In addition, pursuant to the AE Call Option, on November 12, 2013, the Company agreed to terminate the Royalty Agreement in consideration for cash payment of $85,000 from AE.
On December 30, 2013, AE repurchased from the Company a total of 2,184,583 shares of AE common stock owned by the Company for the following consideration: (i) cash payment of $573,022 and (ii) release of Good Gaming, Inc.’s obligation to AE in connection with a $50,000 accounts payable.
Recent Developments
Good Gaming Acquisition
On March 28, 2014, the Company completed its acquisition of 100% of the equity interests of Good Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial, Inc. and Jackie Beckford, GGI’s shareholders. The owner of BMB Financial, Inc. is also the owner of Infinite Alpha, Inc. which provides consulting services to CMG. Pursuant to the SEA, for 100% of the shares of GGI, CMG paid: 5,000,000 shares of its common stock, par value $0.001 per share, $33,000 in equipment and consultant compensation and a commitment to pay $200,000 in development costs, of which $50,000 had been advanced by CMG. In addition, the SEA calls for CMG to adopt an incentive plan for GGI pursuant to which the GGI’s officers, directors and employees will receive up to 30% of the net profits of GGI and up to 30% of the proceeds of any sale of GGI or its assets.
GGI’s field team has acquired new independently confirmable research showing eSports and competitive gaming is growing at a much faster pace than anticipated. According to Newwzoo BV games market research, eSports viewership is more than doubling on a year over year basis and we have seen that prize pools are increasing even faster in many cases. With the announcement that Wargaming’s signature title "World of Tanks" will invest $10 million into eSports, GGI believes that other companies aside from industry leaders Riot games, Valve, and Ubisoft, are likely to enter the million dollar investment pool as the stakes for eSports grows. As a result, large advertisers are starting to focus on the eSports industry as it offers a platform for reaching increasing numbers of consumers.
Recent DevelopmentSome key statistics that drive our growing optimistic outlook are as follows:
-Over 20% of eSports gamers are big spender’s vs 8% for all gamers.
- | Over 90% of eSports gamers spend money on games vs 65% for all gamers. |
- | The global games market is a $74 billion market and eSports is one of the fastest growing segments |
Alan Morell Separation Agreement-For the first time, in 2013 Chinese giant Tencent surpassed Activision blizzard in gaming revenues solidifying the diminishing need for large box game development and Release Amendmentloosening dependence on Christmas holiday sales patterns.
Newzoo BV, Q4 PC Gaming Trend Report 2013 Report and Q2 Sizing Profiling eSports 2014 Report.
GGI is in the process of researching what it is that gamers want what their goals, aspirations, and ideas of euphoria tend to be. As of the beginning of 2014, according to Newzoo BV, 163.9 million people in the world, 15.38% of them in the United States, are playing video games often enough for it to be a full time job. We believe that eSports is not just a growing segment within the gaming industry, but within the much larger entertainment industry. It is not restricted by nationality, political affiliation, or socioeconomic status. eSports principal barrier is a simple one – internet access.
Behind the development of GGI’s web platform, GGI is seeking to access the gaming community. GGI has been seeking and has already signed veteran talent in the gaming community and is broadening its network of veteran and pro players.
GGI recently established a partnership with a leading 3Alan Morell (“Morell”) servedrd party provider of an eSports tournament management system. This partnership will provide a crucial backbone infrastructure for GGI’s proprietary tournament design and has done so at less than 1/10th the cost originally expected due to diligent work by GGI’s IT development team and the innovation of its partner.
GGI anticipates that it will be able to announce key publisher partnerships and agreements in the coming months that can place it near the top of eSports entertainment and solidify its projected membership base.
In April of 2014 CMG was approached by a group interested in spinning off Good Gaming from CMG. The LOI indicated that CMG would maintain a majority interest in the Company. Good Gaming would be listed on the Canadian Stock Exchange. In addition there would be a minimum of a $500,000 infusion of capital to the Company. Discussions are ongoing but there is no certainty that a deal will be consummated. Parties are involved in doing due diligence currently.
During the quarters ended June 30, 2014 and September 30, 2014, each of the employees in XA’s New York office, as the Company’swell as its COO in Chicago resigned. The Company later learned that each of these employees had, along with XA’s former CEO, formed a new company, called Hudson Gray, LLC (“HG”) which was soliciting XA’s clients using confidential and Chairmanproprietary information gained from February 2008 throughtheir employment with XA.
On September 26, 2012.23, 2014, XA filed a lawsuit in the Supreme Court of the State of New York, County of New York against HG and its principals alleging wrongdoing by the defendants in connection with soliciting XA’s clients and seeking against further contact with XA clients. The Company entered into a Separation Agreement and Release with Morell onconducted an internal investigation of actions taken by XA’s former employees during the quarter ended September 27, 2012, where the Company issued Morell two convertible promissory notes in the respective principal amount of $525,000 and $112,000 (the “Morell Notes”). On June 26, 2013, the Company entered into the Modification Separation Agreement Release with Morell (the “Morell Separation Amendment”), where Morell agreed that the Morell Notes would be converted into a total of 2,800,000 shares of Common Stock and the Company agreed that Morell may remove restrictive legend on his beneficially owned securities subject to a monthly leak-out of 5% of his total ownership.30, 2014.. The Company and Morell agreedXA plan to mutually release each othercomplete the investigation, including recovering e-mails deleted by the former employees, and not to sue or prosecutevigorously pursue any disagreements that have arisen betweenand all amounts wrongfully taken from XA.
