UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K/A





ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OFTHE SECURITIES EXCHANGE ACT OF 1934





For the fiscal year ended December 31, 2009





CMG Logo


CMG HOLDINGS, INC.


(Exact name of registrant as specified in its charter)








Nevada

87-0733770(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)








5601 Biscayne BoulevardMiami, FL

33137(Address of principal executive offices)

(Zip Code)





Registrant's telephone number including area code(305) 751-1667


___________________________________________(Former Name or Former Address, if changed since last report)





Securities registered pursuant to Section 12(b) of the Exchange Act:





None





Securities registered pursuant to Section 12(g) of the Act:





Common Stock, $0.001 par value





Indicate by check mark if the registrant is a well-known seasonal issuer, as defined in Rule 405 of the Securities Act.





No Yesx








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Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.





No Yes  x





Note - Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.





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.





Yesx No





Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10- K or any amendment to this Form 10-K.   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 filer
Accelerated filer
Non-accelerated   filer
Smaller reporting company   x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes     No x





As of April 15, 2010, the aggregate market value of the Registrant’s voting and none-voting common stock held by non-affiliates of the registrant was approximately: $2,463,133 at $0.07 price per share, based on the closing price of on the OTC Bulletin Board.  As of April 15, 2010, there were 42,400,000 common stock of the registrant issued and outstanding.





Documents Incorporated by Reference: None











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CMG HOLDINGS, INC.FORM 10-KTABLE OF CONTENTSPart IITEM 1.
Business
3ITEM 1A.
Risk Factors
7ITEM 1B.
Unresolved Staff Comments
11ITEM 2.
Properties
11ITEM 3.
Legal Proceedings
11ITEM 4.
Submissions of Matters to a Vote of Security Holders
12Part IIITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters
12and Issuer Purchases of Equity SecuritiesITEM 6.
Selected Financial Data
13ITEM 7.
Management’s Discussion and Analysis of Financial Condition
14and Results of OperationsITEM 8.
Financial Statements and Supplementary Data
21ITEM 9.
Change in and Disagreements with Accountants on Accounting
35and Financial DisclosureITEM 9A.
Controls and Procedures
35ITEM 9B.
Other Information
36Part IIIITEM 10.
Directors, Executive Officers, and Corporate Governance
36ITEM 11.
Executive Compensation
36ITEM 12.
Security Ownership of Certain Beneficial Owners and Management
37and Related Stockholder MattersITEM 13.
Certain Relationships and Related Transactions, and Director Independence
38ITEM 14.
Principal Accountant Fees and Services
38Part IVITEM 15.
Exhibits and Financial Statement Schedules
39Signature
39











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EXPLANATORY NOTE
  This Amendment No. 1 (this “Amendment”) on Form 10-K/A, which amends and restates items identified below with respect to the Form 10-K, filed by CMG Holdings, Inc. (“we” or the “Company”) with the Securities and Exchange Commission (the “SEC”) on April 15, 2010 (the “Original Filing”), is being filed to reflect revisions to Financial Statements, Management’s Discussion and Analysis of Financial Condition and Results of Operation, Controls and Procedures, and Exhibits.


FORWARD LOOKING STATEMENTS





This annual report on Form 10-K contains forward-looking statements which include, 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”, “expects”, “intends”, “plans”, “believes, “seeks”, “estimates”, “may”, “will” and variations of these words or similar expressions are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections, or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements, which are included in accordance with the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended, are not guarantees of future performance and are subject to risks, uncertainties, and assumptions that are difficult to predict. 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. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.  Unless the context indicates otherwise, the terms “Company”, “Corporate”, “CMGO”, “our”, and “we” refer to CMG Holdings, Inc. and its subsidiaries.








ITEM 1:                         DESCRIPTION OF BUSINESS








THE COMPANY





Our Business





CMG Holdings, Inc. was incorporated in Nevada in July 2004 under the name of Pebble Beach Enterprises, Inc.  The Company has operated under the CMG Holdings, Inc. name since February 2008.





Overview





We are a marketing, sports, entertainment and management services company.   Our Company was formed by a core group of principals, all of whom have held senior level positions with several of the largest and most successful companies in the sports management and entertainment industry.  Our Company delivers custom marketing solutions to optimize profitability by concentrating our resources in those segments of the marketing communications and entertainment industry. Our Company operates in the sectors of talent management, event management, and commercial rights.





Talent Management includes representation of personalities in the entertainment and arts, athletes, literary industries through a full service representation to enable our clients realize their utmost potential for endorsements, licensing, contract negotiations, speaking appearances, literary and television image marketing.  Our Company represents athletes and sports personalities’ in team and non-team sports in a full-service approach ensuring individualized attention and commitment to manage our client’s business opportunities.  Our Company manages broadcasters and actors careers and assists in engineering business opportunities in film, broadcast and television and packaging with corporate sponsors. Our literary division provides full service representation to authors for publishing in traditional houses as well as electronic media including television, film, radio and after-market licensing to ensure greatest possible exposure and to increase client revenues.





Event Management includes marquis hospitality, sponsorships and licensing, broadcast production, and implementation of events including hospitality services to the most discriminating of clients in sports sectors including golf, tennis, equine and motor sports pairing corporate sponsors and premier events and leveraging that experience to ensure our clients receive the highest return on their investment and level of brand exposure. Our Company is dedicated to pursuing intellectual property rights of sports and entertainment properties and offering these events through long-term entertainment hospitality packages for corporate sponsors’ and manage and implement on-site operations and logistical concerns.  Our broadcast and production division secures, and negotiates electronic production, broadcast and syndication opportunities for our clients via network, cable television, radio and digital media.








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Commercial Rights includes branding, consulting, endorsement, licensing and sponsorships and sales and marketing. Our Company creates branding and distributes image marketing tools to strategic outlets to generate premier brand recognition for our clients. Our consulting focuses on developing high-profile programs utilizing creative solutions to improve cost-efficiency and increase client revenues. Following the development of the strategy solutions, our Company oversees implementation of programs to ensure client satisfaction. Our endorsement, licensing and sponsorships division works with premier corporations regarding contract negotiations for client endorsements, secure domestic and international licensing opportunities provide implementation and execution services for client sponsorships.. Our marketing division positions and leverages our clients to increase their presence in the global market through research of business environments and creative solutions to take advantage of given market conditions. Our sales division includes creating commercial rights opportunities, identifying sales targets and strategically selling commercial rights to maximize client revenues.





Our marketing and communications services for our clients is specific to their unique needs and our solutions vary from project-based activities to long-term, fully-integrated campaigns on behalf of our clients in a single region or operating globally across all major world markets. It is our intention to create a holding company to provide resources, support and ensure meet our clients’ needs. The company sets company-wide financial objectives and corporate strategy, directs collaborative inter-agency programs, establishes financial management and operational controls, guides personnel policy, conducts investor relations and initiates, manages and approves mergers and acquisitions.  In addition, we provide limited centralized functional services that offer operational efficiencies, including accounting and finance, market information retrieval and analysis, legal services, real estate expertise, travel services, recruitment aid, employee benefits and executive compensation management. To keep our Company well-positioned, we support our initiatives to expand high-growth capabilities and build its offerings in key developing markets. When appropriate, we also develop relationships with companies that are building leading-edge marketing tools that complement our operating subsidiary and the programs they are developing for clients. In addition, we look for opportunities within our Company to modernize operations through mergers, strategic alliances and the development of internal programs that encourage intra-company collaboration.





Market Strategy





We have taken several strategic steps to position us as a premier marketing and communications company servicing clients in domestic and international markets. We operate in a marketing landscape that has vastly changed over the last few years and continues to fragment as clients are presented with complex strategies to improve brand awareness and increase market share. To achieve our objectives of providing strategic solutions for our clients, we have invested in talent and have concentrated in high-growth areas to align our capabilities to meet the market demands of our clients.  In order to grow with our clients, we have accelerated our investment in professional talent, training and technology throughout our Company. Our market strategy and offerings can improve our organic revenue growth and operating income margin, with our ultimate objective to be fully competitive with our industry peer groups.  To increase our revenues and improve our operating margins, we will concentrate on controlling our staff expenses in non-revenue producing capacities, controlling real estate expenses such as office rent, reducing the complexity of our organization and divesting of underperforming business sectors. Through our wholly-owned subsidiary: XA, The Experiential Agency, Inc. an integrated experiential marketing services company, we develop, manage and execute sales promotion programs at both national and local levels, utilizing both online and offline marketing programs. Our programs assist our clients effectively promote their platforms and services directly to retailers and consumers and are intended to assist in achieving maximum impact and return on their marketing investment. Our activities reinforce brand awareness, provide incentives to retailers to motivate consumers to purchase those products, and are designed to meet the needs of our clients by focusing on communities of consumers who want to engage brands as part of their lifestyles.








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Sources of Revenue





Our revenues are generated through the execution of marketing and communications programs derived primarily across the sectors of event management, talent management and commercial rights as well as various media, planning and execution of other management programs. The majority of our contracts with our clients are negotiated individually and the terms of engagement with our clients and basis in which we earn fees and commissions will vary significantly. Contracts with our client are multifaceted arrangements that may include incentive compensation provisions and may include vendor credits. Our largest clients are corporations where they may arrange for our services to be provided via locally or nationally across various sectors and across multiple divisions. Similar to larger marketing communications holdings companies operating in our sector; our revenues are primarily derived from planning and executing marketing and communications programs in various operating sectors. Most of our client contracts are individually negotiated where terms of engagements and consideration in which we earn revenues vary among planning, creation, implementation and executions of marketing and communications programs specific to the sectors of talent management, event management, and commercial rights.  Several of our clients have complex contract arrangements; therefore we provide services to our clients out of our own offices as well events that we service onsite. In arranging for such services, we may enter into national or local agreements and estimates are involved in determining both amount and timing of revenue recognition under these arrangements.





