Exhibit 99.4

 

5J TRUCKING, LLC

 

UNAUDITED FINANCIAL STATEMENTS

 

NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

 

 

CONTENTS

 

	Page
UNAUDITED FINANCIAL STATEMENTS
Balance Sheets	1
Statements of Operations	2
Statements of Members’ Deficit	3
Statements of Cash Flows	4
Notes to Unaudited Financial Statements	5-9

 

 

5J TRUCKING, LLC

BALANCE SHEETS

(UNAUDITED)

 

		September 30,				December 31,
		2019				2018
ASSETS
CURRENT ASSETS
Cash		$	-			$	187,098
Accounts receivable
Trade			-				52,616
Related party			441,889				348,501
Notes receivable - current portion			423,277				423,277
Prepaid expenses			289,705				278,447
TOTAL CURRENT ASSETS			1,154,871				1,289,939
PROPERTY AND EQUIPMENT (at cost)
Buildings			715,921				715,921
Cranes			10,536,569				10,536,569
Trucks, trailers and winches			33,173,251				33,099,446
Machinery and equipment			4,246,967				4,246,967
Total property and equipment			48,672,708				48,598,903
Less accumulated depreciation			(33,753,205	)			(31,827,065	)
TOTAL NET PROPERTY AND EQUIPMENT			14,919,503				16,771,838
OTHER ASSETS
Notes receivable			684,932				669,478
TOTAL OTHER ASSETS			684,932				669,478
TOTAL ASSETS		$	16,759,306			$	18,731,255
LIABILITIES AND MEMBERS' DEFICIT
CURRENT LIABILITIES
Accounts payable		$	730,368			$	694,835
Bank Overdraft			40,074				-
Accrued expenses			43,771				74,958
State income taxes payable			103,375				140,500
Current portion of long-term debt			3,525,238				3,707,721
TOTAL CURRENT LIABILITIES			4,442,826				4,618,014
LONG-TERM DEBT, net of current portion			17,609,930				19,901,173
TOTAL LIABILITIES			22,052,756				24,519,187
MEMBERS' DEFICIT			(5,293,450	)			(5,787,932	)
TOTAL LIABILITIES AND MEMBERS' DEFICIT		$	16,759,306			$	18,731,255

 

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

 

 

5J TRUCKING, LLC

STATEMENTS OF OPERATIONS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

 

		For the Nine Months Ended
		September 30,
		2019				2018
OPERATING REVENUES		$	19,299,200			$	19,146,258
OPERATING EXPENSES			17,505,115				17,264,934
GROSS PROFIT			1,794,085				1,881,324
GENERAL AND ADMINISTRATIVE			1,079,351				681,970
INCOME FROM OPERATIONS			714,734				1,199,354
OTHER INCOME (EXPENSE)
Gain on sale of fixed assets			490,848				2,409,043
Interest income			55,151				45,065
Interest expense			(662,876	)			(550,523	)
NET OTHER INCOME (EXPENSE)			(116,877	)			1,903,585
INCOME BEFORE PROVISION FOR INCOME TAXES			597,857				3,102,939
STATE INCOME TAX EXPENSE			103,375				92,000
NET INCOME		$	494,482			$	3,010,939

 

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

 

 

5J TRUCKING, LLC

STATEMENTS OF MEMBERS' EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

 

		2019				2018
MEMBERS' EQUITY AT BEGINNING OF PERIOD		$	(5,787,932	)		$	(7,430,072	)
Net income			494,482				3,010,939
Contributions (distributions) to members			-				(1,260,000	)
MEMBERS' EQUITY AT END OF PERIOD		$	(5,293,450	)		$	(5,679,133	)

 

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

 

 

5J TRUCKING, LLC

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(UNAUDITED)

 

