QUARTELY REPORT MARCH 31, 2010


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarter year ended September 30, 2008March 31, 2010
 
Commission file number 000-51770
 
 
 CMG HOLDINGS, INC.
(Exact name of registrant as specified in its charter)

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

 5601 Biscayne Boulevard
  
 Miami, Florida, USA 
 33137
 (Address of principal executive offices) (Zip Code)
 
Registrant's telephone number including area code (305) 751-1667
 
---------------------------------------------------------------

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or small reporting company.  See the definition of "large accelerated filer," "accelerated filer" and "small reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   
Accelerated filer    
Non-accelerated   filer     
Smaller reporting company    x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes     No  x
 
As of November 23, 2009,May 21, 2010, there were 42,400,000 common stock of the registrant issued and 40,057,626 shares outstanding.


1
 

CMG HOLDINGS, INC.
 
FORM 10-Q

TABLE OF CONTENTS

Item # Description Page Numbers
      
  
PART I
 
3
 
      
ITEM 1
 
CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)		 
3
 
      
ITEM 2
 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
10
9		 
      
ITEM 3
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 11
10		 
      
ITEM 4
 
CONTROLS AND PROCEDURES
 
12
11		 
      
  
PART II
   
      
ITEM 1
 
LEGAL PROCEEDINGS
 
13
12		 
      
ITEM 1A
 
RISK FACTORS
 
 13
12		 
      
ITEM 2
 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
13
12		 
      
ITEM 3
 
DEFAULTS UPON SENIOR SECURITIES
 
13
12		 
      
ITEM 4
 
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
13
12		 
      
ITEM 5
 
OTHER INFORMATION
 
13
12		 
      
ITEM 6
 
EXHIBITS
 
14
13		 
      
  
SIGNATURES
 
15
14		 
   
EXHIBIT 10.1CMG CHANNEL SALES AGREEMENT   
      
EXHIBIT 10.210.1 CMG FINDERSAMENDED EXECUTIVE AGREEMENT WITH CEO   
      
EXHIBIT31.1
EXHIBIT 10.2		 
SECTION 302 CERTIFICATION OF CHIEFAMENDED EXECUTIVE OFFICER
AGREEMENT WITH COO		   
      
EXHIBIT 31.2
10.3		 
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
AMENDED EXECUTIVE AGREEMENT WITH GENERAL COUNSEL		   
      
EXHIBIT 32.1
EXHIBIT31.1		 
SECTION 906302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
   
      
EXHIBIT 32.2
31.2		 
SECTION 302 CERTIFICATION OF CHIEF FINANCIAL OFFICER
EXHIBIT 32.1SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER
EXHIBIT 32.2SECTION 906 CERTIFICATION OF CHIEF FINANCIAL OFFICER   


 

2
Table of Content

 
PART I

ITEM 1           FINANCIAL STATEMENTS

CMG HOLDINGS, INC.
 UNAUDITED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30,MARCH 31, 2010 AND 2009 AND 2008
 
 
 CONTENTS
 ______________________________________________________________________________________
 
Consolidated Balance Sheets as of September 30, 2009March 31, 2010 and December 31, 20082009 (Unaudited)4
 
Consolidated Statements of Operations for the three months ended March 31, 2010 and nine months ended September 30, 2009 and 2008 (Unaudited) 5
 
Consolidated Statements of Cash Flows for ninethe three months ended September 30,March 31, 2010 and 2009 and 2008 (Unaudited)6
 
Notes to Consolidated Financial Statements (Unaudited)7
 



3

Table of Content
 
CMG HOLDINGS, INC
  
CONSOLIDATED BALANCE SHEETS  
(unaudited)  
   
    March  31, 2010  December 31, 2009 
ASSETS      
       
CURRENT ASSETS:      
Cash $279,050  $32,968 
Accounts receivable  441,283   207,789 
Prepaid and other current assets  15,182   18,182 
Total current assets  735,515   258,939 
Property and equipment  294,387   -- 
         
Intangible assets, net accumulated amortization of $298,333 and
$223,750, respectively
  596,665   671,248 
Other assets  32,500   -- 
TOTAL ASSETS $1,659,067  $930,187 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
CURRENT LIABILITIES:        
Client payable $11,317  $11,317 
Accounts payable  1,459,323   1,145,467 
Accrued liabilities  587,427   360,328 
Deferred revenue  -   19,600 
Short term debt, net of unamortized discount of $5,610 and $11,010, respectively  119,390   113,990 
Line of credit  177,930   175,746 
 
Due to sellers
  30,000   - 
Advances from related parties  42,500   42,500 
TOTAL CURRENT LIABILITIES  2,427,887    1,868,948 
         
STOCKHOLDERS’ DEFICIT        
Preferred stock:        
           5,000,000 shares authorized par value $0.001 per share; none issued and
outstanding
  --   -- 
Common stock:        
          150,000,000 shares authorized,  par value $0.001 per share; 42,400,000 issued;
  40,057,626 and  38,207,626 shares outstanding respectively
  40,058   38,208 
 Additional paid in capital  5,531,022   5,429,522 
 Treasury stock, 2,342,374 and 4,192,374 shares held, respectively.  2,342   4,192 
Accumulated deficit  (6,342,242)  (6,410,683)
         
  TOTAL STOCKHOLDERS’ DEFICIT  (768,820 )  (938,761)
         
              TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $1,659,067  $930,187 

CMG HOLDINGS, INC 
CONSOLIDATED BALANCE SHEETS 
(unaudited) 
  
  September 30, 2009  December 31, 2008 
ASSETS      
       
CURRENT ASSETS:      
          Cash $125,159  $13,934 
          Accounts receivable  620,303   1,050 
          Prepaid an other  10,366   -- 
             Total current assets  755,828   14,984 
         
          Software licenses, net accumulated depreciation of $4,333 and $-, respectively  47,667   -- 
          Intangible assets, net accumulated amortization of $149,167 and $-, respectively  745,831   -- 
          Leasehold Improvements, net accumulated amortization of $59,328 and $-, respectively  711,942   -- 
          Deposits  300,000   300,000 
           TOTAL ASSETS $2,561,268  $314,984 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT        
         
CURRENT LIABILITIES:        
           Client payable $137,817  $8,000 
           Accounts payable  701,477   29,320 
           Accrued liabilities  663,661   415,359 
           Short Term Debt, net of unamortized discount $16,208 and $-, respectively  233,792   -- 
           Line of credit  163,994   108,231 
           Advance from related party  25,000   -- 
                     Total current liabilities  1,925,741   560,910 
         
