SMG INDUSTRIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)(unaudited)

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

SMG INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

For the three months ended March 31, 20202021 and 20192020

(Unaudited)(unaudited)

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

SMG INDUSTRIES, INC.

CONSOLIDATED STATEMENTSSTATEMENT OF CHANGES IN STOCKHOLDERS' EQUIY (DEFICIT)DEFICIT

For the three months ended March 31, 20202021 and 20192020

(Unaudited)(unaudited)

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

SMG INDUSTRIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the three months ended March 31, 20202021 and 20192020

(Unaudited)(unaudited)

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

SMG INDUSTRIES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1 — BACKGROUND AND BASIS OF PRESENTATION

SMG Industries Inc. (the(“we”, “our”, the “Company” or “SMG”) is a corporation established pursuant to the laws of the State of Delaware on January 7, 2008. The CompanyCompany’s original business was the acquisition and stockpile of a rare metal known as Indium used in cell phones and other industrial applications. The Company eventually sold its stockpile and distributed most of the proceeds to its stockholders via special dividends and share repurchases.

The Company today isWe are a growth-oriented oilfield servicesTransportation Services company that operates throughoutfocused on the domestic Southwest United States. Through its wholly-owned operating subsidiaries, the Company offers an expanding suite of products and services across the oilfield market segments of drilling, completions and production.logistics market.

On June 3, 2019, we entered into an Agreement and Plan of Share Exchange dated as of such date (with Trinity Services LLC, a Louisiana limited liability company (“Trinity”) and the sole member of Trinity (the “Trinity Member”). We completed the closing of the acquisition of Trinity on June 26, 2019. Trinity Services LLC provides lease roads, location and pad development using construction equipment to build drilling pad locations and well site services using a work over rig to perform services on existing wells. SMG Industries, Inc.is headquartered in Houston, Texas haswith facilities in Floresville, Henderson, Odessa, Palestine, Floresville, Waskom, Carthage, OdessaTomball, and Alice,Victoria, Texas.

On February 27,In March 2020, we enteredthe World Health Organization declared COVID-19 a pandemic. Throughout 2020 and into a Membership Interest Purchase Agreements for2021, many variants of the acquisition ofvirus arose. We are still assessing the impact COVID-19 and related variants (together, “COVID-19”) may have on our business, but there can be no assurance that this analysis will enable us to avoid part or all of any impact from the membership interestsspread of eachCOVID-19 or its consequences, including downturns in business sentiment generally.  The extent to which the COVID-19 pandemic and global efforts to contain its spread will impact our operations will depend on future developments, which are highly uncertain and cannot be predicted at this time, and include the duration, severity and scope of 5J Oilfield Services LLC, a Texas limited liability company (“5J Oilfield”)the pandemic and 5J Trucking LLC, a Texas limited liability company (“5J Trucking”) (5J Oilfield and 5J Trucking shall be collectively referredthe actions taken to herein ascontain or treat the “5J Entities”). 5J Oilfield and 5J Trucking services the drilling rig transportation and midstream heavy haul logistics market segments. 5J’s business includes transporting midstream compressors, production equipment and infrastructure components such as cement bridge beams with a fleet of more than 100 trucks, 200 trailers and 15 cranes. MG Cleaners LLC., serves the drilling market segment with proprietary branded products including detergents, surfactants and degreasers (such as Miracle Blue®) as well as equipment and service crews that perform on-site repairs, maintenance and drilling rig wash services. SMG's oil tools rental division includes an inventory of more than 800 bottom hole assembly (BHA) oil tools such as stabilizers, drill collars, crossovers and bit subs rented to oil companies and their directional drillers. SMG's frac water management division, known as Momentum Water Transfer, focuses in the completion or fracing market segment providing high volume above ground equipment and temporary infrastructure to route water used on location for fracing.COVID-19 pandemic.