The investigation has been completed, an amended complaint will be filed on June 15, 2015. New counsel has been retained to pursue the Company and Morell.
Settlement with Ennis et al.
James J. Ennis (“Ennis”) and Michael Vandetty (“Vandetty”) served as the Company’s directors and officers from February 2008 through November 26, 2012 when holders of approximately 55%prosecution of the Company’s Common Stock acted by written consent removed Enniscase and Vandetty from their positions.
On December 18, 2012, the Company entered into Mutual Separation and Release Agreements (the “Separation Agreements”) with Ennis and Vandetty pursuant to which each of Ennis and Vandetty resigned each of their positions with the Company, agreed to termination of their employment agreements, agreed to lockup provisions as provided in the Lockup Agreements (the “Ennis Lockup Agreements”) with respect to their Company shares and shares of AudioEye, Inc. and each received 45%new counsels name is Laurence Steckman of the stock of the Company’s UsaveNJ, Inc.firm Eaton and UsaveNJ, Inc. subsidiaries.
On August 3, 2013, the Company entered into a Settlement Agreement and Releases with Ennis, Vandetty, Scott Baily (“Baily”), Martin Boyle (“Boyle”), Hudson Capital Advisors (“Hudson” together with Ennis, Vandetty, Baily and Boyle, referred to as “Ennis Parties”), where Ennis, Vandetty, Baily, Boyle, Hudson agreed to return to the Company a total of 33,846,000 shares of the Company’s Common Stock (including a total of 2,500,000 shares of Common Stock issued to Connied, Inc. and later assigned to Vandetty) for cancellation without any monetary payment by the Company. Ennis PartiesVan Winkle. There will be new defendants added and the Company agreed that the Separation Agreements and the Ennis Lockup Agreements were terminated anddamages sought will be of no further effect. The Company and Ennis Parties agreed to mutually release each other and not to sue or prosecute any disagreements that have arisen between the Company and Ennis Parties.
substantially increased
Connied Termination and Releases Agreement
On August 3, 2013, the Company entered into a Termination Agreement and Releases with Connied, Inc., a successor in interest to Continental Investment Group, Inc. (collectively referred to as “Connied”), pursuant to which (i) the Sale and Purchase Agreement, dated March 31, 2011, where the Company agreed to issue 50,000 shares of its Series B Preferred Stock in exchange for 20,000 cartoon animated Cels sold by Connied (the “Connied SPA”) was terminated, (ii) a note of the Company in the principal amount of $85,000 issued to Connied was canceled, (iii) Connied agreed to disclaim any right or title to a purportedly owned 2.5 million shares of the Company’s Common Stock. The Company and Connied also agreed to mutually release each other and not to sue or prosecute any disagreements that have arisen between the Company and Connied.
Repayment of Notes
Repayment of Asher Notes
The Company issued and sold to Asher Enterprises, Inc. (“Asher”) a convertible promissory note of principal amount of $32,500 on October 16, 2012 and another convertible promissory note of the principal amount of $53,000 in May 2013. On April 25, 2013, Asher converted $15,000 of the note that was issued in October 2012 into an aggregate of 4,285,714 shares of Common Stock. On November 26, 2013, the Company repaid the above mentioned two notes in the total amount of $71,002.66 as principal and accrued interest. This note was paid in 2013. Different from current notes
Repayment of Infinite Alpha Notes
The Company issued and sold to Infinite Alpha Inc. a promissory note of principal amount of $51,500. On December 31, 2013, the Company repaid such note in the total amount of $61,800 as principal and accrued interest.
Repayment of Continental Equities Notes
The Company issued and sold to Continental Equities, LLC. in September 2012 a convertible promissory note of principal amount of $50,000 and another convertible promissory note of the principal amount of $20,000. On November 14, 2013 and December 31, 2013, the Company repaid the referenced two notes in the respective amount of $55,000 and $29,000 as principal and accrued interest.
Disclosure in response to this item is not required of a smaller reporting company.
ITEM 1B:1B: UNRESOLVED STAFF COMMENTS
Disclosure in response to this item is not required of a smaller reporting company.
ITEM 2:2: DESCRIPTION OF PROPERTY
The Company’s headquarter is at XA’s headquarter located at 875 North Michigan Avenue, Suite 2929, Chicago, IL 60611. The Company pays a monthly lease is $12,000. The lease will expire in 2022.
The Company, through XA, also has a main sales and marketing office located at 333 Hudson Street, New York NY 10013, 9070. The Company pays a monthly lease of $10,000 and the lease will expire in 2019.None
XA also has a satellite office at 515 South Flower Street, Los Angeles, CA 90071. XA rents such office space on a month-to-month basis at the rent of $129.
We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
On April 21, 2011, the Company was served with a lawsuit that was filed in Clark County, Nevada against the Company by A to Z Holdings, LLC and seven other individuals or entities. The complaint alleges, among other things, that the Company’s Board of Directors did not have the power to designate series A and B preferred stock without amending the articles of incorporation. The complaint also alleges any such amendment would require shareholder approval and filing of a proxy statement. On April 20, 2012, the Company settled with A to Z Holdings, LLC and seven other individuals or entities for $10,000. Such settlement amount was paid in April 2012.
On July 6, 2011, the Company was served with a lawsuit filed in the Circuit Court for the County of Multnomah, Oregon. The complaint alleges breach of contract and entitlement to consulting fees from the Company. The case was settled in 2012 for $30,000 and the settlement amount has not been paid.