STOCKHOLDERS’ DEFICIT        
              Preferred Stock:        
              5,000,000 shares authorized par value $0.001 per share; none issued and outstanding $--  $-- 
      Common Stock:        
              150,000,000 shares authorized par value $0.001 per share; 42,400,000 issued,  and      33,026,518 and  31,726,518 shares outstanding respectively  33,027   31,727 
      Additional paid-in-capital  4,992,363   4,449,863 
       Shares held in reserve, 9,373,482 and 10,673,482 shares held, respectively.  9,373   10,673 
      Accumulated deficit  (4,399,236)  (4,738,189)
         
  TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)  635,527   (245,926)
         
              TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $2,561,268  $314,984 


See accompanying notes to consolidated financial statements


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Table of Content
 
CMG HOLDINGS, INCCMG HOLDINGS, INC CMG HOLDINGS, INC 
CONSOLIDATED STATEMENTS OF OPERATIONSCONSOLIDATED STATEMENTS OF OPERATIONS CONSOLIDATED STATEMENTS OF OPERATIONS 
(unaudited)(unaudited) (unaudited) 
   
   
 Three months ended Nine months ended   
 September 30, September 30, 
Three Months Ended March 31,
 
 2009 2008 2009 2008 2010 2009 
             
Gross revenues $933,742 $303,547 $2,991,493 $702,714  $1,286,599 $212,394 
Cost of goods sold  155,160  --  609,160  -- 
Net revenues  778,582 303,547 2,382,333 702,714 
Cost of revenue  709,006  -- 
Gross margin 577,593 212,394 
               
Amortization expense 74,583 -- 153,500 --  74,583 -- 
Depreciation expense 29,664 -- 59,328 -- 
Operating expenses  684,070  405,867  2,200,708  2,937,282   832,744  365,689 
               
Operating income (loss)  (9,735)  (102,320) (31,203)  (2,519,418)
Operating loss (329,734)  (153,295) 
                  
Other income (expense)               
Bargain purchase gain   -- -- 904,886 --  405,759 -- 
Gain on extinguishment of debt  19,565  --  19,565  -- 
Interest expense  (508,357)  (56) (615,857) (84,900)   (7,584)  (1,386) 
Interest income  9,255  1,389  61,562  17,145 
               
Net income (loss) $(489,272) $(100,987) $338,953  $(2,302,323)  $68,441  $(154,681)
               
Basic and diluted income (loss) per common share $(0.01)  $(0.00) $0.01  $(0.10) 
Basic income (loss) per common share $0.00 $(0.00) 
Diluted income (loss) per common share  0.00   (0.00) 
                        
                        
Basic weighted average common shares outstanding
  32,638,475   28,115,690   32,033,844   22,430,854   38,460,404   31,726,518 
Diluted weighted average common shares outstanding
  32,638,475   28,115,690   34,892,415   22,430,854   40,591,654   
 
31,726,518
 

 
 
See accompanying notes to consolidated financial statements

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Table of Content
 
CMG HOLDINGS, INC 
CONSOLIDATED STATEMENTS OF CASH FLOWS 
(unaudited) 
       
  Nine months ended 
  September 30, 
  2009  2008 
       
CASH FLOWS FROM OPERATING ACTIVITIES      
Net Gain (Loss) $338,953  $(2,302,323) 
Adjustments to reconcile net loss to net cash used in operating activities:        
 Shares issued for services  --   1,491,778 
 Additional shares issued for interest expense  --   62,464 
 Bargain purchase gain  (904,886)  -- 
Gain on extinguishment of debt  (19,565)   -- 
 Warrant expense  462,500   -- 
 Depreciation expense  59,328   -- 
 Amortization expense – debt discount  3,357   -- 
 Amortization expense – intangible assets  153,500   -- 
Changes in:        
Accounts receivable  (410,934)  (304,165) 
            Prepaid expense  (10,366)  17,454 
 Consulting Payable  --   243,750 
            Client Payable  129,817   266,772 
            Accounts payable  672,157   (109,906) 
 Accrued expense    397,846   -- 
Deferred revenue    (771,245)   -- 
         
 Net cash provided by (used in) operating activities  100,462   (634,176) 
         
CASH FROM INVESTING ACTIVITIES        
            Cash paid for acquisition of Pebble Beach Enterprises, Inc.  --   (600,000) 
            Deposit related to acquisition       (300,000) 
            Cash paid to acquire a bank loan  (250,000)  -- 
Net cash used in investing activities:  (250,000)  (900,000) 
         
FINANCING ACTIVITIES        
            Advance from a related party  25,000   -- 
            Net borrowings on line of credit  55,763   (57,069) 
            Contributions to capital  --   30,000 
            Stock for cash  80,000   137,975 
            Borrowing on notes payable  100,000   -- 
            Borrowing on convertible notes  --   314,000 
         
Net cash provided by financing activities  260,763   424,907 
         
Net increase (decrease) in cash  111,225   (1,109,269) 
    Cash, beginning of period  13,934   1,213,035 
    CASH BALANCE AT END OF PERIOD $125,159  $103,766 
Supplemental cash flow information:        
            Income tax paid $--  $-- 
            Interest paid  --   -- 
         
Non-cash investing and financing activities:        
            Assets acquired after foreclosing on bank loan $--   $1,492,000 
            Assets acquired after foreclosing on bank loan $979,589   -- 
CMG HOLDINGS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (Unaudited)
   Three Months Ended 
  March 31, 
  2010  2009 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net income (loss) $68,441   $(154,681)
Adjustments to reconcile net loss        
      to net cash used in operating activities:        
           Bargain purchase gain  (405,759)   -- 
           Shares issued for services  31,500   -- 
           Amortization of intangible assets  74,583   -- 
           Amortization of debt discount  5,400   -- 
Changes in:        
 Accounts receivable  (37,375)   -- 
            Prepaid expense and other current assets  3,000   -- 
            Deferred revenue  (19,600)              -- 
            Accrued liabilities  225,135              98,462 
            Client payable  --   100,036 
 Accounts payable   295,356   53,498 
         
 Net cash provided by operating activities  240,681   97,315 
         
CASH FLOWS FROM INVESTING ACTIVITIES        
        Cash received from acquisition of Audio Eye, Inc.  3,217   -- 
        Cash paid to acquire a bank loan                           --   (150,000) 
        Cash advance for acquisition of assets for Experiential Agency Inc.                --   (100,000) 
Net cash provided (used in) by investing activities  3,217   (250,000) 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
        Advances from related parties  --   25,000 
        Net borrowings on line of credit  2,184   20,750 
        Proceed from issuance of debt  --   100,000 
Cash provided by financing activities  2,184   145,750 
         