Our fees are calculated to reflect our expertise based on monthly rates as well as mark-up percentages and the relative overhead expenses to execute services provided to our clients. Clients may seek to include incentive compensation components for successful execution as part of the total compensation.  Commissions earned are based on services provided and are usually calculated on a percentage over the total revenues generated for our clients.  Our revenues can also be generated when clients pay gross rates before we pay reduced rates; the difference is commissions earned which is either retained in total or shared with the client depending on the nature of the services agreement.   To reduce risks from non-payments from our clients, we typically pay company generated expenses only after we have received funds from our clients. Our generated revenues are dependent upon the marketing and communications requirements of our corporate clients and depend on the terms of the client contract. The revenues for services performed can be recognized as proportional performance, monthly basis and execution of the completed contracts. Revenues recognized on a completed contract basis and as customary in the industry, our contracts generally provide for termination by either party on relatively short notice, usually 90 days.





Competition





In the competitive, highly fragmented marketing and communications industry, our company competes for business with midsize marketing firms such as Alloy Marketing, Inc., Mktg, Inc, as well as large global holding companies such as International Management Group, Interpublic Group of Companies, Inc., MDC Partners, Inc. and Omnicom. These global holding companies generally have greater resources than those available us, and such resources may enable them to aggressively compete with the Company’s marketing communications businesses. We also face competition from numerous independent agencies that operate in multiple markets and w must compete with these other companies to maintain existing client relationships and to obtain new clients and assignments. We compete at this level by providing clients with marketing strategies that are focused on increasing clients’ revenues and profits.





Industry Trends





Historically, event management and talent management have been primary service provided by global holding companies in the marketing communications industry. However, as clients aim to establish individual and enhanced relationships with their customers to more accurately measure the effectiveness of their marketing expenditures, specialized and digital communications services are consuming a growing portion of marketing dollars. This increases the demand for a broader range of marketing communications services. The mass market audience is giving way to life-style segments, social events/networks, and online/mobile communities, each segment requiring a different message and/or different, often non-traditional, channels of communication. Global marketers now seek innovative strategies, concepts and programs for new opportunities for small to mid-sized communications companies.





Clients





The Company serves clients across the marketing communication industry and may have same clients across various sectors. Marketing agreements and talent representation for our clients rarely means that the company handles marketing communications multiple brands, product lines of the client in every geographical location.  We have written contracts with many of our clients and as is customary in the industry, these contracts provide for termination by either party on relatively short notice. See “Management’s Discussion and Analysis — Executive Overview” for a further discussion of our arrangements with our clients.








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Employees





As of April 13, 2010, the company and its subsidiaries have 20 employees. The personal service character of the marketing communications sector, the quality of personnel and executive management is crucially important to the company’s continuing success.





Effect of Environmental Laws





The company believes it is compliance with all regulations concerning the discharge of materials into the environment, and such regulations have not had a material effect on the capital expenditures or operations of the company





Company Organization





The legal office of the Company is located at 5601 Biscayne Boulevard, Miami Florida 33137 with our corporate telephone number (305) 751-1667. The Company also has marketing sales offices located at 640 West 28th  Street, New York, NY 10021, 875 North Michigan Avenue, Chicago, IL 60611 and 9070 Rita Road Tucson, AZ 85747





Available Information





The Company is subject to the informational requirements of the Securities Exchange Act and files reports and other information with the Securities and Exchange Commission. Such reports and other information filed by the Company may be inspected and copied at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549, as well as in the Securities and Exchange Commission’s public reference rooms in New York, New York and Chicago, Illinois. Please call the Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of the Securities and Exchange Commission’s public reference rooms. The Securities and Exchange Commission also maintains an Internet site that contains reports, proxy statements and other information about issuers, like us, who file electronically with the Securities and Exchange Commission. The address of the Securities and Exchange Commission’s web site is http://www.sec.gov. In addition, the Company makes available free of charge through its Web site, www.ckx.com, its Annual Reports on Form 10-KSB and Form 10-K, quarterly reports on Form 10-QSB and Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after such documents are electronically filed with the Securities and Exchange Commission. This reference to our Internet website does not constitute incorporation by reference in this report of the information contained on or hyperlinked from our Internet website and such information should not be considered part of this report.





ITEM 1A:          RISK FACTORS





Risks Related to Our Business





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.








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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.





Company directors and executive officers beneficially own a substantial percentage of the Company’s outstanding common stock, which gives them control over certain major decisions on which stockholders may vote, which may discourage an acquisition of the Company





In the aggregate, the directors and executive officers as a group collectively own approximately 35% of the Company’s outstanding shares. The interests of the Company’s management may differ from the interests of other stockholders and as a result, the Company’s executive management may have the ability to control virtually all corporate actions requiring stockholder approval, irrespective of how the Company’s other stockholders may vote, including electing or defeating the election of directors; amending or preventing amendment of the Company’s certificate of incorporation or bylaws; effecting or preventing a merger, sale of assets or other corporate transaction; and controlling the outcome of any other matter submitted to the stockholders for vote. The Company’s management’s stock ownership may discourage a potential acquirer from seeking to acquire shares of the Company’s common stock or otherwise attempting to obtain control of the Company, which in turn could reduce the Company’s stock price or prevent the Company’s stockholders from realizing a premium over the Company’s stock price.





Outstanding Indebtedness; Security Interest and Unregistered Sales of Equity Securities





On April 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $725,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 3,625,000 shares of the Company’s Common Stock.    The Note bears interest at a rate of 13% per annum payable quarterly.  The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes.  In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%.  The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future.  The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee.    The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share.   The warrants are exercisable for seven years at an exercise price of $0.10 per share.  The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions.








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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 2009 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 OTC Bulletin Board trading under the symbol CMGO.OB.  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 “OTCBB”), 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.





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.








10







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





ITEM 1B:            UNRESOLVED STAFF COMMENTS





None.





ITEM 2:               DESCRIPTION OF PROPERTY





The following properties are used in the operation of our business:





Corporate





Our principal executive office of the Company is located at 5601 Biscayne Boulevard, Miami Florida 33137 and our telephone number is (305) 751-1667.





Sales, Marketing, Public Relations





We currently lease office space on a monthly basis, at the location of 640 West 28th Street, New York, NY 10021 and 875 North Michigan Avenue, Chicago, IL 60611





ITEM 3.              LEGAL PROCEEDINGS





There is no past, pending or to the Company’s knowledge, threatened litigation or administrative action which has or is expected by the Company’s management to have a material effect upon our Company’s business, financial condition or operations, including any litigation or action involving our Company’s officers, directors, or other key personnel.








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ITEM 4:                       SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS





None





PART II





ITEM 5            MARKET FOR REGISTRANT’S COMMON EQUITY, RELATEDSTOCKHOLDERMATTERS, AND ISSUER PURCHASES OF EQUITYSECURITIES





Our common stock has been quoted on the OTC Bulletin Board since October 2007. Our symbol is “CMGO”. For the periods indicated, the following table sets forth the high and low bid prices per share of common stock. These prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.





HIGH


LOWFISCAL YEAR ENDED DECEMBER 31, 2009First Quarter


0.20



0.03Second Quarter


0.12



0.03Third Quarter


0.15



0.04Fourth Quarter


0.19



0.05FISCAL YEAR ENDED DECEMBER 31, 2008First Quarter


1.00



0.15Second Quarter


1.00



1.00Third Quarter


1.00



0.60Fourth Quarter


0.60



0.11





Holders of Shares of Common Stock





The Company has authorized 150,000,000 shares of common stock with a par value of $.001 per share.  As of December 31, 2009, the Company had 42,400,000 shares of common stock issued and 38,207,626 outstanding.  As of April 15, 2010, there were approximately 155 stockholders of record of our common stock. This does not reflect shares held beneficially or those shares held in “street” name.





Dividend Policy





We did not pay cash dividends in the past, nor do we expect to pay cash dividends for the foreseeable future. We anticipate that earnings, if any, will be retained for the development of our business.





Preferred Stock





The Company has 5,000,000 shares of preferred stock authorized with a par value of $.001. As of December 31, 2009, the Company has no shares of preferred stock issued and outstanding.





Transfer Agent





The Company’s transfer agent and registrar of the common stock is Corporate Stock Transfer, Inc. 3200 Cherry Creek Dr. South Suite 430 Denver, CO 80209








12








Penny Stock Considerations





Because our shares trade at less than $5.00 per share, they are “penny stocks” as that term is generally defined in the Securities Exchange Act of 1934 to mean equity securities with a price of less than $5.00. Our shares thus will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock. Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 or annual income exceeding $100,000 individually or $300,000 together with his or her spouse is considered an accredited investor. In addition, under the penny stock regulations the broker-dealer is required to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt; disclose commissions payable to the broker-dealer and our registered representatives and current bid and offer quotations for the securities; Send monthly statements disclosing recent price information pertaining to the penny stock held in a customer’s account, the account’s value and information regarding the limited market in penny stocks; and make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction, prior to conducting any penny stock transaction in the customer’s account. Because of these regulations, broker-dealers may encounter difficulties in their attempt to sell shares of our common stock, which may affect the ability of selling shareholders or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our securities, if our securities become publicly traded. In addition, the liquidity for our securities may be decreased, with a corresponding decrease in the price of our securities. Our shares in all probability will be subject to such penny stock rules and our shareholders will, in all likelihood, find it difficult to sell their securities.





Unregistered Sales Of Equity Securities And Use Of Proceeds





The following is information for all securities that the Company sold during the quarter ended December 31, 2009.  Information with respect to previously reported sales prior to January 1, 2009 may be found in the Company’s prior filings.  The Registrant sold a total of 3,300,000 shares of common stock for cash of $165,000 to seven individuals.





Outstanding Indebtedness; Security Interest and Unregistered Sales of Equity Securities





On April 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $725,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 3,625,000 shares of the Company’s Common Stock.    The Note bears interest at a rate of 13% per annum payable quarterly.  The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes.  In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%.  The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future.  The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee.    The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share.   The warrants are exercisable for seven years at an exercise price of $0.10 per share.  The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions.





ITEM 6:              SELECTED FINANCIAL DATA





As a smaller reporting company, as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the  “Exchange  Act”), we are not required to provide the information required by this item.








