Form 8-K/A - Current report: [Amend]

SMGI SMG Industries Inc (CE)

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Share Name	Share Symbol	Market	Type
SMG Industries Inc (CE)	USOTC:SMGI	OTCMarkets	Common Stock

	Price Change	% Change	Share Price	Bid Price	Offer Price	High Price	Low Price	Open Price	Shares Traded	Last Trade
	-0.000199	-99.50%	0.000001			0.000001	0.000001	0.000001	10,000	15:34:41

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K/A

CURRENT REPORT

Pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): September 15, 2023 (July 6, 2023)

SMG INDUSTRIES INC.

(Exact name of registrant as specified in its charter)

Delaware	000-54391	51-0662991
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)

20475 State Hwy 249, Suite 450
Houston, Texas		77070
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code:

(713-955-3497)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation to the registrant under any of the following provisions:

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Title of each class		Ticker symbol(s)		Name of each exchange on which registered
None		N/A		N/A

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

EXPLANATORY NOTE

As previously disclosed in the Current Report on Form 8-K filed by SMG Industries Inc. (the “Company”) with the Securities and Exchange Commission on July 12, 2023 (the “Original Report”), on July 7, 2023, the Company acquired all of the membership interests of: (i) Barnhart Fleet Maintenance, LLC, a Pennsylvania limited liability company, (ii) Barnhart Transportation, LLC, a Pennsylvania limited liability company, (iii) Lake Shore Global Solutions LLC, a Pennsylvania limited liability company, (iv) Lake Shore Logistics, LLC, a Pennsylvania limited liability company, (v) Legend Equipment Leasing, LLC, a Pennsylvania limited liability company, and (vi) Route 20 Tank Wash LLC, a Pennsylvania limited liability company (collectively, the “Barnhart Companies”), from Bryan S. Barnhart, Timothy W. Barnhart, Timothy W. Barnhart, as Trustee of the Timothy W. Barnhart 2017 Irrevocable Trust, and certain affiliates.

This Amendment No. 1 on Form 8-K/A is being filed by the Company to amend the Original Report solely to provide the financial statements and pro forma financial information required by Item 9.01 of the Form 8-K that were not previously filed with the Original Report. Except as provided herein, the disclosures made in the Original Report remain unchanged.

Item 9.01. Financial Statements and Exhibits.

(a)

Financial Statements of Businesses Acquired.

The audited combined financial statements of Barnhart Transportation, LLC and Affiliates as of and for the years ended December 31, 2022 and 2021 are filed herewith as Exhibit 99.1 and incorporated herein by reference.

The unaudited combined financial statements of Barnhart Transportation, LLC and Affiliates as of June 30, 2023 and December 31, 2022 and for the six months ended June 30, 2023 and 2022 are filed herewith as Exhibit 99.2 and incorporated herein by reference.

(b)

Pro Forma Financial Information.

The unaudited pro forma combined balance sheet of the Company as of June 30, 2023 and unaudited pro forma combined statements of operations for the Company for the six months ended June 30, 2023 and for the year ended December 31, 2022, and the notes to the unaudited pro forma combined financial statements, all giving effect to the acquisition by the Company of the Barnhart Companies, are filed herewith as Exhibit 99.3 and incorporated herein by reference.

(c)	Not Applicable.

(d)

Exhibits

Exhibit No.		Description
99.1		Audited Combined Financial Statements of Barnhart Transportation, LLC and Affiliates as of and for the Years Ended December 31, 2022 and 2021.
99.2		Unaudited Combined Financial Statements of Barnhart Transportation, LLC and Affiliates as of and for the Six Months Ended June 30, 2023 and 2022.
99.3		Unaudited Pro Forma Combined Financial Statements of the Company as of June 30, 2023 and December 31, 2022 and for the six months ended June 30, 2023 and the year ended December 31, 2022.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Current Report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: September 15, 2023	SMG Industries Inc.

	By:	/s/ Bryan S. Barnhart
	Name:	Bryan S. Barnhart
	Title:	Chief Executive Officer

Exhibit 99.1

BARNHART TRANSPORTATION, LLC AND AFFILLIATES

North East, Pennsylvania

Combined Financial Statements

For the years ended December 31, 2022 and 2021

and Independent Auditor’s Report Thereon

CONTENTS

			PAGE

INDEPENDENT AUDITOR'S REPORT			1

COMBINED FINANCIAL STATEMENTS			3

	Balance Sheets, December 31, 2022 and 2021		3

	Statements for the years ended December 31, 2022 and 2021		4

		Income and Members' Equity	4

		Cash Flows	5

	Notes to the Combined Financial Statements		7

INDEPENDENT AUDITOR’S REPORT

Board of Directors

Barnhart Transportation, LLC and Affiliates

North East, Pennsylvania

Opinion

We have audited the accompanying combined financial statements of Barnhart Transportation, LLC and Affiliates (Company), which comprise the combined balance sheets as of December 31, 2022 and 2021, and the related combined statements of income and members’ equity and cash flows for the years then ended, and the related notes to the combined financial statements.

In our opinion, the combined financial statements referred to above present fairly, in all material respects, the combined financial position of the Company as of December 31, 2022 and 2021, and the results of its combined operations and its combined cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Combined Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities in accordance with the relevant ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Combined Financial Statements

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the combined financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the combined financial statements are available to be issued.

Auditor’s Responsibilities for the Audit of the Combined Financial Statements

Our objectives are to obtain reasonable assurance about whether the combined financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted auditing standards will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations or the override of internal control. Misstatements, including omissions, are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the combined financial statements.

In performing an audit in accordance with generally accepted auditing standards, we:

Exercise professional judgment and maintain professional skepticism throughout the audit.

Identify and assess the risks of material misstatement of the combined financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the combined financial statements.

Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings and certain internal control related matters that we identified during the audit.

Pittsburgh, Pennsylvania

August 21, 2023

BARNHART TRANSPORTATION, LLC AND AFFILIATES

COMBINED BALANCE SHEETS

	December 31
	2022			2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	5,198,950		$	1,569,109
Investments		1,455,890			518,168
Accounts receivable, net		8,751,540			11,950,027
Other receivables		376,613			242,116
Notes receivable		60,514			31,663
Inventories		779,835			724,956
Prepaid and other		564,660			392,482

Total Current Assets		17,188,003			15,428,520

Tractors and transport equipment		11,091,411			9,721,352
Trailers		13,669,558			11,982,130
Leasehold improvements		1,171,775			1,171,775
Machinery and equipment		1,338,490			1,041,969
		27,271,234			23,917,227
Less - Accumulated depreciation		(17,031,108	)		(14,318,327	)
		10,240,126			9,598,900

Intangible assets, net		79,096			56,363
Accounts receivable - related parties		6,956,072			5,846,292
Notes receivable		14,317			18,089
Operating right-of-use assets		2,211,742			-

	$	36,689,357		$	30,948,163

LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Accounts payable	$	2,554,060		$	3,252,672
Other liabilities		1,657,217			1,268,700
Current portion of operating lease liability		643,424			-
Current portion of long-term debt		2,783,226			2,663,795

Total Current Liabilities		7,637,927			7,185,167

OPERATING LEASE LIABILITY		1,568,319			-

LONG-TERM DEBT		2,517,904			2,272,404

MEMBERS' EQUITY		24,965,207			21,490,593

	$	36,689,357		$	30,948,163

See notes to combined financial statements.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

COMBINED STATEMENTS OF INCOME AND MEMBERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

	2022			2021
REVENUE	$	81,749,226		$	61,797,013

COST OF REVENUE		67,980,193			52,018,504

Gross Profit		13,769,033			9,778,508

OPERATING EXPENSES		8,332,154			6,687,908

Income From Operations		5,436,879			3,090,601

OTHER INCOME (EXPENSE)
Interest expense		(142,532	)		(133,774	)
Gain on sale of equipment		632,524			277,595
Other		68,770			1,319,532
Interest income		46,225			21,401
		604,987			1,484,755

Net Income		6,041,865			4,575,355

MEMBERS' EQUITY
Beginning of year		21,490,593			16,935,305

Members' distributions		(2,567,251	)		(20,068	)

End of year	$	24,965,207		$	21,490,593

See notes to combined financial statements.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021

	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	6,041,866		$	4,575,355
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		4,382,647			3,994,876
Extinguishment of Paycheck Protection Program loan		-			(1,214,124	)
Gain on sale of property and equipment		(632,524	)		(277,595	)
Net realized and unrealized losses (gains) on investments		62,278			(106,645	)
Change in allowance for doubtful accounts		5,592			(18,168	)
Changes in assets and liabilities:
Accounts receivable		3,172,157			(5,674,071	)
Other receivables		-			(5,993	)
Inventories		(54,879	)		(223,118	)
Prepaids and other		(285,939	)		(116,692	)
Accounts payable		(510,486	)		579,941
Other liabilities		200,391			1,517,684
Net Cash Provided By Operating Activities		12,381,103			3,031,450

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(1,687,107	)		(694,699	)
Proceeds from sale of property and equipment		1,067,627			484,687
Purchases of intangible assets		(22,481	)		-
Payments on notes receivable		52,405			28,613
Additions to notes receivable		(77,484	)		(79,599	)
Purchase of investments		(1,000,000	)		(500,000	)
Loans and advances to related parties, net		(1,109,781	)		(1,454,991	)
Net Cash Used In Investing Activities		(2,776,821	)		(2,215,989	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(3,407,191	)		(3,161,244	)
Proceeds from Paycheck Protection Program loan		-			1,214,124
Member distributions		(2,567,249	)		(20,068	)
Net Cash Used In Financing Activities		(5,974,440	)		(1,967,188	)