Net increase (decrease) in cash  246,082   (6,935) 
Cash, beginning of year  32,968   13,934 
Cash, end of the year $279,050  $6,999 
Supplemental cash flow information:        
         Interest paid $     --  $ 1,386 
         Income taxes paid $--  $-- 
Non-cash investing activity:        
         Acquisition of Audio Eye, Inc. . $ 502,542  $-- 



See accompanying notes to consolidated financial statements



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Table of Content
CMG HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)(Unaudited)

NOTE 1 – DESCRIPTION–BASIS OF BUSINESS AND BASIS OF PRESENTATION AND ACCOUNTING POLICIES

The accompanying unaudited interim consolidated financial statements of CMG Holdings, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in its 20082009 annual report on Form 10-K.  In the opinion of management, these interim financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Our futur e results of operations may change materially from the historical results of operations reflected in our historical financial statements.  The unaudited consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements and notes theretofootnotes of the Company and management’s discussion and analysis of financial condition and results of operations included in the Company’s Annual Report for the year ended December 31, 20082009 as filed with the Securities and Exchange Commission on Form 10-K.  Notes to the financial statements that would substantially duplicate the disclosure contained in the audited financial statements for fiscal year 2008,2009, as reported in the Form 10-K, have been omitted.

PRINCIPLES OF CONSOLIDATION
Principles of consolidation

The consolidated financial statements include the accounts of CMG Holdings, Inc., Creative Management Group and CMG Acquisitions,Acquisition, Inc., CMGO Capital, Inc., The Experiential Agency, Inc, Audio Eye, Inc., CMGO Logistics, Inc. and CMGO Events Marketing, Inc, Creative Management Group, Logistics, Inc. after elimination of all significant inter-company accounts and transactions.

INTANGIBLE ASSETS, GOODWILL AND IMPAIRMENT OF LONG-LIVED ASSETS

Intangibles are recorded at cost and amortized on the straight-line method over their estimated useful lives. Goodwill is reviewed annually. Intangible valuation and Goodwill impairment are determined using similar processes. For intangibles, the first step is to compare the fair value of the intangible to its carrying amount.  For Goodwill, the first step is to compare the fair value of a reporting unit with its carrying amount, including goodwill. Inova determines the fair value of both intangibles and reporting units by using a discounted cash flow (“DCF”) analysis approach. Determining fair value requires the exercise of significant judgments, including judgments about appropriate discount rates, perpetual growth rates, relevant comparable company earnings multiples and the amount and timing of expected future cash flows. The cash flows employed in the DCF analyses are based on Inova’s budget and long-term business plan, and various growth rates have been assumed for years beyond the long-term business plan period. Discount rate assumptions are based on an assessment of the risk inherent in the future cash flows of the respective reporting units.

BUSINESS COMBINATION

The Company accounts for business combination in accordance with FASB ASC 805, "Business Combinations". In December 2007, the FASB issued ASC 805 which establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. The statement also provides guidance for recognizing and measuring the goodwill acquired in the business combination and for disclosure to enable evaluation of the nature and financial effects of the business combination.

NEW ACCOUNTING PRONONCEMENT

In May 2009, the FASB issued ASC 855, Subsequent Events. This standard is intended to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Specifically, this standard sets forth the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and the disclosures that an entity should make about events or transactions that occurred after the balance sheet date. FASB ASC 855 is effective for fiscal years and interim periods ended after June 15, 2009. The Company adopted this standard effective June 15, 2009, and has evaluated any subsequent events through November 23, 2009. The Company has no significant subsequent events for the period from October 1, 2009 through November 23, 2009.
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Table of Content

NOTE 2 –2:  GOING CONCERN

As shown in the accompanying financial statements, theThe Company has negativean accumulated deficit and a working capital deficit as of September 30, 2009.March 31, 2010.  These conditions raise substantial doubt as to ourthe Company’s ability to continue as a going concern. In response to these conditions, the Company may raisehas raised 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 arethe Company is unable to continue as a going concern.

NOTE 3 – 3:   ACQUISITIONS

On March 31, 2010, the Company acquired all outstanding shares of Audio Eye, Inc. (“Audio Eye”) in exchange for $30,000 cash, 1.5 million shares of the Company’s common stock, warrants to purchase 250,000 shares of the Company’s common stock at an exercise price of $0.07 per share and a term of 5 years plus other contingent consideration.  Audio Eye developed patented internet content publication and distribution software enabling conversion of any media into accessible formats and allowing for real time distribution to end users on any internet connected device.  With this acquisition, the Company expects to be a leading provider in the Internet content publication and distribution software enabling the conversion of any media into accessible formats and allows for real time distri bution to end users on any network connected device.

The fair value of consideration transferred in the acquisition, the assets acquired and the liabilities assumed are set forth in the following table:

Consideration:
Cash (1)
Common stock (2)
Warrants to purchase common stock (3)
Contingent consideration (4)
$  30,000
60,000
10,000
-
Total consideration$100,000

Recognized amount of identifiable assets acquired and liabilities assumed
Cash
Accounts receivable
Property and equipment
Other assets
Accounts payable
Accrued liabilities
$    3,217
196,119
294,387
32,500
(18,500)
(1,964)
Total identifiable net assets and liabilities assumed$505,759
Bargain purchase gain(5)$405,579


7
CMG HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE RECEIVABLE AND ASSET ACQUISITION3:   ACQUISITIONS (CONTINUED)

(1)  This was paid on April 1, 2010 and as such as of March 31, 2010, the Company recognized this as a liability which is reported as “Due to sellers” in the consolidated balance sheets.

(2)  The fair value of the 1.5 million shares issued by the Company was determined based on the closing price of the Company’s stock at the acquisition date.

(3)  The fair value of the 250,000 warrants were determined using a Black-Scholes option valuation model using the following key assumptions: exercise price of $0.07 per share, stock price of $0.04, term of 5 years, expected volatility of 343% and a discount rate of 2.55%

(4)  The contingent consideration is based on the average net income of Audio Eye over a period of 4 years starting in 2010 after applying a multiple based on the average growth rate less any amounts of working capital contributions made by the Company to Audio Eye.  The amount of working capital contribution to be made by the Company is a combination of a fixed amount of $470,000 plus a deferred working capital contribution payable within a period of 3 years and is based on the greater of Audio Eye’s achievement of certain sales targets or $1,000,000.  The fair value of the contingent consideration was determined based on Audio Eye’s projected net income from 2010 and 2013 and the application of a discount rate to the future payment to be made.  After deducting the amount of working capital contribution, the amoun t of contingent consideration was deemed to be zero. At the end of each reporting period after the acquisition date, the contingent payment will be remeasured to its fair value, with changes in fair value recorded in earnings.

