**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      DC 20549**





**FORM
      10-Q**





(Mark
      One)




x QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      quarterly period ended September 30, 2008




or





o TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the
      transition period from _______ to _______





Commission
      File Number: 000-27359





**CSMG
      Technologies, Inc.**


(Exact
      name of registrant as specified in its charter)





**Texas**
            
            **74-2653437**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer Identification No.)**501
                North Shoreline Drive, Suite 1005 North**
              **Corpus
                Christi, Texas**
            
            **78471**(Address
                of principal executive offices)
            
            (Zip
                Code)





(361)
      887-7546


(Registrant’s
      telephone number, including area code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes x No o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      the definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                accelerated filero
            Accelerated
                fileroNon-accelerated
                filero
            Smaller
                reporting companyx(Do
                not check if a smaller reporting company)





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





As
      of
      September 30, 2008, there were
      outstanding 41,668,875 shares
      of the registrant’s common stock, $.0001 par value.





Table
      of Contents




PagePART
                I – FINANCIAL INFORMATIONItem
                1.
            Financial
                Statements
            3Item
                2.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            36Item
                3.
            Quantitative
                and Qualitative Disclosures About Market Risk
            42Item
                4(T)
            Controls
                and Procedures
            42PART
                II – OTHER INFORMATIONItem
                1.
            Legal
                Proceedings
            43Item
                1A.
            Risk
                Factors
            43Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            43Item
                3.
            Defaults
                Upon Senior Securities
            44Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            44Item
                5.
            Other
                Information
            44Item
                6.
            Exhibits
            44


2


**PART
      I**


**FINANCIAL
      INFORMATION**





**Item
                1.**
            **Financial
                Statements**




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**INDEX
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
      (UNAUDITED)**





Condensed
                Consolidated Balance Sheets as of September 30, 2008 and December
                31, 2007
                (Audited)
            
            4Condensed
                Consolidated Statements of Operations For the Nine and Three Months
                Ended
                September 30, 2008 and 2007, with Cumulative Totals Since January
                1, 2006
                the Commencement of the Development Stage
            
            5Condensed
                Consolidated Statements of Cash Flows For the Nine Months Ended September
                30, 2008 and 2007, with Cumulative Totals Since January 1, 2006 the
                Commencement of the Development Stage
            
            6Notes
                to Condensed Consolidated Financial Statements
            
            7


3


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**SEPTEMBER
      30, 2008 AND DECEMBER 31, 2007 (AUDITED)**




**SEPTEMBER 30,**
              **2008**
            
            **RESTATED AUDITED**
              **DECEMBER 31, 2007****ASSETS****CURRENT
                ASSETS**Cash
            
            $
            103,056
            
            $
            1,004,376Inventory
            
            
            115,901
            
            
            35,670**Total
                current assets**
            
            
            218,957
            
            
            1,040,046Fixed
                assets, net of depreciation
            
            
            128,025
            
            
            42,605Intangible
                assets
            
            
            64,322
            
            
            37,157Deposits
                and other assets
            
            
            61,152
            
            
            -Goodwill
            
            
            434,093
            
            
            -**TOTAL
                ASSETS**
            
            $
            906,549
            
            $
            1,119,808**LIABILITIES
                AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
                LIABILITIES**Accounts
                payable and accrued expenses
            
            $
            1,802,614
            
            $
            640,713Accrued
                interest payable
            
            
            2,409,154
            
            
            1,699,124Liability
                for stock to be issued
            
            
            80,607
            
            
            143,459Convertible
                notes payable
            
            
            6,888,043
            
            
            6,845,000Notes
                payable
            
            
            1,710,476
            
            
            1,508,407Other
                current liabilities
            
            
            208,929
            
            
            279,689**Total
                current liabilities**
            
            
            13,099,823
            
            
            11,116,392**TOTAL
                LIABILITIES**
            
            
            13,099,823
            
            
            11,116,392**Minority
                interest**
            
            
            146,000
            
            
            206,000**STOCKHOLDERS'
                EQUITY (DEFICIT)**Preferred
                stock, par value $0.001 per share, 10,000,000 shares authorized and
                no
                shares issued and outstanding
            
            
            -
            
            
            -Preferred
                stock subscribed
            
            
            755,000
            
            
            -Common
                stock, par value $0.001 per share, 80,000,000 shares authorized and
                39,919,375 and 38,018,544 issued and outstanding,
                respectively
            
            
            41,669
            
            
            38,018Additional
                paid-in capital
            
            
            19,923,381
            
            
            15,476,749Accumulated
                deficit
            
            
            (13,512,773
            )
            
            (13,512,773
            )Deficits
                accumulated during the development stage
            
            
            (19,279,778
            )
            
            (12,171,805
            )Treasury
                stock
            
            
            (266,773
            )
            
            (32,773
            )**Total
                stockholders' equity (deficit)**
            
            
            (12,339,274
            )
            
            (10,202,584
            )**TOTAL
                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
            
            $
            906,549
            
            $
            1,119,808




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


4


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2008 AND
      2007**


**(WITH
      CUMULATIVE TOTALS SINCE JANUARY 1, 2006,**


**THE
      COMMENCEMENT OF THE DEVELOPMENT STAGE)**


**NINE MONTHS ENDED**
                **SEPTEMBER 30,**
              
              **THREE MONTHS ENDED**
                **SEPTEMBER 30,**
              
              **CUMULATIVE**
                **TOTALS SINCE****2008**
              
              **2007**
              
              **2008**
              
              **2007**
              
              **JANUARY 1, 2006****REVENUE**
              
              $
              300
              
              $
              -
              
              $
              300
              
              $
              -
              
              $
              300**COST
                  OF REVENUES**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Total
                  costs of revenues**
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**GROSS
                  PROFIT (LOSS)**
              
              
              300
              
              
              -
              
              
              300
              
              
              -
              
              
              300**OPERATING
                  EXPENSES**Research
                  and development costs
              
              
              1,807,155
              
              
              1,926,303
              
              
              418,681
              
              
              721,019
              
              
              5,081,885General
                  and administrative
              
              
              3,398,487
              
              
              1,643,315
              
              
              2,003,630
              
              
              614,930
              
              
              10,399,287Depreciation
              
              
              14,814
              
              
              548
              
              
              5,169
              
              
              226
              
              
              16,059**Total
                  operating expenses**
              
              
              5,720,456
              
              
              3,570,166
              
              
              2,427,480
              
              
              1,336,175
              
              
              15,497,231**NET
                  LOSS FROM OPERATIONS BEFORE OTHER EXPENSE AND PROVISION FOR INCOME
                  TAXES,
                  MINORITY INTEREST AND EXTRAORDINARY ITEM**
              
              
              (5,720,156
              )
              
              (3,570,166
              )
              
              (2,427,180
              )
              
              (1,336,175
              )
              
              (15,496,931
              )**OTHER
                  INCOME (EXPENSE)**Equity
                  in net income (losses) of unconsolidated companies
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (85,118
              )Gain
                  on sale of United Engineering
              
              
              -
              
              
              (112,072
              )
              
              -
              
              
              -
              
              
              (112,072
              )Interest
                  expense, net of interest income
              
              
              (1,387,816
              )
              
              (1,477,510
              )
              
              (373,446
              )
              
              (204,909
              )
              
              (3,785,661
              )**NET
                  LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES, MINORITY
                  INTEREST
                  AND EXTRAORDINARY ITEM**
              
              
              (7,107,972
              )
              
              (5,159,748
              )
              
              (2,800,626
              )
              
              (1,541,084
              )
              
              (19,479,782
              )Minority
                  interest
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS FROM OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND EXTRAORDINARY
                  ITEM**
              
              
              (7,107,972
              )
              
              (5,159,748
              )
              
              (2,800,626
              )
              
              (1,541,084
              )
              
              (19,479,782
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS FROM OPERATIONS BEFORE EXTRAORDINARY ITEM**
              
              
              (7,107,972
              )
              
              (5,159,748
              )
              
              (2,800,626
              )
              
              (1,541,084
              )
              
              (19,479,782
              )Extraordinary
                  gain
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              200,004**NET
                  (LOSS)**
              
              $
              (7,107,972
              )
              $
              (5,159,748
              )
              $
              (2,800,626
              )
              $
              (1,541,084
              )
              $
              (19,279,778
              )**NET
                  (LOSS) PER BASIC AND DILUTED SHARES BEFORE EXTRAORDINARY
                  ITEM**
              
              $
              (0.18
              )
              $
              (0.14
              )
              $
              (0.07
              )
              $
              (0.04
              )
              $
              (0.55
              )**NET
                  (LOSS) PER BASIC AND DILUTED SHARES**
              
              $
              (0.18
              )
              $
              (0.14
              )
              $
              (0.07
              )
              $
              (0.04
              )
              $
              (0.55
              )**WEIGHTED
                  AVERAGE NUMBER OF SHARES OUTSTANDING**
              
              
              39,402,419
              
              
              35,671,225
              
              
              40,688,201
              
              
              36,601,504
              
              
              35,105,929





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


5





**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**SEPTEMBER
      30, 2008 AND DECEMBER 31, 2007 (AUDITED)**


**NINE MONTHS ENDED**
                **JUNE 30,**
              
              **CUMULATIVE**
                **TOTAL SINCE****2008**
              
              **2007**
              
              **JANUARY 1, 2006****CASH FLOWS
                  FROM OPERATING ACTIVITIES:**Net
                  (loss)
              
              $
              (7,107,972
              )
              $
              (5,159,748
              )
              $
              (19,279,778
              )**Adjustments
                  to reconcile net (loss) to net cash (used in) operating
                  activities:**Stock
                  issued for services
              
              
              214,266
              
              
              314,413
              
              
              729,786Stock
                  issued for interest
              
              
              43,350
              
              
              -
              
              
              43,350Stock
                  issued for financing fees
              
              
              53,759
              
              
              -
              
              
              53,759Stock
                  based compensation
              
              
              1,093,654
              
              
              -
              
              
              2,764,630Discount
                  on conversion of notes payable
              
              
              279,681
              
              
              761,421
              
              
              1,798,856Warrants
                  issued for commissions
              
              
              -
              
              
              186,092
              
              
              186,092Options
                  issued to consultant
              
              
              -
              
              
              28,247
              
              
              96,322Equity
                  loss from investee
              
              
              -
              
              
              -
              
              
              85,118Depreciation
              
              
              14,814
              
              
              548
              
              
              16,059Impairment
                  of patents
              
              
              -
              
              
              -
              
              
              476,304Loss
                  on sale of United Engineering
              
              
              -
              
              
              112,072
              
              
              112,072**Change
                  in assets and liabilities**(Increase)
                  in inventory
              
              
              (80,231
              )
              
              -
              
              
              (115,901
              )(Increase)
                  in deposits and other assets
              
              
              (61,152
              )
              
              -
              
              
              (61,152
              )Increase
                  in accounts payable and accrued expenses
              
              
              2,168,923
              
              
              1,274,174
              
              
              2,647,634(Decrease)
                  in other current liabilities
              
              
              (70,760
              )
              
              -
              
              
              (146,653
              )Total
                  adjustments
              
              
              3,656,304
              
              
              2,676,967
              
              
              8,686,276Net
                  cash (used in) operating activities
              
              
              (3,451,668-
              )
              
              (2,482,782
              )
              
              (10,593,502
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES:**Capital
                  expenditures
              
              
              (100,234
              )
              
              -
              
              
              (144,084
              )Acquisitions
                  of intangible assets
              
              
              (27,165
              )
              
              (13,959
              )
              
              (64,322
              )Proceeds
                  from sale of United Engineering
              
              
              -
              
              
              278,500
              
              
              278,500Net
                  cash provided by (used in) investing activities
              
              
              (127,399
              )
              
              264,541
              
              
              70,094**CASH
                  FLOWS FROM FINANCING ACTIVITIES:**Increase
                  in cash overdraft
              
              
              -
              
              
              -
              
              
              -Issuance
                  of stock for cash
              
              
              1,027,900
              
              
              165,991
              
              
              3,322,230Cash
                  received for stock to be issued
              
              
              755,000
              
              
              -
              
              
              755,000Repayment
                  of notes payable
              
              
              (12,696
              )
              
              (104,000
              )
              
              (59,140
              )Repayment
                  of convertible notes payable
              
              
              (360,807
              )
              
              -
              
              
              (460,807
              )Borrowings
                  of notes payable
              
              
              864,500
              
              
              50,000
              
              
              3,470,331Borrowings
                  of convertible notes payable
              
              
              403,850
              
              
              1,340,000
              
              
              4,598,850Net
                  cash provided by financing activities
              
              
              2,677,747
              
              
              1,451,991
              
              
              10,626,464**NET
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS**
              
              
              (901,320
              )
              
              (766,249
              )
              
              103,056**CASH
                  AND CASH EQUIVALENTS - BEGINNING OF YEAR**
              
              
              1,004,376
              
              
              868,217
              
              
              -**CASH
                  AND CASH EQUIVALENTS - END OF PERIOD**
              
              $
              103,056
              
              $
              101,968
              
              $
              103,056**SUPPLEMENTAL
                  INFORMATION OF CASH FLOW ACTIVITY**Cash
                  paid during the period for interest
              
              $
              13,306
              
              $
              25,000
              
              $
              254,195Cash
                  paid during the period for income taxes
              
              $
              -
              
              $
              -
              
              $
              -**SUPPLEMENTAL
                  INFORMATION ON NONCASH ACTIVITY**Conversion
                  of notes payable to common stock
              
              $
              179,607
              
              $
              957,877
              
              $
              2,941,192Conversion
                  of accrued interest to common stock
              
              $
              236,516
              
              $
              494,974
              
              $
              833,863Conversion
                  of notes payable and accrued interest for liability for stock to
                  be
                  issued
              
              $
              80,607
              
              $
              -
              
              $
              224,066Issuance
                  of stock for notes payable and accrued interest previously
                  converted
              
              $
              103,060
              
              $
              -
              
              $
              103,060Issuance
                  of stock for acquisition of subsidiary
              
              
              -
              
              
              -
              
              
              -Goodwill
              
              $
              434,093
              
              $
              -
              
              $
              434,093




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


6


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                1-**
            **ORGANIZATION
                AND BASIS OF
                PRESENTATION**




The
      unaudited condensed consolidated financial statements included herein have
      been
      prepared, without audit, pursuant to the rules and regulations of the Securities
      and Exchange Commission (“SEC”). The condensed consolidated financial statements
      and notes are presented as permitted on Form 10-Q and do not contain information
      included in the Company’s annual statements and notes. Certain information and
      footnote disclosures normally included in financial statements prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America have been condensed or omitted pursuant to such rules and regulations,
      although the Company believes that the disclosures are adequate to make the
      information presented not misleading. It is suggested that these condensed
      consolidated financial statements be read in conjunction with the Company’s
      Annual Report on Form 10-K/A for the year ended December 31, 2007 and the
      audited financial statements therein and the accompanying notes
      thereto.





