UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-Q
|
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d)
OF
|
|
|
THE
SECURITIES EXCHANGE ACT OF
1934
|
For
the quarter year ended September 30, 2008
Commission file
number 000-51770
|
CMG HOLDINGS,
INC.
|
|
(Exact
name of registrant as specified in its
charter)
|
|
Nevada
|
87-0733770
|
|
|
(State
or other jurisdiction of
incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
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5601 Biscayne
Boulevard
|
||
|
Miami, Florida,
USA
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33137
|
|
|
(Address of
principal executive offices)
|
(Zip
Code)
|
Registrant's telephone
number including area code (305) 751-1667
---------------------------------------------------------------
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or small reporting company.
See the definition of "large accelerated filer," "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer
|
Accelerated
filer
|
Non-accelerated
filer
|
Smaller
reporting company x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes No
x
As of
November 23, 2009, there were 42,400,000 common stock of the
registrant issued and outstanding.
1
CMG
HOLDINGS, INC.
FORM
10-Q
|
Item
#
|
Description
|
Page
Numbers
|
||||
| EXHIBIT 10.1 | CMG CHANNEL SALES AGREEMENT | |||||
| EXHIBIT 10.2 | CMG FINDERS AGREEMENT | |||||
|
|
||||||
2
CMG
HOLDINGS, INC.
UNAUDITED FINANCIAL
STATEMENTS
FOR
THE QUARTER ENDED SEPTEMBER 30, 2009 AND 2008
CONTENTS
______________________________________________________________________________________
|
Consolidated
Balance Sheets as of September 30, 2009 and December 31, 2008
(Unaudited)
|
4
|
|
Consolidated
Statements of Operations for three months and nine months ended September
30, 2009 and 2008 (Unaudited)
|
5
|
|
Consolidated
Statements of Cash Flows for nine months ended September 30, 2009 and 2008
(Unaudited)
|
6
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
7
|
3
|
CMG
HOLDINGS, INC
|
||||||||
|
CONSOLIDATED
BALANCE SHEETS
|
||||||||
|
(unaudited)
|
||||||||
|
September 30,
2009
|
December
31, 2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
|
$
|
125,159
|
$
|
13,934
|
||||
|
Accounts receivable
|
620,303
|
1,050
|
||||||
|
Prepaid an other
|
10,366
|
--
|
||||||
|
Total
current assets
|
755,828
|
14,984
|
||||||
|
Software licenses, net accumulated depreciation of $4,333 and $-,
respectively
|
47,667
|
--
|
||||||
|
Intangible assets, net accumulated amortization of $149,167 and $-,
respectively
|
745,831
|
--
|
||||||
|
Leasehold Improvements, net accumulated amortization of $59,328 and $-,
respectively
|
711,942
|
--
|
||||||
|
Deposits
|
300,000
|
300,000
|
||||||
|
TOTAL
ASSETS
|
$
|
2,561,268
|
$
|
314,984
|
||||
|
LIABILITIES
AND STOCKHOLDERS' DEFICIT
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Client payable
|
$
|
137,817
|
$
|
8,000
|
||||
|
Accounts payable
|
701,477
|
29,320
|
||||||
|
Accrued liabilities
|
663,661
|
415,359
|
||||||
|
Short Term Debt, net of unamortized discount $16,208 and $-,
respectively
|
233,792
|
--
|
||||||
|
Line of credit
|
163,994
|
108,231
|
||||||
|
Advance from related party
|
25,000
|
--
|
||||||
|
Total
current liabilities
|
1,925,741
|
560,910
|
||||||
|
STOCKHOLDERS’
DEFICIT
|
||||||||
|
Preferred Stock:
|
||||||||
|
5,000,000
shares authorized par value $0.001 per share; none issued and
outstanding
|
$
|
--
|
$
|
--
|
||||
|
Common Stock:
|
||||||||
|
150,000,000 shares authorized par value $0.001 per share;
42,400,000 issued, and
33,026,518 and 31,726,518
shares outstanding respectively
|
33,027
|
31,727
|
||||||
|
Additional paid-in-capital
|
4,992,363
|
4,449,863
|
||||||
|
Shares
held in reserve, 9,373,482 and 10,673,482 shares held,
respectively.
