SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended SeptemberJune 30, 2015
Commission file number 000-51770
CMG HOLDINGS GROUP, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 87-0733770 | ||
(State or other jurisdiction of | ( Identification No.) |
| 2130 North Lincoln Park West 8N | |||
Chicago, IL | 60614 | ||
| (Zip Code) |
Registrant's telephone number including area code (773)698-6047
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x
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 |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x
As of July 15, 2020, there were 440,350,000 shares of common stock of the registrant issued and outstanding.
CMG HOLDINGS GROUP, INC. FORM 10-Q TABLE OF CONTENTS | ||||
Item # | Description | Page Numbers | ||
PART I FINANCIAL INFORMATION | ||||
| ITEM 1 | CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) | 3 | ||
ITEM 2 | MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | |||
17 | ||||
| ITEM 3 | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS | |||
| 18 | ||||
| ITEM 4 | CONTROLS AND PROCEDURES | |||
PART II OTHER INFORMATION
| ITEM 1 | LEGAL PROCEEDINGS | |||
| 19 | ||||
| ITEM 1A | RISK FACTORS | |||
| 20 | ||||
| ITEM 2 | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS | |||
| 20 | ||||
| ITEM 3 | DEFAULTS UPON SENIOR SECURITIES | |||
| 20 | ||||
| ITEM 4 | MINE SAFETY DISCLOSURES | |||
| 20 | ||||
| ITEM 5 | OTHER INFORMATION | |||
| 20 | ||||
| ITEM 6 | EXHIBITS |
ITEM 1- CONSOLIDATED FINANCIAL STATEMENTS
CMG HOLDINGS GROUP, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20152020 AND 2014
CONTENTS
| Consolidated Balance Sheets as of | 4 |
| Consolidated Statements of Operations for the three months and | 5 |
| Consolidated Statements of Cash Flows for the | 6 |
| Notes to Consolidated Financial Statements (Unaudited) | 7 |
| CMG Holdings Group, Inc. | ||||||||
| Consolidated Balance Sheet | ||||||||
| Unaudited | ||||||||
| June 30, | December 31, | |||||||
| ASSETS | 2020 | 2019 | ||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 453,979 | $ | 781,752 | ||||
| Accounts receivable | 998 | $ | 40,513 | |||||
| Loan receivable Pristec | 100,000 | 67,500 | ||||||
| Loan receivable NVT | 50,000 | |||||||
| Total current assets | 604,977 | 889,765 | ||||||
| Property and equipment | 11,768 | 13,625 | ||||||
| Total Assets | $ | 616,745 | $ | 903,390 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | 10,500 | $ | 74,500 | ||||
| Deferred compensation | 545,876 | 656,525 | ||||||
| Paycheck protection loan payable | 45,485 | — | ||||||
| Loan from outside party | 75,000 | 90,000 | ||||||
| Loan payable | 6,500 | 19,437 | ||||||
| Note payable | 131,250 | 150,000 | ||||||
| Total current liabilities | 814,611 | 990,462 | ||||||
| TOTAL LIABILITIES | 814,611 | 990,462 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Common Stock 450,000,000 shares authorized; $0.001 par value, | ||||||||
| 440,350,000 and 449,506,008 shares issued and outstanding | ||||||||
| as of June 30, 2020 and December 31, 2019 | 440,350 | 449,506 | ||||||
| Additional paid in capital | 14,639,770 | 14,687,865 | ||||||
| Treasury Stock | — | (39,000 | ) | |||||
| Accumulated deficit | (15,277,986 | ) | (15,185,443 | ) | ||||
| TOTAL STOCKHOLDERS DEFICIT | (197,866 | ) | (87,072 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 616,745 | $ | 903,390 | ||||
| The accompanying notes are an integral part of these financial statements. | ||||||||
| CMG Holdings Group, Inc. | ||||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||||
| Unaudited | ||||||||||||||||
| For the three | For the six | For the three | For the six | |||||||||||||
| months ended | months ended | months ended | months ended | |||||||||||||
| June 30, 2020 | June 30, 2020 | June 30, 2019 | June 30, 2019 | |||||||||||||
| Revenues | $ | 9,609 | $ | 9,609 | $ | 1,064,842 | $ | 1,841,011 | ||||||||
| Operating expenses | ||||||||||||||||
| Cost of revenues | 8,644 | 8,644 | 648,806 | 968,163 | ||||||||||||
| Interest expense | 750 | 2,375 | ||||||||||||||
| General and administrative expenses | 158,321 | 366,734 | 140,937 | 308,089 | ||||||||||||
| Total operating expenses | 167,715 | 377,753 | 789,743 | 1,276,252 | ||||||||||||
| Net income from operations | (158,106 | ) | (368,144 | ) | 275,099 | 564,759 | ||||||||||
| Other income | ||||||||||||||||
| Settlement of Hudson Gray | 146,352 | 294,352 | — | (25,000 | ) | |||||||||||
| Settlement of loan payable | (6,250 | ) | (18,750 | ) | ||||||||||||
| Write-off of accounts payable | — | — | 205,967 | 565,967 | ||||||||||||
| Total other income | 140,102 | 275,602 | 205,967 | 540,967 | ||||||||||||
| Net income | $ | (18,004 | ) | $ | (92,542 | ) | $ | 481,066 | $ | 1,105,726 | ||||||
| The accompanying notes are an integral part of these financial statements. | ||||||||||||||||
| CMG Holdings Group, Inc. | ||||||||
| Consolidated Balance Sheets | ||||||||
| Septem 30, | December 31, | |||||||
| 2015 | 2014 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 63,592 | $ | 27,886 | ||||
| Prepaid expenses and other current assets | 8,400 | 8,400 | ||||||
| Total Current Assets | 71,992 | 36,286 | ||||||
| Property and equipment, net | 28,478 | 32,192 | ||||||
| Goodwill | 54,500 | 54,500 | ||||||
