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.
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.
8
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
2 Summary of Significant Accounting
a) Basis of Presentation and Principle 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,
Lincoln Acquisitions Inc. All intercompany transactions have been eliminated. The Company's
fiscal year-end is December 31.
b) Use of Estimates
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.
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 September
30, 2021 and December 31, 2020, the Company had no cash equivalents. The cash balance as of
September 30, 2021 and December 31, 2020 was $639,685 and $411,136, respectively
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.
e) Financial Instruments
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.
9
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
|
|
2.
|
Summary of Significant Accounting Policies (Continued)
|
|
|
e)
|
Financial Instruments (Continued)
|
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) 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.
h) Reclassifications
Certain prior period amounts have
been reclassified to conform to current presentation.
3 Accounts Receivable
Accounts receivable consist
of invoices for events that occurred prior to period end that the payments were received in the following year.
The balance of accounts receivable at September 30, 2021 and December 31, 2020 were $203,260 and $24,941, 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.
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. During the nine months ended September
30, 2021 the Company loaned an additional $515,701 to NVT. NVT repaid $60,000 to the Company. 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.
10
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
5 Accounts Payable
Accounts payable consist
of expenses incurred during the year that had not yet been paid. The balance of accounts payable at September 30, 2021 is $80,000. The balance
of accounts payable at December 31, 2020 were $10,500. These accounts payable consisted of trade accounts payable.
6 Equity
During the
periods ended September 30, 2021 and December 31, 2020, the Company did not sell any shares of its $0.001 par value per share common stock.
During
the periods ended September 30, 2021 and December 31, 2020, 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
7 Notes Payable
Convertible Promissory Notes
|
|
a.
|
During the periods ended September 30, 2021 and December 31, 2020, the Company did not issue any new convertible promissory notes.
|
8 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 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.
11
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
9 Income Taxes
The Company has a net operating
loss carried forward of $14,187,932 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% (2021 and 2020). As of September 30, 2021 and December
31, 2020, the Company had no uncertain tax positions.
|
|
|
2021
|
|
2020
|
|
Income tax recovery at Statutory rate
|
|
$
|
(183,653
|
)
|
|
$
|
15,653
|
|
|
Permanent differences and other
|
|
|
—
|
|
|
|
—
|
|
|
Valuation allowance charges
|
|
|
183,653
|
|
|
|
(15,653
|
)
|
|
Provision for income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
The significant components of
deferred income tax assets and liabilities at September 30, 2021 and December 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2021
|
|
|
|
December 31, 2020
|
|
|
Net operating loss carried forward
|
|
$
|
14,267,932
|
|
|
$
|
15,142,470
|
|
|
Valuation allowance
|
|
|
(14,267,932
|
)
|
|
|
(15,142,470
|
)
|
|
Net deferred income tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
12
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
10 Segments
The
Company splits its business activities during the three months ended September 30, 2021 into two 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 three months ended September 30, 2021.
|
|
|
|
|
CMG
|
|
|
|
|
|
|
|
Holding
|
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
|
Revenues
|
|
|
755,633
|
|
|
|
9,357
|
|
|
|
764,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
512,323
|
|
|
|
80,142
|
|
|
|
592,465
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
243,310
|
|
|
|
(70,785
|
)
|
|
|
172,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
217,455
|
|
|
|
217,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
243,310
|
|
|
|
146,670
|
|
|
|
389,980
|
|
The Company splits its business
activities during the three months ended September 30, 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 three months
ended September 30, 2020.
|
|
|
|
|
CMG
|
|
|
|
|
|
|
|
Holding
|
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
|
Revenues
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
87,378
|
|
|
|
66,657
|
|
|
|
154,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(87,378
|
)
|
|
|
(66,657
|
)
|
|
|
(154,035
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
183,643
|
|
|
|
183,643
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(87,378
|
)
|
|
|
116,986
|
|
|
|
(29,608
|
)
|
The Company splits its business
activities during the nine months ended September 30, 2021 into two 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 months ended
September 30, 2021.
|
|
|
|
|
CMG
|
|
|
|
|
|
|
|
Holding
|
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
|
Revenues
|
|
|
948,033
|
|
|
|
109,241
|
|
|
|
1,057,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
880,844
|
|
|
|
360,134
|
|
|
|
1,240,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
67,189
|
|
|
|
(250,893
|
)
|
|
|
(183,704
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
1,058,242
|
|
|
|
1,058,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
67,189
|
|
|
|
807,349
|
|
|
|
874,538
|
|
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial Statements
10 Segments (continued)
The Company splits its business
activities during the nine months ended September 30, 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 nine months ended
September 30, 2020.
|
|
|
|
|
CMG
|
|
|
|
|
|
|
|
Holding
|
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
|
Revenues
|
|
|
9,609
|
|
|
|
—
|
|
|
|
9,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
259,902
|
|
|
|
271,887
|
|
|
|
531,180
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(250,293
|
)
|
|
|
(271,887
|
)
|
|
|
(522,180
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
—
|
|
|
|
449,777
|
|
|
|
449,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
(250,293
|
)
|
|
|
177,890
|
|
|
|
(72,403
|
)
|
11 Gym Equipment
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. Zatura Fitness will keep 40% of the profit. 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. For the period ended September 30, 2021 the Company received $109,241 in revenue for
sales in excess of accounts receivable at December 31, 2020. The Company recorded $58,000 of cost of revenues.
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 $15,000.
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 $468,514 at September
30, 2021. The Company made payments of $14,862 and $173,149 in excess of the current $135,000 and $180,000 salary for periods ended September
30, 2021 and December 31, 2020, respectively.
The Company paid $112,500
and $150,000 for the periods ended September 30, 2021 and December 31, 2020, 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.
14
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 NINE MONTH PERIOD ENDED SEPTEMBER
30, 2021
Gross revenues increased from
$9,609 for the nine months ended September 30, 2020 to $1,057,274 for the nine months ended September 30, 2021. The increase in revenues
was mainly attributable to the beginning recovery from a worldwide pandemic that took place during the quarter.
Cost of revenue increased
from $14,228 for the nine months ended September 30, 2020 to $717,482 for the nine months ended September 30, 2021. The increase in cost
of revenues was mainly attributable to the beginning recovery from a worldwide pandemic that took place during the quarter.
Operating expenses increased from
$517,560 for the nine months ended September 30, 2020 to $523,496 for the nine months ended September
30, 2021. The increase in operating expenses is due to the increase in salaries for its full-time employees.
Net income increased from
a loss of $72,402 for the nine months ended September 30, 2020 to net income of $874,538 for the nine months ended September 30, 2021.
The increase in net loss to net income was mainly attributable to the beginning recovery from a worldwide pandemic that took place during
the quarter.
LIQUIDITY AND CAPITAL RESOURCES:
As of September 30, 2021, the Company’s
cash on hand was $639,685.
Cash provided by operating activities
for the nine months ended September 30, 2021 was $254,611, as compared to cash provided by operating activities of $40,899 for the nine
months ended September 30, 2020. The increase in revenues was mainly attributable to the beginning recovery from a worldwide pandemic
that took place during the quarter.
Cash used in investing activities
for the nine months ended September 30, 2021 was $31,062 as compared cash used in investing activities of $345,853 for the nine months
ended September, 2020.
Cash provided by financing activities for the nine
months ended September 30, 2021 was $5,000, as compared to cash used in financing activities of $53,251for the nine months ended September
30, 2020.
15