|
9,373
|
10,673
|
||||||
|
Accumulated deficit
|
(4,399,236
|
)
|
(4,738,189
|
)
|
||||
|
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)
|
635,527
|
(245,926
|
)
|
|||||
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
$
|
2,561,268
|
$
|
314,984
|
||||
See
accompanying notes to consolidated financial statements
4
|
CMG
HOLDINGS, INC
|
||||||||||||||||
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||||||||||
|
(unaudited)
|
||||||||||||||||
|
Three
months ended
|
Nine months
ended
|
|||||||||||||||
|
September
30,
|
September
30,
|
|||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
|||||||||||||
|
Gross revenues
|
$
|
933,742
|
$
|
303,547
|
$
|
2,991,493
|
$
|
702,714
|
||||||||
|
Cost
of goods sold
|
155,160
|
--
|
609,160
|
--
|
||||||||||||
|
Net
revenues
|
778,582
|
303,547
|
2,382,333
|
702,714
|
||||||||||||
|
Amortization
expense
|
74,583
|
--
|
153,500
|
--
|
||||||||||||
|
Depreciation
expense
|
29,664
|
--
|
59,328
|
--
|
||||||||||||
|
Operating
expenses
|
684,070
|
405,867
|
2,200,708
|
2,937,282
|
||||||||||||
|
Operating
income (loss)
|
(9,735)
|
(102,320
|
)
|
(31,203)
|
(2,519,418
|
)
|
||||||||||
|
Other
income (expense)
|
||||||||||||||||
|
Bargain
purchase gain
|
--
|
--
|
904,886
|
--
|
||||||||||||
|
Gain
on extinguishment of debt
|
19,565
|
--
|
19,565
|
--
|
||||||||||||
|
Interest expense
|
(508,357)
|
(56
|
)
|
(615,857
|
)
|
(84,900
|
)
|
|||||||||
|
Interest
income
|
9,255
|
1,389
|
61,562
|
17,145
|
||||||||||||
|
Net income (loss)
|
$
|
(489,272)
|
$
|
(100,987
|
)
|
$
|
338,953
|
$
|
(2,302,323
|
)
|
||||||
|
Basic
and diluted income (loss) per common share
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
0.01
|
$
|
(0.10
|
)
|
|||||
|
Basic weighted average common
shares outstanding
|
32,638,475
|
28,115,690
|
32,033,844
|
22,430,854
|
||||||||||||
|
Diluted
weighted average common shares
outstanding
|
32,638,475
|
28,115,690
|
34,892,415
|
22,430,854
|
||||||||||||
See
accompanying notes to consolidated financial statements
5
|
CMG
HOLDINGS, INC
|
||||||||
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
|
(unaudited)
|
||||||||
|
Nine
months ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
||||||||
|
Net
Gain (Loss)
|
$
|
338,953
|
$
|
(2,302,323
|
)
|
|||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
|
Shares
issued for services
|
--
|
1,491,778
|
||||||
|
Additional
shares issued for interest expense
|
--
|
62,464
|
||||||
|
Bargain
purchase gain
|
(904,886
|
)
|
--
|
|||||
|
Gain
on extinguishment of debt
|
(19,565)
|
--
|
||||||
|
Warrant
expense
|
462,500
|
--
|
||||||
|
Depreciation
expense
|
59,328
|
--
|
||||||
|
Amortization
expense – debt discount
|
3,357
|
--
|
||||||
|
Amortization
expense – intangible assets
|
153,500
|
--
|
||||||
|
Changes
in:
|
||||||||
|
Accounts
receivable
|
(410,934
|
)
|
(304,165
|
)
|
||||
|
Prepaid
expense
|
(10,366
|
)
|
17,454
|
|||||
|
Consulting
Payable
|
--
|
243,750
|
||||||
|
Client Payable
|
129,817
|
266,772
|
||||||
|
Accounts payable
|
672,157
|
(109,906
|
)
|
|||||
|
Accrued
expense
|
397,846
|
--
|
||||||
|
Deferred
revenue
|
(771,245)
|
--
|
||||||
|
Net
cash provided by (used in) operating activities
|
100,462
|
(634,176
|
)
|
|||||
|
CASH FROM
INVESTING ACTIVITIES
|
||||||||
|
Cash paid for acquisition of Pebble Beach Enterprises,
Inc.