These
      condensed unaudited condensed consolidated financial statements reflect all
      adjustments, including normal recurring adjustments which, in the opinion of
      management, are necessary to present fairly the consolidated operations and
      cash
      flows for the periods presented.




CSMG
      Technologies Inc., formerly, Consortium Service Management Group, Inc. (the
      “Company”), a Texas corporation, was incorporated on November 17, 1992. On
      January 18, 2007, the Company changed its name to CSMG Technologies, Inc. and
      increased its total number of authorized shares to 90,000,000 and the number
      of
      common shares to 80,000,000.




The
      Company is a technology management company. The technologies involve live tissue
      bonding and CO 2 (carbon
      dioxide) separation of landfill gas, however, the carbon dioxide separation
      of
      landfill gas component has not been an active service since 2005. In June 2008,
      the Company acquired Carbon Capture Technologies, Inc. (CCTI), a company that
      owns the world wide rights to a CO 2 separation technology that may be used for stack gas emissions that was
      developed at the University of Ottawa, Canada.




Pursuant
      to EITF 98-3, “Determining Whether a Nonmonetary Transaction Involves the
      Receipt of Productive Assets or of a Business”, it was determined that the
      acquisition of CCTI was the acquisition of a business as it contained all of
      the
      necessary inputs, processes and outputs to conduct normal operations, including
      the ability to sustain a revenue stream. (See Note 3)


7


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                1-**
            **ORGANIZATION
                AND BASIS OF PRESENTATION****(CONTINUED)**




The
      live
      tissue bonding operations are through Live Tissue Connect, Inc., a subsidiary
      that is owned 86% by the Company. The live tissue bonding technology focuses
      on
      bonding living soft biological tissue used in surgical procedures which
      eliminates the need for sutures, staples, sealants or glues. The Company has
      an
      agreement with the E.O. Paton Institute of Electrical Welding of the Ukraine
      National Academy of Sciences (the “Paton Institute”) and International
      Association of Welding (the “IAW”) and owns the technology including the
      worldwide rights of licensing, patenting, manufacturing, development and
      distribution of this technology, except in the former Soviet Republics that
      are
      current members of the Commonwealth of Independent States (the “CIS”) where the
      IAW and Paton Institute have exclusive rights. To date, the Company has 31
      issued or pending patents worldwide relating to the live tissue bonding
      equipment. In addition, in June 2007, the Company filed a 510(K) submission
      with
      the U.S. Food and Drug Administration (“FDA”) for the duct and vessel sealer and
      two instruments, and received notification on July 30, 2008 that the 510(K)
      submission was cleared by the FDA. In December 2007, Stellartech Research
      Corporation, with whom the Company contracted to manufacture the electrosurgery
      generator, obtained the European Conformité Européne (“CE”) Mark on the
      electrosurgery generator. The CE Mark allows LTC to market its forceps with
      the
      previously CE Mark certified VAD.400 generator within the 30 countries of the
      European Economic Area (“EEA”) and Switzerland. In February 2008, the Company’s
      majority owned subsidiary, Live Tissue Connect, Inc., opened an office in
      Goleta, California, hired a worldwide sales manager, software engineer, and
      three instrument engineers.




In
      June
      2008, the Company entered into a new agreement with the IAW under license of
      the
      Paton Institute for the realization of the RF Live Soft Tissue/Welding Project.
      Under the IAW agreement, beginning September 1, 2008 through August 31, 2009,
      the Company will pay $40,000 per month for a staff of surgeons, engineers,
      and
      medical staff in the Ukraine to advance the refinement of the prototype
      automation for specific procedures and basic clinical work. In addition, the
      Company will pay the greater of a total of $210,000 annually or 1% of the annual
      net selling price for items which the manufacture, use or sale that is covered
      by one or more valid and extant patent claims.




The
      Company and its majority owned subsidiary, Live Tissue Connect, Inc., entered
      into an agreement for the continuation of the research and development and
      marketing of the Live Biological Tissue Bonding project. Under the terms of
      this
      agreement, Live Tissue Connect, Inc. shall pay to the Company: a) a minimum
      management fee of $200,000 for the first year beginning on the date of the
      initial filing of a proposed Form S-1 for Live Tissue Connect, Inc. and shall
      be
      negotiated annually thereafter, but shall not be less than $200,000 annually;
      b)
      all costs of IAW agreement estimated at $480,000 annually ($40,000 monthly)
      as
      noted above depending on devices being developed to be undertaken by IAW; c)
      a
      $300,000 one time fee triggered by the FDA’s clearance of the Company’s 510(K)
      submission which became payable on October 18, 2008; d) repayment of the note
      payable between the two companies, and the stipulation that interest charges
      at
      8% annually be provided commencing July 1, 2008; e) the payment of the greater
      of 2% of net manufacturers price generated through world wide sales or $220,000
      annually with the first payment triggered by the FDA’s clearance of the
      Company’s 510(K) submission which became payable on October 18, 2008; and f) the
      continued payment of an estimated $60,000 annually in costs to reimburse the
      Company for its Kiev development office.


8


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                1-**
            **ORGANIZATION
                AND BASIS OF PRESENTATION****(CONTINUED).**




In
      May
      2008, Live Tissue Connect, Inc. through its Orthopedic Division (“LTCOD”)
      entered into a development agreement with a major multi-national medical device
      company to jointly develop a prototype “bread board” proof of concept level
      working instrument, RF generator and software system that can perform
      meniscus-to-meniscus welding (“M-M Weld”) where each item is a “product”. The
      agreement is for a one-year period and pursuant to this agreement, Live Tissue
      Connect, Inc. is responsible for the costs of the project and is entitled to
      reimbursement of 75% of the cost expended until they have paid a total of
      $100,000. Thereafter, the Live Tissue Connect, Inc. cost sharing obligation
      shall cease and the medical device company shall pay all of the project
      costs.




In
      June
      2008 we acquired 100% ownership of CCTI, a wholly owned subsidiary of UTEK,
      in a
      stock transaction. CCTI holds a worldwide exclusive license to a
      composition and method for use of a novel Carbon Dioxide (CO 2 )
      adsorbent. Researchers at the University of Ottawa have developed recyclable
      CO 2 adsorbents based on surface modified nanoporous silicas. The materials show
      high
      adsorption capacity that is both fast and reversible, allowing it to be reused
      repeatedly in a high throughput periodic cyclic adsorption process. The
      adsorbents can be used in both wet and dry environments, potentially eliminating
      significant engineering challenges. The potential uses for the technology
      include capturing the bulk of C0 2 emissions from coal-fired power plants in order that these greenhouse gasses
      could be sequestered and thus reduce the carbon footprint of such facilities,
      as
      well as surgical and mine rescue applications. The acquisition was for 371,020
      shares of the Company’s common stock. Additionally, the Company has an
      obligation to the University of Ottawa in the amount of $30,000 for each of
      the
      first two years, and the greater of 3% of net sales or $10,000 in year 2,
      $25,000 in year 3, $50,000 in year 4 and $100,000 the 5 th year and
      thereafter for this technology. (See Note 3)




Based
      upon the technology’s ability to operate at lower temperatures and pressures,
      the tolerance of the University of Ottawa’s novel materials to water vapors and
      their recyclability, the Company believes that this technology could be
      significantly more efficient than current liquid amine based methods and other
      absorption systems for capturing a pure stream of CO 2 .




The
      Company has one patent pending on the CCTI technology.




The
      Company also has one patent issued in both the United States and Canada on
      the carbon dioxide separator technology. This was also developed in Ukraine,
      and
      promotes the economical separation of methane from carbon dioxide gas emanating
      from landfills. Landfills generate a commingled mixture of methane and carbon
      dioxide gas which prevents it from being commercially sold as fuel. The Ukraine
      technology has developed an economical carbon dioxide separator that removes
      the
      carbon dioxide to allow the methane gas to be sold to utility companies as
      well
      as other industrial and commercial customers. The first installation began
      in
      2002 in Mobile, Alabama with completion originally estimated to be in the second
      quarter of 2003.


9


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                1-**
            **ORGANIZATION
                AND BASIS OF PRESENTATION****(CONTINUED)**




The
      carbon dioxide separator equipment was installed at the Chastang landfill in
      Mobile, Alabama which is owned by the city of Mobile but operated by Waste
      Management Inc. and Transamerican Waste Industries Inc., and has since been
      removed and put into storage. An agreement existed between Transamerican Waste
      Industries Inc. and Resource Technology Corporation (RTC) which gave RTC the
      sole and exclusive right to collect, extract and remove landfill gas from the
      property.





At
      this
      time RTC contracted with the Company to extract the methane gas. Accordingly,
      the Company installed the carbon dioxide separator at the landfill in 2002
      and
      2003. Waste Management Inc. asserted that the carbon dioxide equipment produced
      methane gas that failed to meet Mobile Gas quality specifications. As a result
      and as noted in Note 13, Litigation, a legal dispute ensued as well as RTC
      filing bankruptcy.





On
      February 14, 2006, the Company signed a contract with DuPont to provide up
      to
      500,000 MMbtu commercial quality gas to their plant outside Mobile, Alabama.
      There is no requirement in this contract for gas quality specifications. During
      2007, the Company dismantled the equipment and moved the equipment to storage
      due to the fact that there was not sufficient raw gas at the landfill. The
      contract has expired.





In
      1994,
      the Company formed United Engineering Company, a Ukraine and U.S. joint stock
      company registered under the laws of Ukraine with 14 of Ukraine’s largest
      defense contractors and Ukraine State Property fund. The purpose was to perform
      dismantlement of weapons of mass destruction under the START Treaty. The Company
      initially had a 50% ownership that was reduced to 33.3% in 2000. The Company
      recorded this investment under the equity method, and maintained its investment
      until March 2007, when their interest was sold for net proceeds of
      $278,500.





The
      Company recently has been focusing on their live tissue bonding technology,
      and
      has hired an internationally recognized medical device expert, a surgical device
      design company to design and manufacture the live tissue connect generator,
      as
      well as bringing on a major U.S. University to complete laboratory work and
      adding advisors that are surgeons, engineers and scientists to work on this
      project in the Ukraine.




In
      October 2007, the Board of Directors agreed to have the Company’s majority-owned
      subsidiary Live Tissue Connect, Inc. submit to the Securities and Exchange
      Commission (SEC) a registration statement in connection with an initial public
      offering (IPO). The Company anticipates this to occur in the fourth quarter
      of
      2008 or the first quarter of 2009.


10


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                1-**
            **ORGANIZATION
                AND BASIS OF PRESENTATION****(CONTINUED)**




**Going
      Concern**





As
      shown
      in the accompanying condensed consolidated financial statements the Company
      has
      incurred a loss of **** $7,107,972
      and $5,159,748 for the nine months ended September 30, 2008 and 2007,
      respectively, as well as a cumulative loss from January 1, 2006 (commencement
      of
      the development stage) through September 30, 2008 of $19,279,778 and has a
      working capital deficiency of
      $12,880,866 and
      $10,076,346 as of September 30, 2008 and December 31, 2007,
      respectively.




The
      Company’s management has raised funds through equity and debt offerings. In June
      2006, Empire Financial Group and the Company entered into a best efforts bridge
      financing transaction for $3,025,000.




Empire
      Financial Group was successful in raising the full $ 3,025,000 which is
      currently classified as “Convertible Notes Payable” on the condensed
      consolidated balance sheet at September 30, 2008 and December 31, 2007 and
      which
      will likely be converted to equity. The Company and Empire Financial Group
      has
      extended this offering for up to a minimum of $3,000,000 as well as a letter
      of
      intent relating to the raising of an additional $25,000,000 for a potential
      initial public offering of Live Tissue Connect, Inc., the tissue welding
      technology subsidiary of the Company, of which Empire has raised $ 4,323,850 ($100,000 was paid back to an investor in 2007, and $360,807 was paid to
      investors in 2008) as of September 30, 2008. Additionally the Company offered
      through a private placement up to 5 million shares of preferred stock at $1
      per
      share in our subsidiary Live Tissue Connect, Inc. through Empire-Jesup Lamont
      of
      which $ 755,000 was
      raised during the Company’s second and third fiscal quarter. As of September 30,
      2008, none of these shares had been issued to any of the shareholders. The
      Company has received an independent valuation of the preferred stock of Live
      Tissue Connect, Inc. as of September 30, 2008. The conclusion of value provided
      by the valuation report shows a fair value per share, Non-Marketable Minority
      Basis of $1.37 per share. Subscriptions have been accepted for 755,000 shares
      of
      LTC’s preferred stock related to the $755,000, but no shares have been issued as
      of September 30, 2008.





One
      of
      the principal reasons for the Company’s substantial doubt regarding its ability
      to continue as a going concern involves the carbon dioxide separator business.
      The equipment manufactured removes CO2 from landfill gas, raw landfill gas
      that
      has high air content requires additional landfill gathering system tuning to
      reduce air content or additional oxygen and nitrogen removal equipment. Our
      system fits well is within specifications on the Company’s agreement with
      DuPont. The Chastang project however, generated no production, and cost the
      Company approximately $2,000,000. The Company has moved their equipment from
      the
      Chastang site to storage. Despite, the new gas purchase contract the Company
      entered into, the Company did impair the value of their equipment. In addition
      to this impairment, the Company impaired the value of obtaining their patents
      for both the CO2 separator equipment as well as the patents related to the
      live
      tissue bonding. The total of the patent impairment was approximately
      $650,000.


11


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                1-**
            **ORGANIZATION
                AND BASIS OF PRESENTATION****(CONTINUED)**




**Going
      Concern** **(Continued)**





Management’s
      plans to address these conditions include raising additional funds, through
      Empire Financial Group, as well as commercially, and manufacturing and
      distributing their live tissue bonding equipment in the first quarter of 2009.
      The Company has signed contracts with leading instrument and electro surgery
      generator design and manufacturing companies and has started manufacturing
      of
      the commercial equipment that will be licensed or sold to perform
      surgeries.




