QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF | |
THE SECURITIES EXCHANGE ACT OF 1934 |
CMG HOLDINGS GROUP, 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.) |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | Accelerated filer o | Non-accelerated filer o | Smaller reporting company x |
As of |
4 | |
5 |
6 | |
7 |
March 31, | December 31, | |||||||||||||||
2014 | 2013 | |||||||||||||||
September 30, 2013 | December 31, 2012 | (Unaudited) | ||||||||||||||
ASSETS | (Unaudited) | |||||||||||||||
CURRENT ASSETS: | ||||||||||||||||
Cash | $ | 278,185 | $ | 238,124 | $ | 2,616,737 | $ | 476,588 | ||||||||
Marketable securities | 1,754,550 | 274,651 | 710,031 | 764,088 | ||||||||||||
Accounts receivable | 399,449 | 252,567 | ||||||||||||||
Prepaid assets | 6,575 | 15,000 | ||||||||||||||
Accounts receivable, net of allowance of $0 and $0, respectively | 538,188 | 287,094 | ||||||||||||||
Prepaid expenses and other current assets | 1,239,808 | 8,400 | ||||||||||||||
Total Current Assets | 2,438,759 | 780,342 | 5,104,764 | 1,536,170 | ||||||||||||
Other non-current assets | 59,116 | 57,833 | ||||||||||||||
Other noncurrent assets | 174,941 | 60,078 | ||||||||||||||
TOTAL ASSETS | $ | 2,497,875 | $ | 838,175 | $ | 5,279,705 | $ | 1,596,248 | ||||||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||||||||||
CURRENT LIABILITIES: | ||||||||||||||||
Accounts payable | $ | 745,209 | $ | 546,852 | $ | 895,179 | $ | 627,695 | ||||||||
Accounts payable – related party | 71,900 | 19,625 | ||||||||||||||
Deferred compensation | 486,875 | 486,875 | ||||||||||||||
Accrued liabilities | 717,623 | 722,549 | 443,709 | 593,710 | ||||||||||||
Deferred income | 13,370 | 13,370 | 3,506,124 | 13,370 | ||||||||||||
Derivative liabilities | 78,129 | 145,970 | 2,814 | 11,121 | ||||||||||||
Short term debt, net of unamortized discount of $0 and $47,012, respectively | 164,443 | 150,431 | ||||||||||||||
Short term debt, net of unamortized discount of $0 and $0, respectively | 9,943 | 9,943 | ||||||||||||||
Total Current Liabilities | 1,790,674 | 1,598,797 | 5,344,644 | 1,742,714 | ||||||||||||
Notes Payable, net of debt discount of $0 and $7,739, respectively | - | 629,261 | ||||||||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||||||||||
Notes Payable, net of debt discount of $_ and $0, respectively | - | - | ||||||||||||||
TOTAL LIABILITIES | 1,790,674 | 2,228,058 | 5,344,644 | 1,742,714 | ||||||||||||
STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||||||||||
STOCKHOLDERS' DEFICIT | ||||||||||||||||
Preferred stock: | ||||||||||||||||
Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; none issued and outstanding | - | - | ||||||||||||||
Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; none shares issued and outstanding | - | 50 | ||||||||||||||
Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; no shares issued and outstanding as of March 31, 2014 and December 31, 2013 | - | - | ||||||||||||||
Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; 0 shares issued and outstanding as of March 31, 2014 and December 31, 2013 | - | - | ||||||||||||||
Common Stock: | ||||||||||||||||
450,000,000 shares authorized, par value $.001 per share; 294,987,917 and 294,687,917 shares issued, 294,950,743 and 294,650,743 outstanding | 294,914 | 294,614 | ||||||||||||||
450,000,000 shares authorized, par value $.001 per share; 290,157,190 and 283,657,190 shares issued and outstanding as of March 31, 2014 and December 31, 2013 | 290,157 | 283,657 | ||||||||||||||
Additional paid in capital | 14,495,641 | 14,469,341 | 14,625,751 | 14,529,751 | ||||||||||||
