the extent that realization of these benefits is considered more likely than not. To the extent that we will not realize a future tax benefit, a valuation allowance is established.

Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income, or loss, by the weighted average number of shares of common stock outstanding for the period.  Diluted loss per share includes the dilutive effects of common stock equivalents on an “as if converted” basis. For the six months ended June 30, 2011 and 2010 and the years ended December 31, 2010 and 2009, the Company had no common stock equivalents and therefore diluted earnings (loss) per share and basic earnings (loss) per share are the same.

Financial instruments
The carrying amount of our financial instruments, consisting of cash equivalents, short-term investments, account and notes receivable, accounts and notes payable, short-term borrowings and certain other liabilities, approximate their fair value due to their relatively short maturities. The carrying amount of our long-term debt approximates fair value since the stated rate of interest approximates a market rate of interest

Fair Value Measurements
Fair value is an estimate of the exit price, representing the amount that would be received to, sell an asset or paid to transfer a liability in an orderly transaction between market participants (i.e., the exit price at the measurement date). Fair value measurements are not adjusted for transaction cost. Fair value measurement under generally accepted accounting principles provides for use of a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three levels:

Level 1:                 Unadjusted quoted prices in active markets for identical assets or liabilities

 
Level 2:
Inputs other than quoted market prices that are observable, either directly or indirectly, and reasonably available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the Company.

 
Level 3:
Unobservable inputs reflect the assumptions that the Company develops based on available information about what market participants would use in valuing the asset or liability.

An asset or liability's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Availability of observable inputs can vary and is affected by a variety of factors. The Company uses judgment in determining fair value of assets and liabilities and Level 3 assets and liabilities involve greater judgment than Level 1 and Level 2 assets or liabilities.

The following are the Company's marketable securities as of June 30, 2011, December 31, 2010 and 2009.
 
         Fair Value
    Fair Value    Hierarchy
Marketable Securities, June 30, 2011   $ 74,100    Level 1
Marketable Securities, December 31, 2010   $ 14,000    Level 1
Marketable Securites, December 31, 2009   $ 33,000    Level 1
 
New Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the accompanying financial statements.

 
54

 
 
NOTE 3: GOING CONCERN

As shown in the accompanying financial statements, we have incurred net losses of $729,984, $832,306 and $45,637 for the six months ended June 30, 2011 and the years ended December 31, 2010 and 2009, respectively. In addition, we had an accumulated deficit of $2,183,573 and $1,453,589 and a working capital deficit of $1,335,022 and $537,631 as of June 30, 2011 and December 31, 2010, respectively. These conditions raise substantial doubt as to our ability to continue as a going concern. In response to these conditions, we may raise additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

NOTE 4: MARKETABLE SECURITIES

On April 28, 2009, the Company entered into an agreement with Ecologic Transportation, Inc. (“ETI”) whereby 100,000 shares of ETI’s common stock would be issued to the Company in exchange for $180,000 in services provided by the Company.  On December 5, 2009, 37,500 shares were issued to the Company. On September 15, 2010, an additional 37,500 shares was issued to the Company. As of December 31, 2010, the Company has recorded 75,000 shares of common stock valued at $10,500, and Accounts Receivable of $3,500.  The remaining shares were issued on May 9, 2011.

On May 15, 2009, the Company entered into an agreement with Ecologic Transportation, Inc. whereby 50,000 shares of ETI’s common stock would be issued to the Company in exchange for $90,000 in services provided by the Company On December 5, 2009, 12,500 shares were issued to the Company. On September 15, 2010, an additional 12,500 shares was issued to the Company.  As of December 31, 2010, the Company has recorded 25,000 shares of common stock valued at $3,500, and Accounts Receivable of $3,500. The remaining shares were issued on May 9, 2011.

As of June 30, 2011, the Company held 150,000 shares of ETI’s common stock with a fair value of $74,100.

NOTE 5: PROPERTY, PLANT & EQUIPMENT

Property, Plant and Equipment consists of the following:

   
June 30,
   
December 31
   
December 31
 
   
2011
   
2010
   
2009
 
                   
Computer & Peripherals
  $ 22,550     $ 22,550     $ 11,263  
Accumulated Deprecation
    (11,802 )     (8,999 )     (3,730 )
Property Plant & Equipment, Net
  $ 10,748     $ 13,551     $ 7,533  
                         

Depreciation expense totaled $2,803, $5,269 and $2,229 for the six months ended June 30, 2011 and the years ended December 31, 2010 and 2009, respectively.

NOTE 6: INTANGIBLE ASSETS

Patents, technology and other intangibles with contractual terms are generally amortized over their respective legal or contractual lives. When certain events or changes in operating conditions occur, an impairment assessment is performed and lives of intangible assets with determinable lives may be adjusted.

On January 26, 2010, the USPTO issued U.S. patent number 7653544 for “Method and apparatus for website navigation by the visually impaired” filed by The Company, Inc. The patent application was initially filed on August 8, 2003 and this newly patented invention enables Internet navigation and multi-format publishing capabilities. After receiving their patent, the Company’s management filed an application with newly added claims that further define embodiments of the invention and has obtained international filings now available for prosecution. The Company’s plans to use the patented technology to provide services related to Internet accessibility, mobile audio Internet navigation, and multi-format publishing technology.

 
55

 
 
Intangible assets consist of the following:
   
June 30,
   
December 31
   
December 31
 
   
2011
   
2010
   
2009
 
                   
Patents
  $ 129,774     $ 55,678     $ 24,231  
Domains
    440       -       -  
Total
  $ 130,214     $ 55,678     $ 24,231  
Accumulated amortization
    (7,165 )     (2,839 )     (175 )
Intangible assets, Net
  $ 123,049     $ 52,839     $ 24,056  
                         

Amortization expense totaled $4,326, $2,664 and $175 for the six months ended June 30, 2011 and the years ended December 31, 2010 and 2009, respectively.

NOTE 7: RELATED PARTY TRANSACTIONS
 
During the six-month period ended June 30, 2011 the Company issued Promissory Notes (“Notes”) to one affiliate in the aggregate amount of $734,224. The Notes bear interest at the rate of 15% per annum, are unsecured and principal and accrued interest are payable within thirty to forty five days of issuance.  Unpaid principal amounts are subject to a penalty of 10%, in addition to any interest accrued. No payments of principal or interest were made during 2011. Accrued interest and penalties at June 30, 2011 were $114,447 and are included in accounts payable and accrued expenses in the consolidated balance sheet.
 
During the year ended December 31, 2009, the Company’s CEO advanced $55,700 to the Company resulting in a total balance owed of $100,000 as of December 31, 2009.  The advances did not bear interest, were unsecured and due on demand.  During the year ended December 31, 2010, the Company repaid $100,000 of previous advances to the CEO.
 
NOTE 8: NOTES PAYABLE
 
As of December 31, 2009, the Company had an outstanding loan to a former officer for $110,000 bearing interest at 6%, unsecured and in default.  During the year ended December 31, 2010, the Company settled this loan and accrued interest of $2,500 by issuing 304,857 shares of common stock.
 
As of June 30, 2011, December 31, 2010 and 2009, the Company had an outstanding loan to a third party in the amount of $74,900 which was originally issued during 2006.  The loan is unsecured and bears interest at 25% per year for four years.  As of June 30, 2011, December 31, 2010 and 2009, the Company had accrued interest of $74,900, $74,900 and $56,175.  The note is now in default.
 
NOTE 9: COMMITMENTS AND CONTINGENCIES
 
On April 1, 2010, Nathan Bradley signed an employment agreement with the Company to serve as Chief Executive Officer and President of the Company. The employment agreement calls for Mr. Bradley to be paid $150,000 per year for a period of 4 years. The employment agreement provides for annual bonus compensation, standard health benefits, incentive programs, incentive compensation, and restricted stock compensation.
 
 
56

 
 
 On April 1, 2010, Sean Bradley signed an employment agreement with the Company to serve as Vice President of Product Development of the Company. The employment agreement calls for Mr. Bradley to be paid $125,000 per year for a period of 4 years. The employment agreement provides for annual bonus compensation, standard health benefits, incentive programs, incentive compensation, and restricted stock compensation

NOTE 10: STOCKHOLDERS’ EQUITY

In July 2009, the Company issued 333,334 shares of common stock to one shareholder for $100,000 in cash.

In February, 2010, the Company issued 304,857 shares of common stock in exchange for settlement of a debt in the amount of $112,500 (see Note 8).

On March 31, 2010, the Company was acquired by CMG Holdings Group, Inc., a Nevada corporation (“CMG”), and all outstanding shares of the Company’s common stock were sold to CMG. The outstanding shares of the Company were sold by the Company’s shareholders directly to CMG. In April, 2010, the Company received a capital contribution from CMG of $470,000.
 
NOTE 11: INCOME TAXES
 
The Company accounts for income taxes under ASC 740, “Income Taxes”. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the ultimate realization of a deferred tax as The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
 
Deferred tax assets:   June 30, 2011     December 32, 2010     December 31, 2009  
Net operating loss carry forwards
  $ 579,000     $ 325,000     $ 68,000  
Less valuation allowance
    (579,000 )     (325,000 )     (68,000 )
Net deferred tax asset
  $ -     $ -     $ -  
 
At this time, the Company is unable to determine if it will be able to benefit from its deferred tax asset. There are limitations on the utilization of net operating loss carry forwards, including a requirement that losses be offset against future taxable income, if any. In addition, there are limitations imposed by certain transactions which are deemed to be ownership changes. Accordingly, a valuation allowance has been established for the entire deferred tax asset. The approximate net operating loss carryforward was $1,704,000, $955,000 and $200,000 as of June 30, 2011, December 31, 2010 and 2009, respectively and will start to expire in 2029.
 
NOTE 12: SUBSEQUENT EVENTS
 
In March 2010, AE was sold to CMG Holdings, Inc ("CMGO'), a public company. In that sale, AEAC's former stockholders retained rights (the "Rights") to receive cash from the exploitation of AE's technology. These Rights consist of 50% of any cash received from income earned, settlements or judgments directly resulting from AE's patent strategy, net of any direct costs or tax implications incurred in respect of that strategy. Additionally, the Rights include a share of AE's net income for 2010, 2011, 2012 and 2013 based on a specified formula. AE has been funded by AE's President Nathaniel Bradley through a series of loans evidenced by promissory notes (the "Funding Notes") currently in the aggregate principal amount of approximately $984,224.  As a result, AE will be separated out from CMGO (please see the CMG Holdings 8K filing which explains in further detail the structure of the spin-out and subsequent events at www.sec.gov under CMG Holdings, Inc stock symbol CMGO)  into a stand-alone company (the "Separation"), enter into a Share Exchange Agreement with AEAC as follows:
 

 
1.         The former stockholders of AE have transferred all of the Rights to AEC in connection with its organization in exchange for stock of AEAC.
 
2.         The stockholders of AEAC will exchange all of their shares of AEAC for 80% of the capital stock of AE (the "Share Exchange").
 
3.         CMGO will distribute to its shareholders in the form of a dividend 5% of the capital stock of AE.
 
4.         CMGO will retain approximately 15% of AE's outstanding capital stock as of the date of closing.
 
5.         Pursuant to a Royalty Agreement, AE will pay CMGO 10% of cash received from income earned or settlements on judgments from AE's patent enforcement and licensing strategy net of direct costs or tax implications. Pursuant to a Services Agreement, without duplication of any amounts payable under the Royalty Agreement, AE will pay CMGO a commission of 7.5% received by AE from all referrals from CMGO and 10% of net revenues received by a specified customer. Within 90 days from the closing of the Separation, AE will deliver to CMGO 0.05% of AE's capital stock then outstanding as an additional services fee.
 
On August 31, 2011, the Company consolidated the Notes into one Convertible Promissory Note.  Included in the Modification Agreement is an increase in Principal of $350,000 for additional loans made to the Company between July 1, 2011 and August 31, 2011.  In addition, the Modification Agreement extends the term of the Note to August 31, 2013, and amends the interest rate to 7% per annum.
 
 
57

 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
 
AND RESULTS OF OPERATIONS FOR AE
 
The following discussion should be read in conjunction with our consolidated audited financial statements and the related notes for the years ended December 31, 2009 and 2010 that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" of this annual report.
 
Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
 
Overview
 
On March 31, 2010, CMGO acquired AE.  AE has developed patented internet content publication and distribution software that enables conversion of any media into accessible formats and allows for real time distribution to end users on any internet connected device. On January 26, 2010, the USPTO issued a U.S. patent for “Method and apparatus for website navigation by the visually impaired” filed by AE. This invention enables Internet navigation and multi-format publishing capabilities. After receiving the patent, AE management filed an application with newly added claims that further define embodiments of the invention and has obtained international filings now available for prosecution. The patented technology is the foundation of the AudioeEye’s mission to become a leader in Internet accessibility, mobile audio Internet navigation, and multi-format publishing technology as well as Internet content publication and distribution software.  Management of AE believes that there is significant market opportunity for AE’s services as most websites are developed with the assumption that users can see the site, with the result that visually-impaired users have difficulty using such websites. Accordingly, providing accessibility services for these websites has become a significant market opportunity as there are approximately 33 million computer users who have some form of visual impairment.
 
In October 2010, Congress passed and President Obama signed into law the 21st Century Communication and Video Accessibility Act which mandates that all government websites (city, state, and federal) to be compliant and have accessibility to Americans with disabilities. As a result, providing accessibility services for these websites has become a significant market opportunity in view of the potential demand for AE’s patented solution.
 
 
Results of Operations
 
Year Ended
December 31
 
   
2010
   
2009
 
Revenue
  $ 348,247     $ 452,986  
Cost of Sales
    429,705       167,719  
Gross profit (loss)
    (81,458 )     285,267  
General and Administrative expenses
    644,908       111,179  
Operating (loss)
    (726,366 )     174,088  
Unrealized gain (loss) on marketable securities
    (78 ,000 )     (201,000 )
Loss attributable to non-controlling interest
    14,701       -  
Interest expense
    (42,641 )     (18,725 )
Net (loss)
  $ (832,306 )   $ (45,637 )
 
 
58

 
 
Revenue
 
For the year 2010, revenue in the amount of $348,247 consisted primarily of various levels of website design. For the year 2009, revenue in the amount of $452,986 consisted primarily of higher levels of website design.
 
Cost of sales
 
For the year 2010, cost of sales in the amount of $429,705 consisted primarily of sub-contracting to outside sources and direct labor. For the year 2009, cost of sales in the amount of $167,719 consisted primarily of sub-contracting to outside sources and direct labor.
 
Gross Profit
 
The reduction in revenue and increase in sub-contracting resulted in a gross loss in the year 2010 of $(81,458), compared to a gross profit of $285,267 in the year 2009.
 
Significant changes in gross profit for the years 2010 and 2009 were attributable to the following items:
 
i.  
an decrease in website development services of $ 237,956, primarily due to revenue generated in 2009 from contracted services of $240,000;
ii.  
an increase in website hosting fees of $113,695 for monthly hosting of client websites
iii.  
an increase in sub-contracted design fees of $206,881 due to the creation and development of additional software;
iv.  
an increase in direct labor of  $47,014 for additional staff support

General and Administrative Expenses
 
General and administrative expenses for the year ended December 31, 2010 were $644,908 as compared to $111,179 for the year ended December 31, 2009.
 
Significant increases in general and administrative expenses in the year 2010 over 2009 were attributable to the following items:
 
i.  
an increase in bad debt expense of $87,000 due primarily to doubtful collections of two client receivables;
 
ii.  
an increase in legal fees and expenses resulting from the CMGO acquisition in April, 2010;
 
iii.  
an increase in administrative salaries and wages of $106,050 for additional managerial staff support;
 
iv.  
an increase in executive salaries and wages of $240,713, primarily due to an increase in executive compensation as provided for in the employment agreements entered into and commencing April 1, 2010, of which $148,078 was accrued executive salaries .
 
 
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Liquidity and Capital Resources
 
  Working Capital
At December 31,
 
Increase /
 
 
2010
 
2009
 
Decrease
 
Current Assets
  $ 39,954     $ 107,935     $ (67,981 )
Current Liabilities
    577,585       346,258       231,327  
Working Capital (Deficit)
  $ (537,631 )   $ (238,323 )   $ 299,308  
 
We had cash in the amount of $3,611 as of December 31, 2010 as compared to $6,056 as of December 31, 2009. We had a working capital deficit of $537,631 as of December 31, 2010.
 
During the six-month period ended June 30, 2011 the Company issued Promissory Notes (“Notes”) to one affiliate in the aggregate amount of $734,224. The Notes bear interest at the rate of 15% per annum, are unsecured and principal and accrued interest are payable within thirty to forty five days of issuance.  Unpaid principal amounts are subject to a penalty of 10%, in addition to any interest accrued. No payments of principal or interest were made during 2011. Accrued interest and penalties at June 30, 2011 were $114,447 and are included in accounts payable and accrued expenses in the consolidated balance sheet.
 
We have suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. We anticipate that we will have to raise additional funds through private placements of our equity securities and/or debt financing to complete our business plan. There is no assurance that the financing will be completed as planned or at all. If we are unable to secure adequate capital to continue our planned operations, our shareholders may lose some or all of their investment and our business may fail.
 
Our principal sources of funds have been from sales of our common stock and loans from affiliates.
 
 
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MANAGEMENT OF AE
 
  Information Regarding Directors and Executive Officers of AE
 
The following information is as of ____________, 2011, with respect to those persons who are expected to serve as AE’s directors and executive officers following the Separation.  Prior to completing the Separation, CMGO, as sole stockholder of AE, will elect the __________ individuals listed below under “—Directors” to the board of directors of AE effective upon the Separation.  The board of directors of AE is thereafter expected to name the individuals listed below under “—Executive Officers” to serve as AE’s executives in the capacities listed below.
 
Name
 
Age
 
Director/Position
Edward Withrow
 
47
 
Director
Nathaniel Bradley
 
36
 
Director, Chief Executive Officer
Sean Bradley
 
31
 
Director, Chief Technical Officer
         
  Directors
 
Edward Withrow : Mr. Withrow has over 20 years of experience as a financier, broker, manager, marketer and developer of innovations in various industries wherein he has developed an expertise in finding small undervalued and underfunded companies and building them up through his leadership in strategic initiatives and business development activities. Mr. Withrow is best described as an entrepreneur. In 2000 Mr. Withrow founded Huntington Chase Financial Group, LLC and Huntington Chase, Ltd. to engage in venture capital, private equity and merchant banking activities. From 2000 until the present Mr. Withrow acquired, restructured, merged, created and was a senior advisor to approximately 10 companies. In 2002 Mr. Withrow became the CEO of Reward Enterprises, Inc a public company and early adopter of VoIP telecommunications in the international market with operations in North Africa and India. Mr. Withrow founded Symphony Card, LLC a stored value debit card targeting the West African nation of Nigeria. In 2004 Mr. Withrow became the CEO of Addison-Davis Diagnostics, Ltd, a leading edge point-of-care diagnostic company. In 2005 he was the President of The Cabo Group, Ltd a publicly traded distiller, marketer and distributer of premium tequilas.  The Cabo Group owned a distiller in Tequila Mexico named Fabrica de Tequilas Finos S.A. de C.V. and distributed its 9 brands in North America and around the globe.  In 2006 Mr. Withrow became the President and CEO of Montecito Bio Sciences, Ltd. a multi-faceted diagnostic company.  In 2008 Mr. founded Ecologic Transportation, Inc a publicly traded company and is presently its Chairman.  Mr. Withrow founded Parallax Diagnostics, Inc a fully reporting company headquartered in Cambridge, Mass that has developed certain novel tests for the treatment of AIDS, HIV & TB and proprietary processes in the area of infectious disease diagnostics. Mr. Withrow was a founder of Eaton Scientific Systems, Ltd a bio-technology company that has developed a non-hormonal treatment for women in menopause and post cancer treatments and is the author of patents in the area of life sciences and medical devise diagnostics.
 
Mr. Withrow is married with one child and lives in Los Angeles, CA area.  He works with Planet Hope a Los Angeles based foundation that works with abused children and battered women.
 
Nathaniel Bradley: Mr. Bradley is a recognized pioneer and active expert in the new media Internet technology sector. He is the named inventor of several Internet technology patents and patents pending with United States Patent & Trademark Office. Over the past decade, Mr. Bradley has been involved in the expansion, reduction to practice, mass commercialization, and enforcement of Augme's foundational Internet patents related to the customization of Internet content to end users in addition to AE’s patent portfolio and mobile device and Internet navigation technology.
 
 
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Mr. Bradley has served as Chief Technology and Product Officer of Augme Technology, Inc. from 2005 to the present and as Chief Executive Officer of AE from 2003 to the present.
 
Prior to Augme Technologies, Mr. Bradley was Chairman of the Board of Modavox®, founder and CEO of Kino Digital, Kino Communications and Kino Interactive.
 
Sean Bradley: Mr. Bradley helped co-found several technology companies, including Kino Digital, LLC and Kino Communications, LLC, from 1999-2005.  Currently, Mr. Bradley serves as Executive Vice President-Product Development of Augme Technologies, Inc. from 2005 to present and Vice President-Product Development of AE from 2003 to the present.
 
Mr. Bradley obtained his B.A. from Arizona International College at the University of Arizona, graduating Summa Cum Laude and with highest academic distinction for all 8 undergraduate semesters.  Over the past nine years, he has led an international team of software developers, has produced global webcasting technologies, and is planning, designing and managing the fulfillment of Augme’s Intellectual Property assets, including the next generation of Internet software (Saas technology).  Mr. Bradley is proficient in several programming and web development languages and has engineered online communications systems for IBM, General Dynamics, Avnet and many others.  Mr. Bradley currently oversees a collection of over 30 offshore project managers, designers, developers and programmers.
 
Nathaniel Bradley and Sean Bradley are brothers.
 
  Committees of the Board of Directors
 
Following the Separation, the standing committees of AE’s board of directors will consist of Audit and Compensation.  The members of these standing committees will be appointed by and will serve at the discretion of the board of directors of AE.
 
Audit Committee .  The Audit Committee is expected to be responsible for overseeing AE’s accounting and financial reporting processes.  In addition, the Audit Committee will be responsible for periodically discussing AE’s policies for the assessment and management of risks to AE that could materially and adversely impact AE’s financial position or operating results, or the financial reporting of the same, with management and AE’s internal auditors and independent accountants, as well as AE’s plans to monitor, control and minimize risks pursuant to such policies.  The Audit Committee will also be responsible for primary risk oversight relating to AE’s financial reporting, accounting and internal controls, and will oversee risks relating to insurance matters (including AE’s self-insurance programs), general and professional liability and workers’ compensation.
 