The
      Company is subject to certain risks common to technology-based companies.
      Principal risks to the Company include uncertainty of growth in market
      acceptance for its products; history of losses in recent years; ability to
      remain competitive in response to new technologies; costs to defend, as well
      as
      risks of losing patent and intellectual property rights; reliance on limited
      number of suppliers; reliance on outsourced manufacture of its products for
      quality control and product availability; uncertainty of demand for its products
      in certain markets; ability to manage growth effectively; dependence on key
      members of its management; and its ability to obtain adequate capital to fund
      future operations.




The
      condensed consolidated financial statements do not include any adjustments
      relating to the carrying amounts of recorded assets or the carrying amounts
      and
      classification of recorded liabilities that may be required should the Company
      be unable to continue as a going concern.




**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING
                POLICIES**





**Principles
      of Consolidation**




The
      condensed consolidated financial statements include those of the Company and
      its
      majority-owned subsidiary. All intercompany accounts and transactions have
      been
      eliminated in consolidation. Minority interests have been reflected in the
      consolidated financial statements for the percentage of the subsidiary not
      owned
      by the Company . The
      minority interest for Live Tissue Connect, Inc. have not been reflected herein
      as the company sustained losses in excess of the basis to the minority
      shareholders as described under ARB 51. The Company does maintain the cumulative
      losses in their records and should Live Tissue Connect, Inc. incur profits
      that
      offset these losses, then the Company will reflect them in the financial
      statements appropriately.


12


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**




**Development
      Stage Company**





The
      Company commencing on January 1, 2006 entered into the development stage with
      its majority owned subsidiary, Live Tissue Connect, Inc. Prior to January 1,
      2006, the Company was operating in the carbon dioxide separator of landfill
      gas
      business exclusively, but the Company has not been conducting operations in
      this
      business for 2006 and 2007. The Company has concentrated its efforts to the
      development of their Live Tissue Connect, Inc. business. Therefore, the Company
      considers itself to have commenced the development stage effective January
      1,
      2006 as defined in Statement of Financial Accounting Standards (SFAS) No. 7,
      “ *Accounting
      and Reporting by Development Stage Enterprises* ”.
      Additionally, the Company has allocated a substantial portion of their time
      and
      investment in bringing the services of LTC to the market, and the raising of
      capital.




**Use
      of Estimates**




The
      preparation of condensed consolidated financial statements in conformity with
      accounting principles generally accepted in the United States of America
      requires management to make estimates and assumptions that affect the reported
      amounts of assets and liabilities and disclosures of contingent assets and
      liabilities at the date of the financial statements and the reported amounts
      of
      revenue and expenses during the reporting period. Actual results could differ
      from those estimates.




**Cash
      and Cash Equivalents**




The
      Company considers all highly liquid debt instruments and other short-term
      investments with a maturity of three months or less, when purchased, to be
      cash
      equivalents.




The
      Company maintains cash and cash equivalent balances at one financial institution
      that is insured by the Federal Deposit Insurance Corporation up to $100,000.
      All
      amounts contained in this financial institution pose a risk to the Company
      however the Company believes the risk to be minimal.




**Fixed
      Assets**




Fixed
      assets are stated at cost, less accumulated depreciation. Depreciation is
      provided using the straight-line method over the estimated useful lives of
      the
      related assets (primarily three to five years). Costs of maintenance and repairs
      are charged to expense as incurred.


13


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**




**Recoverability
      of Long-Lived Assets**




The
      Company reviews the recoverability of its long-lived assets on a periodic basis
      whenever events and changes in circumstances have occurred which may indicate
      a
      possible impairment. The assessment for potential impairment is based primarily
      on the Company’s ability to recover the carrying value of its long-lived assets
      from expected future cash flows from its operations on an undiscounted basis.
      If
      such assets are determined to be impaired, the impairment recognized is the
      amount by which the carrying value of the assets exceeds the fair value of
      the
      assets. Fixed assets to be disposed of by sale are carried at the lower of
      the
      then current carrying value or fair value less estimated costs to
      sell.




**Research
      and Development**




The
      Company annually incurs costs on activities that relate to research and
      development of new technology and products. Research and development costs
      are
      expensed as incurred.




**Revenue
      Recognition**




The
      Company has not generated revenue in many years. The Company anticipates that
      they will record revenue in accordance with Staff Accounting Bulletin 104.
      The
      criteria for recognition are as follows:


1)  Persuasive
        evidence of an arrangement exists;
 
 2)  Delivery
        has occurred or services have been rendered;
 
 3)  The
        seller’s price to the buyer is fixed or determinable, and
 
 4)  Collectibility
        is reasonably assured.




**Comprehensive
      Income**




The
      Company adopted Statement of Financial Accounting Standards No, 130, “Reporting
      Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of
      comprehensive income in addition to net income from operations.




Comprehensive
      income is a more inclusive financial reporting methodology that includes
      disclosure of information that historically has not been recognized in the
      calculation of net income.


14


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**




**Currency
      Risk**




The
      Company transacts business in currencies other than the U.S. Dollar. All
      currency transactions occur in the spot foreign exchange market and the Company
      does not use currency forward contracts, currency options, currency borrowings
      interest rate swaps or any other derivative hedging strategy at this point
      in
      time.




The
      Company has determined that based on the cash flow, sales price, sales market,
      expense, financing, and inter-company transactions and arrangements indicators
      set forth in FASB 52, *Foreign Currency Translation* ,
      that
      the functional currency of the Company is that of the US Dollars.




**Inventory**




Inventory
      is recorded at the lower of cost and net realizable value and is accounted
      for
      on the first-in first-out basis (FIFO).




**Stock-Based
      Compensation**




On
      December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
      Statement of Financial Accounting Standards No. 123 (Revised 2004),
“ *Share-Based
      Payment* ”
(“SFAS
      123R”). SFAS 123R requires that compensation cost related to share-based payment
      transactions be recognized in the financial statements. Share-based payment
      transactions within the scope of SFAS 123R include stock options, restricted
      stock plans, performance-based awards, stock appreciation rights, and employee
      share purchase plans. The provisions of SFAS 123R, as amended, are effective
      for
      small business issuers beginning as of the next interim period after December
      15, 2005. The Company has adopted these provisions as of January 1, 2006 and
      this adoption did not have a material effect on the Company’s
      operations.




On
      January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based
      Payment” (“FAS 123R”) which requires recognition of stock-based compensation
      expense for all share-based payments based on fair value. Prior to January
      1,
      2006, the Company measured compensation expense for all of its share-based
      compensation using the intrinsic value method prescribed by Accounting
      Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
      Employees” (“APB 25”) and related interpretations. The Company has provided pro
      forma disclosure amounts in accordance with FAS No. 148, “Accounting for
      Stock-Based Compensation – Transition and Disclosure – an amendment of
      FASB Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS
      No. 123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied
      to its stock-based compensation.


15


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**




**Stock-Based
      Compensation** **(Continued)**




The
      Company has elected to use the modified-prospective approach method. Under
      that
      transition method, the calculated expense in 2006 is equivalent to compensation
      expense for all awards granted prior to, but not yet vested as of January 1,
      2006, based on the grant-date fair values estimated in accordance with the
      original provisions of FAS 123. Stock-based compensation expense for all awards
      granted after January 1, 2006 is based on the grant-date fair values estimated
      in accordance with the provisions of FAS 123R. The Company recognizes these
      compensation costs, net of an estimated forfeiture rate, on a pro rata basis
      over the requisite service period of each vesting tranche of each award. The
      Company considers voluntary termination behavior as well as trends of actual
      option forfeitures when estimating the forfeiture rate.





The
      Company measures compensation expense for its non-employee stock-based
      compensation under the Financial Accounting Standards Board (FASB) Emerging
      Issues Task Force (EITF) Issue No. 96-18, “ *Accounting for Equity Instruments that are Issued to Other Than Employees for
      Acquiring, or in Conjunction with Selling, Goods or Services* ”.
      The
      fair value of the option issued is used to measure the transaction, as this
      is
      more reliable than the fair value of the services received. The fair value
      is
      measured at the value of the Company’s common stock on the date that the
      commitment for performance by the counterparty has been reached or the
      counterparty’s performance is complete. The fair value of the equity instrument
      is charged directly to compensation expense and additional paid-in
      capital.




The
      Company’s warrants issued in May 2007, were not stock based compensation and
      were recorded in accordance with EITF 96-18. The Company recognized $186,092
      in
      expense for the year ended December 31, 2007.




The
      Company’s options issued in 2007 were valued in accordance with SAFAS 123R. The
      Company recognized $96,322 in expense for the year ended December 31, 2007.
      The
      options issued in Live Tissue Connect, Inc. to the board were valued at
      $1,588,478 and $82,498 for the years ended December 31, 2007 and 2006,
      respectively, and $202,083  for
      the
      nine months ended September 30, 2008 and  are
      considered stock based compensation and reflected as such in the condensed
      consolidated statements of operations .





In
      addition, the Company issued vested stock options to officers and directors
      valued at $891,571 for the nine months ended September 30, 2008 and  are
      considered stock based compensation and reflected as such in the condensed
      consolidated statements of operations


16


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**




**Segment
      Reporting**




The
      Company follows the provisions of SFAS 131, “Disclosures about Segments of an
      Enterprise and Related Information.” This standard requires that companies
      disclose operating segments based on the manner in which management
      disaggregates the Company in making internal operating decisions. The Company
      believes that there is only one operating segment at this time as their CO2
      separator business is inactive despite the CCTI acquisition as there is still
      substantial research and development to be concluded. .




**Fair
      Value of Financial Instruments**




The
      carrying amounts reported in the condensed consolidated balance sheets for
      cash
      and cash equivalents, and accounts payable approximate fair value because of
      the
      immediate or short-term maturity of these financial instruments. For the notes
      payable, the carrying amount reported is based upon the borrowing rates that
      would be available to the Company for similar type borrowings from financial
      institutions.




**Income
      Taxes**




Under
      Financial Accounting Standards Board Statement No. 109, “Accounting for Income
      Taxes,” the liability method is used in accounting for income taxes. Under this
      method, deferred tax assets and liabilities are determined based on differences
      between financial reporting and tax bases of assets and liabilities, and are
      measured using the enacted tax rates and laws that will be in effect when the
      differences are expected to reverse.




**Uncertainty
      in Income Taxes**




In
      July
      2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
      Uncertainty in Income Taxes.” This interpretation requires recognition and
      measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December
      15,
      2006. Management has adopted FIN 48 for 2007, and they evaluate their tax
      positions on an annual basis, and has determined that as of September 30, 2008,
      no additional accrual for income taxes is necessary.




**(Loss)
      Per Share of Common Stock**




Basic
      net
      (loss) per common share (“EPS”) is computed using the weighted average number of
      common shares outstanding for the period. Diluted earnings per share include
      additional dilution from common stock equivalents, such as stock issuable
      pursuant to the exercise of stock options and warrants. Common stock equivalents
      are not included in the computation of diluted earnings per share when the
      Company reports a loss because to do so would be anti-dilutive for the periods
      presented.


17


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                2-**
            **SUMMARY
                OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**




**(Loss)
      Per Share of Common Stock** **(Continued)**




All
      options and warrants to purchase shares of common stock and convertible notes
      were not included as they would be considered anti-dilutive as the Company
      had a
      loss for both periods.




The
      following is a reconciliation of the computation for basic and diluted
      EPS:




**Nine Months Ended****September 30,**
            
            **September 30,****2008**
            
            **2007**Net
                (loss)
            
            $
            (7,107,972
            )
            $
            (5,159,748
            )Weighted-average
                common shares outstanding :Basic
            
            
            39,402,419
            
            
            35,671,225Options
            
            
            2,325,000
            
            
            1,025,000Warrants
            
            
            830,941
            
            
            890,941Diluted
            
            
            42,558,360
            
            
            37,587,166Basic
                net (loss) per share
            
            $
            (0.18
            )
            $
            (0.14
            )Diluted
                net (loss) per share
            
            $
            (0.18
            )
            $
            (0.14
            )




**Recent
      Issued Accounting Standards**




In
      September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosure about fair
      value measurements. This statement is effective for financial statements issued
      for fiscal years beginning after November 15, 2007. Early adoption is
      encouraged. The adoption of SFAS 157 is not expected to have a material impact
      on the condensed consolidated financial statements.





In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities – Including an amendment of FASB Statement
      No. 115”, (“FAS 159”) which permits entities to choose to measure many financial
      instruments and certain other items at fair value at specified election dates.
      A
      business entity is required to report unrealized gains and losses on items
      for
      which the fair value option has been elected in earnings at each subsequent
      reporting date. This statement is expected to expand the use of fair value
      measurement. FAS 159 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years.


18




**CSMG
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **(FORMERLY
        CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 2008 AND 2007 (UNAUDITED)**
 
 **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Recent
        Issued Accounting Standards** **(Continued)**
  In
        December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
        Consolidated Financial Statements, an amendment of Accounting Research Bulletin
        No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
        ownership interests in subsidiaries held by parties other than the parent,
        changes in a parent’s ownership of a noncontrolling interest, calculation and
        disclosure of the consolidated net income attributable to the parent and
        the
        noncontrolling interest, changes in a parent’s ownership interest while the
        parent retains its controlling financial interest and fair value measurement
        of
        any retained noncontrolling equity investment. SFAS 160 is effective for
        financial statements issued for fiscal years beginning after December 15,
        2008,
        and interim periods within those fiscal years. Early adoption is prohibited.
        Management is determining the impact that the adoption of SFAS No. 160 will
        have
        on the Company’s condensed consolidated financial position, results of
        operations or cash flows.
 