(5)  The amount of bargain purchase gain recognized is provisional pending receipt of the final valuation of all identifiable assets acquired.

On March 6, 2009, the Company, through a newly formed wholly owned subsidiary CMGO Capital, Inc., a Nevada corporation, completed a Note Purchase Agreement with Bank of America to purchase the senior secured debt obligations of The Experiential Agency, Inc. The purchase price of the Note Purchase Agreement with Bank of America to purchase the senior secured debt obligations of The Experiential Agency, Inc. was a total of $150,000. CMG had also loaned XAThe Experiential Agency, Inc. $100,000 in March 2009 (see note 5 below) which has been accounted for as part of the purchase price.

On April 1, 2009, CMG Holdings, Inc. foreclosed on the note and completed the acquisition of the assets of The Experiential Agency, Inc.

Unaudited pro forma operation results for the three months ended March 31, 2010 and 2009, as though the Company had acquired Audio Eye and The Experiential Agency, Inc. offers a full degreeon the first day of solutions, services and consulting expertise comprisingfiscal year 2009, are set forth below.  The unaudited pro forma operating results are not necessarily indicative of management, creation, and executionwhat would have occurred had the transaction take place on the first day of entertainment event for corporate clients and individual clients general service areas of event marketing, interactive marketing, event production, public relations, talent representation, corporate consulting, digital media. The Experiential Agency, Inc. earns consulting fees when it provides general consulting services and generates revenues for services for event marketing and communications assignments. As a result of the acquisition of the assets of Experiential Agency, Inc., the Company is expected to be the premier provider of solutions, services and consulting expertise comprising of management, creation, and execution of entertainment event for corporate clients and individual clients general service areas of event marketing, interactive marketing, event production, public relations, talent representation, corporate consulting, digital media and services in those markets. The Company also expects to reduce costs through economies of scale.fiscal year 2009.

In accordance with FAS 141R, the Company determined the assets acquired constituted a business and applied purchase accounting to the assets acquired.
  
Pro Forma
Three months ended March 31
  2010 2009
 
Revenues
Cost of revenue
Operating expenses
Interest expense
 
 
$   1,356,301
(709,006)
(1,041,458)
(7,584)
 
 
$   517,180
(485,287)
(932,762)
(2,667)
Net loss $    (401,747) $ (903,536)

The assets acquired include accounts receivable, software licenses and leasehold improvements with a fair value of $208,319, $52,000 and $771,270 respectively. The fair value of the acquired identifiable intangible assets of $894,998 is provisional pending receipt of the final valuations for those assets. The $894,998 of acquired intangible assets (customers list/company name) has a useful life of approximately 3 years. During the nine months ended September 30, 2009, the Company recorded amortization expense of $153,500.  The company incurred liabilties of $456 of accounts payable and $771,245 of deferred revenue. The Company recognized a gain of $904,886 as a result of the asset acquisition. The gain is included in other income in the Company’s statement of operations for the nine months ended September 30, 2009.  The following table summarizes the consideration paid for acquisition of the assets and the amount of the assets acquired at the acquisition date as well as the fair value at the acquisition date.
Consideration:
Cash Consideration for purchase of Bank of America note $150,000 
Cash loaned to XA (see note 5 below)  100,000 
     
Total  $250,000 
     
Acquisition-related costs $-- 
     
Recognized amounts of identifiable assets acquired and liabilities assumed:    
     
Accounts receivable  208,319 
Software licenses  52,000 
Leasehold improvements  771,270 
Identifiable intangible assets  894,998 
Accounts payable  (456) 
Deferred revenue  (771,245) 
     
Total identifiable net assets  1,154,886 
Bargain purchase gain  (904,886)
     
Total $250,000 

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Table of ContentCMG HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amounts of The Experiential Agency, Inc revenues and earnings included in the Company’s consolidated statement of operations for the nine months ended September 30, 2009, and the revenues and earnings of the combined entity had the acquisition date been January 1, 2009, or January 1, 2008, are:(Unaudited)
 
 
  Revenues  Earnings 
Supplemental pro forma from 01/01/09 – 09/30/09 $3,389,374   $(302,508)
Supplemental pro forma for 01/01/08 – 09/30/08                             6,768,454   (2,188,098)

NOTE 4: EQUITY
Common Stock:

On January 25, 2010, 350,000 shares were issued, out of treasury stock held by CMG Acquisition, Inc., for services provided by third parties valued at $31,500.

On March 31, 2010, 1,500,000 shares were issued, out of treasury stock held in reserve held by CMG Acquisition, Inc. ,for the acquisition of Audio Eye valued at $60,000. See Note  3 for details.

Warrants:

During the three months ended March 31, 2010, 250,000 warrants were issued in connection with the acquisition of Audio Eye. See Note 3 for details on the valuation of the warrants.

A summary of warrant activity for the three months ended March 31, 2010 is as follows:

 Outstanding and Weighted average
 Exercisable Exercise Price
December 31, 20092,400,000$0.01
Granted250,000$0.07
Exercised- -
Forfeited- -
March 31,20102,650,000$0.02

The warrants have a weighted average remaining life of 4.9 years and an aggregate intrinsic value of $72,000.

NOTE 5: COMMITMENTS AND CONTINGENCIES

On January 1, 2010, the Company and the executive management entered into executive employment agreements, effective up to 2016, regarding base salary compensation, executive incentive bonus consideration and expense reimbursement. The agreements provide for the deferral of payment of a portion of the annual base salary until such time that the Company has sufficient working capital, but in no case later than December 31, 2012.  The agreements also provide that the executive bonus consideration and expense reimbursement shall be earned upon achievement of certain performance conditions.  The executives have the option to convert the deferred base salary and any incentive bonuses and expense reimbursements earned to restricted shares of the Company’s common stock at a conversion price that is based on the one h undred eighty (180) day average closing price of the Company’s stock prior to the conversion.


On May 19, 2010, the above agreements were amended to reflect a conversion price that will be based on the one hundred and eighty (180) day average closing price of the Company stock prior to the conversion but not to a exceed $1.00 or below $0.10.



9
CMG HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 4 – ADVANCE FROM RELATED PARTY6:  SUBSEQUENT EVENTS

In March 2009, the Company received a total of $25,000 advances from one of its officer/directors. The funds were used by the Company for working capital purposes. The payable bears 0% interest, is unsecured and is due on demand.