Treasury Stock, 37,174 and 37,174 shares held, respectively. | 37 | 37 | ||||||||||||||
Treasury Stock, 37,174 and 37,174 shares held, respectively, at cost of -0-, as of March 31, 2014 and December 31, 2013. | - | - | ||||||||||||||
Accumulated deficit | (14,083,441 | ) | (16,153,925 | ) | $ | (14,980,847 | ) | (14,959,874 | ) | |||||||
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | 707,201 | (1,389,883 | ) | |||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) | $ | 2,497,875 | $ | 838,175 | ||||||||||||
TOTAL STOCKHOLDERS' DEFICIT | (64,939 | ) | (146,466 | ) | ||||||||||||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ | 5,279,705 | $ | 1,596,248 |
Statement of Operations |
(Unaudited) |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2014 | 2013 | |||||||
Revenues | $ | 1,554,748 | $ | 1,023,169 | ||||
Operating Expenses: | ||||||||
Cost of revenues | 880,992 | 542,034 | ||||||
Depreciation and amortization expense | - | - | ||||||
General and administrative expenses | 894,288 | 624,938 | ||||||
Total Operating Expenses | 1,775,280 | 1,166,972 | ||||||
Operating Income (Loss) | (220,532 | ) | (143,803 | ) | ||||
Other Income (Expense): | ||||||||
Gain (loss) on derivative liability | 8,307 | (56,929 | ) | |||||
Realized gain on marketable securities | 193,487 | - | ||||||
Unrealized gain on marketable securities | 2,456 | - | ||||||
Other income (expense) | (4,558 | ) | (5,400 | ) | ||||
Interest Income (expense) | (133 | ) | (82,614 | ) | ||||
Total Other Income (Expense) | 199,559 | (144,943 | ) | |||||
Net Income (Loss) | $ | (20,973 | ) | $ | (288,746 | ) | ||
Basic loss per common shares | $ | - | $ | - | ||||
Total basic loss per common share | $ | - | $ | - | ||||
Basic weighted average common shares outstanding | 285,323,857 | 294,650,743 |
Statements of Cash Flows |
(Unaudited) |
For the Three Months Ended | ||||||||
March 31, | ||||||||
2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | (20,973 | ) | $ | (288,746 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | ||||||||
Unrealized gain on marketable securities | (2,456 | ) | - | |||||
Realized gain on marketable securities | (193,487 | ) | ||||||
(Gain) loss on derivatives | (8,307 | ) | 56,929 | |||||
Amortization of debt discount | - | 72,519 | ||||||
Changes in: | ||||||||
Accounts receivable | (251,096 | ) | 117,457 | |||||
Prepaid expense and other current assets | (1,243,369 | ) | (397,338 | ) | ||||
Deferred income | 3,492,754 | 1,563,301 | ||||||
Accrued liabilities | (150,001 | ) | 34,680 | |||||
Accounts payable | 267,484 | (245,064 | ) | |||||
Accounts payable, related party | - | 37,650 | ||||||
Cash provided by (used in) operating activities | 1,890,549 | 951,388 | ||||||
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES | ||||||||
Proceeds from sales of marketable securities | 250,000 | |||||||
Cash paid for purchase of fixed assets | (15,400 | ) | - | |||||
Net cash used in investing activities | 234,600 | - | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from sales of common stock | 15,000 | |||||||
Net cash provided by financing activities | 15,000 | - | ||||||
Net increase in cash | 2,140,149 | 951,388 | ||||||
Cash, beginning of period | 476,588 | 238,124 | ||||||
Cash, end of period | 2,616,737 | 1,189,512 | ||||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | 201 | $ | - | ||||
Income taxes paid | $ | - | $ | - | ||||
Non-cash investing and financing activity: | ||||||||
Reclassification of accounts payable to short term debt | $ | - | $ | - | ||||
