SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
AMENDMENT TO
QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter year ended Commission File Number
March 31, 1996 1-13752
- -------------------------- ----------------------
SMITH-MIDLAND CORPORATION
-------------------------
(Name of Small Business
Issuer As Specified In Its Charter)
Delaware 54-1727060
- ------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Route 28, P.O. Box 300, Midland, Virginia 22728
---------------------------------------------------
(Address of Principal Executive Offices, Zip Code)
(540) 439-3266
------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
AMENDMENT NO. 1
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Quarterly Report for the fiscal
quarter ended March 31, 1996 on Form 10-QSB as set forth in the pages attached
hereto:
(List all such items, financial statements, exhibits
or other portions amended.)
1. Part I: Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company generates revenues primarily from the sale, shipping,
licensing, leasing and installation of precast concrete products for the
construction, utility and farming industries. The Company's operating strategy
has involved producing innovative and proprietary products, including
Slenderwall(TM), a patent-pending, lightweight, energy efficient concrete and
steel exterior wall panel for use in building construction; J-J Hooks(TM)
Highway Safety Barrier, a patented, positive-connected highway safety barrier;
Sierra Wall, a sound barrier primarily for roadside use; and transportable
concrete buildings. In addition, the Company produces utility vaults, farm
products such as cattleguards, and water and food troughs, and custom order
precast concrete products with various architectural surfaces.
The results for the quarter ended March 31, 1996 are not necessarily
indicative of the results of the Company's operations that may be expected for
the year ending December 31, 1996.
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED
MARCH 31, 1995
For the three months ended March 31, 1996, the Company had total revenue of
approximately $2,106,000 compared to total revenue of approximately $2,656,000
for the three months ended March 1, 1995, a decrease of approximately $550,000,
or 21%. Total product sales decreased from approximately $2,343,000 to
$1,891,000, a decrease of approximately $452,000 or 19%. The decrease in total
product sales was primarily attributed to the severe winter weather experienced
in the Mid-Atlantic region during the 1996 period which delivered record
snowfall which affected the Company's production (see "Seasonality and
Inflation"). In addition, the 1996 sales were adversely affected by the
Company's continued modification and preparation of selected areas of its
manufacturing facility for the production of Slenderwall(TM) systems (the
"Slenderwall Transition"). During the Slenderwall Transition, the Company was
unable to produce the same volume of products as during the previous period.
Management initiated the Slenderwall Transition as a result of the positive
reaction to Slenderwall(TM) systems in the marketplace, the anticipated demand
for Slenderwall(TM) systems, and the higher profit margins the Company expects
to realize on sales of Slenderwall(TM) systems in 1996 and beyond. Of the
Company's approximate $3,100,000 backlog of purchase orders as of May 13, 1996,
approximately $2,100,000 was for the manufacture of Slenderwall(TM) systems.
Shipping and installation revenue decreased from approximately $313,000 to
$216,000, a decrease of approximately $97,000 or 31%, due to a lower volume of
installation services and deliveries.
Total cost of goods sold for the three months ended March 31, 1996
decreased by approximately $160,000 to $1,752,000 from $1,912,000 for the three
months ended March 31, 1995, a decrease of approximately 8%. Although cost of
goods sold decreased due to lower revenues, cost of goods sold as a percentage
of total revenue increased from approximately 72% for the three months ended
-7-
March 31, 1995 to approximately 83% for the three months ended March 31, 1996.
This increase was primarily attributed to two reasons. First, the adverse winter
weather during the three months ended March 31, 1996 significantly reduced the
level of revenue available to cover the fixed portion of cost of goods sold.
Second, the Company's cost of goods sold was adversely affected by work
performed during the three months ended March 31, 1996 to resolve two disputed
contracts. In late 1995, the Company filed four separate informal claims
totaling approximately $592,000 for damages and costs incurred as a result of
specification, policy and operating changes to contracts primarily instituted by
the State of Maryland, all of which were undertaken after the award of the
contracts and after unit production in accordance with the contracts was
virtually complete (the "Maryland Claims"). In an ongoing effort to perform on
two of these the contracts, the Company incurred approximately $90,000 in direct
costs and overhead during the three months ended March 31, 1996 for product
repairs and remakes. Repairs and remakes on these two contracts are expected to
continue into the second and third quarters of 1996. In the future, although no
assurance can be given, management expects the total cost of goods sold as a
percentage of total revenue to decrease as higher profit margin products,
primarily Slenderwall(TM) systems, become a larger percentage of the mix of
products sold.
For the three months ended March 31, 1996, the Company's general and
administrative expenses increased by approximately $73,000, or 11% to $731,000,
or 36% of total revenue, from $658,000, or 25% of total revenue, for the three
months ended March 31, 1995. The increase is primarily the result of increased
insurance and worker's compensation expenses, increased fees for professional
services, a portion of which is non-recurring, increased expenditures related to
the licensing activities conducted by Easi-Set, and increased costs related to
the introduction of the Slenderwall(TM) systems and the Slenderwall Transition.
Selling expenses for the three months ended March 31, 1996 increased to
approximately $151,000 from approximately $118,000 for the three months ended
March 31, 1995 an increase of approximately 33,000, or 28%, primarily resulting
from an increase in advertising and promotion.
The Company's operating loss for the three months ended March 31, 1996 was
$528,000, compared to an operating loss of $32,000, for the three months ended
March 31, 1995, an increased loss of $496,000. This increase in the first
quarter operating loss was primarily attributed to the severe weather
experienced in the 1996 quarter, costs associated with the Maryland Claims, and
marketing and production start-up costs incurred in connection with the
Slenderwall Transition. In the future, although no assurance can be given,
management believes that profit margins and operating income will increase as
sales of Slenderwall(TM) wall panels become a larger percentage of revenues.
