QUARTELY REPORT JUNE 30, 2011
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 ended September 30, 2013March 31, 2014
 
Commission file number 000-51770
 
 
 CMG HOLDINGS GROUP, 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.)

333 Hudson Street,875 North Michigan Avenue, Suite 3032929  
New York, NY, USA 
Chicago, IL 		 1001360611
 (Address of principal executive offices) (Zip Code)
 
Registrant's telephone number including area code (646) 688-6381
---------------------------------------------------------------

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 Noo

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No x
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 filero
Accelerated filero
Non-accelerated filero
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 oNo x
 
As of November 21, 2013, the aggregate market value of the Registrant’s voting and none-voting common stock held by non-affiliates of the registrant was approximately: $6,687,962 at $0.019 price per share, based on the closing price on the OTC Pink Sheets. As of November 21, 2013,May 15, 2014, there were 351,997,991290,679,190 shares of common stock of the registrant issued and 351,997,991 outstanding.
 

 
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CMG HOLDINGS GROUP, INC.
FORM 10-Q

TABLE OF CONTENTS

Item # Description 
Page
Numbers
     
  
PART I  FINANCIAL INFORMATION
ITEM 1
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 3
     
ITEM 12
 
CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 1317
     
ITEM 3
 
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS
 1517
     
ITEM 4
 
CONTROLS AND PROCEDURES
 2018
     
  
PART II  OTHER INFORMATION
  
     
ITEM 1
 
LEGAL PROCEEDINGS
 2019
     
ITEM 1A
 
RISK FACTORS
 2019
     
ITEM 2
 
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 2019
     
ITEM 3
 
DEFAULTS UPON SENIOR SECURITIES
 2119
     
ITEM 4
 
NINEMINE SAFETY DISCLOSURES
 2119
     
ITEM 5
 
OTHER INFORMATION
 2119
     
ITEM 6
 
EXHIBITS
 21
SIGNATURES
22
EXHIBIT31.1
SECTION 302 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
EXHIBIT 32.1
SECTION 906 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
19


 
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Table of Contents
PART I  FINANCIAL INFORMATION

ITEM 1:1- CONSOLIDATED FINANCIAL STATEMENTS


CMG HOLDINGS GROUP, INC.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE QUARTER ENDED SEPTEMBER 30,MARCH 31, 2014 AND 2013 AND 2012
CONTENTS

Consolidated Balance Sheets as of September 30, 2013March 31, 2014 and December 31, 20122013 (Unaudited)
4
  
Consolidated Statements of Operations for the three months ended September 30,March 31, 2014 and 2013 and 2012 and for the nine monnths ended September 30, 2013 and 2012 (Unaudited)
5

Consolidated Statements of Cash Flows for the ninethree months ended September 30,March 31, 2014 and 2013 and 2012 (Unaudited)
6
  
Notes to Consolidated Financial Statements (Unaudited)
7
 
 
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Table of Contents
CMG HOLDINGS, INCHoldings Group, Inc.
CONSOLIDATED BALANCE SHEETSConsolidated Balance Sheet
 
 March 31, December 31, 
 2014 2013 
 September 30, 2013 December 31, 2012  (Unaudited)   
ASSETS (Unaudited)        
          
CURRENT ASSETS:          
Cash $278,185 $238,124  $2,616,737  $476,588 
Marketable securities 1,754,550 274,651   710,031   764,088 
Accounts receivable 399,449 252,567 
Prepaid assets  6,575  15,000 
Accounts receivable, net of allowance of $0 and $0, respectively  538,188   287,094 
Prepaid expenses and other current assets  1,239,808   8,400 
Total Current Assets  2,438,759  780,342   5,104,764   1,536,170 
          
Other non-current assets  59,116  57,833 
Other noncurrent assets  174,941   60,078 
TOTAL ASSETS $2,497,875 $838,175  $5,279,705  $1,596,248 
          
LIABILITIES AND STOCKHOLDERS' DEFICIT          
          
CURRENT LIABILITIES:          
Accounts payable $ 745,209 $ 546,852  $895,179  $627,695 
Accounts payable – related party 71,900 19,625 
Deferred compensation  486,875   486,875 
Accrued liabilities 717,623 722,549   443,709   593,710 
Deferred income 13,370 13,370   3,506,124   13,370 
Derivative liabilities 78,129 145,970   2,814   11,121 
Short term debt, net of unamortized discount of $0 and $47,012, respectively  164,443  150,431 
Short term debt, net of unamortized discount of $0 and $0, respectively  9,943   9,943 
Total Current Liabilities 1,790,674 1,598,797   5,344,644   1,742,714 
          
Notes Payable, net of debt discount of $0 and $7,739, respectively  -  629,261 
COMMITMENTS AND CONTINGENCIES     
Notes Payable, net of debt discount of $_ and $0, respectively  -   - 
     
TOTAL LIABILITIES  1,790,674  2,228,058   5,344,644   1,742,714 
          
STOCKHOLDERS’ EQUITY (DEFICIT)     
STOCKHOLDERS' DEFICIT     
Preferred stock:          
Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; none issued and outstanding - - 
Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; none shares issued and outstanding 50 50 
Series A Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; no shares issued and outstanding as of March 31, 2014 and December 31, 2013  -   - 
Series B Convertible Preferred Stock; 5,000,000 shares authorized; par value $0.001 per share; 0 shares issued and outstanding as of March 31, 2014 and December 31, 2013  -   - 
Common Stock:          
450,000,000 shares authorized, par value $.001 per share; 294,987,917 and 294,950,743 shares issued, 294,987,917 and 294,650,743 outstanding 294,914 294,614 
450,000,000 shares authorized, par value $.001 per share; 290,157,190 and 283,657,190 shares issued and outstanding as of March 31, 2014 and December 31, 2013
  290,157   283,657 
Additional paid in capital 14,495,641 14,469,341   14,625,751   14,529,751 
Treasury Stock, 37,174 and 37,174 shares held, respectively. 37 37 
Treasury Stock, 37,174 and 37,174 shares held, respectively, at cost of -0-, as of March 31, 2014 and December 31, 2013.  -   - 
Accumulated deficit  (14,083,441)  (16,153,925) $(14,980,847)  (14,959,874)
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT)  707,201   (1,389,883)
          
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT) $2,497,875 $838,175 
TOTAL STOCKHOLDERS' DEFICIT  (64,939)   (146,466)
     
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $5,279,705  $1,596,248 
 
SeeThe accompanying notes to unaudited consolidatedare an integral part of these financial statements.

 
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CMG HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 

CMG Holdings, Inc.
Statement of Operations
(Unaudited)
  
For the Three Months Ended
September 30,
  
For the Nine Months Ended
June 30,
 
  2013  2012  2013  2012 
             
REVENUES $1,048,407  $374,104  $6,441,216  $7,517,163 
                 
OPERATING EXPENSES                
   Cost of revenues  722,819   422,233   4,526,627   5,355,980 
   Depreciation and amortization  -   -   -   74,850 
   General and administrative  725,858   794,688   2,073,031   2,752,554 
      Total Operating Expenses  1,448,677   1,216,921   6,599,658   8,183,384 
 
OPERATING LOSS
  (400,270)  (842,817)  (158,442)  (666,221)
                 
OTHER INCOME (EXPENSE)                
  Gain (loss) on derivative liability  153,096   (4,990)  165,938   (598,153)
  Gain on extinguishment of debt  183,332   75,618   793,732   75,618 
  Unrealized gain (loss) on marketable
   securities
  (45,800)  -   1,479,899   - 
   Other income (expense)  (65)  (19,083)  (5,465)  (19,083)
   Interest expense  (6,092)  (103,167)  (205,178)  (790,992)
       Total Other Income (Expense)  284,471   (551,622)  2,228,926   (1,332,610)
                 
Income (loss) from continuing operations  (115,799)  (894,439)  2,070,484   (1,998,831)
Loss from discontinued operations  -   (146,698)  -   (503,626)
Income on sale of discontinued operations  -   4,115,771   -   4,115,771 
                 
NET INCOME (LOSS) $(115,799) $3,074,634  $2,070,484  $1,613,314 
                 
BASIC INCOME (LOSS) PER COMMON SHARE FROM DISCONTINED OPERATIONS $-  $0.01  $-  $0.02 
                 
DILUTED INCOME (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS $(0.00) $(0.00) $0.01  $(0.01)
                 
BASIC AND DILUTED INCOME (LOSS) PER COMMON SHARE FROM CONTINUING OPERATIONS $(0.00) $0.00  $0.01  $0.01 
                 
                 
BASIC WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING  295,829,864     272,515,699     295,054,040     218,628,520 
                 
DILUTED WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING  295,829,864     293,562,646     306,462,999     239,675,467 
  For the Three Months Ended 
  March 31, 
  2014  2013 
       
Revenues $1,554,748  $1,023,169 
         
Operating Expenses:        
Cost of revenues  880,992   542,034 
Depreciation and amortization expense  -   - 
General and administrative expenses  894,288   624,938 
Total Operating Expenses  1,775,280   1,166,972 
Operating Income (Loss)  (220,532)  (143,803)
         
Other Income (Expense):        
Gain (loss) on derivative liability  8,307   (56,929)
Realized gain on marketable securities  193,487   - 
Unrealized gain on marketable securities  2,456   - 
Other income (expense)  (4,558)  (5,400)
Interest Income (expense)  (133)  (82,614)
Total Other Income (Expense)  199,559   (144,943)
         
Net Income (Loss) $(20,973)  $(288,746)
         
Basic loss per common shares $-  $- 
Total basic loss per common share $-  $- 
         
Basic weighted average common shares outstanding  285,323,857    294,650,743 
The accompanying notes are an integral part of these financial statements.
 
