The accompanying notes are an integral part
of these consolidated unaudited financial statements
The accompanying notes are an integral part
of these consolidated unaudited financial statements
The accompanying notes are an integral part of these consolidated unaudited financial statements
The accompanying notes are an integral part of these consolidated unaudited financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 — BACKGROUND AND BASIS OF PRESENTATION
SMG Industries Inc. (the “Company”
or “SMG”) is a corporation established pursuant to the laws of the State of Delaware on January 7, 2008. The Company
original business was the acquisition and stockpile of a rare metal known as Indium used in cell phones and other industrial applications.
The Company eventually sold its stockpile and distributed most of the proceeds to its stockholders via special dividends and share
repurchases.
On September 19, 2017, the Company entered
the domestic oilfield services market and executed an Agreement and Plan of Share Exchange with MG Cleaners LLC, a Texas based
product and services company focused on drilling rig contractors and oilfield customers.
On September 19, 2017, SMG acquired one hundred
percent of the issued and outstanding membership interests of MG Cleaners LLC pursuant to which MG Cleaners LLC became our wholly-owned
subsidiary. In connection with the acquisition, we issued 4,578,276 shares and agreed to pay $300,000 in cash to the Managing MG
Member, Stephen Christian, payable with $250,000 at closing and the remaining $50,000 paid upon the completion of the Company’s
sale of a minimum of $500,000 of its securities in a private offering to investors. The $50,000 liability was recorded as an Accounts
Payable – Related Party on the balance sheet. On January 30, 2018 the Company changed its name from SMG Indium Resources
Ltd. to its present name SMG Industries Inc.
The merger was accounted for as a reverse acquisition
with MG Cleaners LLC being treated as the accounting acquirer. As such, the historical information for all periods presented prior
to the merger date relate to MG Cleaners LLC. Subsequent to the merger date, the information relates to the consolidated entities
of SMG with its subsidiary MG Cleaners LLC.
The Company today is a growth-oriented oilfield
services company that operates throughout the domestic Southwest United States. Through its wholly-owned operating subsidiaries,
the Company offers an expanding suite of products and services across the oilfield market segments of drilling, completions and
production.
MG Cleaners LLC., serves the drilling market
segment with proprietary branded products including detergents, surfactants and degreasers (such as Miracle Blue
®
)
as well as equipment and service crews that perform on-site repairs, maintenance and drilling rig wash services. SMG's oil tools
rental division includes an inventory of more than 800 bottom hole assembly (BHA) oil tools such as stabilizers, drill collars,
crossovers and bit subs rented to oil companies and their directional drillers. SMG's frac water management division, known as
Momentum Water Transfer, focuses in the completion or fracing market segment providing high volume above ground equipment and temporary
infrastructure to route water used on location for fracing. Trinity Services LLC provides lease roads, location and pad development
using construction equipment to build drilling pad locations and well site services using a work over rig to perform services on
existing wells. SMG Industries, Inc. headquartered in Houston, Texas has facilities in Carthage, Waskom, Odessa and Alice, Texas.
The accompanying unaudited interim financial
statements of SMG Industries Inc. (“we”, “our”, “SMG” or the “Company”) have been
prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction
with the audited financial statements and notes thereto for the years ended December 31, 2018 and 2017 with are included on a Form
10-K filed on April 1, 2019. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected
herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the
full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial
statements for years ended December 31, 2018 and 2017 have been omitted.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basic and Diluted Net Loss per Share
The Company presents both basic and diluted net loss per share on the face of the statements of operations.
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding
during the period. Diluted per share calculations give effect to all potentially dilutive shares of common stock outstanding during
the period, including stock options and warrants, and using the treasury-stock method. If anti-dilutive, the effect of potentially
dilutive shares of common stock is ignored. For the six months ended June 30, 2019, 525,000 of stock options, 895,001 of warrants,
4,000,000 shares issuable from Series A Preferred Stock and 600,000 shares issuable from convertible notes were considered for
their dilutive effects but concluded to be anti-dilutive. For the six months ended June 30, 2018, 595,000 of stock were considered
for their dilutive effects but concluded to be anti-dilutive.
Basic and Diluted Loss
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(1,691,172
|
)
|
|
$
|
(128,372
|
)
|
|
|
|
|
|
|
|
|
|
Basic and Dilutive Shares:
|
|
|
|
|
|
|
|
|
Weighted average basic shares outstanding
|
|
|
13,068,921
|
|
|
|
9,808,914
|
|
Net dilutive stock options
|
|
|
-
|
|
|
|
-
|
|
Dilutive shares
|
|
|
13,068,921
|
|
|
|
9,808,914
|
|
Recent Accounting Pronouncements
In February 2016, the FASB
issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use
assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers
specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose
qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the
amount, timing and uncertainty of cash flows arising from leases. For public companies, The Company adopted this standard on January
1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition.
The Company elected the ‘package of practical expedients’, which permitted the Company not to reassess under the new
standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s
available transition practical expedients.
On adoption, the Company recognized additional
operating liabilities of $287,519, with corresponding Right of Use assets of the same amount based on the present value of the
remaining minimum rental payments under current leasing standards for its existing operating leases. The Company’s existing
capital lease under ASC 840 is classified as a finance lease under ASC 842, with a total finance liability of $94,280 at adoption.
See Note 12 for additional
information on leases.
The new standard also provides practical expedients
for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those
leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities. The Company also
made an accounting policy election to combine lease and non-lease components of operating leases for all asset classes.