Royalty income increased by approximately $21,000 or 57%, from $37,000 for
the three months ended March 31, 1995 to approximately $58,000 for the same
period in 1996. The increase was a result of a general increase in the number of
licensees throughout 1995 and continuing into 1996, who generated increased
royalty revenue, specifically with increase in royalties generated from the sale
by licensees of J-J Hooks(TM) Barriers. Although no assurance can be given,
management expects royalty income to grow during the year ended December 31,
1996 due to an increased sales staff and the efforts of the Company to obtain
additional licensees and implement a licensing program for its Slenderwall(TM)
wall panel product.
-8-
Interest expense was approximately $108,000 for the three months ended
March 31, 1996, compared to approximately $112,000 for the three months ended
March 31, 1995. This $4,000 decrease, or 4%, was primarily due to a decreased
level of debt outstanding during the 1996 quarter. Interest income of $28,000
for the 1996 period represented a $19,000 increase (211%) over interest income
of $9,000 for the 1995 quarter due to investment of IPO proceeds during the 1996
quarter. The Company incurred total other expenses of approximately $32,000 for
the three months ended March 31, 1996, compared to other expenses of
approximately $36,000 for the three months ended March 31, 1995, a decrease of
approximately $4,000, which resulted primarily from reduced fees and
miscellaneous charges.
The Company experienced a net loss for the three months ended March 31,
1996 of approximately $582,000 compared to a net loss of approximately $134,000
for the same quarter in 1995. This increase in net loss of approximately is
$448,000 was primarily attributed to the unusually severe winter weather during
the 1996 period which reduced revenue, costs incurred to resolve the Maryland
Claims, and increased general and administrative expenses and marketing costs
during the Slenderwall Transition.
LIQUIDITY AND CAPITAL RESOURCES
In December 1995, the Company completed an initial public offering ("IPO")
of 1,000,000 shares of common stock, $.01 par value per share (the "Common
Stock"), and 1,000,000 Redeemable Common Stock Purchase Warrants (the
"Redeemable Warrants"), at a purchase price of $3.60 per share of Common Stock
and Redeemable Warrant sold together. The Company realized net proceeds from the
IPO of approximately $2,618,000. In January 1996, the Company completed an
overallotment of an additional 150,000 shares of Common Stock and 150,000
Redeemable Warrants for net proceeds of approximately $369,000.
The Company has financed its capital expenditures, operating requirements
and growth to date primarily through the IPO, bank and other borrowings, and the
sale of stock to and loans from its principal stockholders.
In connection with the Maryland Claims, several involved parties have
withheld payment on accounts receivable to the Company. This increase in
accounts receivable due to the Maryland Claims and related disputes has
adversely affected the Company's cash flow.
For the three months ended March 31, 1996, cash of approximately $551,000
was absorbed by operating activities. The substantial use of cash during this
period was from an increase of accounts receivable totalling approximately of
$416,000. In addition, the Company used cash of approximately $46,000 for
investing activities, primarily as a result of the purchase of and additions to
property and equipment. Cash totalling approximately $240,000 was provided to
the Company by financing activities, the major source of which was the IPO
overallotment proceeds.
-9-
The Company had approximately $1,053,000 of indebtedness at March 31, 1996,
due during the next 12 months. This indebtedness is generally secured by the
assets of the Company and is personally guaranteed by Rodney I.
Smith, the Company's President.
Management intends to extend or refinance this debt as it becomes due.
However, no assurance can be given that the Company will be successful in its
efforts to extend or refinance its current indebtedness, or that if it is
successful in those efforts, that such extension or refinancing will be on terms
favorable to the Company. If the Company is not able to extend or refinance the
indebtedness, the Company may be subject to having its assets foreclosed upon by
certain lenders. As of May 17, 1996, the Company had not paid a $400,000
personal note that matured on April 30, 1996. Management is negotiating an
extension of that note, but no assurances can be made as to the ability to
successfully extend the maturity date. The note is secured by the Company's
accounts receivable.
As a result of the Company's substantial debt burden, the Company is
especially sensitive to changes in the prevailing interest rates, which have
risen substantially in 1995. Fluctuations in such interest rates may materially
and adversely affect the Company's ability to finance its operations either by
increasing the Company's cost to service its current debt, or by creating a more
burdensome refinancing environment, if interest rates should increase.
SEASONALITY AND INFLATION
The Company performs a portion of its concrete pouring and curing processes
on uncovered, outdoor manufacturing areas. During the winter months, cold or
adverse weather causes a slowdown or cessation of these outdoor production
activities, thereby severely reducing the Company's production capacity. In
addition, the Company services the construction industry primarily in areas of
the United States where construction activity is inhibited by adverse weather
during the winter. As a result, the Company experiences reduced revenues from
December through March and realizes the substantial part of its revenues during
the other months of the year. The Company typically experiences lower profits,
or losses, during the winter months, and must have sufficient working capital to
fund its operations at a reduced level until the spring construction season.
Management believes that the Company's operations have not been materially
affected by inflation.
-10-
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SMITH-MIDLAND CORPORATION
Date: July 8, 1996 By:/s/ Rodney I. Smith
_____ ----------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and
President
(principal executive officer)
Date: July 8, 1996 By:/s/ Scott J. Friberg
-----------------------
_____ Scott J. Friberg
Chief Financial Officer
(principal financial officer)
-11-