13











ITEM 7:                      MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS





The following discussion should be read in conjunction with the financial statements for the year ended December 31, 2009 included with this Form 10-K.  The following discussion and analysis provides certain information, which the Company’s management believes is relevant to an assessment and understanding of the Company’s results of operations and financial condition for the year ended December 31, 2009. The statements contained in this section that are not historical facts are forward-looking statements (as such term is defined in the Private Securities Litigation Reform Act of 1995) that involve risks and uncertainties.  Such forward-looking statements may be identified by, among other things, the use of forward-looking terminology such as  “believes,” “expects,” “may,” “will,” should” or “anticipates” or the negative thereof or other variations thereon or comparable terminology, or by discussions of strategy that involve risks and uncertainties.  From time to time, we or our representatives have made or may make forward-looking statements, orally or in writing.  Such forward-looking statements may be included in our various filings with the SEC, or press releases or oral statements made by or with the approval of our authorized executive officers.





These forward-looking statements, such as statements regarding anticipated future revenues, capital expenditures and other statements regarding matters that are not historical facts, involve predictions.  Our actual results, performance or achievements could differ materially from the results expressed in, or implied by, these forward-looking statements.  We do not undertake any obligation to publicly release any revisions to these forward-looking statements or to reflect the occurrence of unanticipated events.  Many important factors affect our ability to achieve our objectives, including, among other things, technological and other developments within a given field, intense and evolving competition, the lack of an “established trading market” for our shares, and our ability to obtain additional financing, as well as other risks detailed from time to time in our public disclosure filings with the SEC.





RECENT DEVELOPMENTS





Material Definitive Agreement





Effective March 6, 2009, the Company, through a newly formed wholly owned subsidiary CMGO Capital, Inc., a Nevada corporation, completed a Note Purchase Agreement with Bank of America to purchase the senior secured debt obligations of The Experiential Agency, Inc. The purchase price of the Note Purchase Agreement with Bank of America to purchase the senior secured debt obligations of The Experiential Agency, Inc. was a total of $150,000.  The Company had also loaned XA $100,000 in March 2009 which has been accounted for as part of the purchase price.





Security Agreement with JT Ventures





Effective March 16, 2009, The Company   issued a note payable to JT Ventures, LLC (“JTV”) for $100,000 that was then loaned to XA from The Company.  The note was due on June 15, 2009, secured by the assets of XA and required The Company   to issue 1 million  Company   warrants with an exercise price of $.001 and a term of 7 years. The warrant value of $37,500 created a discount on the note payable that was to be amortized over the term of the note using the effective interest method.  The Company   did not pay the principal of the note which triggered a $50,000 interest payment that was added to the principal amount of the note and an additional 400,000 warrants of The Company with the same terms as the previous 1 million warrants. The 400,000 warrants resulted in additional interest expense of $20,000. In August 2009 The Company entered into a forbearance agreement for the $150,000 and agreed to repay the amount in July 2010. The Company   agreed to the following financial requirements: Cash Fees of $25,000 on August 17, 2009, October 1, 2009, January 1, 2010 and April 1, 2010.  In the event that the company fails to pay JTV a cash fee on the date that the fee is due, at its sole option JT Venture will defer the cash fee to June 30, 2010 and The Company   agrees to deliver to JTV a warrant (Fee Warrant) for 500,000 shares of The Company  restricted common stock. The exercise price for the Fee Warrant shall be $0.05 per share and they expire in 7 years.  Fee Warrants shall contain a “net exercise” provision in form and substance satisfactory to JT Ventures and shall have Piggyback Registration Rights to register the common stock issued pursuant to the fee warrants as part of any registration filing by CMG Holdings, Inc. and or its successors and assignors. In addition to the cash fees to be paid to JT ventures, the company will deliver a warrant for 1 million shares of CMG common stock on August 17, 2009, October 1, 2009, January 1, 2010 and April 1, 2010. The warrants have an exercise price of $.001 and expire in 7 years.








14








CMG determined the forbearance agreement qualified for extinguishment accounting requiring the old debt be removed from the books and the new debt to be recorded at its fair value.  As of December 31, 2009, the fair value of the new debt was $113,990 resulting in a gain on extinguishment of $19,565.  The $75,000 in cash fees and the $143,999 in warrant fees have been accounted for as interest expense.





On December 3, 2009, the Company paid $100,000, of which $50,000 were applied to the cash fees due on August 17th and October 1st and the balance of $50,000 to, accrued interest. The total warrants in the Participation Agreement were reduced to 2,400,000 warrants and were issued to JTV on the same date.





On April 1, 2010, the Company paid $125,000 to fully satisfy the outstanding note payable of $100,000 and the cash fee due on January 1, 2010 to JTV pursuant to the Participation Agreement, Forbearance Agreement and Security Agreement. Since full payment was made prior to April 1, 2010, the cash fee due on such date was waived.


Completion of Acquisition or Disposition of Assets





Effective April 1, 2009, the Company, through a wholly owned subsidiary CMGO Events Marketing, Inc., a Nevada corporation, completed the acquisition of the assets of The Experiential Agency, Inc.





Effective September 23, 2009, the Company entered into a letter of intent with AudioEye, Inc. of Tucson, Arizona (“AudioEye”) whereby the Company agreed to the principal terms and conditions under which the Registrant will acquire all of the outstanding capital stock of AudioEye.





Effective March 31, 2010, the Company and AudioEye executed the final Stock Purchase Agreement in connection with the Binding Letter of Intent. In accordance with the Stock Purchase Agreement, the Company paid to the Sellers the sum of Thirty Thousand Dollars ($30,000) (the “Initial Cash Payment”) and issued to the Sellers newly issued One Million Five Hundred Thousand (1,500,000) shares of the Company's common stock (the “Stock Payment”) and warrants (the “Buyer Warrants”) to purchase additional newly issued shares of the Company's common stock (the “Warrant Payment”).  The Initial Cash Payment, the Stock Payment and the Warrant Payment were each to be apportioned and issued to the individual Sellers pro rata to their ownership in the Company at closing. The Buyer Warrants are exercisable in the aggregate for up to an additional Two Hundred Fifty Thousand (250,000) newly issued shares of the Company’s common stock; at a strike price per share equal to the closing price of the Company’s common stock on the last trading day immediately preceding the Closing Date; have a term of five (5) years from the Closing Date; are exercisable immediately following the Closing; provide for cashless exercise; contain standard weighted average anti-dilution provisions.   As part of the Working Capital Funding Obligation, the Company provided to the Company at closing an initial working capital contribution of Four Hundred Seventy Thousand Dollars ($470,000), a portion of which was used by AudioEye to retire the long-term and current debt on its books.





As part of the working capital funding obligation, the Company will provide to AudioEye a deferred working capital  contribution of up to Two Million Five Hundred Thousand Dollars ($2,500,000).  The Company will fund the deferred working capital contribution to Audio Eye as follows:  Six Hundred Twenty-Five Thousand Dollars ($625,000) within ninety (90) days after AudioEye achieves cumulative Contract Sales Value of Two Million Five Hundred Thousand Dollars ($2,500,000) subsequent to the Closing. Six Hundred Twenty-Five Thousand Dollars ($625,000) within ninety (90) days after AudioEye achieves cumulative Contract Sales Value of Five Million Five Hundred Thousand Dollars ($5,500,000) subsequent to the Closing. One Million Two Hundred and Fifty Thousand Dollars ($1,250,000) within ninety (90) days after AudioEye achieves a cumulative Contract Sales Value of Ten Million Dollars ($10,000,000) subsequent to the Closing. Even if the Contract Sales Value targets in the Stock Purchase Agreement are not achieved, the Company will provide to AudioEye working capital of at least Five Hundred Thousand Dollars ($500,000) on the eighteen (18) month anniversary of the Closing Date and an additional Five Hundred Thousand Dollars ($500,000) on the thirty-six (36) month anniversary of the Closing Date.  Company authorizes AudioEye to, and AudioEye may without further authorization from the Company and in the ordinary course of business, use up to Twenty-Five Percent (25%) of each deferred working capital contribution as it is received from the Company to effectuate and fund a patent infringement enforcement and licensing strategy pertaining to AudioEye’s current and future patented intellectual property.








15













As part of the Purchase Price, the remainder of the Purchase Price (following payment of the Initial Cash Payment, the Stock Payment and the Warrant Payment at Closing) will consist of, and be paid to the Sellers by the Company, as follows; During the life of the patents covering AudioEye's technology, fifty percent (50%) of any cash received from income earned, settlements or judgments directly resulting from the patent strategy (whether received by the Company, AudioEye or any of the Company’s Affiliates), net of any direct costs or tax implications incurred in the pursuit of the patent strategy, which amounts the Company will pay promptly to the Sellers following receipt, with each Seller receiving a portion equal to their pro rata ownership in AudioEye at Closing; and payment to be paid in 2014 within thirty (30) days after AudioEye’s year-end 2013 financial statements are completed and audited by an independent PCAOB accounting firm and that will reflect the average Company Net Income for the years 2010, 2011, 2012, and 2013 based on the following formula:





Deferred Payment Amount = (Average Company Net Income x Multiple Determination) - All Funding Provided to the Company by the Buyer to Satisfy the Working Capital Funding Obligation





Where





AVERAGE COMPANY NET INCOME = (YR1 + YR2 + YR3 + YR4) / 4


YR1 = the Company Net Income for Year 2010


YR2 = the Company Net Income for Year 2011


YR3 = the Company Net Income for Year 2012


YR4 = the Company Net Income for Year 2013





Where





MULTIPLE DETERMINATION = (10, 11, 12, 13, 14, OR 15)


10 = Average Growth of Company Net Income of 0.00% to 10.00%


11 = Average Growth of Company Net Income of 10.01% to 15.00%


12 = Average Growth of Company Net Income of 15.01% to 20.00%


13 = Average Growth of Company Net Income of 20.01% to 25.00%


14 = Average Growth of Company Net Income of 25.01% to 30.00%


15 = Average Growth of Company Net Income of 30.01% or greater





(With Average Growth of Company Net Income calculated over the entire YR1 to YR4 period.) For purposes of determining Company Net Income, no income from the Company derived from the Patent Strategy as set forth in Section 1.7(a) shall be included in the calculation of gross or net revenues of AudioEye or Average Growth of AudioEye Net Income. The Deferred Payment will consist of cash and newly issued common stock of the Company at a ratio of Fifty Percent (50%) cash and Fifty Percent (50%) common stock. The value assigned to each share of the Buyer’s restricted common stock to be issued as part of the Deferred Payment will equal the average close of trading price of the Company’s common stock during the sixty (60) day period immediately preceding the date the deferred payment is made to Sellers.