| TOTAL ASSETS | $ | 154,970 | $ | 122,978 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | 676,671 | $ | 676,671 | ||||
| Deferred compensation | 175,000 | 40,000 | ||||||
| Accrued liabilities | 145,408 | 129,422 | ||||||
| Loan from shareholders | 95,000 | - | ||||||
| Loan outside party | 125,000 | - | ||||||
| Note payable | 150,000 | - | ||||||
| Convertible notes - carrying value | - | 74,679 | ||||||
| Derivative liabilities | - | 400,892 | ||||||
| Total Current Liabilities | 1,367,079 | 1,321,664 | ||||||
| TOTAL LIABILITIES | 1,367,079 | 1,321,664 | ||||||
| STOCKHOLDERS' DEFICIT | ||||||||
| Preferred stock: | ||||||||
| Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; no shares issued and outstanding as of June 30, 2015 and December 31, 2014 | - | - | ||||||
| Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; 0 and 0 shares issued and outstanding as of June 30, 2015 and December 31, 2014 | - | - | ||||||
| Common Stock: | ||||||||
| 450,000,000 shares authorized, par value $.001 per share; 449,329,190 and 289,329,190 shares issued and outstanding as of June 30, 2015 and December 31, 2014 | 449,329 | 289,329 | ||||||
| Additional paid in capital | 14,688,042 | 14,740,042 | ||||||
| Treasury Stock, 37,174 and 37,174 shares held, respectively, at cost of -0-, as of June 30, 2015 and December 31, 2014. | - | - | ||||||
| Accumulated deficit | (16,349,480 | ) | (16,228,057 | ) | ||||
| TOTAL STOCKHOLDERS' DEFICIT | (1,212,109 | ) | (1,198,686 | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 154,970 | $ | 122,978 | ||||
| The accompanying notes are an integral part of these finiancial statmenets | ||||||||
| CMG Holdings Group, Inc. | ||||||||||||||||||||||||||||||||
| Consolidated Statement of Stockholders Equity | ||||||||||||||||||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||||||||||
| Number of | Number of | Paid In | Treasury | Accumulated | Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Equity | |||||||||||||||||||||||||
| Balance December 31, 2019 | — | $ | — | 449,506,008 | $ | 449,506 | $ | 14,687,865 | $ | (39,000 | ) | $ | (15,185,444 | ) | $ | (87,073 | ) | |||||||||||||||
| Purchase Treasury Stock | (18,251 | ) | (18,251 | ) | ||||||||||||||||||||||||||||
| Retire treasury stock | (9,156,008 | ) | (9,156 | ) | (48,095 | ) | 57,251 | — | ||||||||||||||||||||||||
| Net Income(Loss) for the year | — | — | — | — | — | — | (92,542 | ) | (92,542 | ) | ||||||||||||||||||||||
| Balance June 30, 2020 | — | — | 440,350,000 | $ | 440,350 | $ | 14,639,770 | $ | — | $ | (15,277,986 | ) | $ | (197,866 | ) | |||||||||||||||||
| Preferred Stock | Common Stock | |||||||||||||||||||||||||||||||
| Additional | Total | |||||||||||||||||||||||||||||||
| Number of | Number of | Paid In | Treasury | Accumulated | Stockholders' | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Stock | Deficit | Equity | |||||||||||||||||||||||||
| Balance December 31, 2018 | — | — | 449,506,008 | 449,506 | 14,687,865 | — | (16,577,626 | ) | (1,440,255 | ) | ||||||||||||||||||||||
| Net Income(Loss) for the year | — | — | — | — | — | — | 1,105,726 | 1,105,726 | ||||||||||||||||||||||||
| Balance June 30, 2019 | — | $ | — | 449,506,008 | $ | 449,506 | $ | 14,687,865 | $ | — | $ | (15,471,900 | ) | $ | (334,529 | ) | ||||||||||||||||
| The accompanying notes are an integral part of these financial statements. | ||||||||||||||||||||||||||||||||
| CMG Holdings Group, Inc. | ||||||||
| Consolidated Statement of Cash Flows | ||||||||
| Unaudited | ||||||||
| For the six | For the six | |||||||
| months ended | months ended | |||||||
| June 30, 2020 | June 30, 2019 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | (92,542 | ) | $ | 1,105,726 | |||
| Adjustments to reconcile net income to cash used in operating activities | ||||||||
| Accounts receivable | 39,515 | (225,000 | ) | |||||
| Depreciation | 1,857 | 1,857 | ||||||
| Deferred compensation | — | — | ||||||
| Basis of stock sold | — | 76,304 | ||||||
| Accounts payable | (64,000 | ) | (665,654 | ) | ||||
| Net cash provided by operations | (115,170 | ) | 293,233 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Loan receivable | (82,500 | ) | — | |||||
| Payment of deferred compensation | (110,649 | ) | (38,500 | ) | ||||
| Net cash provided by investing activities | (193,149 | ) | (38,500 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Purchase of Treasury Stock | (18,251 | ) | (8,075 | ) | ||||
| Proceeds from paycheck protection loan | 45,485 | |||||||
| Payment of loans | (46,688 | ) | ||||||
| Net cash provided by financing activities | (19,454 | ) | (8,075 | ) | ||||
| Net increase in cash | (327,773 | ) | 246,658 | |||||
| Cash, beginning of year | 781,752 | 162,931 | ||||||
| Cash, end of year | $ | 453,979 | $ | 409,589 | ||||
| The accompanying notes are an integral part of these financial statements. | ||||||||
| CMG HOLDINGS GROUP, INC. | ||||||||||||||||
| CONSOLIDATED STATEMENTS OF OPERATIONS | ||||||||||||||||
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||||
| Revenues | $ | 172,621 | $ | 120,058 | $ | 626,430 | $ | 7,646,532 | ||||||||
| Operating Expenses: | ||||||||||||||||
| Cost of revenues | 40,000 | 64,203 | 202,531 | 6,312,846 | ||||||||||||
| General and administrative expenses | 216,736 | 581,819 | 575,438 | 2,767,332 | ||||||||||||