Compensation Committee .  The Compensation Committee will oversee and determine the compensation of AE’s Chief Executive Officer and other executive officers, including salaries, bonuses, grants of stock options and other forms of equity-based compensation, approve all employment and severance agreements for executive officers, approve significant changes to benefit plans and perform such other functions as the board of directors of AE may direct.  The Compensation Committee will also administer AE’s stock incentive plans and make recommendations to the board of directors of AE concerning the compensation of the directors.
 
It is expected that the Compensation Committee will take into account recommendations of AE’s Chief Executive Officer, in determining the compensation (including stock awards) of executive officers other than the Chief Executive Officer.  Otherwise, it is not expected that AE’s officers will have any role in determining the form or amount of compensation paid to the executive officers of AE.  In addition, the Compensation Committee will retain the power to appoint and delegate matters to a subcommittee but any such subcommittee does not have final decision-making authority on behalf of the Committee.  The Compensation Committee is not currently expected to appoint or delegate any matters to a subcommittee.  The Compensation Committee will meet as necessary to formulate its compensation decisions.  Such meetings may include one or more of AE’s executive officers or consultants retained by the Compensation Committee.
 
 
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Stockholder and Interested Party Communications with Directors
 
Following the Separation, AE stockholders may send written communications to AE’s board of directors or to specified individual directors on the board, c/o AE’s Secretary at 875 North Michigan Avenue, Chicago, IL 60601.  All mail received will be opened and communications that relate to matters that are within the scope of the responsibilities of the board of directors, other than solicitations, junk mail and frivolous or inappropriate communications, will be forwarded to the Chairman of AE’s board of directors or any specified individual director, as applicable.  If the correspondence is addressed to AE’s board of directors, the Chairman will distribute it to the other board members if he determines it is appropriate for the board to review.
 
DIRECTOR COMPENSATION—FISCAL 2010
 
Members of the Board of Directors of CMGO do not normally receive cash compensation for their services as directors, although some directors are reimbursed for reasonable expenses incurred in attending board or committee meetings.  It is expected that members of the board of directors of AE who are not employees will receive the grant of equity compensation in amounts to be determined.
 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
The board of directors of AE is expected to adopt a written Related Person Transaction Policy prior to completion of the Separation.  The purpose of these policies will be to describe the procedures used to identify, review, approve and disclose, if necessary, any transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which (i) AE, was, is or will be a participant, (ii) the aggregate amount involved exceeds $120,000 and (iii) a related person has or will have a direct or indirect interest.  For purposes of these policies, a related person is (i) any person who is, or at any time since the beginning of AE’s, as applicable, last fiscal year was, an executive officer, director or director nominee of such company, (ii) any person who is known to be the beneficial owner of more than 5% of such company’s common stock, (iii) any immediate family member of any of the foregoing persons, or (iv) any firm, corporation or other entity in which any of the foregoing persons is employed or is a general partner or principal or in a similar position, or in which all the related persons, in the aggregate, have a 10% or greater beneficial interest.
 
It is expected that under these policies, the Audit Committee of AE will be responsible for reviewing, approving or ratifying each related person transaction or proposed transaction.  In determining whether to approve or ratify a related person transaction, the Audit Committee would consider all relevant facts and circumstances of the related person transaction available to the Audit Committee and would approve only those related person transactions that are in, or not inconsistent with, the best interests of AE and its respective stockholders, as the Audit Committee determines in good faith.  No member of the Audit Committee would be permitted to participate in any consideration of a related person transaction with respect to which that member or any of his or her immediate family is a related person.
 
In addition, there will be an ongoing relationship between AE and CMGO following the Separation.  See “Relationship Between AE and CMGO After the Separation.”
 
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
As of the date hereof, all of the outstanding shares of common stock of AE are owned by CMGO.  None of the persons expected to become the directors or executive officers of AE currently owns any common stock of AE.  However, if the persons who become the directors or executive officers of AE own shares of CMGO common stock as of the record date for the Separation, those persons will receive a distribution of shares of AE common stock in the Separation.  Additionally, Nathaniel and Sean Bradley are shareholders of AEAC and upon the consummation of the Share Exchange will secure shares of AE as a result thereof.
 
 
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The following table sets forth certain information regarding the beneficial ownership of CMGO common stock on __________________, 2011 for each of AE’s expected directors and executive officers who will become such as of the Separation.  None of the current directors and executive officers of CMGO will serve as directors and executive officers of AE.
 
Title of Class
 
Name
 
Shares
 
Percentage
Common
 
Edward Withrow
 
-
 
-
Common
 
Nathaniel Bradley
 
106,544
 
0.16%
Common
 
Sean Bradley
 
24,946
 
0.04%

The following table sets forth certain information regarding the beneficial ownership of AE common stock as if the separation took place June 30, 2011, for each of AE’s expected directors and executive officers who will become such as of the Separation.
 
Title of Class
 
Name
 
Shares
 
Percentage
Common
 
Nathaniel Bradley
 
6,000,000(1)
 
20%
Common
 
Sean Bradley
 
6,000,000
 
20%
Common
 
Edward Withrow
 
1,200,000
 
4%
             
(1) Does not include any shares which may be issuable upon conversion of AE’s promissory note in favor of Mr. Bradley.
MARKET PRICES AND RELATED STOCKHOLDER MATTERS
 
Market Prices of CMGO Common Stock
 
CMGO common stock is listed and traded on the OTC Market under the symbol “CMGO.” The following tables set forth, for the respective periods of CMGO indicated, the high and low sale prices per share of CMGO common stock.  These prices represent inter-dealer quotations without retail markup, markdown or commission and may not necessarily represent actual transactions.
 
   
High
   
Low
 
Fiscal Year Ended December 31, 2009
           
First Quarter
    0.20       0.03  
Second Quarter
    0.12       0.03  
Third Quarter
    0.15       0.04  
Fourth Quarter
    0.19       0.05  
                 
Fiscal Year Ended December 31, 2010
               
First Quarter
    0.15       0.03  
Second Quarter
    0.09       0.01  
Third Quarter
    0.09       0.01  
Fourth Quarter
    0.35       0.05  
                 
Fiscal Year Ending December 31, 2011
               
First Quarter
    0.09       0.09  
Second Quarter
    0.03       0.03  
Third Quarter
    0.05       0.03  
                 
 
The market price of shares of CMGO common stock is subject to fluctuation.  As a result, CMGO stockholders are urged to obtain current market quotations.  On ____________, 2011, there were __________ shares of CMGO common stock outstanding held by approximately ______ holders of record.  It is expected that the shares of CMGO common stock will continue to be traded on the OTC and, at some date after completion of the Separation, AE common stock will trade on the OTCQB, the OTC Bulletin Board or the new BX Venture Market established by NASDAQ.
 
 
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Market Information Regarding AE
 
CMGO cannot accurately predict the market price of AE common stock to be received by CMGO stockholders after the completion of the Separation.  The historical trading prices of CMGO common stock are not necessarily indicative of the future trading prices of AE common stock because the current stock price of CMGO reflects the current market valuation of CMGO’s current business and assets and does not necessarily take into account the changes in CMGO’s business and operations that will occur in connection with the Separation.  See “Risk Factors” for a discussion of factors that may affect the market price of AE common stock following the Separation.
 
Restrictions on Sale of AE to be Received in Connection with the Separation
 
Shares of AE common stock to be distributed in connection with the Separation will be freely transferable under the Securities Act, except for the restrictions on transfer and ownership applicable to affiliates of AE.  Shares received in connection with the Separation by persons who may be deemed to be affiliates of AE may be sold, transferred or otherwise disposed of only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.  Persons who may be deemed to be affiliates of AE after the Separation generally include individuals or entities that control, are controlled by or are under common control with AE, as applicable, and may include certain of their officers, directors or principal stockholders.  The registration statement of which this proxy statement/prospectus forms a part does not cover the resale of shares of AE common stock to be received by their affiliates in the Separation.
 
DESCRIPTION OF AE CAPITAL STOCK
 
The following is a summary description of the material terms of AE’s capital stock as will be set forth in AE’s charter documents and that will govern the rights of holders of AE common stock if the Separation is completed.
 
While the following attempts to describe the material terms of AE’s capital stock, the description may not contain all of the information that is important to you.  You are encouraged to read the full text of AE’s certificate of incorporation and bylaws, forms of which are included as exhibits to the registration statement of which this proxy statement/prospectus is a part, as well as the provisions of applicable Delaware law.
 
At the time of the Separation, AE’s authorized capital stock will consist of 100,000,000 shares of common stock, par value $0.001 per share, and 10,000,000 shares of preferred stock, par value $0.001 per share.  It is expected that AE will have 30,000,000 shares of common stock issued and outstanding upon completion of the Separation.  No shares of preferred stock of AE will be issued and outstanding at the time of the Separation.
 
Common Stock
 
All of the shares of AE common stock issued in the Separation will be duly authorized, fully paid and nonassessable.  Subject to the relative rights, limitations and preferences of the holders of any then outstanding preferred stock, holders of AE common stock will be entitled to certain rights, including (i) to share ratably in dividends if, when and as declared by AE’s board of directors out of funds legally available therefor and (ii) in the event of liquidation, dissolution or winding up of AE, to share ratably in the distribution of assets legally available therefor, after payment of debts and expenses.  Each outstanding share of AE common stock will entitle the holder to one vote on all matters submitted to a vote of the stockholders, including the election of directors, and the holders of shares of AE common stock will possess the exclusive voting power.  The holders of AE common stock will not have cumulative voting rights in the election of directors or preemptive rights to subscribe for additional shares of AE capital stock.  AE’s bylaws require that, in uncontested elections, each director be elected by the majority of votes cast with respect to such director.  This means that the number of shares voted “for” a director nominee must exceed the number of votes cast “against” that nominee in order for that nominee to be elected.
 
 
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Holders of shares of AE common stock will have no preference, conversion, exchange, sinking fund, redemption or appraisal rights.  The rights, preferences and privileges of holders of AE common stock will be subject to the terms of any series of preferred stock which AE may issue in the future.
 
Preferred Stock
 
Following the Separation, the board of directors of AE will have the authority, within the limitations and restrictions stated in its certificate of incorporation, to authorize the issuance of shares of preferred stock, in one or more classes or series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, preemptive rights and the number of shares constituting any series or the designation of such series.  The issuance of preferred stock could have the effect of decreasing the market price of AE common stock and could adversely affect the voting and other rights of the holders of AE common stock.  AE has no current plans to issue any shares of preferred stock.
 
Anti-Takeover Effect of Delaware Law and AE’s Certificate of Incorporation and Bylaws
 
If the Separation is completed, AE will be governed by the DGCL.  Certain provisions of the DGCL and AE’s certificate of incorporation and bylaws that will be effective if the Separation is completed could make more difficult the acquisition of AE by means of a tender offer, a proxy contest or otherwise.
 
Vacancies on Board of Directors
 
AE’s certificate of incorporation will provide that any newly created directorships resulting from any increase in the authorized number of directors or any vacancies resulting from death, resignation, retirement, disqualification, removal from office or other cause will be filled solely by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the board.
 
Stockholder Meetings
 
Under AE’s certificate of incorporation and subject to the rights of holders of preferred stock, if any, only a majority of the members of the board of directors, the chairman of the board of directors or the Chief Executive Officer may call special meetings of stockholders.  This provision will make it more difficult for stockholders to take action opposed by the board of directors.
 
Authorized but Unissued Shares
 
AE’s authorized but unissued shares of common stock will be available for future issuance without stockholder approval.  AE may issue additional shares for a variety of corporate purposes, including future public offerings to raise additional capital, corporate acquisitions and employee benefit plans.  The existence of authorized but unissued shares of common stock could render more difficult or discourage an attempt to obtain control of AE by means of a proxy contest, tender offer, merger or otherwise.
 
The overall effect of the foregoing provisions may be to deter a future tender offer.  AE stockholders might view such an offer to be in their best interest should the offer include a substantial premium over the market price of AE common stock at that time.  In addition, these provisions may have the effect of assisting AE’s management to retain its position and place it in a better position to resist changes that the stockholders may want to make if dissatisfied with the conduct of the business of AE.
 
 
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Business Combinations
 
AE is subject to Section 203 of the DGCL, which regulates corporate acquisitions.  In general, Section 203 prohibits a publicly held Delaware corporation from engaging in a business combination with an interested stockholder for a period of three years following the date the person became an interested stockholder, unless:
 
·  
the board of directors approved the transaction in which the stockholder became an interested stockholder prior to the date the interested stockholder attained such status;
 
·  
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholders owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding shares owned by persons who are directors and also officers and employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
 
·  
the business combination is approved by a majority of the board of directors and by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder.
 
Trading
 
AE expects that, at some date following completion of the Separation, the shares of AE common stock will trade on the OTCQB, the OTC Bulletin Board or the new BX Venture Market operated by NASDAQ.
 
Indemnification of Directors and Executive Officers
 
As authorized by Section 102(b)(7) of the DGCL, AE’s certificate of incorporation will provide that a director of AE will not be liable to AE or its stockholders for monetary damages for breach of fiduciary duty as a director except to the extent such exemption for liability or limitation thereof is not permitted under the DGCL.  The DGCL provides that the liability of a director may not be limited (i) for any breach of the director’s duty of loyalty to AE or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for liability for payments of dividends or for stock purchases or redemptions in violation of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.
 
While the certificate of incorporation will provide directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate such duty.  Accordingly, the certificate of incorporation will have no effect on the availability of equitable remedies, such as an injunction or rescission based on a director’s breach of such director’s duty of care.
 
In addition, AE’s bylaws will provide that AE will indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director of AE or an officer of AE elected by its board of directors or, while a director of AE or an officer of AE elected by its board of directors, is or was serving at the request of AE as a director, officer, employee or agent of another company or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person.  Notwithstanding the preceding sentence, except as otherwise provided in the bylaws, AE will be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized by the board of directors of AE.
 
 
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AE will enter into indemnification agreements with each of its executive officers and directors providing for the indemnification of, and advancement of expenses to, each such person in connection with claims, suits or proceedings arising as a result of such person’s service as an officer or director of AE.  AE also will maintain directors’ and officers’ liability insurance policies insuring directors and officers of AE for certain covered losses as defined in the policies.
 
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of AE pursuant to the foregoing provisions, AE has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
 
LEGAL MATTERS
 
The validity of the shares of AE common stock to be issued in the Separation will be passed upon by TroyGould PC.
 
EXPERTS
 
The financial statements of CMG Holdings Group, Inc. as of December 31, 2010 and 2009 and for the years then ended incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2010 have been so incorporated in reliance on the report of MaloneBailey, LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
 
OTHER MATTERS
 
As of the date of this proxy statement/prospectus, the board of directors of CMGO is not aware of any business to be acted upon at the special meeting of CMGO stockholders other than as described in this proxy statement/prospectus.  If any other matters should properly come before the special meeting, or any adjournment or postponement thereof, the persons named in the proxy will have discretion to vote on such other matters in accordance with their best judgment.
 
WHERE YOU CAN FIND MORE INFORMATION
 
CMGO files annual, quarterly and current reports, proxy statements and other information with the SEC.  You may read and copy any reports, statements or other information filed by CMGO at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C.  20549.  Please call the SEC at 1-800-SEC-0330 for further information on the operation of the Public Reference Room.  You may also obtain copies of this information by mail from the Public Reference Section of the SEC, 100 F Street, N.E., Washington, D.C.  20549, at prescribed rates, or from commercial document retrieval services.
 
The SEC maintains a website that contains reports, proxy statements and other information, including those filed by CMGO, at www.sec.gov.  You may also access the SEC filings and obtain other information about CMGO at its website, www.creativemanagementgroup.com.  The information contained in those websites is not incorporated by reference into this proxy statement/prospectus.
 
AE has filed a registration statement on Form S-1 to register the shares of stock to be distributed in connection with the Separation.  This proxy statement/prospectus is part of the registration statement of AE and is a prospectus of AE and a proxy statement of CMGO for the special meeting.  This proxy statement/prospectus incorporates important information about CMGO from documents filed with the SEC that are not included in or delivered with this proxy statement/prospectus.  The SEC permits CMGO to “incorporate by reference” certain information required to be included in this proxy statement/prospectus by referring you to another document filed separately with the SEC.
 
 
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The information incorporated by reference is deemed to be part of this proxy statement/prospectus, except for any information superseded by information in this proxy statement/prospectus.  This proxy statement/prospectus incorporates by reference the documents set forth below that CMGO has previously filed with the SEC:
 
·  
CMGO’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010;
 
·  
CMGO’s Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31 and June 30, 2011; and
 
·  
CMGO’s Current Reports on Form 8-K filed on June 24, 2011 (with respect to Item 1.02 and the corresponding exhibit filed under Item 9.01 only), and May 16, 2011 (with respect to Item 1.02 and the corresponding exhibit filed under Item 9.01 only).
 
With respect to the registration statement on Form S-1 filed with the SEC to register under the Securities Act the distribution of shares of AE common stock in the Separation, of which this proxy statement/prospectus forms a part, this proxy statement/prospectus also incorporates by reference the documents filed by CMGO pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this proxy statement/prospectus to the date of the special meeting (other than Current Reports on Form 8-K containing disclosure furnished under Items 2.02 or 7.01 of Form 8-K, unless otherwise indicated therein).
 
You may request a copy of these filings at no cost by writing or telephoning CMGO at:
 
CMG Holdings Group, Inc.
5601 Biscayne Boulevard
Miami, Florida 33137
Attention: Investor Relations

To obtain timely delivery of such information, you must request such information no later than _____________, 2011.
 
Any statements made in a document incorporated by reference in this proxy statement/prospectus are deemed to be modified or superseded for purposes of this proxy statement/prospectus to the extent that a statement in this proxy statement/prospectus or in any other subsequently filed document, which is also incorporated by reference, modifies or supersedes the statement.  Any statement made in this proxy statement/prospectus is deemed to be modified or superseded to the extent a statement in any subsequently filed document, which is incorporated by reference in this proxy statement/prospectus, modifies or supersedes such statement.  Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this proxy statement/prospectus.
 
 
 
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PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13. Other Expenses of Issuance and Distribution.
 
The following is a statement of the expenses to be incurred by AE in connection with the distribution of the securities registered under this registration statement. All amounts are estimated except the SEC registration fee.
 
Item
 
Amount
 
SEC Registration Fee
  $ 5.00  
Printing Fees and Expenses
    10,000.00  
Accounting Fees and Expenses
    35,000.00  
Legal Fees and Expenses
    50,000.00  
Transfer Agent Fees
    5,000.00  
Miscellaneous
    5,000.00  
Total
  $ 105,005.00  
         
 
Item 14. Indemnification of Directors and Officers.
 
As authorized by Section 102(b)(7) of the DGCL, AE’s certificate of incorporation will provide that a director of AE will not be liable to AE or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption for liability or limitation thereof is not permitted under the DGCL. The DGCL provides that the liability of a director may not be limited (i) for any breach of the director’s duty of loyalty to AE or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for liability for payments of dividends or for stock purchases or redemptions in violation of the DGCL, or (iv) for any transaction from which the director derived an improper personal benefit.
 
While the certificate of incorporation will provide directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate such duty. Accordingly, the certificate of incorporation will have no effect on the availability of equitable remedies, such as an injunction or rescission based on a director’s breach of such director’s duty of care.
 
In addition, AE’s bylaws will provide that AE will indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (a “Covered Person”) who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director of AE or an officer of AE elected by its board of directors or, while a director of AE or an officer of AE elected by its board of directors, is or was serving at the request of AE as a director, officer, employee or agent of another company or of a partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys’ fees) reasonably incurred by such Covered Person. Notwithstanding the preceding sentence, except as otherwise provided in the bylaws, AE will be required to indemnify a Covered Person in connection with a proceeding (or part thereof) commenced by such Covered Person only if the commencement of such proceeding (or part thereof) by the Covered Person was authorized by the board of directors of AE.
 
AE will maintain directors’ and officers’ liability insurance policies insuring directors and officers of AE for certain covered losses as defined in the policies.
 
 
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Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of AE pursuant to the foregoing provisions, AE has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
 
Item 15. Recent Sales of Unregistered Securities.
 
None.
 
Item 16. Exhibits and Financial Statement Schedules.
 
The following exhibits are filed herewith or incorporated herein by reference.
 
Exhibit No.
 
Description
3.1
 
Form of Certificate of Incorporation of AudioEye, Inc.
3.2
 
Form of Bylaws of AudioEye, Inc.
5.1
 
Opinion of TroyGould PC regarding the validity of the securities being registered
10.1
 
Master Agreement dated as of June 22, 2011 between CMG Holdings Group, Inc. and AudioEye Acquisition Corp.
10.2
 
Form of Royalty Agreement between CMG Holdings Group, Inc. and AudioEye, Inc.
10.3
 
Form of Services Agreement between CMG Holdings Group, Inc. and AudioEye, Inc.
23.1
 
Consent of MaloneBailey, LLP
23.2
 
Consent of TroyGould PC (included in Exhibit 5.1, above)
99.1
 
Form of CMG Holdings Group, Inc. Proxy Card
     
Item 17. Undertakings.
 
(a)           The undersigned Registrant hereby undertakes:
 
(1)           To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement:
 
(i)           to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
 
(ii)           to reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective Registration Statement; and
 
(iii)           To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement.
 
 
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(2)           That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment will be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time will be deemed to be the initial bona fide offering thereof.
 
(3)           To remove from registration by means of a post-effective amendment any of the securities being registered, which remain unsold at the termination of the offering.
 
(4)           That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
 
(i)           If the Registrant is relying on Rule 430B:
 
(A)           Each prospectus filed by the Registrant pursuant to Rule 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
 
(B)           Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5) or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii) or (x) for the purpose of providing the information required by Section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
 
(ii)           If the Registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
 
(5)           That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
 
(i)           Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424;
 
 
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(ii)           Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant;
 
(iii)           The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and
 
(iv)           Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser.
 
(b)           The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant’s annual report pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan’s annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
 
(c)           Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
 
 
 
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SIGNATURES
 
Pursuant to the requirements of the Securities Act, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Chicago, State of Illinois, on October 21, 2011.
 
 
AUDIOEYE, INC.
   
