ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
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. 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 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 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 a Stock Purchase Agreement under which
the Company acquired all the capital stock of AudioEye. On June 22, 2011 the Company entered into a Master Agreement subject to
shareholder approval and 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; in October 2012, the Company
distributed to its shareholders, in 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,
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.
F-7
On February 18, 2016, the Company
sold the assets of Good Gaming, Inc. to HDS International Corp. and thereafter, HDS changed their name to Good Gaming, Inc, from
CMG Holdings Group, Inc. (OTCQB: GMER) (“Good Gaming”). The Company received in exchange 100,000,000 Class B Preferred
Shares in Good Gaming which are convertible into shares of common stock at a rate of 200 common shares for each Class B Preferred
Shares. Good Gaming, Inc. did a 1,000 to 1 reverse split, thus the 100,000,000 Class B Preferred Shares were converted to 100,000
Class B Preferred Shares. The Company has sold a portion of these Good Gaming shares to date in the market and currently owns the
equivalent of 14,076,200 common shares in the form of preferred stock and common stock.
The Company’s operating
subsidiaries are 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. The other subsidiary is Lincoln Acquisition Corp. which was formed for the purpose
of liquidating shares in Good Gaming, Inc. and any other investment shares which might be held by CMG at any given time.
|
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 the Company and its wholly owned subsidiary, Ship Ahoy LLC. All intercompany transactions have been eliminated.
The Company's fiscal year-end is December 31.
The preparation of financial
statements in conformity with generally accepted accounting principles in the United
States requires management to make estimates and assumptions that affect the reported amounts of assets and li 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 reporting period. The Company regularly evaluates estimates and assumptions related
to the recoverability of its long-lived assets, stock-based compensation, and
deferred income tax
asset valuation allowances. The
Company bases its estimates
and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual
results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material
differences between the estimates and the actual results, future results of operations will be affected.
F-8
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial
Statements
|
c)
|
Cash and Cash Equivalents
|
The
Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash
equivalents. As of December 31, 2020 and 2019, the Company had no cash equivalents.
|
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 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.
ASC
820, “Fair Value
Measurements,” 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
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices
for identic al assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived
valuations in which significant inputs are observable or can be derived principally
from, or corroborated by, observable market data.
Level 3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
The Company's financial
instruments consist principally of cash, accounts payable, and amounts due to related parties.
Pursuant to ASC 820, the fair value of our cash is determined based on "Level I"
inputs, which consist of quoted prices in active markets for identical assets. We 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.
F-9
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 useful life whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable or the useful life has changed.
Certain prior period amounts
have been reclassified to conform to current presentation.
Accounts receivable
consist of invoices for events that occurred prior to year end that the payments were received in the following year.
The Balance of accounts receivable at December 31, 2020 and 2019 were $24,940 and $40,513, respectively.
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. As of December 31, 2019, the Company had loaned to Pristec $67,500 at an interest rate of 12%, the loan
matures in twelve (12) months. As of December 31, 2020 the Company loaned an additional $32,500 and extended the loan for
another 12 months until 12/31/21. Pristec is a late stage technology company that has 108 worldwide patents for the cold
cracking of crude oil and other oil products. The Company has been granted the right to convert this loan into 100 shares of
stock at price of $1,000. At the discretion of the Company, the Company has the option of entering into a revenue sharing at
the same terms.
On June 24, 2020
The Company entered into an agreement with New Vacuum Technologies LLC(NVT) whereby the Company loaned NVT $50,000. The loan
was originally due on December 24, 2020 at an interest rate of 10% per annum. The loan was extended on December 24, 2020
until December 24, 2021.
Accounts payable
consist of expenses incurred during the year that had not yet been paid. The balance of accounts payable at December 31, 2020 is
$10,500. The balance of accounts payable at December 31, 2019 were $74,500. These accounts payable consisted of trade accounts
payable.
F-10
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
During
the years ended December 31, 2020 and December 31, 2019, the Company did not sell any shares of its $0.001 par value per share
common stock.