Discount on notes payable from derivative liability | $ | - | $ | 65,597 | ||||
Reclassification of derivative liabilities to additional paid-in capital | $ | - | $ | - | ||||
Common stock issued for settlement of notes payable | $ | - | $ | - | ||||
Reclassification of debt from short term to long term | $ | - | $ | 525,000 |
For the Three Months Ended September 30, | For the Nine Months Ended June 30, | |||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
REVENUES | $ | 1,048,407 | $ | 374,104 | $ | 6,441,216 | $ | 7,517,163 | ||||||||
OPERATING EXPENSES | ||||||||||||||||
Cost of revenues | 722,819 | 422,233 | 4,526,627 | 5,355,980 | ||||||||||||
Depreciation and amortization | - | - | - | 74,850 | ||||||||||||
General and administrative | 725,858 | 794,688 | 2,073,031 | 2,752,554 | ||||||||||||
Total Operating Expenses | 1,448,677 | 1,216,921 | 6,599,658 | 8,183,384 | ||||||||||||
OPERATING LOSS | (400,270 | ) | (842,817 | ) | (158,442 | ) | (666,221 | ) | ||||||||
OTHER INCOME (EXPENSE) | ||||||||||||||||
Gain (loss) on derivative liability | 153,096 | (4,990 | ) | 165,938 | (598,153 | ) | ||||||||||
Gain on extinguishment of debt | 183,332 | 75,618 | 793,732 | 75,618 | ||||||||||||
Unrealized gain (loss) on marketable securities | (45,800 | ) | - | 1,479,899 | - | |||||||||||
Other income (expense) | (65 | ) | (19,083 | ) | (5,465 | ) | (19,083 | ) | ||||||||
Interest expense | (6,092 | ) | (103,167 | ) | (205,178 | ) | (790,992 | ) | ||||||||
Total Other Income (Expense) | 284,471 | (551,622 | ) | 2,228,926 | (1,332,610 | ) | ||||||||||
Income (loss) from continuing operations | (115,799 | ) | (894,439 | ) | 2,070,484 | (1,998,831 | ) | |||||||||
Loss from discontinued operations | - | (146,698 | ) | - | (503,626 | ) | ||||||||||
Income on sale of discontinued operations | - | 4,115,771 | - | 4,115,771 | ||||||||||||
NET INCOME (LOSS) | $ | (115,799 | ) | $ | 3,074,634 | $ | 2,070,484 | $ | 1,613,314 | |||||||
BASIC INCOME (LOSS) PER COMMON SHARE FROM DISCONTINED OPERATIONS | $ | - | $ | 0.01 | $ | - | $ | 0.02 | ||||||||
DILUTED INCOME (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS | $ | (0.00 | ) | $ | (0.00 | ) | $ | 0.01 | $ | (0.01 | ) | |||||
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS | $ | (0.00 | ) | $ | 0.00 | $ | 0.01 | $ | 0.01 | |||||||
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 295,829,864 | 272,515,699 | 295,054,040 | 218,628,520 | ||||||||||||
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING | 295,829,864 | 293,562,646 | 306,462,999 | 239,675,467 |
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2013 | 2012 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net income from continuing operations | $ | 2,070,484 | $ | 1,613,314 | ||||
Adjustments to reconcile net income | ||||||||
to net cash provided by (used in) operating activities: | ||||||||
Unrealized gain on marketable securities | (1,479,899 | ) | - | |||||
Shares issued for services | - | 194,100 | ||||||
Loss on debt servicing | - | 19,879 | ||||||
Gain on sale of subsidiary | - | (4,115,771 | ) | |||||
Amortization of intangibles | - | 74,580 | ||||||
(Gain) loss on derivatives | (165,938 | ) | 598,153 | |||||
Amortization of debt discount | 152,848 | 659,280 | ||||||
Gain on extinguishment of debt | (793,732 | ) | (75,618 | ) | ||||
Changes in: | ||||||||
Accounts receivable | (146,882 | ) | (88,725 | ) | ||||
Prepaid expense and other current assets | 7,142 | (4,727 | ) | |||||
Deferred income | - | (30,036 | ) | |||||
Accrued liabilities | 93,406 | 943,444 | ||||||