| Research and development | - | 46,800 | - | 140,550 | ||||||||||||
| Total Operating Expenses | 256,736 | 692,822 | 777,969 | 9,220,728 | ||||||||||||
| Operating Loss | (84,115 | ) | (572,764 | ) | (151,539 | ) | (1,574,196 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Gain (loss) on derivative liability | 232,035 | - | - | 7,926 | ||||||||||||
| Amortization of debt discount | 61,250 | |||||||||||||||
| Realized gain on marketable securities | - | 282,148 | - | 709,150 | ||||||||||||
| Unrealized gain on marketable securities | - | (113,714 | ) | - | (622,769 | ) | ||||||||||
| Cost related to acquisition of Good Gaming | - | - | (87,500 | ) | ||||||||||||
| Change in derivative liability | - | (31,627 | ) | (15,607 | ) | (31,627 | ) | |||||||||
| Interest expense | - | (2,997 | ) | - | (3,129 | ) | ||||||||||
| Interest expense (derivative) | (5,550 | ) | (15,527 | ) | (5,550 | ) | ||||||||||
| Interest income | - | - | ||||||||||||||
| Other expense | - | (6,386 | ) | - | (11,002 | ) | ||||||||||
| Total Other Income (Expense) | 232,035 | 121,874 | 30,116 | (44,501 | ) | |||||||||||
| Income (loss) from continuing operations | 147,920 | (450,890 | ) | (121,423 | ) | (1,618,697 | ) | |||||||||
| Net Income | $ | 147,920 | $ | (450,890 | ) | $ | (121,423 | ) | $ | (1,618,697 | ) | |||||
| Basic income (loss) per common share for continuing operations | $ | - | $ | - | $ | - | $ | - | ||||||||
| Basic income per common share for discontinued operations | $ | - | $ | - | $ | - | $ | - | ||||||||
| Total basic income per common share | $ | - | $ | - | $ | - | $ | - | ||||||||
| Diluted loss per share for continued operations | $ | - | $ | - | $ | - | $ | - | ||||||||
| Diluted income (loss) per common share for discontinued operations | $ | - | $ | - | $ | - | $ | - | ||||||||
| Total diluted income per common share | $ | - | $ | - | $ | - | $ | - | ||||||||
| Basic weighted average common shares outstanding | 286,329,190 | 289,329,190 | 286,329,190 | 289,344,809 | ||||||||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||||||||||
| CMG Holdings Group, Inc. | ||||||||
| CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
| For the Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2015 | 2014 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income from continuing operations | $ | (121,423 | ) | $ | (1,618,697 | ) | ||
| Adjustments to reconcile net income (loss) | ||||||||
| to net cash provided by (used in) operating activities: | ||||||||
| Shares issued for services | - | 120,813 | ||||||
| Warrants issed for compensation | - | 619,627 | ||||||
| Costs related to acquisition of Good Gaming | - | 87,500 | ||||||
| Amortization of debt discount | (61,250 | ) | - | |||||
| Depreciation | 3,714 | - | ||||||
| (Gain) loss on derivatives | (7,926 | ) | ||||||
| Realized gain on trading securities | - | (709,150 | ) | |||||
| Unrealized gain on trading securities | - | 622,769 | ||||||
| Derivative expense | 31,627 | |||||||
| Effective interest expense derivatives | 5,550 | |||||||
| Changes in: | ||||||||
| Accounts receivable | - | 171,594 | ||||||
| Prepaid expense and other current assets | - | (1,264 | ) | |||||
| Deferred income | - | - | ||||||
| Accrued liabilities | 15,986 | (300,000 | ) | |||||
| Accounts payable | - | 167,627 | ||||||
| Deferred compenastion | 135,000 | (417,875 | ) | |||||
| Net cash provided by (used in) operating activities | (27,973 | ) | (1,227,805 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from sale of trading securities | - | 850,470 | ||||||
| Cash paid for purchase of fixed assets | (18,400 | ) | ||||||
| Proceeds from notes payable | 150,000 | |||||||
| Payments of convertible notes | (306,334 | ) | ||||||
| Proceeds from shareholder loans | 95,000 | - | ||||||
| Proceeds from loan from third party | 125,000 | - | ||||||
| Net cash provided by (used in) investing activities | 63,666 | 832,070 | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of stock | 50,000 | |||||||
| Proceeds from sales of common stock | - | 15,000 | ||||||
| Net cash (used in) provided by financing activities | - | 65,000 | ||||||
| Net increase in cash | 35,693 | (330,735 | ) | |||||
| Cash, beginning of period | 27,886 | 476,588 | ||||||
| Cash, end of period | $ | 63,579 | $ | 145,853 | ||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | - | $ | 3,201 | ||||
| Non-cash investing and financing activity: | ||||||||
| Discount on notes payable from derivative liabilities | 5,000 | |||||||
| Cancellation of Common and Preferred Stock | 7,350 | |||||||
| The accompanying notes are an integral part of these consolidated financial statements. | ||||||||
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
| 1. | Nature of Operations and Continuance Of Business |
Creative Management Group, Inc. was formed in Delaware on August 13, 2002 as a limited liability company named Creative Management Group, LLC. On August 7, 2007, this entity converted to a corporation and changed its legal name to Creative Management Group Inc.corporation. The Company is a sports, entertainment, marketing and management company providing event management implementation, sponsorships, licensing and broadcast, production and syndication.