Net Increase (Decrease) in Cash and Cash Equivalents		3,629,842			(1,151,727	)

CASH AND CASH EQUIVALENTS
Beginning of year		1,569,109			2,720,836

End of year	$	5,198,951		$	1,569,109

	2022		2021
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest	$	142,532	$	133,774

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital expenditures funded by issuance of long-term debt	$	3,772,122	$	2,951,110

See notes to combined financial statements.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 1 - ORGANIZATION

Barnhart Transportation, LLC and Affiliates (collectively, the Company) is a transportation solution provider offering a diversified range of services to clients and their specific transportation needs. The Company specializes in pneumatic dry bulk sand and cement, flatbed, step-deck, double-drop, RGN, over-dimensioned, heavy haul, dry van, nonhazardous liquids, intermodal drayage and LTL shipments within the United States, Canada and Mexico. The Company also has a fleet maintenance division that handles most of the maintenance required on its equipment along with a freight brokerage division that works with partner carriers to provide innovative freight solutions. Additionally, the Company has integrated international freight forwarding, commercial tank cleaning, warehousing and transloading services that allow for comprehensive solutions, that cater to diverse customer needs.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies consistently applied by management in the preparation of the accompanying combined financial statements are as follows:

Basis of Combination - The accompanying combined financial statements include the financial position, results of operations and cash flows of Barnhart Transportation, LLC; Lake Shore Logistics, LLC; Legend Equipment Leasing, LLC; Barnhart Fleet Maintenance, LLC; Lake Shore Global Solutions, LLC; and Route 20 Tank Wash, LLC, all of which are under common control and ownership. All intercompany balances and transactions have been eliminated in combination.

Use of Estimates - The preparation of combined financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the combined financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents - Cash and cash equivalents include all cash balances and highly liquid investments with an initial maturity of three months or less. The Company places its cash with high-credit quality financial institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit.

Investments - Valued at the daily closing price as reported by the fund, investments in marketable securities with readily determinable fair values are stated at fair value based on quoted prices in active markets. The Company discloses the category of assets and liabilities measured at fair value into one of three different levels, depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement, and generally approximate fair value either due to their short-term nature or terms the Company could obtain in the current market. The Company does not have any Level 3 financial assets or liabilities as of December 31, 2022 and 2021.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The following table presents the cost basis and fair value of the Company’s major categories of investments:

	December 31, 2022				December 31, 2021
	Cost Basis		Fair Value		Cost Basis		Fair Value
Investments:
Cash and bank deposits	$	71,565	$	71,565	$	12,243	$	12,243
Mutual funds and exchange-traded funds	$	1,428,435	$	1,384,325	$	487,757	$	505,925
Total	$	1,500,000	$	1,455,890	$	500,000	$	518,168

The following table depicts the level in the fair value hierarchy of the input used to estimate fair value of investments measured on a recurring basis as of December 31, 2022 and 2021:

	Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
As of December· 31, 2022
Cash and bank deposits	$	71,565	$	71,565	$	-	$	-
Mutual funds and exchange-traded funds	$	1,384,325	$	1,384,325	$	-	$	-

As of December· 31, 2021
Cash and bank deposits	$	12,243	$	12,243	$	-	$	-
Mutual funds and exchange-traded funds	$	505,925	$	505,925	$	-	$	-

The following table presents the detail of income (loss) from investments for the years ended December 31:

	2022			2021
Interest income	$	29,352		$	3,049
Unrealized gain (loss) on investment		(73,617	)		17,552
Realized gain (loss) on investment		(30,758	)		-
Total	$	(75,023	)	$	20,601

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Realized and unrealized gains and losses, interest and dividends are recognized in other income in the combined statements of income and members’ equity.

Accounts Receivable - Accounts receivable are reported at the amount management expects to collect from outstanding balances. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Provisions are made for estimated uncollectible trade accounts receivable. The Company’s estimate of the allowance is based on historical collection experience, a review of the current status of trade receivables and judgment. Decisions to charge off receivables are based on management’s judgment after consideration of facts and circumstances surrounding potential uncollectible accounts. The allowance for doubtful accounts as of December 31, 2022 and 2021 is approximately $57,000 and $51,000, respectively.

Leases - As of January 1, 2022, leases are recognized under Accounting Standards Update (ASU) No. 2016-02 Leases (Topic 842) (ASU 2016-02). The Company evaluates leases based on the underlying asset groups. The assets currently underlying the Company’s leases include real estate (primarily buildings, office space, land and drop yards). Management’s significant assumptions and judgements include the determination of the discount rate (discussed below), as well as the determination of whether a contract contains a lease. A contract contains a lease if there is an identified asset and the Company has the right to control the asset.

Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and the lease liabilities represent the Company’s obligation to make lease payments arising from the lease. In the accompanying statements of income and members’ equity, rent expense for operating lease payments is recognized on a straight-line basis of the lease term. The Company’s operating real estate leases all have lease terms of five years and they do not include auto-renewal provisions.

Topic 842 allows lessees an option to not recognize right-of-use assets and lease liabilities arising from short-term leases. The Company does not have any leases twelve months or less.

Operating lease right-of-use assets and lease liabilities are recognized at the commencement date based on the present value of the lease payments over the lease term. The Company’s lease liabilities are recognized based on the present value of the remaining fixed lease payments, over the lease term, using a discount rate. The discounted rates for leases were determined based on U.S. Daily Treasury Par Yield Curve rates as of January 1, 2022.

See Note 9 for additional disclosures regarding the Company’s operating leases, and adoption of Topic 842.

Concentration - Revenue recognized from the Company’s two largest customers for the years ended December 31, 2022 and 2021 approximated 33% and 35%, respectively, of total revenue. The balance due from the Company’s largest customer as of December 31, 2022 and 2021 approximated 28% and 43%, respectively, of accounts receivable.

Inventories - Inventories, consisting mainly of tires and transportation-related supplies, are stated at the lower of cost or net realizable value determined by the first-in, first-out method. Appropriate consideration is given to obsolescence, excessive levels, deterioration and other factors in evaluating net realizable value.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fixed Assets - Fixed assets are recorded at the lower of cost or market. Repairs and maintenance that do not extend the lives of the applicable assets are charged to expense as incurred. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method. The estimated useful lives of the related assets are as follows:

Buildings and improvements	15 - 40 years
Transportation equipment	3 - 10 years
Furniture and fixtures	3 - 7 years

Depreciation expense for the years then ended December 31, 2022 and 2021 amounted to approximately

$4,366,000 and $3,961,000, respectively.

The Company reviews the carrying value of fixed assets for impairment whenever events and circumstances indicate that the carrying value of an asset might not be recoverable from the estimated future cash flows expected to result from its use a eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. Based on management’s evaluation, there was no impairment at December 31, 2022 and 2021.

Intangible assets subject to amortization consist of software and computer licenses. The Company is amortizing the intangible assets on a straight-line basis over various periods based on the asset’s future economic benefit. Amortization related to intangible assets for the years ended December 31, 2022 and 2021 amounted to approximately $17,000 and $34,000, respectively.

Revenue Recognition - Revenues are recognized over time as control of the promised services is transferred to the Company’s customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services.

The Company generates revenues from billings for transportation services under contracts with customers, generally on a rate per mile or fixed rate per shipment, based on origin and destination of the shipment. The Company’s performance obligation arises when it receives a shipment order to transport a customer’s freight and is satisfied upon delivery of the shipment. The transaction price may be defined in a transportation services agreement or negotiated with the customer prior to accepting the shipment order. A customer may submit several shipment orders for transportation services at various times throughout a service agreement term, but each shipment represents a distinct service that is a separately identified performance obligation. The Company often provides additional or ancillary services as part of the shipment (such as loading/unloading and stops in transit), which are not distinct or are not material in the context of the contract; therefore, the revenues for these services are recognized with the freight transaction price. The average transit time to complete a shipment is approximately two days. Invoices for transportation services are typically generated soon after shipment delivery and, although payment terms and conditions vary by customer, are generally due within 30 days after the invoice date.

The Company also generates revenues from equipment leases, to include terminal rental adjustment clause (TRAC) leases. Equipment leases are recognized and billed monthly and renewed annually. TRAC leases are a set term for anywhere from one to five years with weekly payments and a 20% balloon payment at the conclusion of the lease term.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The combined statements of income and members’ equity reflect recognition of transportation revenues (including fuel surcharge revenues) and related direct costs over time as the shipment is being delivered. The Company uses distance shipped (for the Truckload segment) and transit time (for the Logistics segment) to measure progress and the amount of revenues recognized over time, as the customer simultaneously receives and consumes the benefit. Determining a measure of progress requires the Company to make judgments that affect the timing of revenues recognized. The Company has determined that the methods described provide a faithful depiction of the transfer of services to the customer.

For shipments where a third-party capacity provider (including independent contractors under contract with the Company) is utilized to provide some or all of the service, the Company evaluates whether it is the principal (i.e., report revenues on a gross basis) or the agent (i.e., report revenues on a net basis). Generally, the third party reports such revenues on a gross basis; that is, it recognizes both revenues for the service it bills to the customer and rent and purchased transportation expense for transportation costs it pays to the third-party provider. Where the Company is the principal, it controls the transportation service before it is provided to the Company’s customers, which is supported by the Company being primarily responsible for fulfilling the shipment obligation to the customer and having a level of discretion in establishing pricing with the customer.

Rental income related to the Company’s leasing arrangements is recognized when earned over the life of the lease agreement. Another source of revenue is through the Company’s service garage and the repair work that is completed on all of the Company’s assets, including both tractors and trailers. Service work is performed for outside customers along with the Company’s owner-operators and is recognized over the term of the service agreement.