Background





CMG Holdings, Inc. was incorporated in Nevada in July 2004 under the name of Pebble Beach Enterprises, Inc.  The Company has operated under the CMG Holdings, Inc. name since February 2008. The Company was formed in July of 2004 as Pebble Beach Enterprises, Inc. in the state of Nevada. From the date of incorporation until August of 2004, it was a wholly-owned subsidiary of Fresh Veg Broker.com, Inc., a Nevada corporation.  In August of 2004, the company was spun off from Fresh Veg.  The Company until this Reorganization was a real estate investment company with three areas of operation: a) real estate acquisition and re-sale; b) real estate development and re-sale; and c) real estate consulting and joint ventures. Due to the inability to execute the real estate business plan and expand the business over the past three years, on February 20, 2008 in anticipation of this Reorganization, a majority of the existing shares of the Company were sold by the shareholders who were actively involved in the Company’s prior real estate business, and as a result, we had a change of direction and a change of control of our Company.








16











The Reorganization





On May 27, 2008, the Company entered into an Agreement and Plan of Reorganization (the “Reorganization Agreement” with its controlling shareholder, Creative Management Group, Inc., a privately held Delaware corporation (“Creative Management Group”).  Upon the closing under the Reorganization Agreement on May 27, 2008, (open to filing date) the eighty shareholders of Creative Management Group delivered all of their equity interests in Creative Management Group to the Company in exchange for shares of common stock in the Company owned by Creative Management Group, as a result of which Creative Management Group became a wholly-owned subsidiary of the Company (the “Reorganization”). Pursuant to the Reorganization Agreement, at closing, the shareholders of Creative Management Group received one share of the Company’s common stock previously owned by Creative Management Group for each issued and outstanding common share owned of Creative Management Group.  As a result, 22,135,148 shares of the Company that were issued and previously owned by Creative Management Group,  are now owned directly by its shareholders.  The 22,135,148 of Creative Management Group previously owned by its shareholders are now owned by the Company, thereby making Creative Management Group a wholly-owned subsidiary of the Company. The Company did not issue any new shares as part of the Reorganization. Upon completion of the closing under the Reorganization Agreement, the Company has a total of 42,400,000 shares issued and 25,255,148 outstanding of which 20,264,852, or approximately 47.8% are held by persons who were previously shareholders of the Registrant, 22,135,148 shares, or approximately 52.2% are held by persons who were previously shareholders of Creative Management Group. Neither the Company nor Creative Management Group had any options or warrants to purchase shares of capital stock outstanding immediately prior to or following the Reorganization.   All the shares of the Company’s common stock issued in connection with the Reorganization were registered under Section 12(b) or (g) of The Securities Exchange Act of 1934 when the Registrant filed Form 10-SB/A on June 28, 2006.  All shares issued in connection with the Reorganization were issued from a “Control Shareholder”, which is a shareholder that is now or has been within the last 90 days a director or officer of the Company, or now owns or controls or within the last 90 days has owned or controlled 10% or more of the Company’s outstanding voting securities and is therefore subject to the restriction in accordance with Rule 144 of the Securities Act of 1934.





Changes Resulting from the Reorganization.





Creative Management Group is a business that delivers innovative, value-added marketing communications and strategic consulting services to its clients. Creative Management Group strives to be a premier marketing communications and consulting company whose strategic, creative and innovative solutions achieve superior results for clients and shareholders.  Following completion of the Reorganization, the Company intends to carry on the business of Creative Management Group as its line of business. The Company has located its executive offices at 5601 Biscayne Boulevard, Miami, Florida 33137, USA and its telephone number is 1 (305) 751-0588 which is the executive office of Creative Management Group.





Changes to the Board of Directors.





In conjunction with the closing under the terms of the Reorganization Agreement and the February 20, 2008 acquisition of shares in the Registrant by Creative Management Group, Alan Morell, James J. Ennis and Michael Vandetty were appointed to the board of directors and Alan Morell was appointed as Chairman of the board of directors. All of the Company’s directors will hold this office until the next annual meeting of the stockholders or until the election and qualification of their successors. The Company’s officers are elected by the board of directors and serve at the discretion of the board of directors.





Executive Summary





References in this Current Report on Form 10-K to “CMG Holdings”, “CMG”, the “Company,” “we,” “us” and “our” for periods prior to the closing of the Reorganization refer to the Registrant, and for periods subsequent to the closing of the Reorganization refer to the Registrant and its subsidiaries. The Company reports its financial results in accordance with generally accepted accounting principles (“GAAP”) of the United States of America (“US GAAP”). The Company’s objective is to create shareholder value by building market-leading strategies that deliver innovative, value-added marketing communications and strategic consulting to our clients.  The company manages the business by monitoring several financial and non-financial performance indicators. The key indicators that we review focus on the areas of revenues and operating expenses. Revenue growth is analyzed by reviewing the components and mix of the growth, including: growth by major geographic location and growth from acquisitions.








17










Year ended December 31, 2009 compared to the year ended December 31, 2008





Overview








We have been unprofitable in both Fiscal 2008 and Fiscal 2009, primarily as a result of set up expenses related to becoming public entity, increasing expenses and hiring of additional personnel and overhead in advance of revenue that did not materialize.





Liquidity and capital resources





As of December 31, 2009 our cash on hand was $32,968.





Revenues





The Company had revenues of $3,527,493 in our fiscal year ended December 31, 2009, as compared to $441,328 in fiscal year ended December 31, 2008. The increase in revenues is mainly due to increased revenues generated in public relations, marketing services and event marketing consulting business. Also, beginning in the second quarter of 2009, after the acquisition of assets of The Experiential Agency, Inc., the company started to generate and recognize revenues from this new line of business.





Expenses





The Company had total operating expenses of $3,489,015 in our fiscal year ended December 31, 2009, as compared to $4,111,202 in fiscal year ended December 31, 2008. The increased in operating expense are due to more This was mainly due to the Company recognized significant stock-based compensation costs in 2008 and in 2009 the Company did not have any of this type of expense. The expenses for 2009 mainly incurred for marketing services, public relations, consulting services and event marketing as well as increased salaries, rent expense, production and administrative expenses after the acquisition of assets of The Experiential Agency, Inc., where the Company started to generate expenses from this new line of business.





Loss





The Company incurred a net loss of $1,672,494, in our fiscal year ended December 31, 2009, as compared to a net loss of $3,707,762 in n fiscal year ended December 31, 2008. We have not attained profitable operations to date. For these reasons our auditors stated in their report that they have substantial doubt that we will be able to continue as a going concern.





Capital Resources





At December 31, 2009, we had assets recorded at $930,187 primarily consisting of cash of $32,968 and intangible assets of $671,248.





Liabilities





Our liabilities at December 31, 2009 totaled $1,868,948.








18











Critical Accounting Policies and Estimates





For all periods following closing under the Reorganization Agreement, the Company intends to prepare consolidated financial statements of the Company and its subsidiaries, which will be prepared in accordance with the generally accepted accounting principles in the United States. During the preparation of the financial statements the Company will be required to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company will evaluate its estimates and judgments, including those related to sales, returns, pricing concessions, bad debts, inventories, investments, fixed assets, intangible assets, income taxes and other contingencies. The Company intends to base its estimates on historical experience and on various other assumptions that it believes are reasonable under current conditions. Actual results may differ from these estimates under different assumptions or conditions. In response to the SEC’s Release No. 33-8040, “Cautionary Advice Regarding Disclosure About Critical Accounting Policy,” the Registrant identified the most critical accounting principles upon which its financial status depends. The Registrant determined that those critical accounting principles are related to the use of estimates, revenue recognition, income tax and impairment of intangibles and other long-lived assets. The Company presents these accounting policies in the relevant sections in this management’s discussion and analysis, including the Recently Issued Accounting Pronouncements discussed below.





Estimates and Assumptions








The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses during the reporting period. Estimates are made when accounting for revenue (as discussed below under “Revenue Recognition”), depreciation, amortization, bad debt reserves, income taxes and certain other contingencies. The Company is subject to risks and uncertainties that may cause actual results to vary from estimates. The Company reviews all significant estimates affecting the financial statements on a recurring basis and records the effects of any adjustments when necessary.








Revenue Recognition








The Company recognizes revenues generated from clients are subject to contracts requiring the Company to provide services within specified time periods generally ranging up to twelve months. As a result, we have projects in process at various stages of completion on any given date and stages may extend from one quarter to the next quarter and from one year to the next year.





Revenue for our services is recognized when the following criteria are satisfied: evidence of an arrangement exists; price is agreed upon at a fixed or determinable agreement level; services have been performed and collection is assured.  Depending on terms of a client contract, fees for services performed can be recognized in three principal ways: individual project performances as is such in our event marketing division, monthly base retainers in our public relations, consulting or talent management division, and completed contracts were the Company work is based on success fee of the engagement and paid a percentage of the revenue generated by our clients. Depending on the terms of the client contract, revenue is derived from arrangements involving fees for services performed, commissions, performance or a combinations of each or all three. The revenues and commissions are generally earned on the date of the signing of the contract and then an invoice is distributed to the client with approvals. Our revenue is recorded as gross revenues less cost of goods sold or less pass-through expenses charged to a client because there may be various pass-through expenses, such as external production and marketing costs.