The accompanying unaudited interim consolidated financial statements of SMG Industries Inc. (“we”, “our”, “SMG” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America and should be read in conjunction with the audited consolidated financial statements and notes thereto for the years ended December 31, 20192020 and 20182019 with are included on a Form 10-K filed on May 29, 2020.April 19, 2021. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosures contained in the audited consolidated financial statements for years ended December 31, 20192020 and 20182019 have been omitted.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The Company prepares its consolidated financial statements on the accrual basis of accounting. The accompanying consolidated financial statements include the accounts of the Company and its wholly subsidiaries, 5J Trucking LLC, 5J Oilfield Services LLC, 5J Specialized LLC, 5J Transportation LLC and 5J Brokerage LLC (together referred to as “5J”), Momentum Water Transfer Services, LLC Jake Oilfield Solutions LLC and Trinity Services LLC (“Trinity”), all of which have a quarter end of March 31 and fiscal year end of December 31. All intercompany accounts, balances and transactions have been eliminated in the consolidation.

Acquisition Accounting

The Company’s acquisitions are accounted for using the purchase acquisition method of accounting whereby purchase price is allocated to tangible and intangible assets acquired and liabilities assumed based on fair value. The excess of the fair value of the consideration conveyed over the fair value of the net assets acquired is recorded as goodwill. The consolidated financial statements for the fiscal years presented include the results of operations for the 5J Entities and Trinity acquisitions from the date of acquisition.

Fair Value of Financial Instruments

The carrying value of short-term instruments, including cash, accounts payable and accrued expenses, and short-term notes approximate fair value due to the relatively short period to maturity for these instruments. The long-term debt approximate fair value since the related rates of interest approximate current market rates.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a three-level valuation hierarchy for disclosures of fair value measurements, defined as follows:

Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets

Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the assets or liability, either directly or indirectly, for substantially the full term of the financial instruments.

Level 3: inputs to the valuation methodology are unobservable and significant to the fair value

The Company does not have any assets or liabilities that are required to be measured and recorded at fair value on a recurring basis.

Discontinued Operations

In December 2020 we sold MG and decided to cease the operations of Trinity. A component of an entity that is disposed of by sale or ceasing of operations is reported as discontinued operations if the transaction represents a strategic shift that will have a major effect on an entity's operations and financial results. As such, MG and Trinity are reported as discontinued operations.

Assets and liabilities of the discontinued operations are aggregated and reported separately as assets and liabilities of discontinued operations in the Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020. The results of discontinued operations are aggregated and presented separately in the Consolidated Statements of Operations as net loss from discontinued operations for the three months ended March 31, 2021 and 2020. The cash flows of the discontinued operations are reflected as cash flows of discontinued operations within the Company’s Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020.

Amounts presented in discontinued operations have been derived from our consolidated financial statements and accounting records using the historical basis of assets, liabilities, results of operations, and cash flows of Trinity and MG Cleaners. The discontinued operations exclude general corporate allocations.

Basic and Diluted Net Loss per Share

The Company presents both basic and diluted net loss per share on the face of the statements of operations. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted per share calculations give effect to all potentially dilutive shares of common stock outstanding during the period, including stock options and warrants, and using the treasury-stock method. If anti-dilutive, the effect of potentially dilutive shares of common stock is ignored. For the three months ended March 31, 2021, 2,060,000 of stock options, 1,763,335 of warrants, 4,000,000 shares issuable from Series A Preferred Stock and 29,413,660 shares issuable from convertible notes were considered for their dilutive effects. For the three months ended March 31, 2020, 2,860,000 of stock options, 1,763,335 of warrants, 4,000,000 shares issuable from Series A Preferred Stock, 4,806,388 shares issuable from Series B Preferred Stock and 6,500,000 shares issuable from convertible notes were considered for their dilutive effects. ForAs a result of the Company’s net losses for the three months ended March 31, 2019, 630,000 of stock options, 525,001 of warrants2021 and 500,000 shares issuable from convertible notes2020, all potentially dilutive instruments were considered forexcluded as their dilutive effects.effect would have been anti-dilutive.

Reclassification

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation.

Recent Accounting Pronouncements

The Company does not believe that any recently issued effective pronouncements, or pronouncements issued but not yet effective, if adopted, would have a material effect on the accompanying financial statements.