On February 20, 2008, Creative Management Group, Inc. formed CMG Acquisitions, Inc., a Delaware company, for the purpose of acquiring companies and expansion strategies. On February 20, 2008, Creative Management Group, Inc. acquired 92.6% of Pebble Beach Enterprises, Inc. (a publicly traded company) and changed the name to CMG Holdings Group, Inc. (“the Company”). The purpose of the acquisition was to effect a reverse merger with Pebble Beach Enterprises, Inc. at a later date. On May 27, 2008, Pebble Beach entered into an Agreement and Plan of Reorganization with its controlling shareholder, Creative Management Group, Inc., a privately held Delaware corporation. Upon closing the eighty shareholders of Creative Management Group delivered all of their equity interests in Creative Management Group to Pebble Beach in exchange for shares of common stock in Pebble Beach owned by Creative Management Group, as a result of which Creative Management Group became a wholly-ownedwholly owned subsidiary of Pebble Beach. The shareholders of Creative Management Group received one share of Pebble Beach’s common stock previously owned by Creative Management Group for each issued and outstanding common share owned of Creative Management Group. As a result, the 22,135,148 shares of Pebble Beach that were issued and previously owned by Creative Management Group, are now owned directly by its shareholders. The 22,135,148 shares of Creative Management Group previously owned by its shareholders are now owned by Pebble Beach, thereby making Creative Management Group a wholly-ownedwholly owned subsidiary of Pebble Beach. Pebble Beach did not issue any new shares as part of the Reorganization. The transaction was accounted for as a reverse merger and recapitalization whereby Creative Management Group is the accounting acquirer. Pebble Beach was renamed CMG Holdings Group, Inc.
On April 1, 2009, the Company, through a newly formed wholly owned subsidiary CMGO Capital, Inc., a Nevada corporation, completed the acquisition of XA, The Experiential Agency, Inc. On June 30,March 31, 2010, the Company and AudioEye, Inc. (“AudioEye”) completed the finala Stock Purchase Agreement under which the Company acquired all of the outstanding capital stock of AudioEye. On June 22, 2011 the Company entered into a Master Agreement subject to shareholder approval as may be required under applicable law and subject to closing conditions with AudioEye Acquisition Corp., a Nevada corporation where the shareholders of AudioEye Acquisition Corp. exchanged 100% of the stock in AudioEye Acquisition Corp for 80% of the capital stock of AudioEye. The Company retained 15% of AudioEye subject to transfer restrictions in accordance with the Master Agreement; onin October 2012, the Company distributed to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye in accordance with provisions of the Master Agreement.
On March 28, 2014, CMG Holdings Group, Inc. (the “Company” or “CMG”), completed its acquisition of 100% of the shares of Good Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial, Inc. and Jackie Beckford, the then shareholders of GGI. The sole owner of BMB Financial, Inc. is also the sole owner of Infinite Alpha, Inc. which provides consulting services to CMG. Pursuant to the SEA, the Company received 100% of the shares of GGI in exchange for 5,000,000 shares of the Company’s common stock, $33,000 in equipment and consultant compensation and a commitment to pay $200,000 in development costs. As of September 30, 2014, the Company has paid $58,600 of equipment and consultant compensation and $190,550 in development costs, of which $50,000 of the development costs had been advanced by the Company, prior to entering the agreement. In addition, pursuant to the SEA, CMG shall adopt an incentive plan for GGI which shall entitle the GGI officers, directors and employees to receive up to 30% of the net profits of GGI and up to 30% of the proceeds, in the event of a sale of GGI or its assets.
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
| 1. | Nature of Operations and Continuance Of Business (continued) |
On February 18, 2016, the Company sold the assets of Consolidation
The Company’s operating subsidiary is XA - The Experiential Agency, Inc. - which is a sports, entertainment, marketing and management company providing event management implementation, sponsorships, licensing and broadcast, production and syndication. Its President is Alexis Laken, the daughter of the Company’s president.
| 2 | Summary of Significant Accounting Policies |
| a) | Basis of Presentation and Principles of Consolidation |
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States of America ("GAAP") and are expressed in US dollars. The consolidated financial statements include the accounts of CMG Holdings Group, Inc.,the Company and its wholly owned subsidiary, XA - The Experiential Agency, Inc. ("XA") and GGI after elimination of all significant inter-company accounts and transactions.
| b) | Use of Estimates |
The preparation of financial statements in conformity with generally accepted accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilitiesli abilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period reported. Estimates are used when accounting for allowance for doubtful accounts, depreciation, and contingencies. Actual results could differ from those estimates.
| c) | Cash and Cash Equivalents |
The Company seeks to validate the model’s output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820, Fair Value Measurements (ASC 820), based on the hierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments.
CMG HOLDINGS GROUP, INC.
Notes to the amounts expected to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
| 2 | Summary of Significant Accounting Policies (continued) |
| d) | Basic and Diluted Net Loss Per Share |
The Company computes net loss per share in accordance with ASC 260,Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing dilutedDiluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
| e) | Financial Instruments |
ASCASC 820, and ASC 825, Financial Instruments'" Fair Value Measurements”, requires (ASC 825),an requires an entitytomaximizetheuse of observable inputsand minimize the use of unobservable inputs when measuring fair value.value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’sinstrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 – Quotedapplies to assets or liabilities for which there are quoted prices are available in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities as of the reporting date. Active marketsfor which there are those in which transactionsinputs other than quoted prices that are observable for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
Level 3
Level 3 – Pricingapplies to assets or liabilities for which there are unobservable inputs include significant inputsto the valuation methodology that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimatesignificant to the measurement of the fair value.
The Company’sCompany's financial instruments consist principally of cash, accounts receivable, accounts payable, and accrued liabilities. amounts due to related parties. Pursuant to ASC 820, and 825, the fair value of our cash is determined based on “Level 1” "Level I" inputs, which consist of quoted prices in active markets for identical assets. TheWe believe that the recorded values of all our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
| December 31, 2015 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivative Liabilities | $ | - | $ | - | $ | 0 | $ | 0 | ||||||||
| December 31, 2014 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Derivative Liabilities | $ | - | $ | - | $ | 400,892 | $ | 400,892 | ||||||||
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
| 2 | Summary of Significant Accounting Policies (continued) |
| f) | Property and Equipment |
Property and equipment are comprised of a vehicle and is amortized on a straight-line basis over an expected useful life of three years. Maintenance and repairs are charged to expense as incurred. The land is not depreciated.
| g) | Impairment of Long-lived Assets |
The Company evaluates the recoverability of long-lived assets and the related estimated remaining lives at each balance sheet date. The Company records an impairment or change in Debtuseful life whenever events or changes in circumstances indicate that the carrying amount may not be recoverable or the useful life has changed.
| h) | Revenue Recognition |
Revenue is recognized when a customer obtains control of promised goods or services and Equity Securities
The Company only applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations are transferred to customers at a point in time, typically upon delivery.