ITEM 4:4: MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5:5: MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDERMATTERS,RELATED TO STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITYSECURITIESEQUITY SECURITIES
Our common stock has been quoted on the Over the Counter Markets (OTC) since October 2007 and currently lists at OTCQB which is the middle tier of the OTC Market. OTCQB companies report to the SEC or a U.S. banking regulator, making it easier for investors to identify companies that are current in their reporting obligations. There are no financial qualities standards to be in this middle tier and OTCQB securities such as ours may also be quoted on the FINRA BB. The OTCQB allows investors to easily identify reporting companies traded in the OTC market regardless of where they are quoted. For additional information regarding the Over the Counter Markets (OTC), please refer to the following http://www.otcmarkets.com/home.
Our symbol is “CMGO.” For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealerinter dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
| | HIGH | | | LOW | |
FISCAL YEAR ENDED DECEMBER 31, 2013 | | | | | | | | |
| | | | | | | | |
First Quarter | | | 0.01 | | | | 0.01 | |
Second Quarter | | | 0.01 | | | | 0.01 | |
Third Quarter | | | 0.02 | | | | 0.01 | |
Fourth Quarter | | | 0.03 | | | | 0.01 | |
| | | | | | |
FISCAL YEAR ENDED DECEMBER 31, 2012 | | | | | | |
| | | | | | |
First Quarter | | | 0.02 | | | | 0.0048 | |
Second Quarter | | | 0.04 | | | | 0.01 | |
Third Quarter | | | 0.04 | | | | 0.02 | |
Fourth Quarter | | | 0.03 | | | | 0.0066 | |
| | HIGH | | | LOW | |
FISCAL YEAR ENDED DECEMBER 31, 2015 | | | | | | |
First Quarter | | | 0.01 | | | | 0.01 | |
Second Quarter | | | 0.01 | | | | 0.01 | |
Third Quarter | | | 0.02 | | | | 0.01 | |
Fourth Quarter | | | 0.03 | | | | 0.01 | |
| | | | | | | | |
FISCAL YEAR ENDED DECEMBER 31, 2014 | | | | | | | | |
First Quarter | | | 0.01 | | | | 0.01 | |
Second Quarter | | | 0.01 | | | | 0.01 | |
Third Quarter | | | 0.02 | | | | 0.01 | |
Fourth Quarter | | | 0.03 | | | | 0.01 | |
Holders of Shares of Common Stock
The Company has authorized 450,000,000 shares of common stock with a par value of $.001 per share. As of December 31, 2013,2015, the Company had 283,694,364449,329,190 shares of common stock of the registrant issued and outstanding. As of December 31, 2013,2014, there were approximately 197 stockholders of record of our common stock. This stockholder of record total number does not reflect full amount of shares held beneficially or those shares held in “street” name. It is anticipated that the number of stockholders may increase if the total amount of stockholders that own shares held beneficially or those held in “street” name.
Dividend Policy
We did not pay cash dividends in the past, nor do we expect to pay cash dividends for the foreseeable future. We anticipate that earnings, if any, will be retained for the development of our business.
On February 22, 2013, the Company completed the distribution a total of 1,500,259 shares of AudioEye’s common stock as dividend to the Company shareholders on the record date of October 26, 2012 on a pro rata basis after the SEC declared the registration statement on Form S-1 filed by AudioEye effective on January 19, 2013. For more details of the referenced distribution, please refer to Item 1, the section under “AudioEye Separation and Spin-off” thereof.
Preferred Stock
The Company has 10,000,000 shares of preferred stock authorized with a par value of $.001. As of December 31, 2013,2014, there waswere no shareshares of preferred stock issued or outstanding.
Transfer Agent
The Company’s transfer agent and registrar of the common stock is Corporate Stock Transfer, Inc. 3200 Cherry Creek Dr. South Suite 430 Denver, CO 80209. (303) 282-4800.2824800.
Notes and Loans
Asher Notes
The Company issued and sold to Asher Enterprises, Inc. a convertible promissory note of principal amount of $32,500 on October 16, 2012 and another convertible promissory note of the principal amount of $53,000 in May 2013. On April 25, 2013, Asher converted $15,000 of the note issued to it in October 2012. On November 25, 2013, the Company repaid the remaining balance of the two notes in the total amount of $71,002.66 as principal and accrued interest.
Infinite Alpha Notes
The Company issued and sold to Infinite Alpha Inc. a promissory note of principal amount of $51,500. On December 31, 2013, the Company repaid such note in the total amount of $61,800 as principal and accrued interest.
Continental Equities Notes
The Company issued and sold to Continental Equities, LLC. in September 2012 a convertible promissory note of principal amount of $50,000 and another convertible promissory note of the principal amount of $20,000. On November 14, 2013 and December 31, 2013, the Company repaid the referenced two notes in the respective amount of $55,000 and $29,000 as principal and accrued interest.
On May 12, 2012, the Company modified its July 24, 2011 agreement with Paul Sherman into a $9,943 convertible promissory note bearing interest at 2% and due on May 15, 2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to Paul Sherman’s request for conversion, but not to go below $.001. The Company has not yet repaid the Paul Sherman note.
Warrants
As of the date of this Report, the Company had warrants to purchase a total of 1,798,00040,000,000 shares of the Company’s Common Stock issued and outstanding.Stock. Among such outstanding warrants there are Series A Warrants and Series B Warrants, the terms of which are set forth as the following:
Series A Warrants
There were Series A Warrants to purchase a total of 899,00040,000,000 shares of the Company’s Common Stock issued and outstanding. Series AStock. Warrants are exercisable within 35 years from issuance and at the exercise price of $0.25 and $0.10. The Company has the right to call the exercise of Series A Warrants after 12 months from the issuance if the Company’s Common Stock is traded at 150% of the warrant exercise price for 10 consecutive days.
