CMG Holdings Group, Inc.
Consolidated Balance Sheet
|
|
June 30,
|
|
December 31,
|
|
|
2014
|
|
2013
|
|
|
(Unaudited)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,017,098
|
|
|
$
|
476,588
|
|
Marketable securities
|
|
|
141,703
|
|
|
|
764,088
|
|
Accounts receivable, net of allowance of $0 and $0, respectively
|
|
|
168,811
|
|
|
|
287,094
|
|
Prepaid expenses and other current assets
|
|
|
8,400
|
|
|
|
8,400
|
|
Total Current Assets
|
|
|
1,336,012
|
|
|
|
1,536,170
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
82,282
|
|
|
|
60,078
|
|
TOTAL ASSETS
|
|
$
|
1,418,294
|
|
|
$
|
1,596,248
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,504,408
|
|
|
$
|
627,695
|
|
Deferred compensation
|
|
|
65,000
|
|
|
|
486,875
|
|
Accrued liabilities
|
|
|
293,711
|
|
|
|
593,710
|
|
Deferred income
|
|
|
13,370
|
|
|
|
13,370
|
|
Derivative liabilities
|
|
|
3,195
|
|
|
|
11,121
|
|
Short term debt, net of unamortized discount of $0 and $0, respectively
|
|
|
9,943
|
|
|
|
9,943
|
|
Total Current Liabilities
|
|
|
1,889,627
|
|
|
|
1,742,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
|
|
|
1,889,627
|
|
|
|
1,742,714
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2014 and December 31, 2013
|
|
|
—
|
|
|
|
—
|
|
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, 2014 and December 31, 2013
|
|
|
—
|
|
|
|
—
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
450,000,000 shares authorized, par value $.001 per share; 289,329,190 and 283,657,190 shares issued and outstanding as of June 30, 2014 and December 31, 2013
|
|
|
289,329
|
|
|
|
283,657
|
|
Additional paid in capital
|
|
|
15,367,019
|
|
|
|
14,529,751
|
|
Treasury Stock, 37,174 and 37,174 shares held, respectively, at cost of -0-, as of June 30, 2014 and December 31, 2013.
|
|
|
—
|
|
|
|
—
|
|
Accumulated deficit
|
|
$
|
(16,127,681
|
)
|
|
|
(14,959,874
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS' DEFICIT
|
|
|
(471,333
|
)
|
|
|
(146,466
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
$
|
1,418,794
|
|
|
$
|
1,596,248
|
|
The accompanying notes are an integral part of these financial
statements.
CMG Holdings, Inc.
Statement of Operations
(Unaudited)
|
|
For the Three Months Ended June 30,
|
|
For the Six Months Ended
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
5,971,726
|
|
|
$
|
4,369,640
|
|
|
$
|
7,526,474
|
|
|
$
|
5,392,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
5,367,651
|
|
|
|
3,261,774
|
|
|
|
6,248,643
|
|
|
|
3,803,808
|
|
Depreciation and amortization expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
General and administrative expenses
|
|
|
1,291,225
|
|
|
|
716,835
|
|
|
|
2,185,513
|
|
|
|
1,347,173
|
|
Research and development expenses
|
|
|
93,750
|
|
|
|
|
|
|
|
93,750
|
|
|
|
—
|
|
Total Operating Expenses
|
|
|
6,752,626
|
|
|
|
3,978,609
|
|
|
|
8,527,906
|
|
|
|
5,150,981
|
|
Operating Income (Loss)
|
|
|
(780,900
|
)
|
|
|
391,031
|
|
|
|
(1,001,432
|
)
|
|
|
241,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) on derivative liability
|
|
|
(381
|
)
|
|
|
69,771
|
|
|
|
7,926
|
|
|
|
12,842
|
|
Realized gain (loss) on marketable securities
|
|
|
233,515
|
|
|
|
—
|
|
|
|
427,002
|
|
|
|
—
|
|
Unrealized gain (loss) on marketable securities
|
|
|
(511,511
|
)
|
|
|
1,525,699
|
|
|
|
(509,055
|
)
|
|
|
1,525,699
|
|
Costs related acquisition of Good Gaming
|
|
|
(87,500
|
)
|
|
|
—
|
|
|
|
(87,500
|
)
|
|
|
—
|
|
Other income (expense)
|
|
|
(58
|
)
|
|
|
(5,400
|
)
|
|
|
(4,616
|
)
|
|
|
(5,400
|
)
|
Gain on settlement of debt
|
|
|
—
|
|
|
|
610,400
|
|
|
|
—
|
|
|
|
610,400
|
|
Interest Income (expense)
|
|
|
1
|
|
|
|
(116,472
|
)
|
|
|
(132
|
)
|
|
|
(199,086
|
)
|
Total Other Income (Expense)
|
|
|
(365,934
|
)
|
|
|
2,083,998
|
|
|
|
(166,375
|
)
|
|
|