NOTE 5 –NOTES PAYABLE

Security Agreement – JT Ventures:

On March 16, 2009, CMG issued a note payableApril 1, 2010, the Company fully paid its $125,000 loan to JT Ventures, LLC.


On various dates in April 2010, the Company issued two 13% Senior Secured Convertible Extendible Notes to a third party totaling $850,000 that mature on July 1, 2011.  Provided that the Company is not in default, the Company has the option to extend the maturity date of the notes for $100,000 that was then loaneda period of three months by paying an extension fee equal to XA from CMG.5% of the principal amount of the outstanding notes. In the event of default, the annual interest rate is increased to 18%. The note was due on June 15, 2009, secured bynotes are convertible into the assetsCompany’s common shares, at any time after the maturity date, at $0.10 per share. In connection with the issuance of XA and required CMGthe notes, the Company issued warrants to issue 1 million CMGpurchase 4,250,000 shares of the Company’s common stock. The warrants withhave an exercise price of $.001$0.10 per share and a term of 7 years.  The warrant value of $37,500 created a discount on the note payable that was to be amortized over the termconversion price of the note usingnotes and the effective interest method.  CMG did not pay the principalexercise price of the note which triggered a $50,000 interest payment that was added towarrants contain reset provisions. If the principal amountclosing market price of the noteCompany’s common stock is less than the conversion and an additional 400,000 warrants of CMG with the same terms as the previous 1 million warrants. The 400,000 warrants resulted in additional interest expense of $20,000. In August 2009 CMG entered into a forbearance agreement for the $150,000 and agreed to repay the amount in July 2010. CMG agreed to the following financial requirements: Cash Fees of $25,000 on August 17, 2009, October 1, 2009, January 1, 2010 and April 1, 2010.  In the event that the company fails to pay JTV a cash fee on the date that the fee is due, at its sole option JT Venture will defer the cash fee to June 30, 2010 and CMG agrees to deliver to JTV a warrant (Fee Warrant) for 500,000 shares of CMG common stock. The exercise price for a period of 90 consecutive trading days, then the Fee Warrantconversion and exercise price in effect shall be $0.05 per share and they expire in 7 years.  Fee Warrants shall contain a “net exercise” provision in form and substance satisfactory to JT Ventures and shall have Piggyback Registration Rights to register the common stock issued pursuantreduced to the feeclosing market price on such 90th trading days but both conversion and exercise price shall not be reduced to less than $0.07 per share. The notes are secured by a security interest in all of the assets of the Company and its subsidiaries.

In connection with the above transaction, , the Company paid the placement agent 10% of the gross proceeds and warrants as part of any registration filing by CMG Holdings, Inc. and or its successors and assignors. In addition to the cash fees to be paid to JT ventures, the company will deliver a warrant for 1 millionpurchase 1,105,000 shares of CMGthe Company’s common stock on August 17, 2009, October 1, 2009, Januarystock.

On May 1, 2010, and April 1, 2010. The warrants have an exercise price of $.001 and expire in 7 years. The fair value of these warrants was calculated using the Black-Scholes Model using these assumptions (1) 3.3% discount rate, (2) warrant life of 7 years, (3) expected volatility of 366%, and (4) zero expected dividends. The fair value of the warrants under the forbearance agreement was  $405,000 which has been accounted for as interest expense.

CMG determined the forbearance agreement qualified for extinguishment accounting requiring the old debt be removed from the books and the new debt be recorded at its fair value.  The fair value of the new debt was $130,435 resulting in a gain on extinguishment of $19,565.  The $100,000 in cash fees and the $405,000 in warrant fees have been accounted for as interest expense.

As of November 23, 2009, CMG did not make the August 17th cash payment or the October 1st cash payment.
NOTE 6 – EQUITY

During July 2009, 1,000,000 Shares685,200 shares were issued from the sharestreasury stock held in reserve held by CMG Acquisitions,Acquisition, Inc. for cash. The Company received $50,000.

During September 2009, 300,000 Shares were issued from the shares held in reserve heldservices provided by CMG Acquisitions, Inc. for cash. The Company received $30,000.third parties.



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Table of Content
ITEM 2 –2:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF    OPERATIONS

TheFORWARD LOOKING STATEMENTS

In addition to historical information, containedthis Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which includes, but are not limited to, statements concerning expectations as to our revenues, expenses, and net income, our growth strategies and plans, the timely development and market acceptance of our products and technologies, the competitive nature of and anticipated growth in our markets, our ability to achieve cost reductions, the status of evolving technologies and their growth potential, the adoption of future industry standards, expectations as to our financing and liquidity requirements and arrangements, the need for additional capital, and other matte rs that are not historical facts. These forward-looking statements are based on our current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by it. Words such as “anticipates”, “appears”, “believe,”, “expects”, “intends”, “plans”, “believes, “seeks”, “assume,” “estimates”, “may”, “will” and variations of these words or similar expressions are intended to identify forward-looking statements. All statements in this Management’s DiscussionQuarterly Report regarding our future strategy, future operations, projected financial position, estimated future revenue, projected costs, future prospects, and Analysis of Financial Conditionresults that might be obtained by pursuing management’s current plans and Results of Operation contains “forward lookingobjectives are forward-looking statements.” Actual Therefore, actual results maycould differ materially differand adversely from those projectedresults expressed in the forward lookingany forward-lookin g statements, as a result of certain risks and uncertainties set forth invarious factors. Readers are cautioned not to place undue reliance on forward-looking statements, which are based only upon information available as of the date of this report.  AlthoughYou should not place undue reliance on our management believes thatforward-looking statements because the assumptions madematters they describe are subject to known and expectations reflected in the forward lookingunknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are reasonable, there is no assurance thatbased on the underlying assumptionsinformation currently available to us and speak only as of the date on which this Quarterly Report was filed with the Securities and Exchange Commission (“SEC”).  We expressly disclaim any obligation to revise or update publicly any forward-looking statements even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will in fact, prove to be correct or that actual future results will not be materially differentlikely differ from the expectationsanticipated results, performance or achievements that are expressed in this Annual Report.or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders. Unless the context indicates otherwise, the terms “Company”, “Corporate”, “CMGO”, “our”, and “we” refer to CMG Holdings, Inc. and its subsidiaries.
PLAN OF OPERATION

RESULTS OF OPERATIONS

FOR THE NINETHREE MONTH PERIOD ENDED SEPTEMBER 30, 2009MARCH 31, 2010

Gross revenues increased from $702,714 in the nine months period ending September 30, 2008 to $2,991,493$212,394 for the ninethree months period ending September 30, 2009.ended March 31, 2009 to $1,286,999 for the three months ended March 31, 2010. The increase in revenues is mainly due to morethe revenues generated infrom the event marketing, public relations, marketing services and event marketing consulting business. Also, beginningbusiness of, The Experiential Agency, Inc. (“XA”), a wholly-owned subsidiary acquired in the second quarter of 2009, after the acquisition2009.