During
the years ended December 31, 2020 and December 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 outstanding 40,000,000 Warrants previously issued to Glenn Laken to $0.0035 and extended the expiration
date for an additional five (5) years.
Convertible Promissory Notes
|
a.
|
During the years ended December 31, 2020 and December
31, 2019, the Company did not issue any new convertible promissory notes.
|
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.
The Company has a net
operating loss carried forward of $15,142,470 available to offset taxable income in future years which commence expiring in 2029.
The Company is subject to United States federal and state income taxes at an approximate rate of 21% (2020 and 2019). As at December
31, 2020 and 2019, the Company had no uncertain tax positions.
|
|
2020
|
|
2019
|
Income tax recovery at Statutory rate
|
|
$
|
9,025
|
|
|
$
|
319,318
|
|
Permanent differences and other
|
|
|
—
|
|
|
|
—
|
|
Valuation allowance change
|
|
|
(9,025
|
)
|
|
|
(319,318
|
)
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The significant components
of deferred income tax assets and liabilities at December 31, 2020 and 2019
are as follows:
|
|
2020
|
|
2019
|
Net operating loss carried forward
|
|
$
|
15,142,670
|
|
|
$
|
15,185,444
|
|
Valuation allowance
|
|
$
|
(15,142,670
|
)
|
|
$
|
(15,185,444
|
)
|
Net deferred income tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
F-11
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
The
Company splits its business activities during the year ended December 31, 2020 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 year ended December 31, 2020.
|
|
|
|
CMG Holding
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
Revenues
|
|
|
73,758
|
|
|
|
67,000
|
|
|
|
140,758
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
372,143
|
|
|
|
360,556
|
|
|
|
732,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(298,385
|
)
|
|
|
(293,556
|
)
|
|
|
(591,941
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
—
|
|
|
|
634,915
|
|
|
|
634,915
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss)
|
|
|
(298,385
|
)
|
|
|
341,359
|
|
|
|
42,974
|
|
The
Company splits its business activities during the year ended December 31, 2019 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 year ended December 31, 2019.
|
|
|
|
CMG Holding
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
Revenues
|
|
|
1,778,773
|
|
|
|
—
|
|
|
|
1,778,773
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
1,535,529
|
|
|
|
377,842
|
|
|
|
1,913,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
243,244
|
|
|
|
(377,842
|
)
|
|
|
(134,598
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
565,967
|
|
|
|
1,089,194
|
|
|
|
1,655,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss)
|
|
|
809,211
|
|
|
|
711,352
|
|
|
|
1,520,563
|
|
During the year
ended December 31, 2020, the Company entered into an agreement to buy and sell gym equipment with Zautra Fitness. Zautra
Fitness would buy the equipment and the Company would reimburse for the full cost. When the equipment is sold the Company
will receive 100% of the cost and 60% of the gain. In 2020 the Company received $43,057.60 in cash and recorded an accounts
receivable of $23,942.40. The amount represents 67,000 which is $40,000 receipt for the cost of the equipment and $27,000
which represents 60% of the gain to Zautra for the sale of the equipment.
F-12
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
12 Related Party Transactions
The Company borrowed $125,000 from a relative of the Company CEO. This amount is due on demand and has an interest
rate of 0%. At December 31, 2020 the remaining balance of the loan was $35,000.
The Company issued the
Company CEO a warrant to purchase 40,000,000 shares of 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. Due to negative economic factors the company
did not make any of these payments until January 15, 2019, when payments to the CEO began. The Company has recorded
“Deferred Compensation” of $760,000 at December 31, 2018. The Company made payments of $173,149 and $103,475 in
excess of the current $180,000 salary for years ended December 31, 2020 and 2019, respectively.
The Company paid
$150,000 and $99,000 for the years ended December 31, 2020 and 2019, respectively, as compensation to the President of XA, who
is the daughter of the Company CEO.
13 Subsequent Events
Per management review,
no other material subsequent events have occurred.
,
F-13