Practical Expedient - The Company has elected to apply the practical expedient in Financial Accounting Standards Board (FASB) ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606) to not disclose the value of remaining performance obligations for contracts with an original expected length of one year or less. Remaining performance obligations represent the transaction prices allocated to future reporting periods for freight shipments started but not completed at the reporting date at which the Company expects to recognize revenues in the period subsequent to the reporting date. Transit times generally average two days.

Income Taxes - The combined companies have been formed as limited liability companies under the laws of the Commonwealth of Pennsylvania. The members of each of the Company’s affiliates, Barnhart Transportation, LLC; Lakeshore Logistics, LLC; Barnhart Fleet Maintenance, LLC; and Legend Equipment Leasing, LLC, have elected under the Internal Revenue Code to be taxed as an S corporation. The members of each of the Company’s affiliates, Lake Shore Global Solutions, LLC and Route 20 Tank Wash, LLC, have elected under the Internal Revenue Code to be taxed as a partnership. In lieu of corporate income taxes, the members of an S corporation and partnership will be taxed on their appropriate share of the Company's taxable income; therefore, no provision or liability for federal or state income taxes has been included in the combined financial statements.

A tax position is a position in a previously filed tax return or a position expected to be taken in a future tax filing that is reflected in measuring current or deferred income tax assets and liabilities. Tax positions shall be recognized only when it is more likely than not (likelihood of greater than 50%), based on technical merits, that the position will be sustained. Tax positions that meet the more-likely-than-not threshold should be measured using a probability-weighted approach as the largest amount of tax benefit that is greater than 50% likely of being realized upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position is a matter of judgement based on the individual facts and circumstances of that position evaluated in light of all available evidence. If tax is incurred, the Company would accrue interest and penalties related to uncertain tax positions in income tax expense.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The Company has assessed the tax positions it has taken or expects to take in its tax return. As of December 31, 2022 and 2021, no liability for uncertain tax positions was required to be recorded. The Company’s tax returns are subject to examination by major taxing jurisdictions for years after 2019.

Advertising - The Company expenses advertising costs as they are incurred. Advertising expenses for the years ended December 31, 2022 and 2021 are approximately $77,000 and $25,000, respectively.

NOTE 3 - RELATED-PARTY TRANSACTIONS

Related-party transactions arise in the ordinary course of business and are summarized as follows:

The Company has recorded amounts due from related parties of approximately $6,956,000 and $5,846,000 as of December 31, 2022 and 2021, respectively. These balances are classified as long-term, as repayment is expected beyond one year from the date of the Company’s combined balance sheets. These balances fluctuate in the normal course of business and do not bear interest.

The Company has recorded amounts payable to related parties of approximately $426,000 and $815,000 as of December 31, 2022 and 2021, respectively. These balances are classified as accounts payable on the Company’s combined balance sheets. These balances fluctuate in the normal course of business and do not bear interest.

The Company leases office and warehouse space under a noncancelable operating lease from an entity owned by the members. Rent is payable in monthly installments of approximately $55,000 through December 2026.

Rent expense for related-party leases was approximately $687,000 and $487,000 for the years ended

December 31, 2022 and 2021, respectively.

NOTE 4 - NOTES RECEIVABLE

The Company has notes receivable from sale of the services and parts, to include overhauls or placements to owner operators in the normal course of business. The notes are payable in weekly installments of principal and interest at 12%. The notes receivable have a term of no more than five years with maturities ranging from

2023 to 2024.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 5 - LONG-TERM DEBT

Long-term debt at December 31 consists of the following:

	2022		2021
Various notes payable with Citizens Bank, payable in monthly installments aggregating approximately $287,000, including interest at rates ranging from 1.45% to 6.05%, with expirations ranging from 2023 to 2025.	$	5,301,130	$	4,936,199
Less - Current portion of long-term debt		2,783,226		2,663,795
	$	2,517,904	$	2,272,404

Long-term debt is secured by substantially all corporate assets of the combined companies.

The aggregate annual principal payments required on the long-term debt subsequent to December 31,

2022 are as follows:

NOTE 6 - LINES OF CREDIT

The Company has a $1,750,000 revolving line of credit. Advances on the line are payable on demand and carry an interest rate of 1.50% above Secured Overnight Financing Rate (SOFR). The credit line is secured by substantially all corporate assets of the combined companies. There were no outstanding advances on the line at December 31, 2022 and 2021. The credit line is renewable on an annual basis and is set to expire in October 2023.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 6 - LINES OF CREDIT (Continued)

The Company has a $4,000,000 non-revolving line of credit, which is to be used to finance large equipment purchases. Each advance on the credit line shall be repaid in equal monthly installments of principal and interest based upon up to a five-year amortization period. The interest rate payable on each advance outstanding shall be a

fixed rate equal to the prevailing market rate generally charged by the bank on commercial loans of similar nature, risk and duration as quoted by the bank to the Company on or before the date of each advance. There were no outstanding advances on the line at December 31, 2022 and 2021. The credit line is secured by substantially all corporate assets of the Barnhart Transportation, LLC, Lake Shore Logistics, LLC, Legend Equipment Leasing, LLC, and Barnhart Fleet Maintenance, LLC and is renewable on an annual basis.

The Company’s credit agreements with the bank contain certain financial covenants. The Company was in compliance with all terms and provisions of the agreements at December 31, 2022 and 2021.

NOTE 7 - EMPLOYEE BENEFIT PLAN

The Company sponsors a voluntary 401(k) profit-sharing plan covering substantially all of its employees. The plan provides for Company contributions to match voluntary employee contributions up to 3% of eligible compensation and to match 50% of eligible compensation between 3% and 5%. Employer contribution obligations for the years ended December 31, 2022 and 2021 were approximately $196,000 and $144,000, respectively.

NOTE 8 - PAYCHECK PROTECTION PROGRAM

On January 21, 2021, the Company was granted loans from Citizens Bank in the aggregate amount of $1,227,624. All loans were pursuant to the Paycheck Protection Program (the PPP) under Division A, Title I of the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act), which was enacted March 27, 2020. Under terms of the PPP, PPP loans and accrued interest are forgivable after 24 weeks as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels. The amount of loan forgiveness will be reduced if the borrower terminates or reduces salaries during the forgiveness period.

As of December 31, 2021, the Company used the entire loan proceeds to fund its payroll expenses and has received forgiveness for all PPP loans from the Small Business Administration. The Company recorded these loans in accordance with FASB Accounting Standards Codification (ASC) 470, Debt, and, as such, the balances were recorded as debt on the combined balance sheets until forgiveness was received. Upon forgiveness, the Company recognized the entire extinguished amount as other income on the combined statements of income and members’ equity for the year ended December 31, 2021.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 9 - LEASES

The FASB issued ASU 2016-02 Leases, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes the previous leases standard, Leases (ASC 840).

The Company adopted ASU 2016-02, Leases, which is codified in ASC 842, as of January 1, 2022. The Company elected the optional transition method as a part of utilizing the modified retrospective approach in applying the new lease standard and have recognized right-of-use assets of approximately $2,842,000 and long-term lease liabilities of approximately $2,199,000, with current portion of approximately $643,000, as of January 1, 2022.

In addition, the Company elected the package of practical expedients provided under the guidance. The practice expedient package applies to leases that commenced prior to adoption of the new standard and permits companies not to reassess whether existing or expired contracts are or contain a lease, the lease classification, and any initial direct costs for any existing leases.

The Company has recognized a right-to-use asset on December 31, 2022 in the amount of $2,211,742. The Company has also recognized a long-term lease liability of $1,568,319 with a current portion of $643,424. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments over the term. The discounted rates for leases were determined based on U.S. Daily Treasury Par Yield Curve rates as of January 1, 2022. The leases have maturity dates from 2023 through 2026.

The Company’s leases are solely operating real estate leases that include offices, garage space and drop yards. Each of the Company's operating leases are leased from related party entities that are under common ownership. The Company’s leases have a fixed cost and do no include any variable components. None of the Company’s leases contain restrictions or covenants that restrict the Company from incurring other financial obligations. The Company does not have any finance leases.

Lease Cost - The Company’s lease expense within the accompanying combined statements of income and members’ equity was approximately $687,000 for the year ended December 31, 2022.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 9 - LEASES (Continued)

Lease Liability Calculation Assumptions - The assumptions underlying the calculation of the Company’s right-to-use assets and lease liabilities are disclosed below:

	2022
Operating Leases
Weighted average of remaining lease term	3.4 years
Weighted average of discount rate	1.37%

Maturity analysis of lease liabilities (as lessee) - As of December 31, 2022, estimated annual maturities of lease liabilities for the year ending December 31, 2023 and thereafter were as follows:

	Operating
2023	$	665,320
2024		659,290
2025		481,200
2026		481,200
Future minimum lease payments		2,287,010
Less: amounts representing interest		(75,267	)
Present value minimum lease payments		2,211,743
Less: Current portion		(643,424	)
Lease liabilities - less current portion	$	1,568,319

The following table sets forth approximate cash paid for amounts included in the measurement of lease liabilities for the year ended December 31, 2022:

		2022
Operating cash flows for operating leases		$	687,000

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

NOTE 9 - LEASES (Continued)

Prior period amounts were not adjusted and will continue to be reported under ASC 840. The below table was the schedule of minimum lease payments required as of December 31, 2021:

Year Ending
December 31	Amount
2022	$	701,320
2023		701,320
2024		695,290
2025		677,200
2026		677,200
Thereafter		117,000
	$	3,569,330

During the year ended December 31, 2021, the Company's operating lease expense was approximately $487,000.