NOTE 3 – GOING CONCERN
The Company considered its going concern disclosure requirements in accordance with ASC 240-40-50. The
Company concluded that its negative working capital and negative cash flows from operating are conditions that raised substantial
doubt about the Company’s ability to continue as a going concern. Without a successful plan in place from management these
conditions could negatively impact the Company’s ability to meets its financial obligations over the next year. In response,
the Company has implemented a plan to alleviate such substantial
concern
as
follows. The Company
plans to
continue to generate additional revenue (and improve
cash flows from operations) partly related to the Company’s
acquisition of an additional
operating company in June 2019
and partly related to the Company’s sales initiatives cross-selling
our services
with the recent acquisition’s added new customers
. In addition, costs
at the Company’s frac water division were reduced in the second quarter of 2019 bringing them more in line with current revenues
in that area. As a result,
following this plan
substantial doubt about the Company’s
ability to continue as a going concern is alleviated.
NOTE 4 – REVENUE
Disaggregation of revenue
The Company disaggregates revenue between services
and products revenue. All revenues are currently in the southern region of the United States.
|
|
Three Months Ended
|
|
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
Six Months Ended
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
Service revenue
|
|
$
|
511,943
|
|
|
$
|
708,033
|
|
|
$
|
1,408,955
|
|
|
$
|
1,063,582
|
|
Product revenue
|
|
|
582,238
|
|
|
|
459,272
|
|
|
|
1,437,930
|
|
|
|
1,101,901
|
|
Total revenue
|
|
$
|
1,094,181
|
|
|
$
|
1,167,305
|
|
|
$
|
2,846,885
|
|
|
$
|
2,165,483
|
|
Customer Concentration and Credit Risk
During the six months ended June 30, 2019,
three of our customers accounted for approximately 47% of our total gross revenues, with customers each accounting for 22%, 13%
and 12% respectively. No other customers exceeded 10% of revenues during the six months ended June 30, 2019. During the six months
ended June 30, 2018, three of our customers accounted for approximately 61% of our total gross revenues, with individual customers
accounting for 36%, 15% and 10%. No other customers exceeded 10% of revenues during 2018.
Two customers accounted for approximately 36%
of accounts receivable at June 30, 2019, and three customers accounted for approximately 49% of accounts receivable at December
31, 2018. No other customers exceeded 10% of accounts receivable as of June 30, 2019 and December 31, 2018. The Company believes
it will continue to reduce the customer concentration risks by engaging new customers and by increasing activity with existing,
less active customers and smaller, newer customer relationships. While the Company continues to acquire new customers in an effort
to grow and reduce its customer concentration risks, management believes these risks will continue for the foreseeable future.
NOTE 5 - INVENTORY
Inventory at June 30, 2019 and December 31, 2018 consisted of the following components:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Raw materials and supplies
|
|
$
|
24,507
|
|
|
$
|
8,690
|
|
Work in progress
|
|
|
9,275
|
|
|
|
-
|
|
Finished and purchased products
|
|
|
105,744
|
|
|
|
131,972
|
|
Total inventory
|
|
$
|
139,526
|
|
|
$
|
140,662
|
|
NOTE 6 – LONG-LIVED ASSETS
Property and equipment at June 30, 2019 and
December 31, 2018 consisted of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
4,009,759
|
|
|
$
|
1,409,237
|
|
Downhole oil tools
|
|
|
700,000
|
|
|
|
700,000
|
|
Vehicles
|
|
|
160,305
|
|
|
|
151,497
|
|
Furniture, fixtures and other
|
|
|
47,641
|
|
|
|
43,430
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,917,705
|
|
|
|
2,304,164
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation
|
|
|
(453,369
|
)
|
|
|
(306,155
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,464,336
|
|
|
$
|
1,998,009
|
|
Depreciation expense for the six months ended
June 30, 2019 and 2018 was $157,901 and $30,384 respectively.
Intangible assets
Intangible assets as of December 31, 2018 are
related to the acquisition of the RigHands™ assets and the acquisition of tradenames of Momentum Water Transfer Services
LLC.
Intangible assets at June 30, 2019 and
December 31, 2018 consisted of the following:
|
|
Useful
Life (yr)
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
RigHands (Trademark & Formula)
|
|
15
|
|
$
|
150,000
|
|
|
$
|
150,000
|
|
MWST Tradename
|
|
10
|
|
|
190,000
|
|
|
|
190,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
340,000
|
|
|
|
340,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated amortization
|
|
|
|
|
(24,843
|
)
|
|
|
(10,344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
315,157
|
|
|
$
|
329,656
|
|
Amortization expense for the six months ended
June 30, 2019 and 2018 was $14,499 and $3,776, respectively. Future amortization of the intangible assets for the years ended
December 31, 2019, 2020, 2021, 2022, 2023 and beyond are $29,000, $29,000, $29,000, $29,000, $29,000 and $184,656, respectively.
NOTE 7 – ACCRUED EXPENSES AND OTHER
LIABILITIES
Accrued expenses as of June 30, 2019 and December
31, 2018 included the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Payroll and payroll taxes payable
|
|
$
|
88,375
|
|
|
$
|
84,916
|
|
Sales tax payable
|
|
|
71,070
|
|
|
|
67,124
|
|
Interest payable
|
|
|
37,264
|
|
|
|
12,325
|
|
Credit cards payable
|
|
|
25,197
|
|
|
|
-
|
|
Other
|
|
|
137,027
|
|
|
|
43,546
|
|
|
|
|
|
|
|
|
|
|
Total Accrued Expenses
|
|
$
|
358,933
|
|
|
$
|
207,911
|
|
NOTE 8 – NOTES PAYABLE
Notes payable included the following:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued on October 15, 2010 and refinanced in January 2015 for purchase of all membership interest, bearing interest of 6% per year and due in monthly installments ending September 25, 2022.
|
|
$
|
158,754
|
|
|
$
|
180,552
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued August 14, 2017, bearing interest of 7.25% per year, due in monthly installments ending August 1, 2021.
|
|
|
-
|
|
|
|
49,885
|
|
|
|
|
|
|
|
|
|
|
Secured finance facility issued February 2, 2017, bearing effective interest of 6%, due monthly installments ending August 20, 2020.
|
|
|
17,670
|
|
|
|
25,960
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued January 2, 2018, bearing interest of 6.29% per year, due in monthly installments ending January 2023.
|
|
|
32,100
|
|
|
|
35,562
|
|
|
|
|
|
|
|
|
|
|
Secured funding advance agreement issued June 27, 2018, bearing effective interest of 20%, due in daily installments ending April 2019, principal balance $143,965, net of deferred financing costs of $43,412.
|
|
|
-
|
|
|
|
143,965
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued to a shareholder who controls approximately 8.8% of votes December 7, 2018, bearing interest of 10% per year, due one year after issuance, principal balance $100,000, net of deferred financing costs of $65,446.