Cost of assets of The Experiential Agency, Inc., we started to generate and recognize revenues from this new line of business. Operating expenses decreased from $2,937,282 for the nine months ending September 30, 2008 to $2,200,708 for the same period in 2009. This was mainly due to the Company recognized significant stock-based compensation costs in 2008 and in 2009 the Company did not have any of this type of expense. The expenses for 2009 mainly incurred for marketing services, public relations, consulting services and event marketing. Net incomerevenue increased from a net loss of $2,302,323 for the nine months ending September 30, 2008 to net income of $338,953 for the same period in 2009. The increase in net income is mainly due to more revenues generated and not having any stock-based compensation expense in 2009 compared to 2008.

FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2009

Net revenues increased from $303,547 in the three months period ending September 30, 2008 to $933,742$0 for the three months period ending September 30, 2009. The increase in revenues is mainly dueended March 31, 2009 to more revenues generated in public relations, marketing services and event marketing consulting business. Also, during the second quarter of 2009, after the acquisition of assets of The Experiential Agency, Inc., we started to generate and recognize revenues from this new line of business. Operating expenses increased from $405,867$709,006 for the three months ending September 30, 2008 to $684,070 for the same period in 2009. This was mainly dueended March 31, 2010. The increase is related to the Company recognized expenses for marketing services, public relations, consulting services and event marketing.  Net loss increased from $100,987 for the three months ending September 30, 2008 to $489,272 for the same period in 2009. The increase in net lossthe revenues which is mainly due to the fees associated withnew business generated from the forbearanceevent marketing, public relations, consulting business of the JT Ventures debt.XA.

Operating expenses increased from $365,689 for the three months ended March 31, 2009 to $832, 744 for the three months ended March 31, 2010. The increase in operating expenses is mainly due to increased personnel, marketing, professional fees and operations from the event marketing, public relations, consulting business of XA.

The net loss of $154,681 for the three months ended March 31, 2009 increased to a net income of $68,441 for the three months ended March 31, 2010. This is mainly due to the bargain purchase gain resulting from the acquisition of Audio Eye, Inc.

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LIQUIDITY AND CAPITAL RESOURCES.:

As of September 30, 2009,March 31, 2010, the Company’s cash on hand was $125,159. $279,050.
Cash provided by operations for the ninethree months period ended September 30,March 31, 2009 was $100,462,$97,315, as compared to cash usedprovided by operations of $634,176$240,681 for the ninethree months ended September 30, 2008. TheMarch 31, 2010. This change is primarily due to amortization of intangible assets, stock expenses for services, and accrued expenses related to the increase in cash provided by operating activities is mainlyexpenses due to more revenues generated inthe increased personnel and operations from the event marketing, public relations, marketing services and event marketing consulting business during nine months ended September 30, 2009. of XA.

Cash used in investing activities for the nine month periodthree months ended September 30,March 31, 2009 was $250,000, as compared to $900,000cash provided by investing activities of $3,217 for the ninethree months ended September 30, 2008.March 31, 2010. For the ninethree months ended September 30, 2008,March 31, 2009, the Company incurred $600,000$150,000 for the acquisition of Pebble Beach Enterprises, Inc. and for the nine month ended September 30, 2009, the Company paid $150,000assets of XA to obtain a note receivable regardingfrom a financial institution and for the note purchase agreement to purchasethree month ended March 31, 2010, the senior secured debt obligationscash received of The Experiential Agency, Inc and loaned The Experential Agencey,$3,217 resulted from the acquisition of Audio Eye, Inc. $100,000.

Cash provided by financing activities for the nine month periodthree months ended September 30,March 31, 2009 was $260,763,$145,750, as compared to $424,907$2,184 provided for the ninethree months ended September 30, 2008.March 31, 2010. In 2008,2009, the Company obtained $314,000borrowed $20,750 from selling convertible notes.
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Tableits line of Contentcredit and also borrowed $25,000 from one of the executives of executive management

.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management

The following table sets forth as of May 20, 2010, information with respect to the beneficial ownership of the Company’s Common Stock by (i) each person known by the Company to own beneficially 5% or more of such stock, (ii) each Director of the Company who owns any Common Stock, and (iii) all Directors and Officers as a group, together with their percentage of beneficial holdings of the outstanding shares. The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or shares the power to vote or direct the voting of the security or the power to di spose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock beneficially owned on November 23, 2009, following consummationlisted below have sole voting and investment power with respect to the shares shown.
SECURITY OWNERSHIP OF MANAGEMENT:

Title of ClassName Shares  Percent 
        
Common StockAlan Morell  10,107,000   23.83%
          
 Common StockJames J. Ennis  3,500,000   8.25%
          
 Common StockMichael Vandetty  1,000,000   2.36%
          
All Directors and Executive Officers  14,607,000   34.45%

These tables are based upon 42,400,000 shares outstanding as of May 20, 2010 and information derived from our stock records. Unless otherwise indicated in the footnotes to these tables and subject to community property laws where applicable, we believe unless otherwise noted that each of the Reorganization by Each person who is known by usshareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially own 5% or more of the Registrant’s common stock; Each of the Registrant’s directors and named executive officers; and All of the Registrant’s directors and executive officers as a group.owned.


 
Security Ownership of CMG Holdings, Inc. as of November 23, 2009:
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Title of ClassName Shares  Percent (1) 
          
Common StockCMG Acquisitions, Inc.  14,085,789   33.22%
          
 Alan Morell  10,107,000   23.84%
          
 James J. Ennis  2,500,000   5.89%
          
Security Ownership of CMG Holdings Inc. directors and executive officers as of November 23, 2009:
Title of ClassName Shares  Percent (1) 
          
Common StockAlan Morell  10,107,000(2) 23.84%
          
 James J. Ennis  2,500,000(3) 5.89%
          
 Michael Vandetty  1,000,000   2.35%
          
 All Directors and Executive Officers as a Group  13,607,000   32.09%

 
(1)Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares. Unless otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned, subject to community property laws where applicable. The number and percentage of shares beneficially owned are based on 42,400,000 shares of common stock outstanding as of May 27, 2008, the closing date of the Reorganization.outstanding. The address for those individuals for which an address is not otherwise indicated is: c/o CMG Holdings, Inc., 5601 Biscayne Boulevard, Miami, Florida 33137, USA.
 