NOTE 10 - CONTIGENCIES AND COMMITMENTS

The Company, from time to time, is involved in legal and other proceedings arising in the ordinary course of business. The Company believes that there are no significant claims or litigation pending that could, individually or in the aggregate, have a material adverse effect on its combined financial statements.

NOTE 11 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through July 20, 2023, the date on which the combined financial statements were available to be issued. On July 7, 2023, the Company was acquired by SMG Industries, Inc., a Texas based transportation company. The acquisition was complete for a total consideration of approximately $55,750,000 in cash, stock and other assets. As a result of the acquisition, the Company, is now a wholly owned subsidiary of SMG Industries, Inc. There are no other subsequent events that have occurred that would require adjustments to disclosures in the financial statements.

Exhibit 99.2

BARNHART TRANSPORTATION, LLC AND AFFILLIATES

North East, Pennsylvania

Combined Financial Statements

As of June 30, 2023 and December 31, 2022 and

for the six-month periods ended June 30, 2023 and 2022

and Independent Accountant's Review Report Thereon

CONTENTS

			PAGE

INDEPENDENT ACCOUNTANT'S REVIEW REPORT			1

COMBINED FINANCIAL STATEMENTS

	Balance Sheets, June 30, 2023 and December 31, 2022		2

	Statements for the six-month periods ended June 30, 2023 and 2022

		Income and Members' Equity	3

		Cash Flows	4

	Notes to the Combined Financial Statements		6

INDEPENDENT ACCOUNTANT’S REVIEW REPORT

Board of Directors

Barnhart Transportation, LLC and Affiliates

North East, Pennsylvania

We have reviewed the accompanying combined financial statements of Barnhart Transportation, LLC and Affiliates (Company), which comprise the combined balance sheets as of June 30, 2023 and December 31, 2022, and the related combined statements of income and members’ equity and cash flows for the six-month periods ended June 30, 2023 and 2022, and the related notes to the combined financial statements (financial statements). A review includes primarily applying analytical procedures to management’s financial data and making inquiries of company management. A review is substantially less in scope than an audit, the objective of which is the expression of an opinion regarding the financial statements as a whole. Accordingly, we do not express such an opinion.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP); this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Accountant’s Responsibility

Our responsibility is to conduct the review engagement in accordance with Statements on Standards for Accounting and Review Services promulgated by the Accounting and Review Services Committee of the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance as a basis for reporting whether we are aware of any material modifications that should be made to the financial statements for them to be in accordance with U.S. GAAP. We believe that the results of our procedures provide a reasonable basis for our conclusion.

We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements related to our review.

Accountant’s Conclusion

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with U.S. GAAP.

Pittsburgh, Pennsylvania

September 14, 2023

BARNHART TRANSPORTATION, LLC AND AFFILIATES

COMBINED BALANCE SHEETS


	June 30			December 31
	2023			2022
ASSETS

CURRENT ASSETS
Cash and cash equivalents		5,599,435		$	5,198,950
Investments		1,158,974			1,455,890
Accounts receivable, net		6,621,281			8,751,540
Other receivables		518,632			376,612
Notes receivable		40,521			60,514
Inventories		762,164			779,835
Prepaid and other		1,030,822			564,660

Total Current Assets		15,731,829			17,188,003

Tractors and transport equipment		11,031,433			11,091,411
Trailers		13,891,981			13,669,558
Leasehold improvements		1,225,496			1,171,775
Machinery and equipment		802,730			1,338,490
		26,951,640			27,271,234
Less - Accumulated depreciation		(18,014,460	)		(17,031,108	)
		8,937,180			10,240,126

Intangible assets, net		68,041			79,096
Accounts receivable - related parties		7,076,672			6,956,072
Notes receivable		7,820			14,317
Operating right-of-use assets		1,890,030			2,211,742

		33,711,572		$	36,689,357

LIABILITIES AND MEMBERS' EQUITY

CURRENT LIABILITIES
Accounts payable		2,544,190		$	2,554,060
Other liabilities		1,314,231			1,657,217
Current portion of operating lease liability		643,423			643,424
Current portion of long-term debt		2,646,406			2,783,226

Total Current Liabilities		7,148,250			7,637,927

OPERATING LEASE LIABILITY		1,246,607			1,568,319

LONG-TERM DEBT		2,163,342			2,517,904

MEMBERS' EQUITY		23,153,373			24,965,207

		33,711,571		$	36,689,357

The accompanying notes and independent accountant's review report
should be read with these combined financial statements

BARNHART TRANSPORTATION, LLC AND AFFILIATES

COMBINED STATEMENTS OF INCOME AND MEMBERS’ EQUITY
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022


	2023			2022

REVENUE	$	31,757,180		$	42,024,144

COST OF REVENUE		27,789,479			35,110,834

Gross Profit		3,967,701			6,913,310

OPERATING EXPENSES		4,246,596			3,952,713

(Loss) Income From Operations		(278,895	)		2,960,597

OTHER INCOME (EXPENSE)
Interest expense		(112,950	)		(61,682	)
Gain on sale of equipment		179,365			307,725
Other		1,624,026			(24,488	)
Interest income		131,100			12,034
		1,821,541			233,589

Net Income		1,542,646			3,194,186

MEMBERS' EQUITY
Beginning of period		24,965,207			21,490,593

Members' distributions		(3,354,479	)		(11,250	)

End of period	$	23,153,373		$	24,673,530


The accompanying notes and independent accountant's review report
should be read with these combined financial statements

BARNHART TRANSPORTATION, LLC AND AFFILIATES

COMBINED STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022


	2023			2022

CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	1,542,645		$	3,194,186
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization		2,171,403			2,119,046
Noncash lease expense		321,710			308,817
Gain on sale of property and equipment		(179,365	)		(307,725	)
Net realized and unrealized (gains) losses on investments		(66,084	)		77,634
Change in allowance for doubtful accounts		9,979			18,527
Changes in assets and liabilities:
Accounts receivable		2,120,280			(571,170	)
Other receivables		(20,737	)		(20,737	)
Inventories		17,672			(157,012	)
Prepaids and other		(587,443	)		(622,934	)
Accounts payable		(9,869	)		1,300,712
Operating lease liability		(321,712	)		(308,817	)
Other liabilities		(342,986	)		407,728
Net Cash Provided By Operating Activities		4,655,493			5,438,255

CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment		(107,764	)		(475,882	)
Proceeds from sale of property and equipment		610,489			573,070
Purchases of intangible assets		-			9,270
Payments on notes receivable		39,014			40,618
Additions to notes receivable		(12,525	)		(24,700	)
Purchase of investments		-			(1,000,000	)
Proceeds from the sale of investments		363,000			-
Loans and advances to related parties, net		(120,599	)		(267,541	)
Net Cash Provided By (Used In) Investing Activities		771,615			(1,145,165	)

CASH FLOWS FROM FINANCING ACTIVITIES
Payments on long-term debt		(1,672,147	)		(1,688,333	)
Member distributions		(3,354,477	)		(11,252	)
Net Cash Used In Financing Activities		(5,026,624	)		(1,699,585	)

Net Increase in Cash and Cash Equivalents		400,484			2,593,505

CASH AND CASH EQUIVALENTS
Beginning of period		5,198,951			1,569,109

End of period	$	5,599,435		$	4,162,614


	2023		2022

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	112,950	$	61,682

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Capital expenditures funded by issuance of long-term debt	$	1,180,764	$	2,145,242


The accompanying notes and independent accountant's review report
should be read with these combined financial statements

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 1 - ORGANIZATION

Barnhart Transportation, LLC and Affiliates (collectively, the Company) is a transportation solution provider offering a diversified range of services to clients and their specific transportation needs. The Company specializes in pneumatic dry bulk sand and cement, flatbed, step-deck, double-drop, RGN, over-dimensioned, heavy haul, dry van, nonhazardous liquids, intermodal drayage, and LTL shipments within the United States, Canada and Mexico. The Company also has a fleet maintenance division that handles most of the maintenance required on its equipment along with a freight brokerage division that works with partner carriers to provide innovative freight solutions. Additionally, the Company has integrated international freight forwarding, commercial tank cleaning, warehousing and transloading services that allow for comprehensive transportation solutions, that cater to diverse customer needs.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of significant accounting policies consistently applied by management in the preparation of the accompanying combined financial statements are as follows:

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

The following table presents the cost basis and fair value of the Company’s major categories of investments:

The following table depicts the level in the fair value hierarchy of the input used to estimate fair value of investments measured on a recurring basis as of June 30, 2023 and December 31, 2022:

The following table presents the detail of income (loss) from investments for the periods ended June 30, 2023 and 2022:

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Realized and unrealized gains and losses, interest and dividends are recognized in other income in the combined statements of income and members’ equity.

Accounts Receivable - Accounts receivable are reported at the amount management expects to collect from outstanding balances. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. Provisions are made for estimated uncollectible trade accounts receivable. The Company’s estimate of the allowance is based on historical collection experience, a review of the current status of trade receivables and judgment. Decisions to charge off receivables are based on management’s judgment after consideration of facts and circumstances surrounding potential uncollectible accounts. The allowance for doubtful accounts as of June 30, 2023 and December 31, 2022 is approximately $67,000 and $57,000, respectively.

Topic 842 allows lessees an option to not recognize right-of-use assets and lease liabilities arising from short-term leases. The Company does not have any leases twelve months or less.

See Note 9 for additional disclosures regarding the Company’s operating leases.