		2019				2018
CASH FLOW FROM OPERATING ACTIVITIES
Net income		$	494,482			$	3,010,939
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			2,767,007				3,022,445
Gain on sale of fixed assets			(490,848	)			(1,546,828	)
Gain on distribution of property			-				(862,215	)
Bad debt expense			554,777				200,334
Decrease (Increase) in accounts receivable			(595,549	)			(322,076	)
Decrease (Increase) in prepaid expenses			(11,258	)			(7,059	)
(Decrease) Increase in accounts payable			35,533				(119,863	)
(Decrease) Increase in bank overdraft			40,074				-
(Decrease) Increase in accrued expenses			(31,187	)			(66,949	)
(Decrease) Increase in state income taxes payable			(37,125	)			(13,000	)
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES			2,725,906				3,295,728
CASH FLOW FROM INVESTING ACTIVITIES
Purchases of property and equipment			(552,738	)			(779,953	)
Proceeds from disposal of equipment			-				276,051
Payments received from equipment sold on contract			453,478				313,970
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES			(99,260	)			(189,932	)
CASH FLOWS FROM FINANCING ACTIVITIES
Reduction in long-term debt			(2,813,744	)			(3,058,032	)
Member contributions (distributions)			-				(5,000	)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES			(2,813,744	)			(3,063,032	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			(187,098	)			42,764
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD			187,098				193,758
CASH AND CASH EQUIVALENTS (OVERDRAFT) AT END OF PERIOD		$	-			$	236,522
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest		$	856,634			$	743,820
State income taxes		$	140,500			$	105,000
Noncash investing and financing transactions:
Acquisition of property and equipment:
Cost of property and equipment			340,018				2,356,891
Property and equipment loans			(340,018	)			(2,276,891	)
Cash down payments		$	-			$	80,000
Sale of property and equipment:
Equipment sold on contract		$	632,767			$	1,353,000
Property distributions:
Fair value of property distributed		$	-			$	1,170,000
Cost basis			-				(307,785	)
Gain on distribution		$	-			$	862,215

 

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

 

 

5J TRUCKING, LLC

 

NOTES TO UNAUDITED FINANCIAL STATEMENTS

 

NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

 

ORGANIZATION

 

5J Trucking, LLC (the Company) is a limited liability company organized under the laws of the State of Texas on January 20, 2004, and headquartered in Palestine, Texas.

 

NATURE OF OPERATIONS

 

The Company provides rig mobilization, heavy hauling, compressor and production hauling and hotshot services to the oil and gas industry. Substantially all of these services are provided through 5J Oilfield Services, LLC, a related party.

 

SIGNIFICANT ACCOUNTING POLICIES

 

The summary of significant accounting policies is presented to assist in the understanding of the Company’s financial statements. The financial statements and notes are representations of the Company’s management who is responsible for the integrity and objectivity of the financial statements.

 

Use of Estimates. The preparation of financial statements 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Concentration of Credit Risk. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and accounts receivable. As of September 30, 2019 and December 31, 2018, the Company had no deposits in excess of federally insured limits at financial institutions. Substantially all (96%) of accounts receivable at September 30, 2019 and (86%) at December 31, 2018 was due from 5J Oilfield Services, LLC. Credit risk with respect to the accounts receivable is derived from 5J Oilfield Services, LLC granting credit to customers located throughout the United States.

 

Accounts Receivable. Accounts receivable are recorded net of the allowance for doubtful accounts of $1,175,005 at September 30, 2019 and $618,864 at December 31, 2018. The allowance for doubtful accounts is based on historical experience and an evaluation of the outstanding receivables at year end. Bad debt expense for the nine months ended September 30, 2019 and 2018, was $554,777 and $200,334, respectively.

 

 

Property and Equipment. Property and equipment are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful life of each class as follows:

 

Buildings	7-39 years
Cranes	10 years
Trucks, trailers and winches	7 years
Machinery and equipment	5-7 years

 

Maintenance and repairs are charged to expense as incurred and expenditures for major renewals and betterments are capitalized.

 

When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the results of operations.

 

Depreciation expense for the nine months ended September 30, 2019 and 2018, was $2,767,007 and $3,022,445, respectively.

 

Cash and Cash Equivalents. For purposes of the statement of cash flows, the Company considers all demand deposits, money market funds and cash on hand to be cash equivalents.