 In
        December 2007, the FASB issued SFAS 141R, *Business Combinations* (“SFAS
        141R”), which replaces FASB SFAS 141, *Business Combinations.* This
        Statement retains the fundamental requirements in SFAS 141 that the acquisition
        method of accounting be used for all business combinations and for an acquirer
        to be identified for each business combination. SFAS 141R defines the acquirer
        as the entity that obtains control of one or more businesses in the business
        combination and establishes the acquisition date as the date that the acquirer
        achieves control.  SFAS 141R will require an entity to record
        separately from the business combination the direct costs, where previously
        these costs were included in the total allocated cost of the
        acquisition.  SFAS 141R will require an entity to recognize the assets
        acquired, liabilities assumed, and any non-controlling interest in the acquired
        at the acquisition date, at their fair values as of that date.  This
        compares to the cost allocation method previously required by SFAS No.
        141.  SFAS 141R will require an entity to recognize as an asset or
        liability at fair value for certain contingencies, either contractual or
        non-contractual, if certain criteria are met.  Finally, SFAS 141R will
        require an entity to recognize contingent consideration at the date of
        acquisition, based on the fair value at that date.  This Statement
        will be effective for business combinations completed on or after the first
        annual reporting period beginning on or after December 15,
        2008.  Early adoption of this standard is not permitted and the
        standards are to be applied prospectively only.  Upon adoption of this
        standard, there would be no impact to the Company’s results of operations and
        financial condition for acquisitions previously completed.  The
        adoption of SFAS No. 141R is not expected to have a material effect on the
        Company’s condensed consolidated financial position, results of operations or
        cash flows.
  19
  **CSMG
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **(FORMERLY
        CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 2008 AND 2007 (UNAUDITED)**
 
 **NOTE
                  2-**
              **SUMMARY
                  OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
  **Recent
        Issued Accounting Standards** **(Continued)**
  In
        December 2007, the Securities and Exchange Commission issued Staff Accounting
        Bulletin No. 110, “ *Use
        of a Simplified Method in Developing Expected Term of Share
        Options* ”
(“SAB
        110”). SAB 110 expenses the current view of the staff that it will accept a
        company’s election to use the simplified method discussed in Staff Accounting
        Bulletin No. 107, “ *Share Based Payment* ”,
        (“SAB
        107”), for estimating the expected term of “plain vanilla” share options
        regardless of whether the company has sufficient information to make more
        refined estimates. SAB 110 became effective for the Company on January 1,
        2008.
        The adoption of SAB 110 is not expected to have a material impact on the
        Company’s financial position.
  In
        March
        2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
        and Hedging Activities—an amendment of FASB Statement No. 133.” Constituents
        have expressed concerns that the existing disclosure requirements in FASB
        Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
        do not provide adequate information about how derivative and hedging activities
        affect an entity’s financial position, financial performance, and cash flows.
        SFAS No. 161 requires enhanced disclosures about an entity’s derivative and
        hedging activities and thereby improves the transparency of financial reporting.
        This Statement is effective for financial statements issued for fiscal years
        and
        interim periods beginning after November 15, 2008, with early application
        encouraged. This Statement encourages, but does not require, comparative
        disclosures for earlier periods at initial adoption. The adoption of FASB
        161 is
        not expected to have a material impact on the Company’s condensed consolidated
        financial position.
 
 In
        May
        2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
        Accounting Principles.” The current GAAP hierarchy, as set forth in the American
        Institute of Certified Public Accountants (AICPA) Statement on Auditing
        Standards No. 69, The Meaning of Present Fairly in Conformity With Generally
        Accepted Accounting Principles, has been criticized because (1) it is directed
        to the auditor rather than the entity, (2) it is complex, and (3) it ranks
        FASB
        Statements of Financial Accounting Concepts. The FASB believes that the GAAP
        hierarchy should be directed to entities because it is the entity (not its
        auditor) that is responsible for selecting accounting principles for financial
        statements that are presented in conformity with GAAP. Accordingly, the FASB
        concluded that the GAAP hierarchy should reside in the accounting literature
        established by the FASB and is issuing this Statement to achieve that result.
        This Statement is effective 60 days following the SEC’s approval of the Public
        Company Accounting Oversight Board amendments to AU Section 411, The Meaning
        of
        Present Fairly in Conformity With Generally Accepted Accounting Principles.
        The
        adoption of FASB 162 is not expected to have a material impact on the Company’s
        condensed consolidated financial position.
 
 In
        May
        2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
        Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
        exists in practice in accounting for financial guarantee insurance contracts
        by
        insurance enterprises under FASB Statement No. 60, Accounting and Reporting
        by
        Insurance Enterprises. This results in inconsistencies in the recognition
        and
        measurement of claim liabilities. This Statement requires that an insurance
        enterprise recognize a claim liability prior to an event of default (insured
        event) when there is evidence that credit deterioration has occurred in an
        insured financial obligation. This Statement requires expanded disclosures
        about financial guarantee insurance contracts. The accounting and disclosure
        requirements of the Statement will improve the quality of information provided
        to users of financial statements. The adoption of FASB 163 is not expected
        to
        have a material impact on the Company’s condensed consolidated financial
        position.
 
 Other
        accounting standards that have been issued or proposed by the FASB or other
        standards-setting bodies that do not require adoption until a future date
        and
        are not expected to have a material impact on the condensed consolidated
        financial statements upon adoption.
  20
  **CSMG
        TECHNOLOGIES, INC. AND SUBSIDIARIES**
 **(FORMERLY
        CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**
 **SEPTEMBER
        30, 2008 AND 2007 (UNAUDITED)**
  **NOTE
                  3-**
              **ACQUISITION**
  The
        acquisition of CCTI was accounted for using the purchase method of accounting
        under SFAS 141R. The purchase price is equivalent to the value of $434,093
        which
        represents the value of the 371,020 shares of common stock issued in the
        acquisition. The entire value of $434,093 was allocated to goodwill. CCTI
        had
        only conducted research and development which was not capitalized prior to
        the
        acquisition. There were no other identifiable intangible assets noted in
        the
        acquisition.
 
 Following
        the close of the acquisition, the Company hired an independent valuation
        service
        to prepare a valuation opinion on the value of CCTI. The result of the valuation
        opinion received is a fully discounted current value in the amount of
        $1,671,750.
 
 **NOTE
                  4-**
              **INVENTORY**
  Inventory
        consists of the following at September 30, 2008 and December 31, 2007,
        respectively:
  **September 30,**
              
              **December 31,****2008**
              
              **2007**Parts
                  and materials
              
              $
              163,461
              
              $
              47,560Less:
                  Reserve for obsolescence
              
              
              (47,560
              )
              
              (11,890
              )Total,
                  net
              
              $
              115,901
              
              $
              35,670
  **NOTE
                  5-**
              **FIXED
                  ASSETS**
  Fixed
        assets consist of the following as of September 30, 2008 and December 31,
        2007:
  **Estimated Useful**
              
              **September 30,**
              
              **December 31,****Lives (Years)**
              
              **2008**
              
              **2007**Equipment
              
              
              3-7
              
              $
              113,677
              
              $
              58,027Furniture
                  and fixtures
              
              
              7
              
              
              55,181
              
              
              39,114Software
              
              
              3
              
              
              11,956
              
              
              -Leasehold
                  improvements
              
              
              15
              
              
              16,561
              
              
              -197,375
              
              
              97,141Less:
                  Accumulated depreciation
              
              
              
              
              
              (69,350
              )
              
              (54,536
              )Total,
                  net
              
              
              
              
              $
              128,025
              
              $
              42,605
  Depreciation
        expense was $ 14,814 and $548
        for the nine months ended September 30, 2008 and 2007, respectively. The
        Company
        wrote off
        $8,118 of fully
        depreciated equipment in the nine months ended September 30,
        2007.
  21


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                6-**
            **INTANGIBLE
                ASSETS**




Intangible
      assets consist of patent costs on the live tissue connect technology. Until
      the
      Company receives approval on these patents, no amortization will be expensed.
      Upon approval, the Company anticipates the amortization to be over a period
      of
      fifteen years.




**NOTE
                7-**
            **CONVERTIBLE
                NOTES PAYABLE**




The
      Company from July 27, 2006 through September 30, 2008 raised $7,348,850 (of
      which $460,807 was repaid during 2007 and 2008) through Empire Financial Group
      in the form of unsecured convertible notes. The notes commenced interest accrual
      on January 1, 2007, at 15% per annum, and are convertible into Live Tissue
      Connect, Inc. shares at 50% of the IPO price of the LTC’s common stock. The
      Company has accrued $1,590,011 in interest through September 30, 2008. The
      total
      due the investors as of September 30, 2008 is $8,478,054. The entire balance
      is
      reflected as a current liability on the Company’s condensed consolidated balance
      sheets.




These
      notes matured on July 15, 2008 and the Company is currently working with their
      investment banker to extend these notes until completion of the LTC IPO. The
      Company has determined that an adjustment may be necessary related to these
      convertible notes depending upon the structure of extensions and modifications.
      The Company is working with the investment bankers currently to structure the
      extension and modifications to the existing convertible note agreements. These
      modifications may require the Company to extinguish the debt in accordance
      with
      EITF 06-6, ‘Debtor’s Accounting for a Modification (or Exchange) of Convertible
      Debt Instruments” and EITF 96-19, “Debtor’s Accounting for a Modification or
      Exchange of Debt Instruments”.




Additionally
      we offered through a private placement up to 5 million shares of preferred
      stock
      at $1 per share in our majority owned subsidiary Live Tissue Connect, Inc.
      through Empire-Jesup Lamont of which $755,000 was raised through the Company’s
      third fiscal quarter. These preferred shares have not been issued as of
      September 30, 2008. The preferred stock carries a cumulative dividend of 8%.
      Each holder of Series A Preferred will have the right, at the earlier of the
      IPO
      and the end of 18 months, to convert the total amount of money due to the owners
      of the Series A Preferred into shares of Common Stock at a conversion ratio
      of
      50% of the Initial Public Offering (IPO) price. If no IPO has been completed
      at
      the 18 th month,
      the holder of the Series A Preferred may convert total amount of money due
      into
      shares of Common Stock at a price equal to 50% of the closing price of CSMG
      Technologies, Inc. stock on the first business day following the anniversary
      of
      the eighteenth (18th) month of the Closing. The Company is in the process of
      determining whether an adjustment may be necessary for the beneficial conversion
      feature as it relates to the preferred stock.




Empire
      received 290,941 warrants on May 18, 2007 as part of their commission for the
      raising of the money. The Company recorded these warrants in accordance with
      EITF 96-18 and recognized an expense in the amount of $186,092.




**NOTE
                8-**
            **NOTES
                PAYABLE**




The
      Company from time to time entered into various note agreements with shareholders
      of the Company. There are 12 notes that remain as of September 30, 2008
      commenced from 2000 through 2008, and accrue interest at rates ranging from
      8%
      to 12%.




The
      remaining principal of these 12 notes as of September 30, 2008 is $1,710,476.
      Accrued interest through September 30, 2008 on these notes is $819,141 for
      a
      total amount due as of September 30, 2008 of $2,529,617.


22




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE
                8-**
            **NOTES
                PAYABLE****(CONTINUED)**




Six
      of
      these unsecured notes are convertible to the Company’s Rule 144 common stock at
      $0.625 per share at any time until the note is repaid. One note for $199,648
      is
      owed to the Company’s president and accrues at 10% interest per annum and has an
      open maturity date, two other notes for a total of $300,500 is owed to the
      Company’s president and accrue interest at 11% per annum and have open maturity
      dates, two notes to a board member for $114,000 and accrues at 11% due in June
      2010 with the interest rate increasing to 15% per annum if unpaid on the
      maturity date, and one note for $8,000 is accruing at 15% to an investor we
      have
      been unable to locate. The remaining 8 notes are described below in notes
      payable but in litigation.




The
      Company entered into a non-recourse loan agreement, which was set up through
      Angel Trust (a related party - See Note 12 *Related
      Party Transactions* )
      to
      facilitate a loan from Equities First Holdings (EFH). The loan was for an LTV
      of
      60% of the closing stock price on the day of closing. The closing price was
      $1.25 on the closing date or $450,000. We paid a 10% fee, plus we were to pay
      7%
      interest per annum for 3 years. The Company netted $405,000 from the funding
      on
      August 22, 2008. The Company arranged for 4 non-principal stockholders to
      transfer their free trading stock to Angel Trust for a total of 600,000 shares,
      which were pledged under the non-recourse note from Angel Trust to EFH. In
      exchange, the Company issued rule 144 Stock to the shareholders with a 15%
      premium for a total of 690,000 shares. Terms of the loan included a penalty
      clause wherewith, if the stock price fell under 80% of the LTV price for 3
      days,
      the Company would have to pay a penalty, none of which would be credited to
      principal of the loan or forfeit the stock. (See Note. 14 *Subsequent Events).* As
      noted,
      the common stock did fall below this threshold and the Company forfeited its
      stock. This occurred in October 2008. As of September 30, 2008, this note had
      accrued interest of $4,045 for a total amount due of $454,045. The Company
      has
      classified the guarantee of this debt ($450,000) as an offset against the note
      payable as the note will in essence be converted in October 2008.





The
      Company’s management has been very successful over the past few years in
      converting these notes into shares of common stock. For the nine months ended
      September 30, 2008, the Company has converted $599,247 in accrued interest
      ($296,992), notes payable ($199,195) and a discount on conversion of the notes
      payable of ($103,060) to additional paid in capital based on the beneficial
      conversion price into 830,688 shares of common stock as well as $80,607 in
      a
      liability for stock to be issued. For the year ended December 31, 2007, the
      Company has converted $1,748,423 in notes plus accrued interest into 2,733,248
      shares of stock. In addition, the Company recorded a discount in the amount
      of
      $922,001 to additional paid in capital based on the beneficial conversion price.
      All these notes were unsecured.





Included
      in the notes payable are:




***Y.A.
      Global Investments, L.P.***




On
      March
      29, 2004, the Company entered into an equity line of credit with Y.A. Global
      Investments, L.P. (f/k/a Cornell Capital Partners) whereby the Company may
      issue
      and sell to YA Global Investments, L.P. up to $10,000,000 in common stock.
      Under
      this arrangement, Cornell advanced the Company $1,000,000 in 2004, all of which
      has been repaid through conversions to common stock.




The
      Company in 2005 was advanced $600,000 under a convertible debenture. In
      accordance with this agreement, the Company has been repaying this through
      issuances of stock under Rule 144. The Company on October 18, 2007 repaid the
      remaining $242,000 in principal along with interest in the amount of $132,687
      with the issuance of 535,267 shares of common stock to YA Global Investments,
      L.P. There is no further indebtedness to YA Global Investments, L.P. These
      shares were issued pursuant to an exemption from registration under Section
      4(2)
      of the Securities Act of 1933, as amended. The purchaser of these shares is
      aware that they are restricted. There were no warrants or options issued in
      the
      Cornell transaction.


23




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                8-**
            **NOTES
                PAYABLE****(CONTINUED)**




**Included
      in notes payable but remain in litigation are the
      following:**




***Stonegate
      Management, Ltd.***




The
      Company in 2001 entered into four one-year note agreements with Stonegate
      Management in the original principal balance of $630,000. Accrued interest
      through September 30, 2008 on these notes amounts to $580,171 for a total amount
      due under these notes of $1,210,171. The notes accrue interest at rates ranging
      between 8% and 10% per annum.