Concentration - Revenue recognized from the Company’s largest customer for the periods ended June 30, 2023 and 2022 approximated 29% and 24%, respectively, of total revenue. The balance due from the Company’s largest customer as of June 30, 2023 and December 31, 2022 approximated 27% and 28%, respectively, of accounts receivable.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

	Buildings and improvements	15 - 40 years
	Transportation equipment	3 - 10 years
	Furniture and fixtures	3 - 7 years

Depreciation expense for the periods ended June 30, 2023 and 2022 amounted to approximately $2,149,000 and $2,120,000, respectively.

the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends, and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. Based on management’s evaluation, there was no impairment at June 30, 2023 and December 31, 2022.

Intangible assets subject to amortization consist of software and computer licenses. The Company is amortizing the intangible assets on a straight-line basis over various periods based on the asset’s future economic benefit. Amortization related to intangible assets for the periods ended June 30, 2023 and 2022 amounted to approximately $11,000 and $9,000, respectively.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Company uses distance shipped (for the Truckload segment) and transit time (for the Logistics segment) to measure progress and the amount of revenues recognized over time, as the customer simultaneously receives and consumes the benefit. Determining a measure of progress requires the Company to make judgments that affect the timing of revenues recognized. The Company has determined that the methods described provide a faithful depiction of the transfer of services to the customer.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

upon settlement. Whether the more-likely-than-not recognition threshold is met for a tax position is a matter of judgement based on the individual facts and circumstances of that position evaluated in light of all available

evidence. If tax is incurred, the Company would accrue interest and penalties related to uncertain tax positions in income tax expense.

The Company has assessed the tax positions it has taken or expects to take in its tax return. As of June 30, 2023 and December 31, 2022, no liability for uncertain tax positions was required to be recorded. The Company’s tax returns are subject to examination by major taxing jurisdictions for years after 2019.

Advertising - The Company expenses advertising costs as they are incurred. Advertising expenses for the periods ended June 30, 2023 and 2022 are approximately $23,000 and $41,000, respectively.

NOTE 3 - RELATED-PARTY TRANSACTIONS

Related-party transactions arise in the ordinary course of business and are summarized as follows:

The Company has recorded amounts due from related parties of approximately $7,077,000 and $6,956,000 as of June 30, 2023 and December 31, 2022, respectively. These balances are classified as long-term, as repayment is expected beyond one year from the date of the Company’s combined balance sheets. These balances fluctuate in the normal course of business and do not bear interest.

The Company has recorded amounts payable to related parties of approximately $114,000 and $426,000 as of June 30, 2023 and December 31, 2022, respectively. These balances are classified as accounts payable on the Company’s combined balance sheets. These balances fluctuate in the normal course of business and do not bear interest.

Rent expense for related-party leases was approximately $335,000 and $355,000 for the periods ended

June 30, 2023 and 2022, respectively.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 4 - NOTES RECEIVABLE

2023 to 2024.

NOTE 5 - LONG-TERM DEBT

Long-term debt at June 30, 2023 and December 31, 2022 consists of the following:

Long-term debt is secured by substantially all corporate assets of the combined companies.

As of June 30, 2023, the aggregate annual principal payments on the long-term debt for the six-month period ending December 31, 2023 and the years thereafter were as follows:

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 6 - LINES OF CREDIT

The Company has a $1,750,000 revolving line of credit. Advances on the line are payable on demand and carry an interest rate of 1.50% above Secured Overnight Financing Rate (SOFR). The credit line is secured by substantially all corporate assets of the combined companies. There were no outstanding advances on the line at June 30, 2023 and December 31, 2022. The credit line is renewable on an annual basis and is set to expire in October 2023.

fixed rate equal to the prevailing market rate generally charged by the bank on commercial loans of similar nature, risk and duration as quoted by the bank to the Company on or before the date of each advance. There were no outstanding advances on the line at June 30, 2023 and December 31, 2022. The credit line is secured by substantially all corporate assets of the Barnhart Transportation, LLC, Lake Shore Logistics, LLC, Legend Equipment Leasing, LLC, and Barnhart Fleet Maintenance, LLC and is renewable on an annual basis.

The Company’s credit agreements with the bank contain certain financial covenants. The Company was in compliance with all terms and provisions of the agreements as of June 30, 2023 and December 31, 2022.

NOTE 7 - EMPLOYEE BENEFIT PLAN

The Company sponsors a voluntary 401(k) profit-sharing plan covering substantially all of its employees. The plan provides for Company contributions to match voluntary employee contributions up to 3% of eligible compensation and to match 50% of eligible compensation between 3% and 5%. Employer contribution obligations for the periods ended June 30, 2023 and 2022 were approximately $111,000 and $93,000, respectively.

NOTE 8 - EMPLOYEE RETENTION CREDIT

On December 30, 2022, the Company filed for the Employee Retention Credit (ERC), under the CARES Act, and further amended by the Consolidated Appropriations Act and the American Rescue Plan Act, for periods from March 13, 2020 through October 31, 2021. The ERC provided qualifying employers up to $5,000 of credit for each employee based on certain wages paid after March 12, 2020, and before January 1, 2021. Subsequent legislation increased the credit for each employee to $7,000 per calendar quarter after December 31, 2020, through September 30, 2021. The payroll tax returns amended and filed in 2022 approximated $1,519,000. In June 2023, the Company received the ERC funds plus interest from the Internal Revenue Service (IRS) and recorded as other income in the combined statements of income and members' equity for the period ended June 30, 2023. All companies that obtained any ERC funds may be subject to audit by the IRS within the statute of limitations, which ranges from three years for the 2020 quarters to five years for the 2021 quarters.

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 9 - LEASES

The FASB issued ASU 2016-02 Leases (Topic 842), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases.

On June 30, 2023, the Company recognized a right-of-use asset amounting to $1,890,030 and a long term lease liability of $1,246,607 with a current portion of $643,424. On December 31, 2022, the Company recognized a right-of-use asset amounting to $2,211,742 and a long term lease liability of $1,568,319 with a current portion of $643,424. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future lease payments over the term. The leases have maturity dates from 2023 through 2026.

The Company’s leases are solely operating real estate leases that include offices, garage space and drop yards. Each of the Company's operating leases are leased from related party entities that are under common ownership. The Company’s leases have a fixed cost and do not include any variable components. None of the Company’s leases contain restrictions or covenants that restrict the Company from incurring other financial obligations. The Company does not have any finance leases.

Lease Cost - The Company’s lease expense within the accompanying combined statements of income and members’ equity was approximately $335,000 and $355,000 for the periods ended June 30, 2023 and 2022, respectively.

Lease liability calculation assumptions - The assumptions underlying the calculation of the Company’s right-to-use assets and lease liabilities are disclosed below:

BARNHART TRANSPORTATION, LLC AND AFFILIATES

NOTES TO COMBINED FINANCIAL STATEMENTS

AS OF JUNE 30, 2023 AND DECEMBER 31, 2022 AND

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2023 AND 2022

NOTE 9 - LEASES (Continued)

Maturity analysis of lease liabilities (as lessee) - As of June 30, 2023, estimated annual maturities of lease liabilities for the six-month period ending December 31, 2023 and the years thereafter were as follows:

The following table sets forth approximate cash paid for amounts included in the measurement of lease liabilities for the periods ended June 30:

NOTE 10 - CONTIGENCIES AND COMMITMENTS

NOTE 11 - SUBSEQUENT EVENTS

Management has evaluated subsequent events through September 14, 2023, the date on which the combined financial statements were available to be issued. On July 7, 2023, the Company was acquired by SMG Industries, Inc. (OTCMKTS: SMGI), a Texas-based transportation company. The acquisition was completed with a total consideration of approximately $55,750,000 in cash, stock and other assets. As a result of the acquisition, the Company, is now a wholly owned subsidiary of SMG Industries, Inc. There are no other subsequent events that have occurred that would require adjustments to disclosures in the combined financial statements.

Exhibit 99.3

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

On July 7, 2023, SMG Industries Inc. (“we”, “our”, the “Company” or “SMG”) acquired (the “Acquisition”) all of the membership interests of: (i) Barnhart Fleet Maintenance, LLC, a Pennsylvania limited liability company (“Fleet”), (ii) Barnhart Transportation, LLC, a Pennsylvania limited liability company (“Transportation”), (iii) Lake Shore Global Solutions LLC, a Pennsylvania limited liability company (“Global”), (iv) Lake Shore Logistics, LLC, a Pennsylvania limited liability company (“Logistics”), (v) Legend Equipment Leasing, LLC, a Pennsylvania limited liability company (“Legend”), and (vi) Route 20 Tank Wash LLC, a Pennsylvania limited liability company (“Wash,” and collectively with Fleet, Transportation, Global, Logistics and Legend, the “Barnhart Companies,” and each a “Barnhart Company”) from Bryan S. Barnhart (“Bryan”), Timothy W. Barnhart (“Tim”), Timothy W. Barnhart, as Trustee of the Timothy W. Barnhart 2017 Irrevocable Trust (the “Trust,” and collectively with Bryan and Tim, the “Sellers”), and certain affiliates. We paid a purchase price (the “Purchase Price”) for the Acquisition consisting of (i) $24.25 million in cash, (ii) $3.0 million in the form of an unsecured, non-negotiable promissory note that (A) bears interest at a fixed rate of six percent (6%) per annum, and (B) will mature on the 72-month anniversary of the closing of the Acquisition (the “Closing”), with principal of $41,667 plus interest to be paid monthly, and (C) will be subordinated to all of our senior indebtedness to the extent required by the holders thereof, (iii) 77 million shares of our common stock, and (iv) 500 shares of our 5% Series C Convertible Preferred Stock, par value $0.001 per share (the “Series C Preferred Stock”).