See accompanying notes to unaudited consolidated financial statements
 
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CMG Holdings, Inc.
CMG HOLDINGS GROUP, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Statements of Cash Flows
(Unaudited)
 
  For the Nine Months Ended 
  September 30, 
  2013  2012 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net income from continuing operations $2,070,484  $1,613,314 
Adjustments to reconcile net income        
to net cash provided by (used in) operating activities:        
Unrealized gain on marketable securities  (1,479,899)  - 
Shares issued for services  -   194,100 
Loss on debt servicing  -   19,879 
Gain on sale of subsidiary  -   (4,115,771)
Amortization of intangibles  -   74,580 
(Gain) loss on derivatives  (165,938)  598,153 
Amortization of debt discount  152,848   659,280 
Gain on extinguishment of debt  (793,732)  (75,618)
Changes in:        
Accounts receivable  (146,882)  (88,725)
Prepaid expense and other current assets  7,142   (4,727)
Deferred income  -   (30,036)
Accrued liabilities  93,406   943,444 
Accounts payable  270,257   (63,292)
Accounts payable, related party  (19,625)  (113,505)
Cash provided used in continuing operations  (11,939)  (388,924)
Cash provided by discontinued operations  -   73,265 
Net cash used in operating activities  (11,939)  (315,299)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
Cash used in continuing operations  -   - 
Cash used in discontinued operations  -   (4,841)
Net cash used in investing activities  -   (4,841)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Advances from related parties  -   8,804 
Payments on related parties debt  -   (16,000)
Payments on short term debt  (52,500)  - 
Proceeds from issuance of debt  104,500   37,500 
Net change in line of credit  -   2,361 
Cash provided by continuing operations  52,000   32,665 
Cash provided by discontinued operations  -   415,640 
Net cash provided by financing activities  52,000   448,305 
Net increase in cash  40,061   128,165 
Cash, beginning of period  238,124   337,779 
Cash, end of period  278,185  $465,944 
Supplemental cash flow information:        
Interest paid $25,000  $4,675 
Income taxes paid $-  $- 
  For the Three Months Ended 
  March 31, 
  2014  2013 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss  (20,973)  $(288,746)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:        
Unrealized gain on marketable securities  (2,456)  - 
Realized gain on marketable securities  (193,487)    
(Gain) loss on derivatives  (8,307)   56,929 
Amortization of debt discount  -   72,519 
Changes in:        
Accounts receivable  (251,096)  117,457 
Prepaid expense and other current assets  (1,243,369)  (397,338)
Deferred income  3,492,754   1,563,301 
Accrued liabilities  (150,001)  34,680 
Accounts payable  267,484   (245,064)
Accounts payable, related party  -   37,650 
Cash provided by (used in) operating activities  1,890,549   951,388 
         
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES        
Proceeds from sales of marketable securities  250,000     
Cash paid for purchase of fixed assets  (15,400)  - 
Net cash used in investing activities  234,600   - 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from sales of common stock  15,000     
Net cash provided by financing activities  15,000   - 
Net increase in cash  2,140,149   951,388 
Cash, beginning of period  476,588   238,124 
Cash, end of period  2,616,737   1,189,512 
         
Supplemental cash flow information:        
Interest paid $201  $- 
Income taxes paid $-  $- 
         
Non-cash investing and financing activity:        
Reclassification of accounts payable to short term debt $-  $- 
Discount on notes payable from derivative liability $-  $65,597 
Reclassification of derivative liabilities to additional paid-in capital $-  $- 
Common stock issued for settlement of notes payable $-  $- 
Reclassification of debt from short term to long term $-  $525,000 
 
SeeThe accompanying notes to unaudited consolidatedare an integral part of these financial statements.
 
 
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Table of Contents
CMG HOLDINGS GROUP, INCINC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)March 31, 2014
(Unaudited)
 
NOTE 1: DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
       
 For the Nine Months Ended 
 September 30, 
 2013 2012 
Non-cash investing and financing activity:      
Reclassification of accounts payable to short term debt $-  $522,943 
Reclassification of accrued liabilities to short term debt $-  $545,000 
Discount on notes payable from derivative liability $98,097  $596,019 
Discount on shares issued with notes payable $-  $11,486 
Reclassification of derivative liabilities to additional paid-in capital $-  $991,596 
Common stock issued for settlement of notes payable $26,600  $628,735 
Cancellation of common stock and preferred stock  2,550     

Business Activity

Creative Management Group, Inc. was formed in Delaware on August 13, 2002 as a limited liability company named Creative Management Group, LLC. On August 7, 2007, this entity converted to a corporation and changed its legal name to Creative Management Group Inc.  The Company is a sports, entertainment, marketing and management company providing event management implementation, sponsorships, licensing and broadcast, production and syndication.

On February 20, 2008, Creative Management Group, Inc. formed CMG Acquisitions, Inc., a Delaware company, for the purpose of acquiring companies and expansion strategies. On February 20, 2008, Creative Management Group, Inc. acquired 92.6% of Pebble Beach Enterprises, Inc. (a publicly traded company) and changed the name to CMG Holdings Group, Inc. (“the Company”). The purpose of the acquisition was to effect a reverse merger with Pebble Beach Enterprises, Inc. at a later date. On May 27, 2008, Pebble Beach entered into an Agreement and Plan of Reorganization with its controlling shareholder, Creative Management Group, Inc., a privately held Delaware corporation. Upon closing the eighty shareholders of Creative Management Group delivered all of their equity interests in Creative Management Group to Pebble Beach in exchange for shares of common stock in Pebble Beach owned by Creative Management Group, as a result of which Creative Management Group became a wholly-owned subsidiary of Pebble Beach. The shareholders of Creative Management Group received one share of Pebble Beach’s common stock previously owned by Creative Management Group for each issued and outstanding common share owned of Creative Management Group. As a result, the 22,135,148 shares of Pebble Beach that were issued and previously owned by Creative Management Group, are now owned directly by its shareholders. The 22,135,148 shares of Creative Management Group previously owned by its shareholders are now owned by Pebble Beach, thereby making Creative Management Group a wholly-owned subsidiary of Pebble Beach. Pebble Beach did not issue any new shares as part of the Reorganization. The transaction was accounted for as a reverse merger and recapitalization whereby Creative Management Group is the accounting acquirer. Pebble Beach was renamed CMG Holdings Group, Inc.
 
On April 1, 2009, the Company, through a newly formed wholly owned subsidiary CMGO Capital, Inc., a Nevada corporation, completed the acquisition of XA, The Experiential Agency, Inc. On March 31, 2010, the Company and AudioEye, Inc. (“AudioEye”) completed the final Stock Purchase Agreement under which the Company acquired all of the outstanding capital stock of AudioEye. On June 22, 2011 the Company entered into a Master Agreement subject to shareholder approval as may be required under applicable law and subject to closing conditions with AudioEye Acquisition Corp., a Nevada corporation where the shareholders of AudioEye Acquisition Corp. exchanged 100% of the stock in AudioEye Acquisition Corp for 80% of the capital stock of AudioEye. The Company retained 15% of AudioEye subject to transfer restrictions in accordance with the Master Agreement; on October 2012, the Company distributed to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye in accordance with provisions of the Master Agreement.

See accompanying notesOn March 28, 2014, CMG Holdings, Inc. (the “Company” or “CMG”), completed its acquisition of 100% of the shares of Good Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial, Inc. and Jackie Beckford, the then shareholders of GGI. The sole owner of BMB Financial, Inc. is also the sole owner of Infinite Alpha, Inc. which provides consulting services to unaudited consolidated financial statements.
CMG. Pursuant to the SEA, the Company received 100% of the shares of GGI in exchange for 5,000,000 shares of the Company’s common stock, $33,000 in equipment and consultant compensation and a commitment to pay $200,000 in development costs, of which $50,000 of the development costs had been advanced by the Company.  In addition, pursuant to the SEA, CMG shall adopt an incentive plan for GGI which shall entitle the GGI officers, directors and employees to receive up to 30% of the net profits of GGI and up to 30% of the proceeds, in the event of a sale of GGI or its assets.
 
 
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Table of Contents
CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013March 31, 2014
(Unaudited)
 
NOTE 1 –BASIS OF PRESENTATION
The accompanying unaudited interim consolidated financial statements of CMG Holdings Group, Inc. (the “Company”) 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 contained in its 2012 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. Our future results of operations may change materially from the historical results of operations reflected in our historical financial statements. The unaudited consolidated financial statements should be read in conjunction with the historical audited consolidated financial statements and footnotes 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, 2012 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 2012, as reported in the Form 10-K, have been omitted.

Principles of Consolidation

The consolidated financial statements include the accounts of CMG Holdings Group, Inc., CMG Acquisition, Inc., CMGO Capital, Inc., XA, The Experiential Agency, Inc. ("XA"), CMGO Logistics, Inc., USaveCT, USaveNJ and USaveNJ,GGI after elimination of all significant inter-company accounts and transactions.

Fair Value MeasurementsUse of Estimates

In September 2006,The preparation of financial statements in conformity with accounting principles generally accepted in the Financial Accounting Standards Board (“FASB”) issued ASC 820 which defines fair value, establishes a framework for measuring fair value,United States requires management to make estimates and expands disclosures about fair value measurements. The provisionsassumptions that affect the reported amounts of ASC 820 were effective January 1, 2008. ASC 820 delays the effective date for nonfinancial assets and liabilities exceptand disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the period reported. Estimates are used when accounting for items thatallowance for doubtful accounts, depreciation, and contingencies. Actual results could differ from those estimates.

Concentrations of Risk

The Company maintains its cash balances at two financial institutions where they are recognizedinsured by the Federal Deposit Insurance Corporation up to $250,000 each. At March 31, 2014 and December 31, 2013, neither of these accounts was in excess of the limit. The Company also maintains a money market investment account at one securities firm where the account is insured by the Securities Investor Protection Corporation up to $500,000 for the bankruptcy, etc., of the securities firm. At March 31, 2014 and December 31, 2013, the account had no balance in excess of the limit. For the quarter ended March 31, 2014 and the year ended December 31, 2013, one customer exceeds 10% of the Company’s total revenue, representing 58% and 72% of the Company’s total revenues, respectively.

Revenue and Cost Recognition

The Company earns revenues by providing event management services under individually negotiated contracts with varying terms, recognizing revenue in accordance with ASC 605, Revenue Recognition, only when the price is fixed or discloseddeterminable, persuasive evidence of an arrangement exists, the services have been provided and collectability is assured.   In arrangements where key indicators suggest the Company acts as principal, the Company records the gross amount billed to the client as revenue and the related costs incurred as cost of revenues as the services are provided.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are amounts due from event management services, are unsecured and are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis and do not bear interest, although a finance charge may be applied to amounts outstanding more than thirty days. Accounts receivable are periodically evaluated for collectability based on past credit history with clients. Provisions for losses on accounts receivable are determined on the basis of loss experience, known and inherent risk in the account balance and current economic conditions.  There were no allowances for doubtful accounts as of March 31, 2014 or December 31, 2013.