Accounts payable | 270,257 | (63,292 | ) | |||||
Accounts payable, related party | (19,625 | ) | (113,505 | ) | ||||
Cash provided used in continuing operations | (11,939 | ) | (388,924 | ) | ||||
Cash provided by discontinued operations | - | 73,265 | ||||||
Net cash used in operating activities | (11,939 | ) | (315,299 | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Cash used in continuing operations | - | - | ||||||
Cash used in discontinued operations | - | (4,841 | ) | |||||
Net cash used in investing activities | - | (4,841 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Advances from related parties | - | 8,804 | ||||||
Payments on related parties debt | - | (16,000 | ) | |||||
Payments on short term debt | (52,500 | ) | - | |||||
Proceeds from issuance of debt | 104,500 | 37,500 | ||||||
Net change in line of credit | - | 2,361 | ||||||
Cash provided by continuing operations | 52,000 | 32,665 | ||||||
Cash provided by discontinued operations | - | 415,640 | ||||||
Net cash provided by financing activities | 52,000 | 448,305 | ||||||
Net increase in cash | 40,061 | 128,165 | ||||||
Cash, beginning of period | 238,124 | 337,779 | ||||||
Cash, end of period | 278,185 | $ | 465,944 | |||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | 25,000 | $ | 4,675 | ||||
Income taxes paid | $ | - | $ | - |
For the Nine Months Ended | ||||||||
September 30, | ||||||||
2013 | 2012 | |||||||
Non-cash investing and financing activity: | ||||||||
Reclassification of accounts payable to short term debt | $ | - | $ | 522,943 | ||||
Reclassification of accrued liabilities to short term debt | $ | - | $ | 545,000 | ||||
Discount on notes payable from derivative liability | $ | 98,097 | $ | 596,019 | ||||
Discount on shares issued with notes payable | $ | - | $ | 11,486 | ||||
Reclassification of derivative liabilities to additional paid-in capital | $ | - | $ | 991,596 | ||||
Common stock issued for settlement of notes payable | $ | 26,600 | $ | 628,735 | ||||
Cancellation of common stock and preferred stock | 2,550 |
March 31, 2014 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable trading securities | $ | 710,031 | $ | - | $ | - | $ | 710,031 | ||||||||
Derivative Liabilities | $ | - | $ | - | $ | 2,814 | $ | 2,814 | ||||||||
December 31, 2013 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable trading securities | $ | 764,088 | $ | - | $ | - | $ | 764,088 | ||||||||
Derivative Liabilities | $ | - | $ | - | $ | 11,121 | $ | 11,121 |
September 30, 2013 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable trading securities | $ | 1,754,550 | $ | - | $ | - | $ | 1,754,550 | ||||||||
Derivative Liabilities | $ | - | $ | - | $ | 78,129 | $ | 78,129 | ||||||||
December 31, 2012 | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Marketable trading securities | $ | 3,000 | $ | - | $ | - | $ | 3,000 | ||||||||
Derivative Liabilities | $ | - | $ | - | $ | 145,970 | $ | 145,970 |
September 30, 2013 | December 31, 2012 | March 31, 2014 | December 31, 2013 | |||||||||||||
Aggregate fair value | $ | 1,754,550 | $ | 3,000 | $ | 710,031 | $ | 764,088 | ||||||||
Gross unrealized holding gains | 1,479,899 | - | 625,225 | 622,769 | ||||||||||||
Gross unrealized holding losses | - | - | ||||||||||||||
Transfer of cost method investment to marketable securities | 274,651 | |||||||||||||||
Proceeds from sales | $ | - | $ | -- | ||||||||||||
Gross realized gains | - | -- | ||||||||||||||
Proceeds from sales ($823,022 stocks plus $85,000 options) | $ | 250,000 | $ | 658,021 | ||||||||||||