The unaudited pro forma combined statements of operations for the six months ended June 30, 2023 and the year ended December 31, 2022 combine the historical statements of operations of the Barnhart Companies and the Company’s consolidated statements of operations, giving effect to the Acquisition as if it had occurred on January 1, 2022, the beginning of SMG’s most recently completed fiscal year. The unaudited pro forma combined balance sheet at June 30, 2023 combines the Company’s consolidated balance sheet at June 30, 2023 with the Barnhart Companies’ combined balance sheet at June 30, 2023, giving effect to the Acquisition as if it had occurred on June 30, 2023.

The historical combined statements of operations of Barnhart Companies have been adjusted to reflect certain reclassifications and other adjustments in order to conform to the Company’s financial statement presentation and accounting policies. The historical consolidated financial statements have been adjusted in the unaudited pro forma combined financial information to give pro forma effect to events that are: (1) directly attributable to the Acquisition; (2) factually supportable; and (3) with respect to the statements of operations, expected to have a continuing impact on the combined Company’s results. The unaudited pro forma combined financial information has been developed from and should be read in conjunction with:

the accompanying notes to the unaudited combined pro forma financial information;

the historical unaudited consolidated financial statements of the Company as of and for the six months ended June 30, 2023, included in the Company’s quarterly report on Form 10-Q for the six months ended June 30, 2023;

the historical consolidated financial statements of the Company as of and for the years ended December 31, 2022 and 2021, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022;

the combined financial statements of the Barnhart Companies as of and for the years ended December 31, 2022 and 2021; and

the unaudited combined financial statements of the Barnhart Companies as of and for the six months ended June 30, 2023 and 2022.

The unaudited pro forma combined financial information has been prepared using the acquisition method of accounting in accordance with U.S. GAAP with the Company as the acquirer. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair market values as of the Acquisition date with any excess purchase price allocated to goodwill.

The Company has not completed the detailed valuation studies necessary to arrive at the required estimates of the fair value of the consideration transferred, assets acquired, the liabilities assumed and the related allocations of the purchase price in the Acquisition. As a result, the unaudited pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analyses are performed. The unaudited pro forma adjustments have been made solely for the purpose of providing the unaudited pro forma combined financial information presented below. The Company has estimated the fair value of assets acquired and liabilities assumed based on discussions with members of the Barnhart Companies’ management, preliminary valuation studies, due diligence and information presented in the financial statements and accounting records of the Barnhart Companies. 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. Any increases or decreases in the fair value of these assets and liabilities upon completion of the final valuations will result in adjustments to the balance sheets and/or statements of operations. The final purchase price and the final purchase price allocation may be different than that reflected in the preliminary purchase price allocation presented herein, and this difference may be material.

Assumptions and estimates underlying the unaudited pro forma adjustments set forth in the unaudited pro forma combined financial information are described in the accompanying notes. The unaudited pro forma combined financial information has been presented for illustrative purposes only and is not necessarily indicative of the operating results and financial position that would have been achieved had the Acquisition occurred on the dates indicated. Further, the unaudited pro forma combined financial information does not purport to project the future operating results or financial position of the Company following the Acquisition. The unaudited pro forma adjustments represent management’s estimates based on information available as of the date of this unaudited pro forma combined financial information and are subject to change as additional information becomes available and analyses are performed.

The unaudited pro forma combined financial information, although helpful in illustrating the financial characteristics of the Company under one set of assumptions, does not reflect the benefits of cost-saving initiatives (or associated costs to achieve such savings), opportunities to earn additional revenue, or other factors that may result as a consequence of the Acquisition and, accordingly, does not attempt to predict or suggest future results. The unaudited pro forma combined financial information also excludes the effects of costs associated with any restructuring activities, integration activities or asset dispositions resulting from the Acquisition, as they are currently not known, and to the extent they occur, are expected to be non-recurring and were not incurred as of the Closing date of the Acquisition. However, such costs could affect the combined Company following the Acquisition in the period the costs are incurred or recorded.

SMG Industries Inc.

Pro Forma Combined Statement of Operations

For the Six Months Ended June 30, 2023

(Unaudited)

	SMG			Barnhart Companies			Other Transaction Adjustments				Pro Forma Adjustments (See Note 4)				Pro Forma Combined
REVENUE TOTAL	$	42,657,152		$	31,757,180		$	-			$	-			$	74,414,332

COST OF REVENUE		37,101,448			27,789,479			-				(95,035	)	(c),(f)		64,795,892

GROSS PROFIT		5,555,704			3,967,701			-				(95,035	)			9,618,440

Selling, General and Administrative		5,785,988			4,246,596			-				635,760		(d),(f)		10,668,344
Total operating expenses		5,785,988			4,246,596			-				635,760				10,668,344

Loss from operations		(230,284	)		(278,895	)		-				(540,725	)			(1,049,904	)

Other Income (Expense)
Interest Income		-			131,100			-				-				131,100
Interest Expense[, net]		(4,869,536	)		(112,950	)		2,396,965		(a)		112,950		(e)		(2,472,571	)
Gain on sale of equipment		-			179,365			-				-				179,365
Other income		22,802			1,624,026			-				(1,567,643	)	(f)		79,185
Other expense		(203,629	)		-			-				-				(203,629	)
Total other (expense) income		(5,050,363	)		1,821,541			2,396,965				(1,454,693	)			(2,286,550	)

Net (loss) income from continuing operations		(5,280,647	)		1,542,646			2,396,965				(1,995,418	)			(3,336,454	)

Loss from discontinued operations		(8,273	)		-			-				-				(8,273	)

Net (loss) income		(5,288,920	)		1,542,646			2,396,965				(1,995,418	)			(3,344,727	)

Dividends		-			-			(125,000	)	(b)		(125,000	)	(g)		(250,000	)

Net (loss) income available to common shareholders	$	(5,288,920	)	$	1,542,646		$	2,271,965			$	(2,120,418	)		$	(3,594,727	)

Net loss per common share
Continuing operations	$	(0.11	)												$	(0.01	)
Discontinued operations	$	(0.00	)												$	(0.00	)
Net loss attributable to common shareholders	$	(0.11	)												$	(0.01	)

Weighted Average Common Shares Outstanding
Basic		47,147,581														264,854,871
Diluted		47,147,581														264,854,871

SMG Industries Inc.

Pro Forma Combined Statement of Operations

For the Year Ended December 31, 2022

(Unaudited)

	SMG			Barnhart Companies			Other Transaction Adjustments				Pro Forma Adjustments (See Note 4)				Pro Forma Combined
REVENUE TOTAL	$	71,021,862		$	81,749,226		$	-			$	-			$	152,771,088

COST OF REVENUE		65,285,261			67,980,193			-				2,734,737		(j)		136,000,191

GROSS PROFIT		5,736,601			13,769,033			-				(2,734,737	)			16,770,897

Selling, General and Administrative		9,079,344			8,332,154							1,482,000		(k)		18,893,498
Gain on disposal of assets		(330,499	)		-			-				(632,524	)	(l)		(963,023	)
Total operating expenses		8,748,845			8,332,154			-				849,476				17,930,475

(Loss) income from operations		(3,012,244	)		5,436,879			-				(3,584,213	)			(1,159,578	)

Other Income (Expense)
Interest Income		-			46,225			-				-				46,225
Interest Expense[, net]		(9,431,681	)		(142,532	)		4,486,540		(h)		142,532		(m)		(4,945,141	)
Gain on extinguishment of debt		564,814			-			-				-				564,814
Gain on disposal of assets		-			632,524			-				(632,524	)	(l)		-
Other income		228,689			68,770			-				-				297,459
Other expense		(100,365	)		-			-				-				(100,365	)
Total other (expense) income		(8,738,543	)		604,987			4,486,540				(489,992	)			(4,137,008	)

Net (loss) income from continuing operations		(11,750,787	)		6,041,866			4,486,540				(4,074,205	)			(5,296,586	)

Income from discontinued operations		140,547			-			-				-				140,547

Net (loss) income		(11,610,240	)		6,041,866			4,486,540				(4,074,205	)			(5,156,039	)

Dividends		-			-			(250,000	)	(i)		250,000	)	(n)		(500,000	)

Net (loss) income available to common shareholders	$	(11,610,240	)	$	6,041,866		$	4,236,540			$	(4,324,205	)		$	(5,656,039	)

Net loss per common share
Continuing operations	$	(0.32	)												$	(0.02	)
Discontinued operations	$	(0.00	)												$	(0.00	)
Net loss attributable to common shareholders	$	(0.32	)												$	(0.02	)

Weighted Average Common Shares Outstanding
Basic		36,399,788														254,107,078
Diluted		36,399,788														254,107,078

SMG Industries, Inc.