Series B Warrants$0.0155.
There were Series B Warrants to purchase a total of 899,000 shares of the Company’s Common Stock issued and outstanding. Series B Warrants are exercisable within 3 years from issuance and at the exercise price of $0.50 and $0.20. The Company has the right to call the exercise of Series B Warrants after 12 months from the issuance if the Company’s Common Stock is traded at 150% of the warrant exercise price for 10 consecutive days.
Penny Stock Considerations
Because our shares trade at less than $5.00 per share, they are “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealersbroker dealers who engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealerbroker dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealerbroker dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $100,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealerbroker dealer is required to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealerbroker dealer or the transaction is otherwise exempt;exempt; disclose commissions payable to the broker-dealerbroker dealer and our registered representatives and current bid and offer quotations for the securities;securities; Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks;stocks; and make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account. Because of these regulations, broker-dealersbroker dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.
Unregistered Sales Of Equity Securities and Issuance of Equity Securities And Use Of Proceeds
On April 25, 2013, Asher Enterprises, Inc. (“Asher”) converted $15,000September 26, 2014, the Company sold a 10% Convertible Promissory Note in the principle amount of $50,000 to Iconic Holdings LLC with a maturity date of September 29, 2015. The Note is convertible into the Company’s common stock at a conversion price that is equal to 70%of the lowest trading price of the Company’s convertible promissorycommon stock during the 20 consecutive trading days prior to the date on which note holder elects to convert all or part of the Note.
On October 1, 2014 the Company sold a Convertible Debenture in the principal amount of $114,000 to Typenex Co-Investment, LLC. The principal amount includes an Original Issue Discount in the amount of $10,000 and investor fees in the amount of $4,000.Total net proceeds to the Company were $100,000. The Debenture bears interest at an annum rate of 10% and is payable in 5 equal installments that wascan be paid in cash or share of the Company’s common stock. The number of shares to be issued to Asher on October 16, 2012 into a totalfor installment payments made in the form of 4,285,714 shares of Common Stock.the Company’s common stock, shall be calculated at 70% of the average of the three closing prices in the 20 trading days prior to the date of conversion, of the Company’s common stock. The Note’s maturity date is August 1, 2015.
On October 10, 2014 the Company sold a Convertible Debenture in the principal amount of $115,000 to KBM Investments LLC. The principal amount includes an Original Issue Discount in the amount of $11,000 and investor fees in the amount of $4,000. Total net proceeds to the Company were $100,000. The Debenture bears interest at an annum rate of 8% and can be repaid at any time prior to the date of maturity. The prepayment penalty for such prepayment ranges from 8% to 25% of the principal amount paid. On the 181st day from the date of the Note, the Note is convertible into shares of the Company’s common stock. The rate of such conversion is 75% of the lowest 3 trading prices of the Company’s common stock during the ten trading days prior to the conversion date. The Note’s maturity date is October 8, 2015.
On June 28, 2013,December 18, 2014, the Company issuedentered into the Securities Purchase Agreement pursuant to Alan Morell a totalwhich it sold an 8% convertible note of 2,800,000the Corporation, in the aggregate principle amount of $40,000, convertible into shares of Common Stock pursuantthe Company’s common stock to KBM Worldwide Inc. The Note is convertible into the Company’s common stock at a conversion price that is equal to 70%of the lowest trading price of the Company’s common stock during the 20 consecutive trading days prior to the Modification Separation Agreement Release dated June 26, 2013.date on which note holder elects to convert all or part of the Note.
The above issuances of the Company’s securities were not registered under the Securities Act of 1933, as amended (the “1933 Act”), and the Company relied on an exemption from registration provided by Rule 506(b) of Regulation D promulgated under the 1933 Act for such issuance.
Except as disclosed above, all unregistered sales of the Company’s securities have been disclosed on the Company’s current reports on Form 8-K8K and the Company’s quarterly reports on Form 10-Q.10Q.
ITEM 6:6: SELECTED FINANCIAL DATA
As a smaller reporting company, as defined in Rule 12b-212b2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we are not required to provide the information required by this item.
ITEM 7:7: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion should be read in conjunction with the financial statements for the year ended December 31, 20132014 included with this Form 10-K.10K. The following discussion and analysis provides certain information, which the Company’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition for the year ended December 31, 2013.2014. The statements contained in this section that are not historical facts are forward-lookingforward looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties. Such forward-lookingforward looking statements may be identified by, among other things, the use of forward-lookingforward looking terminology such as “believes,” “expects,” “may,” “will,” should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties. From time to time, we or our representatives have made or may make forward-lookingforward looking statements, orally or in writing. Such forward-lookingforward looking statements may be included in our various filings with the SEC, or press releases or oral statements made by or with the approval of our authorized executive officers.
These forward-lookingforward looking statements, such as statements regarding anticipated future revenues, capital expenditures and other statements regarding matters that are not historical facts, involve predictions. Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-lookingforward looking statements. We do not undertake any obligation to publicly release any revisions to these forward-lookingforward looking statements or to reflect the occurrence of unanticipated events. Many important factors affect our ability to achieve our objectives, including, among other things, technological and other developments within a given field, intense and evolving competition, the lack of an “established trading market” for our shares, and our ability to obtain additional financing, as well as other risks detailed from time to time in our public disclosure filings with the SEC.