The Company generates revenues through event management implementation, sponsorships, licensing and broadcast, production and syndication.
| i) | Cost of Services |
Cost of services Consist of marketing and management expenses. The marketing expenses are for the marketing of an event prior to the event taking place.
| j) | General and Administrative Expense |
General and administrative expense are the overhead expense to maintain the Company.
| k) | Reclassification |
Certain prior period amounts have been reclassified to conform to current presentation.
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
| 2 | Summary of Significant Accounting Policies (continued) |
| l) | Recently issued accounting pronouncements |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations except as noted below:
FASB ASU 2017-01, Clarifying the Definition of a Business (Topic 805) – In January 2017, the FASB issued 2017-01. The new guidance that changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Adoption of this ASU did not have a significant impact on the Company’s consolidated results of operations, cash flows and financial position.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public companies with fiscal years beginning after December 15, 2020; early adoption is permitted. The Company is evaluating the impact of this amendment on its consolidated financial statements.
In February 2020, the FASB issued ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Codification 320, Investments – DebtUpdate No. 2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies. ASU 2016-13 and Equity Securities
The Company does not believe that there are intendedany other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| 3 | Accounts Receivable |
Accounts receivable consist of invoices for events that occurred prior to be boughtyear end that the payments were received in the following year. The Balance of accounts receivable at June 30, 2020 and held principallyDecember 31, 2019 were $998 and $40,513, respectively.
| 4 | Loan Receivable |
On November 15, 2019 the company entered into an agreement to a line of credit (LOC) with Pristec America Inc. (Pristec). The LOC was for $75,000. In January of 2020 the LOC was increased to $100,000. As of June 30, 2020, the Company had loaned to Pristec $100,000 at an interest rate of 12%, the loan matures in twelve (12) months. Pristec is a late stage technology company that has 108 worldwide patents for the purposecold cracking of selling themcrude oil and other oil products. The Company has been granted the right to convert this loan into 100 shares of stock at price of $1000. At the discretion of the Company, the Company has the option of entering into a revenue sharing agreement with Pristec.
On June 24, 2020, the Company loaned $50,000 to New Vacuum Technologies, LLC(NVT). The loan is due ninety (90) days from the date of receipt of funds. The loan carries an interest rate of ten (10) percent per annum. After the loan is paid in full, there will be 6 monthly payments of !000 a month as return on investment. The reason this loan was made was to open a relationship between CMG and NVT. The CEO of CMG is extremely excited by NVT's technology for upgrading oil in a disruptive way and the 2 companies are discussing possible avenues that they might get further involved in the near term, and as a result, classifies such investments as trading securities. Trading securities are recorded at fair value on the balance sheet with changes in fair value being reflected as unrealized gains or losses in the current period. In addition, the Company classifies the cash flows from purchases, sales, and maturities of trading securities as cash flows from operating activities.future.
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
| 5 | Accounts Payable |
Accounts payable consist of expenses incurred during the Company's marketable trading securities asyear that had not yet been paid. The balance of Septemberaccounts payable at June 30, 20152020 is $10,500. The balance of accounts payable at December 31, 2019 is $74,500.
| 6 | Equity |
| a. | Common Stock |
During the periods ended June 30, 2020 and December 31, 2014 are as follows:
September 30, 2015 | December 31, 2014 | |||||||
| Aggregate fair value | $ | - | $ | - | ||||
| Gross unrealized holding gains (losses) | - | - | ||||||
| Proceeds from sales | $ | - | $ | 850,470 | ||||
| Gross realized gains | - | 86,382 | ||||||
| Gross realized losses | - | - | ||||||
| Other than temporary impairment | - | - | ||||||
| b. | Common Stock Warrants |
During the periods ended June 30, 2020 and Release (the “Agreement”) with Continental Investments Group (Continental), the holder of a $85,000 convertible note payable ofDecember 31, 2019, the Company did not issue any warrants for its common shares. On December 15, 2017, the Company's Board of Directors lowered the strike price on the outstandingc 40,000,000 warrants previously issued to Glenn Laken to $0.0035 and extended the holder of 2,500,000 shares of restricted common stock. The Agreement callsexpiration date for an additional five (5) years.
| 7 | Treasury Stock |
During the termination and cancellation of a Sale and Purchase agreement, wherebyyear ended December 31, 2019 the Company agreed to issue 50,000 shares of Series B Convertible Preferred Stock in exchange for 20,000 cartoon animated Cels. The Agreement also calls for the cancellation of the $85,000 convertible note and related interest and for Continental to return the 2,500,000 shares of restricted common stock.
| 8 | Notes Payable |
During the closing price of the company’s common stock on the OTCQB.
| Notes Payable | Balance December 31, 2019 | Balance June 30, 2020 | ||||||
| Kabbage | $ | 19,437 | $ | 6,500 | ||||
| Notes Payable Irish Pension Fund | $ | 150,000 | $ | 131,250 | ||||
In September of its common stock pursuant to a consulting agreement. The shares were valued at a total of $8,613 or $0.0165 per share, the closing price of the company’s common stock on the OTCQB.