Pro Forma Combined Balance Sheet

As of June 30, 2023

(Unaudited)

	SMGI			Barnhart Companies		Other Transaction Adjustments (See Note 3)				Pro Forma Adjustments (See Note 3)				Pro Forma
ASSETS

Cash and cash equivalents	$	209,843		$	5,599,435	$	26,477,966		(o)	$	(30,496,651	)	(q)	$	1,790,593
Restricted cash		1,105,818			-		-				-				1,105,818
Investments		-			1,158,974		-				(1,158,974	)	(q)		-
Accounts receivable[, net]		13,219,155			6,621,281		-				-				19,840,436
Other receivables		-			518,632		-				-				518,632
Notes receivable		-			40,521		-				-				40,521
Inventories		-			762,164		-				-				762,164
Prepaid expenses and other current assets		1,157,039			1,030,822		-				-				2,187,861
Total current assets		15,691,855			15,731,829		26,477,966				(31,655,625	)			26,246,025

Property and equipment, net		4,287,064			8,937,180		-				16,263,820		(q)		29,488,064
Other assets		110,344			7,820		-				-				118,164
Right of use assets - operating leases		503,526			1,890,030		-				2,737,502		(r)		5,131,058
Intangible assets		-			68,041		-				13,991,959		(q)		14,060,000
Accounts receivable - related parties		-			7,076,672		-				(7,076,672	)	(q)		-
Goodwill		-			-		-				1,744,181		(q)		1,744,181

Total assets	$	20,592,789		$	33,711,572	$	26,477,966			$	(3,994,835	)		$	76,787,492

LIABILITIES
Accounts payable	$	3,892,775		$	2,544,190	$	-			$	-			$	6,436,965
Accounts payable - related party		1,086,078			-		-				-				1,086,078
Accrued expenses and other liabilities		3,085,444			1,314,231		(731,824	)	(o),(p)		-				3,667,851
Current portion of right of use liabilities – operating leases		654,726			643,423		-				430,547		(r)		1,728,696
Secured line of credit		11,079,731			-		(11,079,731	)	(o),(p)		-				-
Current portion of unsecured notes payable		2,723,657			-		(2,679,098	)	(o),(p)		-				44,559
Current portion of secured notes payable, net		7,853,334			2,646,406		(7,853,334	)	(o),(p)		(2,646,406	)	(q)		-
Current portion of convertible notes payable, net		8,906,741			-		(8,906,741	)	(o),(p)		-				-
Current liabilities of discontinued operations		180,994			-		-				-				180,994
Total current liabilities		39,463,480			7,148,250		(31,250,728	)			(2,215,859	)			13,145,143

Convertible notes payable, net of current portion		513,401			-		(513,401	)	(o),(p)		-				-
Secured line of credit, net of current portion		-			-		9,596,303		(o)		-				9,596,303
Notes payable - secured, net of current portion		11,469,241			2,163,342		21,043,200		(o)		392,658		(q)		35,068,441
Right of use liabilities - operating leases, net of current portion		121,699			1,246,607		-				2,306,955		(r)		3,675,261
Long term liabilities of discontinued operations		278,995			-		-				-				278,995
Total current liabilities		12,383,336			3,409,949		30,126,102				2,699,613				48,619,000

Total liabilities		51,846,816			10,558,199		(1,124,626	)			483,754				61,764,143

EQUITY
Members’ equity		-			23,153,373		-				(23,153,373	)	(s)		-
Preferred stock 1,000,000 shares authorized:		-			-		-								-
Series A preferred stock - $0.001 par value; 2,000 shares authorized; 0 shares issued and outstanding at June 30, 2023		-			-		-								-
Series B convertible preferred stock - $0.001 par value; 6,000 shares authorized; 0 shares issued and outstanding at June 30, 2023		-			-		-								-
Series C convertible preferred stock - $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2023		-			-		1		(o),(p)		1		(q)		2
Common stock - $0.001 par value; 500,000,000 shares authorized; 48,747,530 issued and outstanding at June 30, 2023		48,748			-		140,207		(o),(p)		77,500		(q)		266,455
Additional paid in capital		15,142,034			-		24,289,398		(o),(p)		19,337,499		(q)		58,768,931
Accumulated deficit		(46,444,809	)		-		3,172,986		(p)		(740,216	)	(t)		(44,012,039	)
Total equity		(31,254,027	)		23,153,373		27,602,592				(4,478,589	)			15,023,349

Total liabilities and equity	$	20,592,789		$	33,711,572	$	26,477,966			$	(3,994,835	)		$	76,787,492

NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

1. Description of the Acquisition

On July 7, 2023, we acquired one hundred percent of the membership interests of (i) Fleet, (ii) Transportation, (iii) Global, (iv) Logistics, (v) Legend, and (vi) Wash. We paid the Purchase Price for the Acquisition of the Barnhart Companies consisting of (i) $24.25 million in cash, subject to customary net working capital, cash, indebtedness, and transaction expense adjustments, (ii) $3.0 million in the form of an unsecured, non-negotiable promissory note that (A) bears interest at a fixed rate of six percent (6%) per annum, and (B) will mature on the 72-month anniversary of the Closing, with principal of $41,667 plus interest to be paid monthly, and (C) will be subordinated to all of our senior indebtedness to the extent required by the holders thereof, (iii) 77 million shares of our common stock, and (iv) 500 shares of the Series C Preferred Stock.

An indemnification escrow in the amount of $3.0 million (the “Indemnification Escrow Amount”) was held back from the Purchase Price paid at the Closing and retained in an escrow account as security (but not the sole source of recovery) for the performance of the indemnification and other covenants, obligations and agreements of the Sellers arising under the Transaction Agreement, any other transaction agreement or otherwise. Any portion of the Indemnification Escrow Amount not used to satisfy indemnification claims will be released to the Sellers on the 18-month anniversary of the Closing. A purchase price adjustment escrow in the amount of $250,000 was held back from the Purchase Price paid at the Closing and retained in an escrow account as a source of recovery for the purchase price adjustment process.

In connection with the Acquisition, the Barnhart Companies entered into new leases with Jet Park Warehousing, LLC, a South Carolina limited liability company (“Jet Park”), and Lakeshore Warehousing, LLC, a Pennsylvania limited liability company (“Lakeshore”), as landlords. The Barnhart Companies pay aggregate rent of approximately $55,000 per month to Jet Park and Lakeshore for a term of six years. Each of Jet Park and Lake Shore are directly or indirectly owned by Bryan and Tim or their affiliates.

In connection with the Closing, the Company issued 500,000 shares of common stock to an advisor as a transaction fee.

Securities Purchase Agreement

On July 7, 2023, the Company entered into a securities purchase agreement (the “SPA”) with Apex Heritage Investments, LLC (“APEX”), a company controlled by Steven H. Madden, a director and the Company’s Chief Transition Officer. The SPA provides for the sale of up to an aggregate of 1,500 shares of Series C Preferred Stock, at a price of $10,000 per share. APEX purchased 561 shares for aggregate gross proceeds to the Company of $5.6 million (the “Private Placement”). The Private Placement closed on July 7, 2023 with respect to 500 of such shares and on August 30, 2023 with respect to 61 of such shares.

A total of 2,000 shares of Series C Preferred Stock were authorized by the Company with a par value of $0.001 per share, a stated value of $10,000 per share and accrues annual dividend of 5% that is payable only in the Company’s common stock. The Series C Preferred and any accrued dividends are convertible, from time to time and automatically convert 24 months after the Closing, to the Company’s common stock at a conversion price of $0.25 per share.

Upon the liquidation, dissolution or winding up of the Company, after payment to the holders of the Company’s outstanding 3.0% Series A Secured Convertible Preferred Stock (the “Series A”) and 5.0% Series B Convertible Preferred Stock (the “Series B”), each holder of Series C Preferred Stock will be entitled to receive a preferential amount in cash equal to $10,000 per share, plus all accrued and unpaid dividends. The Series C Preferred Stock will rank senior to all classes of common stock and each other class of capital stock of the Company, except the Series A and Series B, and has the right to vote on all matters submitted to a vote of the holders of common stock on an as converted basis.

Conversion of Promissory Notes

On or about July 7, 2023, the Company entered into Notices to Convert Promissory Note(s) with holders of certain convertible and non-convertible promissory notes (the “Notes”) issued by the Company (the “Notices”), as further described in the Company’s Information Statement, included as Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the SEC Securities and Exchange Commission on June 16, 2023. Upon the conversion of approximately $22.6 million of principal and accrued, unpaid interest due on the Notes on July 7, 2023, the Company issued a total of 140,207,290 shares of common stock at conversion prices ranging from $0.10 to $0.25 per share of common stock.

Term Loan

On July 7, 2023, the Company, 5J Transportation Group and, upon the consummation of the Acquisition, the Barnhart Companies (collectively, the “Borrowers”) entered into a Credit Agreement (the “Term Loan Credit Agreement”) among the Borrowers, the other loan parties party thereto from time to time, the lenders party thereto from time to time and Great Rock Capital Partners Management, LLC (“Great Rock”), as the administrative agent.

The Term Loan Credit Agreement provides for a $31.7 million term loan (the “Term Loan”). The availability of the Term Loan at Closing was based on 80% of the net orderly liquidation value of certain eligible equipment and rolling stock of the Borrowers (the “Term Loan Borrowing Base”). The principal amount of the Term Loan shall be repaid in equal monthly installments of $396,075 commencing on September 1, 2023, and the Borrowers may also be required to make certain other mandatory prepayments from time to time, including with a required prepayment premium, if the Term Loan Borrowing Base does not support the existing amount of the Term Loan outstanding and for certain other prepayment events, including from dispositions of assets, casualty events and certain extraordinary events. Borrowings under the Term Loan Credit Agreement will bear interest at a fluctuating rate of interest per year based on a Term SOFR Rate (as defined in the Term Loan Credit Agreement) plus a margin of 6.50%, which Applicable Rate (as defined in the Term Loan Credit Agreement) may adjust lower (but no lower than 5.50%) based on the leverage ratio of the Borrowers and their subsidiaries commencing on the six-month anniversary from Closing. The Term loan matures on July 7, 2026.

The Borrowers’ obligations to repay the amounts borrowed under the Term Loan Credit Agreement are secured by liens on substantially all of the assets of the Borrowers, including any rolling stock owned by the Borrowers. The Term Loan Credit Agreement contains customary representations, warranties, affirmative and negative covenants, limitations, and events of default for a transaction of this type, including maintenance of a minimum fixed charge coverage ratio of not less than 1.0 to 1.0, minimum EBITDA levels and minimum availability of not less than $3,750,000 at any time and other restrictions, including restrictions on net maximum capital expenditures as set forth in the Term Loan Credit Agreement.

