CMG HOLDINGS GROUP, INC.

FORM 10-Q

TABLE OF CONTENTS

PART I  FINANCIAL INFORMATION

ITEM 1-1 – CONSOLIDATED FINANCIAL STATEMENTS

CMG HOLDINGS GROUP, INC.

UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHSQUARTER ENDED JUNE 30, 2015 AND THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013

CONTENTS

The accompanying notes are an integral part of these financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

The accompanying notes are an integral part of these consolidated financial statements.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberJune 30, 20142015

(Unaudited)

NOTE 1:1 – DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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,June 30, 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.

On March 28, 2014, CMG Holdings Group, Inc. (the “Company” or “CMG”), completed its acquisition of 100% of the shares of Good Gaming, Inc. (“GGI”) by entering into a Share Exchange Agreement (the “SEA”) with BMB Financial, Inc. and Jackie Beckford, 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. 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. As of September 30, 2014, the Company has paid $58,600 of equipment and consultant compensation and $190,550 in development costs, of which $50,000 of the development costs had been advanced by the Company, prior to entering the agreement. 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.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberJune 30, 20142015

(Unaudited)

Principles of Consolidation

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

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 allowance for doubtful accounts, depreciation, and contingencies. Actual results could differ from those estimates.

Concentrations of Risk

Financial Institutions - The Company maintains its cash balances at two financial institutions where they are insured by the Federal Deposit Insurance Corporation up to $250,000 each. At September 30, 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 September 30, 2014 and December 31,31and 2013, the account did not have a balance in excess of the limit.

Sales and Accounts Receivable -–For the three months ended and nine months ended SeptemberJune 30, 2014 and2015and the year ended December 31, 2013,2014, one customer accounts for 0%, 93% and 72%93% 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 determinable, 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 September 30, 2014 or December 31, 2014 and 2013.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

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 505-50Accounting 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.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

Derivative Instruments

We generally do not use derivative financial instruments to hedge exposures to cash-flow risks or market-risks. However, certain financial instruments, such as warrants and the embedded conversion features of our convertible promissory notes and debentures, which are indexed to our common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within our control. In such instances, net-cash settlement is assumed for financial accounting and reporting purposes, even when the terms of the underlying contracts do not provide for net-cash settlement. Derivative financial instruments are initially recorded, and continuously carried, at fair value.

Determining the fair value of these complex derivative financial instruments involves judgment and the use of certain relevant assumptions including, but not limited to, interest rates, volatility and conversion and redemption privileges. The use of different assumptions could have a material effect on the estimated fair value amounts.

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 balance sheet.

The Company uses estimates of fair value to value its derivative instruments. Fair value is defined as the price to sell an asset or transfer a liability in an orderly transaction between willing and able market participants. 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 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 seeks to validate the model’s output to market transactions. Depending on the availability of observable inputs and prices, different valuation models could produce materially different fair value estimates. The values presented may not represent future fair values and may not be realizable. The Company categorizes its fair value estimates in accordance with ASC 820, Fair Value Measurements (ASC 820), based on the hierarchical 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.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

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, $0$1,857 and $0 for the three months ended June 30, 2015 and nine months ended September 30, 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, $0 and $0 for the three months ended and nine months ended September 30, 2014 and the year ended December 31, 2013, respectively.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

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 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.

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 based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

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.

The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on SeptemberJune 30, 20142015 and December 31, 2013:2014:

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberJune 30, 20142015

(Unaudited)

Investments in Debt and Equity Securities

The Company applies the provisions of Accounting Standards Codification 320, Investments – Debt and Equity 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 SeptemberJune 30, 20142015 and December 31, 20132014 are as follows:

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.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

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.

Common Stock

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. 

On 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.

On April 7, 2014, the Company issued 522,000 shares of its common stock pursuant to a consulting agreement. The shares were valued at a total of $8,613 or $0.0165 per share, the closing price of the company’s common stock on the OTCQB.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

On May 9, 2014, the Company issued to a total of 6,000,000 shares of Common Stock to its three former directors of the Company, with each former director receiving 2,000,000 shares, pursuant to the agreements between the Company and each of the former directors dated February 5, 2014.