 

Income Taxes. The Company is a disregarded entity for Federal income tax purposes. Therefore, no provision for Federal income tax has been included in the financial statements.

 

The Company is subject to various state income taxes and a state income tax provision of $103,375 and $92,000, has been recorded for the nine months ended September 30, 2019 and 2018, respectively.

 

For federal and state income tax purposes, the tax returns essentially remain open for possible examination for a period of three years after the respective filing deadlines of those returns.

 

Members’ Liability. As a limited liability company, each member’s liability is limited to amounts reflected in their respective member equity accounts in accordance with the Operating Agreement.

 

Subsequent Events. Management has evaluated subsequent events through May 8, 2020, the date the financial statements were available to be issued.

 

 

NOTES PAYABLE

 

Notes payable as of September 30, 2019 and December 31, 2018 consisted of the following:

 

				Date of		Maturity		Interest		Original				Monthly				Payment		Balance				2019				2019				Balance
Notes Payable		Collateral		Inception		Date		Rate		Amount				Payment				Method		12/31/2018				Additions				Reductions				9/30/2019
Equify		(4) Manitowoc cranes		Aug-15		Dec-18		6.00%		$	1,353,514				-			Monthly		$	181,620			$	-			$	181,620			$	-
5J Oilfield Services, LLC		Miscellaneous Loan Fd Cash Acc.		Dec-13		Dec-26		2.00%			13,887,658				33,333			Quarterly			12,137,658				-				200,000				11,937,658
Citizens National Bank		2017 Holden & 2007 Aspen trailers		Nov-16		Nov-19		5.00%			92,100				2,763			Monthly			29,588				-				24,158				5,430
Scott Financial		2014 Kobelco Crane		Apr-16		Apr-20		5.75%			516,127				12,798			Monthly			196,771				-				108,649				88,122
Scott Financial		2006 Manitowoc Crane		Apr-16		Jan-20		5.75%			335,246				8,313			Monthly			104,610				-				71,612				32,998
Scott Financial		2013 Kobelco Crane		Apr-16		Apr-20		5.75%			531,500				13,179			Monthly			202,554				-				111,885				90,669
ALLY		2017 GMC Truck		Mar-17		Mar-20		4.69%			28,443				850			Monthly			12,305				-				7,332				4,973
ALLY		2017 GMC Truck		Mar-17		Mar-20		4.76%			30,368				909			Monthly			13,145				-				7,832				5,313
ALLY		2017 GMC Truck		Apr-17		Apr-20		4.59%			33,665				1,005			Monthly			15,498				-				8,640				6,858
ALLY		2017 GMC Truck		Apr-17		Apr-20		4.59%			42,762				1,276			Monthly			19,685				-				10,973				8,712
ALLY		2017 GMC Truck		Jun-17		Jun-20		4.59%			26,148				780			Monthly			14,222				-				6,633				7,589
ALLY		2017 GMC Truck		Jul-17		Jul-20		3.39%			18,380				538			Monthly			9,920				-				4,644				5,276
ALLY		2017 Chevrolet Truck		Sep-17		Sep-20		4.40%			30,996				922			Monthly			18,550				-				7,803				10,747
ALLY		2018 Chevrolet Truck		Oct-17		Oct-20		4.59%			29,318				875			Monthly			18,369				-				7,351				11,018
Citizens National Bank		13 Trailers		Aug-17		Aug-22		5.50%			448,000				8,464			Monthly			336,132				-				63,277				272,855
Scott Financial		Kobelco crane		Aug-17		Aug-21		5.75%			550,500				13,950			Monthly			368,860				-				101,817				267,043
Scott Financial		2017 Kobelco crane		Dec-17		Dec-22		5.75%			784,877				15,113			Monthly			645,520				-				109,816				535,704
Triumph		9 Trucks and 3 Trailers		Oct-17		Oct-20		5.50%			1,162,749				35,207			Monthly			650,341				-				332,864				317,477
De Lage Landen		2017 Grove Crane		Dec-17		Jan-24		5.48%			3,447,067				56,286			Monthly			2,991,144				-				435,447				2,555,697
Citizens Bank of Crockett		2 Trailers		Jan-18		Jan-21		6.5% floating			144,810				4,476			Monthly			103,665				-				35,472				68,193
Mercedes-Benz		1 Western Star truck		Feb-18		Jul-21		6.15%			100,000				2,640			Monthly			77,939				-				20,559				57,380
Citizens National Bank		2 Kenworths		Jun-18		May-22		5.75%			319,120				7,471			Monthly			283,041				-				56,097				226,944
Citizens National Bank		2 Trailers		Jul-18		Jul-22		5.49%			368,000				8,571			Monthly			333,246				-				64,593				268,653
Mercedes-Benz		8 Western Star trucks		Aug-18		Sep-23		5.50%			1,344,961				25,747			Monthly			1,288,963				-				181,828				1,107,135
Volvo Fin		4 Volvo Trucks		Oct-18		Oct-22		5.50%			596,565				13,874			Monthly			574,234				-				103,053				471,181
Volvo Fin		2 Volvo Trucks		Dec-18		Nov-22		5.50%			309,993				7,209			Monthly			304,204				-				53,305				250,899
Mercedes-Benz		2 Western Star trucks		Dec-18		Dec-23		5.84%			334,047				6,433			Monthly			334,047				-				43,563				290,484
Triumph		5 Kenworth Trucks		Nov-18		Jan-22		6.00%			1,000,750				30,770			Monthly			1,000,750				-				200,090				800,660
Citizens National Bank		2018 Cat Crane		Dec-18		Dec-22		6.00%			900,000				21,171			Monthly			900,000				-				153,071				746,929
Volvo Fin		3 Volvo Trucks		Dec-18		Dec-22		5.50%			442,313				10,287			Monthly			442,313				-				75,712				366,601
Mercedes-Benz		2 Western Star trucks		May-19		Apr-24		5.65%			340,018				6,534			Monthly			-				340,018				24,048				315,970
		Totals								$	29,549,995									$	23,608,894			$	340,018			$	2,813,744			$	21,135,168
																		Total Long-Term Debt														$	21,135,168
																		Less current portion															3,525,238
																		Total Long-Term Debt, net of current portion														$	17,609,930