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued to a shareholder who controls approximately 7.5% of votes December 7, 2018, bearing interest of 10% per year, due one year after issuance, principal balance $100,000, net of deferred financing costs of $65,446.
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued December 7, 2018, bearing interest of 10% per year, due one year after issuance, principal balance $100,000, net of deferred financing costs of $65,446.
|
|
|
100,000
|
|
|
|
100,000
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued on December 7, 2018 related to the acquisition of Momentum Water Transfer Services LLC, bearing interest of 6% per year and due in monthly installments of $7,500, with a maturity date of December 8, 2023.
|
|
|
792,469
|
|
|
|
800,000
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued to a shareholder who controls approximately 8.8% of votes May 1, 2019, bearing interest of 10% per year, due July 1, 2019, principal balance $100,000. Note was extended to September 30, 2019.
|
|
|
100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Secured note payable issued to a shareholder who controls approximately 8.8% of votes May 1, 2019, bearing interest of 10% per year, due September 30, 2019.
|
|
|
80,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Various notes payable secured by equipment of Big Vehicle & Equipment Company, LLC, bearing interest ranging from 2.72% to 8% maturing through August 2023.
|
|
|
814,482
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,295,475
|
|
|
|
1,535,924
|
|
Less discounts
|
|
|
(236,219
|
)
|
|
|
(239,750
|
)
|
Less current maturities
|
|
|
(654,391
|
)
|
|
|
(328,328
|
)
|
|
|
|
|
|
|
|
|
|
Long term debt, net of current maturities
|
|
$
|
1,404,865
|
|
|
$
|
967,846
|
|
On October 15, 2010, the former managing member of MG Cleaners purchased
MG Cleaners from the previous membership interest owners. In connection with that transaction, a $450,000 seller note was issued
to the sellers. The note bears an interest rate of 8% and principal and interest payments are made monthly. The remaining principal
balance of $307,391 was refinanced by the note holder in January 2015, bearing an interest rate of 6.00%, with principal and interest
payments due monthly. The note is secured by the land and building originally occupied by SMG, and said property is no longer occupied.
On August 14, 2017, we refinanced a note payable
for $66,348. The unsecured note bears an interest rate of 7.25% per annum, has 47 monthly payments of $1,400, with a balloon payment
of $12,086 at maturity on August 1, 2021. The refinanced amount is identical to the remaining principal balance under the previous
loan, thus no gain or loss has been recognized.
On February 2, 2017, we refinanced two truck
notes existing with a community bank for one new note of $53,610. The term was principal and interest payments monthly over 42
months with an interest rate of 6%. The note is secured by certain trucks and equipment of the Company. The refinanced amount is
identical to the remaining principal balance under the previous loan.
On January 2, 2018, we financed a truck with
a note to a bank. The $41,481 note has an interest rate of 6.29% and payments of principal and interest are paid monthly. The note
is secured by the truck purchased. This note matures in January 2023.
On December 7, 2018, the Company issued
and sold secured promissory notes in the aggregate principal amount of $300,000 to three separate purchasers. In addition to the
issuance of the Notes an aggregate of 500,000 warrants (“Warrants”) were issued to the purchasers of the Notes. The
Warrants are exercisable for a period of five years and are exercisable at $0.40 per share. Interest on the Notes shall be paid
to the purchasers at a rate of 10.0% per annum, paid on a quarterly basis, and the maturity date of the Note is one year after
the issuance date. The Notes are secured by all of the assets of the Company and the assets of MWTS, subject to prior liens and
security interests. The warrants were valued at $203,337 and recorded as a discount to the notes payable. The discount will be
amortized over the life of the notes payable. As of June 30, 2019, the unamortized discount is $121,423.
On December 7, 2018 the Company issued
a 6% note to the MWTS Member in the amount of $800,000 as part of the purchase price for MWTS. The note requires monthly payment
of $7,500, matures December 8, 2023 and is secured by all the assets of the Company subject to prior security interests.
On January 11, 2019 the Company issued
a $100,000. 10% note to a shareholder who controls approximately 8.8%. The note matures on December 7, 2019 and is secured by a
junior lien against the Company assets. In April 2019, the Company issued 511,370 shares of its restricted common stock with a
fair value of $203,525 to settle this $100,000 note payable and $2,274 of accrued interest in full. The transaction resulted in
a loss on settlement of $101,251.
In May 2019, the Company issued a promissory
note in the amount of $100,000 with a maturity date of July 1, 2019 to an individual investor. The Company issued a five-year warrant
to purchase 100,000 shares of the Company’s common stock at a fixed price of $0.30. The warrants were valued $44,091 and
recorded as a debt discount that was fully amortized as of June 30, 2019. On June 18, 2019, the Company issued 150,000 warrants
with an exercise price of $0.30 and a term of ten years in exchange for an extension of the maturity date of the note through September
30, 2019. This change in the note payable was considered to not be a significant modification and the warrants were valued at $67,223
and will be amortized over the extension period of the note.
In June 2019, the Company issued a promissory
note in the amount of $80,000 to an individual investor. The Company issued ten year a warrant to purchase 120,000 shares of the
Company’s common stock at a fixed price of $0.30. The warrants were valued $53,780 and recorded as a debt discount. As of
June 30, 2018, $6,205 was amortized leaving a discount balance of $47,575.