On June 30, 2014, the Company canceled 7,350,000 shares of common stock pursuant to a settlement agreement with CMGO Investors LLC and Craig Boden.

Common 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.

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.

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.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)

A summary of warrant activity for the nine months ended SeptemberJune 30, 20142015 and the yearsyear ended December 31, 2013 and 20122014 is as follows: 

As of SeptemberJune 30, 2014,2015, the warrants have a weighted average remaining life of 4.43 years with $0 aggregate intrinsic value.

NOTE 3 - NOTES PAYABLE– PROPERTY AND EQUIPMENT

Paul Sherman Agreement

On May 12, 2012,Depreciation expense was $3,714 and $4,950 for 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 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 $0 as of September 30, 2014 and December 31, 2013, respectively.  Amortization of $0 and $3,376 was recognized as interest expense during the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31, 2013, respectively. 2014.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

NOTE 4 – GOODWILL

The Company recorded goodwill of $54,500 on the purchase of Good Gaming Inc. The Company issued 5,000,000 shares of Company common stock at a value of $0.0175 per share for a value of $87,500. The Company also recorded $33,000 of equipment.

NOTE 5 – NOTES PAYABLE

The Company issued Iconic Holdings, LLC. a convertible promissory note has an outstanding balance of $9,943 and $9,943 as of September 30, 2014 and December 31, 2013, respectively.

Convertible Promissory Note

On September 30, 2014, the Company sold a convertible promissory Note (the “Note”) in private placements to Iconic Holdings LLC. The principal amount of the Note$50,000 on September 26, 2014. The note has an interest rate of 10% and is $55,000.due September 29, 2015. The Notenote is convertible atinto the holder's option, into shares of ourCompany’s common stock generally at a conversion price equal to 70% of the lowest trading price of ourthe Company’s common stock forduring the 20 consecutive trading days prior 20 trading days.to the date on which note holder elects to convert all or part of the note. The Noteunamortized discount is $24,520. The net value of the note is $18,638. The outstanding balance at June 30, 2015 is $50,000.

On October 1, 2014 the Company sold a Convertible Debenture in the principle amount of $114,000 to Typenex Co-Investment, LLC. The principal amount includes an Original Issue Discount in the amount of $10,000. The Debenture bears interest at an annum rate of 10% and is payable in 5 equal installments that can be paid in cash or share of the Company’s common stock. The number of shares to be issued for installment payments made in the form of shares of the Company’s common stock, shall be calculated at70% of the average of the three closing prices in the 20 trading days prior to the date of conversion, of the Company’s common stock. The Note’s maturity date is August 1, 2015. The unamortized discount is $46,125. The net value of the note is $63,960. The outstanding balance at June 30, 2015 is $114,000.

On October 10, 2014 the Company sold a Convertible Debenture in the principal amount of $115,000 to KBM Investments LLC. The Principle amount includes an Original Issue Discount in the amount of $11,000 and investor fees in the amount of $4,000. Total net proceeds to the Company were $100,000. The Debenture bears interest at an annum rate of 8% and can be repaid at any time prior to maturity with athe date of maturity. The prepayment penalty of 10%for such prepayment ranges from 8%-25% of the principal amount paid, is due on September 30, 2015 and contains customary events of default and provide for increased interest rates inpaid. On the event of default.    We did not pay a placement agent or other fees and the Note was issued with an original issue discount of $5,000. Net proceeds to the Company was $50,000. The Note does not require us to register the shares of our common stock underlying their conversion.

The terms of the embedded conversion options in the Note does not meet all of the established criteria for equity classification in FASB ASC 815-40, Derivatives and Hedging - Contracts in Entity's Own Equity.    Accordingly, the embedded derivative instrument in the Note (the conversion option), is accounted for separately181^st day from the host contract, and is recorded at fair value of $81,627. The Company recorded a derivative expense of $31,627 on the date of the Note. Accordingly,The Note is convertible into shares of the initial carryingCompany’s common stock. The Rate of such conversion is 75% of the lowest 3 trading prices of the Company’s common stock during the ten trading days prior to the conversion date. The Note’s maturity date is October 8, 2015. The unamortized discount is $60,510. The net value of the note is $75,924. The outstanding balance at June 30, 2015 is $115,000.

