SMGI SMG Industries Inc (QB)

On June 3, 2019 we entered into an Agreement and Plan of Share Exchange dated as of such date (the “ Exchange Agreement ”) with Trinity Services LLC, a Louisiana limited liability company (“ Trinity ”) and the sole member of Trinity (the “ Trinity Member ”). We expect to complete the closing of the acquisition of Trinity on or before June 21, 2019 (“ Closing Date ”). On the Closing Date, pursuant to the Exchange Agreement, we will acquire one hundred percent (100%) of the issued and outstanding membership interests of Trinity (“ Trinity Membership Interests ”) from the Trinity Member pursuant to which Trinity will become our wholly owned subsidiary (“ Acquisition ”). In accordance with the terms of the Exchange Agreement, and in connection with the completion of the Acquisition, on the Closing Date we will: (i) issue 2,000 shares of our 3% Series A Secured Convertible Preferred Stock (“Preferred Stock”), stated value $1,000 per share, (ii) pay $500,000 in cash to the Trinity Member, and (iii) assume approximately $850,000 in notes related to equipment owned by Trinity (“ Purchase Price ”).

The Purchase Price will be increased, or decreased, as the case may be, on a dollar for dollar basis by an amount equal to the amount, if any, by which the Net Working Capital reflected on the Trinity balance sheet dated as of the Closing Date (“ Closing Balance Sheet ”) is less than the Net Working Capital, defined below, calculation of Four Hundred Forty One Thousand Twenty Two dollars ($441,022 plus unknown cash balance) as of April 18, 2019 (“ Purchase Price Adjustment ”). For purposes hereof “Net Working Capital” shall be defined as: cash plus accounts receivable, less accounts payable and accrued expenses. Any such adjustment shall be determined on the date that is sixty (60) days after the Closing Date (“ Closing Adjustment Date ”). If the Purchase Price Adjustment results in an increase in the Net Working Capital, then the Company shall pay the Purchase Price Adjustment amount, in cash, to the Trinity Member within five business days of the Closing Adjustment Date (“ Purchase Price Adjustment Payment Date ”). If the Purchase Price Adjustment results in a decrease in the Net Working Capital then the Trinity Member shall pay the Purchase Price Adjustment, in cash, to the Company on or prior to the Purchase Price Adjustment Payment Date. In the event that the Trinity Member is required to make a Purchase Price Adjustment payment to the Company, and such payment is not made on or before the Purchase Price Adjustment Payment Date, then the Company may, in its sole discretion, cancel and redeem such number of shares of Preferred Stock held by the Trinity Member, or its assigns, with a stated value equal to the Purchase Price Adjustment amount.

The Preferred Stock is convertible at $0.50 per share at any time after the issuance thereof and is secured by all of the unencumbered assets of Trinity. All outstanding shares of 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 Preferred Stock; or (ii) six months after the date of issuance of the Preferred Stock, provided that (a) all shares of the Company’s common stock issued upon conversion of the Preferred Stock 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.

Additionally, in connection with the execution of the Exchange Agreement, Trinity entered into a $1,000,000 loan and security agreement with Newton Dorsett as a line of credit against the Trinity accounts receivable. Pursuant to the terms of the loan and security agreement, Newton Dorsett will lend Trinity up to the lesser of: (i) $1,000,000, or (ii) 90% of eligible accounts receivable of Trinity. Trinity shall pay interest on a monthly basis to Newton Dorsett at a rate of 9% per annum.

All of the shares of Preferred Stock, and the shares of the Company’s Common Stock underlying the Preferred Stock, issued in connection with the Acquisition are restricted securities, as defined in paragraph (a) of Rule 144 under the Securities Act of 1933, as amended (the “ Securities Act ”). Such shares were issued pursuant to an exemption from the registration requirements of the Securities Act, under Section 4(a)(2) of the Securities Act and the rules and regulations promulgated thereunder.

The summary of the Exchange Agreement and Loan and Security Agreement set forth above do not purport to be a complete statement of the terms of such documents. The summary is qualified in its entirety by reference to the full text of the document, copies of which are being filed with this Current Report on Form 8-K as  Exhibits 2.1, 10.6 and 10.7 , and is incorporated herein by reference.