Outstanding and Exercisable | Weighted average Exercise Price | |||||||
| December 31, 2013 | 1,798,000 | $ | 0.28 | |||||
| Granted | 40,000,000 | $ | 0.016 | |||||
| Exercised | — | — | ||||||
| Expired | (1,798,000 | ) | ||||||
| December 31, 2014 | 40,000,000 | $ | 0.02 | |||||
| Granted | ||||||||
| Exercised | ||||||||
| Expired | ||||||||
| September 30, 2015 | 40,000,000 | .0021 | ||||||
| 2015 | 2014 | |||||||
| Equipment | $ | 33,000 | $ | 33,000 | ||||
| Leasehold Improvements | 4,142 | 4,142 | ||||||
| 37,142 | 37,142 | |||||||
| Less accumulated depreciation | 8,664 | 4,950 | ||||||
| $ | 28,478 | $ | 32,192 | |||||
In June 2015 the Company borrowed $100,000$150,000 from the two Irish individuals pension funds. $90,000 was borrows from one individual pension account and $60,000 was borrowed from the other. Repayment terms were to provide payment to Eaton and Van Winkle (the attorneys forbe negotiated after the settlement of the Hudson Grey lawsuit)Gray lawsuit. The lawsuit settled in January of 2019 and negotiations began. No payment terms were settled upon and were still being negotiated as of December 31, 2019. In January of 2020 settlement was reached with the seed moneylender of the $90,000. The settlement terms were for repayment of $180,000 over a period of eighteen months quarterly, payment began in January of 2020 with the Suit. As stated previouslypayment of $25,000. An additional payment of $12,500 was made in April 2020. Settlement has not yet been reached on the repayment of the $60,000 to the other party. The balance of the fees for the suit have been arranged. Thisthese loans was $131,250 at June 30, 2020. The payments were 50% against principle and 50% to settlement of loan with expenses is due to be repaid November 1, 2015.payable.
CMG HOLDINGS GROUP, INC.
Notes
| Derivative Liabilities | ||||
| Balance December 31, 2013 | $ | 11,121 | ||
| ASC 815-15 additions | 402.710 | |||
| Change in fair value | (1,818 | ) | ||
| ASC 815-15 deleations | (11,121 | ) | ||
| Balance December 31, 2014 | 400,892 | |||
| ASC 815-15 additions | - | |||
| Change in fair value | 15,607 | |||
| ASC 815-15 deleations | (416,499 | ) | ||
| Balance December 31, 2015 | $ | - | ||
| 9 | Legal Proceedings |
We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
In October 2014, Ronald Burkhardt, Burkhard, XA’s former Executive Chairman and a currentformer member of the Company’sCompany's Board of Directors filed a lawsuit in the Supreme Court of the State of New York, County of New York, alleging breach of his employment contract and seeking approximately $695,000 in damages. Thedamages. This lawsuit, where a judgement was entered against the Company believes that Mr. Burkhardt’s claim is without meritfor approximately $775,000, was settled with Burkhard for $105,000. In November and plans to vigorously defendDecember of 2018, the lawsuit.
On March 28, 2014, CMG Holdings, Inc. (the “Company” or “CMG”)September 25, 2019 the Company filed suit against Eaton & Van Winkle (EVW), completed its acquisitionLawrence Allen Steckman (Steckman) and Paul Lieberman (Lieberman). In December 2019 the defendants settled for a payment of 100% of the shares of Good Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial, Inc. and Jackie Beckford, the then shareholders of GGI. The sole owner of BMB Financial, Inc. is also the sole owner of Infinite Alpha, Inc. which provides consulting services to CMG. The transaction was completed under the purchase method of accounting. Pursuant to the SEA,$450,000. On December 13, 2019 the Company received 100%$378,500, which was the amount of proceeds net of attorney’s fee of $71,500.
In 2014 the shares of GGI in exchange for 5,000,000 shares ofCompany filed a lawsuit against Hudson Gray et al. On January 14, 2019 the Company’s common stock, $33,000 in equipment and consultant compensation and a commitment to pay $200,000 in development costs, of which $50,000 ofparties entered into arbitration. The parties reached agreement whereby the development costs had been advanced by the Company. In addition, pursuant to the SEA, CMG shall adopt an incentive plan for GGI which shall entitle the GGI officers, directors and employees to receive up to 30% of the net profits of GGI and up to 30% of the proceeds, in the event of a sale of GGI or its assets.Company would be paid $2,750,000. The Companyy recorded goodwill of $54,500payments are scheduled as a result of this acquisition and intends to test this asset for impairment every twelve months.follows:
| Amount | Attorney's | |||||||||||
| Due | Paid | Fees | ||||||||||
| Payment upon execution of the agreement | $ | 400,000 | $ | 214,548 | $ | 185,452 | ||||||
| On or before February 8, 2019 | $ | 100,000 | $ | 53,650 | $ | 46,350 | ||||||
| On or before June 30, 2019 | $ | 200,000 | $ | 148,000 | $ | 52,000 | ||||||
| On or before September 30, 2019 | $ | 200,000 | $ | 148,000 | $ | 52,000 | ||||||
| On or before December 31, 2019 | $ | 200,000 | $ | 146,496 | $ | 53,504 | ||||||
| On or before March 31, 2020 | $ | 200,000 | $ | 148,000 | $ | 52,000 | ||||||
| On or before June 30, 2020 | $ | 200,000 | $ | 146,352 | $ | 53,648 | ||||||
| On or before September 30, 2020 | $ | 250,000 | ||||||||||
| On or before December 31, 2020 | $ | 250,000 | ||||||||||
| On or before March 31, 2020 | $ | 250,000 | ||||||||||
| On or before June 30, 2020 | $ | 250,000 | ||||||||||
| On or before September 30, 2020 | $ | 250,000 | ||||||||||
| $ | 2,750,000 | $ | 1,005,046 | $ | 494,954 | |||||||
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
| 10 | Income Taxes |
The Company has a net operating loss carried forward of $15,277,236 available to offset taxable income in future years which commence expiring in 2028. The Company is subject to United States federal and state income taxes at an approximate rate of 21% (2019 and 2018). As of June 30, 20152020 and December 31, 2019,
| June 30, 2020 | ||||
| Income tax recovery at Statutory rate | $ | (19,276 | ) | |
| Permanent differences and other | — | |||
| Valuation allowance change | 19,276 | |||
| Provision for income taxes | $ | — | ||
The significant components of deferred income tax assets and liabilities at June 30, 2020 and December 31, 2019 are as follows:
| June 30, 2020 | December 31, 2019 | |||||||
| Net operating loss carried forward | $ | 15,277,236 | $ | 15,185,444 | ||||
| Valuation allowance | $ | (15,277,236 | ) | $ | (15,185,444 | ) | ||
| Net deferred income tax asset | $ | — | $ | — | ||||
| 11 | Segments |
The Company splits its business activities during the Septemberperiod ended June 30, 20152020 into threetwo reportable segments. Each segment represents an entity of which are included in the consolidation. The table below represents the operations results for each segment or entity, for the nine monthsperiod ended SeptemberJune 30, 2015.2020.