On December 18, 2014 the Company entered into the Securities Purchase Agreement pursuant to which it sold an 8% convertible note of the Corporation, in the aggregate principle amount of $40,000 convertible into shares of the Company’s common stock to KBM Worldwide Inc. The Note onis convertible into shares of the Company’s common stock. The Rate of such conversion is 75% of the lowest 3 trading prices of the Company’s common stock during the ten trading days prior to the conversion date. The note has a maturity date of December 18, 2015. The unamortized discount is $28,175. The net value of the Note was $0.note is $34,074. The embedded derivative instrument that hasoutstanding balance at June 30, 2015 is $40,000.

In June 2015, the Company borrowed $100,000 to provide payment to Eaton and Van Winkle (the attorneys for the Hudson Grey lawsuit) as the seed money for the Suit. As stated previously the balance of the fees for the suit have been separatedarranged. This loan with expenses is due to be repaid November 1, 2015.

During the quarter ended June 30, 2015 the Company borrowed $45,000 from the Note, shall be re-valued each reporting period, with any changes in their fair values recognized as a gain or loss in our income statement.two shareholders to fund operations.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberJune 30, 20142015

(Unaudited)

NOTE 4 -6 – DERIVATIVE LIABILITIES

The Company has a convertible instrumentinstruments outstanding more fully described in Note 3.   In accordance with ASC 815-15 “Derivatives and Hedging”, the convertible share-settleable instruments are classified as liabilities.

Embedded Derivative Liabilities in Convertible Notes

During the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31, 2013,2014, the Company recognized new derivative liabilities of $81,627$416,499 and $98,097,$400,892, 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 $31,627$60,461 and $0$81,892 for the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31, 2013,2014, respectively.  As a result of conversions of notes payable, the Company reclassified $0 and $9,240,920$0 from equity and $0 and $0 of derivative liabilities to equity during the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31 2013,2014, respectively.  The Company recognized a gaingain(loss) of $11,121$267,087 and a gain of $210,810$(74,679) on derivatives due to change in fair value of the liability during the ninesix months ended SeptemberJune 30, 20142015 and the year ended December 31, 2013,2014, respectively. The fair value of the Company’s embedded derivative liabilities was $81,627$224,460 and $0$400,892 at SeptemberJune 30, 20142015 and December 31, 2013,2014, respectively.

Warrants

During 2011, 774,000 A Warrants and 774,000 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, 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 SeptemberJune 30, 20142015 and December 31, 20132014 was $3,195$56,371 and $11,121,$51,622, respectively.  The Company recognized an expense of $381$40,501 and a gain $10,196$40,501 related to the warrants for the ninethree months ended June 30, 20142015 and the year ended December 31, 2013,2014, respectively.

The following table summarizes the derivative liabilities included in the consolidated balance sheet:

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

The embedded conversion options in the Notes, which is accounted for separately as a derivative instrument is valued using a binomial lattice model because that model embodies all of the significant relevant assumptions that address the features underlying these instruments. Significant assumptions used in the model as of the date the Note was issued and as of SeptemberJune 30, 20142015 included an expected life equal to the remaining term of the Note, an expected dividend yield of zero, estimated volatility ranging of 116%, and a risk-free rate of return of 0.13%. For the risk-free rates of return, we use the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the Note. Volatility is based upon our expected common stock price volatility over the remaining term of the Note. The volatility used for the Note is based on the Company’s 100-day volatility, which is considered a reasonable surrogate for the volatility to be expected over the life of the Note. That volatility has generally ranged from 116% to 146%.

NOTE 7 – RELATED PARTY

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberThe Company issued to three former directors 2,000,000 shares of the Company’s common stock. The Company issued the Company CEO a warrant to purchase 40,000,000 shares of the Company’s common stock at $0.0155. The warrant has a term of 5 years. The board of directors approved a monthly salary for the Company CEO of $15,000 per month. Due to negative economic factors the company has not made all of these payments and has recorded “Accrued Compensation” of $130,000 at June 30, 20142015.

(Unaudited)

NOTE 5 -8 – LEGAL PROCEEDINGS

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

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.