 

COMMITMENTS AND CONTINGENCIES

 

The Company has guaranteed 5J Oilfield Services, LLC’s Line of Credit with VeraBank with a balance of $6,254,734 as of September 30, 2019. The line of credit matures on October 4, 2019, and has a maximum borrowing amount of $8,000,000. The Company would be obligated to perform under the guarantee if the related entity failed to pay principal and interest payments to the lender when due. As of September 30, 2019, the related party is current with its debt payments.

 

The Company has guaranteed two of Certified Crane and Rigging Services, LLC’s notes payable due to Equify Financial, LLC with balances of $2,336,368 and $2,003,788 as of September 30, 2019. Payments on the debts are due monthly with final payments due during the year ending December 31, 2022. The Company would be obligated to perform under the guarantee if the related entity failed to pay principal and interest payments to the lender when due. At September 30, 2019, including accrued interest, the maximum potential amount of future payments under the guarantees would be $4,810,043. As of September 30, 2019, the related party is current with its debt payments.

 

The Company has also guaranteed a Line of Credit for Certified Crane and Rigging Services, LLC with a balance of $1,469,040 as of September 30, 2019. The line of credit matures on February 16, 2020, and has a maximum borrowing amount of $2,020,000. The Company would be obligated to perform under the guarantee if the related entity failed to pay principal and interest payments to the lender when due. As of September 30, 2019, the related party is current with its debt payments.

 

The Company is contingently liable in respect to lawsuits and other claims arising from the ordinary course of its operations. The Company believes that either there are meritorious defenses to substantially all such actions or that any liability that may finally be determined, net of insurance, should not have a material affect on the Company’s financial position.