|
--
|
(600,000
|
)
|
|||||
|
Deposit related to acquisition
|
(300,000)
|
|||||||
|
Cash paid to acquire a bank loan
|
(250,000
|
)
|
--
|
|||||
|
Net
cash used in investing activities:
|
(250,000
|
)
|
(900,000
|
)
|
||||
|
FINANCING
ACTIVITIES
|
||||||||
|
Advance from a related party
|
25,000
|
--
|
||||||
|
Net borrowings on line of credit
|
55,763
|
(57,069
|
)
|
|||||
|
Contributions to capital
|
--
|
30,000
|
||||||
|
Stock for cash
|
80,000
|
137,975
|
||||||
|
Borrowing on notes payable
|
100,000
|
--
|
||||||
|
Borrowing on convertible notes
|
--
|
314,000
|
||||||
|
Net
cash provided by financing activities
|
260,763
|
424,907
|
||||||
|
Net
increase (decrease) in cash
|
111,225
|
(1,109,269
|
)
|
|||||
|
Cash, beginning of period
|
13,934
|
1,213,035
|
||||||
|
CASH BALANCE AT END OF PERIOD
|
$
|
125,159
|
$
|
103,766
|
||||
|
Supplemental
cash flow information:
|
||||||||
|
Income tax paid
|
$
|
--
|
$
|
--
|
||||
|
Interest paid
|
--
|
--
|
||||||
|
Non-cash
investing and financing activities:
|
||||||||
|
Assets acquired after foreclosing on bank loan
|
$
|
--
|
$
|
1,492,000
|
||||
|
Assets acquired after foreclosing on bank loan
|
$
|
979,589
|
--
|
|||||
See
accompanying notes to consolidated financial statements
6
CMG
HOLDINGS, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS AND
BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The
accompanying unaudited interim consolidated financial statements of CMG
Holdings, Inc. have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the
Securities and Exchange Commission, and should be read in conjunction with the
audited financial statements and notes thereto contained in its 2008 annual
report on Form 10-K. In the opinion of management, these interim financial
statements include all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of financial position and the results of
operations for the interim periods presented have been reflected herein. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. The unaudited consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements and notes thereto of the Company and management’s discussion and
analysis of financial condition and results of operations included in the
Company’s Annual Report for the year ended December 31, 2008 as filed with the
Securities and Exchange Commission on Form 10-K. Notes to the
financial statements that would substantially duplicate the disclosure contained
in the audited financial statements for fiscal year 2008, as reported in the
Form 10-K, have been omitted.
PRINCIPLES
OF CONSOLIDATION
The
consolidated financial statements include the accounts of CMG Holdings, Inc.,
Creative Management Group and CMG Acquisitions, Inc., CMGO Capital, Inc. and
CMGO Events Marketing, Inc, Creative Management Group Logistics, Inc. after
elimination of all significant inter-company accounts and
transactions.
INTANGIBLE
ASSETS, GOODWILL AND IMPAIRMENT OF LONG-LIVED ASSETS
Intangibles
are recorded at cost and amortized on the straight-line method over their
estimated useful lives. Goodwill is reviewed annually. Intangible valuation and
Goodwill impairment are determined using similar processes. For intangibles, the
first step is to compare the fair value of the intangible to its carrying
amount. For Goodwill, the first step is to compare the fair value of
a reporting unit with its carrying amount, including goodwill. Inova determines
the fair value of both intangibles and reporting units by using a discounted
cash flow (“DCF”) analysis approach. Determining fair value requires the
exercise of significant judgments, including judgments about appropriate
discount rates, perpetual growth rates, relevant comparable company earnings
multiples and the amount and timing of expected future cash flows. The cash
flows employed in the DCF analyses are based on Inova’s budget and long-term
business plan, and various growth rates have been assumed for years beyond the
long-term business plan period. Discount rate assumptions are based on an
assessment of the risk inherent in the future cash flows of the respective
reporting units.
BUSINESS
COMBINATION
The
Company accounts for business combination in accordance with FASB ASC 805,
"Business Combinations". In December 2007, the FASB issued ASC 805 which
establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed and any noncontrolling interest in the
acquiree. The statement also provides guidance for recognizing and measuring the
goodwill acquired in the business combination and for disclosure to enable
evaluation of the nature and financial effects of the business
combination.