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 on September 28, 2012 for $30,000. The Company has accrued for this liability as of September 30, 2014 and December 31, 2013.

On September 23, 2014, XA filed a lawsuit in the Supreme Court of the State of New York, County of New York against HG and its principals alleging wrongdoing by the defendants in connection with soliciting XA’s clients and seeking against further contact with XA clients. The Company conducted an internal investigation of actions taken by XA’s former employees during the quarter ended September 30, 2014. While the investigation is not complete, we have discovered that there are numerous instances of conversion of XA assets and funds, such as personal charges on company credit cards, payments for cell phones for family members, reimbursement for personal travel and other expenses which did not relate to XA in any way, and transactions between XA and parties owned by these former employees who did not disclose their interests in them. The Company and XA plan to complete the investigation, including recovering e-mails deleted by the former employees, and to vigorously pursue any and all amounts wrongfully taken from XA.

The investigation has been completed, an amended complaint will be filed on June 15, 2015. New counsel has been retained to pursue the prosecution of the case and the new counsels name is Laurence Speckman of the firm Eagon and Van Winkle. There will be new defendant s added and the damages sought will be substantially increased

In October, 2014, Ronald Burkhardt, XA,s former Executive Chairman and a current member of the Company’s Board of Directors filed a lawsuit in the Supreme Court of the State of New York, County of New York, alleging breach of his employment contract and seeking approximately $695,000 in damages. The Company believes that Mr. Burkhardt’s claim is without merit and plans to vigorously defend the lawsuit.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

(Unaudited)

NOTE 6 -9 – ACQUISITION OF GOOD GAMING, INC.

On 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 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 profits of GGI and up to 30% of the proceeds, in the event of a sale of GGI or its assets.  In accordance with the purchase method of accounting, theThe Company recorded goodwill of $54,500 as a chargeresult of $87,500.

NOTE 7 - RELATED PARTY TRANSACTIONS

The Company had outstanding accounts payablethis acquisition and intends 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 September 30, 2014 and December 31, 2013, respectively.  Total amount submitted to the Companytest this asset for reimbursement from the consulting firm is $0 and $142,060 for the nine months ended September 30, 2014 and the year ended 2013, respectively.

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2014

(Unaudited)impairment every twelve months.

NOTE 8 -10 – SEGMENTS 

The Company splits its business activities during the nine months ended SeptemberJune 30, 20142015 into three reportable segments. Each segment represents an entity of which are included in the consolidation. The table below represents the operations results for each segment or entity, for the ninethree months ended SeptemberJune 30, 2014.2015.

NOTE 911 – RESIGNATION OF OFFICERS AND MEMBERS OF THE BOARD.

On September 26, 2012, Alan Morell officially resigned as Chief Executive Officer and Director of the 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.

On May 9, 2014, the Company issued to a total of 6,000,000 shares of Common Stock to its three former directors of the Company, with each former director receiving 2,000,000 shares, pursuant to the agreements between the Company and each of the former directors dated February 5, 2014.

On September 17, 2014, Jeffrey Devlin resigned as Chief Financial Officer and Director of the Company.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

CMG HOLDINGS GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SeptemberJune 30, 20142015

(Unaudited)

ExceptNOTE 12 – GOING CONCERN

As reported in the consolidated financial statements, the Company has an accumulated deficit as discussed above in Note 5,of June 30, 2015 and its current liabilities exceeded its current assets. There were recurring losses from operations and cash flows. There is a potential for this negative trend to continue.

These factors create uncertainty about the Company's ability to continue as a going concern. The ability of the Company to continue as a going concern is notdependent on the subject of any pending legal proceedingsCompany obtaining adequate capital to fund operating losses until it becomes profitable and to the knowledge of management; no proceedings are presently contemplated againstcreate operations that contribute capital from normal operations. If the Company by any federal, statecannot obtain adequate capital or local governmental agency.revenue streams it could be forced to cease operations.

NOTE 11 -13 – SUBSEQUENT EVENTS

On October 1, 2014The Company has evaluated events subsequent through the date these financial statements have been issued to assess the need for potential recognition or disclosure in this report. Such events were evaluated through the date these financial statements were available to be issued. Based upon this evaluation, it was determined that, with the exception of disclosure below, no other subsequent events occurred that require recognition or disclosure in the financial statements.