Share-Based Compensation

The Company accounts for share-based compensation to employees in accordance with Accounting Standards Codification subtopic 718-10,  Stock Compensation (“ASC 718-10”) and share-based compensation to non-employees in accordance with ASC 505-50 Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services. ASC 718-10 and 505-50 require the measurement and recognition of compensation expense for all share-based payment awards, including stock options based on the estimated fair values.
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CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(Unaudited)

Derivative Instruments

The Company accounts for derivative instruments in accordance with ASC Topic 815, Derivatives and Hedging, and all derivative instruments are reflected as either assets or liabilities at fair value in the consolidated financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008.balance sheet.

As defined in ASC 820,The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing and able market participantsparticipants. In general, the Company’s policy in estimating fair values is to first look at observable market prices for identical assets and liabilities in active markets, where available. When these are not available, other inputs are used to model fair value such as prices of similar instruments, yield curves, volatilities, prepayment speeds, default rates and credit spreads (including for the measurement date (exit price).Company’s liabilities), relying first on observable data from active markets. Additional adjustments may be made for factors including liquidity, credit, bid/offer spreads, etc., depending on current market conditions. Transaction costs are not included in the determination of fair value. When possible, The Company utilizesseeks to validate the model’s output to market data or assumptions that market participants would use in pricingtransactions. Depending on the asset or liability, including assumptions about riskavailability of observable inputs and the risks inherent in the inputs to theprices, different valuation technique. These inputs canmodels could produce materially different fair value estimates. The values presented may not represent future fair values and may not be readily observable, market corroborated, or generally unobservable.realizable. The Company classifiescategorizes its fair value balancesestimates in accordance with ASC 820, Fair Value Measurements (ASC 820), based on the observabilityhierarchical framework associated with the three levels of price transparency utilized in measuring financial instruments.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all short-term debt securities purchased with maturity of three months or less to be cash equivalents.

Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the respective assets, which is generally between three and five years. Depreciation expense was $0 and $0 for the quarter ended March 31, 2014 and December 31, 2013, respectively.
Intangible Assets

Intangible assets are stated at cost, net of accumulated amortization. Amortization is computed using the straight-line method over the estimated useful life of the respective asset, which is three years. Amortization expense was $0 and $0 for the quarter ended March 31, 2014 and the year ended December 31, 2013, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability approach. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those inputs. temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Basic and Diluted Net Loss per Share

The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
9
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(Unaudited)

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Fair Value Measurements

ASC 820 and ASC 825, Financial Instruments (ASC 825), requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy that prioritizesbased on the level of independent, objective evidence surrounding the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

The three levels ofA financial instrument’s categorization within the fair value hierarchy defined by ASC 820 are as follows:is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.

Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.

Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
 
The Company’s financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities. Pursuant to ASC 820 and 825, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

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CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION (continued)

The following table sets forth by level withinwith the fair value hierarchy the Company’s financial assets and liabilities that were accounted formeasured at fair value as of September 30, 2013on March 31, 2014 and December 31, 2011. As required by ASC 820, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.2013:

March 31, 2014 Level 1  Level 2  Level 3  Total 
Marketable trading securities $710,031  $-  $-  $710,031 
Derivative Liabilities $-  $-  $2,814  $2,814 
                 
December 31, 2013 Level 1  Level 2  Level 3  Total 
Marketable trading securities $764,088  $-  $-  $764,088 
Derivative Liabilities $-  $-  $11,121  $  11,121 
 
September 30, 2013 Level 1  Level 2  Level 3  Total 
Marketable trading securities $1,754,550  $-  $-  $1,754,550 
Derivative Liabilities $-  $-  $78,129  $78,129 
                 
December 31, 2012 Level 1  Level 2  Level 3  Total 
Marketable trading securities $3,000  $-  $-  $3,000 
Derivative Liabilities $-  $-  $145,970  $145,970 
10
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(Unaudited)
 
Investments in Debt and Equity Securities

The Company applies the provisions of Accounting Standards Codification 320, “InvestmentsInvestments – Debt and Equity Securities”Securities, regarding marketable securities. The Company invests in securities that are intended to be bought and held principally for the purpose of selling them in the near term, and as a result, classifies such investments as trading securities. Trading securities are recorded at fair value on the balance sheet with changes in fair value being reflected as unrealized gains or losses in the current period. In addition, the Company classifies the cash flows from purchases, sales, and maturities of trading securities as cash flows from operating activities.

Details of the Company's marketable trading securities as of September 30, 2013March 31, 2014 and December 31, 20122013 are as follows:

  
March 31,
2014
  
December 31,
2013
 
Aggregate fair value $710,031  $764,088 
Gross unrealized holding gains  625,225   622,769 
         
Proceeds from sales  ($823,022 stocks plus $85,000 options) $250,000  $658,021 
Gross realized gains (stocks and options)  193,487   524,668 
Gross realized losses  -   - 
Other than temporary impairment  -   - 

NOTE 2 - EQUITY

Preferred Stock

Series B Preferred Stock and Inventory Purchase

On March 31, 2011 the Company acquired 20,000 cartoon animated cels (the “Cel Art”) from Continental Investments Group, Inc. (the “Agreement”). The Company issued 50,000 shares of its Series B Convertible Preferred Stock to Continental Investments Group, Inc. as consideration for the Cel Art, such shares of Series B Convertible Preferred Stock having a stated value per share of $100. The Cel Art consists of collectible, hand-painted cartoon animation cels. The shares of Series B Preferred Stock are convertible into common shares of the Company at the stated value of $100 per share divided by the volume weighted average trading price for the 30 days prior to conversion. The preferred shares are non-voting and do not receive dividends. The Company determined the fair value of the preferred stock to be $3,240,502 on the acquisition date based on the number of shares of common stock the preferred shares could be converted into and the market price of the common stock on the agreement date. The cartoon animated cels are valued at the lower of cost or market. As of December 31, 2011, Management wrote down the inventory to zero. The Company also analyzed the embedded conversion option for derivative accounting consideration under ASC 815-15 and determined that the conversion option should be classified as equity.  During the year ended December 31, 2011, the Company determined that due to uncertainties related to future sales of the Cel Art, the entire balance should be reserved as of December 31, 2011.

During August 2013, the Company entered into a Termination Agreement and Release (the “Agreement”) with Continental Investments Group (Continental), the holder of a $85,000 convertible note payable of the Company and the holder of 2,500,000 shares of restricted common stock.  The Agreement calls for the termination and cancellation of a Sale and Purchase agreement, whereby the Company agreed to issue 50,000 shares of Series B Convertible Preferred Stock in exchange for 20,000 cartoon animated Cels. The Agreement also calls for the cancellation of the $85,000 convertible note and related interest and for Continental to return the 2,500,000 shares of restricted common stock.

Series A Preferred Stock Issuance and Rescission

On March 31, 2011 the Company approved the issuance of 51 shares of preferred stock designated as Series A Convertible Preferred Stock (the “Series A Preferred Stock”) to three officers of the Company in consideration for the officers forgiving $300,000 of accrued salaries. Each share of Series A Preferred Stock is convertible into 1% of the Company’s common stock. The number of votes for the Series A Preferred Stock shall be the same number as the amount of shares of Common Stock that would be issued upon conversion. The Series A Preferred Stock is not entitled to dividends or preference upon liquidation. On May 16, 2011 the Company rescinded the above agreement with an effective date of March 31, 2011. There are no shares of Series A Preferred Stock issued or outstanding as of March 31, 2014 or December 31, 2013.

Common Stock

  September 30, 2013  December 31, 2012 
Aggregate fair value $1,754,550  $3,000 
Gross unrealized holding gains  1,479,899   - 
Gross unrealized holding losses  -   - 
Transfer of cost method investment to marketable securities  274,651     
         
Proceeds from sales $ -  $-- 
Gross realized gains  -   -- 
Gross realized losses  -   -- 
Other than temporary impairment  -   -- 
On January 29, 2014, the Company sold 1,500,000 shares of its common stock for $0.01 per share and net proceeds of $15,000. 
 
Discontinued OperationsOn March 28, 2014, the Company issued 5,000,000 shares of its common stock pursuant to the acquisition of its subsidiary.  The shares were valued at a total of $87,500 or $0.0175 per share, the closing price of the company’s common stock on the OTCQB.

In accordanceCommon Stock Warrants

During 2011, eight individuals purchased 3,870,000 shares of common stock, 774,000 A Warrants and 774,000 B Warrants for $217,000.  A total of 574,000 and 200,000 A Warrants are exercisable at a strike price of $0.25 and $0.10, respectively for three years; 574,000 and 200,000 B Warrants are exercisable at a strike price of $0.50 and $0.20, respectively for three years. The Company can call each of the Warrants after twelve months if the price of the Common Shares of the Company in the Market is 150% of the Warrant strike price for 10 consecutive days.
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CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(Unaudited)

During March 31, 2010, 250,000 shares of warrants issued to AudioEye at an exercise price of $0.07 per share and a term of 5 years. See Note 5 for additional information on the derivative liability.
A summary of warrant activity for the three months ended March 31, 2014 and the years ended December 31, 2013 and 2012 is as follows:
  
Outstanding
and
Exercisable
  
Weighted
average
Exercise Price
 
         
December 31, 2011  1,798,000  $0.28 
Granted  -   - 
Exercised  -   - 
December 31, 2012  1,798,000  $0.28 
Granted  -   - 
Exercised  -   - 
December 31, 2013  1,798,000  $0.28 
Granted  -   - 
Exercised  -   - 
Expired  (298,000)     
March 31, 2014  1,500,000  $0.28 

As of March 31, 2014, the warrants have a weighted average remaining life of 0.28 years with $0 aggregate intrinsic value.
12
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(Unaudited)
NOTE 3 - NOTES PAYABLE
Paul Sherman Agreement

On May 12, 2012, the Company modified its July 24, 2011 agreement with Paul Sherman into a $9,943 convertible promissory note bearing interest at 2% and due on May 15, 2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to Paul Sherman’s request for conversion, but not to go below $.001. The Company analyzed the conversion option for derivative accounting consideration under ASC 205-20, Presentation of Financial Statements – Discontinued Operations, we reported815-15 and determined that the results of our subsidiary, AudioEye Inc.,instrument should be classified as a discontinued operation.liability. The applicationfair value of ASC 205-20the embedded conversion option resulted in a discount of $8,875 on the date of the note. The discount is discussed in Note 2 below.being amortized over the term of the note to interest expense. The discount balance was $0 and $0 as of March 31, 2014 and December 31, 2013, respectively.  Amortization of $0 and $3,376 was recognized as interest expense during the three months ended March 31, 2014 and the year ended December 31, 2013, respectively. The convertible promissory note has an outstanding balance of $9,943 and $9,943 as of March 31, 2014 and December 31, 2013, respectively.