1,944,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(1,146,834
|
)
|
|
|
2,475,029
|
|
|
|
(1,167,807
|
)
|
|
|
2,186,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
|
|
|
|
—
|
|
|
|
—
|
|
Net Income (Loss)
|
|
$
|
(1,146,834
|
)
|
|
$
|
2,475,029
|
|
|
$
|
(1,167,807
|
)
|
|
$
|
2,186,283
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per common shares for discontinued operations
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Basic loss per common shares for continued operations
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
$
|
—
|
|
|
$
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstan
ding
|
|
|
294,016,103
|
|
|
|
294,650,743
|
|
|
|
289,352,619
|
|
|
|
294,650,743
|
|
The accompanying notes are an integral part of
these financial statements.
CMG Holdings, Inc.
Statements of Cash Flows
(Unaudited)
|
|
For the Six Months Ended
|
|
|
June 30,
|
|
|
2014
|
|
2013
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,167,807
|
)
|
|
$
|
2,186,283
|
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Shares issued for services
|
|
|
120,813
|
|
|
|
—
|
|
Warrants issued for compensation
|
|
|
619,627
|
|
|
|
—
|
|
Costs related to acquisition of Good Gaming
|
|
|
87,500
|
|
|
|
—
|
|
Unrealized gain on marketable securities
|
|
|
509,055
|
|
|
|
(1,525,699
|
)
|
Realized gain on marketable securities
|
|
|
(427,002
|
)
|
|
|
—
|
|
(Gain) on settlement of debt
|
|
|
|
|
|
|
(610,400
|
)
|
(Gain) loss on derivatives
|
|
|
(7,926
|
)
|
|
|
(12,842
|
)
|
Amortization of debt discount
|
|
|
—
|
|
|
|
149,874
|
|
Changes in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
118,283
|
|
|
|
52,703
|
|
Prepaid expense and other current assets
|
|
|
(3,803
|
)
|
|
|
12,439
|
|
Deferred income
|
|
|
—
|
|
|
|
(320
|
)
|
Accrued liabilities
|
|
|
(300,000
|
)
|
|
|
68,773
|
|
Accounts payable
|
|
|
876,713
|
|
|
|
(126,578
|
)
|
Accounts payable, related party
|
|
|
—
|
|
|
|
51,975
|
|
Deferred compensation
|
|
|
(421,875
|
)
|
|
|
—
|
|
Cash provided by (used in) operating activities
|
|
|
3,578
|
|
|
|
246,208
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Cash paid for purchase of fixed assets
|
|
|
(18,400
|
)
|
|
|
—
|
|
Proceeds from sales of marketable securities
|
|
|
540,332
|
|
|
|
—
|
|
Net cash from (used) in investing activities
|
|
|
521,932
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Payments on related parties debt
|
|
|
—
|
|
|
|
—
|
|
Advance from related parties
|
|
|
—
|
|
|
|
—
|
|
Payment on short term debt
|
|
|
|
|
|
|
(52,500
|
)
|
Proceeds from issuance of debt
|
|
|
—
|
|
|
|
104,500
|
|
Net change in line of credit
|
|
|
—
|
|
|
|
—
|
|
Proceeds from sales of common stock
|
|
|
15,000
|
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
15,000
|
|
|
|
52,000
|
|
Net increase in cash
|
|
|
540,510
|
|
|
|
298,208
|
|
Cash, beginning of period
|
|
|
476,588
|
|
|
|
238,124
|
|
Cash, end of period
|
|
|
1,017,098
|
|
|
|
536,332
|
|
|
|
$
|
—
|
|
|
|
|
|
Supplemental cash flow information:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
201
|
|
|
$
|
25,000
|
|
Income taxes paid
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activity:
|
|
|
|
|
|
|
|
|
Reclassification of accounts payable to short term debt
|
|
$
|
—
|
|
|
$
|
—
|
|
Discount on notes payable from derivative liability
|
|
$
|
—
|
|
|
$
|
98,097
|
|
Reclassification of derivative liabilities to additional paid-in capital
|
|
$
|
—
|
|
|
$
|
—
|
|
Common stock issued for settlement of notes payable
|
|
$
|
—
|
|
|
$
|
26,600
|
|
Reclassification of debt from short term to long term
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these financial
statements.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
NOTE
1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
Activity