In connection with the Term Loan and related transactions described above, the Company’s borrowings and obligations under the First Amended and Restated Commercial Promissory Note, dated September 7, 2021, in the original principal amount of $16,740,000 with Amerisource Funding Inc. were satisfied in full.

Asset Based Lending

Also on July 7, 2023, the Borrowers entered into a Credit Agreement (the “ABL Credit Agreement” and, collectively with the Term Loan Credit Agreement, the “Credit Agreements”) among the Borrowers, the other loan parties party thereto from time to time, the lenders party thereto from time to time and JPMorgan Chase Bank, N.A. (“JPMorgan”), as the administrative agent.

The ABL Credit Agreement provides for a $25.0 million revolving credit facility (the “ABL”). Availability under the ABL Credit Agreement is based upon 90% of certain eligible accounts receivable of the Borrowers (the “ABL Borrowing Base”) and the ABL Borrowing Base supported borrowings of approximately $16.4 million as of the date of Closing. The Borrowers borrowed approximately $10.9 million under the ABL Credit Agreement on July 7, 2023, leaving approximately $5.5 million of availability. The maturity date of the ABL Credit Agreement is July 7, 2026, and all principal amounts are due and payable on the maturity date or, upon certain mandatory prepayment events, including if the ABL Borrowing Base no longer supports outstanding borrowings and certain other asset dispositions and casualty events. Borrowings under the ABL Credit Agreement bear interest at a floating rate elected by the Borrowers (which includes a base rate, Term SOFR and REVSOFR30 rate), as well as an applicable rate of between 1.25% and 2.50% based upon the leverage ratio of the Borrowers, as well as a commitment fee of between 0.375% and 0.50% based upon the average daily amount of the facility available but unused during the most recent quarter.

The Borrowers’ obligations to repay amounts borrowed under the ABL Credit Agreement are secured by liens on substantially all of the assets of the Borrowers. The ABL Credit Agreement contains customary representations, warranties, affirmative and negative covenants, limitations, and events of default for a transaction of this type, including maintenance of a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 and minimum availability of not less than $3.75 million at any time when the Term Loan is outstanding.

2. Preliminary Purchase Price Allocation

The purchase price for the Acquisition has been allocated to the assets acquired and liabilities assumed for purposes of this pro forma financial information based on their estimated relative fair values. The purchase price allocation herein is preliminary. The final purchase price allocation for the Acquisition will be determined after completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed but in no event later than one year following completion of the Acquisition. Accordingly, the final acquisition accounting adjustments could differ materially from the accounting adjustments included in the pro forma financial statements presented herein. Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also change the portion of purchase price allocable to goodwill and could impact the operating results of the Company following the acquisition due to differences in purchase price allocation, depreciation and amortization related to some of these assets and liabilities.

The acquisition is being accounted for as a business combination under Accounting Standards Codification 805. Due to the transaction closing early in the third quarter of 2023, 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	$	24,250,000
Notes payable, net of discount of $444,000		2,556,000
Common stock consideration – 77,000,000 shares issued		14,322,000
Series C Preferred Stock consideration – 500 shares issued		5,000,000
Total preliminary purchase consideration	$	46,128,000

Preliminary Purchase Price Allocation
Accounts receivable	$	6,621,281
Other receivable and notes receivable		559,153
Inventories		762,164
Prepaid expenses and other assets		1,038,642
Right of use assets		4,627,532
Property and equipment		25,201,000
Trade names and trademarks (estimated useful life of 10 years)		7,700,000
Customer list (estimated useful life of 10 years)		5,600,000
Non competes (estimated useful life of 5 years)		760,000
Goodwill		1,744,181
Accounts payable		(2,544,190	)
Accrued expense and other liabilities		(1,314,231	)
Right of use liabilities		(4,627,532	)
	$	46,128,000

3. Pro Forma Adjustments

Pro Forma Adjustments to the Statement of Operations for the Six Months Ended June 30, 2023:

(a)

To reflect adjustments to interest expense for the new capital structure:

	Six Months Ended June 30, 2023
Interest expense
Remove historical interest expense of SMGI	$	(4,869,536	)
Reflect estimated interest under the Term Loan and ABL		2,472,571
Total adjustments to interest expense	$	(2,396,965	)

The interest expense on the Term Loan and the ABL was estimated using an estimated rate of 9% based on the terms of the Credit Agreements. The total estimated interest includes amortization of deferred finance costs associated with the Credit Agreements over the maturity period of three years.

(b)

To reflect dividends on the 500 shares of Series C Preferred Stock sold for cash at a rate of 5% of the stated value of the Series C Convertible Preferred Stock of $10,000 per share.

(c)

To adjust for additional depreciation expense of $1,367,368 for new estimated fair value of property and equipment and revised estimated remaining useful lives.

(d)

To recognize $741,000 of amortization of intangible assets acquired over their estimated useful lives.

(e)

To remove historical interest expense of the Barnhart Companies for debt not assumed in the Acquisition.

(f)

To reclassify the Barnhart Companies’ employee retention tax credit recognized during the six months ended June 30, 2023 to conform to SMG’s historical presentation. Includes a credit of $105,240 related to selling, general and administrative employees, and $1,462,403 related to drivers included in cost of revenue.

(g)

To reflect dividends on the 500 shares of Series C Preferred Stock issued to the Sellers at a rate of 5% of the stated value of the Series C Convertible Preferred Stock of $10,000 per share.

Pro Forma Adjustments to the Statement of Operations for the Year Ended December 31, 2022:

(h)

To reflect adjustments to interest expense for the new capital structure:

	Year Ended December 31, 2022
Interest expense
Remove historical interest expense of SMGI	$	(9,431,681	)
Reflect estimated interest under the Term Loan and ABL		4,945,141
Total adjustments to interest expense	$	(4,486,540	)

(i)

To reflect dividends on the 500 shares of Series C Preferred Stock sold for cash at a rate of 5% of the stated value of the Series C Convertible Preferred Stock of $10,000 per share.

(j)

To adjust for additional depreciation expense of $2,734,737 for new estimated fair value of property and equipment and revised estimated remaining useful lives.

(k)

To recognize $1,482,000 of amortization of intangible assets acquired over their estimated useful lives.

(l)

To reclassify gain on disposal of assets to conform to SMGI’s historical financial statement presentation.

(m)

To remove historical interest expense of the Barnhart Companies for debt not assumed in the Acquisition.

(n)

To reflect dividends on the 500 shares of Series C Preferred Stock issued to the Sellers at a rate of 5% of the stated value of the Series C Convertible Preferred Stock of $10,000 per share.

Pro Forma Adjustments to the Balance Sheet:

Other Transaction Adjustments

Other transaction adjustments represent pro forma adjustments related to the new Company’s new Credit Agreements described above, the settlement of promissory notes by issuance of shares of common stock, the repayment of existing promissory notes and the sale of Series C Preferred Stock for cash as follows:

(o)

To recognize additional borrowings to fund the cash consideration of the purchase price, cash proceeds from the sale of Series C Convertible Preferred Stock, and the retirement of existing promissory notes:

Cash and cash equivalents
New borrowings under ABL, net of issuance costs of $1,352,708	$	9,596,303
New borrowings under Term Loan, net of issuance costs of $1,971,247		29,714,812
Sale of 500 shares of Series C Convertible Preferred Stock		5,000,000
Repayment of promissory notes		(17,833,149	)
Total adjustments to cash and cash equivalents	$	26,477,966

The Company repaid existing debt in cash as follows:

Convertible notes payable	$	(50,000	)
Secured notes payable		(6,579,898	)
Secured line of credit		(11,079,731	)
Accrued interest		(123,520	)
Total repayment of promissory notes in cash	$	(17,833,149	)

(p)

To recognize the issuance of common stock for settlement and conversion of notes payable and accrued interest as follows:

	Principal		Common Shares Issued
Convertible notes payable	$	9,528,903		88,148,625
Secured notes payable		9,945,048		41,211,909
Unsecured notes payable		2,679,098		10,846,756
Total settlement of promissory notes in common stock	$	22,153,049		140,207,290

In addition to the principal above, the Company settled total accrued interest of $608,304. As a result of the settlement agreements for secured and unsecured notes, the Company recognized an estimated gain on extinguishment of debt of $3,331,748, and recognized interest expense of $158,762 related to unamortized debt costs on convertible notes.

Pro Forma Adjustments

(q)

To recognize the preliminary purchase price allocation and consideration transferred to the Sellers. See Note 2.

(r)

To recognize right of use assets and liabilities related to new leases entered into with the Sellers.

(s)

To eliminate the historical members’ equity of the Barnhart Companies.

(t)

To recognize transaction costs of $647,216 paid in cash at Closing and the estimated fair value of $93,000 related to 500,000 shares of common stock issued to an advisor.

Cover	Jul. 06, 2023
Cover [Abstract]
Document Type	8-K/A
Amendment Flag	false
Document Period End Date	Jul. 06, 2023
Entity File Number	000-54391
Entity Registrant Name	SMG INDUSTRIES INC.
Entity Central Index Key	0001426506
Entity Tax Identification Number	51-0662991
Entity Incorporation, State or Country Code	DE
Entity Address, Address Line One	20475 State Hwy 249
Entity Address, Address Line Two	Suite 450
Entity Address, City or Town	Houston
Entity Address, State or Province	TX
Entity Address, Postal Zip Code	77070
City Area Code	713
Local Phone Number	955-3497
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Entity Emerging Growth Company	false

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December 31