SMG Industries, Inc. Announces Third Quarter 2019 Financial Results

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 ended September 30, 2019, from $1,026,949 in the same period a year ago, which is up approximately 88%, sequentially from the last quarter,
  • The Company is aggressively moving forward with its build and buy acquisition strategy.

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,  
 
  2019     2018  
 
           
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
    1,967,075       703,959  
Inventory
    149,413       140,662  
Assets held for sale
    30,000       42,300  
Prepaid expenses and other current assets
    136,951       96,871  
 
               
Total current assets
    2,296,792       985,400  
 
               
Property and equipment, net of accumulated depreciation of $609,753 and $306,155
    4,342,037       1,998,009  
Other assets
    20,386       27,631  
Right of use assets – operating lease
    311,473        
Intangible assets, net of accumulated amortization $32,092 and $10,344
    307,908       329,656  
Goodwill
    185,751       185,751  
 
               
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
    401,317       207,911  
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
    1,348,916       593,888  
Current portion of note payable – related party
    51,932       62,750  
Current portion of unsecured notes payable
    160,375       131,126  
Current portion of secured notes payable, net
    1,085,994       328,328  
Current portion of capital lease liability
          53,728  
 
               
Total current liabilities
    5,148,456       2,407,115  
 
               
Long term liabilities:
               
Convertible note payable, net
    248,306       161,970  
Note payable – related party, net of current portion
    12,003       46,913  
Notes payable – secured, net of current portion
    1,343,140       967,846  
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
    6,967,812       3,624,396  
 
               
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
    14,451       11,911  
Additional paid in capital
    4,456,856       1,567,567  
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 Ended     Three Months Ended     Nine Months Ended     Nine Months Ended  
 
  September 30, 2019     September 30, 2018     September 30, 2019     September 30, 2018  
 
                       
REVENUES
  2,064,516     1,026,949     4,911,401     3,192,432  
 
                               
COST OF REVENUES
    1,621,841       582,922       3,999,156       1,742,431  
 
                               
GROSS PROFIT
    442,675       444,027       912,245       1,450,001  
 
                               
OPERATING EXPENSES:
                               
Selling, general and administrative
    815,871       667,277       2,491,317       1,682,259  
 
                               
Total operating expenses
    815,871       667,277       2,491,317       1,682,259  
 
                               
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
    14,332,823       10,336,470       13,493,944       9,986,415  
Diluted
    14,332,823       10,336,470       13,493,944       9,986,415  
 
                               
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)
 

 
  2019     2018  
 
           
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
    239,527       42,012  
Depreciation and amortization
    338,784       66,933  
Amortization of deferred financing costs
    204,960       117,972  
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)
    10,087       10,407  
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
    14,306       26,504  
Other assets
          (32,541 )
Accounts payable
    586,825       207,911  
Accounts payable related party
          (45,585 )
Accrued expenses and other liabilities
    193,406       78,694  
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
    711,809       134,937  
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
    125,239       43,100  
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
    50,000       250,000  
Proceeds from sales of common stock, net
          276,044  
Net cash provided by financing activities
    1,209,769       426,973  
 
               
NET CHANGE IN CASH AND CASH EQUIVALENTS
    11,745       165,638  
 
               
CASH AND CASH EQUIVALENTS, beginning of period
    1,608       85,570  
 
               
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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