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. 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-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-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 March 31, 2010, the Company and AudioEye, Inc. (“AudioEye”)
completed the final 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; on 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, 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, of which $50,000 of 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.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
Principles
of Consolidation
The
consolidated financial statements include the accounts of CMG Holdings Group, Inc., XA, The Experiential Agency, Inc. ("XA")
and GGI after elimination of all significant inter-company accounts and transactions.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and 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.
Concentrations
of Risk
The
Company maintains its cash balances at two financial institutions where they are insured by the Federal Deposit Insurance Corporation
up to $250,000 each. At June 30, 2014 and December 31, 2013, neither of these accounts was in excess of the limit. The Company
also maintains a money market investment account at one securities firm where the account is insured by the Securities Investor
Protection Corporation up to $500,000 for the bankruptcy, etc., of the securities firm. At June 30, 2014 and December 31, 2013,
the account had no balance in excess of the limit. For the quarter ended June 30, 2014 and the year ended December 31, 2013, one
customer exceeds 10% of the Company’s total revenue, representing 88% and 72% of the Company’s total revenues, respectively.
Revenue
and Cost Recognition
The
Company earns revenues by providing event management services under individually negotiated contracts with varying terms, recognizing
revenue in accordance with ASC 605,
Revenue Recognition
, only when the price is fixed or determinable, persuasive
evidence of an arrangement exists, the services have been provided and collectability is assured. In arrangements
where key indicators suggest the Company acts as principal, the Company records the gross amount billed to the client as revenue
and the related costs incurred as cost of revenues as the services are provided.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable are amounts due from event management services, are unsecured and are carried at their estimated collectible amounts.
Credit is generally extended on a short-term basis and do not bear interest, although a finance charge may be applied to amounts
outstanding more than thirty days. Accounts receivable are periodically evaluated for collectability based on past credit history
with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent
risk in the account balance and current economic conditions. There were no allowances for doubtful accounts as of June
30, 2014 or December 31, 2013.
Share-Based
Compensation
The Company accounts for share-based compensation
to employees in accordance with Accounting Standards Codification subtopic 718-10,
Stock Compensation
(“ASC 718-10”)
and share-based compensation to non-employees in accordance with ASC 505-50
Accounting for Equity Instruments Issued to Non-Employees
for Acquiring, or in Conjunction with Selling, Goods or Services
. ASC 718-10 and 505-50 require the measurement and recognition
of compensation expense for all share-based payment awards, including stock options based on the estimated fair values.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
Derivative
Instruments
The
Company accounts for derivative instruments in accordance with ASC Topic 815,
Derivatives and Hedging
, and all derivative
instruments are reflected as either assets or liabilities at fair value in the balance sheet.