NOTE 3 – GOING CONCERN

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern and, no adjustments to the consolidated financial statements have been made to account for this uncertainty. The Company concluded that the uncertainty surrounding the COVID-19 global pandemic, its negative working capital, and negative cash flows from operatingoperations are conditions that raised substantial doubt about the Company’s ability to continue as a going concern. The Company plans to continue to generate additional revenue (and improve cash flows from operations) partlyin connection with its anticipated growth related to the Company’s February 2020 acquisition of an additional operating company5J and its expanded revenue lines in 2020heavy haul, super heavy haul, drilling rig mobilization, commodity freight, and partly related to the Company cross-selling additional sales initiatives already implemented with the acquisition’s additional customer base.brokerage services. The Company believes that loans obtained under the Paycheck Protection Program in 2020 and 2021 will be forgiven in accordance with the terms of the program.

NOTE 4 – REVENUE

Disaggregation of revenue

The Company disaggregatesAll of the Company’s revenue between services and products revenue.from continuing operations is currently generated from services. As such no further disaggregation of revenue information is provided. All revenues are currently in the southern region of the United States.

Customer Concentration and Credit Risk

During the three months ended March 31, 2020,2021, one of our customers accounted for approximately 17%12% of our total gross revenues. No other customers exceeded 10% of revenues during the three months ended March 31, 2021.  No customer accounted for 10% of accounts receivable as of March 31, 2021 and one customer accounted for 10% of accounts receivable as of December 31, 2020. During the three months ended March 31, 2019, three2020, one of our customers accounted for approximately 57%18% of our total gross revenues, with two customers each accounting for 21% and another accounting for 15%.revenues. No other customers exceeded 10% of revenues during 2019.the three months ended March 31, 2020.

One customers accounted for approximately 13% of accounts receivable at March 31, 2020, and three customers accounted for approximately 48% of accounts receivable at December 31, 2019. No other customers exceeded 10% of accounts receivable as of March 31, 2020 and December 31, 2019. The Company believes it will continue to reduce the customer concentration risks by engaging new customers and by increasing activity with existing, less active customers and relatively smaller, newer customer relationships. While the Company continues to acquire new customers in an effort to grow and reduce its customer concentration risks, management believes these risks will continue for the foreseeable future.

NOTE 5 - INVENTORY

Inventory consisted of the following components:

NOTE 6 – LONG-LIVED ASSETSPROPERTY AND EQUIPMENT, NET

Property and equipment at March 31, 20202021 and December 31, 20192020 consisted of the following:

Depreciation expense for the three months ended March 31, 2021 and 2020 was $1,418,401 and 2019 was $623,163 and $73,386$542,493, respectively.

Intangible assets

Intangible assets as of March 31, 2020 are related to the acquisition of the RigHands™ assets and the acquisition of tradenames of Momentum Water Transfer Services LLC.

Intangible assets at March 31, 2020 and December 31, 2019 consisted of the following:

Amortization expense for the three months ended March 31, 2020 and 2019 was $2,500 and $7,250, respectively. Future amortization of the intangible assets for the years ended December 31, 2020, 2021, 2022, 2023, 2024 and beyond are $10,000, $10,000, $10,000, $10,000, $10,000 and $81,242, respectively.

NOTE 76 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses as of March 31, 20202021 and December 31, 20192020 included the following:

NOTE 87 – NOTES PAYABLE

Notes payable included the following:following as of March 31, 2021 and December 31, 2020:

On August 14, 2017, we refinanced a note payable for $66,348. The unsecured note bears an interest rate of 7.25% per annum, has 47 monthly payments of $1,400, with a balloon payment of $12,086 at maturity on August 1, 2021. The refinanced amount is identical toEffective March 9, 2021, the remaining principal balance under the previous loan, thus no gain or loss has been recognized.

On February 2, 2017, we refinanced two truck notes existing with a community bank for one new note of $53,610. The term was principal and interest payments monthly over 42 months with an interest rate of 6%. The note is secured by certain trucks and equipment of the Company. The refinanced amount is identical to the remaining principal balance under the previous loan.

On January 2, 2018, we financed a truck with a note to a bank. The $41,481 note has an interest rate of 6.29% and payments of principal and interest are paid monthly. The note is secured by the truck purchased. This note matures in January 2023.