Executive Summary
References in this Current Report on Form 10-K10K to “CMG Holdings Group”, “CMG”, the “Company,” “we,” “us” and “our” for periods prior to the closing of the Reorganization refer to the Registrant, and for periods subsequent to the closing of the Reorganization refer to the Registrant and its subsidiaries. The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“US GAAP”). The Company’s objective is to create shareholder value by building market-leadingmarket leading strategies that deliver innovative, value-addedvalue added marketing communications and strategic consulting to our clients. The company manages the business by monitoring several financial and non-financialnon financial performance indicators. The key indicators that we review focus on the areas of revenues and operating expenses. Revenue growth is analyzed by reviewing the components and mix of the growth, including: growth by major geographic location and growth from acquisitions.
Recent Development
XA The Experiential Agency, Inc.
For 25 years, XA has had a strong presence in the experiential advertising industry. Having recently added Ronald Burkhardt as its Executive Chairman and with a strong record of success on behalf of Fortune 500 companies - XA already has a long track record winning competitions against far larger firms due to its innovative thinking and highly-regarded production team - XA is seeking to garner new business in the entertainment, automotive, hospitality and aviation categories, and is already in active discussions with key firms. XA plans to expand by leveraging its blue-chip roster of relationships and adding key staff to grow current business in New York, expand our PR expertise and retainer revenues in our Chicago headquarters office and ramp up and relocate our office in Los Angeles from downtown to West Hollywood, where we will be better positioned to attract TV, entertainment and movie business. XA also plans to seek to open an office in the social and film hotbed of Atlanta where there are key opportunities and key relationship networks.
Mr. Burkhardt began his work with XA by analyzing its existing systems and reporting and has made changes to allow XA to be more dynamic and proactive in order to win more business and serve its clients better. Mr. Burkhardt has developed a strategy for XA to enhance its reputation in the market and to become an “Experiential Planet,” a one-world branding entity where clients can realize all their brand marketing/engagement and outreach objectives.
Already, XA’s preliminary un-audited numbers show that its revenues have increased by approximately 66.67% for the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 and its net income have increased by approximately 91.20%. We believe that this trend can continue through the remainder of this year.
In order to grow XA’s business, it is pursuing a series of acquisitions and strategic alliances and has initiated discussions with smaller experiential branding/events companies and social media and digital marketing firms. In addition, XA plans to explore the acquisition of a boutique advertising/branding agency to further XA’s reach as a one-stop shop and broaden our engagement umbrella.
XA also plans to add high-gross margin generating corporate training and video mapping divisions and to establish “XA Custom,” where high-profile celebrities and/or high-net worth individuals can access our unique skill sets for private or personal engagements.
In order to provide better client service, XA is seeking to create/identify creative “swat teams” capable of jumping in quickly to handle excess workloads and to increase our response time in pursuing new opportunities as they arise.
XA plans to launch a multi-media branding campaign to broaden awareness of the XA brand and call attention to its creative leadership in the experiential business. XA has already commenced a weekly email outreach campaign to 5,000 key corporate and meeting event planners in New York, Illinois, California, Georgia, Texas and Florida.
The XA website is being re-designed and re-launched to reflect more modern graphics, new client content, and to make it fully responsive on all platforms, including mobile.
XA has purchased state of the art Apple computers and equipment for its New York office enabling even higher quality work produced at a faster rate. In addition, they are used for video editing, which is a billable profit center.
We expect to finish 2014 stronger than ever, and that these trends and foundational initiatives will lay the groundwork for an even more robust 2015.
Good Gaming Acquisition
On March 28, 2014, the Company completed its acquisition of 100% of the equity interests of Good Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial Inc. and Jackie Beckford, GGI’s shareholders. The owner of BMB Financial, Inc. is also the owner of Infinite Alpha, Inc. which provides consulting services to CMG. Pursuant to the SEA, for 100% of the shares of GGI, CMG paid: 5,000,000 shares of its common stock, par value $0.001 per share, $33,000 in equipment and consultant compensation and a commitment to pay $200,000 in development costs, of which $50,000 had been advanced by CMG. In addition, the SEA calls for CMG to adopt an incentive plan for GGI pursuant to which the GGI’s officers, directors and employees will receive up to 30% of the net profits of GGI and up to 30% of the proceeds of any sale of GGI or its assets.
GGI’s field team has acquired new independently confirmable research showing eSports and competitive gaming is growing at a much faster pace than anticipated. According to Newwzoo BV games market research, eSports viewership is more than doubling on a year over year basis and we have seen that prize pools are increasing even faster in many cases. With the announcement that Wargaming’s signature title "World of Tanks" will invest $10 million into eSports, GGI believes that other companies aside from industry leaders Riot games, Valve, and Ubisoft, are likely to enter the million dollar investment pool as the stakes for eSports grows. As a result, large advertisers are starting to focus on the eSports industry as it offers a platform for reaching increasing numbers of consumers.
Some key statistics that drive our growing optimistic outlook are as follows:
- Over 20% of eSports gamers are big spender’s vs 8% for all gamers.
- Over 90% of eSports gamers spend money on games vs 65% for all gamers.
- The global games market is a $74 billion market and eSports is one of the fastest growing segments
- For the first time, in 2013 Chinese giant Tencent surpassed Activision blizzard in gaming revenues solidifying the diminishing need for large box game development and loosening dependence on Christmas holiday sales patterns.
Newzoo BV, Q4 PC Gaming Trend Report 2013 Report and Q2 Sizing Profiling eSports 2014 Report.