(2)Mr. Morell owns 3,500,000 shares of Creative Management Group, Inc.The Company directly, and is the beneficial owner of an additional 6,607,000 shares owned by Commercial Rights Intl Corp. for a total of 10,107,000 shares.
  
(3)Mr. Ennis owns 500,0001,500,000 shares of Creative Management Group, Inc.The Company directly, and is the beneficial owner of an additional 2,000,000 shares owned by Hastings Creek Group, Inc. for a total of 2,500,0003,500,000 shares.


ITEM 3 –3:  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS

None.RISKS RELATED TO OUR BUSINESS
 
CURRENT ECONOMIC CONDITIONS AND THE GLOBAL FINANCIAL CRISIS MAY HAVE AN IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION IN WAYS THAT WE CURRENTLY CANNOT PREDICT

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

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

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

COMPETITION FOR CLIENTS IN HIGHLY COMPETITIVE INDUSTRIES

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

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

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

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

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

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

The Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using any available cash from operations, through incurrence of debt or bridge financing or by issuing equity, which may have a dilutive impact on its existing shareholders. At any given time the Company may be engaged in a number of discussions that may result in one or more material acquisitions. These opportunities require confidentiality and may involve negotiations that require quick responses by the Company. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to in creased volatility in the trading price of its securities.

The success of acquisitions or strategic investments depends on the effective integration of newly acquired businesses into the Company’s current operations. Such integration is subject to risks and uncertainties, including realization of anticipated synergies and cost savings, the ability to retain and attract personnel and clients, the diversion of management’s attention from other business concerns, and undisclosed or potential legal liabilities of the acquired company. The Company may not realize the strategic and financial benefits that it expects from any of its past acquisitions, or any future acquisitions.

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

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

BUSINESS EXPOSED TO THE RISK OF CLIENT MEDIA ACCOUNT DEFAULTS

The Company often incurs expenses on behalf of its clients in order to secure a variety of opportunities in exchange for which it receives a fee. While the Company acts to prevent against default on payment for these services and have historically had a very low incidence of default, the Company is still exposed to the risk of significant uncollectible receivables from our clients.

SUBJECT TO REGULATIONS THAT COULD RESTRICT ITS ACTIVITIES OR NEGATIVELY IMPACT ITS REVENUES

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


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

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    In the aggregate, the directors and executive officers as a group collectively own approximately 35% of the Company’s outstanding shares. The interests of the Company’s management may differ from the interests of other stockholders and as a result, the Company’s executive management may have the ability to control virtually all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders may vote, including electing or defeating the election of directors; amending or preventing amendment of the Company’s certificate of incorporation or bylaws; effecting or preventing a merger, sale of assets or other corporate transaction; and controlling the outcome of any other matter submitted to the stockholders for vote. The Company’s managementR 17;s stock ownership may discourage a potential acquirer from seeking to acquire shares of the Company’s common stock or otherwise attempting to obtain control of the Company, which in turn could reduce the Company’s stock price or prevent the Company’s stockholders from realizing a premium over the Company’s stock price.

OUTSTANDING INDEBTEDNESS; SECURITY INTEREST AND UNREGISTERED SALES OF EQUITY SECURITIES
        On April 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $725,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 3,625,000 shares of the Company’s Common Stock.    The Note bears interest at a rate of 13% per annum payable quarterly.  The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes.  In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%.  The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future.  The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee.    The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share.   The warrants are exercisable for seven years at an exercise price of $0.10 per share.  The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions.  

On April 23, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $125,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 625,000 shares of the Company’s Common Stock.    The Note bears interest at a rate of 13% per annum payable quarterly.  The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 28, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes.    In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%.  The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future.  The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee.  The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share.    The warrants are exercisable for seven years at an exercise price of $0.10 per share.  The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions.
PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT TO ATTRACT AND RETAIN OFFICERS AND DIRECTORS
The Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public entity, the Company expects these new rules and regulations to increase compliance costs in 2009 and beyond and to make certain activities more time consuming and costly. As a public entity, the Company also expects that these new rules and regulations may make it more difficult and expensive for the Company to obtain director and officer liability insurance in the future and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for the Company to attract and retain qualified persons to serve as directors or as executive officers.

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THERE IS CURRENTLY NO LIQUID TRADING MARKET FOR THE COMPANY’S COMMON STOCK AND THE COMPANY CANNOT ENSURE THAT ONE WILL EVER DEVELOP OR BE SUSTAINED
The Company’s common stock is currently approved for quotation on the OTC Bulletin Board trading under the symbol CMGO.OB.  However, there is limited trading activity and not currently a liquid trading market.  There is no assurance as to when or whether a liquid trading market will develop, and if such a market does develop, there is no assurance that it will be maintained.  Furthermore, for companies whose securities are quoted on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the “OTCBB”), it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.  As a result, pur chasers of the Company’s common stock may have difficulty selling their shares in the public market, and the market price may be subject to significant volatility.

THE COMPANY’S STOCK PRICE MAY BE VOLATILE
The market price of the Company’s common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond the Company’s control, including the following: technological innovations or new products and services by the Company or its competitors; additions or departures of key personnel; limited “public float” following the Reorganization , in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for the common stock; the Company’s ability to execute its business plan; operating results that fall below expectations; loss of any strategic relationship; industry developments; economic and other external factors; and period-to-period fluctuations in the Compan y’s financial results. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s common stock.
OFFERS OR AVAILABILITY FOR SALE OF A SUBSTANTIAL NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK MAY CAUSE THE PRICE OF THE COMPANY’S COMMON STOCK TO DECLINE OR COULD AFFECT THE COMPANY’S ABILITY TO RAISE ADDITIONAL WORKING CAPITAL
If the Company’s current stockholders seek to sell substantial amounts of common stock in the public market either upon expiration of any required holding period under Rule 144 or pursuant to an effective registration statement, it could create a circumstance commonly referred to as “overhang,” in anticipation of which the market price of the Company’s common stock could fall substantially.  The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for the Company to raise additional financing in the future through sale of securities at a time and price that the Company deems acceptable.
THE COMPANY’S COMMON STOCK IS CURRENTLY DEEMED TO BE “PENNY STOCK”, WHICH MAKES IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES
The Company’s common stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have de cided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.
THE ELIMINATION OF MONETARY LIABILITY AGAINST THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES UNDER NEVADA LAW AND THE EXISTENCE OF INDEMNIFICATION RIGHTS TO THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES MAY RESULT IN SUBSTANTIAL EXPENDITURES BY THE COMPANY AND MAY DISCOURAGE LAWSUITS AGAINST THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES

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The Company’s certificate of incorporation does not contain any specific provisions that eliminate the liability of directors for monetary damages to the Company and the Company’s stockholders; however, the Company is prepared to give such indemnification to its directors and officers to the extent provided by Nevada law. The Company may also have contractual indemnification obligations under its employment agreements with its executive officers. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and resultant costs may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their fid uciary duties and may similarly discourage the filing of derivative litigation by the Company’s stockholders against the Company’s directors and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.
 