The
Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset
or transfer a liability in an orderly transaction between willing and able market participants. In general, the Company’s
policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets,
where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments,
yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for the Company’s liabilities),
relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit,
bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair
value. When possible, 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.
Cash
and Cash Equivalents
For
purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with maturity of three
months or less to be cash equivalents.
Property
and Equipment
Property
and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is computed
using the straight-line method over the estimated useful lives of the respective assets, which is generally between three and
five years. Depreciation expense was $0 and $0 for the quarter ended June 30, 2014 and December 31, 2013, respectively.
Intangible
Assets
Intangible
assets are stated at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated
useful life of the respective asset, which is three years. Amortization expense was $0 and $0 for the quarter ended June 30, 2014
and the year ended December 31, 2013, respectively.
Income
Taxes
The
Company accounts for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Valuation allowances are established, when necessary, to reduce deferred tax assets 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.
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 diluted 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.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
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 accounting pronouncements that have been issued that might have a material impact
on its financial position or results of operations.
Fair
Value Measurements
ASC
820 and ASC 825,
Financial Instruments
(ASC 825)
,
requires an entity to maximize the use of observable inputs and
minimize the use of unobservable inputs when measuring fair 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’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 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets
are those in which transactions 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
2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly
observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation
methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward
prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments,
as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout
the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions
are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity
swaps, interest rate swaps, options and collars.
Level
3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in management’s best estimate of fair value.
The
Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities.
Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted
prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current
fair values because of their nature and respective maturity dates or durations.
The
following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured
at fair value on June 30, 2014 and December 31, 2013:
June
30, 2014
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Marketable trading securities
|
|
$
|
141,703
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
141,703
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,195
|
|
|
$
|
3,195
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2013
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Total
|
|
Marketable trading securities
|
|
$
|
764,088
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
764,088
|
|
Derivative Liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
11,121
|
|
|
$
|
11,121
|
|
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
Investments
in Debt and Equity Securities
The
Company applies the provisions of Accounting Standards Codification 320,
Investments – Debt and Equity Securities
,
regarding marketable securities. The Company invests in securities that are intended to be bought and held principally for the
purpose of selling them 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.
Details
of the Company's marketable trading securities as of June 30, 2014 and December 31, 2013 are as follows:
|
|
June 30,
2014
|
|
|
December 31,
2013
|
|
Aggregate fair value
|
|
$
|
141,703
|
|
|
$
|
764,088
|
|
Gross unrealized holding gains
|
|
|
113,714
|
|
|
|
622,769
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales ($1,113,354 stocks plus $85,000 options)
|
|
$
|
540,332
|
|
|
$
|
658,021
|
|
Gross realized gains (stocks and options)
|
|
|
427,002
|
|
|
|
524,668
|
|
Gross realized losses
|
|
|
-
|
|
|
|
-
|
|
Other than temporary impairment
|
|
|
-
|
|
|
|
-
|
|
NOTE 2
- EQUITY
Preferred
Stock
Series
B Preferred Stock and Inventory Purchase
On
March 31, 2011 the Company acquired 20,000 cartoon animated cels (the “Cel Art”) from Continental Investments Group,
Inc. (the “Agreement”). The Company issued 50,000 shares of its Series B Convertible Preferred Stock to Continental
Investments Group, Inc. as consideration for the Cel Art, such shares of Series B Convertible Preferred Stock having a stated
value per share of $100. The Cel Art consists of collectible, hand-painted cartoon animation cels. The shares of Series B Preferred
Stock are convertible into common shares of the Company at the stated value of $100 per share divided by the volume weighted average
trading price for the 30 days prior to conversion. The preferred shares are non-voting and do not receive dividends. The Company
determined the fair value of the preferred stock to be $3,240,502 on the acquisition date based on the number of shares of common
stock the preferred shares could be converted into and the market price of the common stock on the agreement date. The cartoon
animated cels are valued at the lower of cost or market. As of December 31, 2011, Management wrote down the inventory to zero.