   
 
By:        /s/ Nathaniel T. Bradley  
 
Name:         Nathaniel T. Bradley
 
Title:           President and Chief Operating Officer
   
   
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the date indicated.
 
Signature
 
Title
 
Date
         
/s/ Nathaniel T. Bradley
 
President and Chief Operating Officer
 
October 21, 2011
Nathaniel T. Bradley
 
(Principal Executive Officer)
   
         
         
/s/ Sean Bradley
 
Chief Technical Officer and Director
 
October 21, 2011
Sean Bradley
       
         
         
/s/ Edward Withrow III
 
Director
 
October 21, 2011
Edward Withrow III
       
         
         
         
The foregoing constitutes all of the members of the board of directors of AudioEye, Inc.
 
 
 
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Exhibit 3.1 Certificate of Incorporation

State of Delaware
Secretary of State
Division of Corporations
Delivered 05:43 PM 05/20/2005
FILED 05:43 PM 05/20/2005
SRV 050420390 - 3974015 FILE


CERTIFICATE OF INCORPORATION
 
OF
 
AUDIOEYE, INC.
 
Pursuant to § 102 of the General Corporation Law
 
of the State of Delaware
 
The undersigned, in order to form a corporation pursuant to Section 102 of the General Corporation Law of the State of Delaware, does hereby certify:
 
FIRST:   The name of the Corporation is “AudioEye, Inc.”
 
SECOND:   The address of the Corporation’s registered office in the State of Delaware is 160 Greentree Drive, Suite 101, in the City of Dover, County of Kent, Delaware.  The name of its registered agent at such address is National Registered Agents, Inc.
 
THIRD:   The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
 
FOURTH:   The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 2,500,000, of which 2,000000 shares shall be Common Stock of the par value of $.00001 per share and 500,000 shares shall be Preferred Stock of the par value of $.00001 per share.
 
A.            Preferred Stock .  The Board of Directors is expressly granted authority to issue shares of the Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a ‘Preferred Stock Designation”) and as may be permitted by the General Corporation Law of the State of Delaware.  The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof; unless a vote of any such holders is required pursuant to any Preferred Stock Designation.
 
B.            Common Stock .  Except as otherwise required by law or as otherwise provided in any Preferred Stock Designation, the holders of the Common Stock shall exclusively possess all voting power.  The powers, preferences and rights of the shares of Common Stock are as follows:
 
1.            Dividends .  The holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of Common Stock.
 
 
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2.            Voting Rights .  At every annual or special meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in his name on the books of the Corporation.
 
3.            Dissolution, Liquidation or Winding-Up .  In the event of any dissolution, liquidation or winding-up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Corporation.
 
FIFTH:   The name and mailing address of the Incorporator is as follows:
 
Name
 
Mailing Address
Constantine S. Potamianos
 
c/u Greenberg Traurig
MetLife Building
200 Park Avenue – 14th Floor
New York, New York 10166
 
SIXTH:   The Board of Directors is expressly authorized to adopt, amend or repeal the By-Laws of the Corporation.
 
SEVENTH:   Elections of directors need not be by written ballot unless the by-laws of the Corporation shall otherwise provide.
 
EIGHTH:   A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director; provided , however , that the foregoing shall not eliminate or limit the liability of a director (1) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the General Corporation Law of the state of Delaware, or (iv) for any transaction from which the director derived an improper personal benefit.
 
NINTH:   Except as may otherwise be specifically provided in this Certificate of Incorporation, no provision of this Certificate of Incorporation is intended by the Corporation to be construed as limiting, prohibiting, denying or abrogating any of the general or specific powers or rights conferred under the General Corporation Law of the State of Delaware upon the Corporation, upon its stockholders, bondholders and security holders, and upon its directors, officers and other corporate personnel, including, in particular, the power of the Corporation to furnish indemnification to directors and officers in the capacities defined and prescribed by the General Corporation Law of the State of Delaware and the defined and prescribed rights of said persons to indemnification as the same are conferred wider the General Corporation Law of the State of Delaware.  The Corporation shall, to the fullest extent permitted by the laws of the State of Delaware, including, but not limited to Section 145 of the General Corporation Law of the State of Delaware, as the same may be amended and supplemented, indemnify any and all directors and officers of the Corporation and may, in the discretion of the board of directors, indemnify any and all other persons whom it shall have power to indemnify under said Section or otherwise under Delaware law from and against any and all of the expenses, liabilities or other matters referred to or covered by said Section.  The indemnification provisions contained in the General Corporation Law of the State of Delaware shall not be deemed exclusive of any other rights to winch those indemnified may be entitled under any By-Law, agreement, resolution of stockholders or disinterested directors, or otherwise, and shall continue as to a person who has ceased to be a director, officer, employee or agent, both as to action in his official capacity and as to action in another capacity while holding such office, and shall inure to the benefit of the heirs, executors and administrators of such person.
 
TENTH:   Whenever a compromise or arrangement is proposed between this Corporation and its creditors or any class of them and/or between this Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of this Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for this Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for this Corporation wider the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, to be summoned in such manner as the said court directs.  If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of this Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of this Corporation as a consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which said application has been made, be binding on all the creditors or class of creditors, and/or on all of the stockholders or class of stockholders, of this Corporation, as the case may be, and also on this Corporation.
 
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ELEVENTH:   The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservations
 
IN WITNESS WHEREOF , I have hereunto set my band this 20th day of May 2005 and I affirm that the foregoing certificate is my act and deed and that the facts stated therein are true.
 

 
Constantine S. Potamianos, Incorporator

 
 
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Exhibit 3.2 Amended Certificate of Incorporation
State of Delaware
Secretary of State
Division of Corporations
Delivered 02:48 PM 03/30/2010
FILED 01:01 PM 03/30/2010
SRV 100331350 - 3974015 FILE


CERTIFICATE OF AMENDMENT
 
OF THE
 
CERTIFICATE OF INCORPORATION
 
OF
 
AUDIOEYE, INC.
 
(a Delaware corporation)
 
The undersigned, Nathan Bradley, hereby certifies that:
 
1.           He is the President and Chief Executive Officer of AudioEye, Inc. (the “Corporation”), a Delaware corporation, and is duly authorized by the unanimous written consent of the Board of Directors of the Corporation to execute this instrument.
 
2.           The present name of the Corporation is “AudioEye, Inc.” The Corporation filed its Certificate of Incorporation with the Secretary of State of the State of Delaware on May 20, 2005.
 
3.           This Certificate of Amendment of the Certificate of Incorporation was duly approved by the Corporation’s Board of Directors and duly adopted by written consent of the stockholders of the Corporation in accordance with the applicable provisions of Sections 228 and 242 of the General Corporation Law of the State of Delaware.
 
4.           The Fourth Article of the Certificate of Incorporation of the Corporation is hereby amended to read in its entirety as follows:
 
FOURTH : The total number of shares of all classes of capital stock which the Corporation shall have authority to issue is 4,500,000, of which 4,000,000 shares shall be Common Stock of the par value of $.0000 1 per share and 500,000 shares shall be Preferred Stock of the par value of 5.00001 per share.
 
A.            Preferred Stock .  The Board of Directors is expressly granted authority to issue shares of the Preferred Stock, in one or more series, and to fix for each such series such voting powers, full or limited, and such designations, preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof as shall be stated and expressed in the resolution or resolutions adopted by the Board of Directors providing for the issue of such series (a “Preferred Stock Designation”) and as may be permitted by the General Corporation Law of the State of Delaware.  The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors (the “Voting Stock”), voting together as a single class, without a separate vote of the holders of the Preferred Stock, or any series thereof, unless a vote of any such holders is required pursuant to any Preferred Stock Designation.
 
B.            Common Stock .  Except as otherwise required by law or as otherwise provided in any Preferred Stock Designation, the holders of the Common Stock shall exclusively possess all voting power.  The powers, preferences and rights of the shares of Common Stock are as follows:
 
1.            Dividends .  The holders of shares of Common Stock shall be entitled to receive, when and if declared by the Board of Directors, out of the assets of the Corporation which are by law available therefor, dividends payable either in cash, in property, or in shares of Common Stock.
 
2.            Voting Rights .  At every annual or special meeting of stockholders of the Corporation, every holder of Common Stock shall be entitled to one vote, in person or by proxy, for each share of Common Stock standing in his name on the books of the Corporation.
 
3.            Dissolution, Liquidation or Winding-Up .  In the event of any dissolution, liquidation or winding-up of the affairs of the Corporation, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of all outstanding shares of Common Stock shall be entitled to share ratably in the remaining net assets of the Corporation.”
 
IN WITNESS WHEREOF , the Corporation has caused this Certificate of Amendment of the Certificate of Incorporation to be executed this 12th day of February 2010.
 
 
By:   /s/Nathaniel T. Bradley ______________                                                               
Name:Nathaniel T. Bradley
Title:President and Chief Executive Officer
 
Exhibit 3.2 - By-Laws
 
BY-LAWS
 
OF
 
AUDIOEYE, INC.
 
(a Delaware corporation)
 
 
 
ARTICLE I
 
Offices
 
SECTION 1.   Registered Office .  The registered office of the Corporation within the State of Delaware shall be in the City of Dover, County of Kent.
 
SECTION 2.   Other Offices .  The Corporation may also have an office or offices other than said registered office at such place or places, either within or without the State of Delaware, as the Board of Directors shall from time to time determine or the business of the Corporation may require.
 
ARTICLE II
 
Stockholders
 
SECTION 1.   Place of Meetings .  All meetings of the stockholders for the election of directors or for any other purpose shall be held at any such place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of meeting or in a duly executed waiver thereof.
 
SECTION 2.   Annual Meeting .  The annual meeting of stockholders shall be held at such date and time as shall be designated from time to time by the Board of Directors and stated in the notice of meeting.  At such annual meeting, the stockholders shall elect, by a plurality vote, a Board of Directors and transact such other business as may properly be brought before the meeting.
 
SECTION 3.   Special Meetings .  Special meetings of stockholders, unless otherwise prescribed by statute, may be called at any time by the Board of Directors or the Chairman of the Board, if one shall have been elected, or the Chief Executive Officer, if one shall have been elected, or the President.
 
SECTION 4.   Notice of Meetings .  Except as otherwise expressly required by statute, written notice of each annual and special meeting of stockholders stating the date, place and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be given to each stockholder of record entitled to vote thereat not less than ten nor more than sixty days before the date of the meeting.  Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice.  Notice shall be given personally or by mail and, if by mail, shall be sent in a postage prepaid envelope, addressed to the stockholder at his address as it appears on the records of the Corporation.  Notice by mail shall be deemed given at the time when the same shall be deposited in the United States mail, postage prepaid.  Notice of any meeting shall not be required to be given to any person who attends such meeting, except when such person attends the meeting in person or by proxy for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened, or who, either before or after the meeting, shall submit a signed written waiver of notice, in person or by proxy.  Neither the business to be transacted at, nor the purpose of, an annual or special meeting of stockholders need be specified in any written waiver of notice.
 
 
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SECTION 5.   List of Stockholders .  The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten days before each meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city, town or village where the meeting is to be held, which place shall be specified in the notice of meeting, or, if not specified, at the place where the meeting is to be held.  The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present.
 
SECTION 6.   Quorum; Adjournments .  The holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for the transaction of business at all meetings of stockholders, except as otherwise provided by statute or by the Certificate of Incorporation.  If, however, such quorum shall not be present or represented by proxy at any meeting of stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented by proxy.  At such adjourned meeting at which a quorum shall be present or represented by proxy, any business may be transacted which might have been transacted at the meeting as originally called.  If the adjournment is for more than thirty days, or, if after adjournment a new record date is set, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
 
SECTION 7.   Organization .  At each meeting of stockholders, the Chairman of the Board, if one shall have been elected, or, in his absence or if one shall not have been elected, the Chief Executive Officer, if one shall have been elected, or, in his absence or if one shall not have been elected, the President shall act as chairman of the meeting.  The Secretary or, in his absence or inability to act, the person whom the chairman of the meeting shall appoint secretary of the meeting shall act as secretary of the meeting and keep the minutes thereof.
 
SECTION 8.   Order of Business .  The order of business at all meetings of the stockholders shall be as determined by the chairman of the meeting.
 
SECTION 9.   Voting .  Except as otherwise provided by statute or the Certificate of Incorporation, each stockholder of the Corporation shall be entitled at each meeting of stockholders to one vote for each share of capital stock of the Corporation standing in his name on the record of stockholders of the Corporation:
 
(a)           on the date fixed pursuant to the provisions of Section 7 of Article V of these By-Laws as the record date for the determination of the stockholders who shall be entitled to notice of and to vote at such meeting; or
 
(b)           if no such record date shall have been so fixed, then at the close of business on the day next preceding the day on which notice thereof shall be given, or, if notice is waived, at the close of business on the date next preceding the day on which the meeting is held.
 
Each stockholder entitled to vote at any meeting of stockholders may authorize another person or persons to act for him by a proxy signed by such stockholder or his attorney-in-fact, but no proxy shall be voted after three years from its date, unless the proxy provides for a longer period.  Any such proxy shall be delivered to the secretary of the meeting at or prior to the time designated in the order of business for so delivering such proxies.  When a quorum is present at any meeting, the vote of the holders of a majority of the voting power of the issued and outstanding stock of the Corporation entitled to vote thereon, present in person or represented by proxy, shall decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the Certificate of Incorporation or of these By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question.  Unless required by statute, or determined by the chairman of the meeting to be advisable, the vote on any question need not be by ballot.  On a vote by ballot, each ballot shall be signed by the stockholder voting, or by his proxy, if there by such proxy, and shall state the number of shares voted.
 
 
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SECTION 10.   Inspectors .  The Board of Directors may, in advance of any meeting of stockholders, appoint one or more inspectors to act at such meeting or any adjournment thereof.  If any of the inspectors so appointed shall fail to appear or act, the chairman of the meeting shall, or if inspectors shall not have been appointed, the chairman of the meeting may, appoint one or more inspectors.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector at such meeting with strict impartiality and according to the best of his ability.  The inspectors shall determine the number of shares of capital stock of the Corporation outstanding and the voting power of each, the number of shares represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots or consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate all votes, ballots or consents, determine the results, and do such acts as are proper to conduct the election or vote with fairness to all stockholders.  On request of the chairman of the meeting, the inspectors shall make a report in writing of any challenge, request or matter determined by them and shall execute a certificate of any fact found by them.  No director or candidate for the office of director shall act as an inspector of an election of directors.  Inspectors need not be stockholders.
 
SECTION 11.   Action by Consent .  Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of statute or of the Certificate of Incorporation or of these By-Laws, the meeting and vote of stockholders may be dispensed with, and the action taken without such meeting and vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares of stock of the Corporation entitled to vote thereon were present and voted.
 
ARTICLE III
 
Board of Directors
 
SECTION 1.   General Powers .  The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  The Board of Directors may exercise all such authority and powers of the Corporation and do all such lawful acts and things as are not by statute or the Certificate of Incorporation directed or required to be exercised or done by the stockholders.
 
SECTION 2.   Number, Qualifications, Election and Term of Office .  The number of directors constituting the initial Board of Directors shall be three (3).  Thereafter, the number of directors may be fixed, from time to time, by the affirmative vote of a majority of the entire Board of Directors or by action of the stockholders of the Corporation.  Any decrease in the number of directors shall be effective at the time of the next succeeding annual meeting of stockholders unless there shall be vacancies in the Board of Directors, in which case such decrease may become effective at any time prior to the next succeeding annual meeting to the extent of the number of such vacancies.  Directors need not be stockholders.  Except as otherwise provided by statute or these By-Laws, the directors (other than members of the initial Board of Directors) shall be elected at the annual meeting of stockholders.  Each director shall hold office until his successor shall have been elected and qualified, or until his death, or until he shall have resigned, or have been removed, as hereinafter provided in these By-Laws.
 
 
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SECTION 3.   Place of Meetings .  Meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, as the Board of Directors may from time to time determine or as shall be specified in the notice of any such meeting.
 
SECTION 4.   Annual Meeting .  The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable after each annual meeting of stockholders, on the same day and at the same place where such annual meeting shall be held.  Notice of such meeting need not be given.  In the event such annual meeting is not so held, the annual meeting of the Board of Directors may be held at such other time or place (within or without the State of Delaware) as shall be specified in a notice thereof given as hereinafter provided in Section 7 of this Article III.
 
SECTION 5.   Regular Meetings .  Regular meetings of the Board of Directors shall be held at such time and place as the Board of Directors may fix.  If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at the same hour on the next succeeding business day.  Notice of regular meetings of the Board of Directors need not be given except as otherwise required by statute or these By-Laws.
 
SECTION 6.   Special Meetings .  Special meetings of the Board of Directors may be called by the Chairman of the Board, if one shall have been elected, or by two or more directors of the Corporation, or by the Chief Executive Officer, if one shall have been elected, or by the President.
 
SECTION 7.   Notice of Meetings .  Notice of each special meeting of the Board of Directors (and of each regular meeting for which notice shall be required) shall be given by the Secretary as hereinafter provided in this Section 7, in which notice shall be stated the time and place of the meeting.  Except as otherwise required by these By-Laws, such notice need not state the purposes of such meeting.  Notice of each such meeting shall be mailed, postage prepaid, to each director, addressed to him at his residence or usual place of business, by first class mail, at least four days before the day on which such meeting is to be held, or shall be sent addressed to him at such place by telegraph, cable, telex, telecopier or other similar means, or be delivered to him personally or be given to him by telephone or other similar means, at least twenty-four hours before the time at which such meeting is to be held.  Notice of any such meeting need not be given to any director who shall, either before or after the meeting, submit a signed waiver of notice or who shall attend such meeting, except when he shall attend for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.
 
SECTION 8.   Quorum and Manner of Acting .  A majority of the entire Board of Directors shall constitute a quorum for the transaction of business at any meeting of the Board of Directors, and, except as otherwise expressly required by statute or the Certificate of Incorporation or these By-Laws, the act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board of Directors.  In the absence of a quorum at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn such meeting to another time and place.  Notice of the time and place of any such adjourned meeting shall be given to all of the directors unless such time and place were announced at the meeting at which the adjournment was taken, in which case such notice shall only be given to the directors who were not present thereat.  At any adjourned meeting at which a quorum is present, any business may be transacted which might have been transacted at the meeting as originally called.  The directors shall act only as a Board and the individual directors shall have no power as such.
 
SECTION 9.   Organization .  At each meeting of the Board of Directors, the Chairman of the Board, if one shall have been elected, or, in the absence of the Chairman of the Board or if one shall not have been elected, the Chief Executive Officer, or, in the absence of the Chief Executive Officer or if one shall not have been elected, the President (or, in his absence, another director chosen by a majority of the directors present) shall act as chairman of the meeting and preside thereat.  The Secretary or, in his absence, any person appointed by the chairman shall act as secretary of the meeting and keep the minutes thereof.
 
 
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SECTION 10.   Resignations .  Any director of the Corporation may resign at any time by giving written notice of his resignation to the Corporation, Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon its receipt.  Unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
 
SECTION 11.   Vacancies .  Any vacancy in the Board of Directors, whether arising from death, resignation, removal (with or without cause), an increase in the number of directors or any other cause, may be filled by the vote of a majority of the directors then in office, though less than a quorum, or by the sole remaining director or by the stockholders at the next annual meeting thereof or at a special meeting thereof.  Each director so elected shall hold office until his successor shall have been elected and qualified.
 
SECTION 12.   Removal of Directors .  Any director may be removed, either with or without cause, at any time, by the holders of a majority of the voting power of the issued and outstanding capital stock of the Corporation entitled to vote at an election of directors.
 
SECTION 13.   Compensation .  The Board of Directors shall have authority to fix the compensation, including fees and reimbursement of expenses, of directors for services to the Corporation in any capacity.
 
SECTION 14.   Committees .  The Board of Directors may, by resolution passed by a majority of the entire Board of Directors, designate one or more committees, including an executive committee, each committee to consist of one or more of the directors of the Corporation.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  Except to the extent restricted by statute or the Certificate of Incorporation, each such committee, to the extent provided in the resolution creating it, shall have and may exercise all the powers and authority of the Board of Directors and may authorize the seal of the Corporation to be affixed to all papers which require it.  Each such committee shall serve at the pleasure of the Board of Directors and have such name as may be determined from time to time by resolution adopted by the Board of Directors.  Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors.
 
SECTION 15.   Action by Consent .  Unless restricted by the Certificate of Incorporation, any action required or permitted to be taken by the Board of Directors or any committee thereof may be taken without a meeting if all members of the Board of Directors or such committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors or such committee, as the case may be.
 
SECTION 16.   Telephonic Meeting .  Unless restricted by the Certificate of Incorporation, any one or more members of the Board of Directors or any committee thereof may participate in a meeting of the Board of Directors or such committee by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other.  Participation by such means shall constitute presence in person at a meeting.
 
ARTICLE IV
 
Officers
 
SECTION 1.   Number and Qualifications .  The officers of the Corporation shall be elected by the Board of Directors and shall include the President, the Secretary and the Treasurer.  If the Board of Directors wishes, it may also elect as an officer of the Corporation a Chairman of the Board, a Chief Executive Officer and one or more Vice-Presidents, and may elect other officers (including one or more Assistant Treasurers and one or more Assistant Secretaries) as may be necessary or desirable for the business of the Corporation.  Any two or more offices may be held by the same person, and no officer except the Chairman of the Board need be a director.  Each officer shall hold office until his successor shall have been duly elected and shall have qualified, or until his death, or until he shall have resigned or have been removed, as hereinafter provided in these By-Laws.
 
 
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SECTION 2.   Resignations .  Any officer of the Corporation may resign at any time by giving written notice of his resignation to the Corporation.  Any such resignation shall take effect at the time specified therein or, if the time when it shall become effective shall not be specified therein, immediately upon receipt.  Unless otherwise specified therein, the acceptance of any such resignation shall not be necessary to make it effective.
 
SECTION 3.   Removal .  Any officer of the Corporation may be removed, either with or without cause, at any time, by the Board of Directors at any meeting thereof.
 
SECTION 4.   Chairman of the Board .  The Chairman of the Board, if one shall have been elected, shall be a member of the Board, an officer of the Corporation and, if present, shall preside at each meeting of the Board of Directors or the stockholders.  He shall advise and counsel with the Chief Executive Officer and the President, and in their absence with other executives of the Corporation, and shall perform such other duties as may from time to time be assigned to him by the Board of Directors.
 