 

 

RELATED PARTY TRANSACTIONS

 

During 2019 and 2018, the Company had transactions with 5J Oilfield Services, LLC (Oilfield Services), 5J Properties, LLC (Properties), Certified Crane and Rigging Services, LLC (Certified Crane), 903 Industries, and Schwab Trucking, LLC (Schwab) related through common ownership and management. The Company rents a crane to Certified Crane under a cancelable five year lease. The lease requires Certified Crane to pay the Company rent for the use of the equipment. The following is a description of the transactions with these entities for the nine months ended September 30, 2019 and 2018:

 

5J Oilfield Services, LLC

 

-

The Company rents a substantial portion of its trucks, cranes and other equipment to Oilfield Services under cancelable five year leases. The leases require Oilfield Services to pay the Company rent for the use of the equipment, equivalent to a percentage of the revenue generated by the equipment. In addition, the rent will be reduced by:

 

·

the gross amount paid by or on behalf of Oilfield Services to any driver of the leased equipment for wages

 

·

a percentage of the driver’s gross wages to cover payroll taxes and operations and administrative expenses

 

·

other miscellaneous expenses such as driver physicals, drug and alcohol screens, fines, etc.

 

-

The Company also receives revenue from Oilfield Services for the use of its terminal facilities and from commissions related to job performance.

 

-

Accounts receivable includes $425,121 and $346,331 due from Oilfield Services as of September 30, 2019 and December 31, 2018, respectively.

 

-

Long-Term Debt includes $11,937,658 and $12,137,658 due to Oilfield Services as of September 30, 2019 and December 31, 2018, respectively. Interest expense incurred on the debt was $183,829 and $188,539 during the nine months ended September 30, 2019 and 2018. See the long-term debt information on page 11 for more details.

 

-

The Company reported gross revenue of $18,518,179 reduced by $8,413,934 of expenses during the nine months ended September 30, 2019 and gross revenue of $18,364,569 reduced by $8,100,246 of expenses during the nine months ended September 30, 2018 from Oilfield Services.

 

 

The Company’s transactions with other related parties are summarized below:

 

		September 30,				September 30,
		2019				2018
Operating revenue from Certified Crane		$	556,283				589,957
Operating revenue from Schwab			82,946				57,817
Operating revenue from 903 Industries			19,532				26,400
Contract service expense to Certified Crane			-				-
Rental expense to 5J Properties			76,500				76,500
Truck expense to 903 Industries			-				-
Bad debt expense from Certified Crane (included in General and Administrative expense)			556,266				150,000
Gain on distribution of fixed assets to CCR			-				862,215

 

NOTES RECEIVABLE

 

Notes receivable consisted of the following at September 20, 2019 and December 31, 2018:

 

		September 30,				December 31,
		2019				2018
Matthew Solt, with interest at 8%		$	139,245			$	165,643
Antero M. Zulueta, with interest at 8%			-				160,645
A-Starr Logistics, LLC, with interest at 8.5%			116,156				148,861
Banks Heavy Haul, with interest at 8%			108,100				131,811
Boyd Farner Jr., with interest at 8%			-				93,651
PCN Transportation, with interest at 7.5%			51,967				86,407
2J Trucking, LLC, with interest at 8%			-				78,263
PCN Transportation, with interest at 8%			40,928				59,448
Donna K. Slinker, with interest at 7.5%			-				58,250
Danny DelAngel, with interest 8%			-				55,833
William Corley, with interest at 7.5%			-				53,943
William Corley, with interest at 7.5%			150,274				-
Thomas Wright, with interest at 8.5%			119,200				-
Andy Rivers, with interest at 8%			155,703				-
Matthew Solt, with interest at 8.5%			152,482				-
Matthew Solt, with interest at 8.5%			74,154				-
Notes receivable		$	1,108,209			$	1,092,755
Less current portion			(423,277	)			(423,277	)
Notes receivable - non-current portion		$	684,932			$	669,478

 

SUBSEQUENT EVENTS

 

On February 27, 2020, SMG Industries, Inc. (“SMG”) purchased 100% of the outstanding membership interests of the Company and 5J Trucking for total consideration of $16,000,000, including notes payable of $3,000,000 and preferred stock issued by SMG with a face value of $6,000,000. The transaction closed on February 27, 2020, at which time each 5J company became a wholly-owned subsidiaries of SMG.