If the Company does not accurately manage our projects properly within the planned periods of time to satisfy our obligations under the contracts, then future profit margins may be significantly and negatively affected or losses on existing contracts may need to be recognized. Outside production costs consist primarily of costs to purchase media and program merchandise; costs of production; merchandise warehousing and distribution; third party contract fulfillment costs; and other costs directly related to marketing programs. Revenue recognition will not result in related billings throughout the duration of a contract due to timing differences between the contracted billing schedule and the time such revenue is recognized. In such instances, when revenue is recognized in an amount in excess of the contracted billing amount, we record such excess on our balance sheet as unbilled contracts in progress. Alternatively, on a scheduled billing date, should the billing amount exceed the amount of revenue recognized, we record such excess on our balance sheet as deferred revenue. In addition, on contracts where reimbursable costs are incurred prior to the time revenue is recognized on such contracts, we record such costs as deferred contract costs on our balance sheet. Notwithstanding this, labor costs for permanent employees are expensed as incurred.











19










Recently Issued Accounting Pronouncements





In June 2009, the Financial Accounting Standards Board (FASB) issued a standard that established the FASB Accounting Standards Codification (ASC) and amended the hierarchy of generally accepted accounting principles (ASC) and amended the hierarchy of generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative nongovernmental U.S.GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). The Company adopted the ASC on July 1, 2009. This standard did not have an impact on the Company’s consolidated results of operations or financial condition. However, throughout the notes to the consolidated financial statements references that were previously made to various former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.











20
















ITEM 8:                                                       FINANCIAL STATEMENTS





CMG HOLDINGS, INC.


FINANCIAL STATEMENTS


FOR THE YEARS ENDED


DECEMBER 31, 2009 AND 2008





CONTENTS








PageReport of Independent Registered Public Accounting Firm


F-1Consolidated Balance Sheets


F-2Consolidated Statements of Operations


F-3Consolidated Statements of Stockholders’ Deficit


F-4Consolidated Statements of Cash Flows


F-5Notes to Consolidated Financial Statements


F-10











21




















REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











The Board of Directors


CMG Holdings, Inc.


Miami, Florida








We have audited the accompanying consolidated balance sheets of CMG Holdings, Inc. as of December 31, 2009 and 2008 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.





We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.





In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CMG Holdings, Inc. as of December 31, 2009 and 2008 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.





The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a working capital deficit as of December 31, 2009. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.








/s/ MaloneBailey, LLP


www.malonebailey.com


Houston, Texas


April 28, 2010














CMG HOLDINGS, INCCONSOLIDATED BALANCE SHEETSDecember  31, 2009


December 31, 2008ASSETSCURRENT ASSETS:Cash

$
32,968


$
13,934Accounts receivable


207,789



1,050Prepaid and other


18,182



--Total current assets


258,939



14,984Intangible assets, net of accumulated amortization of $223,750 and $--, respectively


671,248



--Deposits


--



300,000TOTAL ASSETS

$
930,187


$
314,984LIABILITIES AND STOCKHOLDERS' DEFICITCURRENT LIABILITIES:Client payable

$
11,317


$
8,000Accounts payable


1,145,467



29,320Accrued liabilities


360,328



415,359Deferred compensation


19,600



--Short term debt, net of unamortized discount of $11,010 and $-, respectively


113,990



--Line of credit


175,746



108,231Advances from related parties


42,500



--TOTAL CURRENT LIABILITIES

$
1,868,948


$
560,910STOCKHOLDERS’ DEFICITPreferred stock:5,000,000 shares authorized par value $0.001 per share; none issued and outstanding

$
--


$
--Common stock:150,000,000 shares authorized par value $0.001 per share; 42,400,000 issued,; 38,207,626 and  31,726,518 shares outstanding respectively


38,208



31,727Additional paid in capital


5,429,522



4,449,863Treasury Stock, 4,192,374 and 10,673,482 shares held, respectively.


4,192



10,673Accumulated deficit


(6,410,683
)


(4,738,189
)TOTAL STOCKHOLDERS’ DEFICIT


(938,761
)


(245,926
)TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$
930,187


$
314,984








See accompanying notes to consolidated financial statements








22











CMG HOLDINGS, INCCONSOLIDATED STATEMENTS OF OPERATIONSYear Ended December 31,2009

2008Gross revenues

$
3,527,493


$
441,328Cost of revenue


1,386,392



--Gross margin


2,141,101



441,328Amortization expense


223,750



--Operating expenses


3,489,015



4,111,202Operating loss


(1,571,664)



(3,669,874)Other income (expense)Bargain purchase gain


81,616



--Gain on extinguishment of debt


19,565Other Income


83,540



--Interest expense


(285,556
)


(55,061
)Interest income


5



17,173Net loss

$
(1,672,494)


$
(3,707,762
)Basic and diluted loss per common share

$
(0.05)


$
(0.16
)Basic weighted average common shares outstanding


33,035,120



23,793,819Diluted weighted average common shares outstanding


33,035,120



23,793,819








See accompanying notes to consolidated financial statements








23








CMG HOLDINGS, INC


CONSOLIDATED STATEMENT OF CHANGE IN STOCKHOLDERS EQUITY








Additional





TotalTreasury Stock


Common Stock


Paid


Accumulated


Shareholders'Shares


Par


Shares


Par


in Capital


Deficit


DeficitBalances, December 31, 2007


-



-



10,000,000


$
10,000


$
680,686


$
(1,030,427
)

$
(339,741
)Shares held in reserve


14,674,648



14,675



-



-



(14,675
)


-



-Shares retained by Pebble Beach shareholders in Reverse Merger


-



-



3,120,000



3,120



(603,120
)


-



(600,000
)Capital Contribution


-



-



-



-



30,000



-



30,000Shares issued for salaries


-



-



7,422,222



7,422



1,105,911



-



1,113,333Shares issued for consulting expense


-



-



1,279,630



1,280



190,665



-



191,945Shares issued for convertible debt

and interest


-



-



5,737,000



5,737



1,548,727



-



1,554,464Shares issued for investment adjustment


-



-



166,500



16



166,334



-



166,500Shares issued for cash


(1,119,666
)


(1,120
)


1,119,666



1,120



233,975



-



233,975Shares issued for services


(2,881,500
)


(2,882
)


2,881,500



2,882



1,111,360



-



1,111,360Net loss


-



-



-



-



-



(3,707,762
)


(3,707,762
)Balances, December 31, 2008


10,673,482


$
10,673



31,726,518


$
31,727


$
4,449,863


$
(4,738,189
)

$
(245,926
)











See accompanying notes to consolidated financial statements.








24









CMG HOLDINGS, INC


CONSOLIDATED STATEMENT OF CHANGE IN STOCKHOLDERS EQUITY (CONTINUED)





Additional





TotalTreasury Stock


Common Stock


Paid


Accumulated


Shareholders'Shares


Par


Shares


Par


in Capital


Deficit


DeficitBalances, December 31, 2008


10,673,482


$
10,673



31,726,518


$
31,727


$
4,449,863


$
(4,738,189
)

$
(245,926
)Shares issued for services


(3,181,108)



(3,181)



3,181,108



3,181



337,626



-



337,626Shares issued for cash


(3,300,000)



(3,300)



3,300,000



3,300



180,000



-



180,000Warrants expense


-



-











143,999



-



143,999Contribution capital for accrued salary forfeited by officers


-



-



-



-



318,034



-



318,034Net loss


-



-



-



-



-



(1,672,494
)


(1,672,494
)Balances, December 31, 2009


4,192,374


$
4,192



38,207,626


$
38,208


$
5,429,522


$
(6,410,683
)

$
(938,761
)











See accompanying notes to consolidated financial statements.











25











CMG HOLDINGS, INC


CONSOLIDATED STATEMENTS OF CASH FLOWS





Year endedDecember 31,2009


2008CASH FLOWS FROM OPERATING ACTIVITIESNet loss

$
(1,672,494
)

$
(3,707,762
)Adjustments to reconcile net lossto net cash used in operating activities:Stock for services


337,626



2,583,138Amortization of intangible assets


223,750



-Gain on extinguishment of debt


(19,565)



-Amortization of loan discount


8,555



-Warrant expense


143,999



-Bargain purchase gain


(81,616)



-Depreciation expense


-



1,159Loss on write off of deposit


300,000



-Stock for interest expense


-



37,449Changes in:Accounts receivable


1,580



(1,050
)Prepaid expense


(18,182
)


17,454Consulting payable


-



24,925Deferred revenue


(751,645
)


-Accrued expense


288,003



-Client payable


3,317



(113,400
)Accounts payable


1,115,691



305,543Net cash used in operating activities


(120,981
)


(852,544
)CASH FROM INVESTING ACTIVITIESCash paid for acquisition of Pebble Beach Enterprises, Inc.


---



(600,000
)Cash paid for acquisition of assets of the Experiantial Agency, Inc.


(250,000
)


-Deposit related to acquisition


-



(300,000
)Net cash used in investing activities:


(250,000
)


(900,000
)FINANCING ACTIVITIESAdvances from related parties


42,500



-Contributions to capital


-



30,000Stock issued for cash


180,000



233,975Net borrowings on line of credit


67,515



(24,532
)Proceeds from issuance of debt


100,000



-Borrowing on convertible notes


--



314,000Net cash provided by financing activities


390,015



553,443Net increase (decrease) in cash


19,034



(1,199,101
)Cash, beginning of year


13,934



1,213,035CASH BALANCE AT END OF YEAR

$
32,968


$
13,934Supplemental cash flow information:Income tax paid

$
--


$
--Interest paid


141,557



17,612Non-Cash investing and financing:Acquisition of assets of the Experiantial Agency, Inc.


331,616



-Contribution of capital for accrued salary forfeited by officer


318,034



-Stock issued for notes payable


-



1,492,000Stock issued for accrued interest


-



25,015





See accompanying notes to consolidated financial statements.








26









CMG HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS








NOTE 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 that operates around distinct vertical disciplines of talent management, including personal representation in the fields of sports, entertainment, personalities and literary; commercial rights, including marketing and sales, consulting, branding and image marketing and endorsements, licensing, sponsorships; and event management, including implementation, sponsorships, licensing and broadcast, production, 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, Inc. 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 the 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 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, Inc.