SECTION 5.   The Chief Executive Officer .  The Board of Directors may elect a Chief Executive Officer to serve as the chief executive officer of the Corporation.  He shall, in the absence of the Chairman of the Board or if a Chairman of the Board shall not have been elected, preside at each meeting of the Board of Directors or the stockholders.  The Chief Executive Officer, subject to the direction of the Board of Directors, shall have general charge of the business, affairs, and property of the Corporation and general supervision over its other officers and agents.  In general, he shall perform all duties incident to the office of Chief Executive Officer and shall see that all orders and resolutions of the Board of Directors are carried into effect.  If there is no President, or in the case of his absence or inability to act, the Chief Executive Officer shall perform the duties of the President in addition to performing his duties as Chief Executive Officer.  The Chief Executive Officer shall make a report of the state of the business of the Corporation at each annual meeting of the stockholders and from time to time shall report to the stockholders and to the Board of Directors all matters within his knowledge which in his judgment the interests of the Corporation may require to be brought to their notice.  The Chief Executive Officer may sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts or other instruments, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board of Directors or by these By-laws to some other officer or agent of the Corporation or where any of them shall be required by law otherwise to be signed, executed or delivered.  The Chief Executive Officer may cause the seal of the Corporation to be affixed to any instrument which shall require it and shall perform such other duties as from time to time may be assigned to him by the Board of Directors.
 
SECTION 6.   The President .  The President shall be a general executive officer of the Corporation.  He shall, in the absence of the Chairman of the Board or Chief Executive Officer or if a Chairman of the Board or Chief Executive Officer shall not have been elected, preside at each meeting of the Board of Directors or the stockholders.  The President, subject to the direction of the Board of Directors and the Chief Executive Officer, shall have general charge of the business, affairs, and property of the Corporation and general supervision over its other officers and agents.  If there is no Chief Executive Officer, or in case of his absence or inability to act, the President shall perform the duties of the chief executive officer of the Corporation, and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer.  The President shall see that all orders and resolutions of the Board of Directors are carried into effect and may sign, execute and deliver in the name of the Corporation all deeds, mortgages, bonds, contracts and other instruments authorized by the Board of Directors or the Chief Executive Officer, except in cases where the signing, execution or delivery thereof shall be expressly delegated by the Board of Directors or by these By-laws to some other officer, officers, agent, or agents of the Corporation or where any of them shall be required by the law otherwise to be signed, executed or delivered.  The President may cause the seal of the Corporation to be affixed to any instrument which shall require it and shall perform such other duties as from time to time may be assigned to him by the Board of Directors or the Chief Executive Officer.
 
 
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SECTION 7.   Vice President .  Each Vice President shall perform all such duties as from time to time may be assigned to him by the Board of Directors, the Chief Executive Officer or the President.  At the request of the President or in his absence or in the event of his inability or refusal to act, the Vice President, or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors (or if there be no such determination, then the Vice Presidents in the order of their election), shall perform the duties of the President, and, when so acting, shall have the powers of and be subject to the restrictions placed upon the President in respect of the performance of such duties.
 
SECTION 8.   Treasurer .  The Treasurer shall:
 
(a)           have charge and custody of, and be responsible for, all the funds and securities of the Corporation;
 
(b)           keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation;
 
(c)           deposit all moneys and other valuables to the credit of the Corporation in such depositaries as may be designated by the Board of Directors or pursuant to its direction;
 
(d)           receive, and give receipts for, moneys due and payable to the Corporation from any source whatsoever;
 
(e)           disburse the funds of the Corporation and supervise the investments of its funds, taking proper vouchers therefor;
 
(f)           render to the Board of Directors, whenever the Board of Directors may require, an account of the financial condition of the Corporation; and
 
(g)           in general, perform all duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors.
 
SECTION 9.   Secretary .  The Secretary shall:
 
(a)           keep or cause to be kept in one or more books provided for the purpose, the minutes of all meetings of the Board of Directors, the committees of the Board of Directors and the stockholders;
 
(b)           see that all notices are duly given in accordance with the provisions of these By-Laws and as required by law;
 
(c)           be custodian of the records and the seal of the Corporation and affix and attest the seal to all certificates for shares of the Corporation (unless the seal of the Corporation on such certificates shall be a facsimile, as hereinafter provided) and affix and attest the seal to all other documents to be executed on behalf of the Corporation under its seal;
 
(d)           see that the books, reports, statements, certificates and other documents and records required by law to be kept and filed are properly kept and filed; and
 
(e)           in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Board of Directors.
 
 
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SECTION 10.   The Assistant Treasurer .  The Assistant Treasurer, or if there shall be more than one, the Assistant Treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as from time to time may be assigned by the Board of Directors.
 
SECTION 11.   The Assistant Secretary .  The Assistant Secretary, or if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the Secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the Secretary and shall perform such other duties as from time to time may be assigned by the Board of Directors.
 
SECTION 12.   Officers’ Bonds or Other Security .  If required by the Board of Directors, any officer of the Corporation shall give a bond or other security for the faithful performance of his duties, in such amount and with such surety as the Board of Directors may require.
 
SECTION 13.   Compensation .  The compensation of the officers of the Corporation for their services as such officers shall be fixed from time to time by the Board of Directors.  An officer of the Corporation shall not be prevented from receiving compensation by reason of the fact that he is also a director of the Corporation.
 
ARTICLE V
 
Stock Certificates and Their Transfer
 
SECTION 1.   Stock Certificates .  Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board or the Chief Executive Officer or the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation.  If the Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restriction of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
 
SECTION 2.   Facsimile Signatures .  Any or all of the signatures on a certificate may be a facsimile.  In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.
 
SECTION 3.   Lost Certificates .  The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen, or destroyed.  When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to give the Corporation a bond in such sum as it may direct sufficient to indemnify it against any claim that may be made against the Corporation on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate.
 
 
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SECTION 4.   Transfers of Stock .  Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its records; provided, however, that the Corporation shall be entitled to recognize and enforce any lawful restriction on transfer.  Whenever any transfer of stock shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of transfer if, when the certificates are presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so.
 
SECTION 5.   Transfer Agents and Registrars .  The Board of Directors may appoint, or authorize any officer or officers to appoint, one or more transfer agents and one or more registrars.
 
SECTION 6.   Regulations .  The Board of Directors may make such additional rules and regulations, not inconsistent with these By-Laws, as it may deem expedient concerning the issue, transfer and registration of certificates for shares of stock of the Corporation.
 
SECTION 7.   Fixing the Record Date .  In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any chance, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action.  A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.
 
SECTION 8.   Registered Stockholders .  The Corporation shall be entitled to recognize the exclusive right of a person registered on its records as the owner of shares of stock to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments a person registered on its records as the owner of shares of stock, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares of stock on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
 
ARTICLE VI
 
Indemnification of Directors and Officers
 
SECTION 1.   General .  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.  The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful.
 
 
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SECTION 2.   Derivative Actions .  The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, provided that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
 
SECTION 3.   Indemnification in Certain Cases .  To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 1 and 2 of this Article VI, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.
 
SECTION 4.   Procedure .  Any indemnification under Sections 1 and 2 of this Article VI (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in such Sections 1 and 2.  Such determination shall be made (a) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (c) by the stockholders.
 
SECTION 5.   Advances for Expenses .  Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall be ultimately determined that he is not entitled to be indemnified by the Corporation as authorized in this Article VI.
 
SECTION 6.   Rights Not Exclusive .  The indemnification and advancement of expenses provided by, or granted pursuant to, the other subsections of this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office.
 
SECTION 7.   Insurance .  The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Article VI.
 
 
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SECTION 8.   Definition of Corporation .  For the purposes of this Article VI, references to “the Corporation” include all constituent corporations absorbed in a consolidation or merger as well as the resulting or surviving corporation so that any person who is or was a director, officer, employee or agent of such a constituent corporation or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise shall stand in the same position under the provisions of this Article VI with respect to the resulting or surviving corporation as he would if he had served the resulting or surviving corporation in the same capacity.
 
SECTION 9.   Survival of Rights .  The indemnification and advancement of expenses provided by, or granted pursuant to this Article VI shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.
 
ARTICLE VII
 
General Provisions
 
SECTION 1.   Dividends .  Subject to the provisions of statute and the Certificate of Incorporation, dividends upon the shares of capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting.  Dividends may be paid in cash, in property or in shares of stock of the Corporation, unless otherwise provided by statute or the Certificate of Incorporation.
 
SECTION 2.   Reserves .  Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the Board of Directors may, from time to time, in its absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation or for such other purpose as the Board of Directors may think conducive to the interests of the Corporation.  The Board of Directors may modify or abolish any such reserves in the manner in which it was created.
 
SECTION 3.   Seal .  The seal of the Corporation shall be in such form as shall be approved by the Board of Directors.
 
SECTION 4.   Fiscal Year .  The fiscal year of the Corporation shall be fixed, and once fixed, may thereafter be changed, by resolution of the Board of Directors.
 
SECTION 5.   Checks .  Notes, Drafts.  Etc.  All checks, notes, drafts or other orders for the payment of money of the Corporation shall be signed, endorsed or accepted in the name of the Corporation by such officer, officers, person or persons as from time to time may be designated by the Board of Directors or by an officer or officers authorized by the Board of Directors to make such designation.
 
SECTION 6.   Execution of Contracts, Deeds, Etc .  The Board of Directors may authorize any officer or officers, agent or agents, in the name and on behalf of the Corporation to enter into or execute and deliver any and all deeds, bonds, mortgages, contracts and other obligations or instruments, and such authority may be general or confined to specific instances.
 
SECTION 7.   Voting of Stock in Other Corporations .  Unless otherwise provided by resolution of the Board of Directors, the Chairman of the Board or the Chief Executive Officer or the President, from time to time, may (or may appoint one or more attorneys or agents to) cast the votes which the Corporation may be entitled to cast as a shareholder or otherwise in any other corporation, any of whose shares or securities may be held by the Corporation, at meetings of the holders of the shares or other securities of such other corporation.  In the event one or more attorneys or agents are appointed, the Chairman of the Board or the Chief Executive Officer or the President may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent.  The Chairman of the Board or the Chief Executive Officer or the President may, or may instruct the attorneys or agents appointed to, execute or cause to be executed in the name and on behalf of the Corporation and under its seal or otherwise, such written proxies, consents, waivers or other instruments as may be necessary or proper in the circumstances.
 
 
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ARTICLE VIII
 
Amendments
 
These By-Laws may be amended or repealed or new by-laws adopted (a) by action of the stockholders entitled to vote thereon at any annual or special meeting of stockholders or (b) if the Certificate of Incorporation so provides, by action of the Board of Directors at a regular or special meeting thereof.  Any by-law made by the Board of Directors may be amended or repealed by action of the stockholders at any annual or special meeting of stockholders.
 

 
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Exhibit 5.1

TroyGould PC
1801 Century Park East, 16th Floor
Los Angeles, California 90067


October 21, 2011

AudioEye, Inc.
9070 S. Rita Road, Suite 1450
Tucson, Arizona 85747

Ladies and Gentlemen:

You have requested our opinion in connection with the filing by AudioEye, Inc., a Delaware corporation (the “Company”), of a Registration Statement on Form S-1 (the “Registration Statement”) with the Securities and Exchange Commission (the “Commission”), including a related prospectus made part of the Registration Statement (the “Prospectus”), for the distribution by spin-off of 1,500,000 shares of common stock (the “Shares”).
 
In connection with this opinion, we have examined and relied upon the Registration Statement and the Prospectus, the Company’s Certificate of Incorporation, as amended to date, the Company’s Bylaws, as amended to date, the originals or copies certified to our satisfaction of such other records, documents, certificates, memoranda and other instruments as in our judgment are necessary or appropriate to enable us to render the opinion expressed below. We have assumed the genuineness and authenticity of all documents submitted to us as originals, the conformity to originals of all documents submitted to us as copies thereof.
 
The law covered by our opinion is limited to the applicable statutory provisions of the Delaware General Corporation Law (“DGCL”) (including applicable rules and regulations promulgated thereunder and applicable reported judicial and regulatory determinations interpreting the DGCL). We neither express nor imply any opinion (and we assume no responsibility) with respect to any other laws or the laws of any other jurisdiction or with respect to the application or effect of any such laws.
 
This opinion is provided to the Company and the Commission for their use solely in connection with the transactions contemplated by the Registration Statement and may not be used, circulated, quoted or otherwise relied upon for any other purpose without our express written consent.
 
Based upon the foregoing, and in reliance thereon, we are of the opinion that the Shares, when issued in accordance with the terms and conditions set forth in the Registration Statement, will be duly authorized, validly issued, fully paid and nonassessable.
 
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and further consent to the use of our name wherever appearing in the Registration Statement. In giving such consent, we do not thereby admit that we are within the category of persons whose consent is required under Section 7 of the Securities Act of 1933 or the rules and regulations of the Commission thereunder.
 
 
Very truly yours,
   
   
 
/s/ TROYGOULD PC
Exhibit 10.1 - Master Agreement
 
MASTER AGREEMENT
 
This Master Agreement (the “Agreement”) is made and entered as of June 22, 2011 by and between AudioEye Acquisition Corp., a Nevada corporation (“AEAC”) and CMG Holdings Group, Inc., a Nevada corporation (“CMGO”).  Each of AEAC and CMGO is sometimes referred to herein as a “Party” and together, as “Parties.”  Capitalized terms used and not otherwise defined herein have the meanings set forth in Article I.
 
RECITALS
 
A.           Pursuant to that certain Purchase Agreement dated as of March 31, 2010 (the “Purchase Agreement”) between CMGO and the former stockholders (the “AE Sellers”) of AudioEye, Inc. (“AE”), the AE Sellers transferred to CMGO all of their equity interest in AE subject to rights (the “Rights”) retained by the AE Sellers to receive cash from the exploitation of the technology of AE as more fully described in the Purchase Agreement.
 
B.           CMGO has outstanding 13% Senior Secured Convertible Extendable Notes due 2011 (the “Notes”) with a current aggregate principal balance of $1,075,000.
 
C.           CMGO, as the parent of AE, has been and believes that it will continue to be unable to raise sufficient working capital to fully exploit and grow the business of AE because of, inter alia , the Rights and the Notes.
 
D.           Accordingly, the directors of CMGO have concluded that it will be in the best interests of the shareholders of CMGO to enter into a share exchange agreement with the shareholders of AEAC pursuant to which the shareholders of AEAC will acquire 80% of AE and CMGO will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AE in accordance with provisions of this Agreement because CMGO believes that such a distribution, when combined with the other transactions contemplated hereby, will allow AE to raise capital and grow its business in such manner as it no longer can as a subsidiary of CMGO, thus generating increased value for CMGO’s stockholders.
 
NOW, THEREFORE, in consideration of the covenants, promises, representations and warranties set forth herein, and for other good and valuable consideration, intending to be legally bound, the Parties agree as follows:
 
ARTICLE I
DEFINITIONS
 
1.1            Certain Definitions .  The following terms shall, when used in this Agreement, have the following meanings:
 
Affiliate ” means, with respect to any Person: (i) any Person directly or indirectly owning, controlling or holding with power to vote ten percent (10%) or more of the outstanding voting securities of such other Person (other than passive or institutional investors); (ii) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held with power to vote, by such other Person; (iii) any Person directly or indirectly controlling, controlled by or under common control with such other Person; and (iv) any officer, director or partner of such other Person. “Control” for the foregoing purposes shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities or voting interests, by contract or otherwise.
 
Agreement ” shall have the meaning set forth in the preamble to this Agreement.
 
 
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Business Day ” means any day other than Saturday, Sunday or a day on which banking institutions in California or Nevada are required or authorized to be closed.
 
Closing ” shall have the meaning set forth in Section 2.1 of this Agreement.
 
Closing Date ” shall have the meaning set forth in Section 2.1 of this Agreement.
 
Code ” means the United States Internal Revenue Code of 1986, as amended.
 
Collateral Documents ” mean the Sharing Agreement, the Consulting Agreement, the Release, the Share Exchange Agreement, all of the Exhibits to this Agreement, and any other documents, instruments and certificates to be executed and delivered by the Parties hereunder or thereunder.
 
Consulting Agreement ” shall have the meaning set forth in Section 2.3.
 
Contract ” means any agreement, contract, note, loan, evidence of indebtedness, purchase order, letter of credit, indenture, security or pledge agreement, covenant not to compete, license, instrument, commitment, obligation, promise or undertaking (whether written or oral and whether express or implied).
 
Employee Plans ” means all Benefit Arrangements, Pension Plans and Welfare Plans.
 
ERISA ” shall mean the Employee Retirement Income Security Act of 1974, as amended.
 
ERISA Affiliate ” means any trade or business, whether or not incorporated, that together with AE or AEAC, as applicable, would be deemed a single employer for purposes of Section 4001 of ERISA or Sections 414(b), (c), (m), (n) or (o) of the Code.
 
Family Member ” means, with respect to any individual (i) the individual, (ii) the individual’s spouse, (iii) any other natural Person who is related to the individual or the individual’s spouse within the second degree (including adopted children) and (iv) any other natural Person who resides with such individual.
 
GAAP ” means U.S. generally accepted accounting principles consistently applied, as in effect from time to time.
 
Intellectual Property ” means all trademarks and trademark rights, trade names and trade name rights, service marks and service mark rights, service names and service name rights, patents and patent rights, utility models and utility model rights, copyrights, mask work rights, brand names, trade dress, product designs, product packaging, business and product names, logos, slogans, rights of publicity, trade secrets, inventions (whether patentable or not), invention disclosures, improvements, processes, formulae, industrial models, processes, designs, specifications, technology, methodologies, computer software (including all source code and object code), firmware, development tools, flow charts, annotations, all Web addresses, sites and domain names, all data bases and data collections and all rights therein, any other confidential and proprietary right or information, whether or not subject to statutory registration, and all related technical information, the information set forth in manufacturing, engineering and technical drawings, know-how and all pending applications for and registrations of patents, utility models, trademarks, service marks and copyrights, and the right to sue for past infringement, if any, in connection with any of the foregoing.
 
Laws ” means any statute, ordinance, law, rule, regulation, code, injunction, judgment, order, decree, ruling, or other requirement enacted, adopted or applied by any Regulatory Authority, including judicial decisions applying common law or interpreting any other Law.
 
 
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Legal Proceeding ” means any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Regulatory Authority or arbitrator.
 
Liabilities ” means any direct or indirect liability, indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or endorsement of or by any Person of any type, whether known or unknown, accrued, absolute, contingent, matured, unmatured, liquidated or unliquidated or otherwise.
 
Lien ” means any mortgage, pledge, lien, encumbrance, charge, security interest, security agreement, conditional sale or other title retention agreement, limitation, option, assessment, restrictive agreement, restriction, adverse interest, restriction on transfer or exception to or material defect in title or other ownership interest (including but not limited to restrictive covenants, leases and licenses).
 
Losses ” means any claim, liability, obligation, loss, damage, assessment, penalty, judgment, settlement, cost and expense, including costs attributable to the loss of the use of funds to the date on which a payment is made with respect to a matter of indemnification under Article 7 hereof, and including reasonable attorneys’ and accountants’ fees and disbursements incurred in investigating, preparing, defending against or prosecuting any claim.
 
Material Adverse Effect ” or “ Material Adverse Change ” with respect to a Person means a material adverse effect on (i) the assets, liabilities, condition (financial or otherwise), properties, business or prospectus of such Person, (ii) the validity, binding effect or enforceability of this Agreement or any of the Collateral Documents against such Person or (iii) the ability of such Person to perform its obligations under this Agreement or any of the Collateral Documents.
 
Multiemployer Plan ” means any “multiemployer plan” as defined in Section 3(37) of ERISA.
 
Order ” means any writ, judgment, decree, ruling, injunction or similar order of any Regulatory Authority (in each such case whether preliminary or final).
 
Ordinary Course of Business ” or “ ordinary course ” or any similar phrase means the usual and ordinary course of business of a Party, consistent with its past custom and practice.
 
Organizational Documents ” shall mean (a) the articles or certificate of incorporation, all certificates of determination and designation, and the bylaws of a corporation; (b) the partnership agreement and any statement of partnership of a general partnership; (c) the limited partnership agreement and the certificate or articles of limited partnership of a limited partnership; (d) the operating agreement, limited liability company agreement and the certificate or articles of organization or formation of a limited liability company; (e) any charter or similar document adopted or filed in connection with the creation, formation or organization of any other Person; and (f) any amendment to any of the foregoing.
 
Party ” or “ Parties ” shall have the meaning set forth in the preamble to this Agreement.
 
Pension Plan ” means any “employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) which a Person or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or has maintained, administered, contributed to or was required to contribute to, or under which such Person or any ERISA Affiliate may incur any liability.
 
Permit ” means any license, franchise, certificate, declaration, waiver, exemption, variance, permit, consent, approval, registration, authorization, qualification or similar right granted by a Regulatory Authority.
 
 
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Person ” means any natural person, individual, firm, corporation, including a non-profit corporation, partnership, trust, unincorporated organization, association, limited liability company, labor union, Regulatory Authority or other entity.
 
Proxy Statement ” has the meaning set forth in Section 5.1 of this Agreement.
 
Regulatory Authority ” means: any (i) federal, state, local, municipal or foreign government; (ii) governmental or quasi-governmental authority of any nature (including without limitation any governmental agency, branch, department, official, instrumentality or entity and any court or other tribunal); (iii) multi-national organization or body; or (iv) body exercising or entitled to exercise any administrative, executive, judicial, legislative, police, regulation or taxing authority or power of any nature.
 
Release ” shall have the meaning set forth in Section 2.2.4.
 
Retained Shares ” shall have the meaning set forth in Section 2.2.5 of this Agreement.
 
Retained Shares Agreement ” shall have the meaning set forth in Section 2.2.6 of this Agreement.
 
Representatives ” shall have the meaning set forth in Section 5.9 of this Agreement.
 
SEC ” means the Securities and Exchange Commission or any Regulatory Authority that succeeds to its functions.
 
Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
 
Share Exchange ” shall have the meaning set forth in Section 2.2.5.
 
Share Exchange Agreement ” shall have the meaning set forth in Section 2.2.5.
 
Sharing Agreement ” shall have the meaning set forth in Section 2.2.2.
 
Spin-Off ” has the meaning set forth in Section 2.2.1.
 
Spin-Off Shares ” has the meaning in Section 2.2.1.
 
