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.
8
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial
Statements
1.
|
Nature of Operations and Continuance Of Business (continued)
|
On February 18, 2016, the Company
sold the assets of 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
subsidiary is XA - The Experiential Agency, Inc. - which is a sports, entertainment, marketing and management company providing
event management implementation, sponsorships, licensing and broadcast, production and syndication. Its President is Alexis Laken,
the daughter of the Company’s president.
2
|
Summary of Significant Accounting Policies
|
|
a)
|
Basis of Presentation and Principles of Consolidation
|
These
consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in
the United States of America ("GAAP") and are expressed in US dollars. The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, XA - The Experiential Agency, Inc. 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.
|
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 June 31, 2020 and December 31, 20 19, the Company had no cash equivalents.
9
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated Financial
Statements
2
|
Summary of Significant Accounting Policies (continued)
|
|
d)
|
Basic and Diluted Net Loss Per Share
|
The
Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both
basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available
to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible
preferred stock using the if-converted method. In computing 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.
10
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.
Revenue is recognized when a customer
obtains control of promised goods or services and is recognized in an amount that reflects the consideration that an entity expects
to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing,
and uncertainty of revenue and cash flows arising from contracts with customers. The amount of revenue that is recorded reflects
the consideration that the Company expects to receive in exchange for those services. The Company applies the following five-step
model in order to determine this amount: (i) identification of the promised services in the contract; (ii) determination of whether
the promised services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement
of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance
obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
The Company only applies the five-step
model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the services
it transfers to the customer. Once a contract is determined to be within the scope of ASC 606 at contract inception, the Company
reviews the contract to determine which performance obligations the Company must deliver and which of these performance obligations
are distinct. The Company recognizes as revenues the amount of the transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is satisfied. Generally, the Company’s performance obligations
are transferred to customers at a point in time, typically upon delivery.
The Company generates revenues through
event management implementation, sponsorships, licensing and broadcast, production and syndication.
Cost of services Consist
of marketing and management expenses. The marketing expenses are for the marketing of an event prior to the event taking place.
|
j)
|
General and Administrative Expense
|
General and administrative
expense are the overhead expense to maintain the Company.
Certain prior period amounts
have been reclassified to conform to current presentation.
11
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
2
|
Summary of Significant Accounting Policies (continued)
|
|
l)
|
Recently issued accounting pronouncements
|
The Company has implemented all new
accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any
other new pronouncements that have been issued that might have a material impact on its financial position or results of operations
except as noted below:
FASB ASU 2017-01, Clarifying the
Definition of a Business (Topic 805) – In January 2017, the FASB issued 2017-01. The new guidance that changes the
definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. The
guidance requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in
a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not
a business. The guidance also requires a business to include at least one substantive process and narrows the definition of outputs
by more closely aligning it with how outputs are described in ASC 606. The ASU is effective for annual reporting periods beginning
after December 15, 2017, and for interim periods within those years. Adoption of this ASU did not have a significant impact on
the Company’s consolidated results of operations, cash flows and financial position.
In December 2019, the FASB issued
ASU 2019-12, Income Taxes (Topic 740), which enhances and simplifies various aspects of the income tax accounting guidance,
including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership
changes in investments, and interim-period accounting for enacted changes in tax law. The amendment will be effective for public
companies with fiscal years beginning after December 15, 2020; early adoption is permitted. The Company is evaluating the impact
of this amendment on its consolidated financial statements.
In February 2020, the FASB issued
ASU 2020-02, Financial Instruments-Credit Losses (Topic 326) and Leases (Topic 842) - Amendments to SEC Paragraphs Pursuant
to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No.
2016-02, Leases (Topic 842), which amends the effective date of the original pronouncement for smaller reporting companies.
ASU 2016-13 and its amendments will be effective for the Company for interim and annual periods in fiscal years beginning after
December 15, 2022. The Company believes the adoption will modify the way the Company analyzes financial instruments, but it does
not anticipate a material impact on results of operations. The Company is in the process of determining the effects adoption will
have on its consolidated financial statements.
The Company 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.