On April 1, 2009, the Company, through a newly formed wholly owned subsidiary CMGO Capital, Inc., a Nevada corporation, completed the acquisition of The Experiential Agency, Inc. See Note 3 for details.





On March 31, 2010, the Company and AudioEye completed the final Stock Purchase Agreement under which the  Company acquired all of the outstanding capital stock of AudioEye.





Principles of Consolidation





The consolidated financial statements include the accounts of CMG Holdings, Inc., CMG Acquisition, Inc., CMGO Capital, Inc., The Experiential Agency, Inc, CMGO Logistics, Inc. and Creative Management Group, Inc. 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.








27











CMG HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 1:              DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Concentrations of Risk





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 December 31, 2009, 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 December 31, 2008, the account had no balance in excess of the limit.





Revenue and Cost Recognition





In general, the company recognizes revenues when earned, when the services or conditions relating to the services have been performed or satisfied by the entity, and recognizes costs when the expenses are incurred.  Depending on the terms of the client contract, revenue is derived from diverse arrangements involving fees for services performed, and commissions. The company earns consulting fees by providing branding, imaging marketing and talent placement services, event management including, implementation, and production management. The company also earns commissions through contract negotiations in talent representation and endorsement contracts. A majority of the company’s client contracts are individually negotiated and accordingly, the terms of client engagements and the bases on which the company earns commissions and fees may vary significantly.  For talent representation, the company generally records revenue net of pass-through charges as the company believes the key indicators of the business suggest we generally act as an agent on behalf of our clients.  This is recorded when we receive the gross payment.  In those businesses where the 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 operating expenses.  This is generally recorded as the services are provided.





Accounts receivable and allowance for doubtful accounts





Accounts receivable are amounts due on sales, are unsecured and are carried at their estimated collectible amounts. Credit is generally extended on a short-term basis; thus accounts receivable do not bear interest although a finance charge may be applied to such receivables that are more than thirty days past due. 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.





Stock-based compensation





ASC 718, “Accounting for Stock-Based Compensation" established financial accounting and reporting standards for stock-based employee compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. CMG Holdings, Inc. accounts for compensation cost for stock option plans and for share based payments to non-employees in accordance with ASC 718.  Accordingly, employee share-based payment compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the requisite service period. Additionally, share-based awards to non-employees are expensed over the period in which the related services are rendered at their fair value.





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.





Income Taxes





As a result of the change in tax status resulting from the change in the company’s organization as a limited liability company to a corporation, the company is no longer a pass-through entity for US income tax purposes.  Income tax expense is based on reported earnings before income taxes.  Deferred income taxes reflect the impact of temporary differences between assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes, and are measured by applying enacted tax rates in effect in years in which the differences are expected to reverse.








28





CMG HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 1:              DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 
 Basic and Diluted Net Loss per Share





Basic loss per share is computed using the weighted average number of shares of common stock outstanding during each period. Diluted loss per share includes the dilutive effects of common stock equivalents on an “as if converted” basis. For the years ended December 31,  2009 and 2008, potential dilutive securities had an anti-dilutive effect and were not included in the calculation of diluted net loss per common share.





Recently Issued Accounting Pronouncements





In June 2009, the Financial Accounting Standards Board (FASB) issued a standard that established the FASB Accounting Standards Codification (ASC) and amended the hierarchy of generally accepted accounting principles (ASC) and amended the hierarchy of generally accepted accounting principles (GAAP) such that the ASC became the single source of authoritative nongovernmental U.S.GAAP. The ASC did not change current U.S. GAAP, but was intended to simplify user access to all authoritative U.S. GAAP by providing all the authoritative literature related to a particular topic in one place. All previously existing accounting standard documents were superseded and all other accounting literature not included in the ASC is considered non-authoritative. New accounting standards issued subsequent to June 30, 2009 are communicated by the FASB through Accounting Standards Updates (ASUs). The Company adopted the ASC on July 1, 2009. This standard did not have an impact on the Company’s consolidated results of operations or financial condition. However, throughout the notes to the consolidated financial statements references that were previously made to various former authoritative U.S. GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.





The Company does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on our accompanying financial statements.





NOTE 2: GOING CONCERN





As shown in the accompanying financial statements, the Company has incurred net losses for the years ended December 31, 2009 and 2008. In addition, the Company has an accumulated deficit and a working capital deficit as of December 31, 2009. These conditions raise substantial doubt as to our ability to continue as a going concern. In response to these conditions, the Company has raised additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.





NOTE 3: NOTE RECEIVABLE AND ASSET ACQUISITION





On March 6, 2009, the Company, through a newly formed wholly owned subsidiary CMGO Capital, Inc., a Nevada corporation, completed a Note Purchase Agreement with Bank of America to purchase the senior secured debt obligations of The Experiential Agency, Inc. The purchase price of the Note Purchase Agreement with Bank of America to purchase the senior secured debt obligations of The Experiential Agency, Inc. was a total of $150,000. CMG also loaned The Experiential Agency, Inc. $100,000 in March 2009 which has been accounted for as part of the purchase price.





On April 1, 2009, CMG Holdings, Inc. foreclosed on the note and completed the acquisition of the assets of The Experiential Agency, Inc. The Experiential Agency, Inc. offers a full degree of solutions, services and consulting expertise comprising of management, creation, and execution of entertainment event for corporate clients and individual clients general service areas of event marketing, interactive marketing, event production, public relations, talent representation, corporate consulting, digital media. The Experiential Agency, Inc. earns consulting fees when it provides general consulting services and generates revenues for services for event marketing and communications assignments. As a result of the acquisition of the assets of Experiential Agency, Inc., the Company is expected to be the premier provider of solutions, services and consulting expertise comprising of management, creation, and execution of entertainment event for corporate clients and individual clients general service areas of event marketing, interactive marketing, event production, public relations, talent representation, corporate consulting, digital media and services in those markets. The Company also expects to reduce costs through economies of scale.





In accordance with ASC 805, the Company determined the assets acquired constituted a business and applied purchase accounting to the assets acquired.








29





CMG HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 3: NOTE RECEIVABLE AND ASSET ACQUISITION (Continued)





The assets acquired include accounts receivable with a fair value of $208,318and identifiable intangible assets  pertaining to customer lists valued at $894,998. The Company incurred liabilities of $455 of accounts payable and $771,245 of deferred revenue. The Company recognized a gain of $81,616 as a result of the asset acquisition. The gain is included in other income in the Company’s consolidated statement of operations for the year ended December 31, 2009. The following table summarizes the consideration paid for acquisition of the assets and the amount of the assets acquired at the acquisition date as well as the fair value at the acquisition date.





Consideration:





Cash consideration for purchase of Bank of America note                                                                                                                $ 150,000


Cash loaned to The Experiential Agency, Inc.                                                                                                                                         100,000


Total                                                                                                                                                                                                            $ 250,000








Recognized amounts of identifiable assets acquired and liabilities assumed:





Accounts receivable                                                                                                                                                                                  $208,319


Customer lists                                                                                                                                                                                               894,998


Accounts payable                                                                                                                                                                                             (456)


Deferred revenue                                                                                                                                                                                        (771,245)


Total identifiable net assets                                                                                                                                                                       331,616


Bargain purchase gain                                                                                                                                                                                 (81,616)


Total                                                                                                                                                                                                            $ 250,000





The intangible asset pertaining to customer lists is amortized over its estimated useful of 3 years.   Amortization expense for the period from date of acquisition through December 31, 2009 is $223,750.





The amounts of The Experiential Agency, Inc revenues and earnings included in the Company’s consolidated statement of operations for the year ended December 31, 2009, and the revenues and earnings of the combined entity had the acquisition date been January 1, 2009, or January 1, 2008, are:





Revenues                             Net Loss                    EPS


Supplemental pro forma information from 01/01/09 – 12/31/09                                                                                   $ 4,281,668                         $ (1,103,331)                $(0.03)


Supplemental pro forma information from 01/01/08 – 12/31/08                                                                                      7,277,463                            (3,942,469)                $(0.17)





NOTE 4: DEPOSIT RELATED TO ACQUISITION





In May 2008, the Company entered into a letter of intent with Maya Marketing, Inc., a Connecticut Corporation, to acquire Maya and its subsidiaries. As part of this letter of intent, The Company paid $300,000 to secure a contract between Maya and another company. This has been accounted for as a deposit related to the potential acquisition of Maya. During the year ended December 31, 2009, the Company was not able to meet the funding requirement on this acquisition therefore abandoned this plan and the deposit has been written off at  yearend and is included in operating expenses.








30





CMG HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 5: NOTES PAYABLE





Security Agreement – JT Ventures:





On March 16, 2009, CMG issued a note payable to JT Ventures for $100,000 that was then loaned to The Experiential Agency, Inc. from CMG. The note was due on June 15, 2009, secured by the assets of The Experiential Agency, Inc. and required CMG to issue 1 million CMG warrants with an exercise price of $.001 and a term of 7 years. The warrant value of $37,500 created a discount on the note payable that was to be amortized over the term of the note using the effective interest method. CMG did not pay the principal of the note which triggered a $50,000 interest payment that was added to the principal amount of the note and an additional 400,000 warrants of CMG with the same terms as the previous 1 million warrants. The 400,000 warrants resulted in additional interest expense of $20,000. In August 2009 CMG entered into a forbearance agreement for the $150,000 and agreed to repay the amount in July 2010. CMG agreed to the following financial requirements: Cash Fees of $25,000 on August 17, 2009, October 1, 2009, January 1, 2010 and April 1, 2010. In the event that the company fails to pay JTV a cash fee on the date that the fee is due, at its sole option JT Venture will defer the cash fee to June 30, 2010 and CMG agrees to deliver to JTV a warrant (Fee Warrant) for 500,000 shares of CMG common stock. The exercise price for the Fee Warrant shall be $0.05 per share and they expire in 7 years. Fee Warrants shall contain a “net exercise” provision in form and substance satisfactory to JT Ventures and shall have Piggyback Registration Rights to register the common stock issued pursuant to the fee warrants as part of any registration filing by CMG Holdings, Inc. and or its successors and assignors. In addition to the cash fees to be paid to JT ventures, the company will deliver a warrant for 1 million shares of CMG common stock on August 17, 2009, October 1, 2009, January 1, 2010 and April 1, 2010. The warrants have an exercise price of $.001 and expire in 7 years. The fair value of these warrants was calculated using the Black-Scholes Model using these assumptions (1) 3.3% discount rate, (2) warrant life of 7 years, (3) expected volatility of 366%, and (4) zero expected dividends. The fair value of the warrants under the forbearance agreement was $405,000 which has been accounted for as interest expense.