Subsidiary ” has the meaning set forth in Section 3.1.
 
Tax Returns ” means all federal, state, local, provincial and foreign tax returns, declarations, reports, claims, schedules and forms for refund or credit or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof.
 
Taxes ” means any U.S. or non U.S. federal, state, provincial, local or foreign (i) income, corporation gross income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental, customs duties, capital, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, intangible property, recording, occupancy, sales, use, transfer, registration, value added minimum, ad valorem or excise tax, estimated or other tax of any kind whatsoever, including any interest, additions to tax, penalties, fees, deficiencies, assessments, additions or other charges of any nature with respect thereto, whether disputed or not; and (ii) any liability for the payment of any amount of the type described in (i) above.
 
Transactions ” has the meaning set forth in Section 3.2.
 
 
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Treasury Regulations ” means regulations promulgated by the U.S. Treasury Department under the Code.
 
Welfare Plan ” means any “employee welfare benefit plan” as defined in Section 3(1) of ERISA which a Person or any ERISA Affiliate maintains, administers, contributes to or is required to contribute to, or under which such Person or any ERISA Affiliate may incur any Liability.
 
ARTICLE II
TRANSACTIONS
 
2.1            Closing .  Subject to the terms and conditions of this Agreement, the closing of the transactions described in Section 2.2 (the “ Transactions ”) will take place at the offices of TroyGould PC located at 1801 Century Park East, 16 th Floor, Los Angeles, California 90067, or at such other place as the Parties mutually agree, at 10:00 a.m. local time on the second Business Day after the day on which the last of the closing conditions set forth in Article 6 below has been satisfied or waived, or such other date as the Parties mutually agree upon in writing (the “ Closing Date ”).
 
2.2  
At the Closing, the following transactions will take place.
 
2.2.1            Spin-Off .  CMGO will spin off 5% of the outstanding capital stock of AE to its stockholders, pro rata in proportion to their holdings in CMGO of the Closing Date (the “ Spin Off ”).  The shares of AE to be received by the AE shareholders are hereinafter referred to as the “ Spin-Off Shares .”
 
2.2.2            Sharing Agreement .  AE will enter into an agreement with CMGO (the “ Sharing Agreement ”) pursuant to which AE shall pay to CMGO 10% of cash received from income earned, settlements or judgments directly resulting from AE’s patent enforcement and licensing strategy whether received by AE or any affiliate of AE, net of any direct costs or tax implications incurred in pursuit of such strategy pertaining to the following patents:  (1) United States Patent Number #7,653,544 and all continuations/continuations in-part, and (2) Patent Application:  Application Number 11/682843 (and all continuations and continuations in part). For purposes of this section, attorneys’ fees and costs incurred by AE in pursuit of its patent strategy shall not be deemed “direct costs” other than as incurred in obtaining settlements or judgments as a result of patent enforcement. The quarterly amount due as determined pursuant to this Section 2.2.2 is referred to as the “ Shared Payment .”
 
A.  
Reports, Books and Records; Audit; Late Payments and Taxes.
 
A.1            Reports . Within thirty (30) days after the last day of each quarter subsequent to the Closing Date, AE shall submit to CMGO written statement (the “Quarterly Reporting Statement”) detailing with respect to the preceding quarterly period the calculation of and the amount of the Shared Payment.
 
A.2            Adjustments .  If AE has to reverse a previously recognized Shared Payment reported under a previous Quarterly Reporting Statement, AE can claim credit on a subsequent Quarterly Reporting Statement for the same quarter it reverses the previously recognized Shared Payment.  Such credit will not exceed the amount to be paid in the then-current quarter, but the unused credit may be carried over to succeeding quarters within the same contract year.
 
A.3            Payment Timing .  AE shall pay CMGO, on a quarterly basis, the amounts reported in the Quarterly Reporting Statement for such quarter not later than thirty (30) days after the end of such quarter.
 
 
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A.4            Books and Records . AE shall maintain appropriate books of account and records with respect to the Shared Payment in accordance with generally accepted accounting principles and shall make complete and accurate entries concerning all transactions relevant to this Agreement. All such books of account and records shall be kept available by AE for no less than three (3) years after the end of each calendar year, or, in the event of a dispute between the parties involving in any way those books of accounts and records, until such time as the dispute will have been resolve, whichever is later.
 
A.5            Audit . CMGO shall have the right during the Term and for a period of three (3) years after the end of the calendar year, or, in the event of a dispute concerning the accuracy and/or correctness of a Quarterly Reporting Statement or any other payment made under this Agreement, until the dispute is resolved, whichever is later, through an independent public accountant or other qualified expert selected by CMGO and reasonably acceptable to AE, to inspect and examine AE’s relevant books of accounts and records, server log files and other documents (including, without limitation, vouchers, records, purchase orders, sales orders, re-orders, agreements and technical information) relating to the subject matter of this Agreement. Such inspection and examination shall be done to confirm that appropriate payments have been under this Agreement. Any such audit shall take place upon reasonable prior written notice to AE and during AE’s regular business hours. Except as set forth in Section A.6, the cost of such audit shall be borne by CMGO.
 
A.6            Late Payments . CMGO shall be entitled to charge, and AE shall pay, interest on any overdue amounts under this Agreement at the rate of one percent (1%) per month (or part thereof), or at such lower rate as may be the maximum rate allowed under applicable law. In the event that an audit reveals any undisputed underpayment, AE shall, within thirty (30) days after written notice from CMGO, make up for such underpayment by paying the difference between amounts the audits reveals and the amounts AE actually paid, together with such interest on such difference. If the underpayment is more than ten percent (10%), AE shall pay the reasonable cost of the audit.  If any amount is overdue by more than ninety (90) days, in addition to any other remedies CMGO may have under this Agreement, CMGO may turn over the right to collect such overdue amounts to a collection agency. AE shall be responsible for any reasonable costs incurred by CMGO or such collection agency in collecting any amount that is overdue by more than ninety (90) days including, but not limited to, reasonable attorney’s fees.
 
2.2.3            Consulting Agreement .  AE will enter into a consulting agreement with CMGO (the “ Consulting Agreement ”) whereby CMGO will receive a commission of not less than 7.5% of all revenues received by AE after the Closing Date from all business, clients or other sources of revenue procured by CMGO or its employees, officers or subsidiaries and directed to AE and 10% of net revenues obtained from Google. Within ninety (90) days of the Closing Date hereof, AE shall deliver to CMGO capital shares of AE equal to 0.05% of the issued and outstanding shares of AE as of the Closing Date as an initial consulting fee.
 
2.2.4            Release of Notes .  AE will arrange the release of the obligations of CMGO under the Notes pursuant to a novation or other form of release of such obligation (the “ Release ”). The Release will include a termination of any security interest on any post Spin Off assets of CMGO. A satisfaction of said obligation as to CMGO and a UCC III release of security interest and encumbrance as to any post spin off assets of CMGO will be delivered to CMGO at the Closing.
 
2.2.5            Share Exchange .  Pursuant to a Share Exchange Agreement (the “ Share Exchange Agreement ”), AEAC will effectuate a tax-free share exchange (the “ Share Exchange ”) with AE, at the conclusion of which (and giving effect to the Spin Off) AEAC would be a wholly owned subsidiary of AE, CMGO would retain fifteen percent (15%) of AE’s outstanding capital stock (the “ Retained Shares ”), the CMGO shareholders will own 5% of AE’s outstanding capital stock pursuant to the Spin Off, and the AEAC stockholders as of the Closing Date would own eighty percent (80%) percent of AE’s outstanding capital stock.
 
 
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2.2.6            Retained Shares Agreement .  Pursuant to an agreement between CMGO and AE (the “ Retained Shares Agreement ”), CMGO will agree for a period of three years from the Closing Date with respect to the Retained Shares as follows:
 
(a)           To grant to AE the first right of refusal with respect to the sale, transfer or other disposition of any of the Retained Shares;
 
(b)           Not to sell the Retained Shares in the market in an amount which exceeds for any trading day 10% of the average daily trading volume for the previous seven trading days; and
 
(c)           Not to engage in any short sale of the Retained Shares.
 
In connection with any sale, transfer, encumbrance or other disposition of the Retained Shares to a third party outside the market, CMGO shall be required to obtain the agreement from any such person that such person will take the Retained Shares subject to the provisions of the Retained Shares Agreement.

ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CMGO
 
CMGO represents and warrants to AEAC that the statements contained in this Article 3 are true, complete and correct as of the date of this Agreement and will be correct and complete as of the Closing Date (and as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 3, except in the case of representations and warranties stated to be made as of the date of this Agreement or as of another date and except for changes contemplated or permitted by this Agreement); except as the same may be qualified or limited by the CMGO Disclosure Schedules attached hereto. The above notwithstanding, the parties hereto recognize and acknowledge that CMGO, although the sole shareholder of AE, has and has had no involvement in the day to day operation of the business or other activities of AE as all such activities were conducted by AE’s officers, staff and management team. To the extent that any of the representations and warranties made herein are shown to be inaccurate or untrue and the officers, staff or management team of AE knew or had reason to know of the inaccuracy or untruthfulness of said representations and warranties then CMGO and its staff, officers and directors shall have no responsibility or liability for any such inaccurate or untrue representations or warranties.
 
3.1  
Organization and Qualification; Subsidiaries .
 
(a)           AE is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized and has the requisite power and authority to carry on its business as now being conducted, which such jurisdictions are set forth on Schedule 3.1(a) of the CMGO Disclosure Schedules.
 
(b)           AE is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) has not had and would not reasonably be expected to have a Material Adverse Effect on AE.
 
(c)           CMGO has delivered to AEAC complete and correct copies of AE’s Organizational Documents as amended to the date hereof.  All of the outstanding shares of capital stock or other ownership interests of AE have been validly issued and are fully paid and nonassessable in each case free and clear of all Liens, and free of any restriction on the right to vote, sell or otherwise dispose of such capital stock or other ownership interests, except for restrictions imposed by applicable securities Laws.
 
 
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(d)           AE does not own, directly or indirectly, any capital stock or other ownership interest in any corporation, partnership, joint venture or other entity.  One hundred percent (100%) of the capital stock of AE is owned by CMGO.
 
3.2            Authorization; Enforceability .  CMGO has the requisite power and authority, and has taken all action necessary, to execute, deliver and perform its or his obligations under this Agreement and any Collateral Documents to which it is or will be a party and each other agreement, document, instrument or certificate contemplated by this Agreement and/or any Collateral Documents or to be executed by CMGO in connection with the consummation of the Transactions and, subject to the approval of the stockholders of CMGO, to consummate the Transactions.  The execution and delivery by CMGO of this Agreement and any applicable Collateral Documents to which it is a party, and the consummation by CMGO of the Transactions contemplated hereby and thereby, and the performance by CMGO of its respective obligations hereunder and thereunder, have been duly and validly authorized by all necessary corporate or other action on the part of CMGO, and no other action on the part of CMGO is required to authorize the execution, delivery and performance of this Agreement and the consummation by CMGO of the Transactions.  This Agreement has been duly and validly executed and delivered by CMGO and constitutes a legal, valid and binding obligation of each CMGO enforceable against CMGO in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors’ rights generally and the general principles of equity, regardless of whether asserted in a proceeding in equity or at law.
 
3.2  
Capitalization .
 
(a)           The authorized capital stock of AE as of the date of this Agreement consists of 4,000,000 shares of AE Common Stock, and 500,000 shares of AE Preferred Stock.  As of the Closing Date, there will be no shares of voting or non-voting capital stock, equity interests or other securities of AE authorized, issued, reserved for issuance or otherwise outstanding.
 
(b)           As of the Effective Time, all outstanding shares of AE Capital Stock will be duly authorized, validly issued, fully paid and non-assessable, and will not be subject to, or issued in violation of, any preemptive, subscription or any kind of similar rights.  AE has no outstanding shares of AE Capital Stock subject to a right of repurchase that will survive the Closing.
 
(c)           Except as set forth on Schedule 3.3(c) of the CMGO Disclosure Schedule, there are no bonds, debentures, notes or other indebtedness of AE having the right to vote (or convertible into securities having the right to vote) on any matters on which stockholders of AE may vote.  Except as set forth on Schedule 3.3(c) of the CMGO Disclosure Schedules, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind (contingent or otherwise) to which AE is a party or bound obligating AE to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other voting securities of AE or obligating AE to issue, grant, extend or enter into any agreement to issue, grant or extend any security, option, warrant, call, right, commitment, agreement, arrangement or undertaking.  AE is not subject to any obligation or requirement to provide funds for or to make any investment (in the form of a loan or capital contribution) in any Person.
 
(d)           As of the Effective Time, all of the issued and outstanding shares of AE Capital Stock will have been issued in compliance in all material respects with all applicable federal and state securities Laws.
 
(e)           Except as set forth on Schedule 3.3(e) of the CMGO Disclosure Schedules, there are no outstanding contractual obligations of AE to repurchase, redeem or otherwise acquire any shares of capital stock (or options or warrants to acquire any such shares) or other security or equity interests of AE.  Except as set forth on Schedule 3.3(e) of the CMGO Disclosure Schedules, there are no stock-appreciation rights, security-based performance units, phantom stock or other security rights or other agreements, arrangements or commitments of any character (contingent or otherwise) pursuant to which any Person is or may be entitled to receive any payment or other value based on the revenues, earnings or financial performance, stock price performance or other attribute of AE or to cause AE to file a registration statement under the Securities Act, or which otherwise relate to the registration of any securities of AE.
 
 
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(f)           Except as set forth on Schedule 3.3(f) of the CMGO Disclosure Schedules, there are no voting trusts, proxies or other agreements, commitments or understandings to which AE or any of the stockholders or partners of AE, is a party or by which any of them is bound with respect to the issuance, holding, acquisition, voting or disposition of any shares of capital stock or other security or equity interest of AE.
 
3.4            Non-contravention .  Except as set forth on Schedule 3.4 of the CMGO Disclosure Schedules, the execution, delivery and performance by the CMGO of this Agreement or any applicable Collateral Document or the consummation by CMGO of the Transactions does not, and the consummation of the Transactions will not, (a) contravene, conflict with, or result in any violation or breach of any provision of the Organizational Documents of CMGO or AE, (b) contravene, conflict with, or result in a violation or breach of any provision of any Law applicable to AE, (c) require any consent or other action by any Person under, constitute a breach of or default under, or cause or permit the termination, cancellation, acceleration or other change of any right or obligation or the loss of any benefit to which AE is entitled under any provision of any agreement or other instrument binding upon AE or any license, franchise, permit, certificate, approval or other similar authorization affecting, or relating in any way to, the assets or business of AE or (d) result in the creation or imposition of any Lien on any asset of AE, which in the case of clauses (b) or (d) above would have a Material Adverse Effect on AE.
 
3.5            Consents and Approvals .  Except as set forth on Schedule 3.5 of the CMGO Disclosure Schedules, no consent, approval, authorization or order of, registration or filing with, or notice to, any Regulatory Authority or any other Person is necessary to be obtained, made or given by any of the CMGO in connection with the execution, delivery and performance by CMGO of this Agreement or any applicable Collateral Document or for the consummation by CMGO of the Transactions, except to the extent the failure to obtain any such consent, approval, authorization or order or to make any such registration or filing would not have a Material Adverse Effect on AE.
 
3.6            Books and Records .  AE has made and kept books and records and accounts, which, in reasonable detail, accurately and fairly reflect the activities of AE pertaining to its business.  AE has not, in any manner that pertains to, or could affect, its business, engaged in any transaction, maintained any bank account or used any corporate funds except for transactions, bank accounts and funds that have been and are reflected in the normally maintained books and records of AE.
 
3.7            Financial Statements .  The AE Financial Statements to be delivered prior to the Closing will be prepared from the books and records and fairly and accurately present the financial condition and the results of operations, income, expenses, assets, Liabilities (including all reserves), changes in shareholders’ equity and cash flow of AE of the respective dates of, and for the periods referred to in, such AE Financial Statements, in accordance with GAAP applied on a consistent basis throughout the periods indicated.  AE maintains a standard system of accounting established and administered in accordance with GAAP.
 
3.8            No Undisclosed Liabilities .  Except as set forth on Schedule 3.8 of the CMGO Disclosure Schedules, AE has no Liabilities due or to become due except (a) Liabilities that are reflected in the AE Financial Statements which have not been paid or discharged since the date of the AE Financial Statements, (b) Liabilities incurred in the Ordinary Course of Business since the date of the AE Financial Statements (none of which relates to any default under any Contract, breach of warranty, tort, infringement or violation of any Law or arose out of any Legal Proceeding) and none of which would have a Material Adverse Effect on AE, and (c) Liabilities which are satisfied by AE prior to the Closing.
 
 
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3.9  
Taxes .
 
(a)            Filing of Tax Returns .  Except as set forth on Schedule 3.9(a) of the CMGO Disclosure Schedules, AE has duly and timely file (or caused to be filed) with the appropriate taxing authorities all Tax Returns required to be filed through the Closing Date.  All such Tax Returns filed are complete and accurate in all respects.  Except as set forth on Schedule 3.9(a) of the CMGO Disclosure Schedules, AE is not currently the beneficiary of any extension of time within which to file any Tax Return.  No claim has ever been made against AE or its assets by an authority in a jurisdiction where AE does not file Tax Returns such that AE is or may be subject to taxation by that jurisdiction.
 
(b)            Payment of Taxes .  Except as set forth on Schedule 3.9(b) of the CMGO Disclosure Schedules, all Taxes owed and due by AE (whether or not shown on any Tax Return) have been paid.  The unpaid Taxes of AE, if any, (i) did not, as of the date of the AE Financial Statements, exceed the reserve for Tax Liability (excluding any reserve for deferred Taxes established to reflect timing differences between book and Tax income) to be set forth on the face of the AE Financial Statements (rather than in any notes thereto), and (ii) have not exceeded that reserve as adjusted for operations and transactions through the Closing Date in accordance with the past custom and practice of AE in filing its Tax Returns.  Since the date of the AE Financial Statements, AE has not (i) incurred any Liability for Taxes other than in the Ordinary Course of Business or (ii) paid Taxes other than Taxes paid on a timely basis and in a manner consistent with past custom and practice.
 
(c)            Audits, Investigations, Disputes or Claims .  Except as set forth on Schedule 3.9(c) of the CMGO Disclosure Schedules, no deficiencies for Taxes are claimed, proposed or assessed by any taxing or other governmental authority against AE, and there are no pending or, to the knowledge of CMGO, threatened audits, investigations, disputes or claims or other actions for or relating to any Liability for Taxes with respect to AE, and there are no matters under discussion by or on behalf of AE with any Regulatory Authority, or known to CMGO, with respect to Taxes that are likely to result in an additional Liability for Taxes with respect to AE.  Audits of federal, state and local Tax Returns by the relevant taxing authorities have been completed for the periods set forth on Schedule 3.9(c) of the CMGO Disclosure Schedules, and, except as set forth thereon, none of AE or any predecessor thereof has been notified that any taxing authority intends to audit a Tax Return for any other period.  AE has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.  No power of attorney granted by AE with respect to any Taxes is currently in force.
 
(d)            Lien .  There are no Liens for Taxes (other than for current Taxes not yet due and payable) on any assets or capital stock of AE.
 
(e)            Tax Elections .  All material elections with respect to Taxes affecting AE or any of its assets as of the Closing Date are set forth on Schedule 3.9(e) of the CMGO Disclosure Schedules.  AE has not: (i) consented at any time under Section 341(f)(1) of the Code to have the provisions of Section 341(f)(2) of the Code apply to any disposition of any of its assets; (ii) agreed, and is not required, to make any adjustment under Section 481(a) of the Code by reason of a change in accounting method or otherwise; (iii) made an election, and is not required, to treat any of its assets as owned by another Person pursuant to the provisions of Section 168(f) of the Code or as tax-exempt bond financed property or tax-exempt use property within the meaning of Section 168 of the Code; (iv) acquired, and does not own, any assets that directly or indirectly secure any debt the interest on which is tax exempt under Section 103(a) of the Code; (v) made a consent dividend election under Section 565 of the Code; or (vi) made any of the foregoing elections and is not required to apply any of the foregoing rules under any comparable state or local Tax provision.
 
(f)            Prior Affiliated Groups .  AE is not and has never been a member of an affiliated group of corporations within the meaning of Section 1504 of the Code.  AE does not have any Liability for the Taxes of any Person (i) under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local or foreign law), (ii) as a transferee or successor, (iii) by Contract, or (iv) otherwise.
 
 
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(g)            Tax Sharing Agreements .  There are no agreements for the sharing of Tax liabilities or similar arrangements (including indemnity arrangements) with respect to or involving AE or any of its assets or its business, and, after the Closing Date, neither AE nor any of its assets or the AE Business shall be bound by any such Tax-sharing agreements or similar arrangements or have any Liability thereunder for amounts due in respect of periods prior to the Closing Date.
 
(h)            Partnerships and Single Member LLCs .  Except as set forth on Schedule 3.9(h) of the CMGO Disclosure Schedules, AE (i) is not subject to any joint venture, partnership, or other arrangement or contract which is treated as a partnership for Tax purposes, (ii) does not own a single member limited liability company which is treated as a disregarded entity, (iii) is not a shareholder of a “controlled foreign corporation” as defined in Section 957 of the Code (or any similar provision of state, local or foreign law) and (iv) is not a “personal holding company” as defined in Section 542 of the Code (or any similar provision of state, local or foreign law).
 
(i)            No Withholding .  AE has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897 of the Code.  AE has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.  The transactions contemplated herein are not subject to the tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of law.
 
(j)            International Boycott .  AE has not participated in and is not participating in an international boycott within the meaning of Section 999 of the Code.
 
(k)            Permanent Establishment .  Except as set forth on Schedule 3.9(k) of the CMGO Disclosure Schedules, AE does not have and has never had a permanent establishment in any foreign country, as defined in any applicable Tax treaty or convention between the United States and such foreign country.
 
(l)            Parachute Payments .  Except as set forth on Schedule 3.9(l) of the CMGO Disclosure Schedules, AE is not a party to any existing Contract, arrangement or plan that has resulted or would result (upon the Closing or otherwise), separately or in the aggregate, in the payment of any “excess parachute payments” within the meaning of Section 280(G) of the Code.
 
(m)            Tax Shelters .  AE has not participated in and AE is not now participating in, any transaction described in Section 6111(c) or (d) of the Code or Section 6112(b) of the Code or the Treasury Regulations thereunder, or in any reportable transaction described in such regulations.
 