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 June 30, 2020 and December 31, 2019 were $998 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. In January of 2020 the LOC was increased to $100,000. As of June 30, 2020, the Company had loaned to Pristec $100,000
at an interest rate of 12%, the loan matures in twelve (12) months. Pristec is a late stage technology company that has 108 worldwide
patents for the 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 $1000. At the discretion of the Company, the Company has the option of entering into a revenue
sharing agreement with Pristec.
On June 24, 2020, the Company
loaned $50,000 to New Vacuum Technologies, LLC(NVT). The loan is due ninety (90) days from the date of receipt of funds. The loan
carries an interest rate of ten (10) percent per annum. After the loan is
paid in full, there will be 6 monthly payments of !000 a month as return on investment. The reason this loan was made was to open
a relationship between CMG and NVT. The CEO of CMG is extremely excited by NVT's technology for upgrading oil in a disruptive way
and the 2 companies are discussing possible avenues that they might get further involved in the near future.
12
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
Accounts payable consist of
expenses incurred during the year that had not yet been paid. The balance of accounts payable at June 30, 2020 is $10,500. The
balance of accounts payable at December 31, 2019 is $74,500.
During
the periods ended June 30, 2020 and December 31, 2019, the Company did not sell any shares of its $0.001 par value per share common
stock.
During
the periods ended June 30, 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 outstandingc 40,000,000 warrants previously issued to Glenn Laken to $0.0035 and extended the expiration
date for an additional five (5) years.
During the
year ended December 31, 2019 the Company bought back 6,258,992 shares of its common stock for $39,000. During the period ended
June 30, 2020 the Company bought back an additional 2,897,016 shares of its common stock for $18,251. This treasury stock was retired
during the period end June 30, 2020.
During the periods
ended June 30, 2020 and December 31, 2019,
the Company had the following notes payable
Notes Payable
|
|
Balance December 31, 2019
|
|
Balance June 30, 2020
|
Kabbage
|
|
$
|
19,437
|
|
|
$
|
6,500
|
|
Notes Payable Irish Pension Fund
|
|
$
|
150,000
|
|
|
$
|
131,250
|
|
In September of 2018
the Company took out a line of credit with Kabbage for $75,000. In the fourth quarter of 2018 the company took draws against the
line of $72,300. During that period the Company made principal payments of $804, leaving a principal balance of $71,496 at December
31, 2018. During the year ended December 31, 2019 the company took an additional draw of $25,000. During the year ended December
31, 2019 the Company made principal payments of $77,059, leaving a balance of $19,437. During the period ended June 30, 2020 the
Company made principal payments of $12,937, leaving a balance of $6,500. Interest expense was $2,375 and $15,380 for the periods
ended June 30 2020 and 2019, respectively. The interest rate on this loan is 10%.
In 2015 the Company borrowed
$150,000 from the two Irish individuals pension funds. $90,000 was borrows from one individual pension account and $60,000 was
borrowed from the other. Repayment terms were to be negotiated after the settlement of the Hudson Gray lawsuit. The lawsuit settled
in January of 2019 and negotiations began. No payment terms were settled upon and were still being negotiated as of December 31,
2019. In January of 2020 settlement was reached with the lender of the $90,000. The settlement terms were for repayment of $180,000
over a period of eighteen months quarterly, payment began in January of 2020 with the payment of $25,000. An additional payment
of $12,500 was made in April 2020. Settlement has not yet been reached on the repayment of the $60,000 to the other party. The
balance of these loans was $131,250 at June 30, 2020. The payments were 50% against principle and 50% to settlement of loan payable.
13
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
We
are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome
of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash
flows.
In
October 2014, Ronald Burkhard, XA’s
former Executive Chairman and former member of the Company's Board of Directors filed a lawsuit in the Supreme Court
of the State of New York, County of New York, alleging breach of his employment contract
and seeking approximately $695,000 in damages. This lawsuit, where a judgement was
entered against the Company for approximately $775,000, was settled with Burkhard for $105,000. In November and December of 2018,
the Company paid Burkhard the amount due from this settlement.
On
September 25, 2019 the Company filed suit against Eaton & Van Winkle (EVW), Lawrence Allen Steckman (Steckman) and Paul Lieberman
(Lieberman). In December 2019 the defendants settled for a payment of $450,000. On December 13, 2019 the Company received $378,500,
which was the amount of proceeds net of attorney’s fee of $71,500.