GGI is in the process of researching what it is that gamers want - what their goals, aspirations, and ideas of euphoria tend to be. As of the beginning of 2014, according to Newzoo BV, 163.9 million people in the world, 15.38% of them in the United States, are playing video games often enough for it to be a full-time job. We believe that eSports is not just a growing segment within the gaming industry, but within the much larger entertainment industry. It is not restricted by nationality, political affiliation, or socioeconomic status. eSports principal barrier is a simple one – internet access.
Behind the development of GGI’s web platform, GGI is seeking to access the gaming community. GGI has been seeking and has already signed veteran talent in the gaming community and is broadening its network of veteran and pro players.
GGI recently established a partnership with a leading 3rd party provider of an eSports tournament management system. This partnership will provide a crucial backbone infrastructure for GGI’s proprietary tournament design and has done so at less than 1/10th the cost originally expected due to diligent work by GGI’s IT development team and the innovation of its partner.
GGI anticipates that it will be able to announce key publisher partnerships and agreements in the coming months that can place it near the top of eSports entertainment and solidify its projected membership base.
AudioEye Separation and Spin-off
On August 17, 2012 the Company sold its subsidiary Audio Eye, Inc. The Company will retain 15% of AudioEye, Inc. subject to transfer restrictions in accordance with the Agreement. The Company will distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye, Inc. AudioEye, Inc. has finalized a Royalty Agreement with the Company to pay to the Company 10% of cash received from income earned, settlements or judgments directly resulting from, AudioEye Inc.’s patent enforcement and licensing strategy. Additionally, AudioEye, Inc. has finalized a Consulting Services Agreement with the Company whereby the Company will receive a commission of not less than 7.5% of all revenues received by AudioEye, Inc. after the closing date from all business, clients or other sources of revenue procured by the Company or its employees, officers or subsidiaries and directed to AudioEye, Inc. and 10% of net revenues obtained from a third party described in the agreement.
On August 21, 2012, the board of directors of the company declared October 26, 2012 as the record date for the dividend of 5% of Audio Eye, Inc. stock. The dividend was paid to the shareholders of record as of the close of business on October 26, 2012 and issued March 22, 2013, when AudioEye completed its registration process and issued the shares to the Company.
As consideration for the sale, the purchaser repaid $1,075,000 of debt previously owed by CMG to the CMGO Investors group. As a result of the sale of AudioEye, the net assets of AudioEye and the related accrued interest of $203,590 were written off during the year ended December 31, 2012. In addition, the Company is currently holding 20% of AudioEye shares with a fair value of $268,750. A gain of $4,339,564 was recorded for the sale of AudioEye for the year ended December 31, 2012 as follows:
Gain on Sale of Audio Eye, Inc. | | | |
Repayment of CMGO Debt | | $ | 1,075,000 | |
Accrued Interest on CMGO Debt | | | 203,590 | |
Shares of AudioEye, Inc. Retained | | | 268,750 | |
Net Assets of AudioEye, Inc. Sold | | | 2,792,224 | |
| | $ | 4,339,564 | |
As a result of the sale of AudioEye, the Company has its operating results and presented them separately as a discontinued operations for all periods presented. The results of operations for the year ended December 31, 2012 only reflect activity of AudioEye up until the finalization of the sale on August 17, 2012.
Year ended December 31, 20132015 compared to the year ended December 31, 2012
2014 Liquidity and capital resources
As at December 31, 2013,2015, the Company had a cash balance of $476,588$230,138 and working capital deficit of $206,544$1,174,641 compared with a cash balance of $238,124$27,886 and a working capital deficit of $818,455$1,285,378 at December 31, 2012.2014. The increasedecrease in working capital iswas mainly due to the sale of AudioEye marketable securities and a purchase optiondecrease in business for AudioEye sharesXA during the year ended December 31, 2013 for cash totaling $658,022. Additionally, the valuesecond half of the AudioEye marketable securities increased $489,437 and accrued expenses increased by $268,036 during the year ended December 31, 2013. Increases were partially offset by the repayment of $207,000 in debt and a reduction of approximately $138,849 in derivative liabilities.2014.
Cash Flows from Operating Activities
During the year ended December 31, 2013,2015, cash flows used in operating activities was $317,057$137,486 compared with use of $569,822$2,043,692 of cash flow during the year ended December 31, 2012.2014. The increasedecrease in cash flow from operating activities is mainly due the increasedecrease in accounts payablerevenues and accrued liabilitiesoperating expenses during the year ended December 31, 2013.2014.
Cash Flows from Investing Activity
During the year ended December 31, 2013, the Company recognized2015, cash proceeds from the sale of trading securities of $658,021,flows provided by investing activities were $64,766, compared to none$1,260,990 for the year ended December 31, 2012.December31, 2014.
Cash Flows from Financing Activities
During the year ended December 31, 2013, the Company received proceeds of $104,500 from the issuance of convertible promissory notes payable,2015, cash provided by financing activities was $0 as compared to $485,640 from the issuance of convertible promissory notes payable and convertible promissory notes payable, related parties, in fiscal 2012. During$334,000 for the year ended December 31, 2013, the Company made payments of $207,000 on convertible promissory notes payable, compared to $37,000 in payments on notes payable, related parties, in fiscal 2012.2014.
Revenues
The Company had revenues of $7,413,796$1,073,577 in our fiscal year ended December 31, 2013,2015, as compared to $8,125,196$7,811,423 in fiscal year ended December 31, 2012.2014. The decrease in revenues is mainly due to lossdecrease of business revenues generated in event marketing operations of XA, The Experiential Agency, Inc.