On December 7, 2018, the Company issued and sold secured promissory notes in the aggregate principal amount of $300,000 to three separate purchasers. In addition to the issuance of the Notes an aggregate of 500,000 warrants (“Warrants”) were issued to the purchasers of the Notes. The Warrants are exercisable for a period of five years and are exercisable at $0.40 per share. Interest on the Notes shall be paid to the purchasers at a rate of 10.0% per annum, paid on a quarterly basis, and the maturity date of the Note is one year after the issuance date. The Notes are secured by all of the assets of the Company and the assets of MWTS, subject to prior liens and security interests. The warrants were valued at $203,337 and recorded as a discount to the notes payable. The discount will be amortized over the life of the notes payable.

On December 7, 2018 the Company issued a 6% note to the MWTS Member in the amount of $800,000 as part of the purchase price for MWTS. The note requires monthly payment of $7,500, matures December 8, 2023 and is secured by all the assets of the Company subject to prior security interests.

On January 11, 2019 the Company issued a $100,000 10% note to a shareholder who controls approximately 8.8%. The note matures on December 7, 2019 and is secured by a junior lien against the Company assets. In April 2019, the Company issued 511,370 shares of its restricted common stock with a fair value of $203,525 to settle this $100,000 note payable and $2,274 accrued interest in full. The transaction resulted in a loss on settlement of $101,251.

In May 2019, the Company issued a promissory note in the amount of $100,000 with a maturity date of July 1, 2019 to an individual investor. The Company issued a five-year warrant to purchase 100,000 shares of the Company’s common stock at a fixed price of $0.30. The warrants were valued $44,091 and recorded as a debt discount that was fully amortized as of December 31, 2019. On June 18, 2019, the Company issued 150,000 warrants with an exercise price of $0.30 and a term of ten years in exchange for an extension of the maturity date of the note through September 30, 2019. The warrants were valued at $67,223 and will be amortized over the extension period of the note. On October 1, 2019, the Company issued 120,000 warrants with an exercise price of $0.15 and a term of ten years in exchange for a second extension of the maturity date of the note through March 30, 2020. The warrants were valued at $14,330 and will be amortized over the extension period of the note.

In June 2019, the Company issued a promissory note in the amount of $80,000 to an individual investor. The Company issued a ten-year warrant to purchase 120,000 shares of the Company’s common stock at a fixed price of $0.30 per share. The warrants were valued at $53,780 and recorded as a debt discount. As of September 30, 2019, $53,780 was amortized leaving a discount balance of $0. On October 2, 2019, the Company issued 100,000 warrants with an exercise price of $0.15 and a term of ten years in exchange for a second extension of the maturity date of the note through March 30, 2020. The warrants were valued at $11,942 and will be amortized over the extension period of the note.

On July 26, 2019, the Company paid a vendor payable that totaled $247,637, by issuing a promissory note in the name of its frac water company Jake Oilfield Solutions LLC for $123,819. The interest rate was 7% with principal and interest due at maturity July 25, 2020. The remaining balance of $123,818 was converted into 353,766 shares of SMG’s restricted common stock.

On September 20, 2019, the Company issued a $200,000 12% promissory note. The note is due and payable in three monthly installments, the first two installments are interest only and the third and final installment for the balance of the principal and accrued interest is due at maturity December 20, 2019.

On October 1, 2019, we entered into a secondthird amendment and surrender agreement with Utica requiring weekly payments of $23,750 until May 28, 2021. Upon the occurrence of an event of default under such amendment, and after the expiration of any cure period related to a unsecured promissory note to extendany such default, the maturitysurrender agreement entered into between the parties shall govern the surrender of the secured note held by a stockholder to June 30, 2020ownership and capitalizing the accrued interest of $4,559 where the total principal of the promissory note is now $44,559. All other terms of the note remained. In connection with this amendment, we issued a new common stock purchase warrant for 40,000 shares, with a ten-year term and a fixed exercise price of $0.15 per share and customary other provisions. The warrants were valued at $4,777 and will be amortized over the extension period of the note. See Notes Payable – Unsecured table below.

On October 4, 2019, we sold for $30,000 property categorized on our balance sheet as an asset held for sale. This vacant property acquired by MG Cleaners years earlier is located in Carthage, Texas and not a part of our current operations. The original MG Cleaners seller note was secured by this property and received the proceeds of this sale of approximately $30,000. The seller note had a balance of $147,608 at the time of the sale of property. The remainder of the note was retired and paid in full by issuing 400,000 restricted shares of our common stock. See Note 8 – Stockholders’ Deficit.