CMG determined the forbearance agreement qualified for extinguishment accounting requiring the old debt be removed from the books and the new debt be recorded at its fair value. The fair value of the new debt was $130,435 resulting in a gain on extinguishment of $19,565. The $100,000 in cash fees was accounted for as interest expense.





On December 3, 2009, CMG paid back $100,000 of accrued interest and cash fees to JT Ventures and entered into a security agreement whereas both parties agreed to settle the total amount of CMG warrant issue to JT Ventures to be 2.4 million. Therefore the company reversed all the interest expense for the warrant that was accounted previously. The warrants issued on December 3, 2009 have an exercise price of $.01 and expire in 6.25 years. The fair value of these warrants was calculated using the Black-Scholes Model using these assumptions (1) 2.5% discount rate, (2) warrant life of 6.25 years, (3) expected volatility of 349%, and (4) zero expected dividends. The fair value of the warrants under the forbearance agreement was $143,999 which has been accounted for as interest expense.





The above loan was fully paid on April 1, 2010.








NOTE 6: RELATED PARTY TRANSACTIONS





The company shares an office space with a law firm whose owners are the principal owners of the company. The company paid the law firm for the related expenses incurred by the company.





From time to time the company borrows money from its officers. These advances from the officers bear no interest and they are due on demand. As of December 31, 2009, the Company owes $42,500 to three officers. There were no payables due to the officers at December 31, 2008.





On November 18, 2009, the Company entered into a consulting agreement with the wife of the CEO and issued 600,000 common shares valued at $54,000 as fee payment.





On November 18, 2009, the Company entered into a consulting agreement with the CEO’s son in law and issued 400,000 common shares valued at $36,000 as fee payment.





NOTE 7: LINE OF CREDIT





The company obtained a credit line from Smith Barney that is secured by the company’s Smith Barney money market account.  The loan balance as of December 31, 2009 and 2008 was $175,746 and $108,231, respectively.  The credit line carries an annual interest rate equivalent to the bank’s prime rate.








31







CMG HOLDINGS, INC.


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 8: INCOME TAX





The Company accounts for income taxes using the liability method, where deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. Under the liability method, the deferred tax assets and liabilities are determined based on the expected future tax consequences of temporary differences between the carrying amounts of assets and liabilities for financial and income tax reporting purposes. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward was approximately $3,100,000 at December 31, 2009, and will begin to expire in 2027.





At December 31, 2009 and 2008, deferred tax assets consisted of the following:





2009                                              2008


Deferred tax assets due to net operating loss carryforward                     1,070,000                                       740,000


Valuation allowance                                                                                       (1,070,000)                                    (740,000)


Net deferred tax assets                                                                                                 -                                                  -





NOTE 9: EQUITY





Common Stock:





On February 20, 2008, Creative Management Group, Inc. acquired 92.6% of Pebble Beach Enterprises, Inc. (a publicly traded company) for $600,000 cash.  Because the purpose of the acquisition was to recapitalize Creative Management Group, Inc. through an eventual reverse merger with Pebble Beach Enterprises, Inc., the $600,000 has been accounted for as a recapitalization cost and a reduction to additional paid in capital.





During the year ended December 31, 2008:





-
A shareholder contributed $30,000 of cash to the Company.








-
7,422,222 shares valued at $1,113,333 were issued to officers for their services.








-
1,279,630 shares valued at $191,945 were issued for consultants for their services.








-
5,737,000 shares were issued for the conversion of outstanding notes payable principal and interest totaling $1,554,464.








-
166,500 shares valued at $166,500 were issued to five investors for an adjustment to their initial investments and accounted for as additional expense.








-
1,119,666 shares were issued from the shares held in reserve held by CMG Acquisition, Inc. for cash. The Company received $233,975.








-
2,881,500 shares were issued from the shares held in reserve held by CMG Acquisition, Inc. for services provided by third parties valued at $1,111,360.





During the year ended December 31, 2009:


-
3,300,000 shares were issued from the shares held in reserve held by CMG Acquisition, Inc. for cash amounting to $180,000.








-
3,181,108 shares were issued from the shares held in reserve held by CMG Acquisition, Inc. for services provided by third parties valued at $337,626.








32





CMG HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 9: EQUITY (Continued)





Common Stock Warrants:





There were no warrant issuances during the year ended December 31, 2008.





During the year ended December 31, 2009, 2,400,000 warrants were issued to JT Ventures, LLC in connection with the Participation / Forbearance Agreements. See Note 5 for details and valuation of the warrants. As of December 31, 2009, these were the only warrants outstanding.





NOTE 10: COMMITMENTS AND CONTINGENCIES





The company entered into three executive employment agreements in 2010, effective January 1, 2010, end in 2016.





In 2009, the Company entered into a sublease to operate an additional office at 640 West 28th Street, New York, NY 10021, 875 North Michigan Avenue, Chicago, IL 60611 and 9070 Rita Road Tucson, AZ 85747. The company guarantees this lease. For the years ended December 31, 2009 and 2008, the company incurred rent expense of $337,762 and $17,453, respectively.





Future minimum lease payments for the above leases are as follows:








2010

2011

2012

2013

2014

Thereafter
$   529,411

477,303

414,581

347,789

358,223

462,216$2,589,523








NOTE 11: SUBSEQUENT EVENTS





On January 25, 2010, the Company issued 350,000 shares of common stock as a placement agent fee as partial compensation for fundraising activities.





On March 31, 2010, the Company and AudioEye executed the final Stock Purchase Agreement in connection with the Binding Letter of Intent. In accordance with the Stock Purchase Agreement, the Company paid to the Sellers the sum of Thirty Thousand Dollars ($30,000) (the “Initial Cash Payment”) and issued to the Sellers newly issued One Million Five Hundred Thousand (1,500,000) shares of the Company's common stock (the “Stock Payment”) and warrants (the “Buyer Warrants”) to purchase additional newly issued shares of the Company's common stock (the “Warrant Payment”).  The Initial Cash Payment, the Stock Payment and the Warrant Payment were each to be apportioned and issued to the individual Sellers pro rata to their ownership in the Company at closing. The Buyer Warrants are exercisable in the aggregate for up to an additional Two Hundred Fifty Thousand (250,000) newly issued shares of the Company’s common stock; at a strike price per share equal to the closing price of the Company’s common stock on the last trading day immediately preceding the Closing Date; have a term of five (5) years from the Closing Date; are exercisable immediately following the Closing; provide for cashless exercise; contain standard weighted average anti-dilution provisions.   As part of the Working Capital Funding Obligation, the Company provided to AudioEye at closing an initial working capital contribution of Four Hundred Seventy Thousand Dollars ($470,000), a portion of which was used by AudioEye to retire the long-term and current debt on its books.   As part of the working capital funding obligation, the Company will provide to AudioEye a deferred working capital  contribution of up to Two Million Five Hundred Thousand Dollars ($2,500,000).  The Company will fund the deferred working capital contribution to Audio Eye as follows:  Six Hundred Twenty-Five Thousand Dollars ($625,000) within ninety (90) days after AudioEye achieves cumulative Contract Sales Value of Two Million Five Hundred Thousand Dollars ($2,500,000) subsequent to the Closing. Six Hundred Twenty-Five Thousand Dollars ($625,000) within ninety (90) days after AudioEye achieves cumulative Contract Sales Value of Five Million Five Hundred Thousand Dollars ($5,500,000) subsequent to the Closing. One Million Two Hundred and Fifty Thousand Dollars ($1,250,000) within ninety (90) days after AudioEye achieves a cumulative Contract Sales Value of Ten Million Dollars ($10,000,000) subsequent to the Closing. Even if the Contract Sales Value targets in the Stock Purchase Agreement are not achieved, the Company will provide to AudioEye working capital of at least Five Hundred Thousand Dollars ($500,000) on the eighteen (18) month anniversary of the Closing Date and an additional Five Hundred Thousand Dollars ($500,000) on the thirty-six (36) month anniversary of the Closing Date.  Company authorizes AudioEye to, and AudioEye may without further authorization from the Company and in the ordinary course of business, use up to Twenty-Five Percent (25%) of each deferred working capital contribution as it is received from the Company to effectuate and fund a patent infringement enforcement and licensing strategy pertaining to AudioEye’s current and future patented intellectual property.  As part of the Purchase Price, the remainder of the Purchase Price (following payment of the Initial Cash Payment, the Stock Payment and the Warrant Payment at Closing) will consist of, and be paid to the Sellers by the Company, as follows: During the life of the patents covering AudioEye's technology, fifty percent (50%) of any cash received from income earned, settlements or judgments directly resulting from the patent strategy (whether received by the Company, AudioEye or any of the Company’s Affiliates), net of any direct costs or tax implications incurred in the pursuit of the patent strategy, which amounts the Company will pay promptly to the Sellers following receipt, with each Seller receiving a portion equal to their pro rata ownership in AudioEye at Closing; and payment to be paid in 2014 within thirty (30) days after AudioEye’s year-end 2013 financial statements are completed and audited by an independent PCAOB accounting firm and that will reflect the average Company Net Income for the years 2010, 2011, 2012, and 2013 based on a formula.