During July 2015 the Company sold a Convertible Debentureissued 126,000,000 of its common shares in conversion of convertible notes to KBM Worldwide and KBM Investments, Inc.

The Company borrowed $150,000 from two Irish pension funds to purchase all of the remaining debt of KBM Worldwide, Inc. and KBM Investments, LLC. The terms for the loan are in the principal amountfinal stages of $114,000negotiation and will require a payment upon and if the Company is victorious in the pending litigation against Hudson Grey et al.

During July 2015 the Company issued 9,000,000 of its common shares in conversion of a convertible note to Iconic Holdings, LLC. The Company holds an option to purchase the remaining debt from Iconic Holdings, LLC for $43,000.

During July 2015 the Company issued 25,000,000 of its common shares in conversion of a convertible note to Typenex Co-Investment, LLC. The principal amount includesCompany holds an Original Issue Discount inoption to purchase the amount of $10,000 and investor fees in the amount of $4,000. Total net proceedsremaining debt from Typenex Co-Investment, LLC. for $65,000.

We expect these two notes to be extinguished previous to the Company were $100,000. The Debenture bears interest at an annum rate of 10% and is payable in 5 equal installments that can be paid in cash or shareend of the Company’s common stock. The numberforth quarter of shares to be issued for installment payments made in the form of shares of the Company’s common stock, shall be calculated at 70% of the average of the three closing prices in the 20 trading days prior to the date of conversion, of the Company’s common stock. The Note’s maturity date is August 1, 2015.

ITEM 2 -– MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD LOOKING STATEMENTS

The following discussionIn 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 financial conditionproducts and resultstechnologies, the competitive nature of operations should be readand anticipated growth in conjunction with our unaudited condensed consolidated financial statementsmarkets, our ability to achieve cost reductions, the status of evolving technologies and their growth potential, the notesadoption of future industry standards, expectations as to those financial statements appearing elsewhere in this Report.

Certain statements in this Report constitute forward-looking statements.our financing and liquidity requirements and arrangements, the need for additional capital, and other matters that are not historical facts. These forward-looking statements include statements, which involve risksare based on our current expectations, estimates, and uncertainties, regarding, among other things, (a) our projected sales, profitability, and cash flows, (b) our growth strategy, (c) anticipated trends inprojections about our industry, (d) our future financing plans,management’s beliefs, and (e) our anticipated needs for,certain assumptions made by it. Words such as “anticipates”, “appears”, “believe,”, “expects”, “intends”, “plans”, “believes, “seeks”, “assume,” “estimates”, “may”, “will” and use of, working capital. They are generally identifiable by use of the words “may,” “will,” “should,” “anticipate,” “estimate,” “plan,” “potential,” “project,” “continuing,” “ongoing,” “expects,” “management believes,” “we believe,” “we intend,” or the negativevariations of these words or other variations on these words or comparable terminology. In light of these riskssimilar 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 uncertainties, there canresults that might be no assurance that theobtained 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, contained inas 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 filing will in fact occur.report. You should not place undue reliance on theseour forward-looking statements.

Thestatements 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 they are made,this Quarterly Report was filed with the Securities and except to the extent required by federal securities laws, we undertake noExchange Commission (“SEC”). We expressly disclaim any obligation to revise or update publicly any forward-looking statements even if subsequent events cause our expectations to reflect eventschange regarding the matters discussed in those statements. Over time, our actual results, performance or circumstances afterachievements will likely differ from the date on which theanticipated results, performance or achievements that are expressed or implied by our forward-looking statements, are made orand such difference might be significant and materially adverse to reflect the occurrence of unanticipated events.

our stockholders. Unless the context indicates otherwise, the terms “Company”, “Corporate”, “CMGO”, “our”, and “we” refer to CMG Holdings Group, Inc. and its subsidiaries, including XA, The Experiential Agency, Inc. (“XA”) and Good Gaming, Inc. (“Good Gaming”).subsidiaries.