The Company also analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 and determined
that the conversion option should be classified as equity. During the year ended December 31, 2011, the Company determined
that due to uncertainties related to future sales of the Cel Art, the entire balance should be reserved as of December 31, 2011.
During
August 2013, the Company entered into a Termination Agreement and Release (the “Agreement”) with Continental Investments
Group (Continental), the holder of a $85,000 convertible note payable of the Company and the holder of 2,500,000 shares of restricted
common stock. The Agreement calls for the termination and cancellation of a Sale and Purchase agreement, whereby 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.
Common Stock
On
January 29, 2014, the Company sold 1,500,000 shares of its common stock for $0.01 per share and net proceeds of $15,000.
On
March 28, 2014, the Company issued 5,000,000 shares of its common stock pursuant to the acquisition of its subsidiary. The
shares were valued at a total of $87,500 or $0.0175 per share, the closing price of the company’s common stock on the OTCQB.
On April 7, 2014, the Company issued
522,000 shares 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.
On May 9, 2014, the Company issued to
a total of 6,000,000 shares of Common Stock to its three former directors of the Company, with each former director receiving 2,000,000
shares, pursuant to the agreements between the Company and each of the former directors dated February 5, 2014.
On June 30, 2014, the Company canceled 7,350,000 shares of
common stock pursuant to a settlement agreement with CMGO Investors LLC and Craig Boden.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
Common
Stock Warrants
During
2011, eight individuals purchased 3,870,000 shares of common stock, 774,000 A Warrants and 774,000 B Warrants for $217,000. A
total of 574,000 and 200,000 A Warrants are exercisable at a strike price of $0.25 and $0.10, respectively for three years; 574,000
and 200,000 B Warrants are exercisable at a strike price of $0.50 and $0.20, respectively for three years. The Company can call
each of the Warrants after twelve months if the price of the Common Shares of the Company in the Market is 150% of the Warrant
strike price for 10 consecutive days.
During March 31, 2010, 250,000 shares
of warrants issued to AudioEye at an exercise price of $0.07 per share and a term of 5 years. See Note 5 for additional information
on the derivative liability.
On April 7, 2014, we issued to our newly
appointed CEO and Chairman of the Board of Directors, as compensation, a warrant to purchase a total of 40,000,000 shares of Common
Stock at the exercise price of $0.0155 with a term of 5 years.
A
summary of warrant activity for the six months ended June 30, 2014 and the years ended December 31, 2013 and 2012 is as follows:
|
|
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
|
|
|
|
40,000,000
|
|
|
$
|
0.016
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
Expired
|
|
|
|
(748,000
|
)
|
|
|
|
|
|
June 30, 2014
|
|
|
|
41,050,000
|
|
|
$
|
0.02
|
|
As of June 30, 2014, the warrants have
a weighted average remaining life of 4.64 years with $0 aggregate intrinsic value.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
NOTE 3
- NOTES PAYABLE
Paul
Sherman Agreement
On May 12, 2012, the Company modified
its July 24, 2011 agreement with Paul Sherman into a $9,943 convertible promissory note bearing interest at 2% and due on May 15,
2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to Paul Sherman’s
request for conversion, but not to go below $.001. The Company analyzed the conversion option for derivative accounting consideration
under ASC 815-15 and determined that the instrument should be classified as a liability. The fair value of the embedded conversion
option resulted in a discount of $8,875 on the date of the note. The discount is being amortized over the term of the note to interest
expense. The discount balance was $0 and $0 as of June 30, 2014 and December 31, 2013, respectively. Amortization of
$0 and $3,376 was recognized as interest expense during the six months ended June 30, 2014 and the year ended December 31, 2013,
respectively. The convertible promissory note has an outstanding balance of $9,943 and $9,943 as of June 30, 2014 and December
31, 2013, respectively.