NOTE 2 – RELATED PARTY TRANSACTIONS

The Company had outstanding accounts payable to related parties of $71,900 and $19,625 as of September 30, 2013 and December 31, 2012, respectively. These payables represent legal and administrative fees paid on behalf of the Company by its officers.
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CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)

NOTE 3– NOTES PAYABLE

Asher Enterprises, Inc.

On October 16, 2012 the company issued a convertible promissory note for $32,500 to Asher. The convertible promissory note bears interest at 8% and is due on July 18, 2013 and any amount not paid by July 18, 2013 will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

In conjunction with the issuance of the promissory note, $2,500 was recorded as debt discount. The discount is being amortized over the term of the note to interest expense. During April 2013, the Company paid off the $32,500 note and accrued interest and penalties of $10,000.  The discount balance was $0 and $1,809 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $34,309 was recognized as interest expense as of September 30, 2013.

On May 20, 2013 the company issued a convertible promissory note for $53,000 to Asher. The convertible promissory note bears interest at 8% and is due on February 24, 2014 and any amount not paid by the due date will incur a 22% interest rate. The note is convertible at 58% of the average of the lowest trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

Paul Sherman Agreement

On May 12, 2012, the Company modified its July 24, 2011 agreement with Paul Sherman into a $9,943 convertible promissory note bearing interest at 2% and due on May 15, 2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to Paul Sherman’s request for conversion, but not to go below $.001. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $8,875 on the date of the note. The discount is being amortized over the term of the note to interest expense. The discount balance was $0 and $3,376 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $3,376 was recognized as interest expense as of September 30, 2013. The convertible promissory note has an outstanding balance of $9,943 and $9,943 as of September 30, 2013 and December 31, 2012, respectively.

Continental Equities, LLC

On September 7, 2012 the company issued a convertible promissory note for $50,000 to Continental Equities, LLC (“Continental”) for the assignment of an equivalent amount of the Company’s account payable to Continental. The convertible promissory note bears interest at 12% and was due on May 15, 2013, any amount not paid by May 15, 2013 is incurring a 22% interest rate.

On September 7, 2012 the company issued a convertible promissory note for $20,000 to Continental Equities, LLC for the assignment of an equivalent amount of the Company’s accrued interest to Continental. The convertible promissory note bore interest at 12% and during May 2013, a related party entity paid the $20,000 convertible promissory note plus accrued interest in full.

The convertible promissory notes are/were convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date. The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instruments should be classified as liabilities. The fair value of the embedded conversion option resulted in a discount of $65,597 on the date of the note. The discount balance was $0 as of September 30, 2013.  Amortization of $65,597 was recognized as interest expense as of September 30, 2013. The Company paid off $20,000 of the note during the nine months ended September 30, 2013. The convertible promissory notes have an outstanding balance of $50,000 and $70,000 as of September 30, 2013 and December 31, 2012, respectively.
As inducement for entering into the convertible promissory notes, the Company issued 600,000 shares, which were recorded as a debt discount of $11,486, which represents the relative fair value of the shares with the note principal. The discount balance was $0 and $7,657 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $7,657 was recognized as interest expense as of September 30, 2013.
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CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
NOTE 2– NOTES PAYABLE (Continued)
Connied, Inc.
On April 11, 2011 the Company assigned $135,000 of its account payable from a third party to Connied, Inc. (“Connied”). On May 3, 2011, the Company amended the assigned account payable to add a conversion feature. The new note was convertible at 50% of the average of the five lowest closing prices for the Company's stock during the previous 30 trading days. The remaining balance of $85,000 was recorded as short term debt. The note bears interest at 20% and is due on May 2, 2013.

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with the change in fair value recorded to earnings. The addition of the embedded conversion option resulted in a full discount to the note of $85,000 on May 3, 2011.

During August 2013, the Company entered into a Termination Agreement and Release (the “Agreement”) with Continental Investments Group (Continental), the holder of a $85,000 convertible note payable of the Company and the holder of 2,500,000 shares of restricted common stock.  The Agreement calls for the termination and cancellation of a Sale and Purchase agreement, whereby the Company agreed to issue 50,000 Series B Convertible Preferred Stock in exchange for 20,000 cartoon animated Cels. The Agreement also calls for the cancellation of the $85,000 convertible note and related interest and the Continental to return the 2,500,000 shares of restricted common stock and 50,000 Series B Convertible Preferred Stock, valued at par of $2,550. This resulted in a gain on settlement of debt of $85,000.
The discount was being amortized over the term of the note to interest expense. The discount balance was $0 and $34,170 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $34,170 was recognized as interest expense as of September 30, 2013.  The convertible promissory note has an outstanding balance of $0 and $85,000 as of September 30, 2013 and December 31, 2012, respectively.
Alan Morell

On September 26, 2012, the Company issued two convertible promissory notes for $112,000 and $525,000 to Alan Morell for outstanding amounts owed for the Company’s line of credit and accrued salary, respectively. The notes bore interest at 2% and were due on April 4, 2013 and April 26, 2014, respectively. The notes became convertible at $0.04 and $0.06, respectively, as of November 15, 2012. During June 2013, the Company issued 2,800,000 shares of common stock to settle the $637,000 note, resulting in a gain on settlement of debt of $610,400.

The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with the change in fair value recorded to earnings.  The addition of the embedded conversion options resulted in a discount to the notes of $27,573 on November 15, 2012. The discounts were being amortized over the terms of the notes to interest expense. The discount balances were $0 and $7,739 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $7,739 was recognized as interest expense during the nine months ended September 30, 2013.  The convertible promissory notes have an outstanding balance of $0 and $637,000 as of September 30, 2013 and December 31, 2012, respectively.
Infinite Alpha

On April 29, 2013 the company issued a convertible promissory note for $51,500 to Infinite Alpha with conversion terms yet to be determined. The promissory note is unsecured, bears interest at 20%, and is due on demand. Any amounts not paid on demand will incur a 24% interest rate.
During the nine months ended September 30, 2013, the Company wrote off $98,332 of accrued interest to gain on settlement of debt. The total gain on settlement of debt recorded was $793,732 and total amortization of debt discount was $152,848 as of September 30, 2013. The Company made total payments on notes payable of $52,500 on notes payable, and $104,500 on borrowings.
NOTE 4 - DERIVATIVE LIABILITIES

The Company has variousa convertible instrumentsinstrument outstanding more fully described in Note 3.   Because the number of shares to be issued upon settlement cannot be determined under these instruments, the Company cannot determine whether it will have sufficient authorized shares at a given date to settle any other of its share-settleable instruments. As a result, underIn accordance with ASC 815-15 “Derivatives and Hedging”, all otherthe convertible share-settleable instruments must beare classified as liabilities.
 
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CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013March 31, 2014
(UNAUDITED)(Unaudited)
 
NOTE 4- DERIVATIVE LIABILITIES (Continued)
Embedded Derivative Liabilities in Convertible Notes
 
During the nine monthsyears ended September 30,December 31, 2013 and 2012, the Company recognized new derivative liabilities of $98,097 and $721,590, respectively, as a result of new convertible debt issuances.  The fair value of these derivative liabilities exceeded the principal balance of the related notes payable by $0 and $0 for the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.  As a result of conversion of notes payable described above, the Company reclassified $0 and $9,240,920 from equity and $0 and $0 of derivative liabilities to equity during the three months ended March 31, 2014 and the year ended December 31, 2013, respectively.  The Company recognized a $165,938 gain of $11,121 and $598,153 loss,a gain of $210,810 on derivatives due to change in fair value of the liability forduring the ninethree months ended September 30,March 31, 2014 and the year ended December 31, 2013, and 2012, respectively. The fair value of the Company’s embedded derivative liabilities was $78,129$0 and $145,970$11,121 at September 30, 2013March 31, 2014 and December 31, 2012,2013, respectively.

Warrants

During the fiscal year 2011, 899,000774,000 A Warrants and 899,000774,000 B warrants were issued to individuals. The Company determined that the instruments embedded in the warrants should be classified as liabilities.  During March 31, 2010, 250,000 shares of warrants issued to AudioEye at an exercise price of $0.07 per share and a term of 5 years.

Under ASC 815-15, “Derivatives and Hedging” the liabilities were subsequently measured at fair value at the end of each reporting period with the change in fair value recorded to earnings. The fair value of all outstanding warrants as of September 30, 2013March 31, 2014 and December 31, 20122013 was $1,750$2,814 and $12,007,$1,811, respectively.  The Company recognized $10,257a gain of $2,199 and $4,532 as gain on derivative$10,196 related to the warrants for the ninethree months ended September 30,March 31, 2014 and the year ended December 31, 2013, and 2012, respectively.
 
