SMG Indium Resources Ltd.

As disclosed in the Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2020 by SMG Industries Inc. (the “Company”), on March 4, 2020, the SEC issued an order (Release No. 34-88318) under Section 36 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), granting exemptions from specified provisions of the Exchange Act and certain rules thereunder, as amended by Release No. 34-88465 issued on March 25, 2020 (as amended, the “Order”). The Company is relying on the Order and was unable to file this Quarterly Report on Form 10-Q for the period ended March 31, 2020 (the “Quarterly Report”) on a timely basis due to the outbreak of, and local, state and federal governmental responses to, the novel coronavirus pandemic (“COVID-19”). The Company’s operations have experienced disruptions due to the circumstances surrounding COVID-19 including, but not limited to, suggested and mandated social distancing and stay home orders. These mandates and the resulting office closure have severely limited access to the Company’s facilities by the Company’s financial reporting and accounting staff involved in the preparation of the Quarterly Report and impacted the Company’s ability to fulfill required preparation and review processes and procedures with respect to the Quarterly Report. In light of the impact of the factors described above, the Company was unable to compile and review certain information necessary to permit the Company to timely file the Quarterly Report by May 15, 2020, the original filing deadline, without unreasonable effort and expense. This Quarterly Report on Form 10-Q is being filed in reliance on the SEC Order.

On February 27, 2020, the 5J Entities entered into a Master Lease Agreement with Utica Leaseco LLC (“Utica”) pursuant to which Utica refinanced substantially all of the 5J Entities equipment in the aggregate amount of $11,950,000 which amount was financed based on 75% of the net forced liquidation value of the equipment. Pursuant to the terms of the Utica Financing, the 5J Entities will pay a monthly fee to Utica for a period of 51 months, with a cash payment due at the end of the lease term in the amount of $831,880. The 5J Entities own all of the assets financed pursuant to the Utica Financing, subject to Utica’s security interest in all of the equipment of the 5J Entities pursuant to the terms of the security agreement. Each of the Company and Matthew Flemming, its CEO, have entered into guaranty agreements with Utica, whereby they have guaranteed all of the obligations of the 5J Entities under the Utica Master Lease Agreement, pursuant to the guaranty agreements. On May 19, 2020, the Company amended the Utica Master Lease agreement, whereby Utica agreed to accept a reduced monthly payment of $150,000 for six months starting in April 2020 and a monthly payment of $366,63.34 for 45 months, with a cash payment due at the end of the lease term in the amount of $831,880.

The acquisition of the 5J Entities is being accounted for as a business combination under ASC 805. 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 fair value of the Series B preferred shares issued to the seller was estimated using a Black Scholes option price model with various scenarios factoring in the rights of preferences of the preferred shares, the capital structure of the Company, a risk free rate of 1.07%, a volatility of 51% and a maturity period of three years. The following information summarizes the provisional purchase consideration and preliminary allocation of the fair values assigned to the assets at the purchase date:

On June 17, 2020, our wholly-owned subsidiary, Momentum Water Transfer Services LLC, executed a note with the United States Small Business Administration (“SBA”) for $90,000 in connection with the SBA’s economic injury disaster loan (“EIDL”) program. The note has a thirty year term, an annual interest rate of 3.75% and payments of $439.00 are due monthly beginning twelve months from the date of the Note. The Note grants the SBA a general security interest in Momentum’s collateral and has no penalty of prepayment.

During the three months ended March 31, 2020, we had cash used in operating activities of $2,481,844, compared to $63,553 of cash used in operating activities for the three months ended March 31, 2019. The net cash used in operating activities for the three months ended March 31, 2020 consists primarily of our net loss, changes in accounts receivable , changes in prepaid expenses and other current assets, and right of use operating lease liabilities, partially offset by increases to accrued expenses and other liabilities, accounts payable, depreciation and amortization, amortization of deferred financing costs, and impairment expense. During the three months ended March 31, 2019, we had cash used in operating activities of $63,553, The net cash used in operating activities for the three months ended March 31, 2019 consisted primarily of our net loss and changes in accounts receivable, and deferred revenue, partially offset by increases to accounts payable, depreciation and amortization, amortization of deferred financing costs, changes in accrued expenses and other liabilities and stock based compensation.