On December 12, 2019, the Company issued a $50,000 12% secured promissory note. The note is due and payable in monthly installments of the principal and accrued interest with the first payment of $25,000 due on or before December 19, 2019. The remaining balance shall be paid in $5,000 monthly installments until maturity on June 3, 2020. On December 12, 2019, the Company issued 75,000 warrants with an exercise price of $0.15 and a term of ten years in exchange for a second extension of the maturity date of the note through June 3, 2020. The warrants were valued at $17,947 and will be amortized over the extension period of the note.

On January 23, 2020, the Trinity Services issued a secured promissory note for $1,272,780, which includes precomputed interest of $210,018. The note is due and payable in thirty six monthly installments of $35,355 commencing on March 25, 2020 and the final installment is due on February 25, 2023. The note is secured by machinery and equipment owned by SMG.

On February 27, 2020, the 5J Entities entered into a Master Lease Agreement with Utica Leaseco LLC (“Utica”) pursuant to which Utica refinanced substantially allpossession 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 Entitiesor their designee, pursuant to the terms of the security agreement. EachLease agreement between the parties. The surrender agreement directs any third party in possession of any of such equipment to surrender the equipment in their possession to Utica and for Lessee to comply with any related paperwork requests to transfer ownership of the Companyequipment to Utica. The surrender agreement shall terminate on the earlier to occur of: (i) June 25, 2021, or (ii) the occurrence of an event of default, that is not cured within any applicable cure period. From June 4, 2021 to June 25, 2021 the weekly payments shall increase to $112,000 per week, and Matthew Flemming, its CEO, have entered into guaranty agreements with Utica, whereby they have guaranteed all ofthereafter commencing on July 27, 2021 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.payments shall be $448,000 per month.

Future maturities of secured notes payable as of March 31, 2020 are as follows:

Notes Payable – Unsecured

Notes Payable (Related Party)On April 22, 2020, 5J Oilfield Services LLC received cash proceeds of $3,148,100 from the Hancock Whitney Bank. In accordance with the requirements of the CARES Act, 5J and used the proceeds from the PPP1 Loan primarily for payroll costs. The PPP1 Loan is scheduled to mature on August 22, 2022, has a 1.00% interest rate, and is subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act.

DuringOn January 28, 2021, the 5J Oilfield Services LLC received proceeds of $1,769,002 under the SBA PPP2 program. On February 3, 2021, Jake Oilfield Solutions LLC received proceeds of $35,000 under the SBA PPP2 program. On February 4, 2021, SMG Industries, Inc. received proceeds of $70,000 under the SBA PPP2 program.

The PPP2 loans mature 5 years from the date of the notes and bear interest at 1%. Payments of principal and interest payments begin one year endedand one month from the dates of the notes and are in 60 equal monthly installments. The loans are subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. In accordance with the requirements of the CARES Act, the Company intends to use the proceeds from the PPP2 Loans primarily for payroll costs.

Unsecured Notes Payable – Discontinued Operations

On April 28,2020, Trinity, received proceeds of $195,000 under the SBA PPP1 program. In accordance with the requirements of the CARES Act, the Companies used the proceeds from the PPP1 Loan primarily for payroll costs. The loans have a 1.00% interest rate and are subject to the terms and conditions applicable to all loans made pursuant to the Paycheck Protection Program as administered by the SBA under the CARES Act. The PPP Loan was scheduled to mature on, August 28, 2020. The Trinity loan was forgiven February 16, 2021. The Trinity loan was included in Current Liabilities-Discontinued Operations on the Company’s December 31, 2019, Stephen Christian advanced $10,400 to2020 Consolidated Balance Sheet and the Company and was repaid $35,777 bygain on the Company and received $25,279forgiveness of noncash advancesthe loan is included in loss from discontinued operations on the Company. AsCompany’s Consolidated Statement of Operations for the three months ended March 31, 2020 and December 31, 2019, $0 and $98 remained outstanding, respectively, with no specific repayment terms or stated interest rate.2021.