3.10  
Intellectual Property .
 
(a)           Except as set forth on Schedule 3.10 hereto, AE owns, or is licensed or otherwise possesses legally enforceable rights to use, all Intellectual Property that is necessary for the conduct of the AE Business.
 
(b)           To the knowledge of CMGO, the business of AE, including the use of all owned and licensed Intellectual Property, does not infringe or misappropriate or otherwise materially violate the Intellectual Property rights of any third party, and no claim is pending or, to the knowledge of CMGO, threatened against AE alleging any of the foregoing.
 
(c)           Except as set forth on Schedule 3.10(c) of the CMGO Disclosure Schedules, to the knowledge of CMGO, (i) no third party is engaging in any activity that infringes or misappropriates the Intellectual Property owned or licensed by AE, and (ii) AE has not granted any material license or other right to any third party with respect to such Intellectual Property.
 
 
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(d)           AE has made available to AEAC all material correspondence and all written opinions in its possession relating to potential infringement or misappropriation (i) by AE of any Intellectual Property rights of any third party or (ii) by any third party of any of the Intellectual Property rights, owned or licensed, used in the AE Business.
 
(e)           AE has a license to use all software development tools, library functions, compilers and other third-party software that are used in the operation of the AE Business and are material to the AE Business, taken as a whole.
 
3.11  
Contracts; No Defaults .
 
(a)            Schedule 3.11(a) of the CMGO Disclosure Schedules sets forth a true and complete list of all contracts, agreements, leases, commitments or other understandings or arrangements, written or oral, express or implied, to which AE is a party, or affecting the AE Business, or by which AE or any of its property is bound or affected requiring payments to or from, or incurring of liabilities by, AE in excess of $50,000 (the “ AE Contracts ”).
 
(b)   Except as set forth on Schedule 3.11(b) of the CMGO Disclosure Schedules, AE has complied with and performed, in all material respects, all of its obligations required to be performed under and is not in default with respect to any of the AE Contracts, as of the date hereof, nor has any event occurred which has not been cured which, with or without the giving of notice, lapse of time, or both, would constitute a default in any respect thereunder.  To the knowledge of CMGO, no other party has failed to comply with or perform, in all material respects, any of its obligations required to be performed under or is in material default with respect to any such AE Contracts, as of the date hereof, nor has any event occurred which, with or without the giving of notice, lapse of time or both, would constitute a material default in any respect by such party thereunder.
 
(c)           Except as set forth on Schedule 3.11(c) hereto, to the knowledge of CMGO, there exists no facts or circumstances that would make a material default by any party to any contract or obligation likely to occur subsequent to the date hereof.
 
3.12  
Employee Benefits .
 
(a)            Schedule 3.12(a) of the CMGO Disclosure Schedules sets forth a complete list of all Employee Plans covering employees, directors or consultants or former employees, directors or consultants in, or related to, the AE Business.  CMGO has delivered or made available to AEAC true and complete copies of all Employee Plans, including written interpretations thereof and written descriptions thereof which have been distributed to AE’s employees and for which AE has copies, all annuity contracts or other funding instruments relating thereto, and a complete description of all Employee Plans which are not in writing.
 
(b)           Neither AE nor any ERISA Affiliate sponsors, maintains, contributes to or has an obligation to contribute to, or has sponsored, maintained, contributed to or had an obligation to contribute to, any Pension Plan subject to Title IV of ERISA, or any Multiemployer Plan.
 
(c)           Each Welfare Plan which covers or has covered employees or former employees of AE or of its Affiliates in the AE Business and which is a “group health plan,” as defined in Section 607(1) of ERISA, has been operated in compliance with provisions of Part 6 of Title I, Subtitle B of ERISA and Section 4980B of the Code at all times.
 
(d)           There is no Legal Proceeding or Order outstanding, relating to or seeking benefits under any Employee Plan set forth on Schedule 3.12(a) of the CMGO Disclosure Schedules, which is pending, threatened or anticipated against AE, any ERISA Affiliate or any Employee Plan.
 
(e)           Neither AE nor any ERISA Affiliate has any liability for unpaid contributions under Section 515 of ERISA with respect to any Welfare Plan covering employees, directors or consultants or former employees, directors or consultants in, or related to, the AE Business.
 
(f)           There are no Liens arising under the Code or ERISA with respect to the operation, termination, restoration or funding of any Employee Plan set forth on Schedule 3.12(a) of the CMGO Disclosure Schedules, or arising in connection with any excise tax or penalty tax with respect to such Employee Plan.
 
(g)           Each Employee Plan set forth on Schedule 3.12(a) of the CMGO Disclosure Schedules has at all times been maintained in all material respects, by its terms and in operation, in accordance with all applicable laws, including, without limitation, ERISA and the Code.
 
(h)           AE and its ERISA Affiliates have made full and timely payment of all amounts required to be contributed under the terms of each Employee Plan and applicable Law or required to be paid as expenses or as Taxes under applicable Laws, under such Employee Plan, and AE and its ERISA Affiliates shall continue to do so through the Closing Date.
 
(i)           Except as set forth in Schedule 3.12(i) of the CMGO Disclosure Schedules, AE has no Employee Plan intended to qualify under Section 401 of the Code.
 
(j)           Except as set forth on Schedule 3.12(j) of the CMGO Disclosure Schedules, neither the execution and delivery of this Agreement or other related agreements by AE nor the consummation of the Transactions will result in the acceleration or creation of any rights of any person to benefits under any Employee Plan (including, without limitation, the acceleration of the vesting or exercisability of any stock options, the acceleration of the vesting of any restricted stock, the acceleration of the accrual or vesting of any benefits under any Pension Plan or the acceleration or creation of any rights under any severance, parachute or change in control agreement).
 
(k)           Neither AE nor any ERISA Affiliate has incurred any liability with respect to any Employee Plan, which may create, or result in any liability to AE.
 
3.13            Labor Matters; Employees .  AE is not a party to any collective bargaining or other labor contract.  There has not been, there is not presently pending or existing, and, to the knowledge of CMGO, there is not threatened (i) any strike, slowdown, picketing, work stoppage or employee grievance process against AE or the AE Business; (ii) any Legal Proceeding against or affecting AE or the AE business relating to the alleged violation of any Law or Order pertaining to labor relations or employment matters; or (iii) union organizing campaign or any application for certification of a collective bargaining agent.  No event has occurred or circumstance exists that could provide the basis for any work stoppage or other labor dispute.  There is no lockout of any employees by AE, and no such action is contemplated by AE.  AE has complied with all material Laws relating to employment, equal employment opportunity, nondiscrimination, harassment, retaliation, immigration, wages, hours, benefits, collective bargaining, the payment of social security and similar Taxes, occupational health and safety, and plant closing.  AE is not liable for the payment of any compensation, damages, Taxes, fines, penalties or other amounts (including, without limitation, amounts related to workplace safety and insurance), however designated, for failure to comply with any of the foregoing Laws.
 
 
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3.14            Legal Proceedings .  Except as set forth on Schedule 3.14 of the CMGO Disclosure Schedules, there is no material Legal Proceeding or Order (a) pending or, to the knowledge of any of CMGO, threatened or anticipated against or affecting AE, its assets or business (or to the knowledge of AE, pending or threatened, against any of the officers, directors or employees of AE with respect to their business activities related to or affecting AE’s business); (b) that challenges or that may have the effect of preventing, making illegal, delaying or otherwise interfering with any of the Transactions; or (c) related to AE’s business or AE’s assets.  To the knowledge of CMGO, there is no reasonable basis for any such Legal Proceeding or Order.  To the knowledge of CMGO, no officer, director, partner, agent or employee of AE is subject to any Order that prohibits such officer, director, partner, agent or employee from engaging in or continuing any conduct, activity, or practice relating to the AE’s business.  The AE Business is not subject to any Order of any Regulatory Authority and AE is not engaged in any Legal Proceeding relating to the AE Business to recover monies due it or for damages sustained by it.  AE is not and has not been in default with respect to any Order, and there are no unsatisfied judgments against AE, its assets or business.  There are no Orders or agreements with, or Liens by, any Regulatory Authority or quasi-governmental entity relating to any environmental Law, which regulate, obligate, bind or in any way affect AE or any property on which AE operates its business.   Schedule 3.14 sets forth all litigation that AE is subject to.
 
3.15  
Compliance with Law .
 
(a)           To the knowledge of CMGO, the conduct of AE’s business is and at all times has been in compliance with all Laws or Orders applicable to the conduct and operations of the AE Business.  AE has not received any notice to the effect that, or otherwise been advised of (i) any actual, alleged, possible or potential violation of, or failure to comply with, any such Laws or Orders or (ii) any actual, alleged, possible or potential obligation on the part of AE to undertake, or to bear all or any portion of the cost of, any remedial action of any nature.  No event has occurred or circumstance exists that (with or without notice or lapse of time) (i) may constitute or result in a violation by AE of, or a failure on the part of AE, any such Laws or Orders or (ii) may give rise to any obligation on the part of AE to undertake, or to bear all or any portion of the cost of, any remedial action of any nature, except, in either case separately or the cases together, where such violation or failure to comply could not reasonably be expected to have a Material Adverse Effect on, AE.
 
(b)           None of AE, or any of its directors, officers or Representatives or to the knowledge of CMGO, any employee or other Person affiliated with or acting for or on behalf of AE, has, directly or indirectly, (i) made any contribution, bribe, rebate, payoff, influence payment, kickback or other payment to any Person, private or public, regardless of form, whether in money, property or services (A) to obtain favorable treatment in securing business, (B) to pay for favorable treatment for business secured, (C) to obtain special concessions or for special concessions already obtained, for or in respect of AE or any of its Affiliates or (D) in violation of any Laws of the United States (including, without limitation, the Foreign Corrupt Practices Act of 1977, as amended (15 U.S.C. Sections 78dd-1 et seq.)) or any laws of any other country having jurisdiction; or (ii) established or maintained any fund or asset that has not been recorded in the books and records of AE.
 
3.16            Permits .   Schedule 3.16(a) of the CMGO Disclosure Schedules sets forth a complete list of all Permits held by AE and used in the conduct of its business, and such Permits collectively constitute all of the Permits necessary for AE to lawfully conduct and operate its business, as it is presently conducted and to permit AE to own and use its assets in the manner in which they are presently owned and used in connection with its business.  Except as set forth on Schedule 3.16(b) of the CMGO Disclosure Schedules, AE is and at all times has been in compliance with all material Permits applicable to it or to the conduct and operations of its business.  AE has not received any notice to the effect that, or otherwise been advised of (i) any actual, alleged, possible or potential violation of, or failure to comply with, any such Permits or (ii) any actual, alleged, possible or potential revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Permit set forth on or required to be set forth on Schedule 3.16(a) of the CMGO Disclosure Schedules.  No event has occurred, and to CMGO’s knowledge no circumstance exists, that (with or without notice or lapse of time) (i) may constitute or result directly or indirectly in a violation by AE of, or a failure on the part of AE to comply with, any such Permits or (ii) result directly or indirectly in the revocation, withdrawal, suspension, cancellation or termination of, or any modification to, any Permit set forth on or required to be set forth on Schedule 3.16(a) of the CMGO Disclosure Schedules.  All applications for or renewals of all Permits have been timely filed and made and no Permit will expire or be terminated as a result of the consummation of the transactions contemplated by this Agreement.  No present or former shareholder, partner, director, officer or employee of AE or any Affiliate thereof, or any other Person, owns or has any proprietary, financial or other interest (direct or indirect) in any Permit that AE owns, possesses or uses.
 
 
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3.17            Absence of Certain Changes .  Except as set forth on Schedule 3.17 of the CMGO Disclosure Schedules, since the date of the AE Financial Statements, there has not been any:  (a) Material Adverse Effect with respect to the business of AE, and no event has occurred that may result in such a Material Adverse Effect; (b) purchase, redemption, retirement or other acquisition by AE of any AE equity interest; (c) amendments to the Organizational Documents of AE; (d) payment or increase by AE of any bonuses, salaries or other compensation (including management or other similar fees) or entry into any employment, severance or similar Contract with any employee engaged in AE’s business, other than increases in salary to employees made in the Ordinary Course of Business; (e) adverse change in employee relations which has or is reasonably likely to have a Material Adverse Effect on AE; (f) damage to or destruction or loss of any of the assets or property of AE, whether or not covered by insurance, that could reasonably be expected to constitute a Material Adverse Effect on AE; (g) entry into, termination or acceleration of, or receipt of notice of termination by AE of (1) any material license, distributorship, dealer, sales representative, joint venture, credit or similar agreement relating to AE’s business, or (2) any Contract or transaction involving a Liability by or to AE (other than the Liabilities incurred in the Ordinary Course of Business); (h) sale (other than sales of inventory in the Ordinary Course of Business, if any), lease or other disposition of any of the assets or property of AE; (i) mortgage, pledge or imposition of any Lien on any assets or property of AE; (j) (1) delay or failure to repay when due any obligation of AE, which delay or failure could have a Material Adverse Effect on AE, or (2) delay or failure to repay when due any obligation of AE which delay or failure could have a Material Adverse Effect on AE; (k) cancellation or waiver by AE of any claims or rights with a value to AE in excess of Fifty Thousand Dollars ($50,000) individually or in the aggregate; (l) licensing out on an exclusive basis or other than in the Ordinary Course of Business, disposition or lapsing of any Intellectual Property or any disclosure to any Person of any trade secret or other confidential information without appropriate protections in place; (m) change in the accounting methods, principles or practices used by AE; (n) capital expenditures by AE in excess of $20,000 individually or $50,000 in the aggregate; or (o) agreement, whether oral or written, by AE with respect to or to do any of the foregoing other than as expressly provided for herein.
 
3.18            Insurance .   Schedule 3.18 of the CMGO Disclosure Schedules sets forth a complete and accurate list (showing as to each policy or binder the carrier, policy or binder the carrier, policy number, coverage limits, expiration dates, annual premiums and a general description of the type of coverage provided) of all policies or binders of insurance of any kind or nature covering the AE’s business, or any employees, properties or assets of AE, including, without limitation, policies of life, disability, fire, theft, workers compensation, employee fidelity and other casualty and liability insurance.  All such policies are in full force an effect.  AE is not in default under any of such policies or binders, and AE has not failed to give any notice or to present any claim under any such policy or binder in a due and timely fashion.
 
3.19            Restrictions on Business Activities . There is no agreement, judgment, injunction, order or decree binding upon AE which has the effect of prohibiting or materially impairing (a) any current or future business practice of AE or (b) any acquisition of any Person or property by AE, except in each of clauses (a) and (b) for any such prohibitions or impairments that would not reasonably be expected to have a Material Adverse Effect on AE.
 
3.20            Related Party Transactions .  Except as set forth on Schedule 3.20 of the CMGO Disclosure Schedules, none of AE, any Affiliate thereof, holders of the ownership interest of AE or any Affiliate or Family Member thereof is presently or has, since the date of the AE Financial Statements, borrowed any moneys from or has any outstanding debt or other obligations to AE or is presently a party to any transaction with AE.  Except as set forth on Schedule 3.20 of the CMGO Disclosure Schedules, none of AE any Affiliate thereof, or any director, officer, partner or key employee of any such Persons (a) owns any direct or indirect interest of any kind in (except for ownership of less than 1% of any public company, provided, that such owner’s role is that solely of a passive investor), or controls or is a director, officer, employee or partner of, consultant to, lender to or borrower from, or has the right to participate in the profits of, any Person which is (i) a competitor, supplier, customer, landlord, tenant, creditor or debtor of AE, (ii) engaged in a business related to the AE’s business or (iii) a participant in any transaction to which AE is a party, or (b) is a party to any Contract with AE.  Except as set forth on Schedule 3.20 of the CMGO Disclosure Schedules, AE has no Contract or understanding with any officer, director or key employee of AE or any of AE’s partners or any Affiliate or Family Member thereof with respect to the subject matter of this Agreement, the consideration payable hereunder or any other matter.   Schedule 3.20 sets forth each transaction that AE would be required to disclose for the past three years pursuant to Item 404 of Regulation S-K of the Securities Act, as if such Person were subject to such disclosure requirements.
 
 
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3.21            Brokers or Finders .  Except as set forth on Schedule 3.21 of the CMGO Disclosure Schedules, all negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by CMGO or its Affiliates in connection with the transactions contemplated by this Agreement, and neither CMGO nor any of its Affiliates has incurred any obligation to pay any brokerage or finder’s fee or other commission in connection with the transactions contemplated by this Agreement.
 
3.22            No Other Agreements .  Except as set forth on Schedule 3.22 of the CMGO Disclosure Schedules, and other than this Agreement or any agreement contemplated hereby, AE has no legal obligation, absolute or contingent, to any other Person to sell, assign or transfer any partnership or other equity interest in AE or to effect any merger, consolidation or other reorganization of AE to enter into any agreement with respect thereto.
 
3.23            Disclosure .  No representation or warranty of CMGO in this Agreement or in any Collateral Document and no statement in any certificate furnished or to be furnished by any of CMGO pursuant to this Agreement contained, contains or will contain on the date such agreement or certificate was or is delivered, or on the Closing Date, any untrue statement of a material fact, or omitted, omits or will omit on such date to state any material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.
 
3.24  
Real Property; Title to Property .
 
(a)           AE does not own any real property or any interest, other than a leasehold interest, in any real property.   Schedule 3.24(a) of the CMGO Disclosure Schedules lists and describes all real property leased by AE and all subleases thereto, in each case that relates to the AE Business.  Except for leases and subleases listed on Schedule 3.24(a) of the AE Disclosure Schedules, there are no leases, subleases, licenses, occupancy agreements, options, rights, concessions or other agreements or arrangements, written or oral, granting to any Person the right to purchase, use or occupy any real property used in connection with the AE Business or any portion thereof or interest in any such real property.
 
(b)           AE has good and marketable title to all of its properties, interests in properties and assets, real and personal, used in connection with the AE’s business or with respect to leased properties and assets, valid leasehold interests in, free and clear of all mortgages, Liens, pledges, charges or encumbrances of any kind or character, except (i) Liens for current Taxes not yet due and payable or which are being contested by AE in good faith, (ii) such imperfections of title, liens and easements as do not and will not materially detract from or interfere with the use of the properties subject thereto or affected thereby, or otherwise materially impair business operations involving such properties, and (iii) any Liens set forth on Schedule 3.24   of the CMGO Disclosure Schedules.  The properties and equipment of AE that are used in the operation of its business are in good operating condition subject to normal wear and tear.
 
(c)            Conduct of Business .  Prior to the Closing Date, CMGO shall cause AE to conduct its business in the normal course, and shall not sell, pledge, or assign any assets, without the prior written approval of AEAC, except in the regular course of business. Except as otherwise provided herein, AE shall not amend its Organizational Documents, declare dividends, redeem or sell stock, or other securities, acquire or dispose of fixed assets, change employment terms, enter into any material or long-term contract, guarantee obligations of any third party, settle or discharge any material balance sheet receivable for less than its stated amount, pay more on any liability than its stated amount or enter into any other transaction other than in the regular course of business.
 
 
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AEAC
 
AEAC represents and warrants to CMGO that the statements contained in this Article 4 are true, complete and correct as of the date of this Agreement and will be correct and complete as of the Closing Date (and as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 4, except in the case of representations and warranties stated to be made as of the date of this Agreement or as of another date and except for changes contemplated or permitted by this Agreement); except as the same may be qualified or limited by the AEAC Disclosure Schedules:
 
4.1  
Organization and Qualification; Subsidiaries .
 
(a)           AEAC is duly organized, validly existing and in good standing under the Laws of the jurisdiction in which it is organized and has the requisite power and authority to carry on its business as now being conducted.
 
(b)           AEAC is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) has not had and would not reasonably be expected to have a Material Adverse Effect on AEAC.
 
4.2            Authorization; Enforceability .  AEAC has the requisite power and authority, and has taken all action necessary, to execute, deliver and perform its obligations under this Agreement and any Collateral Documents to which it is a party and each other agreement, document, instrument or certificate contemplated by this Agreement and/or any Collateral Documents or to be executed by AEAC in connection with the consummation of the Transactions, and, subject to approval of the shareholders of AEAC, to consummate the Transactions.  The execution and delivery by AEAC of this Agreement and any applicable Collateral Documents, and the consummation by AEAC of the Transactions contemplated hereby, and the performance by AEAC of its obligations hereunder, have been duly and validly authorized by all necessary corporate or other action on the part of AEAC, subject to adoption of this Agreement by the stockholders of AEAC, and no other action on the part of AEAC is required to authorize the execution, delivery and performance of this Agreement and the consummation by AEAC of the Transactions.  This Agreement has been duly and validly executed and delivered by AEAC and constitutes a legal, valid and binding obligation of AEAC enforceable against AEAC in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws affecting creditors’ rights generally and the general principles of equity, regardless of whether asserted in a proceeding in equity or at law.
 
ARTICLE V
COVENANTS OF THE PARTIES
 
The Parties hereby agree as follows:
 
5.1            Proxy Statement .  To the extent that shareholder approval is required under applicable law, as soon as practicable following the execution of this Agreement, the Parties shall work together to prepare a proxy statement in respect of the Spin-Off, the Share Exchange and the other transactions contemplated hereby (the “ Proxy Statement ”), which Proxy Statement shall be used in respect of soliciting approval of the Spin-Off and this Agreement by CMGO’s shareholders.
 
5.2            Due Diligence .  Each Party shall provide to the other and their respective Representatives such financial, operating and other documents, data and information relating to such Party, and their respective businesses, properties, assets and liabilities, as each Party, or its representatives may reasonably request.  In addition, each Party hereby agrees to take all action necessary to enable their respective Representatives to review, inspect and audit each Party’s business, properties, assets and liabilities in connection with such Party’s due diligence investigation of the other Parties, and discuss them with such Party’s Representatives.  Notwithstanding any investigation that any Party may conduct of the other Parties, or their respective businesses, properties, assets and liabilities, each Party may fully rely on the other Party’s warranties, covenants and indemnities set forth in this Agreement.
 
 
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5.3            Consents and Approvals .  As soon as practicable after execution of this Agreement, the Parties shall use commercially reasonable efforts to obtain any necessary consents, approvals, authorizations or orders of, make any registrations or filings with or give any notices to, any Regulatory Authority or Person as is required to be obtained, made or given by any Party to consummate the transactions contemplated by this Agreement and the Collateral Documents.
 