NOTE 4
- DERIVATIVE LIABILITIES
The
Company has a convertible instrument outstanding more fully described in Note 3. In accordance with ASC 815-15 “Derivatives
and Hedging”, the convertible share-settleable instruments are classified as liabilities.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
Embedded
Derivative Liabilities in Convertible Notes
During the years ended December 31,
2013 and 2012, the Company recognized new derivative liabilities of $98,097 and $721,590, respectively, as a result of new convertible
debt issuances. The fair value of these derivative liabilities exceeded the principal balance of the related notes payable
by $0 and $0 for the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. As a result
of conversion of notes payable described above, the Company reclassified $0 and $9,240,920 from equity and $0 and $0 of derivative
liabilities to equity during the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The
Company recognized a gain of $11,121 and a gain of $210,810 on derivatives due to change in fair value of the liability during
the six months ended June 30, 2014 and the year ended December 31, 2013, respectively. The fair value of the Company’s embedded
derivative liabilities was $0 and $11,121 at June 30, 2014 and December 31, 2013, respectively.
Warrants
During
2011, 774,000 A Warrants and 774,000 B warrants were issued to individuals. The Company determined that the instruments embedded
in the warrants should be classified as liabilities. During March 31, 2010, 250,000 shares of warrants issued to AudioEye
at an exercise price of $0.07 per share and a term of 5 years.
Under ASC 815-15, the liabilities were
subsequently measured at fair value at the end of each reporting period with the change in fair value recorded to earnings. The
fair value of all outstanding warrants as of June 30, 2014 and December 31, 2013 was $3,195 and $11,121, respectively. The
Company recognized an expense of $381 and a gain $10,196 related to the warrants for the three months ended June 30, 2014 and the
year ended December 31, 2013, respectively.
The
following table summarizes the derivative liabilities included in the consolidated balance sheet:
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
|
|
|
(1,818
|
)
|
ASC 815-15 deletions
|
|
|
(11,121
|
)
|
Balance at June 30, 2014
|
|
$
|
3,195
|
|
The
Company values its warrant derivatives and all other share settable instrument using the Black-Scholes option pricing model. Assumption
used include (1) 0.06% to 0.13% risk-free interest rate, (2) life is the remaining contractual life of the instrument (3) expected
volatility 55% to 239%, (4) zero expected dividends, (5) exercise price as set forth in the agreements, (6) common stock price
of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.
NOTE 5
- 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.
On
April 21, 2011, the Company was served with a lawsuit that was filed in Clark County, Nevada against the Company by A to Z Holdings,
LLC and seven other individuals or entities. The complaint alleges, among other things, that the Company’s Board of Directors
did not have the power to designate series A and B preferred stock without amending the articles of incorporation. The complaint
also alleges any such amendment would require shareholder approval and filing of a proxy statement. On April 20, 2012, the Company
settled with A to Z Holdings, LLC and seven other individuals or entities for $10,000.
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
On
July 6, 2011, the Company was served with a lawsuit filed in the Circuit Court for the County of Multnomah, Oregon. The complaint
alleges breach of contract and entitlement to consulting fees from the Company. The 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. The
Company has retained counsel and is prepared to defend this lawsuit. The Company believes that the claims are frivolous pursuant
to the terms of the contract. The case was settled on September 28, 2012 for $30,000. The Company has accrued for this liability
as of March 31, 2014 and December 31, 2013.
On
March 28, 2014 we received a letter from a former Chief Executive Officer of our subsidiary, XA, claiming unpaid severance and
paid- time-off. Total of the contingent claim amounted to $250,661. We are currently in the process to settle the claim.
NOTE
6 - ACQUISITION OF GOOD GAMING, INC.