The following table summarizes the derivative liabilities included in the consolidated balance sheet:

Derivative Liabilities   
Balance at December 31, 2012 $145,970 
ASC 815-15 additions  98,097 
Change in fair value  (85,712) 
ASC 815-15 deletions  (80,226) 
Balance at September 30, 2013  $78,129 
     
The following table summarizes the derivative gain or loss recorded as a result of the derivative liabilities above:
 
Gain/(Loss) on Derivative Liability
  
For the Nine Months Ended
September 30,
 
  2013  2012 
Change in fair value  (85,712)   459,333 
Convertible debt settled in cash  (80,226)    
Excess of fair value of liabilities over note payable  -   138,820 
Total (Gain)/Loss on Derivative Liability  (165,938)   593,153 
Derivative Liabilities   
Balance at December 31, 2011 $ 444,150 
ASC 815-15 additions  721,590 
Change in fair value  192,025 
ASC 815-15 deletions  (1,211,795)
Balance at December 31, 2012  145,970 
ASC 815-15 additions  98,097 
Change in fair value  (210,180)
ASC 815-15 deletions  (22,766)
Balance at December 31, 2013  11,121 
ASC 815-15 additions  5,013 
Change in fair value  (2,199) 
ASC 815-15 deletions  (11,121) 
Balance at March 31, 2013 $2,814 
 
The Company values its warrant derivatives and all other share settable instrument using the Black-Scholes option pricing model. Assumption used include (1) 0.01%0.06% to 1.96%0.13% risk-free interest rate, (2) life is the remaining contractual life of the instrument (3) expected volatility 70%55% to 426%239%, (4) zero expected dividends, (5) exercise price as set forth in the agreements, (6) common stock price of the underlying share on the valuation date, and (7) number of shares to be issued if the instrument is converted.

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Table of Contents
CMG HOLDINGS GROUP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2013
(UNAUDITED)
NOTE 5 - LEGAL PROCEEDINGS
 
We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

On April 21, 2011, the Company was served with a lawsuit that was filed in Clark County, Nevada against the Company by A to Z Holdings, LLC and seven other individuals or entities. The complaint alleges, among other things, that the Company’s Board of Directors did not have the power to designate series A and B preferred stock without amending the articles of incorporation. The complaint also alleges any such amendment would require shareholder approval and filing of a proxy statement. On April 20, 2012, the Company settled with A to Z Holdings, LLC and seven other individuals or entities for $10,000. The Company has accrued this settlement liability as of September 30, 2013.
14
CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
(Unaudited)

On July 6, 2011, the Company was served with a lawsuit filed in the Circuit Court for the County of Multnomah, Oregon. The complaint alleges breach of contract and entitlement to consulting fees from the Company. The Company disagrees with the allegations contained in the Complaint and intends to vigorously defend the matter and otherwise enforce its rights with respect to the matter. The Company has retained counsel and is prepared to defend this lawsuit. The Company believes that the claims are frivolous pursuant to the terms of the contract. The case was settled inon September 28, 2012 for $30,000. The Company has accrued for this liability as of September 30,March 31, 2014 and December 31, 2013.

On March 28, 2014 we received a letter from a former Chief Executive Officer of our subsidiary, XA, claiming unpaid severance and paid- time-off. Total of the contingent claim amounted to $250,661.  We are currently in the process to settle the claim.

NOTE 6 – EARNINGS PER SHARE- ACQUISITION OF GOOD GAMING, INC.

A reconciliationOn March 28, 2014, CMG Holdings, Inc. (the “Company” or “CMG”), completed its acquisition of 100% of the componentsshares of basicGood Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial, Inc. and dilutedJackie Beckford, the then shareholders of GGI. The sole owner of BMB Financial, Inc. is also the sole owner of Infinite Alpha, Inc. which provides consulting services to CMG. The transaction was completed under the purchase method of accounting.  Pursuant to the SEA, the Company received 100% of the shares of GGI in exchange for 5,000,000 shares of the Company’s common stock, $33,000 in equipment and consultant compensation and a commitment to pay $200,000 in development costs, of which $50,000 of the development costs had been advanced by the Company.  In addition, pursuant to the SEA, CMG shall adopt an incentive plan for GGI which shall entitle the GGI officers, directors and employees to receive up to 30% of the net income per common share is presentedprofits of GGI and up to 30% of the proceeds, in the tables below:

  For the nine months ended 
  September 30, 2013 
     Weighted    
     Average    
     Shares  Per 
  Income  Outstanding  Share 
Basic:         
Income attributable to common stock  2,070,484   294,054,040   0.01 
             
Effect of Dilutive Securities:            
Convertible Debt  -   11,408,959     
             
Diluted:            
Income attributable to common stock, including assumed conversions  2,070,484   306,462,999   0.01 

Potentially dilutive securities excluded fromevent of a sale of GGI or its assets.  In accordance with the computationpurchase method of weighted average diluted sharesaccounting, the Company recorded $87,500 of common stock becauseGoodwill.  A full valuation of the impacttransaction is not yet completed as of these potentially dilutive securities was anti dilutive totaled 1,798,000 for the nine month period ended September 30, 2013.March 31, 2014
 
NOTE 7 - SUBSEQUENT EVENTSRELATED PARTY TRANSACTIONS

In NovemberThe Company had outstanding accounts payable to a former officer and director who was a related party at December 31, 2012 of $19,625. The payables represent legal and administrative fees paid on behalf of the Company.  These payables were settled during the year ended December 31, 2013.
XA has made business reimbursements to a consulting firm which is controlled by its former CEO. The accounts payable in the amount of $47,912 and $47,912 is included in account payable as of March 31, 2014 and December 31, 2013, CMG repaid $29,000respectively.  Total amount submitted to the Company for reimbursement from the consulting firm is $0 and $142,060 for the three months ended March 31, 2014 and the year ended 2013, respectively.
NOTE 8 - SEGMENTS

The Company had one reportable segment during the three months ended March 31, 2014 and the year ended December 31, 2013, event marketing.

NOTE 9 - SALE OF CREATIVE MANAGEMENT OF DELAWARE, INC.

On June 25, 2012, the Company, as a result of notes payable.
desiring to exit from the talent management business, sold its wholly owned subsidiary Creative Management of Delaware, Inc. (formerly Creative Management Group, Inc.) to Creative Management Global, Inc. pursuant to a Stock Purchase Agreement. The Purchase Price of this Agreement calls for Creative Management Global, Inc. to pay to the Company as consideration for the shares of Creative Management of Delaware, Inc., a royalty payment and deferred payment. The royalty payment is effective as of the closing of this agreement and for a period of nineteen (19) months of 10% of cash or other payment received as gross revenues less direct costs earned. The remainder of the purchase price, following payment of the royalty payments, will consist of a final payment to the Company by Creative Management Global, Inc. in the amount of One Hundred Thirty Three Thousand ($133,000). The final payment will be paid after Creative Management Global, Inc. year-end 2013 financial statements are completed and audited by an independent accounting firm and will reflect the total company gross revenues less direct costs for the years 2012, and 2013. No assets have been sold in this transaction and, as a result, no gain was recorded on the sale of this subsidiary.
 
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CMG HOLDINGS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2014
Table(Unaudited)

NOTE 10 – RESIGNATION OF CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD.

On September 26, 2012, Alan Morell officially resigned as Chief Executive Officer and Director of Contentsthe Company. In conjunction with the resignation, Mr. Morell was issued a convertible note for $525,000 representing the amount of accrued salary owed to him by the company up to the date of resignation and assumed all obligations related to a Smith Barney Credit Line that was secured by Mr. Morell’s security accounts and issued another convertible note to Morell for $112,000. The notes bore interest at 2% and were due on April 26, 2014. The notes were convertible beginning on November 15, 2012 at a conversion price of $0.06 per share. In June 2013, the Company issued 2,800,000 shares of common stock to settle the notes totaling $637,000, resulting in a gain on settlement of debt of $610,400.
NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Company subsidiary rents office space for its office at Chicago and New York. The lease expires in March 31, 2021 for its Chicago office.  During 2013, the Company renewed a five year lease expiring May 31, 2018 for its New York office.  Future minimum lease payments under the two operating lease are as follows:
Year ending December 31, 2013
    
2014 $143,353 
2015  196,805 
2016  202,572 
2018  208,440 
2019  141,784 
After  214,205 
Except as discussed above in Note 5, The Company is not the subject of any pending legal proceedings and, to the knowledge of management; no proceedings are presently contemplated against the Company by any federal, state or local governmental agency.
On March 28, 2014 we received a letter from a former Chief Executive Officer of our subsidiary, XA, claiming unpaid severance and paid- time-off. Total of the contingent claim amounted to $250,661.  We are currently in the process to settle the claim.
NOTE 12 - SUBSEQUENT EVENTS
Subsequent events have been evaluated through the date these financial statements became available for issuance.

On April 7, 2014, we issued our newly appointed CEO and Chairman of the Board of Directors, as compensation, a warrant to purchase a total of 40,000,000 shares of Common Stock at the exercise price of $0.0155 with a term of 5 years.
On April 9, 2014, we issued a total of 522,000 shares of Common Stock to a consultant in exchange for investor relation services to be performed pursuant to a Consulting Agreement, dated June 13, 2012.
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 THREE MONTH PERIOD ENDED SEPTEMBER 30, 2013MARCH 31, 2014

Gross revenues increased from 374,104$1,023,169 for the three months ended September 30, 2012March 31, 2013 to $1,048,407$1,554,748 for the three months ended September 30, 2013.March 31, 2014. The decreaseincrease in revenues was mainly due to market and economic conditions in our event marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA)  as well as the sale of Audio Eye on August 17, 2012.  .  
   
Cost of revenue increased from $422,233$542,034 for the three months ended September 30, 2012March 31, 2013 to $722,819$880,992 for the three months ended September 30, 2013.March 31, 2014. The decreaseincrease in cost of goods sold was due to market and economic conditionsthe increase in our event marketing, event management and public relations and consulting businessrevenues of XA, The Experiential Agency, Inc. (XA)  as well as the sale of Audio Eye on August 17, 2012.  . 

Operating expenses increased from $1,216,921$1,166,972 for the three months ended September 30, 2012March 31, 2013 to $1,448,6779$1,775,280 for the three months ended September 30, 2013.March 31, 2014. The decreaseincrease in operating expenses is mainly due to fewer expenses incurred associated to spinoff transaction related to AudioEye, Inc. and lower operating expenses related to the talent agency business that was sold to Creative Management Global.