Accounts Receivable Financing Facility (Secured Line of Credit)

On June 19, 2019, each of MG Cleaners LLC (“MG”), Trinity Services LLC (“Trinity”) and Jake Oilfield Solutions LLC (“Jake”), each of which is a wholly-owned subsidiary of the Company, entered into separate revolving accounts receivable financing facilities (collectively the “AR Facility”) with Catalyst Finance L.P. (“Catalyst”). The AR Facility was funded on June 27, 2019. The new AR Facility with Catalyst was used to pay off the Crestmark facility in full. The AR Facility provides for the Company, through MG, Trinity and Jake, to have access to up to 90% of the net amount of eligible receivables (as defined in the financing agreement). The AR Facility is paid for by the assignment of the accounts receivable of each of MG, Trinity and Jake to Catalyst and is secured by all instruments and proceeds related thereto. The AR Facility has an interest rate of 2.25% in excess of the prime rate reported by the Wall Street Journal per annum, plus a financing fee equal to 0.20% of the receivable balance every 15 days, with a maximum cumulative rate of 1.6%. There are no origination fees, monitoring or early termination fees. The AR Facility can be terminated by the Company with thirty days written notice. The Company is a guarantor of the financing facility and our subsidiaries as borrowers have cross-collateralized their accounts receivable with this facility.

On June 27, 2019, an accounts receivable financing company funding a total of $1,317,304 pursuant to the AR facility. Of the amounts funded $500,000 was paid directly to the seller of Trinity, $43,219 was used to pay off notes payable of MG Cleaners, $714,239 was used to pay off the Crestmark liability and the remaining $59,846 was deposited to the Company’s bank account.

On February 27, 2020, the 5J Entities entered into a Revolving Accounts Receivable Assignment and Term Loan Financing and Security Agreement with Amerisource Funding Inc. (“Amerisource”) in the aggregate amount of $10,000,000 (“Amerisource Financing”).The Amerisource Financing provides for: (i) an equipment loan in the principal amount of $1,401,559 (“Amerisource Equipment Loan”), (ii) a bridge term facility in the amount of $550,690 (“Bridge Facility”), and (iii) an accounts receivable revolving line of credit up to $10,000,000 (“AR Facility”). The Company recorded $21,023 of deferred financing costs related to this note which will be amortized overof $223,558 recognized on the lifedate of the loan.incurrence as a discount. During the three months ended March 31, 2020, $1,7522021, $26,688 of deferred financing costdebt discount was amortized to interest expense, and unamortized discount was $98,158 as of March 31, 2021. Amerisource is a related party of the Company due to this note have been amortized.its holdings of common stock and convertible debt of the Company and has an officer on the Board of Directors of the Company.

The AR Facility has been issued in an amount not to exceed $10,000,000, with the maximum availability limited to 85% of the eligible accounts receivable (as defined in the financing agreement). The AR Facility is paid for by the assignment of the accounts receivable of each of the 5J Entities and is secured by all instruments and proceeds related thereto. The AR Facility has an interest rate of 4.5% in excess of the prime rate per annum, an initial collateral management fee of 0.75% of the maximum account limit per annum, a non-usage fee of 0.35% assessed on a quarterly basis on the difference between the maximum availability under the AR Facility and the average daily revolving loan balance outstanding, and a one time commitment fee equal to $100,000 paid at closing. The AR Facility can be terminated by the 5J Entities with 60 days written notice. There is an early termination fee equal to two percent (2.0%) of the then maximum account limit if there are more than twelve (12) months remaining in term of the AR Facility, or one percent (1.0%) of the then maximum account limit if there twelve months or less remaining in the term of the AR Facility. The Company is a guarantor of the Amerisource Financing.

The balances under the above lines of credit was $6,274,222$3,718,730 and $845,036$4,046,256 as of March 31, 20202021 and December 31, 2019,2020, respectively.

Convertible Notes Payable

In April 2019, the Company issued a convertible promissory note in the amount of $50,000 to an individual investor. The note bears an interest rate of 8.50 %, payable in cash quarterly, matures in two years and is convertible at any time into shares of the Company’s common stock at a fixed conversion price of $0.50 (fifty cents) per share.