NEW
ACCOUNTING PRONONCEMENT
In May
2009, the FASB issued ASC 855, Subsequent Events. This standard is intended to
establish general standards of accounting for and disclosures of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. Specifically, this standard sets forth the period
after the balance sheet date during which management of a reporting entity
should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements, the circumstances under which an
entity should recognize events or transactions occurring after the balance sheet
date in its financial statements and the disclosures that an entity should make
about events or transactions that occurred after the balance sheet date. FASB
ASC 855 is effective for fiscal years and interim periods ended after June 15,
2009. The Company adopted this standard effective June 15, 2009, and has
evaluated any subsequent events through November 23, 2009. The Company has no
significant subsequent events for the period from October 1, 2009 through
November 23, 2009.
7
NOTE
2 – GOING CONCERN
As shown
in the accompanying financial statements, the Company has negative working
capital as of September 30, 2009. These conditions raise substantial doubt as to
our ability to continue as a going concern. In response to these
conditions, the Company may raise capital through the sale of equity securities,
through an offering of debt securities or through borrowings from financial
institutions or individuals. The financial statements do not include
any adjustments that might be necessary if we are unable to continue as a going
concern.
NOTE
3 – NOTE RECEIVABLE AND ASSET ACQUISITION
On March
6, 2009, the Company, through a newly formed wholly owned subsidiary CMGO
Capital, Inc., a Nevada corporation, completed a Note Purchase Agreement with
Bank of America to purchase the senior secured debt obligations of The
Experiential Agency, Inc. The purchase price of the Note Purchase Agreement with
Bank of America to purchase the senior secured debt obligations of The
Experiential Agency, Inc. was a total of $150,000. CMG had also
loaned XA $100,000 in March 2009 (see note 5 below) which has been accounted for
as part of the purchase price.
On April
1, 2009, CMG Holdings, Inc. foreclosed on the note and completed the acquisition
of the assets of The Experiential Agency, Inc. The Experiential
Agency, Inc. offers a full degree of solutions, services and consulting
expertise comprising of management, creation, and execution of entertainment
event for corporate clients and individual clients general service areas of
event marketing, interactive marketing, event production, public relations,
talent representation, corporate consulting, digital media. The Experiential
Agency, Inc. earns consulting fees when it provides general consulting services
and generates revenues for services for event marketing and communications
assignments. As a result of the acquisition of the assets of Experiential
Agency, Inc., the Company is expected to be the premier provider of solutions,
services and consulting expertise comprising of management, creation, and
execution of entertainment event for corporate clients and individual clients
general service areas of event marketing, interactive marketing, event
production, public relations, talent representation, corporate consulting,
digital media and services in those markets. The Company also expects to reduce
costs through economies of scale.
In
accordance with FAS 141R, the Company determined the assets acquired constituted
a business and applied purchase accounting to the assets acquired.
The
assets acquired include accounts receivable, software licenses and leasehold
improvements with a fair value of $208,319, $52,000 and $771,270 respectively.
The fair value of the acquired identifiable intangible assets of $894,998 is
provisional pending receipt of the final valuations for those assets. The
$894,998 of acquired intangible assets (customers list/company name) has a
useful life of approximately 3 years. During the nine months ended September 30,
2009, the Company recorded amortization expense of $153,500. The
company incurred liabilties of $456 of accounts payable and $771,245 of deferred
revenue. The Company recognized a gain of $904,886 as a result of the asset
acquisition. The gain is included in other income in the Company’s statement of
operations for the nine months ended September 30, 2009. The
following table summarizes the consideration paid for acquisition of the assets
and the amount of the assets acquired at the acquisition date as well as the
fair value at the acquisition date.
Consideration:
|
Cash
Consideration for purchase of Bank of America note
|
$
|
150,000
|
||
|
Cash
loaned to XA (see note 5 below)
|
100,000
|
|||
|
Total
|
$
|
250,000
|
||
|
Acquisition-related
costs
|
$
|
--
|
||
|
Recognized
amounts of identifiable assets acquired and liabilities
assumed:
|
||||
|
Accounts
receivable
|
208,319
|
|||
|
Software
licenses
|
52,000
|
|||
|
Leasehold
improvements
|
771,270
|
|||
|
Identifiable
intangible assets
|
894,998
|
|||
|
Accounts
payable
|
(456)
|
|||
|
Deferred
revenue
|
(771,245)
|
|||
|
Total
identifiable net assets
|
1,154,886
|
|||
|
Bargain
purchase gain
|
(904,886
|
)
|
||
|
Total
|
$
|
250,000
|
8
The
amounts of The Experiential Agency, Inc revenues and earnings included in the
Company’s consolidated statement of operations for the nine months ended
September 30, 2009, and the revenues and earnings of the combined entity had the
acquisition date been January 1, 2009, or January 1, 2008, are:
|
Revenues
|
Earnings
|
|||||||
|
Supplemental
pro forma from 01/01/09 – 09/30/09
|
$
|
3,389,374
|
$
|
(302,508
|
) | |||
|
Supplemental
pro forma for 01/01/08 –
09/30/08
|
6,768,454
|
(2,188,098
|
)
|
|||||
NOTE
4 – ADVANCE FROM RELATED PARTY
In March
2009, the Company received a total of $25,000 advances from one of its
officer/directors. The funds were used by the Company for working capital
purposes. The payable bears 0% interest, is unsecured and is due on
demand.