33







CMG HOLDINGS, INC.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 NOTE 11: SUBSEQENT EVENTS (Continued)





On April 1, 2010, the Company entered into a Note Purchase Agreement with CMGO Investors, LLC, a Delaware limited liability company, providing for the sale and issuance of (i) $725,000 of its 13% Senior Secured Convertible Extendible Notes due 2011 and (ii) warrants to purchase 3,625,000 shares of the Company’s Common Stock.    The Note bears interest at a rate of 13% per annum payable quarterly.  The entire amount of the Note, together with all accrued but unpaid interest thereon, is due and payable in full on July 1, 2011; provided that, so long as there is no continuing Event of Default, the Company may in its sole discretion extend the Maturity Date for a period of three months by paying an extension fee equal to 5% of the principal amount of the outstanding Notes.    In the event of Default on the Note, the Note shall bear interest at the rate per annum equal to 18%.  The Notes rank senior in right of payment with all indebtedness of the Company, whether currently existing or issued in the future.  The Notes are secured by a security interest in all of the assets of the Company and the Company's subsidiaries pursuant to a Security Agreement and Subsidiary Guarantee.    The Notes are convertible into shares of Common Stock of the Company at any time after the Maturity Date at an initial conversion price of $0.10 per share.    The warrants are exercisable for seven years at an exercise price of $0.10 per share.  The conversion price of the Notes and the exercise price of the warrants will be adjusted in connection with stock splits, dividends, mergers, reclassifications and similar transactions.  In addition, if at any time the closing market price of the Common Stock is less than the conversion price or exercise price for a period of 90 consecutive trading days, then the conversion price or exercise price in effect shall be reduced to the closing market price of the Common Stock on such 90th trading day; provided that in no event shall the conversion price or exercise price be reduced to less than $0.07 per share pursuant to this provision.  The investors also received certain registration rights pursuant to a Registration Rights Agreement.  In connection with this transaction, the Company paid the placement agent 10% of the gross proceeds and warrants to purchase 942,500 shares of Common Stock. The sale of securities discussed above was made solely to accredited investors and was exempt from registration under Section 4(2) and/or Rule 506 of Regulation D of the Securities Act of 1933, as amended.





On April 1, 2010, the Company paid $125,000 to satisfy the payoff due to JT Venture, LLC pursuant to the Participation Agreement, Forbearance Agreement and Security Agreement. As a result, executed a satisfaction of all obligations due it from the Company and its subsidiaries.










34












ITEM 9:
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None





ITEM 9A.                   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 December 31, 2009. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2009, 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, 2009.





Management’s Report on Internal Control Over Financial Reporting


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 December 31, 2009 based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission. 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, 2009, our management concluded that our internal controls over financial reporting were  not effective as of December 31, 2009 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. The material weakness relates to the monitoring and review of work performed by our Chief Financial Officer and lack of segregation of duties. In the preparation of financial statements, footnotes and financial data all of our financial reporting is carried out by our Chief Financial Officer, and we do not have an audit committee to monitor or review the work performed. The lack of segregation of duties results from lack of accounting staff with accounting technical expertise necessary for an effective system of internal control. In order to mitigate this material weakness to the fullest extent possible, all financial reports are reviewed by the Chief Executive Officer. All unexpected results are investigated. 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.





This annual report does not include an attestation report of the Company s registered public accounting firm regarding internal control over financial reporting. Management s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Annual Report on Form 10-K.








35








Changes in Internal Control Over Financial Reporting





No change in the Company’s internal control over financial reporting occurred during the year ended December 31, 2009, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.





ITEM 9B.
OTHER INFORMATION


None








PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT





The directors and officers of our Company are set forth below. The directors held office for their respective term and until their successors were duly elected and qualified. the officers serve at the will of the Board of Directors.





Name

Age

With Company Since

Director/PositionAlan Morell

63

01/2008

CEO, Chairman of the Board, DirectorJames Ennis

41

01/2008

Chief Financial Officer, DirectorMichael Vandetty

54

01/2008

Chief Legal Counsel, Director





Alan Morell.  Mr. Morell has 30 years of global experience in the successful development and management of talent, high growth properties, commercial rights, live events and intellectual property (IP) rights. Mr. Morell began his career with International Management Group (IMG), where he served in a variety of executive offices, including Corporate Vice President. He has created and/or managed campaigns for talent and events globally within the disciplines of Sports and Entertainment. Prior to becoming an officer of Creative Management Group Agency, Mr. Morell was a Director and Chief Executive Officer of CatalystOne, Inc. Mr. Morell is a graduate of the University of Florida.





James Ennis.  Mr. Ennis has over 15 years of experience in financial management, strategic planning and corporate development. Prior to joining Creative Management Group, Mr. Ennis served as a Financial Advisor in the global private client group of premier wealth management and investment advisory firms of Smith Barney and Merrill Lynch from 2004 to 2007. From 1997 to 2003, Mr. Ennis served as Director of Finance for Octagon Worldwide, Inc., one of the world’s largest sports and entertainment marketing and consulting firms, where his responsibilities included mergers and acquisitions, business development and financial reporting. Mr. Ennis is a graduate of Mount Saint Vincent College.





Michael Vandetty.  Mr. Vandetty’s areas of practice include limited partnership and securities offerings, as well as securities litigation.  Mr. Vandetty has extensive transactional experience, including both domestic and international transactions in real estate, entertainment and hospitality, manufacturing and pharmaceutical sales. He also has significant experience in sports and entertainment law, mergers and acquisitions and in contract negotiations in the insurance and intellectual property arenas.  Mr. Vandetty is a former prosecutor in both the Dade County State Attorney’s Office and the Florida Attorney General’s Office. He received a Bachelor of Arts from Rutgers University in 1977 and a Juris Doctorate from the University of Miami Law School in 1980.





ITEM 11.  EXECUTIVE COMPENSATION





Compensation for our executive officers is determined by our board of directors where our philosophy is to provide a compensation package that attracts and retains executive talent. The Executive Officers have deferred salary through December 31, 2010 based on working capital needs of the Company. The Company and Executive Officers have also agreed that the Executives will defer salary up to 75% of annual base compensation based on the working capital needs of the Company.  The Parties acknowledge and agree that the Executive will be paid 100% of annual base compensation based on the working capital needs of the Company and as soon as the Company has sufficient working capital to do so. We strive to provide our named executive officers, who are the officers listed in the summary compensation table, with a competitive base salary that is in line with their roles and responsibilities when compared to peer companies of comparable  size in similar locations.  Although the principal method of providing compensation to our executive officers is a salary, we intend to adopt a stock option plan for all employees, which permit the grant of stock options, stock grants and other forms of equity-based compensation.  Our executive officers are eligible for grants pursuant to the plan. Although the principal compensation of our executive officers will be salary, we may provide officers with equity-based incentives.  The base salary level and the nature and amount of equity-based incentives is established and reviewed by the compensation committee based on the level of responsibilities, the experience and tenure of the individual and the current and potential contributions of the individual. In determining base salary, we give consideration to persons holding similar positions within comparable peer companies and consideration is given to the executive’s relative experience in his or her position.  Base salaries are reviewed periodically and at the time of promotion or other changes in responsibilities. As of December 31, 2009, no other annual compensation, including a bonus or other form of compensation; and no long-term compensation, including restricted stock awards, securities underlying options, LTIP payouts, or other form of compensation, were paid to these individuals during this period.








36










EXECUTIVE AGREEMENTS





The Company has entered into an employment contract with Alan Morell, CEO, James Ennis, CFO and Michael Vandetty, Chief General Counsel effective January 1, 2010.





BOARD COMPENSATION





Members of our Board of Directors do not normally receive cash compensation for their services as Directors, although some Directors are reimbursed for reasonable expenses incurred in attending Board or committee meetings. All corporate actions are conducted by unanimous written consent of the Board of Directors.








ITEM 12.          SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT





The following table sets forth as of April 15, 2010, 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 or 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 OF BENEFICIAL OWNERS:





None








37











SECURITY OWNERSHIP OF MANAGEMENT:





Title of Class
Name

Shares


PercentCommon Stock
Alan Morell


10,667,000



25.16
%Common Stock
James J. Ennis


3,500,000



8.25
%Common Stock
Michael Vandetty


1,000,000



2.36
%All Directors and Executive Officers as a group (6 persons)


15,167,000



33.41
%





These tables are based upon 42,400,000 shares outstanding as of April 15, 2010 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.








ITEM 13.         CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.





No director, executive officer or nominee for election as a director of our company, and no owner of five percent or more of our outstanding shares or any member of their immediate family has entered into or proposed any transaction in which the amount involved exceeds $300,000. Our management is involved in other business activities and may, in the future become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between our business and their other business interests. We have not and do not intend in the future to formulate a policy for the resolution of such conflicts.








ITEM 14.        PRINCIPAL ACCOUNTANT FEES AND SERVICES





The following table sets forth fees billed to us by our auditors during the fiscal years ended December 31, 2009 and December 31, 2008 for: (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services by our auditor that are reasonably related to the performance of the audit or review of our financial statements and that are not reported as Audit Fees, (iii) services rendered in connection with tax compliance, tax advice and tax planning, and (iv) all other fees for services rendered. (i) Audit Fees





FIRM

FISCAL YEAR 2009


FISCAL YEAR 2008MaloneBailey – audit and audit related

$
100,000


$
55,000










PART IV


ITEM 15.        EXHIBITS AND REPORTS ON FORM 8-K





1.    Financial Statements







2.    Financial Statement Schedules











38

















3.    Exhibits


Exhibit No.
Description10.1
Amended Executive Agreement with CEO10.2
Amended Executive Agreement with COO10.3
Amended Executive Agreement with General Counsel21.1
Subsidiaries31.1
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.32.2
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted Pursuant to Section 906 of the Sarbanes Oxley Act of 2002.





4.    Reports on Form 8-K:


None








SIGNATURE











CMG HOLDINGS, INC.(Registrant)Date: April 28, 2010
By: /s/ ALAN MORELLAlan MorellChief Executive Officer(Duly Authorized Officer)Date: April 28, 2010
By: /s/ JAMES J. ENNISJames J. EnnisChief Financial Officer(Principal Financialand Accounting Officer)























39