5.4            Notification of Adverse Change and Certain Matters .  Each Party shall promptly notify the other Parties of any material adverse change in the condition (financial or otherwise) of such Party.  Each Party shall promptly notify the other Parties of any fact, event, circumstance or action known to it that is reasonably likely to cause such Party to be unable to perform any of its covenants contained herein or any condition precedent in Article 6 not to be satisfied, or that, if known on the date of this Agreement, would have been required to be disclosed to another Party pursuant to this Agreement or the existence or occurrence of which would cause any of such Party’s representations or warranties under this Agreement not to be correct and/or complete.  Each Party shall give prompt written notice to the other Parties of any adverse development causing a breach of any of the representations and warranties in Articles 3 and 4 as of the date made.
 
5.5            Approval of the CMGO Shareholders .  To the extent that shareholder approval is legally required, promptly after the date hereof, CMGO will take all action necessary in accordance with its Organizational Documents to convene a meeting of its shareholders, or seek the written consent of its shareholders to consider the adoption and approval of this Agreement and approval of the Transactions to be held as promptly as practicable (including, without limitation, approval by each class of CMGO Capital Stock issued and outstanding as of the date hereof).  CMGO will use its commercially reasonable efforts to solicit from its shareholders proxies in favor of the adoption and approval of this Agreement and the approval of the Spin-Off.
 
5.6            Disclosure Schedules .  Each Party shall, from time to time prior to Closing, supplement its Disclosure Schedules attached hereto with additional information that, if existing or known to it on the date of delivery to the other Party, would have been required to be included therein.  For purposes of determining the satisfaction of any of the conditions to the obligations of any Party in Article 6 hereof, the Disclosure Schedules of such Party shall be deemed to include only (a) the information contained therein on the date of this Agreement and (b) information added to such Party’s Disclosure Schedule by written supplements delivered prior to Closing by such Party that (i) are accepted in writing by the receiving Party, or (ii) reflect actions taken or events occurring after the date hereof prior to Closing.
 
5.7            State Statutes .  The Parties and their respective Boards of Directors shall, if any state takeover statute or similar law is or becomes applicable to the Transactions, this Agreement or any of the transactions contemplated by this Agreement, use all reasonable efforts to ensure that the Transactions contemplated by this Agreement may be consummated as promptly as practicable on the terms contemplated by this Agreement and otherwise to minimize the effect of such statute or regulation on the Spin-Off, this Agreement and the Transactions contemplated hereby.
 
 
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5.8            No Solicitation .  Until the earlier of the Closing or the date of termination of this Agreement pursuant to the provisions of Article 8 hereof, neither CMGO nor any of its officers, directors, agents, investment bankers or other representatives of any of them (collectively, the “ Representatives ”) will, directly or indirectly, (i) solicit, engage in discussions or negotiate with any Person (regardless of who initiates such discussions or negotiations), or take any other action intended or designed to facilitate the efforts of any Person, other than AEAC, relating to the possible acquisition of AE (whether by way of purchase of partnership interest, capital stock, purchase of assets or otherwise) or any significant portion of its interests, capital stock or assets by any Person other than AEAC (an “ Alternative Acquisition ”), (ii) provide information with respect to such Party or any Person relating to a possible Alternative Acquisition by any Person, (iii) enter into an agreement with any Person providing for a possible Alternative Acquisition, or (iv) make or authorize any statement, recommendation or solicitation in support of any possible Alternative Acquisition by any Person.  CMGO shall cause its Representatives to immediately cease and cause to be terminated all existing discussions or negotiations with any Person heretofore conducted with respect to any possible Alternative Acquisition.
 
5.9            Conduct of Business .  During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement pursuant to the provisions of Article 8 hereof or the Closing, CMGO shall (unless otherwise required by this Agreement or AEAC has given its prior written consent) cause AE to carry on its business in the ordinary course consistent with past practice, pay its Taxes and other obligations consistent with its past practices, pay or perform other obligations when due consistent with its past practices, subject to any good faith disputes over such Taxes and other obligations and, to the extent consistent with such business, use reasonable efforts and institute all policies to preserve intact its present business organization, keep available the services of its present officers and key employees, preserve its relationships with customers, suppliers, distributors, licensors, licensees, independent contractors and other Persons having business dealings with it, all with the express purpose and intent of preserving unimpaired its goodwill and ongoing businesses at the Closing.
 
5.10            Confidentiality .  The Parties acknowledge and agree that the terms and conditions described in this Agreement, including its existence, as well as the non-public information and data furnished to them or their respective Representatives from the first introduction of the Parties and throughout the negotiation and drafting of this Agreement is confidential and will not be disclosed to any third party, or used for any purpose not specifically contemplated herein, without prior written consent of the other Party, unless otherwise required by Law or unless it ceases to be confidential through no breach of the receiving party.
 
5.11            Registration .  To the extent required under the Securities Act of 1933, as amended, following the Closing, AE will file a registration statement on Form S-1 with respect to the resale of the five percent (5%) of AE’s outstanding capital stock held by the stockholders of CMGO immediately prior to the Closing within ninety (90) days following the Closing.
 
5.12            Trading .  Following the Closing, AE will cause to be filed through a FINRA market-maker firm a Rule 15c2-11 Exemption Request Form in order to receive a trading symbol and become a publicly traded company.
 
5.13            Action With Respect to Notes .  CMGO shall cooperate with AEAC’s efforts to procure from CMGO Investors, LLC or otherwise take control of and/or satisfy the Notes, and AEAC will work in good faith to acquire or otherwise have its investors take control of the Notes, Upon acquiring or taking control of the Notes, AEAC will restructure the Notes in such manner as the Parties mutually agree including arranging for an assignment of the obligations under the Notes to AE, and a restructuring thereof. CMGO will be released from any and all obligations under the notes by the holder thereof and a satisfaction of said obligation as to CMGO and a UCC III release of security interest and encumbrance as to any post spin off assets of CMGO will be delivered to CMGO at the Closing.  At the request of CMGO, within fifteen business days from the request of CMGO, AEAC will provide to CMGO reasonable evidence as to proof of funds with respect to the matters referred to in this Section 5.13.
 
 
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5.14            Compliance with the Spin-Off Rules .  The Parties shall promptly take all steps consistent with the Rules and the Staff Legal Bulletin of the SEC to complete the Spin-Off including, without limitation, to the extent required, the registration of the Spin-Off Shares, the providing of an information statement to the shareholders of CMGO describing the Spin-Off and Share Exchange, and the registration by AE of the Spin-Off Shares under the Securities Exchange Act of 1934.
 
ARTICLE VI
CLOSING CONDITIONS
 
6.1            Conditions to AE Parties’ Obligation to Close .  The obligations of the AEAC to consummate the transactions provided for hereby are subject to the satisfaction, before or on the Closing Date, of each of the conditions set forth below in this Section 6.1, any of which may be waived by AEAC:
 
(a)            Accuracy of Representations .  Subject to the limitations contained in Article III hereof, all representations and warranties of CMGO contained in this Agreement, the Collateral Documents and any certificate delivered by CMGO at or prior to Closing shall be, if specifically qualified by materiality, true in all respects and, if not so qualified, shall be true in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for representations and warranties expressly stated to be made as of the date of this Agreement or as of another date other than the Closing Date and except for changes contemplated or permitted by this Agreement.  CMGO shall have delivered to AEAC a certificate dated the Closing Date to the foregoing effect.
 
(b)            Covenants .  CMGO shall, in all material respects, have performed and complied with each of the covenants, obligations and agreements contained in this Agreement and the Collateral Documents that are to be performed or complied with by it at or prior to Closing.  CMGO shall have delivered to AEAC a certificate dated the Closing Date to the foregoing effect.
 
(c)            Consents and Approvals .  All consents, approvals, permits, authorizations and orders required to be obtained from, and all registrations, filings and notices required to be made with or given to any Regulatory Authority or Person as provided herein, if any, shall have been so obtained or filed with such Regulatory Authority or Person.
 
(d)            Shareholder Approval .  All shareholder approval, as required under any applicable Law, shall have been obtained to approve the transactions contemplated hereunder including the approval of the Spin-Off, this Agreement and the Transactions.
 
(e)            Issuance Exemption. Either (i) the issuance of the Spin-Off Shares shall be exempt from registration, or (ii) a Registration Statement registering the issuance of the Spin-Off Shares shall have been filed and declared effective by the SEC.
 
(f)            No Legal Proceedings .  No injunction, action, suit or proceeding shall be pending or threatened by or before any Regulatory Authority and no Law shall have been enacted, promulgated or issued or deemed applicable to any of the transactions contemplated by this Agreement or the Collateral Documents, which would: (i) prevent consummation of any of the transactions contemplated by this Agreement or the Collateral Documents; (ii) cause any of the transactions contemplated by this Agreement or the Collateral Documents to be rescinded following consummation; or (iii) have a Material Adverse Effect on a Party, this Agreement or the transactions contemplated hereby.
 
(g)            No Material Change .  As of the date hereof, there shall have been no Material Adverse Change in the business of AE.
 
 
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6.2            Conditions to CMGO’s Obligation to Close .  The obligations of CMGO to consummate the transactions provided for hereby are subject to the satisfaction, before or on the Closing Date, of each of the conditions set forth below in this Section 6.2, any of which may be waived by CMGO:
 
(a)            Accuracy of Representations .  All representations and warranties of each of AEAC contained in this Agreement, the Collateral Documents and any certificate delivered by AEAC at or prior to Closing shall be, if specifically qualified by materiality, true in all respects and, if not so qualified, shall be true in all material respects, in each case on and as of the Closing Date with the same effect as if made on and as of the Closing Date, except for representations and warranties expressly stated to be made as of the date of this Agreement or as of another date other than the Closing Date and except for changes contemplated or permitted by this Agreement.  AEAC shall have delivered to CMGO a certificate dated the Closing Date to the foregoing effect.
 
(b)            Covenants .  AEAC shall, in all material respects, have performed and complied with each of the covenants, obligations and agreements contained in this Agreement and the Collateral Documents that are to be performed or complied with by any of them at or prior to Closing.  AEAC shall have delivered to CMGO a certificate dated the Closing Date to the foregoing effect.
 
(c)            Consents and Approvals .  All consents, approvals, permits, authorizations and orders required to be obtained from, and all registrations, filings and notices required to be made with or given to any Regulatory Authority or Person as provided herein, if any, shall have been so obtained or filed with such Regulatory Authority or Person.
 
(d)            Shareholder Approval .  All shareholder approval, as required under any applicable Law, shall have been obtained to approve the transactions contemplated hereunder including the approval of the Transactions and this Agreement.
 
(e)            Issuance Exemption. Either (i) the issuance of the Spin-Off Shares shall be exempt from registration under the Securities Act, or (ii) a Registration Statement registering the issuance of the Spin-Off Shares shall have been filed and declared effective by the SEC.
 
(f)            Fairness Opinion .  To the extent that same is deemed necessary by the parties hereto, CMGO shall have received a fairness opinion in form and substance satisfactory to it passing on the fairness of the transactions contemplated herein to each class of the shareholders of CMGO from a financial perspective.
 
(g)            No Legal Proceedings .  No injunction, action, suit or proceeding shall be pending or threatened by or before any Regulatory Authority and no Law shall have been enacted, promulgated or issued or deemed applicable to any of the transactions contemplated by this Agreement or the Collateral Documents, which would: (i) prevent consummation of any of the transactions contemplated by this Agreement or the Collateral Documents; (ii) cause any of the transactions contemplated by this Agreement or the Collateral Documents to be rescinded following consummation; or (iii) have a Material Adverse Effect on a Party, this Agreement or the Transactions contemplated hereby.
 
ARTICLE VII
INDEMNIFICATION
 
7.1            Indemnification by CMGO .  CMGO shall indemnify, defend and hold harmless AEAC, and each of its shareholders, directors, officers, managers, employees, agents, attorneys and representatives, from and against any and all Losses which may be incurred or suffered by any such party and which may arise out of or result from any breach of any material representation, warranty, covenant or agreement of CMGO contained in this Agreement.  Notwithstanding the foregoing, CMGO shall have no liability hereunder arising from any breach of a representation or warranty with respect to which Nathaniel Bradley had actual knowledge.
 
 
20

 
 
7.2            Indemnification by AEAC .  AEAC shall indemnify, defend and hold harmless CMGO and its shareholders, directors, officers, managers, employees, agents, attorneys and representatives from and against any and all Losses which may be incurred or suffered by any such party hereto and which may arise out of or result from any breach of any material representation, warranty, covenant or agreement of any of AEAC contained in this Agreement.
 
7.3            Indemnification Procedures .
 
(a)           In the event that any Legal Proceeding shall be instituted or any claim or demand shall be asserted (individually and collectively, a “ Claim ”) by any Person in respect of which payment may be sought under this Article 7, the indemnified party shall reasonably and promptly cause written notice (a “ Claim Notice ”) of the assertion of any Claim of which it has knowledge which is covered by this indemnity to be delivered to the indemnifying party; provided , however , that the failure of the indemnified party to give the Claim Notice shall not release, waive or otherwise affect the indemnifying party’s obligations with respect thereto, except to the extent that the indemnifying party can demonstrate actual loss and material prejudice as a result of such failure.  If the indemnifying party shall notify the indemnified party in writing within five (5) Business Days (or sooner, if the nature of the Claim so requires) that the indemnifying party shall be obligated under the terms of its indemnity hereunder in connection with such lawsuit or action, then the indemnifying party shall be entitled, if it so elects at its own cost, risk and expense, (i) to take control of the defense and investigation of such lawsuit or action, (ii) to employ and engage attorneys of its own choice, but, in any event, reasonably acceptable to the indemnified party, to handle and defend the same unless the named parties to such action or proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and the indemnified party has been advised in writing by counsel that there may be one or more material legal defenses available to such indemnified party that are different from or additional to those available to the indemnifying party, in which event the indemnified party shall be entitled, at the indemnifying party’s cost, risk and expense, to a single firm of separate counsel (plus any necessary local counsel), all at reasonable cost, of its own choosing, reasonably acceptable to the indemnifying party and (iii) to compromise or settle such lawsuit or action, which compromise or settlement shall be made only with the prior written consent of the indemnified party, such consent not to be unreasonably withheld or delayed.
 
(b)           If the indemnifying party elects not to defend against, negotiate, settle or otherwise deal with any Claim which relates to any Losses indemnified against hereunder, fails to notify the indemnified party of its election as provided in this Article 7 or contests its obligation to indemnify the indemnified party for such Losses under this Agreement, the indemnified party may defend against, negotiate, settle or otherwise deal with such Claim.  If the indemnified party defends any Claim, then the indemnifying party shall reimburse the indemnified party for the Losses incurred in defending such Claim upon submission of periodic bills.  If the indemnifying party shall assume the defense of any Claim, the indemnified party may participate, at its own expense, in the defense of such Claim; provided , however , that such indemnified party shall be entitled to participate in any such defense with separate counsel at the expense of the indemnifying party if (i) so requested by the indemnifying party to participate or (ii) in the reasonable opinion of counsel to the indemnified party, a material conflict or potential material conflict exists between the indemnified party and the indemnifying party that would make such separate representation required; and provided , further , that the indemnifying party shall not be required to pay for more than one such counsel for all indemnified parties in connection with any Claim.  If the indemnifying party shall assume the defense of any Claim, the indemnifying party shall obtain the prior written consent of the indemnified party before entering into any settlement of such Claim or ceasing to defend such Claim if, pursuant to or as a result of such settlement or cessation, injunctive or other equitable relief shall be imposed against the indemnified party or if such settlement or cessation does not expressly and unconditionally release the indemnified party from all Liabilities or obligations with respect to such Claim, with prejudice.  The Parties hereto agree to cooperate fully with each other in connection with the defense, negotiation or settlement of any Claim.
 
 
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ARTICLE VIII
TERMINATION
 
8.1            Termination .  This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Effective Time.
 
(a)           By mutual written agreement of the Parties;
 
(b)           By either AEAC or CMGO if the Closing does not occur on or before November 30, 2011;
 
(c)           By either of AEAC or CMGO if the shareholders of CMGO fail to approve the Spin-Off, this Agreement and the Transactions contemplated hereby;
 
(d)           By either of AEAC or CMGO if any court of competent jurisdiction or other competent Regulatory Authority shall have issued an order making illegal or otherwise permanently restricting, preventing or otherwise prohibiting the Transactions and such order shall have become final; or
 
(e)           By either of AEAC or CMGO upon written notice to the other Party in the event of a breach of any provision or covenant of this Agreement, or any representation or warranty made by such Party hereunder becomes inaccurate; provided , however , that such breach or inaccuracy would cause the related closing condition, if any, not be satisfied in accordance with Article 6 hereof; provided , further , that prior to any termination by the non-breaching party, such Party shall provide written notice to the breaching Party specifically identifying the breach or inaccurate representation, and the breaching Party does not cure or correct such breach or inaccuracy within 30 days following receipt of the written notice.
 
8.2            Effect of Termination .  If this Agreement is validly terminated by either AEAC or CMGO pursuant to Section 8.1, this Agreement will forthwith become null and void and there will be no liability or obligation on the part of the Parties hereto, except that nothing contained herein shall relieve any party hereto from liability for willful breach of its representations, warranties, covenants or agreements contained in this Agreement.
 
ARTICLE IX
MISCELLANEOUS
 
9.1            Parties Obligated and Benefited .  This Agreement shall be binding upon the Parties and their respective successors by operation of law and shall inure solely to the benefit of the Parties and their respective successors by operation of law, and no other Person shall be entitled to any of the benefits conferred by this Agreement or be deemed to be a third-party beneficiary of any rights under this Agreement or the Collateral Documents.  Without the prior written consent of the other Party, no Party may assign this Agreement or the Collateral Documents or any of its rights or interests or delegate any of its duties under this Agreement or the Collateral Documents.
 
9.2            Publicity .  AEAC and CMGO each shall consult with each other prior to issuing any press releases or otherwise making public announcements with respect to the Transactions contemplated by this Agreement and prior to making any filings with any third party and/or any Regulatory Authorities (including any national securities inter dealer quotation service) with respect thereto, except as may be required by law.
 
9.3            Notices .  Any notices and other communications required or permitted hereunder shall be in writing and shall be effective upon delivery by hand or upon receipt if sent by certified or registered mail (postage prepaid and return receipt requested) or by a nationally recognized overnight courier service (appropriately marked for overnight delivery) or upon transmission if sent by facsimile (with request for immediate confirmation of receipt in a manner customary for communications of such respective type and with physical delivery of the communication being made by one or the other means specified in this Section as promptly as practicable thereafter).  Notices shall be addressed as follows:
 
 
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If to AEAC:
 
AudioEye Acquisition Corp.
1327 Ocean Avenue, Suite M
Santa Monica, CA 90401
Attention: Nathaniel T. Bradley
Facsimile No: (520) 844-2989
 
 
With a copy to:
 
 
TroyGould PC
1801 Century Park East, Suite 1600
Los Angeles, California 90067
Attention:  David L. Ficksman, Esq.
Facsimile No: (310) 789-1490
 
If to CMGO, to:
 
CMG Holdings, Inc.
5601 Biscayne Boulevard
Miami, Florida 33137
Attention: Michael Vandetty, Esq.
Facsimile No.: (305) 751-5259
 

Any Party may change the address to which notices are required to be sent by giving notice of such change in the manner provided in this Section.
 
9.4            Attorneys’ Fees .  In the event of any action or suit based upon or arising out of any alleged breach by any Party of any representation, warranty, covenant or agreement contained in this Agreement or the Collateral Documents, the prevailing Party shall be entitled to recover reasonable attorneys’ fees and other costs of such action or suit from the other Party.
 
9.5            Headings .  The Article and Section headings of this Agreement are for convenience only and shall not constitute a part of this Agreement or in any way affect the meaning or interpretation thereof.
 
9.6            Choice of Law .  This Agreement and the rights of the Parties under it shall be governed by and construed in all respects in accordance with the laws of the State of Delaware without giving effect to any choice of law provision or rule (whether of the State of Delaware or any other jurisdiction that would cause the application of the laws of any jurisdiction other than the State of Delaware).
 
9.7            Jurisdiction and Service of Process .  Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement, may be brought against any of the Parties solely and exclusively in the courts of the State of Delaware, and each of the Parties consents to the sole and exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any Party anywhere in the world.
 
9.8            Rights Cumulative .  All rights and remedies of each of the Parties under this Agreement shall be cumulative, and the exercise of one or more rights or remedies shall not preclude the exercise of any other right or remedy available under this Agreement or applicable law.
 
 
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9.9            Further Actions .  The Parties shall execute and deliver to each other, from time to time at or after Closing, for no additional consideration and at no additional cost to the requesting party, such further assignments, certificates, instruments, records, or other documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and to allow each party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement.
 
9.10            Time of the Essence .  Time is of the essence under this Agreement.  If the last day permitted for the giving of any notice or the performance of any act required or permitted under this Agreement falls on a day which is not a Business Day, the time for the giving of such notice or the performance of such act shall be extended to the next succeeding Business Day.
 
9.11            Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
9.12            Entire Agreement .  This Agreement (including the Exhibits, the AE Disclosure Schedules, the AEAC Disclosure Schedules and any other documents, instruments and certificates referred to herein, which are incorporated in and constitute a part of this Agreement) contains the entire agreement of the Parties.
 
9.13            Survival of Representations and Covenants .  Notwithstanding any right of a Party to fully investigate the affairs of the other Party and notwithstanding any knowledge of facts determined or determinable by a Party pursuant to such investigation or right of investigation, each Party shall have the right to rely fully upon the representations, warranties, covenants and agreements of the other Party contained in this Agreement.  Each representation, warranty, covenant and agreement of a Party contained herein shall survive the execution and delivery of this Agreement and the Closing and shall thereafter terminate and expire on the first anniversary of the Closing Date unless, prior to such date, a Party has delivered to the other Party a written notice of a claim with respect to such representation, warranty, covenant or agreement.
 
9.14            Expenses .  Each Party shall be responsible for its own costs and expenses incurred in connection with the Transactions, it being understood, however, that AEAC shall be primarily responsible for the cost of preparing and drafting the Collateral Documents and the matters referred to in Sections 5.11, 5.12, 5.13 and 5.14, including, without limitation, procuring the necessary financial statements (including any audit report).
 