On March 28, 2014, CMG Holdings, 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. The transaction was completed under the purchase method of accounting. 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, of which $50,000 of 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. In accordance with the purchase method of accounting, the Company recorded a charge
of $87,500.
NOTE 7
- RELATED PARTY TRANSACTIONS
The
Company had outstanding accounts payable to a former officer and director who was a related party at December 31, 2012 of $19,625.
The payables represent legal and administrative fees paid on behalf of the Company. These payables were settled during
the year ended December 31, 2013.
XA has made business reimbursements
to a consulting firm which is controlled by its former CEO. The accounts payable in the amount of $47,912 and $47,912 is included
in account payable as of June 30, 2014 and December 31, 2013, respectively. Total amount submitted to the Company for
reimbursement from the consulting firm is $0 and $142,060 for the three months ended June 30, 2014 and the year ended 2013, respectively.
NOTE 8
- SEGMENTS
The Company splits its business activities
during the six months ended June 30, 2014 into three 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 six months ended June
30, 2014.
|
|
XA
|
|
Good Gaming
|
|
CMG Holdings Group
|
|
Totals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
7,526,474
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,526,474
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
7,430,732
|
|
|
|
93,750
|
|
|
|
1,003,424
|
|
|
|
8,527,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss)
|
|
|
95,742
|
|
|
|
(93,750
|
)
|
|
|
(1,003,424
|
)
|
|
|
(1,001,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
—
|
|
|
|
—
|
|
|
|
(166,375
|
)
|
|
|
(166,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
95,742
|
|
|
$
|
(93,750
|
)
|
|
$
|
(1,169,799
|
)
|
|
$
|
(1,169,799
|
)
|
CMG
HOLDINGS GROUP, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
June
30, 2014
(Unaudited)
NOTE 9
– RESIGNATION OF CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD.
On
September 26, 2012, Alan Morell officially resigned as Chief Executive Officer and Director of the Company. In conjunction with
the resignation, Mr. Morell was issued a convertible note for $525,000 representing the amount of accrued salary owed to him by
the company up to the date of resignation and assumed all obligations related to a Smith Barney Credit Line that was secured by
Mr. Morell’s security accounts and issued another convertible note to Morell for $112,000. The notes bore interest at 2%
and were due on April 26, 2014. The notes were convertible beginning on November 15, 2012 at a conversion price of $0.06 per share.
In June 2013, the Company issued 2,800,000 shares of common stock to settle the notes totaling $637,000, resulting in a gain on
settlement of debt of $610,400.
On May 9, 2014, the
Company issued to a total of 6,000,000 shares of Common Stock to its three former directors of the Company, with each former director
receiving 2,000,000 shares, pursuant to the agreements between the Company and each of the former directors dated February 5, 2014.
NOTE
10 - COMMITMENTS AND CONTINGENCIES
The
Company subsidiary rents office space for its office at Chicago and New York. The lease expires in March 31, 2021 for
its Chicago office. During 2013, the Company renewed a five year lease expiring May 31, 2018 for its New York
office. Future minimum lease payments under the two operating lease are as follows:
Year ending December 31, 2013
|
|
|
|
2014
|
|
$
|
143,353
|
|
2015
|
|
|
196,805
|
|
2016
|
|
|
202,572
|
|
2018
|
|
|
208,440
|
|
2019
|
|
|
141,784
|
|
After
|
|
|
214,205
|
|
Except
as discussed above in Note 5, The Company is not the subject of any pending legal proceedings and, to the knowledge of management;
no proceedings are presently contemplated against the Company by any federal, state or local governmental agency.
On
March 28, 2014 we received a letter from a former Chief Executive Officer of our subsidiary, XA, claiming unpaid severance and
paid- time-off. Total of the contingent claim amounted to $250,661. We are currently in the process to settle the claim.
NOTE
11 - SUBSEQUENT EVENTS
None