The net incomes of $3,074,634increase in revenues for the three months ended September 30, 2012March 31, 2014.
Net loss decreased to a net loss of $115,799from $288,746 for the three months ended September 30, 2013.March 31, 2013 to $20,973 for the three months ended March 31, 2014. The decrease in operating expensesnet loss is mainly due to fewer expensesthe increase in revenues and cost of revenue and the realized and unrealized gains of marketable securities incurred associated to spinoff transaction related to AudioEye, Inc. and lower operating expenses related toduring the talent agency business that was sold to Creative Management Global. 
RESULTS OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2013

Gross revenues decreased from $7,517,163 for the ninethree months ended September 30, 2012 to $6,441,216 for the nine months ended September 30, 2013. The decrease in revenues was mainly due to market and economic conditions in our event marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA)  as well as the sale of Audio Eye on August 17, 2012.  
Cost of revenue decreased from $5,355,980 for the nine months ended September 30, 2012 to $4,526,627 for the nine months ended September 30, 2013. The decrease in cost of goods sold was due to market and economic conditions in our event marketing, event management and public relations and consulting business of XA, The Experiential Agency, Inc. (XA)  as well as the sale of Audio Eye on August 17, 2012.  

Operating expenses decreased from $8,183,384 for the nine months ended September 30, 2012 to $6,599,658 for the nine months ended September 30, 2013. The decrease in operating expenses is mainly due to fewer expenses incurred associated to spinoff transaction related to AudioEye, Inc. and lower operating expenses related to the talent agency business that was sold to Creative Management Global.

The net income of 1,613,314 for the nine months ended September 30, 2012 increased to a net income of $2,070,4843 for the nine months ended September 30, 2013.  March 31, 2014.
  
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LIQUIDITY AND CAPITAL RESOURCES:

As of September 30, 2013,March 31, 2014, the Company’s cash on hand was $278,185.$2,616,737.

Cash usedprovided by operationsoperating activities for the ninethree months ended September 30, 2013March 31, 2014 was $11,939,$1,890,549, as compared to cash uedprovided by operationsoperating activities of $315,299$951,388 for the ninethree months ended September 30, 2012.March 31, 2013. This change is primarily due to realized and unrealized gaingains on marketable securities of 1,479,899$2,456 and $193,487, respectively for the ninethree months ended September 30, 2013March 31, 2014 as comparescompared to $0 for the ninethree months ended September 30, 2012,  gain on saleMarch 31, 2013,  increase of subsidiaryprepaid expenses and other current assets in the aggregate of $0$1,243,369 for the ninethree months ended September 30, 2013March 31, 2014 as comparescompared to $4,115,771$397,338 for the ninethree months ended September 30, 2012,March 31, 2013, and gain on extinguishmentthe increase of debtdeferred revenues of $793,732$3,492,754  for the ninethree months ended September 30, 2013March 31, 2014 as comparescompared to $75,618$1,563,301 for the ninethree months ended September 30, 2012.
March 31, 2013.

Cash used infrom investing activities for the ninethree months ended September 30, 2013March 31, 2014 was $0$234,600 as compared cash used in investing activities of $4,841$0 for the ninethree months ended September 30, 2012.March 31, 2013. During the three months ended March 31, 2014, the Company purchased computer equipment in the amount of $15,400 for its subsidiary, Good Gaming, Inc. and sold 925,925 shares of the Company’s holdings in AudioEye, Inc., for net proceeds of $250,000.

Cash provided by financing activities for the ninethree months ended September 30, 2013March 31, 2014 was $52,000,$15,000, as compared to $448,305$0 provided for the ninethree months ended September 30, 2012.March 31, 2013. The decrease during the nine months ended June 30, 2013,increase of $15,000 was primarily due to the decrease by $415,640 in cash provided by discontinued operations.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth assale of September 30, 2013, information with respect to the beneficial ownership of the Company’s Common Stock by (i) each person known by the Company to own beneficially 5% or more of such stock, (ii) each Director of the Company who owns any Common Stock, and (iii) all Directors and Officers as a group, together with their percentage of beneficial holdings of the outstanding shares. The information presented below regarding beneficial ownership of our voting securities has been presented in accordance with the rules of the Securities and Exchange Commission and is not necessarily indicative of ownership for any other purpose. Under these rules, a person is deemed to be a "beneficial owner" of a security if that person has or1,500,000 shares the power to vote or direct the voting of the security or the power to dispose or direct the disposition of the security. A person is deemed to own beneficially any security as to which such person has the right to acquire sole or shared voting or investment power within 60 days through the conversion or exercise of any convertible security, warrant, option or other right. More than one person may be deemed to be a beneficial owner of the same securities. The percentage of beneficial ownership by any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person, which includes the number of shares as to which such person has the right to acquire voting or investment power within 60 days, by the sum of the number of shares outstanding as of such date plus the number of shares as to which such person has the right to acquire voting or investment power within 60 days. Consequently, the denominator used for calculating such percentage may be different for each beneficial owner. Except as otherwise indicated below and under applicable community property laws, we believe that the beneficial owners of our common stock listed below have sole voting and investment power with respect to the shares shown.

SECURITY OWNERSHIP:

Title of Class Name Shares  Percent 
         
Common Stock Alan Morell  18,622,944   6.3%
           
Common Stock Jeffrey Devlin  0   0%
           
All Directors, Executive Officers and 5% shareholders  18,622,944   6.3%

These tables are based upon 294,987,917 shares outstanding as of September 30, 2013 and information derived from our stock records. Unless otherwise indicated in the footnotes to these tables and subject to community property laws where applicable, we believe unless otherwise noted that each of the shareholders named in this table has sole or shared voting and investment power with respect to the shares indicated as beneficially owned.
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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS

CURRENT ECONOMIC CONDITIONS AND THE GLOBAL FINANCIAL CRISIS MAY HAVE AN IMPACT ON OUR BUSINESS AND FINANCIAL CONDITION IN WAYS THAT WE CURRENTLY CANNOT PREDICT

The global economy has experienced a significant contraction, with an unprecedented lack of consumer credit within the credit markets and the shift away from discretionary spending within the marketing, communications. The decrease in the economic activity in the United States and in the commercial sectors in which we conduct business could adversely affect our financial condition and results of operations. Continued tightness within the credit markets, volatility, instability and economic weakness of our clients marketing budgets and decrease in discretionary consumer spending associated with our clients business spending may result in a reduction in our revenues.

BUSINESS COULD BE ADVERSELY AFFECTED IF IT LOSES KEY CLIENTS AND KEY MANAGEMENT

The Company’s loss of one or more significant clients could materially affect results of the Company on a consolidated basis. Our Management is critically important to ongoing results of the Company because, as in any service business, success of the Company is mainly dependent upon the leadership of key executives and management. If key executives were to leave any of our operating divisions, the relationships that the Company has with its clients could be adversely affected.
COMPETITION FOR CLIENTS IN HIGHLY COMPETITIVE INDUSTRIES

The Company operates in a very competitive industry characterized by numerous firms of varying sizes, with no group of firms having dominant positions in the marketplace. Competitive factors include creative expertise, executive management’s, personal relationships, quality and reliability of service and expertise in particular niche areas of the marketplace. In addition, our company’s principal asset is its people, barriers to entry are minimal, and relatively small firms may be on occasion able to take some portion of a client’s business from a larger competitor. While many of the Company’s client relationships are long-standing, clients may at times place their marketing services businesses up for competitive review from time to time, including at times when clients enter into strategic transactions. To the extent that the Company fails to maintain existing clients or attract new clients, the Company’s business, financial condition and operating results may be affected in a materially adverse manner.

ABILITY TO GENERATE NEW BUSINESS FROM NEW AND EXISTING CLIENTS MAY BE LIMITED

To increase revenues, the Company needs to obtain additional clients, generate demand for additional services from existing clients and partner with external marketing firms to mutually service as single or multiple of clients. The company’s ability to generate demand for its services from new clients, additional demand from existing clients partner with external marketing firms to mutually service as single or multiple of clients is subject to clients’ requirements, pre-existing vendor relationships, financial condition, strategic plans and internal resources, as well as the quality of the Company’s employees, services and reputation and the breadth of its services. To the extent the Company cannot generate new business from new and existing clients due to these limitations; it will limit the Company’s ability to grow its business and to increase its revenues.

REVENUES ARE SUSCEPTIBLE TO DECLINES AS A RESULT OF GENERAL ADVERSE ECONOMIC DEVELOPMENTS

The marketing communications services industry is cyclical and is subject to the negative effects of economic downturns. The Company’s marketing services operations are also exposed to the risk of clients changing their business plans and/or reducing their marketing budgets. As a result, if the U.S. markets and economies continue to weaken, our businesses, financial condition and gross revenues are likely to be negatively affected may be suspect to declines from quarter to quarter or from year to year.

BENEFITS EXPECTED FROM CURRENT ACQUISITION OR PRIOR ACQUISITIONS MADE IN THE FUTURE MAY NOT BE REALIZED

The Company’s business strategy includes ongoing efforts to engage in material acquisitions of ownership interests in entities in the marketing communications services industry. The Company intends to finance these acquisitions by using any available cash from operations, through incurrence of debt or bridge financing or by issuing equity, which may have a dilutive impact on its existing shareholders. At any given time the Company may be engaged in a number of discussions that may result in one or more material acquisitions. These opportunities require confidentiality and may involve negotiations that require quick responses by the Company. Although there is uncertainty that any of these discussions will result in definitive agreements or the completion of any transactions, the announcement of any such transaction may lead to increased volatility in the trading price of its securities. The success of acquisitions or strategic investments depends on the effective integration of newly acquired businesses into the Company’s current operations. Such integration is subject to risks and uncertainties, including realization of anticipated synergies and cost savings, the ability to retain and attract personnel and clients, the diversion of management’s attention from other business concerns, and undisclosed or potential legal liabilities of the acquired company. The Company may not realize the strategic and financial benefits that it expects from any of its past acquisitions, or any future acquisitions.

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BUSINESS COULD BE ADVERSELY AFFECTED IF IT LOSES OR FAILS TO ATTRACT KEY EMPLOYEES

Our executive management and our employees, including creative, research, media, account and their skills and relationships with clients, are among the Company’s most critically important assets. An important aspect of the Company’s competitiveness is its ability to retain key employee and executive management. The compensation for these key employees is an essential factor in attracting and retaining them and the Company may not offer a level of compensation sufficient to attract and retain these key employees. If the Company fails to hire and retain a sufficient number of these key employees, it may not be able to compete effectively.