Gross realized gains (stocks and options) | 193,487 | 524,668 | ||||||||||||||
Gross realized losses | - | -- | - | - | ||||||||||||
Other than temporary impairment | - | -- | - | - |
Outstanding and Exercisable | Weighted average Exercise Price | |||||||
December 31, 2011 | 1,798,000 | $ | 0.28 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
December 31, 2012 | 1,798,000 | $ | 0.28 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
December 31, 2013 | 1,798,000 | $ | 0.28 | |||||
Granted | - | - | ||||||
Exercised | - | - | ||||||
Expired | (298,000 | ) | ||||||
March 31, 2014 | 1,500,000 | $ | 0.28 |
Derivative Liabilities | ||||
Balance at December 31, 2012 | $ | 145,970 | ||
ASC 815-15 additions | 98,097 | |||
Change in fair value | (85,712) | |||
ASC 815-15 deletions | (80,226) | |||
Balance at September 30, 2013 | $ | 78,129 | ||
Gain/(Loss) on Derivative Liability | ||||||||
For the Nine Months Ended September 30, | ||||||||
2013 | 2012 | |||||||
Change in fair value | (85,712 | ) | 459,333 | |||||
Convertible debt settled in cash | (80,226 | ) | ||||||
Excess of fair value of liabilities over note payable | - | 138,820 | ||||||
Total (Gain)/Loss on Derivative Liability | (165,938 | ) | 598,153 |
Derivative Liabilities | ||||
Balance at December 31, 2011 | $ | 444,150 | ||
ASC 815-15 additions | 721,590 | |||
Change in fair value | 192,025 | |||
ASC 815-15 deletions | (1,211,795 | ) | ||
Balance at December 31, 2012 | 145,970 | |||
ASC 815-15 additions | 98,097 | |||
Change in fair value | (210,180 | ) | ||
ASC 815-15 deletions | (22,766 | ) | ||
Balance at December 31, 2013 | 11,121 | |||
ASC 815-15 additions | 5,013 | |||
Change in fair value | (2,199 | ) | ||
ASC 815-15 deletions | (11,121 | ) | ||
Balance at March 31, 2013 | $ | 2,814 |
For the nine months ended | ||||||||||||
September 30, 2013 | ||||||||||||
Weighted | ||||||||||||
Average | ||||||||||||
Shares | Per | |||||||||||
Income | Outstanding | Share | ||||||||||
Basic: | ||||||||||||
Income attributable to common stock | 2,070,484 | 295,054,040 | 0.01 | |||||||||
Effect of Dilutive Securities: | ||||||||||||
Convertible Debt | - | 11,408,959 | ||||||||||
Diluted: | ||||||||||||
Income attributable to common stock, including assumed conversions | 2,070,484 | 306,462,999 | 0.01 |
Year ending December 31, 2013 | ||||
2014 | $ | 143,353 | ||
2015 | 196,805 | |||
2016 | 202,572 | |||
2018 | 208,440 | |||
2019 | 141,784 | |||
After | 214,205 |
Title of Class | Name | Shares | Percent | |||||||
Common Stock | Alan Morell | 18,622,944 | 6.3 | % | ||||||
Common Stock | Jeffrey Devlin | 0 | 0 | % | ||||||
All Directors, Executive Officers and 5% shareholders | 18,622,944 | 6.3 | % |
· | 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 |
Exhibit Number | Description of | Filing Reference |
4.1 | Form of Warrant issued to Glenn Laken. | Filed herewith. | ||
10.1 | Employment Agreement, dated April 30, 2014, between the Company and Glenn Laken. | Filed herewith. | ||
31.01 | Certification of | Filed herewith. |
31.02 | Certification of | Filed herewith. | ||
32.01 | CEO and CFO Certification Pursuant to Section 906 of the | Filed herewith. | ||
101.INS | XBRL Instance Document. | |||
101.SCH | XBRL Taxonomy Extension Schema Document. | |||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | |||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
CMG HOLDINGS GROUP, INC. | ||
Dated: May 15, 2014 | By: | /s/ Glenn Laken | ||||
Glenn Laken Chief Executive Officer | ||||||
Dated: May 15, 2014 | By: | /s/ Jeffrey Devlin | ||||
Jeffrey Devlin Chief Financial Officer |