Cost of Sales
The Company had cost of sales of revenues of $5,296,280$352,531 in the year ended December 31, 2013,2015, as compared to $5,792,283$6,493,002 in the year ended December 31, 2012.2014. The decrease in cost of sales is mainly associated to the reductiondecrease in event marketing operations of XA, The Experiential Agency, Inc.
Expenses
The Company had total operating expenses of $8,171,643$752,139 in the year ended December 31, 2013,2015, as compared to $9,754,802$2,908,815 in the year ended December 31, 2012.2014. The decrease in operating expense is mainly due to a decrease in General and Administrative Expenses of $1,118,055 during the year ended December 31, 20132015 compared to the year ending December 31, 2012.2014.
Income
The Company had a net incomeloss of $1,194,051$977 in the year ended December 31, 20132015 as compared to $2,236,317net income of $1,268,183 in the year ended December 31, 2013. The decrease in net income is mainly due to the Company recognizing $4,339,564 income on the sale of discontinued operations in the year ended December 31, 2012 as compared to $0 in the year ended December 31, 2013. Loss from discontinued operations decreased from ($541,508) for the year ended December 31, 2012 to $0 for the year ended December 31, 2013. Gain on extinguishment and forgiveness of liability and debt decreased from $1,517,380 for the year ended December 31, 2012 to $797,732 for the year ended December 31, 2013. Decreases were partially offset by gains on derivative liabilities of $210,180 for the year ended December 31, 2013 compared to losses of $547,318 for the year ended December 31, 2012. Realized gains on marketable securities were $524,689 for the year ended December 31, 2013 compared to $0 for the year ended December 31, 2012 and unrealized gains on marketable securities were $622,769 for the year ended December 31, 2013 compared to $0 for the year ended December 31, 2012. Additionally, interest expense decreased to $255,845 for the year ended December 31, 2013, compared $907,916 for the year ended December 31, 2012.2014.
Capital Resources
At December 31, 2013,2015, we had assets totaling $1,596,248,$321,516, compared to $768,675$122,978 at December 31, 2012.2014. Assets at December 31, 20132015 consisted primarily of cash of $476,588, marketable securities$230,138, property and equipment, net of $764,088, accounts receivable$28,478, goodwill of $287,094$54,500 and other current assets of $8,400.
Liabilities
Our liabilities at December 31, 20132015 totaled $1,742,714,$1,413,179, compare to $2,285,758$1,321,664 at December 31, 2012.2014. Liabilities at December 31, 20132015 consisted primarily of $486,875 of deferred compensation, $593,710$145,408 in accrued liabilities, $627,695$676,670 in accounts payable, $2200,000 in deferred compensation and $34,434$371,100 in other short term liabilities including convertible notes and derivative liabilities and deferred income.liabilities.
Going Concern
Our independent registered accounting firm has expressed doubt about our ability to continue as a going concern. Because we have a working capital deficit and recurring net losses, our independent registered accounting firm has included in their report for the years ended December 31, 20132015 and 2012,2014, an uncertainty with respect to the Company's ability to continue as a going concern.
Critical Accounting Policies and Estimates
For all periods following closing under the Reorganization Agreement, the Company intends to prepare consolidated financial statements of the Company and its subsidiaries, which will be prepared in accordance with the generally accepted accounting principles in the United States. During the preparation of the financial statements the Company will be required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company will evaluate its estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. The Company intends to base its estimates on historical experience and on various other assumptions that it believes are reasonable under current conditions. Actual results may differ from these estimates under different assumptions or conditions. In response to the SEC’s Release No. 33-8040,338040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” the Registrant identified the most critical accounting principles upon which its financial status depends. The Registrant determined that those critical accounting principles are related to the use of estimates, revenue recognition, income tax and impairment of intangibles and other long-livedlong lived assets. The Company presents these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.
Revenue Recognition
The Company recognizes revenues generated from clients are subject to contracts requiring the Company to provide services within specified time periods generally ranging up to twelve months. As a result, we have projects in process at various stages of completion on any given date and stages may extend from one quarter to the next quarter and from one year to the next year. Revenue for our services is recognized when the following criteria are satisfied: evidence of an arrangement exists;exists; price is agreed upon at a fixed or determinable agreement level;level; services have been performed and collection is assured. Depending on terms of a client contract, fees for services performed can be recognized in three principal ways: individual project performances as is such in our event marketing division, monthly base retainers in our public relations, consulting or talent management division, and completed contracts were the Company work is based on success fee of the engagement and paid a percentage of the revenue generated by our clients. Depending on the terms of the client contract, revenue is derived from arrangements involving fees for services performed, commissions, performance or a combinations of each or all three. The revenues and commissions are generally earned on the date of the signing of the contract and then an invoice is distributed to the client with approvals. Our revenue is recorded as gross revenues less cost of goods sold or less pass-throughpass through expenses charged to a client because there may be various pass-throughpass through expenses, such as external production and marketing costs.
If the Company does not accurately manage our projects properly within the planned periods of time to satisfy our obligations under the contracts, then future profit margins may be significantly and negatively affected or losses on existing contracts may need to be recognized. Outside production costs consist primarily of costs to purchase media and program merchandise;merchandise; costs of production;production; merchandise warehousing and distribution;distribution; third party contract fulfillment costs;costs; and other costs directly related to marketing programs. Revenue recognition will not result in related billings throughout the duration of a contract due to timing differences between the contracted billing schedule and the time such revenue is recognized. In such instances, when revenue is recognized in an amount in excess of the contracted billing amount, we record such excess on our balance sheet as unbilledun billed contracts in progress. Alternatively, on a scheduled billing date, should the billing amount exceed the amount of revenue recognized, we record such excess on our balance sheet as deferred revenue. In addition, on contracts where reimbursable costs are incurred prior to the time revenue is recognized on such contracts, we record such costs as deferred contract costs on our balance sheet. Notwithstanding this, labor costs for permanent employees are expensed as incurred.