NOTE
5 –NOTES PAYABLE
Security Agreement – JT
Ventures:
On March
16, 2009, CMG issued a note payable to JT Ventures for $100,000 that was then
loaned to XA from CMG. The note was due on June 15, 2009, secured by
the assets of XA and required CMG to issue 1 million CMG warrants with an
exercise price of $.001 and a term of 7 years. The warrant value of $37,500
created a discount on the note payable that was to be amortized over the term of
the note using the effective interest method. CMG did not pay the
principal of the note which triggered a $50,000 interest payment that was added
to the principal amount of the note and an additional 400,000 warrants of CMG
with the same terms as the previous 1 million warrants. The 400,000 warrants
resulted in additional interest expense of $20,000. In August 2009 CMG entered
into a forbearance agreement for the $150,000 and agreed to repay the amount in
July 2010. CMG agreed to the following financial requirements: Cash Fees of
$25,000 on August 17, 2009, October 1, 2009, January 1, 2010 and April 1,
2010. In the event that the company fails to pay JTV a cash fee on
the date that the fee is due, at its sole option JT Venture will defer the cash
fee to June 30, 2010 and CMG agrees to deliver to JTV a warrant (Fee Warrant)
for 500,000 shares of CMG common stock. The exercise price for the Fee Warrant
shall be $0.05 per share and they expire in 7 years. Fee Warrants
shall contain a “net exercise” provision in form and substance satisfactory to
JT Ventures and shall have Piggyback Registration Rights to register the common
stock issued pursuant to the fee warrants as part of any registration filing by
CMG Holdings, Inc. and or its successors and assignors. In addition to the cash
fees to be paid to JT ventures, the company will deliver a warrant for 1 million
shares of CMG common stock on August 17, 2009, October 1, 2009, January 1, 2010
and April 1, 2010. The warrants have an exercise price of $.001 and expire in 7
years. The fair value of these warrants was calculated using the Black-Scholes
Model using these assumptions (1) 3.3% discount rate, (2) warrant life of 7
years, (3) expected volatility of 366%, and (4) zero expected dividends. The
fair value of the warrants under the forbearance agreement
was $405,000 which has been accounted for as interest
expense.
CMG
determined the forbearance agreement qualified for extinguishment accounting
requiring the old debt be removed from the books and the new debt be recorded at
its fair value. The fair value of the new debt was $130,435 resulting
in a gain on extinguishment of $19,565. The $100,000 in cash fees and
the $405,000 in warrant fees have been accounted for as interest
expense.
As of
November 23, 2009, CMG did not make the August 17th cash
payment or the October 1st cash
payment.
NOTE
6 – EQUITY
During
July 2009, 1,000,000 Shares were issued from the shares held in reserve held by
CMG Acquisitions, Inc. for cash. The Company received $50,000.
During
September 2009, 300,000 Shares were issued from the shares held in reserve held
by CMG Acquisitions, Inc. for cash. The Company received $30,000.
9
The
information contained in this Management’s Discussion and Analysis of Financial
Condition and Results of Operation contains “forward looking statements.”
Actual results may materially differ from those projected in the forward
looking statements as a result of certain risks and uncertainties set forth in
this report. Although our management believes that the assumptions made and
expectations reflected in the forward looking statements are reasonable, there
is no assurance that the underlying assumptions will, in fact, prove to be
correct or that actual future results will not be materially different from the
expectations expressed in this Annual Report.
PLAN
OF OPERATION
RESULTS
OF OPERATIONS
FOR
THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2009
Gross
revenues increased from $702,714 in the nine months period ending September 30,
2008 to $2,991,493 for the nine months period ending September 30, 2009. The
increase in revenues is mainly due to more revenues generated in public
relations, marketing services and event marketing consulting business. Also,
beginning in the second quarter of 2009, after the acquisition of assets of The
Experiential Agency, Inc., we started to generate and recognize revenues from
this new line of business. Operating expenses decreased from $2,937,282 for the
nine months ending September 30, 2008 to $2,200,708 for the same period in 2009.