| CMG Holding | ||||||||||||
| XA | Group | Total | ||||||||||
| Revenues | 9,609 | — | 9,609 | |||||||||
| Operating expenses | 172,523 | 205,230 | 377,753 | |||||||||
| Operating income (loss) | (162,914 | ) | (205,230 | ) | (368,144 | ) | ||||||
| Other income (expenses) | — | 275,602 | 275,602 | |||||||||
| Net income(loss) | (162,914 | ) | 70,372 | (92,542 | ) | |||||||
| XA | Good Gaming | CMG Holdings Group | Totals | |||||||||||||
| Revenue | $ | 564,040 | $ | 62,390 | $ | -- | $ | 626,430 | ||||||||
| Operating expenses | 662,123 | 46,846 | -- | 708,969 | ||||||||||||
| Operating Income (Loss) | (98,083 | ) | 15,544 | -- | (82,539 | ) | ||||||||||
| Other Income (Expense) | -- | -- | (201,919 | ) | (201,919 | ) | ||||||||||
| Net Income (Loss) | $ | (98,083 | ) | $ | 15,544 | $ | (201,919 | ) | $ | (284,458 | ) | |||||
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
| 12 | Related Party Transactions |
During the year ended December 31, 2015 the Company issued toborrowed $96,100 from a totalCompany shareholder. This amount is due on demand and has an interest rate of 6,000,000 shares of Common Stock to its three former directors0%. The Company also borrowed $125,000 from a relative of the Company with each former director receiving 2,000,000CEO. This amount is due on demand and has an interest rate of 0%. During the year ended December 31, 2019 the Company paid off the $96,100 and $35,000 toward the $125,000 loans, leaving a balance of $90,000. No payments were made during the period ended March 31, 2020.
The Company issued the Company CEO a warrant to purchase 40,000,000 shares pursuantof the Company’s common stock at $0.0155. The warrant has an original term of 5 years. On December 15, 2017 the purchase price was changed to $.0035 and the term was extended 5 years. The warrants were vested 100% on April 7, 2014 when issued.
The board of directors approved a monthly salary for the Company CEO of $15,000 per month. The Company made payments of $103,474 in excess of the current $180,000 salary for year ended December 31, 2019. The Company made payments of $90,749 in excess of the current $45,000 salary for period ended March 31, 2019.
The Company paid $62,500 and $45,000 for the periods ended June 30, 2020 and 2019, respectively, as compensation to the agreements betweenPresident of XA, who is the Company and each of the former directors dated February 5, 2014.
| 13 | Subsequent Events |
Per management review, no material subsequent events have occurred.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD LOOKING STATEMENTS
In addition to historical information, this Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, which includes, but are not limited to, statements concerning expectations as to our revenues, expenses, and net income, our growth strategies and plans, the timely development and market acceptance of our products and technologies, the competitive nature of and anticipated growth in our markets, our ability to achieve cost reductions, the status of evolving technologies and their growth potential, the adoption of future industry standards, expectations as to our financing and liquidity requirements and arrangements, the need for additional capital, and other matters that are not historical facts. These forward-looking statements are based on our current expectations, estimates, and projections about our industry, management’s beliefs, and certain assumptions made by it. Words such as “anticipates”, “appears”, “believe,”, “expects”, “intends”, “plans”, “believes, “seeks”, “assume,” “estimates”, “may”, “will” and variations of these words or similar expressions are intended to identify forward-looking statements. All statements in this Quarterly Report regarding our future strategy, future operations, projected financial position, estimated future revenue, projected costs, future prospects, and results that might be obtained by pursuing management’s current plans and objectives are forward-looking statements. Therefore, actual results could differ materially and adversely from those results expressed in any forward-looking statements, as a result of various factors. Readers are cautioned not to place undue reliance on forward-looking statements, which are based only upon information available as of the date of this report. You should not place undue reliance on our forward-looking statements because the matters they describe are subject to known and unknown risks, uncertainties and other unpredictable factors, many of which are beyond our control. Our forward-looking statements are based on the information currently available to us and speak only as of the date on which this Quarterly Report was filed with the Securities and Exchange Commission (“SEC”). We expressly disclaim any obligation to revise or update publicly any forward-looking statements even if subsequent events cause our expectations to change regarding the matters discussed in those statements. Over time, our actual results, performance or achievements will likely differ from the anticipated results, performance or achievements that are expressed or implied by our forward-looking statements, and such difference might be significant and materially adverse to our stockholders. Unless the context indicates otherwise, the terms “Company”, “Corporate”, “CMGO”, “our”, and “we” refer to CMG Holdings Group, Inc. and its subsidiaries.
RESULTS OF OPERATIONS FOR THE NINESIX MONTH PERIOD ENDED SEPTEMBERJune 30, 2015
Gross revenues decreased from $7,020,102$1,841,011 for the ninesix months ended SeptemberJune 30, 20142019 to $626,430$9,609 for the ninesix months ended SeptemberJune 30, 2015.2020. The decrease in revenues was mainly attributable to the legal issues surrounding XA and its ongoing suit and lack of financesworldwide pandemic that took place during the quarter. At least two major jobs that were scheduled for the first quarter were canceled due to the same issue.
Cost of revenue decreased from $6,312,846$968,163 for the ninesix months ended SeptemberJune 30, 20142019 to $202,531$8,644 for the ninesix months ended SeptemberJune 30, 2015.2020. The decrease in cost of goods soldrevenues was mainly attributable to the worldwide pandemic that took place during the quarter. At least two major jobs that were scheduled for the first quarter were canceled due to the decrease in revenues of XA, The Experiential Agency, Inc. (XA).