RECENT DEVELOPMENTS

Good Gaming has launched its website platform on October 17, 2014, with most features of the platform being functional or fully completed. Based on feedback of Good Gaming gamers, the Company anticipates that the site will be a success and expects to generate a significant amount of subscribers over the next 12 months. Good Gaming held its inaugural tournament on October 24, 2014 and has planned additional tournaments beginning on December 12, 2014.

During the quarters ended June 30, 2014 and September 30, 2014, each of the employees in XA’s New York office, as well as its COO in Chicago resigned. The Company later learned that each of these employees had, along with XA’s former CEO, formed a new company, called Hudson Gray, LLC (“HG”) which was soliciting XA’s clients using confidential and proprietary information gained from their employment with XA.

On September 23, 2014, XA filed a lawsuit in the Supreme Court of the State of New York, County of New York against HG and its principals alleging wrongdoing by the defendants in connection with soliciting XA’s clients and seeking against further contact with XA clients. The Company conducted an internal investigation of actions taken by XA’s former employees during the quarter ended September 30, 2014. While the investigation is not complete, we have discovered that there are numerous instances of conversion of XA assets and funds, such as personal charges on company credit cards, payments for cell phones for family members, reimbursement for personal travel and other expenses which did not relate to XA in any way, and transactions between XA and parties owned by these former employees who did not disclose their interests in them. The Company and XA plan to complete the investigation, including recovering e-mails deleted by the former employees, and to vigorously pursue any and all amounts wrongfully taken from XA.

RESULTS OF OPERATIONS FOR THE THREE MONTHSSIX MONTH PERIOD ENDED SEPTEMBERJUNE 30, 20142015

Gross revenues decreased from $1,048,407$7,526,474 for the threesix months ended SeptemberJune 30, 20132014 to $120,058$453,809 for the threesix months ended SeptemberJune 30, 2014.2015. The decrease in revenues was mainly attributable to the legal issues surrounding XA and its ongoing suit and lack of finances due to the departure of certain personnel of and clients our subsidiary XA. After June 30, 2014, and the filing of the Company’s Quarterly Report for the three months ended June 30, 2014, the Company became become aware of wrongful acts by its former employees as set forth above.same issue.

Cost of revenue decreased from $722,819$6,248,643 for the threesix months ended SeptemberJune 30, 20132014 to $64,203$162,531 for the threesix months ended SeptemberJune 30, 2014.2015. The decrease in cost of revenuegoods sold was due to the decrease in revenues of XA.XA, The Experiential Agency, Inc. (XA). 

Operating expenses decreased from $1,448,677$2,185,513 for the threesix months ended SeptemberJune 30, 20132014 to $692,822$358,702 for the threesix months ended SeptemberJune 30, 2014.5 The decrease in operating expenses is due to the decrease in revenues and costs of goods sold of XA.for the six months ended June 30, 2015.

Net loss increaseddecreased from $115,799$1,164,807 for the threesix months ended SeptemberJune 30, 2013 compared2014 to a net loss of $450,890$269,343 for the threesix months ended SeptemberJune 30, 2014.2015. The increasedecrease in net loss is due to the increase of the operating loss and decrease of Other Income from $400,270 and $284,471, respectively, during the three months ended September 30, 2013 to $572,764 and $121,874, respectively, during the three months ended September 30, 2014. During the three months ended September 30, 2014, the net effect of the total realized and unrealized gains and losses of marketable securities was a total gain of $168,434 as compared to a loss of $45,800, during the three months ended September 30, 2013. Other non-cash charges included in Other Income during the three months ended September 30, 2014 consist of $31,627 in derivative expense and $5,550 of effective interest expense, in connection with the Convertible Promissory Note sold by the Company as compared to a $153,096 gain on derivative liability and gain of $183,332 for the extinguishment of debt, during the 3 months ended September 30, 2014.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014

Gross revenues increased from $6,441,216 for the nine months ended September 30, 2013 to $7,646,532 for the nine months ended September 30, 2014. The increase in revenues was mainly due to the NBC Upfront Project having generated increased revenues in 2014 as compared to 2013 for XA.  

Costand cost of revenue increased from $4,526,627 forand the nine months ended September 30, 2013 to $6,312,846 for the nine months ended September 30, 2014. The increase in cost of goods sold was due to the increase in revenues of XA. 