This was mainly due to the Company recognized significant stock-based
compensation costs in 2008 and in 2009 the Company did not have any of this type
of expense. The expenses for 2009 mainly incurred for marketing services, public
relations, consulting services and event marketing. Net income increased from a
net loss of $2,302,323 for the nine months ending September 30, 2008 to net
income of $338,953 for the same period in 2009. The increase in net income is
mainly due to more revenues generated and not having any stock-based
compensation expense in 2009 compared to 2008.
FOR
THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2009
Net
revenues increased from $303,547 in the three months period ending September 30,
2008 to $933,742 for the three months period ending September 30, 2009. The
increase in revenues is mainly due to more revenues generated in public
relations, marketing services and event marketing consulting business. Also,
during the second quarter of 2009, after the acquisition of assets of The
Experiential Agency, Inc., we started to generate and recognize revenues from
this new line of business. Operating expenses increased from $405,867 for the
three months ending September 30, 2008 to $684,070 for the same period in 2009.
This was mainly due to the Company recognized expenses for marketing services,
public relations, consulting services and event marketing. Net loss
increased from $100,987 for the three months ending September 30, 2008 to
$489,272 for the same period in 2009. The increase in net loss is mainly due to
the fees associated with the forbearance of the JT Ventures debt.
LIQUIDITY AND CAPITAL
RESOURCES.
As of
September 30, 2009, the Company’s cash on hand was $125,159. Cash provided by
operations for the nine months period ended September 30, 2009 was $100,462, as
compared to cash used by operations of $634,176 for the nine months ended
September 30, 2008. The increase in cash provided by operating activities is
mainly due to more revenues generated in public relations, marketing services
and event marketing consulting business during nine months ended September 30,
2009. Cash used in investing activities for the nine month period ended
September 30, 2009 was $250,000, as compared to $900,000 for the nine months
ended September 30, 2008. For the nine months ended September 30, 2008, the
Company incurred $600,000 for the acquisition of Pebble Beach Enterprises, Inc.
and for the nine month ended September 30, 2009, the Company paid $150,000 to
obtain a note receivable regarding the note purchase agreement to purchase the
senior secured debt obligations of The Experiential Agency, Inc and loaned The
Experential Agencey, Inc. $100,000. Cash provided by financing activities for
the nine month period ended September 30, 2009 was $260,763, as compared to
$424,907 provided for the nine months ended September 30, 2008. In 2008, the
Company obtained $314,000 from selling convertible notes.
10
.
Security
Ownership of Certain Beneficial Owners and Management
The
following table sets forth information regarding the number of shares of common
stock beneficially owned on November 23, 2009, following consummation of the
Reorganization by Each person who is known by us to beneficially own 5% or more
of the Registrant’s common stock; Each of the Registrant’s directors and named
executive officers; and All of the Registrant’s directors and executive officers
as a group.
Security
Ownership of CMG Holdings, Inc. as of November 23, 2009:
|
Title of Class
|
Name
|
Shares
|
Percent (1)
|
||||||
|
Common
Stock
|
CMG
Acquisitions, Inc.
|
14,085,789
|
33.22
|
%
|
|||||
|
Alan
Morell
|
10,107,000
|
23.84
|
%
|
||||||
|
James
J. Ennis
|
2,500,000
|
5.89
|
%
|
||||||
Security
Ownership of CMG Holdings Inc. directors and executive officers as of November
23, 2009:
|
Title of Class
|
Name
|
Shares
|
Percent (1)
|
||||||
|
Common
Stock
|
Alan
Morell
|
10,107,000
|
(2
|
)
|
23.84
|
%
|
|||
|
James
J. Ennis
|
2,500,000
|
(3
|
)
|
5.89
|
%
|
||||
|
Michael
Vandetty
|
1,000,000
|
2.35
|
%
|
||||||
|
All
Directors and Executive Officers as a Group
|
13,607,000
|
32.09
|
%
|
||||||
|
(1)
|
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and includes voting and investment power with respect
to shares. Unless otherwise indicated, the persons named in the table have
sole voting and sole investment control with respect to all shares
beneficially owned, subject to community property laws where applicable.