On February 27, 2020, the Company entered into a loan agreement with Amerisource Leasing Corporation, which has an equity ownership of 13.9% and is considered a related party, for the sale of a 10% convertible promissory note in the principal amount of $1,600,000 (“Amerisource Stretch Note”) to Amerisource (“Amerisource Loan Agreement”). The Amerisource Stretch Note matures on February 27, 2023 and is convertible into shares of the Company’s common stock at a conversion price of $0.25 per share. The interest rate on the Amerisource Stretch Note increases to 11% per annum on February 27, 2021 and to 12% per annum on February 27, 2022. Interest shall be paid on a quarterly basis. In addition, 2,498,736 shares of the Company’s common stock with a fair value of $419,788 were issued to the noteholder in connection with the sale of the Amerisource Note. The Company recorded deferred financing costs of $419,788 recognized on the date of incurrence as a discount and will be amortized over the life of the loan. During the three months ended March 31, 2021, $34,982 of debt discount was amortized to interest expense, and there was $268,198 of unamortized discount as of March 31, 2021. The Amerisource Stretch Note may be prepaid at any time by the Company on 10 days-notice to the noteholder without penalty. The Company recorded $419,788 of deferred financing costs related to this note which will be amortized over the life of the loan. During the three months ended March 31, 2020, $11,661 of deferred financing cost related to this note have been amortized.

On September 28, 2018,During the year ended December 31, 2020, the Company entered into a secured note purchase agreementagreements with annine individual investorinvestors for the purchase and sale of a convertible promissory notenotes (“Convertible Note”Notes”) in the principal amount of $250,000.$2,019,000. The Convertible Note isNotes are convertible at any time after the date of issuance into shares of the Company’s common stock at a conversion price of $0.50$0.10 per share. Interest on the NoteConvertible Notes shall be paid to the investorinvestors at a rate of 8.5%10.0% per annum, paid on a quarterly basis, and the maturity date of the Convertible NoteNotes is two years after the issuance date. The Convertible Note isNotes are secured by all of the assets of the Company, subject to prior liens and security interests. The Company evaluatedalso issued a total of 3,028,500 shares of common stock to the Convertible Noteinvestors. The Company recognized a debt discount of $1,057,710 which is equivalent to the relative fair value of the 3,028,500 common shares and determined is a conventional convertible instrument. As a result, athe beneficial conversion feature was calculated as $100,000 aton the time of issuance and recorded as a discount.Convertible Notes. During the three months ended March 31, 2020, $12,9002021, the Company received $150,000 of cash and $112,071 of expenses paid on behalf of the discount was amortized. On February 27, 2020, the principal amount of $250,000 was converted into the Amerisource Note and is convertible into the Company’s common stock at a fixed exercise price of $0.25 per share anytime while the note is outstanding.

In April 2019, the Company issued a convertible promissory note in the amountform of $50,000 to an individual investor.new convertible notes under the terms above from related parties. The note bears an interest rate of 8 ½ %, payable in cash quarterly, matures in two years and is convertible at anytime intolender received 393,107 shares of the Company’s restricted common stock at a fixedstock. The Company recognized debt discount of $175,051 based on the relative fair value of these shares and the beneficial conversion pricefeature on the convertible notes. During the three months ended $151,984 of $0.50 (fifty cents) per share.debt discount was amortized to interest expense.

Of the $2,228,071 principal amount, $1,931,071 of the convertible notes are held by investors who are considered related parties, primarily existing debt holders. As of March 31, 2021, there was $921,847 of unamortized discount remaining.

As of March 31, 2021, the convertible notes net balance was $2,741,321, consisting of long term convertible notes payable of $2,691,321, and current portion of convertible notes of $50,000. As of December 31, 2020, the convertible notes net balance was $1,215,699 which includes $2,467,335 consisting of long term convertible notes payable of $2,417,335 and current portion of convertible notes of $521,065. As$50,000.

Future maturities of Decemberall the Company’s debt as of March 31, 2020, the convertible notes balance was $260,926.2021 are as follows:

NOTE 98 – STOCKHOLDERS’ DEFICIT

During the three months ended March 31, 2020, the Company issued 2,498,7362021, a total of 393,107 shares of the common stock were issued to a related party pursuant to the noteholderconvertible notes payable described in connection with the sale of the Amerisource Note.