Operating expenses increased from $6,599,658 for the nine months ended September 30, 2013 to $9,220,728 for the nine months ended September 30, 2014. The increase in operating expenses is due to the increase in revenues of our subsidiary XA and research and development expenses of Good Gaming. In addition, the Company incurred non-cash charges of $619,627, $120,813 and $87,500 in connection with the issuance of warrants issued to our Chief Executive Officer, shares of common stock issued to former directors and a consultant and costs affiliated with the acquisition of Good Gaming, Inc., respectively.

Net income decreased from $2,070,484 for the nine months ended September 30, 2013 to a net loss of $1,618,697 for the nine months ended September 30, 2014. The decrease in earnings is due to the differences of realized and unrealized gains of marketable securities incurred during the nineand six months ended SeptemberJune 30, 2014 and September2015 from the six months ended June 30, 2013 and the non-cash charges incurred in our operating expenses.2014.

The table below reflects the Company’s results of operations by entity for the nine months ended September 30, 2014

LIQUIDITY AND CAPITAL RESOURCESRESOURCES:

As of SeptemberJune 30, 2014,2015, the Company’s cash on hand was $145,853. $77,707.

Cash used in operating activities for the ninesix months ended SeptemberJune 30, 20142015 was $1,227,805,$145,179, as compared to $11,939cash provided by operating activities of $3,578 for the ninesix months ended SeptemberJune 30, 2013. The Company recorded net loss2014. This change is due to realized and unrealized gains on marketable securities of 1,618,697$0 and $0, respectively for the ninesix months ended SeptemberJune 30, 20142015 as compared to net income of $2,070,484$2,456 and $193,487 for the ninethree months and six months ended SeptemberJune 30, 2013.2014.

Cash from investing activities for the ninesix months ended SeptemberJune 30, 20142015 was $832,070$195,000 as compared to cash from or used inprovided by investing activities of $0$521,932 for the ninesix months ended September 30, 2013. The increase in cash from investing activities is due to the sales of shares of common stock of Audio Eye by the company during the nine months ended SeptemberJune 30, 2014. During the ninesix months ended SeptemberJune 30, 2014, sold 925,925 shares of the Company purchased computer equipmentCompany’s holdings in the amountAudioEye, Inc., for net proceeds of $18,400 for its subsidiary, Good Gaming, Inc.$250,000.

Cash provided by financing activities for the ninesix months ended SeptemberJune 30, 20142015 was $65,000,$0, as compared to $52,000$15,000 provided for the ninesix months ended SeptemberJune 30, 2013. On September 30, 2014, the Company sold20143.

ITEM 3 – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FACTORS

We are a convertible promissory Note (the “Note”) in private placements to Iconic Holdings LLC. The principal amountsmaller reporting company as defined by Rule 12b-2 of the Note is $55,000 The Note is convertible, at the holder's option, into sharesSecurities Exchange Act of our common stock, generally at 70% of the lowest trading price of our common stock, for the prior 20 trading days. The Note bears interest at 10% annum, can be repaid at any time prior to maturity with a prepayment penalty of 10% of the principal amount paid, is due on September 30, 20151934 and contain customary events of default and provide for increased interest rates in the event of default.    We didare not pay a placement agent or other fees and the Note was issued with an original issue discount of $5,000. Net proceeds to the Company was $50,000. The Note does not require us to register the shares of our common stock underlying their conversion.

The Company anticipates that it will need approximately $1,250,000 to fund operations over the next 12 months. The Company anticipates that during the three months ended March 31, 2015, the Company will generate sufficient revenues in its two subsidiaries to fund the operations. For the three months ended December 31, 2014, the Company has sold three Convertible Promissory Notes to raise the required capital. In addition, the Company anticipates that revenue generated will fund a portion of such cash requirements. There is no assurance that the Company will be successful in raising the amounts required to fund operations or generate sufficient revenue to fund its operation. Inprovide the event that the Company is unable to fund the operation it will not be able to continue as a going concern.information under this item.

ITEM 4 -– CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

In view of the events described under “Recent Events” above, theThe Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and internal controls.procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2015. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of SeptemberJune 30, 2014,2015, the Company’s disclosure controls and procedures were not effective due to the identification of a material weaknessesweakness 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, 2014.