In
      relation to these notes, the Company on December 12, 2005, was served a suit
      in
      the Circuit Court for Hillsborough County Florida by Nature Coast Collections,
      Inc. The suit named the Company as well as certain officers, Donald Robbins
      and
      Gordon Allison as guarantors of the four notes. Nature Coast Collections, Inc.
      is the claimed assignee of the original payee, Stonegate Management, Ltd.,
      a
      Costa Rican entity. The Company filed a motion for dismissal of the proceedings
      for lack of jurisdiction in Florida, and this was granted.




On
      September 30, 2006, the Company and the two officers were again served by Nature
      Coast Collections, Inc., this time in the Federal District Court for the
      Southern District of Texas. The Company has answered the complaint and filed
      a
      counterclaim alleging, among other matters, that Nature Coast Collections,
      Inc.
      is an affiliate of RTC, a debtor in bankruptcy, whom the Company entered into
      a
      transaction with in regards to their CO2 separation equipment. The Company
      alleges that they should be authorized to offset its losses caused by the
      contractual relationship with RTC against the claims brought on by Nature Coast
      Collections, Inc. The Company has moved to transfer these proceedings to the
      Federal District Court for the Northern District of Illinois, where the
      bankruptcy proceedings are.




Nature
      Coast Collections, Inc. v.  Consortium Service Management Group, Inc.,
      Donald S.  Robbins and Gordon W.  Allison , Case
      No. 2:06-cv-273 originally pending in the Southern District of Texas
      District Court and recently ordered transferred to the Northern District of
      Illinois.  Plaintiff claims damages of $630,000, with interest and costs,
      arising out of a series of disputed promissory notes bringing the total claim
      over $900,000 and under $1,000,000. The Company has answered setting forth
      several affirmative defenses and counterclaims focused on the affiliation of
      the
      Plaintiff with an offshore affiliate of a customer of the Company and based
      on
      misrepresentation.  Discovery has been completed and the Company has filed
      a motion for summary judgment with respect to the Plaintiff’s claims, the
      briefing of which by the parties has yet to be fully completed. No trial date
      has been set.


24




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                8-**
            **NOTES
                PAYABLE****(CONTINUED)**




***Banco
      Panamericano***




The
      Company is in default on a note with an initial balance of $203,800 to Banco
      Panamericano that became due April 1, 2002. On February 10, 2005, Banco
      Panamericano filed suit in the Circuit Court of Cook County, Illinois for
      $514,920 (balance accrued as of September 30, 2008 including interest at 12%
      is
      $415,344).




The
      note
      was funded in large part to assist in funds needed for the Chastang transaction,
      and the Company alleges that Banco Panamericano is not a bank, but a Nebraska
      corporation that is affiliated with RTC and that the proceeds were to be repaid
      from the proceeds of the sale of the methane gas that never occurred based
      on
      RTC’s failure to perform under the contract.




The
      Company believes they are the injured party and that the litigation properly
      belongs in RTC’s Chapter 11 proceedings in the federal bankruptcy court. On
      December 6, 2005, the case was moved to the United States Bankruptcy
      Court.




Banco
      Panamericano v.  Consortium Service Management Group. Inc. and CSMG Gastech
      LLC , 
      Case No.  1:07-cv-00015 now pending in the Northern District of Illinois
      District Court as Case No. 06 C 7195.  Plaintiff claims damages in the
      amount of $514,920 as of February 9, 2005, together with interest and costs,
      arising out of a disputed promissory note bringing the total claim to
      $1,013,648.  The Company has answered setting forth several affirmative
      defenses and counterclaims focused on the affiliation of the Plaintiff with
      a
      customer of the Company and based on misrepresentation.  Discovery has been
      completed and Plaintiff has submitted a contested motion for summary judgment
      that is under consideration by the Court. A trial date of December 10, 2007,
      has
      been continued pending the outcome of this motion.





The
      entire balance of shareholder notes is reflected as current liabilities as
      they
      are all overdue.


25


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                9-**
            **STOCKHOLDERS’
                EQUITY (DEFICIT)**





***Preferred
      Stock***




The
      Company has 10,000,000 authorized shares of preferred stock, par value
      $.001.




On
      December 28, 1995, the Company authorized the issuance of 75,669 shares of
      Series A preferred stock, $10.00 face amount, $.001 par value which paid a
      cumulative dividend on net corporate profit equal to 8% of the face amount
      of
      the outstanding stock. If the Company did not realize profits, preferred stock
      dividends are not accruable. Such preferred stock is preferred over all common
      stock in the event of corporate liquidation and dissolution to the extent of
      its
      unredeemed face amount.




On
      September 29, 2000, the Board of Directors approved the conversion of these
      shares into 1,210,704 common shares.




As
      of
      September 30, 2008 and December 31, 2007, there are no shares issued and
      outstanding.




***Common
      Stock***




On
      January 18, 2007, the Company increased the authorized shares of common stock
      to
      80,000,000.




As
      of
      September 30, 2008 and December 31, 2007, the Company had 41,668,875 and
      38,018,544 shares issued and outstanding.




For
      the
      nine months ended September 30, 2008, the Company had issued the following
      stock:




830,688
      shares issued in conversion of notes payable, accrued interest and discount
      on
      conversion in the amount of $519,180.




1,186,650
      shares issued for cash in the amount of $1,027,900.




51,155
      shares issued for conversion of warrants in the amount of $93,666 which were
      expensed in the nine months ended September 30, 2008.




114,916
      shares issued to two former owners of a subsidiary of the company for their
      investment of $60,000 plus interest that was accrued for $43,350 (total
      investment $103,350).




195,902
      shares were issued for $174,359 for services.




371,020
      shares were issued for the purchase of CCTI valued at $434,093.





600,000
      shares of common stock issued to current non-principal shareholders to replace
      their shares that were used to collateralize a note payable for
      $450,000.





300,000
      shares of 144 stock to replace 300,000 shares of unrestricted stock held by
      current non-principal shareholders. These shares are reflected as treasury
      shares since they are in the Company’s name.





For
      the
      years ended December 31, 2007 and 2006, the Company had issued the following
      stock:




1,086,715
      and 4,549,122 shares issued for cash in the amount of $620,991 and $672,889,
      respectively.




744,500
      and 366,115 shares issued for services at a value of $314,413 and $201,107,
      respectively.




2,733,248
      and 2,493,109 shares issued in conversion of notes payable and accrued interest
      in the amount of $1,748,423 and $1,507,458, respectively.


26





**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                9-**
            **STOCKHOLDERS’
                EQUITY (DEFICIT)****(CONTINUED)**




***Options***




The
      Company currently has three stock option plans. The following table summarizes
      the activity of the Company’s stock option plan.





September 30, 2008Weighted-averageNumber of
            
            exerciseOptions
            
            priceSeptember
                30, 2008:Outstanding –
                beginning of period
            
            
            1,125,000
            
            $
            0.46Granted
            
            
            1,200,000
            
            
            1.10Exercised/Expired
            
            
            (-
            )
            
            -Outstanding –
                end of period
            
            
            2,325,000
            
            $
            0.80Exercisable
                at end of period
            
            
            2,325,000
            
            $
            0.80





September 30, 2007Weighted-averageNumber of
            
            exerciseOptions
            
            priceSeptember
                30, 2007:Outstanding –
                beginning of period
            
            
            925,000
            
            $
            0.42Granted
            
            
            50,000
            
            
            0.62Exercised/Expired
            
            
            (-
            )
            
            -Outstanding –
                end of period
            
            
            1,025,000
            
            $
            0.45Exercisable
                at end of period
            
            
            975,000
            
            $
            0.45




The
      Company’s options expire at various times through 2017. All options issued in
      2003 through 2005 were issued at or above market value. The Company issued
      1,200,000 options to directors valued at $891,571 in July 2008, and issued
      50,000 options to a consultant in February 2007 and 100,000 options to a
      consultant in October 2007 that were vested. These 2007 options were expensed
      at
      a value of $96,322, all options are valued utilizing the Black-Scholes
      method.


27


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                9-**
            **STOCKHOLDERS’
                EQUITY (DEFICIT)****(CONTINUED)**




***Options
      (Continued)***





The
      fair
      value of each option is estimated on the date of grant using the Black-Scholes
      option-pricing model. The following weighted average assumptions were used
      in
      the model:




July-08
            
            Feb-07
            
            Oct-07Stock
                price
            
            $
            1.00
            
            $
            0.62
            
            $
            0.75Strike
                price
            
            $
            1.10
            
            $
            0.62
            
            $
            0.75Expected
                lives (years)
            
            
            5
            
            
            10
            
            
            10Annualized
                volatility
            
            
            99.40
            %
            
            100.61
            %
            
            100.19
            %Discouint
                rate
            
            
            3.36
            %
            
            4.50
            %
            
            4.00
            %Annual
                rate of quarterly dividends
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %Call
                option value
            
            $
            0.743
            
            $
            0.5649
            
            $
            0.6807




In
      addition, Live Tissue Connect, Inc. granted 231,500, 2,875,000 and 1,000,000
      options in the nine months ended September 30, 2008, and the years ended
      December 31, 2007 and 2006, respectively. Of those options granted 109,833,
      2,800,000 and 1,000,000 were vested and Live Tissue Connect, Inc. recorded
      $202,083, $1,588,478 and $82,498 in stock based compensation.




**Jun-07**
            
            **Jun-07**
            
            **Jun-08/Jul-08**
            
            **Jan-08/Jul-08**Stock price
            
            $
            0.72
            
            $
            0.72
            
            $
            2.03
            
            $
            2.03Strike
                price
            
            $
            0.24
            
            $
            0.20
            
            $
            0.24
            
            $
            0.24Expected
                lives (years)
            
            
            10.00
            
            
            10.00
            
            
            10.00
            
            
            10.00Annualized
                volatility
            
            
            15.85
            %
            
            15.85
            %
            
            15.85
            %
            
            15.85
            %Discount
                rate
            
            
            3.00
            %
            
            3.00
            %
            
            3.00
                %
            %
            
            3.00
            %Annual
                rate of quarterly dividends
            
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %
            
            0.00
            %Call
                option value
            
            $
            0.5419
            
            $
            0.5715
            
            $
            1.8518
                $
            
            $
            1.8518




28





**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**





**NOTE
                9-**
            **STOCKHOLDERS’
                EQUITY (DEFICIT)****(CONTINUED)**




***Warrants***




The
      Company has issued the following warrants as of September 30, 2008:




**Exercise**
            
            **Date****Warrants**
            
            **Price**
            
            **Issued**
            
            **Term**180,000
            
            $
            0.40
            
            
            5/15/2006
            
            
            7.5
                years360,000
            
            $
            0.40
                - $0.75
            
            
            11/1/2006
            
            
            7
                years290,941
            
            $
            0.57
            
            
            5/18/2007
            
            
            7
                years830,941





The
      290,941 Warrants issued in May 2007 were valued utilizing the Black -
      Scholes method as follows:





Stock
                Price
            
            $
            .74Strike
                Price
            
            $
            .57Expected
                Life of Warrant
            
            
            7
                yrs.Annualized
                Volatility
            
            
            100.61
            %Discount
                Rate
            
            
            4.50
            %Annual
                Rate of Quarterly Dividends
            
            
            NoneCall
                Option Value
            
            $
            .6396




**NOTE
                10-**
            **COMMITMENTS**




**Rental –
      CSMG - Texas**




The
      Company leases office space at its corporate headquarters in Corpus Christi,
      Texas under an operating lease that has initial or remaining non-cancelable
      lease terms and expires in March 2013. The following presents the approximate
      future minimum lease payments required under this lease:




**For the Periods Ended****September 30,**2009
            
            $
            60,5882010
            
            
            63,0122011
            
            
            65,5322012
            
            
            68,1532013
            
            
            35,440$
            292,725




29




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE
                10-**
            **COMMITMENTS****(CONTINUED)**




**Rental –
      CSMG - Texas** **(Continued)**




In
      accordance with this lease, the Company paid a security deposit in the amount
      of
      $4,950 in March 2008 (lease commencement) and this amount is included in the
      condensed consolidated balance sheets as “Deposits and other assets.” The office
      space was occupied on September 3, 2008.




**Rental
      – LTC - California**




The
      Company leases office space for its majority owned subsidiary in Goleta,
      California under an operating lease that has initial or remaining non-cancelable
      lease terms and expires in February 2010. The following presents the approximate
      future minimum lease payments required under this lease:




**For the Periods Ended****September 30,**2009
            
            $
            49,3922010
            
            
            22,050$
            71,442




In
      accordance with this lease, the Company paid a security deposit in the amount
      of
      $30,429 in February 2008 (lease commencement) and this amount is included in
      the
      condensed consolidated balance sheets as “Deposits and other
      assets.”




Rent
      expense for the nine months ended September 30, 2008 and 2007 were $54,911
      and
      $8,074, respectively and are included in the condensed consolidated statements
      of operations under general and administrative expenses.




**NOTE
                11-**
            **PROVISION
                FOR INCOME TAXES**




Deferred
      income taxes will be determined using the liability method for the temporary
      differences between the financial reporting basis and income tax basis of the
      Company’s assets and liabilities. Deferred income taxes are measured based on
      the tax rates expected to be in effect when the temporary differences are
      included in the Company’s tax return. Deferred tax assets and liabilities are
      recognized based on anticipated future tax consequences attributable to
      differences between financial statement carrying amounts of assets and
      liabilities and their respective tax bases.


30




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE
                11-**
            **PROVISION
                FOR INCOME TAXES****(CONTINUED)**




At
      September 30, 2008, deferred tax assets consist of the following:




Net
                operating losses
            
            $
            8,720,286Valuation
                allowance
            
            
            (8,720,286
            )$
            -




At
      September 30, 2008, the Company had net operating loss carryforward in the
      amount of $24,915,103 available to offset future taxable income through 2028.
      The Company established valuation allowances equal to the full amount of the
      deferred tax assets due to the uncertainty of the utilization of the operating
      losses in future periods.





A
      reconciliation of the Company’s effective tax rate as a percentage of income
      before taxes and federal statutory rate for the nine months ended September
      30,
      2008 and 2007 is summarized below.