Operating expenses decreased from $2,767,332$308,089 for the ninesix months ended SeptemberJune 30, 20142019 to $575,438$368,359 for ninethe six months ended SeptemberJune 30, 201520205. The decreaseincrease in operating expenses is due to the decreaseincrease in revenuessalaries for its full-time employees.
Net income decreased from $1,105,726 for the ninesix months ended SeptemberJune 30, 2015.
LIQUIDITY AND CAPITAL RESOURCES:
As of SeptemberJune 30, 2015,2020, the Company’s cash on hand was $63,592.
Cash used in operating activities for the ninesix months ended SeptemberJune 30, 20152020 was $27,973,$114,420, as compared to cash used inprovided by operating activities of $1,227,805$293,233 for the ninesix months ended SeptemberJune 30, 2014. This change is due2019. The decrease in revenues was mainly attributable to realized and unrealized gains on marketable securities of $0, respectively for the nine months ended September 30, 2015 as compared to $193,487 forworldwide pandemic that took place during the nine months ended September 30, 2014.
Cash fromused in investing activities for the ninesix months ended SeptemberJune 30, 20152020 was $63,666$183,149 as compared cash used in investing activities of $1,227,805$38,500 for the ninesix months ended September 30, 2014. DuringJune, 2019. This was due to the nine months ended September 30, 2014, sold 925,925 shares ofCompany loaning Pristec America an additional $10,000 during the Company’s holdingsquarter.
Cash used in AudioEye, Inc., for net proceeds of $250,000.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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) and 15d-15(e) under the Exchange Act) as of September 30, 2015.March 31, 2020. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2015,March 31, 2020, 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, 2014.
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 September 30,March 31, 2015 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) and 15d-15(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 DecemberMarch 31, 2014,2020, our management concluded that our internal controls over financial reporting were not effective as of DecemberMarch 31, 2014202001 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, 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 |
● | Employees and management lack the qualifications and training to fulfill their assigned accounting and reporting functions |
| ● | Inadequate design of controls over significant accounts and processes |
● | Inadequate documentation of the components of internal control in general |
● | Failure in the operating effectiveness over controls related to valuing and recording equity based payments to employees and non-employees |
| ● | Failure in the operating effectiveness over controls related to valuing and recording debt instruments including those with conversion options and the related embedded derivative liabilities |
● | Failure in the operating effectiveness over controls related to recording revenue and expense transactions in the proper period |
| ● | Failure in the operating effectiveness over controls related to evaluating and recording related party transactions |
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial
reporting. As of June 30, 20152020 no changes have occurred.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
No change in the Company’s internal control over financial reporting occurred during the period ended June 30, 2015,2020, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.
We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.
In October 2014, Ronald Burkhard, XA’s former Executive Chairman and former member of the Company's Board of Directors filed a lawsuit in the Supreme Court of the State of New York, County of New York, alleging breach of his employment contract and seeking approximately $695,000 in damages. This lawsuit, where a judgement was entered against the Company for approximately $775,000, was settled with Burkhard for $105,000. In November and December of 2018, the Company paid Burkhard the amount due from this settlement.
On September 25, 2019 the Company filed suit against Eaton & Van Winkle (EVW), Lawrence Allen Steckman (Steckman) and Paul Lieberman (Lieberman). In December 2019 the defendants settled for a payment of $450,000. On December 13, 2019 the Company received $378,500, which was the amount of proceeds net of attorney’s fee of $71,500.
In 2014 the Company filed a lawsuit against Hudson Gray et al. On January 14, 2019 the parties entered into arbitration. The parties reached agreement whereby the Company would be paid $2,750,000. The payments are scheduled as follows:
| Amount | Attorney's | |||||||||||
| Due | Paid | Fees | ||||||||||
| Payment upon execution of the agreement | $ | 400,000 | $ | 214,548 | $ | 185,452 | ||||||
| On or before February 8, 2019 | $ | 100,000 | $ | 53,650 | $ | 46,350 | ||||||
| On or before June 30, 2019 | $ | 200,000 | $ | 148,000 | $ | 52,000 | ||||||
| On or before September 30, 2019 | $ | 200,000 | $ | 148,000 | $ | 52,000 | ||||||
| On or before December 31, 2019 | $ | 200,000 | $ | 146,496 | $ | 53,504 | ||||||
| On or before March 31, 2020 | $ | 200,000 | $ | 148,000 | $ | 52,000 | ||||||
| On or before June 30, 2020 | $ | 200,000 | $ | 146,352 | $ | 53,648 | ||||||
| On or before September 30, 2020 | $ | 250,000 | ||||||||||
| On or before December 31, 2020 | $ | 250,000 | ||||||||||
| On or before March 31, 2020 | $ | 250,000 | ||||||||||
| On or before June 30, 2020 | $ | 250,000 | ||||||||||
| On or before September 30, 2020 | $ | 250,000 | ||||||||||
| $ | 2,750,000 | $ | 1,005,046 | $ | 494,954 | |||||||
ITEM 1A – RISK FACTORS
The Company is a smaller reporting company and is therefore not required to provide this information.
All unregistered sales of the Company’s securities have been disclosed on the Company’s current reports on Form 10-K10 and form 8-K.
None.
None.
None
Exhibit
Number Description of Exhibit Filing Reference
Exhibit | ||||
Filing | ||||
| 31.01 | ||||
| Certification of Principal Executive Officer Pursuant to Rule 13a-14. | Filed herewith. | |||
| 31.02 | ||||
| Certification of Principal Financial Officer Pursuant to Rule 13a-14. | Filed herewith. | |||
| 32.01 | ||||
| CEO and CFO Certification Pursuant to Section 906 of the Sarbanes-Oxley Act. | Filed herewith. | |||
| 101.INS | XBRL Instance | |||
| Document | ||||
| 101.SCH | XBRL Taxonomy Extension Schema | |||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase | |||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
| 101.LAB | XBRL Taxonomy Extension | |||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |||
* The XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
| CMG HOLDINGS GROUP, INC. | |||
| Date: August xx, 2020 | By: | /s/ Glenn Laken | |
Chief Executive Officer | |||