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 June 30, 2015 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, 2014, our management concluded that our internal controls over financial reporting which allowed for theftwere not effective as of Company funds, assets and services.

December 31, 2014 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 AccountingFinancial Officer. It is the Company’s position that the weaknesses in internal controls mentioned above and listed below allowed the former employees and the former XA Chief Executive Officer to commit wrongful acts in XA which led to theft of Company funds and property, including the Company’s customer base and the entry by the Company into non-arm’s length transactions to its detriment.

In performing this assessment, management has identified the following material weaknesses:weaknesses as of December 31, 2014:

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 June 30, 2015 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.

NoExcept for the above, no change in the Company’s internal control over financial reporting occurred during the period ended SeptemberJune 30, 2014,2015, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.

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.

In October, 2014, Ronald Burkhardt, XA,s former Executive Chairman and a current member ofOn July 6, 2011, the Company’s Board of Directors filedCompany was served with a lawsuit filed in the SupremeCircuit Court offor the State of New York, County of New York, allegingMultnomah, Oregon. The complaint alleges breach of his employment contract and seeking approximately $695,000entitlement to consulting fees from the Company. The case was settled in damages. The Company believes that Mr. Burkhardt’s claim is without merit2012 for $30,000 and plans to vigorously defend the lawsuit.settlement amount has 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

On October 1, 2014 the Company sold a Convertible Debenture in the principal amount of $114,000 to Typenex Co-Investment, LLC. The principal amount includes an Original Issue Discount in the amount of $10,000 and investor fees in the amount of $4,000. Total net proceeds to the Company were $100,000. The Debenture bears interest at an annum rate of 10% and is payable in 5 equal installments that can be paid in cash or share of the Company’s common stock. The number of shares to be issued for installment payments made in the form of shares of the Company’s common stock, shall be calculated at 70% of the average of the three closing prices in the 20 trading days prior to the date of conversion, of the Company’s common stock. The Note’s maturity date is August 1, 2015.

On October 10, 2014 the Company sold a Convertible Debenture in the principal amount of $115,000 to KBM Investments LLC. The principal amount includes an Original Issue Discount in the amount of $11,000 and investor fees in the amount of $4,000. Total net proceeds to the Company were $100,000. The Debenture bears interest at an annum rate of 8% and can be repaid at any time prior to the date of maturity. The prepayment penalty for such prepayment ranges from 8% to 25% of the principal amount paid. On the 181^st day from the date of the Note, the Note is convertible into shares of the Company’s common stock. The rate of such conversion is 75% of the lowest 3 trading prices of the Company’s common stock during the ten trading days prior to the conversion date. The Note’s maturity date is October 8, 2015.

Except as disclosed above, allAll unregistered sales of the Company’s securities have been disclosed on the Company’s current reports on Form 10-K and form 8-K.

ITEM 3 – DEFAULT UPON SENIOR SECURITIES

None.

ITEM 4 – MINE SAFETY DISCLOSURES

None.

ITEM 5 – OTHER INFORMATION

None.On February 24, 2015, CMG Holdings Group, Inc.’s (the “Company”) subsidiary, XA, The Experiential Agency, Inc. (“XA”) having determined that it could no longer operate its business, as it was then constituted, decided to execute an assignment for the benefit of creditors to Tailwind Services LLC (“Tailwind”). An Assignment for the Benefit of Creditors is a method of liquidating a business. To that end a Trust Agreement and Assignment of Assets for the Benefit of Creditors was executed on February 24, 2015, transferring all of the assets of XA to Tailwind. Subsequently Tailwind advertised a sale of XA's assets to the Company for the approximate sum of $60,000 (the "Sale"). An Asset Purchase Agreement was executed between XA and the Company on March 4, 2015. The Sale of XA's assets to CMG was consummated on March 25, 2015. Only assets were purchased by CMG liabilities were not assumed. The assets consisted of, among other things, all personal property of XA including accounts receivable, the XA name and other general intangibles of XA, as well as a cause of action involving stolen services.

ITEM 6 – EXHIBITS

* 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.

SIGNATURES

Pursuant 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.

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