9.15            Participation Rights .  For a period of one year from the Closing Date, provided that CMGO then owns in the aggregate at least 10% of the then issued and outstanding capital stock of AE, in the event that AE initiates any capital raise without the use of a registered broker-dealer, AE shall extend to CMGO the right to participate on a pro rata basis in any such offering, placement or other such transaction in the same manner and minimum or maximum amounts offered to third parties.
 
 
 
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IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.
 
Dated:               June 22, 2011
AUDIOEYE ACQUISITION CORP.,
a Nevada Corporation
By:   __________________________________________                                                          
Nathaniel T. Bradley
Chief Executive Officer
 
 
Dated:               June 22, 2011
CMG HOLDINGS GROUP, INC.,
a Nevada Corporation
By: ___________________________________________                                                            
Alan Morell, President
By: ___________________________________________                                                            
Jim Ennis, Vice President/



03145/0001 220767.7
 
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CMGO DISCLOSURE SCHEDULES

3.1
None
3.3(c)
None
3.3(e)
None
3.3(p)
None
3.4
None
3.5
None
3.8
None
3.9(a)
None
3.9           (b)
None
3.9           (c)
None
3.9           (e)
None
3.9           (h)
None
3.9           (k)
None
3.9           (l)
None
3.10(a)
None
3.10(c)
AE believes that the intellectual property of AE may be infringed by manufacturers of certain SmartPhones, eReaders, and Audible Websites
3.11(a)
(i) Letter Agreement dated April 28, 2009 with Ecologic Transportation, Inc.
(ii) Exclusive License Agreement dated June 10, 2010 with Roth Kline, Inc.
(iii)Executive Employment Agreement with Nathan Bradley
(iv)Executive Employment Agreement with Sean Bradley
3.11(b)
None
3.11           (c)
AE requires additional working capital
3.12(a)
None
3.12(_)
None
3.12(i)
None
3.12(j)
None
3.14
None
3.16(a)
None
3.17
None
3.18
None
3.20
None
3.21
None
3.22
None
3.24
None

 
 
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Exhibit 10.2 - Royalty Agreement
 
ROYALTY AGREEMENT
 
This Royalty Agreement (the “ Agreement ”) is made and entered into as of _______, 2011 by and between CMG Holdings Group, Inc., a Nevada corporation (“ CMGO ”) and Audio Eye, Inc., a Delaware corporation (“ AE ”) with reference to the following:
 
A.           Pursuant to a Master Agreement dated as of June 22, 2011 (the “ Master Agreement ”) between CMGO and Audio Eye Acquisition Corp. (“ AEAC ”), a newly formed corporation which owns certain rights to the exploitation of AE’s patents, CMGO and AEAC agreed, among other things, that the shareholders of AEAC will exchange all of their shares of the capital stock of AEAC for 80% of the capital stock of AE and CMGO will distribute to its shareholders in the form of a dividend 5% of the capital stock of AE (collectively, the “ Separation ”).  Pursuant to the Master Agreement, CMGO will retain approximately 15% of the outstanding capital stock of AE as of the closing.
 
B.           As a condition to the closing of the Separation (the “ Closing ”), AE and CMGO are required to enter into an agreement pursuant to which AE will pay to CMGO a royalty based on cash received by AE or its affiliates from the exploitation of AE’s technology as described below.
 
NOW, THEREFORE, in consideration of the mutual covenants and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CMGO and AE agree as follows:
 
ARTICLE ONE
PAYMENT OF ROYALTIES

Effective as of the Closing, AE shall pay to CMGO 10% of cash or other forms of payment or compensation received as income earned or settlements on claims, suits or judgments directly resulting from AE’s patent enforcement and licensing strategy, whether received by AE or any of its affiliates, net in either case of any direct costs incurred in pursuit of such strategy as they relate to the following: AudioEye Family of patents including but not limited to (1) United States Patent Number #7,653,544 and all continuations and continuations in-part, (2) Patent Number 7966184 and all continuations and continuations in part, and (3) Patent Number 7653544 and all continuations and continuations in-part.   Without limiting the generality of the foregoing, direct costs shall include attorneys’ fees and costs incurred by AE in obtaining or attempting to obtain settlement or judgments as a result of patent enforcement regardless of whether the results therefrom are successful. Said direct costs shall be calculated as to each settlement or judgment obtained and shall be deducted from the gross proceeds obtained from the specific claim, suit or judgment in which they were incurred. Amounts due hereunder shall be payable on a quarterly basis commencing with the calendar quarter in which the Closing occurs with respect to amounts collected, costs incurred or taxes accrued in such quarter.  Payment shall be made within fifteen business days from the end of a calendar quarter and shall be accompanied by a statement from AE stating in reasonable detail the calculation of amounts payable.
 
ARTICLE TWO
REPORTS, BOOKS AND RECORDS; AUDIT; LATE PAYMENTS AND TAXES

2.1            Reports . Within thirty (30) days after the last day of each quarter subsequent to the Closing Date, AE shall submit to CMGO written statement (the “Quarterly Reporting Statement”) detailing with respect to the preceding quarterly period: (a) all Gross Revenue; and (b) the amount to be paid to CMGO under this Agreement based on such Gross Revenue.
 
2.2            Adjustments .  If AE has to reverse previously recognized Gross Revenue reported under a previous Quarterly Reporting Statement, AE can claim credit on a subsequent Quarterly Reporting Statement for the same quarter it reverses the previously recognized Gross Revenue in AE’s income statement.  Such credit will not exceed the amount to be paid in the then-current quarter, but the unused credit may be carried over to succeeding quarters within the same contract year.
 
 
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2.3            Payment Timing .  AE shall pay CMGO, on a quarterly basis, the amounts reported in the Quarterly Reporting Statement for such quarter not later than thirty (30) days after the end of such quarter.
 
2.4            Books and Records . AE shall maintain appropriate books of account and records with respect to Gross Revenue in accordance with generally accepted accounting principles and shall make complete and accurate entries concerning all transactions relevant to this Agreement. All such books of account and records shall be kept available by AE for no less than three (3) years after the end of each calendar year, or, in the event of a dispute between the parties involving in any way those books of accounts and records, until such time as the dispute will have been resolve, whichever is later.
 
2.5            Audit . CMGO shall have the right during the Term and for a period of three (3) years after the end of the calendar year, or, in the event of a dispute concerning the accuracy and/or correctness of a Quarterly Reporting Statement or any other payment made under this Agreement, until the dispute is resolved, whichever is later, through an independent public accountant or other qualified expert selected by CMGO and reasonably acceptable to AE, in inspect and examine AE’s relevant books of accounts and records, server log files and other documents (including, without limitation, vouchers, records, purchase orders, sales orders, re-orders, agreements and technical information) relating to the subject matter of this Agreement. Such inspection and examination shall be done to confirm that appropriate payments have been under this Agreement. Any such audit shall take place upon reasonable prior written notice to AE and during AE’s regular business hours. Except as set forth in Section 2.6, the cost of such audit shall be borne by CMGO.
 
2.6            Late Payments . CMGO shall be entitled to charge, and AE shall pay, interest on any overdue amounts under this Agreement at the rate of one percent (1%) per month (or part thereof), or at such lower rate as may be the maximum rate allowed under applicable law. In the event that an audit reveals any undisputed underpayment, AE shall, within thirty (30) days after written notice from CMGO, make up for such underpayment by paying the difference between amounts the audits reveals and the amounts AE actually paid, together with such interest on such difference. If the underpayment is more than five percent (5%), AE shall pay the reasonable cost of the audit.  If any amount is overdue by more than ninety (90) days, in addition to any other remedies CMGO may have under this Agreement, CMGO may turn over the right to collect such overdue amounts to a collection agency. AE shall be responsible for any reasonable costs incurred by CMGO or such collection agency in collecting any amount that is overdue by more than ninety (90) days including, but not limited to, reasonable attorney’s fees.
 
2.7            Taxes . AE shall pay all taxes, duties and levies imposed by all national, state, province and local authorities (including, without limitation, export, sales, use and excise) based on the transactions or payments under this Agreement. Amounts payable by AE hereunder shall be paid without deduction or withholding for or on account of any present or future tax, levy, impost, fee, assessment, deduction or charge by any taxing authority except the withholding tax deductible on any tax based CMGO income.
 
ARTICLE THREE
DURATION

This Agreement shall be effective as of the date of this Agreement and remain in force and effect until the fifth anniversary of the Closing.  At the end of such five (5) year period, AE shall have no further obligation to CMGO. For purposes of this section, all income or other compensation from license agreements, claims, suits or actions entered into or initiated during the above described five (5) year period shall be subject to the terms of this agreement notwithstanding the fact that said income or compensation is received by AE after the expiration of the initial five year term hereof.
 
 
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ARTICLE FOUR
GOVERNING LAW

This Agreement shall be governed by, and construed and interpreted in all respects in accordance with, the laws of the state of Delaware applicable to agreements made and to be performed entirely within such State, including all matters of construction, validity and performance.
 
ARTICLE FIVE
NOTICES

All notices pursuant to this Agreement shall be in writing and shall be deemed to have been given ten (10) days after the mailing thereof if sent by overnight courier, or on the day following the day on which it was so sent if sent by facsimile, addressed in the case of AE to its principal office at 9070 S. Rita Road, Suite 1450, Tucson, Arizona 85747 and in the case of CMGO to its principal office at 5601 Biscayne Boulevard, Miami, Florida 33137, or at such subsequent address as either party may designate to the other in writing for such purposes.
 
ARTICLE SIX
GENERAL

1.           This Agreement shall be binding upon the parties hereto, and their respective successors and assigns.
 
2.           This Agreement may be modified at any time or from time to time only by the written agreement of both parties.
 
3.           The failure of either party to require performance by the other party of any provision hereof, or to enforce any remedies it may have against the other party, shall in no way affect the right thereafter to enforce this Agreement and require full performance by the other party.  The waiver by either party of any breach of any provision of this Agreement shall not constitute a waiver of any succeeding breach of that provision or of any other provision.
 
4.           The parties agree that this is an independent contractor arrangement.  Under no circumstances shall either party be considered to be an agent, employee, partner or representative of the other party or otherwise have the authority or power to bind the other party.
 
5.           Except as otherwise expressly, provided herein, if any provisions of this Agreement shall be adjudicated to be invalid or unenforceable in any action or proceeding whether in its entirety or in any portion, then such part shall be deemed amended, if possible, or deleted, as the case may be, from the Agreement in order to render the remaining of the Agreement and any provision thereof both valid and enforceable.  Any such deletion or amendment shall apply only where the court rendering the same has jurisdiction.
 
6.           This Agreement cancels and supersedes all previous agreements, written or oral, between the parties hereto relating to the subject matter hereof and constitutes the entire agreement between the parties hereto, and there are no understandings, representations or warranties expressed or implied not specifically set forth herein.
 
7.           This Agreement may be executed in any number of counterparts each of which shall be an original and taken together shall constitute one and the same instrument.
 
[Signature page follows]

 
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IN WITNESS WHEREOF, the parties hereto have caused this Royalty Agreement to be executed by their duly authorized officers.
 
   
 
AUDIO EYE, INC.
   
   
  By:
  
    Name:
         
    Title:
        
   
   
   
 
CMG HOLDINGS GROUP, INC.
   
   
  By:
 
    Name:
         
    Title:
          
   
   
   
(Signature Page of Royalty Agreement)
 
 
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Exhibit 10.3
 
SERVICES AGREEMENT
 
This Services Agreement (the “ Agreement ”) is made and entered into as of _______, 2011 by and between CMG Holdings Group, Inc., a Nevada corporation (“ CMGO ”) and Audio Eye, Inc., a Delaware corporation (“ AE ”) with reference to the following:
 
A.           Pursuant to a Master Agreement dated as of June 22, 2011 (the “ Master Agreement ”) between CMGO and Audio Eye Acquisition Corp. (“ AEAC ”), a newly formed corporation which owns certain rights to the exploitation of AE’s patents, CMGO and AEAC agreed, among other things, that the shareholders of AEAC will exchange all of their shares of the capital stock of AEAC for 80% of the capital stock of AE and CMGO will distribute to its shareholders in the form of a dividend 5% of the capital stock of AE (collectively, the “ Separation ”).  Pursuant to the Master Agreement, CMGO will retain approximately 15% of the outstanding capital stock of AE as of the closing.
 
B.           As a condition to the closing of the Separation (the “ Closing ”), AE and CMGO are required to enter into an agreement pursuant to which AE will pay to CMGO a services fee based on revenues received by AE from CMGO referrals as set forth below.
 
C.           Concurrently herewith, AE and CMGO are entering into a Royalty Agreement (the “ Royalty Agreement ”).
 
NOW, THEREFORE, in consideration of the mutual covenants and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, CMGO and AE agree as follows:
 
ARTICLE 1
PAYMENT OF SERVICE FEES

Effective as of the Closing, AE shall pay to CMGO 7.5% of revenues received by AE from all business, clients or other sources of net revenue procured by CMGO, its employees, officers or subsidiaries and directed to AE as the principal referral source except that the percentage shall be 10% in the case of revenues received from a company designated by the parties in a separate document.  Net revenue shall mean gross revenue less cost of revenue.  Amounts due hereunder shall be payable on a quarterly basis commencing with the calendar quarter in which the Closing occurs with respect to revenues for such quarter.  Payment shall be made within fifteen business days from the end of a calendar quarter and shall be accompanied by a statement from AE stating in reasonable detail the calculation of amounts payable.  As an additional service fee, within ninety days from the Closing, AE shall deliver to CMGO restricted shares of its common stock representing 0.05% of AE’s issued and outstanding shares of its capital stock as of the Closing.
 
All amounts payable hereunder shall be without duplication of amounts payable under the Royalty Agreement.
 
ARTICLE 2
REPORTS, BOOKS AND RECORDS; AUDIT; LATE PAYMENTS AND TAXES

2.1            Reports . Within thirty (30) days after the last day of each quarter subsequent to the Closing Date, AE shall submit to CMGO written statement (the “Quarterly Reporting Statement”) detailing with respect to the preceding quarterly period: (a) all Gross Revenue; and (b) the amount to be paid to CMGO under this Agreement based on such Gross Revenue.
 
2.2            Adjustments .  If AE has to reverse previously recognized Gross Revenue reported under a previous Quarterly Reporting Statement, AE can claim credit on a subsequent Quarterly Reporting Statement for the same quarter it reverses the previously recognized Gross Revenue in AE’s income statement.  Such credit will not exceed the amount to be paid in the then-current quarter, but the unused credit may be carried over to succeeding quarters within the same contract year.
 
 
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2.3            Payment Timing .  AE shall pay CMGO, on a quarterly basis, the amounts reported in the Quarterly Reporting Statement for such quarter not later than thirty (30) days after the end of such quarter.
 
2.4            Books and Records . AE shall maintain appropriate books of account and records with respect to Gross Revenue in accordance with generally accepted accounting principles and shall make complete and accurate entries concerning all transactions relevant to this Agreement. All such books of account and records shall be kept available by AE for no less than three (3) years after the end of each calendar year, or, in the event of a dispute between the parties involving in any way those books of accounts and records, until such time as the dispute will have been resolve, whichever is later.
 
2.5            Audit . CMGO shall have the right during the Term and for a period of three (3) years after the end of the calendar year, or, in the event of a dispute concerning the accuracy and/or correctness of a Quarterly Reporting Statement or any other payment made under this Agreement, until the dispute is resolved, whichever is later, through an independent public accountant or other qualified expert selected by CMGO and reasonably acceptable to AE, in inspect and examine AE’s relevant books of accounts and records, server log files and other documents (including, without limitation, vouchers, records, purchase orders, sales orders, re-orders, agreements and technical information) relating to the subject matter of this Agreement. Such inspection and examination shall be done to confirm that appropriate payments have been under this Agreement. Any such audit shall take place upon reasonable prior written notice to AE and during AE’s regular business hours. Except as set forth in Section 2.6, the cost of such audit shall be borne by CMGO.
 
2.6            Late Payments . CMGO shall be entitled to charge, and AE shall pay, interest on any overdue amounts under this Agreement at the rate of one percent (1%) per month (or part thereof), or at such lower rate as may be the maximum rate allowed under applicable law. In the event that an audit reveals any undisputed underpayment, AE shall, within thirty (30) days after written notice from CMGO, make up for such underpayment by paying the difference between amounts the audits reveals and the amounts AE actually paid, together with such interest on such difference. If the underpayment is more than five percent (5%), AE shall pay the reasonable cost of the audit.  If any amount is overdue by more than ninety (90) days, in addition to any other remedies CMGO may have under this Agreement, CMGO may turn over the right to collect such overdue amounts to a collection agency. AE shall be responsible for any reasonable costs incurred by CMGO or such collection agency in collecting any amount that is overdue by more than ninety (90) days including, but not limited to, reasonable attorney’s fees.
 
2.7            Taxes . AE shall pay all taxes, duties and levies imposed by all national, state, province and local authorities (including, without limitation, export, sales, use and excise) based on the transactions or payments under this Agreement. Amounts payable by AE hereunder shall be paid without deduction or withholding for or on account of any present or future tax, levy, impost, fee, assessment, deduction or charge by any taxing authority except the withholding tax deductible on any tax based CMGO income.
 
ARTICLE 3
DURATION

This Agreement shall be effective as of the date of this Agreement and remain in force and effect until the fifth anniversary of the Closing.  At the end of such five (5) year period, AE shall have no further obligation to CMGO. . For purposes of this section, all income, revenues or other compensation from agreements, contracts, claims, suits or actions entered into or initiated during the above described five (5) year period shall be subject to the terms of this agreement notwithstanding the fact that said income or compensation is received by AE after the expiration of the initial five year term hereof.
 
 
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ARTICLE 4
GOVERNING LAW

This Agreement shall be governed by, and construed and interpreted in all respects in accordance with, the laws of the state of Delaware applicable to agreements made and to be performed entirely within such State, including all matters of construction, validity and performance.
 
ARTICLE 5
NOTICES

All notices pursuant to this Agreement shall be in writing and shall be deemed to have been given ten (10) days after the mailing thereof if sent by overnight courier, or on the day following the day on which it was so sent if sent by facsimile, addressed in the case of AE to its principal office at 9070 S. Rita Road, Suite 1450, Tucson, Arizona 85747 and in the case of CMGO to its principal office at 5601 Biscayne Boulevard, Miami, Florida 33137, or at such subsequent address as either party may designate to the other in writing for such purposes.
 
ARTICLE 6
GENERAL

1.           This Agreement shall be binding upon the parties hereto, and their respective successors and assigns.
 
2.           This Agreement may be modified at any time or from time to time only by the written agreement of both parties.
 
3.           The failure of either party to require performance by the other party of any provision hereof, or to enforce any remedies it may have against the other party, shall in no way affect the right thereafter to enforce this Agreement and require full performance by the other party.  The waiver by either party of any breach of any provision of this Agreement shall not constitute a waiver of any succeeding breach of that provision or of any other provision.
 
4.           The parties agree that this is an independent contractor arrangement.  Under no circumstances shall either party be considered to be an agent, employee, partner or representative of the other party or otherwise have the authority or power to bind the other party.
 
5.           Except as otherwise expressly, provided herein, if any provisions of this Agreement shall be adjudicated to be invalid or unenforceable in any action or proceeding whether in its entirety or in any portion, then such part shall be deemed amended, if possible, or deleted, as the case may be, from the Agreement in order to render the remaining of the Agreement and any provision thereof both valid and enforceable.  Any such deletion or amendment shall apply only where the court rendering the same has jurisdiction.
 
6.           This Agreement cancels and supersedes all previous agreements, written or oral, between the parties hereto relating to the subject matter hereof and constitutes the entire agreement between the parties hereto, and there are no understandings, representations or warranties expressed or implied not specifically set forth herein.
 
7.           This Agreement may be executed in any number of counterparts each of which shall be an original and taken together shall constitute one and the same instrument.
 
[Signature page follows]

 
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IN WITNESS WHEREOF, the parties hereto have caused this Services Agreement to be executed by their duly authorized officers.
 
   
 
AUDIO EYE, INC.
   
   
  By:
 
    Name:
 
    Title:
          
   
   
   
 
CMG HOLDINGS GROUP, INC.
   
   
  By:
    
    Name:
          
    Title:
        
   
   
   
   
(Signature Page of Services Agreement)

 
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Exhibit 23.1


 
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation in this Registration Statement on Form S1 of our report dated October 21, 2011with respect to the audited consolidated financial statements of AudioEye, Inc. for the years ended December 31, 2010 and 2009.

We also consent to the references to us under the heading “Experts” in such Registration Statement.

/s/ MaloneBailey, LLP
MaloneBailey, LLP
www.malone−bailey.com
Houston, Texas

October 21, 2011
 
 

 
 
     
 

 
Exhibit 99.1
 
CMG HOLDINGS GROUP, INC.

Proxy for Special Meeting of Shareholders, ______________, 2011
This Proxy is Being Solicited on Behalf of the Board of Directors of CMG Holdings Group, Inc.

The undersigned hereby acknowledges receipt of the Notice of Special Meeting of the Shareholders of CMG Holdings Group, Inc., dated ___________, 2011, and does hereby appoint ______________ and ____________ (the “Proxies”), or each of them, with full power of substitution, as the proxy of the undersigned to represent the undersigned and to vote all shares of Common Stock of CMG Holdings Group, Inc. that the undersigned would be entitled to vote if personally present at the Special Meeting of Shareholders, to be held on ____________, 2011 at 9:30 a.m., local time, and at any adjournment thereof.
 
1.           Approval of the Separation of AudioEye, Inc. and ratification of the Master Agreement dated as of June 22, 2011 between CMG Holdings Group, Inc. and AudioEye Acquisition Corp.

___For                                ___Against                      ___Abstain

2.           Approval of adjournment of the Special Meeting to a later date, if necessary, to solicit additional proxies if there are insufficient votes of the special meeting to approve Proposal 1.

___For                                ___Against                      ___Abstain

In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
 
The shares represented hereby will be voted as directed.  Where no direction is made the shares will be voted FOR the Separation of AudioEye, Inc.
 
 By:     By:  
    (Signature of Shareholder)       (Signature of Shareholder, if held jointly)
         
  Name(Print)     Name (Print)  
         
Dated:     , 2011   Dated:   , 2011
 
 
IN ORDER FOR YOUR VOTE TO BE COUNTED, YOU MUST RETURN THIS PROXY, DULY SIGNED AND DATED, TO CMG HOLDINGS GROUP, INC. ON OR BEFORE THE SPECIAL MEETING TO BE HELD ON __________________, 2011.