Funding Advance Agreements – included
with secured notes
On June 27, 2018, the Company re-financed
and paid off a prior liability due to Libertas Funding LLC. The new facility had an original principal balance of $347,500. Payments
of principal and interest are paid daily. This note matures in May 2019 and is fully paid as of June 30, 2019. During the six months
ended June 30, 2019, $43,411 of debt discount was amortized to interest expense.
Future maturities of secured notes payable as of June 30, 2019
for the following fiscal years are as follows:
2019
|
|
$
|
725,838
|
|
2020
|
|
|
329,990
|
|
2021
|
|
|
337,582
|
|
2022
|
|
|
265,523
|
|
2023
|
|
|
636,542
|
|
Total
|
|
$
|
2,295,475
|
|
Notes Payable – Unsecured
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Financed insurance premium, Note Payable issued on June 8, 2018, bearing interest of 6.5% per year and due in monthly installments ending April 1, 2019
|
|
$
|
4,523
|
|
|
$
|
31,126
|
|
|
|
|
|
|
|
|
|
|
Unsecured note payable with a shareholder who controls approximately 7.5% of votes. Note issued on August 10, 2018 for $40.000, due December 30, 2018 (extended to June 30, 2019) and 10% interest per year, balance of payable is due on demand. Additional $25,000 advanced and due on demand
|
|
|
40,000
|
|
|
|
65,000
|
|
|
|
|
|
|
|
|
|
|
Unsecured advances from the sellers of Momentum Water Transfer Services LLC, non-interest bearing and due on demand
|
|
|
35,000
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79,523
|
|
|
|
131,126
|
|
|
|
|
|
|
|
|
|
|
Less current maturities
|
|
|
(79,523
|
)
|
|
|
(131,126
|
)
|
|
|
|
|
|
|
|
|
|
Long term debt, net of current maturities
|
|
$
|
-
|
|
|
$
|
-
|
|
Notes Payable (Related Party
)
On February 12, 2018, the Company’s
wholly-owned subsidiary, MG Cleaners LLC (“
MG
”) entered into an Intellectual Property Sale Agreement (“
Agreement
”)
with Stephen Christian, MG’s President, for the purchase of RigHands™ an industrial strength hand cleaner product line.
RigHands™ is a trademarked branded product which is focused on the oilfield and industrial markets. MG issued a promissory
note to Mr. Christian for the purchase price in the amount of $150,000. The note bears interest at the rate of 5% per year and
is payable in 36 equal monthly installments of $4,496. As of June 30, 2019, $76,513 remains outstanding with $51,283 included as
a current liability. As of December 31, 2018, $101,220 remains outstanding with $54,307 included as a current liability.
During the six months ended June 30, 2019, Stephen Christian advanced $125,239 to the Company and was
repaid $121,314 by the Company. As of June 30, 2019 and December 31, 2018, $12,368 and $8,443 remained outstanding, respectively,
with no specific repayment terms or stated interest rate.
Accounts Receivable Financing Facility (Secured
Line of Credit)
On May 11, 2017, SMG Industries, Inc.,
formerly SMG Indium Resources Ltd., (the “Borrower”) entered into a $1 million revolving accounts receivable financing
facility with Crestmark Bank. The financing facility provides for the Borrower to have access to the lesser of (i) $1 million or
(ii) 85% of Net Amount of Eligible Receivables (as defined in the financing agreement). The financing facility is paid for by the
assignment of the Borrower’s accounts receivable to Crestmark Bank and is secured by the Borrower’s assets. The financing
facility has an interest rate of 7.25% in excess of the prime rate reported by the Wall Street Journal per annum, with a floor
minimum rate of 11.5%. There were no loan origination or closing fees and we paid $1,330 to Crestmark to reimburse them for documentation,
legal and audit fees. Interest and maintenance fees will be calculated on the higher of the average monthly loan balance from the
prior month or a minimum average loan balance of $200,000. The financing facility is for an initial term of two-years and will
renew on a year to year basis, unless terminated in accordance with the financing agreement. If the facility is terminated prior
to the first anniversary, Borrower is obligated to pay Crestmark Bank a fee of $20,000 and if terminated after the first anniversary
and prior to the second anniversary then Borrower shall pay a fee of $5,000. After the second anniversary of the financing facility,
no exit fee is due. Crestmark has a senior security interest in the Borrower’s assets.
As part of our arrangement with Crestmark Bank our customers pay accounts receivable directly to a lock-box.
Crestmark Bank is then paid back for prior advances on the Company’s Eligible Receivables. During the six months ended June
30, 2019, the Company received total cash proceeds of $1,851,690 and repaid $1,830,831 of the Line of Credit via Crestmark Bank
withholding amount collected in our lock-box. In addition, Crestmark withheld $74,352 to pay for interest and fees. Net proceeds
received during the six months ended June 30, 2019 on this facility were $95,211.
During the six months ended June 30, 2018,
the Company received total cash proceeds of $2,000,300 and repaid $1,819,803 of the Line of Credit via Crestmark Bank withholding
amount collected in our lock-box. In addition Crestmark withheld $36,605 to pay for interest and fees. Net proceeds received
during the six months ended June 30, 2018 on this facility were $217,102.
On June 19, 2019, each of MG Cleaners LLC
(“MG”), Trinity Services LLC (“Trinity”) and Jake Oilfield Solutions LLC (“Jake”), each of
which is a wholly-owned subsidiary of the Company, entered into separate revolving accounts receivable financing facilities (collectively
the “AR Facility”) with Catalyst Finance L.P. (“Catalyst”). The AR Facility was funded on June 27, 2019.
The new AR Facility with Catalyst was used to pay off the Crestmark facility in full. The AR Facility provides for the Company,
through MG, Trinity and Jake, to have access to up to 90% of the net amount of eligible receivables (as defined in the financing
agreement). The AR Facility is paid for by the assignment of the accounts receivable of each of MG, Trinity and Jake to Catalyst
and is secured by all instruments and proceeds related thereto. The AR Facility has an interest rate of 2.25% in excess of the
prime rate reported by the Wall Street Journal per annum, plus a financing fee equal to 0.20% of the receivable balance every 15
days, with a maximum cumulative rate of 1.6%. There are no origination fees, monitoring or early termination fees. The AR
Facility can be terminated by the Company with thirty days written notice. The Company is a guarantor of the financing facility
and our subsidiaries as borrowers have cross-collateralized their accounts receivable with this facility.
On June 27, 2019, Catalyst funding a total
of $1,317,304. Of the amounts funded $500,000 was paid directly to the Seller of Trinity, $43,219 was used to pay of notes payable
of MG Cleaners, $714,239 was used to pay off the Crestmark liability and the remaining $59,846 was deposited to the Company’s
bank account.
The balances under the above lines of credit
was $1,409,474 and $593,888 as of June 30, 2019 and December 31, 2018, respectively.
Convertible Notes Payable
On September 28, 2018, the Company entered
into a secured note purchase agreement with an individual investor for the purchase and sale of a convertible promissory note (“Convertible
Note”) in the principal amount of $250,000. The Convertible Note is convertible at any time after the date of issuance into
shares of the Company’s common stock at a conversion price of $0.50 per share. Interest on the Note shall be paid to the
investor at a rate of 8.5% per annum, paid on a quarterly basis, and the maturity date of the Convertible Note is two years after
the issuance date. The Convertible Note is secured by all of the assets of the Company, subject to prior liens and security interests.
The Company evaluated the Convertible Note and determined is a conventional convertible instrument. As a result, a beneficial conversion
feature was calculated as $100,000 at the time of issuance and recorded as a discount. During the six months ended June 30, 2019,
$23,983 of the discount was amortized leaving an unamortized discount balance of $64,046.
In April 2019, the Company issued a convertible
promissory note in the amount of $50,000 to an individual investor. The note bears an interest rate of 8 ½ %, payable in
cash quarterly, matures in two years and is convertible at any time into shares of the Company’s common stock at a fixed
conversion price of $0.50 per share. The Company evaluated the Convertible Note and determined is a conventional convertible instrument.
As a result, a beneficial conversion feature was calculated as $0 at the time of issuance.
NOTE 9 – COMMON AND PREFERRED STOCK
During the six months ended June 30, 2019,
the Company issued 27,046 of its restricted common stock in settlement of $8,572 of liabilities. The fair value of the common stock
issued was $12,579 resulting in a loss on settlement of $4,007.
In April 2019, the Company issued 511,370
shares, with a fair value of $203,525, of its restricted common stock to settle a $100,000 note payable and accrued interest in
full that was originally issued in January 2019.
During the six months ended June 30, 2019,
the Company issued 1,436,000 shares of its restricted common stock for proceeds of $359,000 from investors.
During the year ended December 31, 2018, the Company issued a total of 80,000 common shares to three consultants
for service. During the six months ended June 30, 2019, the Company recognized expense of $30,250 related to these services. The
Company will recognize an additional $1,646 over the remaining service period of the contract.
In May 2019, the Company issued a total
of 200,000 common shares with a fair value of $50,325 to consultants for services. During the six months ended June 30, 2019, the
Company recognized expense of $19,063 related to these services. The Company will recognize an additional $31,262 over the remaining
service period of the contract.
Preferred Stock – Series A Convertible
Preferred stock
On June 4, 2019 the company filed a Certificate of Designation of Preferences, Rights and Limitations
of 3% Series “A” Convertible Preferred Stock to create a new class of stock in connection with its pending acquisition.
This Series A Convertible Preferred stock has designated 2,000 shares, has a stated value of $1,000 per share and was delivered
to the seller of Trinity Services LLC at closing.
The Series A Preferred Stock shall, with
respect to dividend distributions and distributions upon liquidation, winding up or dissolution of the Corporation, rank senior
to all classes of Common Stock and to each other class of Capital Stock of the Corporation or series of Preferred Stock of the
Corporation existing or hereafter created. The Series A Preferred Stock shall pay a three percent (3%) annual dividend on the outstanding
Series A Preferred Stock, all of which shall be accrued until the Series A Preferred Stock has been converted.
At any time from issuance, the stated value
of each outstanding share of Series A Preferred Stock, plus accrued dividends thereon, shall be convertible (in whole or in part),
at the option of the Holder into shares of the Company’s Common Stock at a fixed conversion price of $0.50 per share on the
date on which the Holder notices a conversion.
All outstanding shares of Series A Preferred
Stock shall automatically convert into shares of the Company’s Common Stock upon the earlier to occur of: (i) twelve months
after the date of issuance of the Series A Preferred Stock; or (ii) six months after the date of issuance of the Series A Preferred
Stock, provided that (a) all shares of the Company’s Common Stock issued upon conversion may be sold under Rule 144 or pursuant
to an effective registration statement without a restriction on resale, and (b) the average closing price of the Company’s
Common Stock has been at least of $0.60 per share during the twenty (20) trading days prior to the date of conversion.
The Holders shall have the right to receive
notice of any meeting of holders of Common Stock or Series A Preferred Stock and to vote upon any matter submitted to a vote of
the holders of Common Stock or Series A Preferred Stock, on an as-converted basis. Except as otherwise expressly set forth in the
Certificate of Incorporation (including this Certificate of Designation), the Holders shall vote on each matter submitted
to them with the holders of Common Stock and all other classes and series of Capital Stock entitled to vote on such matter, taken
together as a single class, if any.
NOTE 10 – STOCK OPTIONS AND WARRANTS
Summary stock option information is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Exercise
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Price Range
|
|
|
Exercise Price
|
|
Outstanding, December 31, 2018
|
|
|
640,000
|
|
|
$
|
320,350
|
|
|
|
$0.24-$4.03
|
|
|
$
|
0.50
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
Exercised
|
|
|
(15,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
(100,000
|
)
|
|
|
(67,450
|
)
|
|
|
$0.25-$3.37
|
|
|
$
|
1.98
|
|
Outstanding, June 30, 2019
|
|
|
525,000
|
|
|
$
|
252,900
|
|
|
|
$0.24-$4.03
|
|
|
$
|
0.48
|
|
Exercisable, June 30, 2019
|
|
|
458,334
|
|
|
$
|
200,901
|
|
|
|
$0.24-$4.03
|
|
|
$
|
0.44
|
|
The weighted average remaining contractual life is approximately 2.54 years for stock options outstanding
on June 30, 2019. At June 30, 2019 there was $70,500 in intrinsic value of outstanding stock options. During the six months ended
June 30, 2019 and 2018 share based compensation expense of $23,556 and $0 was recognized, respectively. At June 30, 2019 there
was $70,500 in intrinsic value of outstanding stock warrants.
Summary Stock warrant information is
as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Aggregate
|
|
|
Aggregate
|
|
|
Exercise
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Price Range
|
|
|
Exercise Price
|
|
Outstanding, December 31, 2018
|
|
|
525,001
|
|
|
|
218,750
|
|
|
|
$4.12 - $4.44
|
|
|
$
|
0.37
|
|
Granted
|
|
|
370,000
|
|
|
|
-
|
|
|
|
$4.84 - $9.98
|
|
|
$
|
0.37
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Cancelled, forfeited or expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding, June 30, 2019
|
|
|
895,001
|
|
|
$
|
329,750
|
|
|
|
$4.12 - $4.44
|
|
|
$
|
0.37
|
|
Exercisable, June 30, 2019
|
|
|
895,001
|
|
|
$
|
329,750
|
|
|
|
$4.12 - $4.44
|
|
|
$
|
0.37
|
|
The weighted average remaining contractual life is approximately
5.9 years for stock warrants outstanding on June 30, 2019. At June 30, 2019 there was $80,500 in intrinsic value of outstanding
stock warrants.
NOTE 11 – ACQUISITION
Trinity
On June 3, 2019 we entered into a definitive Agreement and Plan of Share Exchange dated as of such date
(the “Trinity Exchange Agreement”) with Trinity Services LLC, a Louisiana limited liability company (“Trinity”)
and the sole member of Trinity (the “Trinity Member”). We closed the acquisition of Trinity on June 26, 2019 (“Closing
Date”). On the Closing Date, pursuant to the Exchange Agreement, we acquired one hundred percent (100%) of the issued and
outstanding membership interests of Trinity (“Trinity Membership Interests”) from the Trinity Member pursuant to which
Trinity will become our wholly owned subsidiary (“Trinity Acquisition”). In accordance with the terms of the Trinity
Exchange Agreement, and in connection with the completion of the Acquisition, on the Closing Date we : (i) issued 2,000 shares
of our 3% Series A Secured Convertible Preferred Stock (“Preferred Stock”), stated value $1,000 per share, (ii) paid
$500,000 in cash to the Trinity Member, and (iii) assumed approximately $850,000 in notes related to equipment owned by Trinity
(“Purchase Price”).
The Preferred Stock is convertible
at $0.50 per share at any time after the issuance thereof and is secured by all of the unencumbered assets of Trinity. All outstanding
shares of Preferred Stock shall automatically convert into shares of the Company’s common stock upon the earlier to occur
of: (i) twelve months after the date of issuance of the Preferred Stock; or (ii) six months after the date of issuance of the Preferred
Stock, provided that (a) all shares of the Company’s common stock issued upon conversion of the Preferred Stock may be sold
under Rule 144 or pursuant to an effective registration statement without a restriction on resale, and (b) the average closing
price of the Company’s common stock has been at least of $0.60 per share during the twenty (20) trading days prior to the
date of conversion.
All of the shares of Preferred Stock, and
the shares of the Company’s Common Stock underlying the Preferred Stock, issued in connection with the Acquisition are restricted
securities, as defined in paragraph (a) of Rule 144 under the Securities Act of 1933, as amended (the “
Securities Act
”).
Such shares were issued pursuant to an exemption from the registration requirements of the Securities Act, under Section 4(a)(2)
of the Securities Act and the rules and regulations promulgated thereunder. The Preferred Stock issued has a stated value of $2,000,000.
The fair value of the shares was based on an as if converted to common stock basis.
The acquisition of Trinity is being accounted for as a business combination under ASC 805. Due to the
transaction closing late in the second quarter the Company is continuing to gather evidence to evaluate what identifiable intangible
assets were acquired, such as a customer list, and the fair value of each, and expects to finalize the fair value of the acquired
assets within one year of the acquisition date. The following information summarizes the provisional purchase consideration and
preliminary allocation of the fair values assigned to the assets at the purchase date:
Preliminary Purchase Price:
|
|
|
|
|
Cash
|
|
$
|
500,000
|
|
Preferred stock, Series A issued
|
|
|
1,800,000
|
|
Total purchase consideration
|
|
$
|
2,300,000
|
|
|
|
|
|
|
Preliminary Purchase Price Allocation
|
|
|
|
|
Cash
|
|
$
|
50,949
|
|
Accounts receivable
|
|
|
1,255,613
|
|
Prepaid expenses
|
|
|
47,141
|
|
Property and equipment
|
|
|
2,537,650
|
|
Right of use assets – operating leases
|
|
|
87,900
|
|
Accounts payable and accrued expenses
|
|
|
(750,438
|
)
|
Right of use assets – operating leases
|
|
|
(87,900
|
)
|
Notes payable
|
|
|
(840,915
|
)
|
|
|
$
|
2,300,000
|
|
The Company’s consolidated revenue and
net loss for the three and six months ended June 30, 2019 include $50,441 and $34,519 related to the operations of Trinity since
the acquisition date.
Momentum Water Transfer
Services
On December 7, 2018 (“Closing
Date”), we entered into an Agreement and Plan of Share Exchange dated as of such date (the “Exchange Agreement”)
with Momentum Water Transfer Services LLC, a Texas limited liability company (“MWTS”) and the sole member of MWTS (the
“MWTS Member”). On the Closing Date, pursuant to the Exchange Agreement, we acquired one hundred percent (100%) of
the issued and outstanding membership interests of MWTS (“MWTS Membership Interests”) from the MWTS Member pursuant
to which MWTS became our wholly owned subsidiary (“MWTS Acquisition”). In accordance with the terms of the Exchange
Agreement, and in connection with the completion of the Acquisition, on the Closing Date we issued 550,000 shares of our common
stock, par value $0.001 per share, paid $308,000 in cash, issued a short term payable of $53,710 that is due on demand and issued
a 6% note to the MWTS Member in the amount of $800,000 in exchange for all of the issued and outstanding MWTS Membership Interests.
Unaudited Pro Forma Financial Information
The following schedule contains pro-forma consolidated
results of operations for the three and six months ended June 30, 2019 and 2018 as if the Trinity acquisition occurred on January
1, 2018 and as if the MWTS Acquisition had occurred on January 1, 2017. The pro forma results of operations are presented for informational
purposes only and are not indicative of the results of operations that would have been achieved if the acquisition had taken place
on January 1, 2018, or of results that may occur in the future.
|
|
Three months
ended June 30,
2019
|
|
|
Three months
ended June 30,
2018
|
|
|
Six months
ended June 30,
2019
|
|
|
Six months
ended June 30,
2018
|
|
Revenue
|
|
$
|
2,566,978
|
|
|
$
|
3,215,023
|
|
|
$
|
5,776,546
|
|
|
$
|
4,946,478
|
|
Operating income (loss)
|
|
$
|
(597,003
|
)
|
|
$
|
117,374
|
|
|
$
|
(1,081,968
|
)
|
|
$
|
30,922
|
)
|
Net income (loss)
|
|
$
|
(977,867
|
)
|
|
$
|
36,290
|
|
|
$
|
(1,617,141
|
)
|
|
$
|
(96,071
|
)
|
Income (loss) per common share – basic and diluted
|
|
$
|
(0.07
|
)
|
|
$
|
0.00
|
|
|
$
|
(0.12
|
)
|
|
$
|
(0.01
|
)
|
NOTE 12 – COMMITMENTS AND CONTINGENCIES
Employment Agreements
On October 31, 2017, and made effective
September 20, 2017, the Company entered into an employment agreement with Stephen Christian, the former Managing Member, and current
President, of our subsidiary MG Cleaners LLC. The term is for three years with a monthly salary of $8,333 for the first six months
of the effective date and $10,000 a month thereafter. Other terms include payment of Mr. Christian’s health care insurance,
use of a company truck and other customary benefits. Termination without cause, as defined in the agreement, grants Mr. Christian
six months’ severance pay. In May 2019, the Company adjusted the pay to $14,167 per month.
On October 31, 2017, and made effective October 1, 2017,
the Company entered into an employment agreement with Matthew Flemming, our Chief Executive Officer. The term is for three years
with a monthly salary of $15,000 for the period. The terms of the agreement also include providing health care, auto allowance
of $750 per month if a car is not provided by the Company, and other customary benefits. Termination without cause, as defined
in the agreement, grants Mr. Flemming six months’ severance pay.
Litigation
In May 2018, MG Cleaners LLC, a wholly owned
subsidiary of SMG Industries, Inc. was sued in the US District Court for the Western District of Texas, Houston Division, Civil
action no. 4:18-cv-00016; Christopher Hunsley et. al. vs MG Cleaners LLC. Five former employees of MG Cleaners, the Plaintiffs,
filed claims under the Fair Labor Standards Act (FLSA) asserts amongst other things unpaid overtime wages. The Company adamantly
denies these claims.
SMG Industries has litigated this matter for
several months and considered a range of outcomes for this matter and determined that management’s best estimated amount
to settle this matter is for $40,000 probably during the fiscal year 2019. As such, management believes it is appropriate to accrue
for this in our 2019 financial statements.
From time to time, SMG may be subject
to routine litigation, claims, or disputes in the ordinary course of business. Other than the above listed matter, in the opinion
of management; no other pending or known threatened claims, actions or proceedings against SMG are expected to have a material
adverse effect on SMG’s financial position, results of operations or cash flows. SMG cannot predict with certainty, however,
the outcome or effect of any of the litigation or investigatory matters specifically described above or any other pending litigation
or claims. There can be no assurance as to the ultimate outcome of any lawsuits and investigations.
NOTE 13 – LEASES
The Company has operating and finance
leases for sales and administrative offices, motor vehicles and certain machinery and equipment. The Company’s leases have
remaining lease terms of 1 year to 4 years. For purposes of calculating operating lease liabilities, lease terms
may be deemed to include options to extend the lease when it is reasonably certain that the Company will exercise those options.
Some leasing arrangements require variable payments that are dependent on usage, output, or may vary for other reasons, such as
insurance and tax payments. The variable lease payments are not presented as part of the initial ROU asset or lease liability.
The Company's lease agreements do not contain any material restrictive covenants.