We use estimates of fair value to value derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. In general, our policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for our liabilities), relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair value. When possible, we seek to validate the model’s output to market transactions.
ITEM ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated financial statements, together with the report of the independent registered public accounting firm thereon and the notes thereto, are presented beginning at page F-1.TheF1. The Company’s balance sheets as of December 31, 2013 and 20122014 and the related statements of operations, changes in stockholders’ deficit and cash flows for the years then ended have been audited by Anderson Bradshaw PLLC. Anderson Bradshaw PLLCJohn Scrudato, CPA. John Scrudato, CPA is an independent registered public accounting firm. These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and pursuant to Regulation S-KSK as promulgated by the Securities and Exchange Commission and are included herein pursuant to Part II, Item 8 of this Form 10-K.10K. The financial statements have been prepared assuming the Company will continue as a going concern.
ITEM 9. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Previous Independent Accountants
On April 10 2014, Board of Directors of the Company approved to terminate Malone Bailey, LLP (“Malone Bailey”) as the Company’s independent registered public accounting firm.
The Company’s consolidated financial statements of the fiscal years ended December 31, 2004 through 2012 were audited by Malone Bailey’s reports on our financial statements, which did not contain an adverse opinion, a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles. Malone Bailey’s reports on our financial statements for the fiscal year ended December 31, 2012, 2009, 2008, 2007 and 2006, however, stated that there is substantial doubt about the Company’s ability to continue as a going concern.
During the fiscal years ended December 31, 2004 and through April 10, 2014, (a) there were no disagreements with Malone Bailey on any matter of accounting principles or practices, financial statement disclosure, auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Malone Bailey, would have caused it to make reference to the subject matter of the disagreement in connection with its report on the financial statements for such years and (b) there were no “reportable events” as described in Item 304(a)(1)(v) of Regulation S-K.
New Independent Registered Public Accounting Firm
On April 10, 2014, the Board of Directors of the Company ratified and approved the appointment of Anderson Bradshaw PLLC (“Anderson Bradshaw”) as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2013 and its engagement agreement dated February 17, 2014. Anderson Bradshaw is located at 5296 S. Commerce Drive Suite 300, Salt Lake City, UT 84107.
During the Company's previous fiscal years ended December 31, 2004 through 20122013 and through April 10, 2014,20143, neither the Company nor anyone on the Company's behalf consulted with Anderson Bradshaw regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements or (ii) any matter that was either the subject of a disagreement or a reportable event as defined in Item 304(a)(1)(v) of Regulation S-K.
SK.
On April 15, 2015 the board of directors of the Company approved the termination of Anderson Bradshaw (“Anderson”) as the Company’s independent registered public accounting firm.
New Independent Registered Public Accounting Firm
On April 15, 2015, the Board of Directors of the Company ratified and approved the appointment of Terry L. Johnson, CPA, CPA as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014 and its engagement agreement dated March 6, 2015. Terry L. Johnson, CPA is located at 406 Greyford Lane Casselberry, FL 32707.
During the Company's previous fiscal years ended December 31, 2004 through 2014 and through April 9, 2015, neither the Company nor anyone on the Company's behalf consulted with Terry L Johnson, CPA regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements or (ii) any matter that was either the subject of a disagreement or a reportable event as defined in Item 304(a)(1)(v) of Regulation SK.
On April 9, 2015, Terry L. Johnson, CPA notified the Company that he would be unable to complete the audit for the year ended December 31, 2014. Terry L Johnson, CPA resigned at this time.
On April 27, 2015, the Board of Directors of the Company ratified and approved the appointment of John Scrudato, CPA as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2014 and its engagement agreement dated April 21, 2015 John Scrudato, CPA is located at 7 Valley View Drive Califon, NJ 07830.
During the Company's previous fiscal years ended December 31, 2004 through 2014 and through May 15, 2015, neither the Company nor anyone on the Company's behalf consulted with John Scrudato, CPA regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements or (ii) any matter that was either the subject of a disagreement or a reportable event as defined in Item 304(a)(1)(v) of Regulation SK.
ITEM 9A.9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)13a15(e) and 15d-15(e)15d15(e) under the Exchange Act) as of December 31, 2013.2014. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2013,2014, the Company’s disclosure controls and procedures were not effective due to the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after December 31, 2013.
2015.
Management’s Report on Internal Control Over Financial Reporting
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 20132014 based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992). Furthermore, due to our financial situation, the Company will be implementing further internal controls as the Company becomes operative so as to fully comply with the standards set by the Committee of Sponsoring Organizations of the Treadway Commission.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f)13a15(f) and 15d-15(f)15d15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on its evaluation as of December 31, 2013,2014, our management concluded that our internal controls over financial reporting were not effective as of December 31, 20132014 due to the identification of a material weakness. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. As soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.
In performing this assessment, management has identified the following material weaknesses as of December 31, 2013:2014:
· | There is a lack of segregation of duties necessary for a good system of internal control due to insufficient accounting staff due to the size of the Company |
· | Lack of a formal review process that includes multiple levels of reviews |