In
2014 the Company filed a lawsuit against Hudson Gray et al. On January 14, 2019 the parties entered into arbitration. The parties
reached agreement whereby the Company would be paid $2,750,000. The payments are scheduled as follows:
|
|
Amount
|
|
Attorney's
|
|
|
Due
|
|
Paid
|
|
Fees
|
Payment upon execution of the agreement
|
|
$
|
400,000
|
|
|
$
|
214,548
|
|
|
$
|
185,452
|
|
On or before February 8, 2019
|
|
$
|
100,000
|
|
|
$
|
53,650
|
|
|
$
|
46,350
|
|
On or before June 30, 2019
|
|
$
|
200,000
|
|
|
$
|
148,000
|
|
|
$
|
52,000
|
|
On or before September 30, 2019
|
|
$
|
200,000
|
|
|
$
|
148,000
|
|
|
$
|
52,000
|
|
On or before December 31, 2019
|
|
$
|
200,000
|
|
|
$
|
146,496
|
|
|
$
|
53,504
|
|
On or before March 31, 2020
|
|
$
|
200,000
|
|
|
$
|
148,000
|
|
|
$
|
52,000
|
|
On or before June 30, 2020
|
|
$
|
200,000
|
|
|
$
|
146,352
|
|
|
$
|
53,648
|
|
On or before September 30, 2020
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
On or before December 31, 2020
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
On or before March 31, 2020
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
On or before June 30, 2020
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
On or before September 30, 2020
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,750,000
|
|
|
$
|
1,005,046
|
|
|
$
|
494,954
|
|
14
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
The Company has a net
operating loss carried forward of $15,277,236 available to offset taxable income in future years which commence expiring in 2028.
The Company is subject to United States federal and state income taxes at an approximate rate of 21% (2019 and 2018). As of June
30, 2020 and December 31, 2019, the Company had no uncertain tax positions.
|
|
June 30, 2020
|
Income tax recovery at Statutory rate
|
|
$
|
(19,276
|
)
|
Permanent differences and other
|
|
|
—
|
|
Valuation allowance change
|
|
|
19,276
|
|
Provision for income taxes
|
|
$
|
—
|
|
The significant components
of deferred income tax assets and liabilities at June 30, 2020 and December 31, 2019 are as follows:
|
|
June 30, 2020
|
|
December 31, 2019
|
Net operating loss carried forward
|
|
$
|
15,277,236
|
|
|
$
|
15,185,444
|
|
Valuation allowance
|
|
$
|
(15,277,236
|
)
|
|
$
|
(15,185,444
|
)
|
Net deferred income tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company splits its business activities during the period ended June 30, 2020 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 period ended June 30, 2020.
|
|
|
|
CMG Holding
|
|
|
|
|
XA
|
|
Group
|
|
Total
|
Revenues
|
|
|
9,609
|
|
|
|
—
|
|
|
|
9,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
172,523
|
|
|
|
205,230
|
|
|
|
377,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
(162,914
|
)
|
|
|
(205,230
|
)
|
|
|
(368,144
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses)
|
|
|
—
|
|
|
|
275,602
|
|
|
|
275,602
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss)
|
|
|
(162,914
|
)
|
|
|
70,372
|
|
|
|
(92,542
|
)
|
15
CMG HOLDINGS GROUP, INC.
Notes to the Consolidated financial Statements
12
|
Related Party Transactions
|
During the
year ended December 31, 2015 the Company borrowed $96,100 from a Company shareholder. This amount is due on demand and
has an interest rate of 0%. The Company also borrowed $125,000 from a relative of the Company CEO. This amount
is due on demand and has an interest rate of 0%. During the year ended December 31, 2019 the Company paid off the $96,100 and $35,000
toward the $125,000 loans, leaving a balance of $90,000. No payments were made during the period ended March 31, 2020.
The
Company issued the Company CEO a warrant to purchase 40,000,000 shares 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. The Company made payments of $103,474 in
excess of the current $180,000 salary for year ended December 31, 2019. The Company made payments of $90,749 in excess of the current
$45,000 salary for period ended March 31, 2019.
The
Company paid $62,500 and $45,000 for the periods ended June 30, 2020 and 2019, respectively, as compensation to the President of
XA, who is the daughter of the Company CEO.
Per management review,
no material subsequent events have occurred.
16