2008
            
            2007Federal
                statutory rate
            
            
            (35.0
            )%
            
            (35.0
            )%State
                income taxes, net of federal benefits
            
            
            0.0
            
            
            0.0Valuation
                allowance
            
            
            35.0
            
            
            35.00
            %
            
            0
            %





**NOTE
                12-**
            **RELATED
                PARTY TRANSACTION**





The
      Company entered into a non-recourse loan agreement, which was set up through
      Angel Trust (a related party) to facilitate a loan from Equities First Holdings
      (EFH). The loan was for an LTV of 60% of the closing stock price on the day
      of
      closing. The closing price was $1.25 on the closing date or $450,000. We paid
      a
      10% fee, plus we were to pay 7% interest per annum for three years. The Company
      netted $405,000 from the funding on August 22, 2008. The Company arranged for
      four stockholders to transfer their free trading stock to Angel Trust for a
      total of 600,000 shares, which were pledged under the non-recourse note to
      EFH.
      In exchange the Company issued rule 144 Stock to the shareholders with a 15%
      premium for a total of 690,000 shares. Terms of the loan included a penalty
      clause wherewith, if the stock price fell under 80% of the LTV price for three
      days, the Company would have to pay a penalty, none of which would be credited
      to principal of the loan or forfeit the stock. (See additional information
      in
      Note 8 *Notes
      Payable* and Note
      14 *Subsequent
      Events* )





**NOTE
                13-**
            **LITIGATION**





Banco
      Panamericano v.  Consortium Service Management Group. Inc. and CSMG Gastech
      LLC , Case
      No.  1:07-cv-00015 now pending in the Northern District of Illinois
      District Court as Case No. 06 C 7195.  Plaintiff claims damages in the
      amount of $514,920 as of February 9, 2005, together with interest and costs,
      arising out of a disputed promissory note bringing the total claim to
      $1,013,648.  The Company has answered setting forth several affirmative
      defenses and counterclaims focused on the affiliation of the Plaintiff with
      a
      customer of the Company and based on misrepresentation.  Discovery has been
      completed and Plaintiff has submitted a contested motion for summary judgment.
      On August 26, 2008 the Court issued its Memorandum Opinion and Order granting
      summary judgment in favor of the plaintiff in the amount of $203,800 plus
      interest and late fees. The Court has requested further briefing on the issue
      of
      calculating interest and late fees. The Court granted the plaintiff summary
      judgment on defendant’s affirmative defenses and counterclaims.


31




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE
                13-**
            **LITIGATION****(CONTINUED)**





Nature
      Coast Collections, Inc. v.  Consortium Service Management Group, Inc.,
      Donald S.  Robbins and Gordon W.  Allison , Case
      No. 2:06-cv-273 originally pending in the Southern District of Texas
      District Court and recently ordered transferred to the Northern District of
      Illinois.  Plaintiff claims damages of $630,000, with interest and costs,
      arising out of a series of disputed promissory notes.  The Company has
      answered setting forth several affirmative defenses and counterclaims focused
      on
      the affiliation of the Plaintiff with an offshore affiliate of a customer of
      the
      Company and based on misrepresentation.  Discovery has been completed and
      the Company has filed a motion for summary judgment with respect to the
      Plaintiff’s claims, the briefing of which by the parties has yet to be fully
      completed. No trial date has been set.





There
      is
      a dispute, not subject to a court proceeding, between Waste Management Company,
      Inc. (“Waste Management”) and the Company with regard to the Chastang Waste Site
      in Chastang, Alabama.  Waste Management was to maintain the site so as to
      produce marketable levels of waste site gas.  The site has failed to
      produce such volume and Waste Management has requested the Company to remove
      its
      equipment from the site.  The Company has commenced the disassembly of the
      equipment in preparation for removal of the equipment from the site. A written
      demand for removal was received from Waste Management on August 9, 2007. The
      equipment has been removed from the landfill site and placed in
      storage.





CSMG
      Technologies, Inc. v.  Gordon W.  Allison ,
      Case
      No. 4:07-cv-00715 in the Southern District of Texas District Court. In
      Gordon Allison’s answer to the Company’s complaint seeking unspecified damages
      in connection with claims based upon fraudulent statements, breach of fiduciary
      duty and promissory estoppel with respect to investments in projects Gordon
      Allison involved the Company, Allison filed a counterclaim seeking damages
      of
      approximately $328,041 principal and interest for amounts allegedly due under
      the terms of a November 5, 2003 promissory note issued to him by the Company,
      unpaid salary of $150,000, unspecified payment for services rendered,
      reimbursement of expenses estimated at $23,000 and punitive damages in an
      unspecified amount. The Company is vigorously defending the counterclaim. On
      September 30, 2008 the Court issued its Memorandum and Order as follows: a)
      granting Defendant Allison’s Motion to Dismiss; b) granting Defendant Allison’s
      Motion for Partial Summary Judgment on Defendant’s Counterclaim for Suit on
      Promissory Note and Brief in Support and c) denying the Company’s request for
      attorneys’ fees. However, the Court ruled that no payment on this judgment is
      due until all claims are fully and finally resolved by the Court.





**NOTE
                14-**
            **SUBSEQUENT
                EVENTS**




The
      Company had entered into a 3 year non-recourse collateralized loan agreement
      with Angel Trust to loan the Company a net of 54% on the date of valuation
      of
      600,000 shares of the Company’s common stock. The note carried an annual
      interest rate of 7% paid quarterly and principal payment upon note maturity.
      This was a related party transaction. On  October
      7, 2008, the Company received notice the stock price had fallen below the 80%
      of
      LTV on the loan and were given three days to pay either $48,000 or 126,316
      shares of free trading stock or forfeit the 600,000 shares of common stock.
      Neither the cash nor the stock would be credited to the loan balance. Under
      the
      terms of the non-recourse note, the board decided to forfeit the 600,000 shares
      of stock. The transaction terminated on October 14, 2008 with no further
      liability.


32


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE15-**
            **RESTATEMENT
                OF PRIOR FINANCIAL
                STATEMENTS**




The
      Company has restated its consolidated financial statements for the years ended
      December 31, 2007 and 2006 to account for the correction of an error related
      to
      an adjustment made to record the value of the granting of stock options by
      Live
      Tissue Connect, Inc. The adjustments increased the net loss and deficits
      accumulated during the development stage in the amounts of $1,976,902 and
      $82,498 for the years ended December 31, 2007 and 2006, respectively. In
      addition, additional paid in capital increased $1,588,478 and $82,498 at
      December 31, 2007 and 2006. The net loss per share for the year ended December
      31, 2007 increased ($.05) from ($.20) to ($.25). The net loss per share for
      the
      year ended December 31, 2006 increased ($.01) from ($.09) to
      ($.10).





The
      following charts reflect the changes of the individual line items changed in
      the
      consolidated financial statements.





**December
                31, 2006**Net
                loss prior to restatement
            
            $
            (3,038,041
            )(1)
            
            
            (82,498
            )Net
                loss after restatement
            
            $
            (3,120,539
            )Deficits
                accumulated during the development stage - prior to restatement
            
            $
            -(2)
                Represents reclass from Accumulated (deficit)
            
            
            (3,038,040
            )(1)
            
            
            (82,498
            )Deficits
                accumulated during the development stage - after restatement NOTE
                prior
                auditor had a $1 difference
            
            $
            (3,120,538
            )Loss
                per share - prior to restatement
            
            $
            (0.09
            )(1)
            
            
            (0.01
            )Loss
                per share - after restatement
            
            $
            (0.10
            )




(1)
            Reflects
                correction of an error related to the value attributable to the 1,000,000
                options vested


(2)
            Accumulated
                deficit previously was $16,550,813, restated to $13,512,773 (change
                of
                $3,038,040)


33


**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE
                15-**
            **RESTATEMENT
                OF PRIOR FINANCIAL STATEMENTS****(CONTINUED)**




**December
                31, 2006****Previously**
            
            
            
            
            
            **Cumulative****Reported**
            
            **Restated**
            
            **Change**
            
            **Column*****Statement
                of Operations***General
                and administrative
            
            
            2,606,143
            
            
            2,263,470
            
            
            342,673
            
            
            342,673Depreciation
                expense
            
            
            -
            
            
            384
            
            
            (384
            )
            
            (384
            )Interest
                income
            
            
            (10,903
            )
            
            -
            
            
            (10,903
            )
            
            (10,903
            )Interest
                expense
            
            
            -
            
            
            413,884
            
            
            (413,884
            )
            
            (413,884
            )Net
                loss
            
            
            (3,038,041
            )
            
            (3,120,539
            )
            
            (82,498
            )
            
            (82,498
            )***Balance
                Sheet***Additional
                paid-in capital
            
            
            9,922,095
            
            
            10,004,593
            
            
            82,498Accumulated
                deficit
            
            
            (16,550,813
            )
            
            (13,512,773
            )
            
            3,038,040Deficits
                accumulated during the development stage ($1 difference)
            
            
            -
            
            
            (3,120,539
            )
            
            (3,120,539
            )***Statement
                of Changes in Stockholders' (Deficit)***Additional
                paid-in capital
            
            
            9,922,095
            
            
            10,004,593
            
            
            82,498Net
                loss for the period
            
            
            (3,038,041
            )
            
            (3,120,539
            )
            
            (82,498
            )***Statement
                of Cash Flow***Net
                loss
            
            
            (3,038,041
            )
            
            (3,120,539
            )
            
            (82,498
            )
            
            (82,498
            )Stock
                based compensation
            
            
            -
            
            
            82,498
            
            
            82,498
            
            
            82,498




34




**CSMG
      TECHNOLOGIES, INC. AND SUBSIDIARIES**


**(FORMERLY
      CONSORTIUM SERVICE MANAGEMENT GROUP, INC.)**


**(A
      DEVELOPMENT STAGE COMPANY)**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**


**SEPTEMBER
      30, 2008 AND 2007 (UNAUDITED)**




**NOTE
                15-**
            **RESTATEMENT
                OF PRIOR FINANCIAL STATEMENTS****(CONTINUED)**




**December
                31, 2007**Net
                loss prior to restatement
            
            $
            (7,074,364
            )(2)
            
            
            (388,424
            )(1)
            
            
            (1,588,478
            )Net
                loss after restatement
            
            $
            (9,051,266
            )Deficits
                accumulated during the development stage - prior to restatement
            
            $
            (9,893,176
            )(1)
                and (2)
            
            
            (1,976,902
            )Deficits
                accumulated during the development stage - after restatement
            
            $
            (11,870,078
            )Loss
                per share - prior to restatement
            
            $
            (0.20
            )(1)
            
            
            (0.05
            )Loss
                per share - after restatement
            
            $
            (0.25
            )





(1)
            Reflects
                correction of an error related to the value attributable to the 1,000,000
                options vested in 2006 and the 2,800,000 options vested in
                2007


(2)
            Adjustment
                due to reversal of amount posted for losses of subsidiaries' minority
                interest




35





**Item
      2. Management’s Discussion and Analysis of Financial Condition and Results of
      Operations**




*The
      following discussion should be read in conjunction with the Financial Statements
      and the notes thereto that appear in Item 1 of this Quarterly Report on Form
      10-Q, as well as the information provided in our Annual Report on Form 10-K
      for
      our fiscal year ended December 31, 2007.*




**Overview**




The
      following is a discussion of: (i) our results of operations and financial
      condition for the nine months ended September 30, 2008 versus September 30,
      2007; (ii) our liquidity and capital resources; and (iii) our critical
      accounting policies. CSMG Technologies Inc., formerly, Consortium Service
      Management Group, Inc., a Texas corporation (“we”, “us” or the “Company”), was
      incorporated on November 17, 1992. On January 18, 2007, we changed our name
      to
      CSMG Technologies, Inc. and increased our total number of authorized shares
      to
      90,000,000, which includes 80,000,000 authorized shares of common stock and
      10,000,000 shares of undesignated preferred stock.




The
      Company is a technology management company. The technologies involve live tissue
      bonding and CO 2 (carbon
      dioxide) separation of landfill gas. Although the carbon dioxide separation
      of
      landfill gas component had not been an active service since 2005, in June 2008,
      the Company acquired Carbon Capture Technologies, Inc. a company that owns
      the
      world wide rights to a CO 2 separation technology that may be used for stack gas emissions that was
      developed at the University of Ottawa, Canada.




The
      live
      tissue bonding operations are through Live Tissue Connect, Inc., a subsidiary
      that is owned 86% by the Company. The live tissue bonding technology focuses
      on
      bonding living soft biological tissue used in surgical procedures which
      eliminates the need for sutures, staples, sealants or glues. The Company has
      an
      agreement with the E.O. Paton Institute of Electrical Welding of the Ukraine
      National Academy of Sciences (the “Paton Institute”) and International
      Association of Welding (the “IAW”) and owns the technology including the
      worldwide rights of licensing, patenting, manufacturing, development and
      distribution of this technology, except in the former Soviet Republics that
      are
      current members of the Commonwealth of Independent States (the “CIS”) where the
      IAW and Paton Institute have exclusive rights. To date, we have 31 issued or
      pending patents worldwide relating to the live tissue bonding equipment. In
      addition, in June 2007, the Company filed a 510(K) submission with the U.S.
      Food
      and Drug Administration for the duct and vessel sealer and two instruments,
      and
      received notification on July 30, 2008 that the 510(K) submission was cleared
      by
      the U.S. Food and Drug Administration. In December 2007, Stellartech Research
      Corporation, with whom we have contracted to manufacture the electrosurgery
      generator, obtained the European Conformité Européne (“CE”) Mark on the
      electrosurgery generator. In February 2008, the Company’s majority owned
      subsidiary, Live Tissue Connect, Inc. opened an office in Goleta, California,
      hired a worldwide sales manager, software engineer, and three instrument
      engineers. In June 2008, we entered into a contract with the IAW for continued
      research and development of new procedures *.* See
      note
      1 to the financial statements.