BUSINESS EXPOSED TO THE RISK OF CLIENT MEDIA ACCOUNT DEFAULTS

The Company often incurs expenses on behalf of its clients in order to secure a variety of opportunities in exchange for which it receives a fee. While the Company acts to prevent against default on payment for these services and have historically had a very low incidence of default, the Company is still exposed to the risk of significant uncollectible receivables from our clients.
SUBJECT TO REGULATIONS THAT COULD RESTRICT ITS ACTIVITIES OR NEGATIVELY IMPACT ITS REVENUES

Marketing communications businesses are subject to government regulation, both domestic and foreign. There has been an increasing tendency in the United States on the part of advertisers to resort to litigation and self-regulatory bodies to challenge comparative advertising on the grounds that the advertising is false and deceptive. Moreover, there has recently been an expansion of specific rules, prohibitions, media restrictions, labeling disclosures and warning requirements with respect to advertising for certain products. Representatives within government bodies, both domestic and foreign, continue to initiate proposals to ban the advertising of specific products and to impose taxes on or deny deductions for advertising which, if successful, may have an adverse effect on advertising expenditures and consequently the Company’s revenues.

THE RESULTS OF OPERATIONS ARE SUBJECT TO CURRENCY FLUCTUATION RISKS

Although the Company’s financial results are reported in U.S. dollars, a portion of its revenues and operating costs may be denominated in currencies other than the US dollar. As a result, fluctuations in the exchange rate between the U.S. dollar and other currencies, may affect the Company’s financial results and competitive position.

OUTSTANDING INDEBTEDNESS; SECURITY INTEREST AND UNREGISTERED SALES OF EQUITY SECURITIES

Asher Enterprises, Inc.

On October 16, 2012 the company issued a convertible promissory note for $32,500 to Asher. The convertible promissory note bears interest at 8% and is due on July 18, 2013 and any amount not paid by July 18, 2013 will incur a 22% interest rate. The note is convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.

In conjunction with the issuance of the promissory note, $2,500 was recorded as debt discount. The discount is being amortized over the term of the note to interest expense. During April 2013, the Company paid off the $32,500 note and accrued interest and penalties of $10,000.  The discount balance was $0 and $1,809 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $34,309 was recognized as interest expense as of September 30, 2013.

On May 20, 2013 the company issued a convertible promissory note for $53,000 to Asher. The convertible promissory note bears interest at 8% and is due on February 24, 2014 and any amount not paid by the due date will incur a 22% interest rate. The note is convertible at 58% of the average of the lowest trading price for the Company’s common stock during the ten trading day period prior to the conversion date after 180 days. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as liabilities once the conversion option becomes effective after 180 days due to there being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options.
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Paul Sherman Agreement

On May 12, 2012, the Company modified its July 24, 2011 agreement with Paul Sherman into a $9,943 convertible promissory note bearing interest at 2% and due on May 15, 2013. The convertible promissory note is convertible at a price equal to the close price on the day prior to Paul Sherman’s request for conversion, but not to go below $.001. The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instrument should be classified as a liability. The fair value of the embedded conversion option resulted in a discount of $8,875 on the date of the note. The discount is being amortized over the term of the note to interest expense. The discount balance was $0 and $3,376 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $3,376 was recognized as interest expense as of September 30, 2013. The convertible promissory note has an outstanding balance of $9,943 and $9,943 as of September 30, 2013 and December 31, 2012, respectively.

Continental Equities, LLC

On September 7, 2012 the company issued a convertible promissory note for $50,000 to Continental Equities, LLC (“Continental”) for the assignment of an equivalent amount of the Company’s account payable to Continental. The convertible promissory note bears interest at 12% and was due on May 15, 2013, any amount not paid by May 15, 2013 is incurring a 22% interest rate.

On September 7, 2012 the company issued a convertible promissory note for $20,000 to Continental Equities, LLC for the assignment of an equivalent amount of the Company’s accrued interest to Continental. The convertible promissory note bore interest at 12% and during May 2013, a related party entity paid the $20,000 convertible promissory note plus accrued interest in full.

The convertible promissory notes are/were convertible at 50% of the average of the lowest three trading prices for the Company’s common stock during the ten trading day period prior to the conversion date. The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the instruments should be classified as liabilities. The fair value of the embedded conversion option resulted in a discount of $65,597 on the date of the note. The discount balance was $0 as of September 30, 2013.  Amortization of $65,597 was recognized as interest expense as of September 30, 2013. The Company paid off $20,000 of the note during the nine months ended September 30, 2013. The convertible promissory notes have an outstanding balance of $50,000 and $70,000 as of September 30, 2013 and December 31, 2012, respectively.
As inducement for entering into the convertible promissory notes, the Company issued 600,000 shares, which were recorded as a debt discount of $11,486, which represents the relative fair value of the shares with the note principal. The discount balance was $0 and $7,657 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $7,657 was recognized as interest expense as of September 30, 2013.
On November 18, 2013 the company paid $55,000 to Continental Equities leaving a balance of $29,000 owed including interest and penalties.
Connied, Inc.

On April 11, 2011 the Company assigned $135,000 of its account payable from a third party to Connied, Inc. (“Connied”). On May 3, 2011, the Company amended the assigned account payable to add a conversion feature. The new note was convertible at 50% of the average of the five lowest closing prices for the Company's stock during the previous 30 trading days. The remaining balance of $85,000 was recorded as short term debt. The note bears interest at 20% and is due on May 2, 2013.

The Company analyzed the conversion option for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with the change in fair value recorded to earnings. The addition of the embedded conversion option resulted in a full discount to the note of $85,000 on May 3, 2011.

During August 2013, the Company entered into a Termination Agreement and Release (the “Agreement”) with Continental Investments Group (Continental), the holder of a $85,000 convertible note payable of the Company and the holder of 2,500,000 shares of restricted common stock.  The Agreement calls for the termination and cancellation of a Sale and Purchase agreement, whereby the Company agreed to issue 50,000 Series B Convertible Preferred Stock in exchange for 20,000 cartoon animated Cels. The Agreement also calls for the cancellation of the $85,000 convertible note and related interest and the Continental to return the 2,500,000 shares of restricted common stock and 50,000 Series B Convertible Preferred Stock, valued at par of $2,550. This resulted in a gain on settlement of debt of $85,000.
The discount was being amortized over the term of the note to interest expense. The discount balance was $0 and $34,170 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $34,170 was recognized as interest expense as of September 30, 2013.  The convertible promissory note has an outstanding balance of $0 and $85,000 as of September 30, 2013 and December 31, 2012, respectively.
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Alan Morell

On September 26, 2012, the Company issued two convertible promissory notes for $112,000 and $525,000 to Alan Morell for outstanding amounts owed for the Company’s line of credit and accrued salary, respectively. The notes bore interest at 2% and were due on April 4, 2013 and April 26, 2014, respectively. The notes became convertible at $0.04 and $0.06, respectively, as of November 15, 2012. During June 2013, the Company issued 2,800,000 shares of common stock to settle the $637,000 note, resulting in a gain on settlement of debt of $610,400.

The Company analyzed the conversion options for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion feature should be classified as a liability due to their being no explicit limit to the number of shares to be delivered upon settlement of the above conversion options. The embedded conversion feature was measured at fair value at inception and on the date of conversion with the change in fair value recorded to earnings.  The addition of the embedded conversion options resulted in a discount to the notes of $27,573 on November 15, 2012. The discounts were being amortized over the terms of the notes to interest expense. The discount balances were $0 and $7,739 as of September 30, 2013 and December 31, 2012, respectively.  Amortization of $7,739 was recognized as interest expense during the nine months ended September 30, 2013.  The convertible promissory notes have an outstanding balance of $0 and $637,000 as of September 30, 2013 and December 31, 2012, respectively.
Infinite Alpha

On April 29, 2013 the company issued a convertible promissory note for $51,500 to Infinite Alpha. The promissory note is unsecured, bears interest at 20%, and is due on demand. Any amounts not paid on demand will incur a 24% interest rate.
During the nine months ended September 30, 2013, the Company wrote off $98,332 of accrued interest to gain on settlement of debt. The total gain on settlement of debt recorded was $793,732 and total amortization of debt discount was $152,848 as of September 30, 2013. The Company made total payments on notes payable of $52,500 on notes payable, and $104,500 on borrowings.

PUBLIC COMPANY COMPLIANCE MAY MAKE IT MORE DIFFICULT TO ATTRACT AND RETAIN OFFICERS AND DIRECTORS

The Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public entity, the Company expects these new rules and regulations to increase compliance costs in 2010 and beyond and to make certain activities more time consuming and costly. As a public entity, the Company also expects that these new rules and regulations may make it more difficult and expensive for the Company to obtain director and officer liability insurance in the future and it may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for the Company to attract and retain qualified persons to serve as directors or as executive officers.

THERE IS CURRENTLY NO LIQUID TRADING MARKET FOR THE COMPANY’S COMMON STOCK AND THE COMPANY CANNOT ENSURE THAT ONE WILL EVER DEVELOP OR BE SUSTAINED

The Company’s common stock is currently approved for quotation on the OTCQB trading under the symbol CMGO.PK. However, there is limited trading activity and not currently a liquid trading market. There is no assurance as to when or whether a liquid trading market will develop, and if such a market does develop, there is no assurance that it will be maintained. Furthermore, for companies whose securities are quoted on the Over-The-Counter Bulletin Board maintained by the National Association of Securities Dealers, Inc. (the “OTCQB”), it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital. As a result, purchasers of the Company’s common stock may have difficulty selling their shares in the public market, and the market price may be subject to significant volatility.
stock.
 
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THE COMPANY’S STOCK PRICE MAY BE VOLATILE

The market price of the Company’s common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond the Company’s control, including the following: technological innovations or new products and services by the Company or its competitors; additions or departures of key personnel; limited “public float” following the Reorganization , in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for the common stock; the Company’s ability to execute its business plan; operating results that fall below expectations; loss of any strategic relationship; industry developments; economic and other external factors; and period-to-period fluctuations in the Company’s financial results. In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of the Company’s common stock.