The number and percentage of shares beneficially owned are based on
42,400,000 shares of common stock outstanding as of May 27, 2008, the
closing date of the Reorganization. The address for those individuals for
which an address is not otherwise indicated is: c/o CMG Holdings, Inc.,
5601 Biscayne Boulevard, Miami, Florida 33137,
USA.
|
|
(2)
|
Mr.
Morell owns 3,500,000 shares of Creative Management Group, Inc. directly,
and is the beneficial owner of an additional 6,607,000 shares owned by
Commercial Rights Intl Corp. for a total of 10,107,000
shares.
|
|
(3)
|
Mr.
Ennis owns 500,000 shares of Creative Management Group, Inc. directly, and
is the beneficial owner of an additional 2,000,000 shares owned by
Hastings Creek Group, Inc. for a total of 2,500,000
shares.
|
None.
11
(a)
Evaluation of disclosure controls and procedures.
Disclosure
controls and procedures have been designed to ensure that information required
to be disclosed by the Company is collected and communicated to management to
allow timely decisions regarding required disclosures. The Chief Executive
Officer and the Chief Financial Officer have concluded, based on their
evaluation as of September 30, 2009, the disclosure controls and procedures were
not effective in providing reasonable assurance that material information is
made known to them by others within the Company:
a)
We did not maintain sufficient personnel with an appropriate level of technical
accounting knowledge, experience, and training in the application of generally
accepted accounting principles commensurate with our complexity and our
financial accounting and reporting requirements. As a result, there may be a
lack of monitoring of the financial reporting process and there is a reasonable
possibility that material misstatements of the consolidated financial
statements, including disclosures, will not be prevented or detected on a timely
basis; and
b)
There is a lack of sufficient accounting staff which results in a lack of
segregation of duties necessary for a good system of internal control. This
control deficiency, which is pervasive in nature, results in a reasonable
possibility that material misstatements of the financial statements will not be
prevented or detected on a timely basis.
Management’s
efforts to address these deficiencies in its disclosure controls and procedures
is reflected in its commitment to providing continued education and training for
our Chief Financial Officer and hiring additional accounting staff to ensure the
level of expertise required for a public company. In addition, management has
budgeted in the coming year for additional accounting staff to address internal
control weaknesses associated with lack of segregation of duties.
(b)
Changes in internal controls
There
have been no changes to our internal control in the quarter ended September 30,
2009.
12
There is
no past, pending or, to the Company’s knowledge, threatened litigation or
administrative action which has or is expected by the Company’s management to
have a material effect upon our Company’s business, financial condition or
operations, including any litigation or action involving our Company’s officers,
directors, or other key personnel.
Registrant
is a smaller reporting company and is therefore not required to provide this
information.
None
None
None
The
Company entered into a finder's fee agreement with LSC Capital
Advisors, Inc. ("LLC") and channel sales agreement with CCI Advisors,
Inc. ("CCI"). Joseph Wagner, the CEO of XA, Experiential Agency,
Inc., our subsidiary, is a principal in both LSC and CCI.
13
Exhibit
No. Document
Description
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities
Exchange Act,
as amended.
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act, as
amended.
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes Oxley Act of
2002.
|
|
32.2
|
Certification
of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350 as adopted
Pursuant to Section 906 of the Sarbanes Oxley Act of
2002.
|
Reports
on Form 8-K:
The Company filed a Form 8-K on September 30, 2009 - Item 8.01 Signing of Letter
of Intent with AudioEye, Inc.
14
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, there unto duly
authorized.
|
CMG
HOLDINGS, INC.
|
||
|
(Registrant)
|
||
|
Date: November 23,
2009
|
By: /s/
ALAN MORELL
|
|
|
Alan
Morell
|
||
|
Chief
Executive Officer and
|
||
|
Chairman of the Board
|
||
|
Date:
November 23, 2009
|
By: /s/
JAMES J. ENNIS
|
|
|
James J. Ennis
|
||
|
Chief
Financial Officer and
|
||
|
Director
|
||
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
|
SIGNATURE
|
NAME
|
TITLE
|
DATE
|
|||
|
/s/Alan
Morell
|
Alan
Morell
|
Chief
Executive Office and
|
November
23, 2009
|
|||
|
Chairman
of the Board
|
||||||
|
/s/James
I. Ennis
|
James
I. Ennis
|
Chief
Financial Officer and Director
|
November
23, 2009
|
|||
15