In
      May
      2008, Live Tissue Connect, Inc. entered into a development agreement with a
      major multi-national medical device company to jointly develop a prototype
      “bread board” proof of concept level working instrument, RF generator and
      software system that can perform meniscus-to-meniscus welding (“M-M Weld”) where
      each item is a “product”. The agreement is for a one-year period. ** See
      notes
      1 and 3 to the financial statements *.*




In
      June
      2008 we acquired 100% ownership of Carbon Capture Technologies, Inc., a wholly
      owned subsidiary of UTEK, in a stock transaction. Carbon Capture
      Technologies, Inc. holds a worldwide exclusive license to a composition and
      method for use of a novel Carbon Dioxide (CO 2 )
      adsorbent. Researchers at the University of Ottawa have developed recyclable
      CO 2 adsorbents based on surface modified nanoporous silicas. The materials show
      high
      adsorption capacity that is both fast and reversible, allowing it to be reused
      repeatedly in a high throughput periodic cyclic adsorption process. The
      adsorbents can be used in both wet and dry environments, potentially eliminating
      significant engineering challenges. The potential uses for the technology
      include capturing the bulk of C0 2 emissions from coal-fired power plants in order that these greenhouse gasses
      could be sequestered and thus reduce the carbon footprint of such facilities,
      as
      well as surgical and mine rescue applications. ** See note
      1 to the financial statements *.*




We
      also
      have one patent issued in both the United States and Canada relating to our
      carbon dioxide separator technology. This technology was also developed in
      Ukraine, and promotes the economical separation of methane from carbon dioxide
      gas emanating from landfills. Landfills generate a commingled mixture of methane
      and carbon dioxide gas which prevents the methane from being commercially sold
      as fuel. Our technology has been developed as an economical carbon dioxide
      separator that removes the carbon dioxide from landfill emissions to allow
      the
      methane gas to be sold to utility companies as well as other industrial and
      commercial customers.




The
      carbon dioxide separator equipment has been installed at the Chastang landfill
      in Mobile, Alabama since 2002, which landfill is owned by the city of Mobile
      but
      operated by Waste Management Inc. and Transamerican Waste Industries Inc. An
      agreement between Transamerican Waste Industries Inc. and Resource Technology
      Corporation (RTC) gave RTC the sole and exclusive right to collect, extract
      and
      remove landfill gas from the property. At this time, RTC contracted with the
      Company to extract the methane gas. Accordingly, the Company installed the
      carbon dioxide separator at the landfill in 2002 and 2003. Waste Management
      Inc.
      asserted that the carbon dioxide equipment produced methane gas that failed
      to
      meet Mobile Gas quality specifications. As a result a legal dispute ensued
      as
      well as RTC filing bankruptcy. See note 9 to the financial
      statements.


36


On
      February 14, 2006, we signed a contract with DuPont to provide up to 500,000
      MMbtu commercial quality gas to their plant outside Mobile, Alabama. There
      is no
      requirement in this contract for gas quality specifications, however, we believe
      that based on current raw gas analysis, the gas produced will exceed current
      specifications. Because of the inability for the landfill to produce enough
      raw
      gas the equipment has been removed from the site and put in temporary
      storage.




In
      1994,
      we formed United Engineering Company, a Ukraine and United States joint stock
      company registered under the laws of Ukraine with 14 of Ukraine’s largest
      defense contractors and Ukraine State Property fund. The purpose was to perform
      dismantlement of weapons of mass destruction under the START Treaty. We
      initially had a 50% ownership that was reduced to 33.3% in 2000. We recorded
      this investment under the equity method, and maintained our investment until
      March 2007, when we sold our interest in United Engineering Company for net
      proceeds of $278,500.




We
      recently have been focusing on our live bonding technology and have hired an
      internationally recognized medical device expert and a surgical device design
      company to design and manufacture the live tissue connect generator, as well
      as
      bringing on a major United States university to complete laboratory work and
      adding advisors that are surgeons, engineers and scientists to work on this
      project in the Ukraine.




Additionally
      we will be focusing on the CCTI technology for processing utility coal fired
      stack gas.




**Results
      of Operations and Financial Condition**




**Nine
      Months Ended September 30, 2008 versus September 30, 2007**




*Total
      Operating Revenues*




We
      recognized $300 in revenue during the nine months ended September 30, 2008
      and
      $0 for the nine months ended September 30, 2007. Revenues for 2008 were for
      miscellaneous supplies, and are anticipated to increase significantly now that
      the FDA has approved our products that are being manufactured.




*Total
      Operating Expenses*




Total
      operating expenses for the nine months ended September 30, 2008 were $5,720,456,
      as compared to $3,570,166 for the nine months September 30, 2007. This
      represented an increase of $2,150,290, or approximately 61%. Operating expenses
      included research and development costs, payroll, professional fees, and related
      expenses, rent expense, and other general and administrative expenses. The
      increase from 2007 to 2008 is a result of commercial development of the VAD.400
      electrosurgery generator and the duct and vessel sealing instruments, hiring
      a
      staff of design engineers, accounting, executives, research and development,
      and
      charges for stock issued for services and stock issued for interest in the
      third
      quarter of 2008.




We
      depreciate fixed assets. This resulted in an expense of $14,814 and $548 for
      the
      nine months ended September 30, 2008 and 2007, respectively. We determine the
      fair value of the undiscounted cash flows annually, and sooner if circumstances
      change and determination is required, to value any impairment on our intangible
      assets and long-lived assets. As of September 30, 2008 and 2007, we determined
      that there was no impairment charge.




*Other
      Income (Expense)*




Included
      in other income (expense) is interest expense, net of interest income, of
      $(1,387,816) and $(1,477,510) for the nine months ended September 30, 2008
      and
      2007, respectively. Included in the 2008 interest expense is $279,681 in
      discounts on the conversion of notes payable to common stock.




*Net
      Income (Loss)*




We
      reported a net (loss) from operations of $(7,107,972), or $(0.18) per share
      on a
      basic and diluted basis, for the nine months ended September 30, 2008 versus
      $(5,159,748), or $(0.14) per share on a basic and diluted basis, for the nine
      months ended September 30, 2007. The increase in the net loss is attributable
      to
      the expanded research and development efforts in Kiev, the U.S. operations
      of
      Live Tissue Connect, establishing offices for Live Tissue Connect in Goleta,
      California, and commercial development of the VAD.400 electrionsurgical
      generator and the duct and vessel sealing instruments, as well as the interest
      expense.


37




*Provision
      for Income Taxes*




There
      was
      no provision for income taxes for the nine months ended September 30, 2008
      and
      2007, respectively. There was no provision due to the carry forward of
      approximately $24,915,103 of net operating losses as of September 30, 2008
      that
      we reserved in valuation allowances against this deferred tax
      asset.




**Liquidity
      and Capital Resources**




During
      the nine months ended September 30, 2008, the balance in cash and cash
      equivalents decreased by $901,320 compared to a decrease of $766,249 for the
      nine months ended September 30, 2007. This decrease is primarily attributable
      to
      cash used in operating activities, which was attributable to a net loss from
      operations of $(7,107,972) for the nine months ended September 30, 2008
      partially offset by the discount on conversion of notes payable of $279,681
      and
      an increase in accounts payable and accrued expenses of $2,168,923. This
      compares to a decrease in cash from operating activities for the nine months
      ended September 30, 2007 of $(2,482,781), which was attributable to a net loss
      from operations of $(5,159,748). Net cash from financing activities totaled
      $2,677,747 and $1,451,991 for the nine months ended September 30 2008 and 2007,
      respectively.




As
      of
      September 30, 2008, we had current assets of $218,957, consisting of $103,056
      in
      cash and $115,901 in inventory.




As
      of
      September 30, 2008, we had $13,099,823 in current liabilities, primarily
      consisting of $1,802,614 in accounts payable and accrued expenses, $2,409,154
      in
      accrued interest payable, $6,888,043 of convertible notes payable and $1,710,476
      of notes payable.




Notwithstanding
      our present working capital deficiency, our condensed consolidated financial
      statements have been prepared on the assumption that we continue to have the
      ability to generate sufficient cash flows from operations or raise sufficient
      capital to ensure the reduction of the working capital deficiency and fund
      future operations, as a going concern. We have suffered significant recurring
      operating losses in the past few years, and this factor has caused significant
      doubt about our ability to continue as a going concern for a period of twelve
      months. The condensed consolidated financial statements do not include any
      adjustments that might result from the outcome of this uncertainty.




**Critical
      Accounting Policies**




Critical
      accounting polices include the areas where we have made what we consider to
      be
      particularly subjective or complex judgments in making estimates and where
      these
      estimates can significantly impact our financial results under different
      assumptions and conditions.




We
      prepare our financial statements in conformity with accounting principles
      generally accepted in the United States of America. As such, we are required
      to
      make certain estimates, judgments and assumptions that we believe are reasonable
      based upon the information available. These estimate, judgments and assumptions
      affect the reported amounts of assets and liabilities at the date of the
      financial statement and the reported amounts of revenue and expenses during
      the
      periods presented. Actual results could be different than those
      estimates.




We
      believe the following critical accounting policies affect our more significant
      judgments and estimates used in the preparation of our financial
      statements:




*Principles
      of Consolidation*




The
      condensed consolidated financial statements include those of us and our
      majority-owned subsidiary. All intercompany accounts and transactions have
      been
      eliminated in consolidation. Minority interests have been reflected in the
      consolidated financial statements for the percentage of the subsidiary not
      owned
      by us.




*Research
      and Development*




We
      annually incur costs on activities that relate to research and development
      of
      new technology and products. Research and development costs are expensed as
      incurred.


38




*Revenue
      Recognition*





We
      have
      not generated revenue in many years. We anticipate that we will record revenue
      in accordance with Staff Accounting Bulletin 104. The criteria for recognition
      are as follows:


1)
              Persuasive
                  evidence of an arrangement exists;
  2)
              Delivery
                  has occurred or services have been
                  rendered;
  3)
              The
                  seller’s price to the buyer is fixed or determinable,
                  and
  4)
              Collectability
                  is reasonably assured.




*Comprehensive
      Income*




We
      adopted Statement of Financial Accounting Standards No, 130, “Reporting
      Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of
      comprehensive income in addition to net income from operations.




Comprehensive
      income is a more inclusive financial reporting methodology that includes
      disclosure of information that historically has not been recognized in the
      calculation of net income.




*Currency
      Risk*




We
      transact business in currencies other than the U.S. Dollar. All currency
      transactions occur in the spot foreign exchange market, and we do not use
      currency forward contracts, currency options, currency borrowings interest
      rate
      swaps or any other derivative hedging strategy at this point in
      time.





We
      have
      determined that based on the cash flow, sales price, sales market, expense,
      financing, and inter-company transactions and arrangements indicators set forth
      in FASB 52, Foreign Currency Translation, that our functional currency is that
      of the U.S. Dollar.




*Inventory*




Inventory
      is recorded at the lower of cost and net realizable value and is accounted
      for
      on the first-in first-out basis (FIFO).





*Stock-Based
      Compensation*




On
      December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
      Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based
      Payment” (“SFAS 123R”). SFAS 123R requires that compensation cost related to
      share-based payment transactions be recognized in the financial statements.
      Share-based payment transactions within the scope of SFAS 123R include stock
      options, restricted stock plans, performance-based awards, stock appreciation
      rights, and employee share purchase plans. The provisions of SFAS 123R, as
      amended, are effective for small business issuers beginning as of the next
      interim period after December 15, 2005. We adopted these provisions as of
      January 1, 2006 and this adoption did not have a material effect on our
      operations.




On
      January 1, 2006, we adopted the provisions of FAS No. 123R “Share-Based Payment”
(“FAS 123R”) which requires recognition of stock-based compensation expense for
      all share-based payments based on fair value. Prior to January 1, 2006, we
      measured compensation expense for all of our share-based compensation using
      the
      intrinsic value method prescribed by Accounting Principles Board (“APB”) Opinion
      No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related
      interpretations. The notes to our condensed consolidated financial statements
      include pro forma disclosure amounts in accordance with FAS No. 148, “Accounting
      for Stock-Based Compensation - Transition and Disclosure - an Amendment of
      FASB
      Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS No.
      123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied to
      its stock-based compensation.




We
      have
      elected to use the modified-prospective approach method. Under that transition
      method, the calculated expense in 2006 is equivalent to compensation expense
      for
      all awards granted prior to, but not yet vested as of January 1, 2006, based
      on
      the grant-date fair values estimated in accordance with the original provisions
      of FAS 123. Stock-based compensation expense for all awards granted after
      January 1, 2006 is based on the grant-date fair values estimated in accordance
      with the provisions of FAS 123R. We recognize these compensation costs, net
      of
      an estimated forfeiture rate, on a pro rata basis over the requisite service
      period of each vesting tranche of each award. We consider voluntary termination
      behavior as well as trends of actual option forfeitures when estimating the
      forfeiture rate.


39


We
      measure compensation expense for non-employee stock-based compensation under
      the
      Financial Accounting Standards Board (FASB) Emerging Issues Task Force (EITF)
      Issue No. 96-18, “Accounting for Equity Instruments that are Issued to Other
      Than Employees for Acquiring, or in Conjunction with Selling, Goods or
      Services”. The fair value of the option issued is used to measure the
      transaction, as this is more reliable than the fair value of the services
      received. The fair value is measured at the value of our common stock on the
      date that the commitment for performance by the counterparty has been reached
      or
      the counterparty’s performance is complete. The fair value of the equity
      instrument is charged directly to compensation expense and additional paid-in
      capital.




*Segment
      Reporting*




We
      follow
      the provisions of SFAS 131, “Disclosures about Segments of an Enterprise and
      Related Information.” This standard requires that companies disclose operating
      segments based on the manner in which management disaggregates the company
      in
      making internal operating decisions. We believe that there is only one operating
      segment at this time, as our CO2 separator business is inactive.




*Fair
      Value of Financial Instruments*




The
      carrying amounts reported in the condensed consolidated balance sheets for
      cash
      and cash equivalents, and accounts payable approximate fair value because of
      the
      immediate or short-term maturity of these financial instruments. For the notes
      payable, the carrying amount reported is based upon the incremental borrowing
      rates otherwise available to the Company for similar borrowings.




*Income
      Taxes*




Under
      Financial Accounting Standards Board Statement No. 109, “Accounting for Income
      Taxes,” the liability method is used in accounting for income taxes. Under this
      method, deferred tax assets and liabilities are determined based on differences
      between financial reporting and tax bases of assets and liabilities, and are
      measured using the enacted tax rates and laws that will be in effect when the
      differences are expected to reverse.




*Uncertainty
      in Income Taxes*




In
      July
      2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
      Uncertainty in Income Taxes.” This interpretation requires recognition and
      measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December
      15,
      2006. Management has adopted FIN 48 for 2007, and they evaluate their tax
      positions on an annual basis, and has determined that as of September 30, 2008,
      no additional accrual for income taxes is necessary.




*(Loss)
      Per Share of Common Stock*




Basic
      net
      (loss) per common share (“EPS”) is computed using the weighted average number of
      common shares outstanding for the period. Diluted earnings per share includes
      additional dilution from common stock equivalents, such as stock issuable
      pursuant to the exercise of stock options and warrants. Common stock equivalents
      are not included in the computation of diluted earnings per share when we report
      a loss because to do so would be anti-dilutive for the periods
      presented.