ITEM 44:    CONTROLS AND PROCEDURES

(a) EvaluationEVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Management has evaluated, with the participation of disclosure controls and procedures.
Disclosure controls and procedures have been designed to ensure that information required to be disclosed by the Company is collected and communicated to management to allow timely decisions regarding required disclosures. Theour Chief Executive Officer and the Chief Financial Officer, have concluded, based on their evaluationthe effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) as of September 30, 2009, the end of the period covered by this report and concluded that our disclosure controls and procedures were not effective in providing reasonable assuranceto ensure that all material information isrequired to be disclosed in this Quarterly Report on Form 10-Q has been made known to them by others withinin a timely fashion. We are in the Company:
a)    We did not maintain sufficient personnel withprocess of improving our internal control over financial reporting in an appropriate level of technical accounting knowledge, experience,effort to remediate these deficiencies through improved supervision and training in the application of generally acceptedour accounting principles commensurate withstaff. These deficiencies have been disclosed to our complexityBoard of Directors. We believe that this effort is sufficient to fully remedy these deficiencies and we are continuing our financial accounting and reporting requirements. As a result, there may be a lack of monitoring of the financial reporting process and there is a reasonable possibility that material misstatements of the consolidated financial statements, including disclosures, will not be prevented or detected on a timely basis; and
b)    There is a lack of sufficient accounting staff which results in a lack of segregation of duties necessary for a good system of internal control. This control deficiency, which is pervasive in nature, results in a reasonable possibility that material misstatements of the financial statements will not be prevented or detected on a timely basis.
Management’s efforts to address these deficiencies in its disclosure controlsimprove and procedures is reflected in its commitment to providing continued educationstrengthen our control processes and training for ourprocedures. Our Chief Executive Officer, Chief Financial Officer and hiring additional accounting staffdirectors will continue to work with our auditors and other outside advisors to ensure the level of expertise required for a public company. In addition, management has budgetedthat our controls and procedures are adequate and effective.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No change in the coming year for additional accounting staff to addressCompany’s internal control weaknesses associated with lack of segregation of duties.
(b) Changes in internal controls
There have been no changesover financial reporting occurred during the three months ended March 31, 2010, that materially affected, or is reasonably likely to ourmaterially affect, the Company s internal control in the quarter ended September 30, 2009.over financial reporting.


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PART II
 
ITEM 1 – LEGAL PROCEEDINGS

There
We are subject to certain claims and litigation in the ordinary course of business. It is no past, pending or, to the Company’s knowledge, threatened litigation or administrative action which has or is expected byopinion of management that the Company’s management tooutcome of such matters will not have a material adverse effect uponon our Company’s business,consolidated financial conditionposition, results of operations or operations, including any litigationcash flows. On or action involving our Company’s officers, directors,about April 30, 2010, the Company became aware that a former employee had filed a lawsuit against the Company, which was filed in the United States District Court for the Southern District of New York. The complaint alleges breach of employee contract and entitlement to additional equity in the Company. The Company disagrees with the allegations contained in the Complaint and intends to vigorously defend the matter and otherwise enforce its rights with respect to the matter. Although the Company has not been served with the lawsuit, the Company retained counsel and fi led a Motion to Dismiss the Complaint, alleging that the New Your court lacks jurisdiction over the controversy and or that venue of the proceeding should lie in Dade County, Florida. The Company believes that all of the employee's claims are frivolous or are barred pursuant to the terms of the contract or various releases executed in favor of the Company by the employee. The Company will seek damages against the former employee regarding breach of his employment agreement, his non-compete agreements and other key personnel.causes of action.  The case is still ongoing and the matter remains unresolved.


ITEM 1A – RISK FACTORS

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


ITEM 2 –2:  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

NoneCAPITAL INVESTMENT CMGO INVESTORS, LLC.

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

On April 1, 2010, the Company paid $125,000 to satisfy the payoff due to JT Venture, LLC pursuant to the Participation Agreement, Forbearance Agreement and Security Agreement. As a result, The Company executed a satisfaction of all obligations due it from the Company and its subsidiaries.

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


ITEM 3 – DEFAULT UPON SENIOR SECURITIES
 
None
 
 
ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

ITEM 5 – OTHER INFORMATION
 
The Company entered into a finder's fee agreement with LSC Capital Advisors, Inc. ("LLC") and channel sales agreement with CCI Advisors, Inc. ("CCI").   Joseph Wagner, the CEO of XA, Experiential Agency, Inc., our subsidiary, is a principal in both LSC and CCI.None
 
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ITEM 6 – EXHIBITS 
 
              Exhibit No.                 Document Description
10.1Amended Executive Agreement with CEO

10.2Amended Executive Agreement with COO

10.3
Amended Executive Agreement with General Counsel

 31.1Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange              Act, as amended.

 31.2Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

 32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.

 32.2Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
 
Reports on Form 8-K:
                                               

The Company filed a Form 8-K on September 30, 2009February 1, 2010 - Item 8.01 Signing of Letter of Intent with AudioEye, Inc.Issuing Senior Convertible Debt.
 

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

  CMG HOLDINGS, INC.
                                                                                     (Registrant)
   
   
 Date: November 23, 2009 
May 21, 2010 		  By:  /s/ ALAN MORELL
           Alan Morell
          Chief Executive Officer and
          Chairman of the Board
   
 Date: November 23, 2009May 21, 2010  By:  /s/ JAMES J. ENNIS
                                                                                       James J. Ennis
                                                                                       Chief Financial Officer and
                                                                                       Director
   


In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


SIGNATURE NAME TITLE DATE
       
/s/Alan Morell Alan Morell Chief Executive Office andCEO & Chairman November 23, 2009May 21, 2010 
    Chairman of the Board  
       
/s/James I. Ennis James I. Ennis Chief Financial Officer andCFO & Director November 23, 2009 May 21, 2010
       




 
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