OFFERS OR AVAILABILITY FOR SALE OF A SUBSTANTIAL NUMBER OF SHARES OF THE COMPANY’S COMMON STOCK MAY CAUSE THE PRICE OF THE COMPANY’S COMMON STOCK TO DECLINE OR COULD AFFECT THE COMPANY’S ABILITY TO RAISE ADDITIONAL WORKING CAPITAL

If the Company’s current stockholders seek to sell substantial amounts of common stock in the public market either upon expiration of any required holding period under Rule 144 or pursuant to an effective registration statement, it could create a circumstance commonly referred to as “overhang,” in anticipation of which the market price of the Company’s common stock could fall substantially. The existence of an overhang, whether or not sales have occurred or are occurring, also could make it more difficult for the Company to raise additional financing in the future through sale of securities at a time and price that the Company deems acceptable.

THE COMPANY’S COMMON STOCK IS CURRENTLY DEEMED TO BE “PENNY STOCK”, WHICH MAKES IT MORE DIFFICULT FOR INVESTORS TO SELL THEIR SHARES

The Company’s common stock is currently subject to the “penny stock” rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for the Company’s securities. If the Company’s securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Company’s securities.

THE ELIMINATION OF MONETARY LIABILITY AGAINST THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES UNDER NEVADA LAW AND THE EXISTENCE OF INDEMNIFICATION RIGHTS TO THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES MAY RESULT IN SUBSTANTIAL EXPENDITURES BY THE COMPANY AND MAY DISCOURAGE LAWSUITS AGAINST THE COMPANY’S DIRECTORS, OFFICERS AND EMPLOYEES

The Company’s certificate of incorporation does not contain any specific provisions that eliminate the liability of directors for monetary damages to the Company and the Company’s stockholders; however, the Company is prepared to give such indemnification to its directors and officers to the extent provided by Nevada law. The Company may also have contractual indemnification obligations under its employment agreements with its executive officers. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and resultant costs may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by the Company’s stockholders against the Company’s directors and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.
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ITEM 4: CONTROLS3 - QUANTITATIVE AND PROCEDURESQUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

Management has evaluated, withWe are a smaller reporting company as defined by Rule 12b-2 of the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined inSecurities Exchange Act Rules 13a-15(f)of 1934 and 15d-15(f)) as of the end of the period covered by this report and concluded that our disclosure controls and procedures wereare not effective to ensure that all material information required to be disclosed inprovide the information under this Quarterly Report on Form 10-Q has been made known to them in a timely fashion. We are in the process of improving our internal control over financial reporting in an effort to remediate these deficiencies through improved supervision and training of our accounting staff. These deficiencies have been disclosed to our Board of Directors. We believe that this effort is sufficient to fully remedy these deficiencies and we are continuing our efforts to improve and strengthen our control processes and procedures. Our Chief Executive Officer, Chief Financial Officer and directors will continue to work with our auditors and other outside advisors to ensure that our controls and procedures are adequate and effective.item.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

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No change in the Company’s internal control over financial reporting occurred during the month ended June 30, 2013, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.


ITEM 4 - CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2014. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, 2014, the Company’s disclosure controls and procedures were not effective due to the identification of a material weakness in our internal control over financial reporting which is identified below, which we view as an integral part of our disclosure controls and procedures. This conclusion by the Company’s Chief Executive Officer and Chief Financial Officer does not relate to reporting periods after December 31, 2013.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2014 based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 1992). Furthermore, due to our financial situation, the Company will be implementing further internal controls as the Company becomes operative so as to fully comply with the standards set by the Committee of Sponsoring Organizations of the Treadway Commission.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Based on its evaluation as of December 31, 2013, our management concluded that our internal controls over financial reporting were not effective as of December 31, 2013 due to the identification of a material weakness. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. At any time, if it appears that any control can be implemented to continue to mitigate such weaknesses, it is immediately implemented. As soon as our finances allow, we will hire sufficient accounting staff and implement appropriate procedures for monitoring and review of work performed by our Chief Financial Officer.
In performing this assessment, management has identified the following material weaknesses as of December 31, 2013:
·
There is a lack of segregation of duties necessary for a good system of internal control due to insufficient accounting staff due to the size of the Company
·
Lack of a formal review process that includes multiple levels of reviews
·
Employees and management lack the qualifications and training to fulfill their assigned accounting and reporting functions
·Inadequate design of controls over significant accounts and processes
·
Inadequate documentation of the components of internal control in general
·
Failure in the operating effectiveness over controls related to valuing and recording equity based payments to employees and non-employees
·Failure in the operating effectiveness over controls related to valuing and recording debt instruments including those with conversion options and the related embedded derivative liabilities
·
Failure in the operating effectiveness over controls related to recording revenue and expense transactions in the proper period
·Failure in the operating effectiveness over controls related to evaluating and recording related party transactions
The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.  As of March 31, 2014 no changes have occurred.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

On April 7, 2014, the Board of Directors of the Company appointed Mr. Glenn Laken as the Company’s Chief Executive Officer. Mr. Jeffrey Devlin remained as the Company’s acting Chief Financial Officer.

Except for the above, no change in the Company’s internal control over financial reporting occurred during the period ended March 31, 2014, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.
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PART II  OTHER INFORMATION

ITEM 1 – LEGAL PROCEEDINGS

We are subject to certain claims and litigation in the ordinary course of business. It is the opinion of management that the outcome of such matters will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

On April 21, 2011, the Company was served with a lawsuit that was filed in Clark County, Nevada against the Company by A to Z Holdings, LLC and seven other individuals or entities. The complaint alleges, among other things, that the Company’s Board of Directors did not have the power to designate series A and B preferred stock without amending the articles of incorporation. The complaint also alleges any such amendment would require shareholder approval and filing of a proxy statement. On April 20, 2012, the Company settled with A to Z Holdings, LLC and seven other individuals or entities for $10,000. The Company has accrued this settlement liability as of June 30, 2013.

On July 6, 2011, the Company was served with a lawsuit filed in the Circuit Court for the County of Multnomah, Oregon. The complaint alleges breach of contract and entitlement to consulting fees from the Company. The case was settled in 2012 for $30,000. The Company$30,000 and the settlement amount has accrued for this liability as of June 30, 2013.not been paid.

ITEM 1A – RISK FACTORS

The Company is a smaller reporting company and is therefore not required to provide this information.

ITEM 2: - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
NoneOn January 28, 2014, the Company sold and issued to an accredited investor a total of 1,500,000 shares of Common Stock for gross proceeds of $15,000.
On April 7, 2014, we issued to our newly appointed CEO and Chairman of the Board of Directors, as compensation, a warrant to purchase a total of 40,000,000 shares of Common Stock at the exercise price of $0.0155 with a term of 5 years.

On April 9, 2014, the Company issued to an investor relationship firm a total of 522,000 shares of Common Stock as compensation for its services pursuant to a Consulting Agreement, dated June 13, 2012.

21Except as disclosed above, all unregistered sales of the Company’s securities have been disclosed on the Company’s current reports on Form 8-K.

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ITEM 3 – DEFAULT UPON SENIOR SECURITIES

None
None.
 
ITEM 4 – MINE SAFETY DISCLOSURES
 
NoneNone.

ITEM 5 – OTHER INFORMATION

On June 22, 2011 the Registrant entered into a Master Agreement (hereinafter the “Agreement”) with AudioEye Acquisition Corp., a Nevada corporation (hereinafter “AudioEye Acquisition”) pursuant to which: (i) the shareholders of AudioEye Acquisition acquired from the Registrant 80% of the capital stock of AudioEye and (ii) the Registrant has on February 21, 2013 distribute to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye.None.

On February 21, 2013 AudioEye, Inc. distributed 15% or its common stock to Registrant and 5% to shareholders of record of Registrant as of the October 26, 2012 dividend date in accordance with the provisions of the June 22, 2011 Master Agreement, which is 5% of the capital stock of AudioEye, Inc.
1.  The Registrant will retain 15% of the capital stock of AudioEye, Inc. subject to transfer restrictions in accordance with the provisions of the Master Agreement.

2.  The Registrant has distributed on February 21, 2013 to its shareholders, in the form of a dividend, 5% of the capital stock of AudioEye, Inc. in accordance with provisions of the Agreement.

ITEM 6 – EXHIBITS

Exhibit No. Document Description

Exhibit
Number
31.1Description of ExhibitFiling Reference
4.1Form of Warrant issued to Glenn Laken.Filed herewith.
10.1Employment Agreement, dated April 30, 2014, between the Company and Glenn Laken.Filed herewith.
31.01Certification of ChiefPrincipal Executive Officer and Chief Financial Officer pursuantPursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.13a-14.Filed herewith.
 32.1
31.02Certification of Chief Executive Officer and ChiefPrincipal Financial Officer Pursuant to 18 U.S.C. Section 1350 as adoptedRule 13a-14.Filed herewith.
32.01CEO and CFO Certification Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.Sarbanes-Oxley Act.Filed herewith.
101.INSXBRL Instance Document.
101.SCHXBRL Taxonomy Extension Schema Document.
101.CALXBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFXBRL Taxonomy Extension Definition Linkbase Document
101.LABXBRL Taxonomy Extension Label Linkbase Document.
101.PREXBRL Taxonomy Extension Presentation Linkbase Document

* The XBRL-related information in Exhibits 101 to this Quarterly Report on Form 10-Q shall not be deemed “filed” or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, and is not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of those sections.
 
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Reports on Form 8-K:

The Company filed a Form 8-K on August 2 2013 - Item 7.01 - Regulation FD Disclosure - Message to Shareholders.
.
   
SIGNATURES

In accordance withPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.
 CMG HOLDINGS GROUP, INC.
(Registrant)
Date: November 21, 2013By: /s/ JEFFREY DEVLIN
Jeffrey Devlin
Chief Executive Officer, Chief Financial Officer and Chairman of the Board

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.
SIGNATURENAMETITLEDATE
/s/Jeffrey DevlinJeffrey DevlinCEO, CFO & Chairman of the BoardNovember 21, 2013
 
    
Dated: May 15, 2014By:
/s/ Glenn Laken
Glenn Laken
Chief Executive Officer
   
Dated: May 15, 2014By:
/s/ Jeffrey Devlin
Jeffrey Devlin
Chief Financial Officer

 
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