All
      options and warrants to purchase shares of common stock and convertible notes
      were not included as they would be considered anti-dilutive as we had a loss
      for
      both periods.




**Recent
      Issued Accounting Standards**




In
      September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles, and expands disclosure about fair
      value measurements. This statement is effective for financial statements issued
      for fiscal years beginning after November 15, 2007. Early adoption is
      encouraged. The adoption of SFAS 157 is not expected to have a material impact
      on the condensed consolidated financial statements.


40


In
      February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
      Assets and Financial Liabilities - Including an amendment of FASB Statement
      No.
      115”, (“FAS 159”) which permits entities to choose to measure many financial
      instruments and certain other items at fair value at specified election dates.
      A
      business entity is required to report unrealized gains and losses on items
      for
      which the fair value option has been elected in earnings at each subsequent
      reporting date. This statement is expected to expand the use of fair value
      measurement. FAS 159 is effective for financial statements issued for fiscal
      years beginning after November 15, 2007, and interim periods within those fiscal
      years.




In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements, an amendment of Accounting Research Bulletin
      No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
      ownership interests in subsidiaries held by parties other than the parent,
      changes in a parent’s ownership of a noncontrolling interest, calculation and
      disclosure of the consolidated net income attributable to the parent and the
      noncontrolling interest, changes in a parent’s ownership interest while the
      parent retains its controlling financial interest and fair value measurement
      of
      any retained noncontrolling equity investment. SFAS 160 is effective for
      financial statements issued for fiscal years beginning after December 15, 2008,
      and interim periods within those fiscal years. Early adoption is prohibited.
      Management is determining the impact that the adoption of SFAS No. 160 will
      have
      on our condensed consolidated financial position, results of operations or
      cash
      flows.




In
      December 2007, the FASB issued SFAS 141R, Business Combinations (“SFAS 141R”),
      which replaces FASB SFAS 141, Business Combinations. This Statement retains
      the
      fundamental requirements in SFAS 141 that the acquisition method of accounting
      be used for all business combinations and for an acquirer to be identified
      for
      each business combination. SFAS 141R defines the acquirer as the entity that
      obtains control of one or more businesses in the business combination and
      establishes the acquisition date as the date that the acquirer achieves control.
      SFAS 141R will require an entity to record separately from the business
      combination the direct costs, where previously these costs were included in
      the
      total allocated cost of the acquisition. SFAS 141R will require an entity to
      recognize the assets acquired, liabilities assumed, and any non-controlling
      interest in the acquired at the acquisition date, at their fair values as of
      that date. This compares to the cost allocation method previously required
      by
      SFAS No. 141. SFAS 141R will require an entity to recognize as an asset or
      liability at fair value for certain contingencies, either contractual or
      non-contractual, if certain criteria are met. Finally, SFAS 141R will require
      an
      entity to recognize contingent consideration at the date of acquisition, based
      on the fair value at that date. This Statement will be effective for business
      combinations completed on or after the first annual reporting period beginning
      on or after December 15, 2008. Early adoption of this standard is not permitted
      and the standards are to be applied prospectively only. Upon adoption of this
      standard, there would be no impact to our results of operations and financial
      condition for acquisitions previously completed. The adoption of SFAS No. 141R
      is not expected to have a material effect on our condensed consolidated
      financial position, results of operations or cash flows.




In
      December 2007, the Securities and Exchange Commission issued Staff Accounting
      Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of
      Share Options” (“SAB 110”). SAB 110 expenses the current view of the staff that
      it will accept a company’s election to use the simplified method discussed in
      Staff Accounting Bulletin No. 107, “Share Based Payment”, (“SAB 107”), for
      estimating the expected term of “plain vanilla” share options regardless of
      whether the company has sufficient information to make more refined estimates.
      SAB 110 became effective for us on January 1, 2008. The adoption of SAB 110
      is
      not expected to have a material impact on our financial position.




In
      March
      2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments
      and Hedging Activities—an amendment of FASB Statement No. 133.” Constituents
      have expressed concerns that the existing disclosure requirements in FASB
      Statement No. 133, Accounting for Derivative Instruments and Hedging Activities,
      do not provide adequate information about how derivative and hedging activities
      affect an entity’s financial position, financial performance, and cash flows.
      SFAS No. 161 requires enhanced disclosures about an entity’s derivative and
      hedging activities and thereby improves the transparency of financial reporting.
      This Statement is effective for financial statements issued for fiscal years
      and
      interim periods beginning after November 15, 2008, with early application
      encouraged. This Statement encourages, but does not require, comparative
      disclosures for earlier periods at initial adoption. The adoption of FASB 161
      is
      not expected to have a material impact on the Company’s condensed consolidated
      financial position.




In
      May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles.” The current GAAP hierarchy, as set forth in the American
      Institute of Certified Public Accountants (AICPA) Statement on Auditing
      Standards No. 69, The Meaning of Present Fairly in Conformity With Generally
      Accepted Accounting Principles, has been criticized because (1) it is directed
      to the auditor rather than the entity, (2) it is complex, and (3) it ranks
      FASB
      Statements of Financial Accounting Concepts. The FASB believes that the GAAP
      hierarchy should be directed to entities because it is the entity (not its
      auditor) that is responsible for selecting accounting principles for financial
      statements that are presented in conformity with GAAP. Accordingly, the FASB
      concluded that the GAAP hierarchy should reside in the accounting literature
      established by the FASB and is issuing this Statement to achieve that result.
      This Statement is effective 60 days following the SEC’s approval of the Public
      Company Accounting Oversight Board amendments to AU Section 411, The Meaning
      of
      Present Fairly in Conformity With Generally Accepted Accounting Principles.
      The
      adoption of FASB 162 is not expected to have a material impact on the Company’s
      condensed consolidated financial position.


41


In
      May
      2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
      Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
      exists in practice in accounting for financial guarantee insurance contracts
      by
      insurance enterprises under FASB Statement No. 60, Accounting and Reporting
      by
      Insurance Enterprises. This results in inconsistencies in the recognition and
      measurement of claim liabilities. This Statement requires that an insurance
      enterprise recognize a claim liability prior to an event of default (insured
      event) when there is evidence that credit deterioration has occurred in an
      insured financial obligation. This Statement requires expanded disclosures
      about financial guarantee insurance contracts. The accounting and disclosure
      requirements of the Statement will improve the quality of information provided
      to users of financial statements. The adoption of FASB 163 is not expected
      to
      have a material impact on the Company’s condensed consolidated financial
      position.




**Item
      3. Quantitative and Qualitative Disclosures About Market
      Risk**




Not
      applicable.




**Item
      4T. Controls and Procedures**




**Evaluation
      of disclosure controls and procedures.**




Our
      management, with the participation of our Chief Executive Officer and Chief
      Financial Officer, has evaluated the effectiveness of our disclosure controls
      and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under
      the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of
      September 30, 2008. Based on this evaluation, our Chief Executive Officer and
      Chief Financial Officer concluded that our disclosure controls and procedures
      are effective.




**Changes
      in internal control over financial reporting.**




During
      the last fiscal quarter, there was no change in our internal control over
      financial reporting that has materially affected, or is reasonably likely to
      materially affect, our internal control over financial reporting.




42




**PART
      II**





**OTHER
      INFORMATION**




**Item
      1. Legal Proceedings**





Banco
      Panamericano v. Consortium Service Management Group. Inc. and CSMG Gastech
      LLC ,
      Case
      No. 1:07-cv-00015 now pending in the Northern District of Illinois District
      Court as Case No. 06 C 7195.




We
      were
      sued on February 9, 2005 by Banco Panamericano, Inc. in the Circuit Court of
      Cook County, Illinois, Banco Panamericano, Inc. v. Consortium Service Management
      Group, Inc. and CSMG Gastech LLC , Case No. 2005L001514. The complaint alleges
      that we entered into a short-term promissory note dated February 15, 2002 (the
      “Note”) by which we borrowed from Banco Panamericano $203,800 at 12% interest,
      the Note being due April 1, 2002. The complaint alleged that the Note was
      secured by all of our equipment, inventory, accounts, general intangibles and
      other properties. The complaint alleged that the Note is in default and that
      we
      owe Banco Panamericano $514,920 as of February 9, 2005, together with accrued
      interest and costs.




On
      August
      26, 2008 the Court issued its Memorandum Opinion and Order granting summary
      judgment in favor of the plaintiff in the amount of $203,800 plus interest
      and
      late fees. The Court has requested further briefing on the issue of calculating
      interest and late fees. The Court granted the plaintiff summary judgment on
      defendant’s affirmative defenses and counterclaims.





Nature
      Coast Collections, Inc. v. Consortium Service Management Group, Inc., Donald
      S.
      Robbins and Gordon W. Allison , Case
      No. 2:06-cv-273 originally pending in the Federal District Court for the
      Southern District of Texas and recently ordered transferred to the Federal
      District Court for the Northern District of Illinois.




On
      June
      30, 2006, we were served with a complaint from Nature Coast Collections, Inc.
      in
      a proceeding in the Federal District Court for the Southern District of Texas.
      The complaint alleges that Nature Coast Collections, Inc. is the assignee of
      the
      original payee, Stonegate Management, Ltd., a Costa Rican entity, of four
      promissory notes executed by us and Donald S. Robbins, our Chairman of the
      Board, President and Chief Executive Officer, and Gordon W. Allison, each as
      a
      guarantor. The amount claimed in the suit is the aggregate principal sum of
      $630,000, with interest, costs and attorney fees. We have answered the complaint
      and filed a counterclaim alleging, among other matters, that Nature Coast
      Collections, Inc. is an affiliate of the debtor in the bankruptcy proceeding
      in
      the Northern District of Illinois referred to above, RTC, and that we should
      be
      authorized to offset its losses caused by its contractual relationship with
      RTC
      against the claims of Nature Coast Collections, Inc. Our answer also asserted
      several affirmative defenses and counterclaims focused on the affiliation of
      the
      plaintiff with an offshore affiliate of one of our customers and based on
      certain misrepresentations. Discovery has been completed and the Company has
      filed a motion for summary judgment with respect to the Plaintiff’s claims, the
      briefing of which by the parties has yet to be fully completed. No trial date
      has been set.




CSMG
      Technologies, Inc. v. Gordon W. Allison ,
      Case
      No. 4:07-cv-00715 in the Southern District of Texas District Court.




We
      filed
      a complaint against Gordon Allison, our former executive vice president, seeking
      unspecified damages in connection with claims based upon fraudulent statements,
      breach of fiduciary duty and promissory estoppel with respect to our investments
      in certain projects in which we were involved through actions of Mr. Allison.
      Mr. Allison has filed a counterclaim seeking damages of approximately $328,041
      principal and interest for amounts allegedly due under the terms of a November
      5, 2003 promissory note issued to him by us, unpaid salary of $150,000,
      unspecified payment for services rendered, reimbursement of expenses estimated
      at $23,000 and punitive damages in an unspecified amount. On September 30,
      2008
      the Court issued its Memorandum and Order as follows: a) granting Defendant
      Allison’s Motion to Dismiss; b) granting Defendant Allison’s Motion for Partial
      Summary Judgment on Defendant’s Counterclaim for Suit on Promissory Note and
      Brief in Support and c) denying CSMG’s request for attorneys’ fees. However, the
      Court ruled that no payment on this judgment is due until all claims are fully
      and finally resolved by the Court.




**Item
      1A. Risk Factors**




Not
      applicable.




**Item
      2. Unregistered Sales of Equity Securities and Use of
      Proceeds**




(a)  During
      the nine months ended September 30, 2008, we made the following unregistered
      sales of our equity securities. All of the equity securities issued in
      unregistered sales were exempt from registration pursuant to Section 4(2) of
      the
      Securities Act of 1933, as amended, on the basis that all purchasers were
      accredited investors.




On
      January 18, 2007, the Company increased the authorized shares of common stock
      to
      80,000,000.


43


As
      of
      September 30, 2008 and December 31, 2007, the Company had 41,668,875 and
      38,018,544 shares issued and outstanding.




For
      the
      nine months ended September 30, 2008, the Company had issued the following
      stock:




-
      755,000shares of LTC preferred shares have been subscribed to and accepted,
      but
      none of the shares were issued as of September 30, 2008.





-
      830,668
      shares issued in conversion of notes payable, accrued interest and discount
      on
      conversion in the amount of $519,180.




-
      1,186,650 shares issued for cash in the amount of $1,027,900.





-
      51,155
      shares issued for conversion of warrants in the amount of $93,666 which were
      expensed in the nine months ended September 30, 2008.




-
      114,916
      shares issued to a former owner of a subsidiary of the company for its
      investment of $60,000 plus interest that was accrued for $43,350 (total
      investment $103,350).




-
      195,902
      shares were issued for $174,359 for services.




-
      371,020
      shares were issued for the purchase of CCTI valued at $434,093.





-
      600,000
      shares were issued to current non-principal shareholders to replace their shares
      that were used to collateralize a note payable of $450,000.





-
      300,000
      restricted shares to non-principal shareholders to replace unrestricted shares
      held by those shareholders. Due to timing issues, these restricted shares had
      not been issued to the shareholders as of September 30, 2008, therefore the
      Company chose to record them as treasury shares.





**Item
      3. Defaults Upon Senior Securities**




None.




**Item
      4. Submission of Matters to a Vote of Security Holders**




None.




**Item
      5. Other Information**




None.




**Item
      6. Exhibits**




10.1
            Letter
                Agreement between CSMG and LTC, dated January 4, 2008 described in
                Note 1
                to the financial statements





31.1
            Certification
                of the Chief Executive Officer required by Rule 13a-14(a) or Rule
                15d-14(a)





31.2
            Certification
                of the Chief Financial Officer required by Rule 13a-14(a) or Rule
                15d-14(a)





32.1
            Certification
                of the Chief Executive Officer and the Chief Financial Officer required
                by
                Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C.
                1350


44


**SIGNATURES**




Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the registrant has duly caused this report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.




**CSMG
                Technologies, Inc.**Date:
                November 14, 2008
            By:
            /s/
                Donald S. RobbinsDonald
                S. RobbinsChief
                Executive OfficerDate:
                November 14, 2008
            By:
            /s/
                Ken J. HedrickKen
                J. HedrickChief
                Financial Officer(Principal
                Financial andAccounting
                Officer)


45