Preferred Stock – Series A Convertible Preferred stock

On June 4, 2019 the company filed a Certificate of Designation of Preferences, Rights and Limitations of 3% Series “A” Convertible Preferred Stock to create a new class of stock in connection with its pending acquisition. This Series A Convertible Preferred stock has designated 2,000 shares, has a stated value of $1,000 per share and was delivered to the seller of Trinity Services LLC at closing.

The Series A Preferred Stock shall, with respect to dividend distributions and distributions upon liquidation, winding up or dissolution of the Corporation, rank senior to all classes of Common Stock and to each other class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation existing or hereafter created. The Series A Preferred Stock shall pay a three percent (3%) annual dividend on the outstanding Series A Preferred Stock, all of which shall be accrued until the Series A Preferred Stock has been converted.Note 7.

At any time from issuance, the stated value of each outstanding share of Series A Preferred Stock, plus accrued dividends thereon, shall be convertible (in whole or in part), at the option of the Holder into shares of the Company’s Common Stock at a fixed conversion price of $0.50 per share on the date on which the Holder notices a conversion. As of March 31, 2020, the Company has accrued $45,740 for the Series A preferred stock dividend.

All outstanding shares of Series A Preferred Stock shall automatically convert into shares of the Company’s Common Stock upon the earlier to occur of: (i) twelve months after the date of issuance of the Series A Preferred Stock; or (ii) six months after the date of issuance of the Series A Preferred Stock, provided that (a) all shares of the Company’s Common Stock issued upon conversion may be sold under Rule 144 or pursuant to an effective registration statement without a restriction on resale, and (b) the average closing price of the Company’s Common Stock has been at least of $0.60 per share during the twenty (20) trading days prior to the date of conversion.

The Holders shall have the right to receive notice of any meeting of holders of Common Stock or Series A Preferred Stock and to vote upon any matter submitted to a vote of the holders of Common Stock or Series A Preferred Stock, on an as-converted basis. Except as otherwise expressly set forth in the Certificate of Incorporation (including this Certificate of Designation), the Holders shall vote on each matter submitted to them with the holders of Common Stock and all other classes and series of Capital Stock entitled to vote on such matter, taken together as a single class, if any.

Preferred Stock – Series B Convertible Preferred stock

On February 20, 2020 the company filed a Certificate of Designation of Preferences, Rights and Limitations of 5% Series “B” Convertible Preferred Stock to create a new class of stock in connection with its pending acquisition. This Series B Convertible Preferred stock has designated 6,000 shares, has a stated value of $1,000 per share and was delivered to the seller of 5J Entities at closing.

The Series B Preferred Stock shall, with respect to dividend distributions and distributions upon liquidation, winding up or dissolution of the Corporation, rank senior to all classes of Common Stock and to each other class of Capital Stock of the Corporation or series of Preferred Stock of the Corporation existing or hereafter created. The Series B Preferred Stock shall pay a five percent (5%) annual dividend on the outstanding Series B Preferred Stock, all of which shall be accrued until the Series B Preferred Stock has been converted.

At any time from issuance, the stated value of each outstanding share of Series B Preferred Stock, plus accrued dividends thereon, shall be convertible (in whole or in part), at the option of the Holder into shares of the Company’s Common Stock at a fixed conversion price of $1.25 per share on the date on which the Holder notices a conversion. As of March 31, 2020, the Company has accrued $27,123 for the Series B preferred stock dividend.

All outstanding shares of Series B Preferred Stock, and accrued Dividends thereon, shall automatically convert into shares of the Corporation’s Common Stock on the date that is thirty-six (36) months after the date of the issuance

The Holders shall have the right to receive notice of any meeting of holders of Common Stock or Series B Preferred Stock and to vote upon any matter submitted to a vote of the holders of Common Stock or Series B Preferred Stock, on an as-converted basis. Except as otherwise expressly set forth in the Certificate of Incorporation (including this Certificate of Designation), the Holders shall vote on each matter submitted to them with the holders of Common Stock and all other classes and series of Capital Stock entitled to vote on such matter, taken together as a single class, if any.

NOTE 109 – STOCK OPTIONS AND WARRANTS

Summary stock option information is as follows: