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SMG Industries, Inc. Announces Third Quarter 2019 Financial Results

November 15, 2019 GMT
Oilfield Services Company Reports Revenues of $2.06 million for the Third Quarter ended September 30, 2019 a 101% Increase from the Third Quarter 2018 Third Quarter Highlights: Revenue increased 101% to $2,064,516 for the quarter ...
Oilfield Services Company Reports Revenues of $2.06 million for the Third Quarter ended September 30, 2019 a 101% Increase from the Third Quarter 2018 Third Quarter Highlights: Revenue increased 101% to $2,064,516 for the quarter ...

Oilfield Services Company Reports Revenues of $2.06 million for the Third Quarter ended September 30, 2019 a 101% Increase from the Third Quarter 2018

Third Quarter Highlights:

HOUSTON, TX / ACCESSWIRE / November 15, 2019 / SMG Industries, Inc. (the “Company”) (OTCQB:SMGI), a growth-oriented oilfield services company operating in the Southwest United States and headquartered in Houston, Texas announced today their financial results for the third quarter ended September 30, 2019.

As stated in the Company’s Quarterly Report on Form 10-Q filed November 14, 2019 with the Securities and Exchange Commission, the Company’s sales for the three months ended September 30, 2019 were $2,064,516, an increase of 101%, from $1,026,949 for the three months ended September 30, 2018. The increase in revenue for the three months ended September 30, 2019 was primarily attributable to additional revenues contributed by the Trinity Services’ operations acquired in June 2019, as well as organic growth of MG Cleaners from an expanded customer base and its rental equipment in the Permian Basin.

During the three months ended September 30, 2019, cost of sales increased as a percentage of sales to 78.5% of revenues, or $1,621,841, compared to 56.8% of revenues or $582,922, for the comparable 2018 period. The increase in cost of sales as a percentage of revenues is primarily the result of the net margin mix impacted by the Trinity Services acquisition not present in the year ago period and higher costs in MG Cleaners’ parts business. The Company believes going forward it will improve cost of sales as a percentage of sales through increasing sales of its higher margin branded products, developing more profitable frac water work and driving higher utilizations and efficiencies from cross-selling with our recently acquired customers.

For the three months ended September 30, 2019, selling, general and administrative expenses were $815,871, or 39.5% of sales, compared to $667,277 or 64.9% of sales for the three months ended September 30, 2018. This decrease in selling, general and administrative expenses as a percentage of sales in the third quarter of 2019 compared to the third quarter of 2018 was primarily due to higher sales covering more fixed costs within S,G&A partially offset by higher sales costs and wages.

Other expenses, net was $232,979, an increase of $176,535 for the three months ended September 30, 2019 compared to the third quarter in 2018. The increase in other expenses during the three months ended September 30, 2019 resulted from higher interest expense with our revolving line of credit, funding agreements and notes payable, partially offset by a gain on settlement of liabilities compared to the three months ended September 30, 2018.

During the three months ended September 30, 2019, the Company incurred a net loss of $606,175, or $0.04 per basic and diluted earnings per share. For the three months ended September 30, 2018, the Company incurred a net loss of $279,694 or $0.03 per basic and diluted earnings per share. The Company’s total outstanding shares of common stock were 14,881,372 as of November 14, 2019.

As of September 30, 2019, our total assets were $7,464,347. This is an increase in total assets of $3,937,900 over the total assets at December 31, 2018 of $3,526,447.

Matt Flemming, Chief Executive Officer of SMG Industries stated, “The June 2019 acquisition of Trinity Services has contributed materially to the increase in the Company’s consolidated revenue. Trinity enjoys a great reputation in the East Texas and Louisiana market for construction and building of multi-well pad locations as well as production related well site workover activities in the Haynesville Shale and Cotton Valley plays. Due to this acquisition, we have been able to increase our master service agreements (MSAs) with customers which may also be serviced by our other subsidiaries.” Mr. Flemming continued, “We are currently aggressively pursuing additional strategic acquisitions to expand our service offering to customers.”

Stephen Christian, SMG’s EVP of Operations stated, “We have continued to focus on the Permian Basin in West Texas and the Haynesville shale of East Texas where our existing customers remained fairly active. Increasing strategic sales staff in the Permian Basin at the start of the quarter helped mitigate market activity reductions driven by lower rig counts. Additionally, the Company’s cost cutting efforts focused on vendors programs to lower the direct cost of goods. Trinity has been awarded construction bids that will take us into Q1, 2020 where we anticipate customer’s new drilling programs will begin to kick off. We are very excited about the expansion possibilities with Trinity and what it offers our other subsidiaries.”

Third Quarter 2019 Financial Tables

SMG INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

September 30,December 31,
20192018

ASSETS

Current assets:

Cash and cash equivalents

$13,353$1,608

Accounts receivable, net of allowance for doubtful accounts of $147,015 and $25,000

1,967,075703,959

Inventory

149,413140,662

Assets held for sale

30,00042,300

Prepaid expenses and other current assets

136,95196,871

Total current assets

2,296,792985,400

Property and equipment, net of accumulated depreciation of $609,753 and $306,155

4,342,0371,998,009

Other assets

20,38627,631

Right of use assets - operating lease

311,473-

Intangible assets, net of accumulated amortization $32,092 and $10,344

307,908329,656

Goodwill

185,751185,751

Total assets

$7,464,347$3,526,447

LIABILITIES AND STOCKHOLDERS' DEFICIT

Current liabilities:

Accounts payable

$1,908,564$968,507

Accounts payable - related party

-21,000

Accrued expenses and other liabilities

401,317207,911

Right of use liabilities - operating leases short term

128,969-

Right of use liabilities - finance leases short term

62,389-

Deferred revenue

-39,877

Secured line of credit

1,348,916593,888

Current portion of note payable - related party

51,93262,750

Current portion of unsecured notes payable

160,375131,126

Current portion of secured notes payable, net

1,085,994328,328

Current portion of capital lease liability

-53,728

Total current liabilities

5,148,4562,407,115

Long term liabilities:

Convertible note payable, net

248,306161,970

Note payable - related party, net of current portion

12,00346,913

Notes payable - secured, net of current portion

1,343,140967,846

Right of use liabilities - operating leases, net of current portion

188,504-

Right of use liabilities - finance leases, net of current portion

27,403-

Capital lease liability, net of current portion

-40,552

Total liabilities

6,967,8123,624,396

Commitments and contingencies

Stockholders' deficit

Preferred stock - $0.001 par value; authorized 1,000,000 shares as of September 30, 2019 and

December 31, 2018; issued and outstanding 2,000 and none at September 30, 2019 and December 31, 2018

2-

Common stock - $0.001 par value; authorized 25,000,000 shares as of September 30, 2019 and December 31, 2018;

issued and outstanding 14,451,372 and 11,910,690 at September 30, 2019 and December 31, 2018

14,45111,911

Additional paid in capital

4,456,8561,567,567

Accumulated deficit

(3,974,774)(1,677,427)

Total stockholders' deficit

496,535(97,949)

Total liabilities and stockholders' deficit

$7,464,347$3,526,447

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

SMG INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months ended September 30, 2019 and 2018

(unaudited)

Three Months EndedThree Months EndedNine Months EndedNine Months Ended
September 30, 2019September 30, 2018September 30, 2019September 30, 2018

REVENUES

$2,064,516$1,026,949$4,911,401$3,192,432

COST OF REVENUES

1,621,841582,9223,999,1561,742,431

GROSS PROFIT

442,675444,027912,2451,450,001

OPERATING EXPENSES:

Selling, general and administrative

815,871667,2772,491,3171,682,259

Total operating expenses

815,871667,2772,491,3171,682,259

LOSS FROM OPERATIONS

(373,196)(223,250)(1,579,072)(232,258)

OTHER INCOME (EXPENSE)

Gain (loss) on settlement of liabilities

31,494(2,549)(73,764)9,291

Gain on sales of assets

-14,000-14,000

Interest expense, net

(264,473)(67,895)(644,511)(199,099)

NET LOSS

$(606,175)$(279,694)$(2,297,347)$(408,066)

Net Loss Per Share

Basic

$(0.04)$(0.03)$(0.17)$(0.04)

Diluted

$(0.04)$(0.03)$(0.17)$(0.04)

Weighted average shares outstanding

Basic

14,332,82310,336,47013,493,9449,986,415

Diluted

14,332,82310,336,47013,493,9449,986,415

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

SMG INDUSTRIES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2019 and 2018

(unaudited)

20192018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$(2,297,347)$(408,066)

Adjustments to reconcile net loss to net

cash used in operating activities:

Stock based compensation

239,52742,012

Depreciation and amortization

338,78466,933

Amortization of deferred financing costs

204,960117,972

Amortization of right of use assets - operating leases

129,212-

Impairment expense

12,300-

Gain (loss) on settlement of liabilities

87,923(9,291)

Bad debt expense (recovery)

10,08710,407

Gain (loss) on disposal of assets

(1,758)(13,386)

Changes in:

Accounts receivable

68,410(214,588)

Inventory

(8,751)(6,442)

Prepaid expenses and other current assets

14,30626,504

Other assets

-(32,541)

Accounts payable

586,825207,911

Accounts payable related party

-(45,585)

Accrued expenses and other liabilities

193,40678,694

Right of use operating lease liabilities

(123,212)-

Deferred revenue

(39,877)-

Net cash used in operating activities

(585,205)(179,466)

CASH FLOWS FROM INVESTING ACTIVITIES:

Cash paid for acquisition of Trinity Services LLC

(449,051)-

Proceeds from the sale of property and equipment

-14,000

Cash paid for purchase of property and equipment

(163,768)(95,869)

Net cash used in investing activities

(612,819)(81,869)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from secured line of credit, net

711,809134,937

Proceeds from notes payable

-211,243

Payments on notes payable

-(367,572)

Payments on ROU liabilities - finance leases

(48,376)-

Proceeds from sales of common stock

359,000-

Proceeds from notes payable, related party

125,23943,100

Payments on notes payable, related party

(170,967)(67,504)

Payments on capital lease liability

-(24,275)

Payments on MG Cleaners acquisition - related party

(21,000)(29,000)

Proceeds from notes payable

480,000-

Payments on notes payable

(275,936)-

Proceeds from convertible notes payable

50,000250,000

Proceeds from sales of common stock, net

-276,044

Net cash provided by financing activities

1,209,769426,973

NET CHANGE IN CASH AND CASH EQUIVALENTS

11,745165,638

CASH AND CASH EQUIVALENTS, beginning of period

1,60885,570

CASH AND CASH EQUIVALENTS, end of period

$13,353$251,208

Supplemental disclosures:

Cash paid for income taxes

$-$-

Cash paid for interest

$221,140$79,146

Noncash investing and financing activities

Shares issued for equipment purchase

$-$700,000

Capitalization of ROU assets and liabilities - finance

$43,888$-

Capitalization of ROU assets and liabilities - operating

$352,785$-

Non-cash consideration paid for business acquisition

$1,800,000$-

Intangible assets acquired from issuance of note payable, related party

$-$150,000

Purchase of fixed assets with note payable

$-$41,481

Property and equipment purchased with capital lease

$-$131,718

Settlement of accounts payable with note payable

$259,193$-

Debt discount from issuance of common stock warrants

$165,094$17,476

Expenses paid by related party

$-$8,034

Settlement of accounts payable with common stock issuance

$138,016$5,000

Beneficial conversion feature on convertible notes payable

$100,000

Settlement of notes payable with common stock issuance

$102,274$-

Prepaid expenses financed with note payable

$-$75,931
The accompanying notes are an integral part of these consolidated unaudited financial statements

For more information and management’s discussion and analysis of its operating results please read the Company’s Quarterly Report on Form 10-Q filed November 14, 2019 available at www.SEC.gov.

About SMG Industries, Inc.: SMG Industries is a rapidly growing oilfield services company that operates throughout the Southwest United States. Through its wholly-owned operating subsidiaries, the Company offers an expanding suite of products and services across the 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 equipment and services crews that perform on-site repairs, maintenance and drilling rig wash services. SMG’s rental division includes an inventory of over 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, know 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. SMG’s Trinity Services focuses on the drilling market segment related location construction, road and pad development and production workover services. SMG Industries, Inc. headquartered in Houston, Texas has facilities in Carthage, Odessa, Alice and Waskom, Texas. Read more at www.SMGindustries.com and www.MGCleanersllc.com and www.MomentumWTS.com.

Forward-Looking Statements:

This news release contains information that is “forward-looking” in that it describes events and conditions SMGI reasonably expects to occur in the future. Expectations for the future performance of SMGI are dependent upon a number of factors and there can be no assurance that SMGI will achieve the results as contemplated herein. Certain statements contained in this release using the terms “may”, “Expects to”, “anticipated” and other terms denoting future possibilities, are forward-looking statements. The accuracy of these statements cannot be guaranteed as they are subject to a variety of risks, which are beyond SMGI’s ability to predict, or control and which may cause actual results to differ materially from the projections or estimates contained herein. Forward-looking statements in this news release that are subject to risk include the ability to achieve and continue revenue, margins, net income and adjusted EBITDA improvements. It is important that each person reviewing this release understand the significant risks attendant to the operations of SMGI. SMGI disclaims any obligation to update any forward-looking statement made herein.

Contact:

Matthew Flemming, SMG Industries, Inc. +713-821-3153

SOURCE: SMG Industries, Inc.

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