The components of lease cost for operating and finance leases for the three and six months ended June
30, 2019 were as follows:
Lease Cost
|
|
Three Months Ended
June 30, 2019
|
|
|
Six Months Ended
June 30, 2019
|
|
Operating lease cost
|
|
$
|
52,456
|
|
|
$
|
102,910
|
|
Finance lease cost
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
9,923
|
|
|
$
|
17,741
|
|
Interest on lease liabilities
|
|
|
4,969
|
|
|
|
15,890
|
|
Total finance lease cost
|
|
$
|
14,892
|
|
|
$
|
33,631
|
|
Short-term lease cost
|
|
$
|
40,255
|
|
|
$
|
58,461
|
|
Variable lease cost
|
|
|
-
|
|
|
|
-
|
|
Sublease income
|
|
|
-
|
|
|
|
-
|
|
Total lease cost
|
|
$
|
107,603
|
|
|
$
|
195,002
|
|
Supplemental cash flow information related
to leases was as follows:
Other Lease Information
|
|
Six Months Ended June 30, 2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
80,120
|
|
Operating cash flows from finance leases
|
|
$
|
15,890
|
|
Financing cash flows from finance leases
|
|
$
|
30,681
|
|
The following table summarizes the lease-related
assets and liabilities recorded in the consolidated balance sheets at June 30, 2019:
Lease Position
|
|
June 30, 2019
|
|
Operating Leases
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
358,565
|
|
Right of use liability operating lease short term
|
|
$
|
146,569
|
|
Right of use liability operating lease long term
|
|
|
213,996
|
|
Total operating lease liabilities
|
|
$
|
360,565
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
Equipment
|
|
$
|
166,255
|
|
Accumulated depreciation
|
|
|
(32,816
|
)
|
Net Property
|
|
$
|
133,439
|
|
Long-term debt due within one year
|
|
|
77,994
|
|
Long-Term Debt
|
|
|
29,493
|
|
Total finance lease liabilities
|
|
$
|
107,487
|
|
The Company utilizes the incremental borrowing
rate in determining the present value of lease payments unless the implicit rate is readily determinable.
Lease Term and Discount Rate
|
|
June 30, 2019
|
|
Weighted-average remaining lease term (years)
|
|
|
|
|
Operating leases
|
|
|
3.7
|
|
Finance leases
|
|
|
1.9
|
|
Weighted-average discount rate
|
|
|
|
|
Operating leases
|
|
|
13.0
|
%
|
Finance leases
|
|
|
13.9
|
%
|
The following table provides the maturities
of lease liabilities at June 30, 2019:
Maturity of Lease Liabilities at June 30, 2019
|
|
Operating
Leases
|
|
|
Finance
Leases
|
|
2019
|
|
$
|
114,908
|
|
|
$
|
80,780
|
|
2020
|
|
|
132,317
|
|
|
|
15,769
|
|
2021
|
|
|
106,861
|
|
|
|
15,769
|
|
2022
|
|
|
47,673
|
|
|
|
10,404
|
|
2023
|
|
|
24,000
|
|
|
|
1,287
|
|
2024 and thereafter
|
|
|
10,000
|
|
|
|
-
|
|
Total future undiscounted lease payments
|
|
$
|
435,759
|
|
|
$
|
124,009
|
|
Less: Interest
|
|
|
(75,194
|
)
|
|
|
(16,522
|
)
|
Present value of lease liabilities
|
|
$
|
360,565
|
|
|
$
|
107,487
|
|
At June 30, 2019, the Company had no additional
leases which had not yet commenced.
Future minimum lease payments for operating
leases accounted for under ASC 840, "Leases," with remaining non-cancelable terms in excess of one year at December 31,
2018 were as follows:
Minimum Lease Commitments at December 31, 2018
|
|
|
|
2019
|
|
$
|
145,940
|
|
2020
|
|
|
39,940
|
|
2021
|
|
|
18,340
|
|
2022
|
|
|
-
|
|
2023
|
|
|
-
|
|
Total
|
|
$
|
204,220
|
|
During the six months ended June 30, 2019,
the Company entered into two new leases for forklifts that were determined to be finance leases under ASC 842. One lease is for
a period of three years, with monthly payments of $671 and the second lease is for a period of 48 months with monthly payments
of $644. The Company capitalized an asset and right of use finance lease liability of $43,888 related to these finance leases.
The Company also entered into two new operating leases for two vehicles. Each lease is for a period of
four years, with monthly payments of $875 per vehicle. The Company recognized initial right of use assets and right of use operating
lease liabilities of $65,266 in total for these vehicles. The Company also acquired an operating lease for office and warehouse
space as part of the Trinity Acquisition and recognized a right of use asset and operating lease liability of $87,900 as part of
the purchase price accounting. This lease is for a term of 60 months with a monthly payment of $2,000.
The
lessor is the seller of the Trinity business acquired in June 2019 and the holder of the Preferred Stock.
NOTE 14 – RELATED PARTY TRANSACTIONS
On September 19, 2017, in connection
with the acquisition, we issued 4,578,276 shares and agreed to pay $300,000 in cash to the Managing MG Member, Stephen Christian,
payable with $250,000 at closing and the remaining $50,000 paid upon the completion of the Company’s sale of a minimum of
$500,000 of its securities in a private offering to investors. As of June 30, 2019 and December 31, 2018 amounts due under this
arrangement are $0 and $21,000, respectively.
The Company had engaged the services of
Mr. John Boylan from February 2019 through July 2019, whereby Mr. Boylan will be paid as a consultant to the Company in connection
with its mergers and acquisition strategy, whereby Mr. Boylan provided us with mergers and acquisition support including economic
analysis, financial modeling and due diligence. Mr. Boylan will be paid $13,000 per month for his services.
In June 2019 Mr. Flemming, Mr. Boylan and Mr.
Christian were each awarded a bonus of $12,500 related to their efforts in closing the Trinity acquisition.
NOTE 15 – SUBSEQUENT EVENTS
In July 2019, the Company issued Roth Capital
Partners 12,500 shares of its restricted common stock in connection with their advisory fee on behalf of the Company’s acquisition
of Trinity Services LLC which closed June 26, 2019.
On July 26, 2019, 100,000 stock options
were granted to each of the independent board members Messer’s Paulson, Gilbert and Villarreal for the right to acquire SMG
common stock at a fixed exercise price of $0.45 per share anytime over five years. The board member compensation grant of options
is for one year’s service July 2019 through June 2020.
On July 26, 2019, the Company paid a vendor payable that totaled $247,637, by issuing a promissory note
in the name of its frac water company Jake Oilfield Solutions LLC for $123,818. The interest rate was 7% with principal and interest
due at maturity July 25, 2020. The remaining balance of $123,818 was converted into 353,766 of SMG restricted common stock.