SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
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
June 30, 1996 1-13752
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SMITH-MIDLAND CORPORATION
-------------------------
(Name of Small Business
Issuer As Specified In Its Charter)
Delaware 54-1727060
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
Route 28, P.O. Box 300, Midland, Virginia 22728
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(Address of Principal Executive Offices, Zip Code)
(540) 439-3266
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(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes___X____ No ______
As of August 16, 1996, the Company had outstanding 3,085,718 shares of
Common Stock, $.01 par value per share.
SMITH-MIDLAND CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
Item 1. Financial Statements
Consolidated Balance Sheets; 1
June 30, 1996 (Unaudited)
and December 31, 1995 (Unaudited)
Consolidated Statements of 2
Operations (Unaudited); Three
months ended June 30, 1996 and 1995
Consolidated Statements of 3
Operations (Unaudited); Six
months ended June 30, 1996 and 1995
Consolidated Statements of Cash Flows 4
(Unaudited); Six months ended
June 30, 1996 and 1995
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<S> <C> <C>
JUNE 30, DECEMBER 31,
ASSETS 1996 1995
------- ----------- -------------
Current assets:
Cash and cash equivalents $ 411,353 $ 938,089
Accounts receivable
Trade - billed, less allowances for doubtful accounts of
$272,114 and $231,367 2,925,399 2,559,796
Trade - unbilled 300,158 101,873
Inventories
Raw materials 473,523
482,939
Finished goods 618,759 743,205
Prepaid expenses and other assets 53,205 159,490
--------- ----------
Total current assets 4,782,397 4,985,392
--------- ---------
Property and equipment, net 1,475,272 1,430,286
--------- ---------
Other assets:
Note receivable, officer 677,498 665,474
Other 89,683 76,103
---------- ----------
Total other assets 767,181 741,577
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TOTAL ASSETS $7,024,850 $7,157,255
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $1,893,985 $1,274,544
Accounts payable -- trade 1,643,485 1,603,325
Accrued expenses and other liabilities 484,957 597,480
Customer deposits 406,579 51,132
---------- -----------
Total current liabilities 4,429,006 3,526,481
--------- ---------
Notes payable -- less current maturities 920,513 1,720,726
Notes payable -- related parties 116,753 116,753
---------- ----------
TOTAL LIABILITIES 5,466,272 5,363,960
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, authorized 1,000,000 shares,
none outstanding -- --
Common stock, $.01 par value, authorized 8,000,000 shares,
issued and outstanding 3,085,718 and 2,935,718 30,857 29,357
Additional capital 3,450,085 3,055,252
Retained earnings (deficit) (1,922,364) (1,291,314)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 1,558,578 1,793,295
----------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,024,850 $7,157,255
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
1
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
JUNE 30,
1996 1995
---------- ------------
Revenue:
Net sales $2,820,483 $ 2,559,299
Shipping and installation income 343,877 602,973
---------- ------------
Total revenue 3,164,360 3,162,272
---------- ------------
Cost of goods sold:
Cost of goods sold -- sales 2,360,606 2,286,273
Shipping and installation expense 310,428 400,649
---------- ------------
Total cost of goods sold 2,671,034 2,686,922
---------- ------------
Gross profit 493,326 475,350
---------- ------------
Operating expenses:
General and administrative expenses 339,394 175,619
Selling expenses 180,711 122,426
---------- ------------
Total operating expenses 520,105 298,045
---------- ------------
Operating income (loss) ( 26,779) 177,305
---------- ------------
Other income (expense):
Royalties 73,946 78,549
Interest expense (135,279) (155,960)
Interest income 8,449 12,908
Other 30,187 28,731
----------- -----------
Total other income (expense) (22,697) (35,772)
----------- -----------
Income (loss) before income taxes (49,476) 141,533
Income tax expense (benefit) -- --
----------- -----------
Net income (loss) $ (49,476) $ 141,533
=========== ===========
Net income (loss) per share $ (.02) $ .08
=========== ===========
Weighted average common shares outstanding 3,085,718 1,792,858
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
2
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
1996 1995
------------ -----------
Revenue:
Net sales $ 4,711,262 $ 4,901,863
Shipping and installation income 559,519 916,159
----------- ------------
Total revenue 5,270,781 5,818,022
----------- -----------
Cost of goods sold:
Cost of goods sold -- sales 3,936,909 3,950,032
Shipping and installation expense 486,044 649,041
----------- ------------
Total cost of goods sold 4,422,953 4,599,073
----------- -----------
Gross profit 847,828 1,218,949
----------- -----------
Operating expenses:
General and administrative expenses 1,070,527 833,219
Selling expenses 331,684 240,851
---------- ------------
Total operating expenses 1,402,211 1,074,070
----------- ------------
Operating income (loss) (554,383) 144,879
----------- ------------
Other income (expense):
Royalties 131,645 115,285
Interest expense (243,442) (267,518)
Interest income 36,559 22,366
Other (1,429) (7,503)
------------ -----------
Total other income (expense) (76,667) (137,370)
------------- -----------
Income (loss) before income taxes (631,050) 7,509
Income tax expense (benefit) -- --
------------- -------------
Net income (loss) $ (631,050) $ 7,509
============ ============
Net income (loss) per share $ (.21)$ .00
============ ============
Weighted average common shares outstanding 3,071,707 1,792,858
============ ============
The accompanying notes are an integral part of these consolidated
financial statements.
3
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 5,193,985 $ 5,641,395
Cash paid to suppliers and employees (5,501,304) (5,528,829)
Interest paid (243,442) (233,434)
Other 35,130 14,863
------------ ----------
Net cash (absorbed) by operating activities (515,631) (106,005)
---------- -----------
Cash flows from investing activities:
Purchases of property and equipment (214,642) (22,044)
Increase in officer note receivable (12,024) (44,115)
----------- -----------
Net cash (absorbed) by investing activities (226,666) (66,159)
---------- ----------
Cash flows from financing activities:
Proceeds from bank borrowings 41,547 506,478
Repayments of bank borrowings (222,319) (286,689)
Proceeds from issuance of common stock 396,333 --
Proceeds (repayments) on borrowings - related parties, net -- (2,979)
------------ ----------
Net cash provided by financing activities 215,561 216,810
------------ ---------
Net increase (decrease) in cash (526,736) 44,646
Cash at beginning of period 938,089 320,514
------------ ---------
Cash at end of period $ 411,353 $ 365,160
============ ===========
Reconciliation of net income (loss) to net cash provided
by operating activities:
Net income (loss) $ (631,050) $ 7,509
Adjustments to reconcile net income (loss) to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 169,656 203,664
Decrease (increase) in other assets (13,580) (48,733)
Decrease(increase) in:
Accounts receivable - billed (365,603) (59,214)
Accounts receivable - unbilled (198,285) (182,261)
Inventories 106,285 (30,360)
Increase (decrease) in:
Accounts payable - trade 40,160 311,295
Accrued expenses and other liabilities (112,523) (94,436)
Customer deposits 355,447 (50,437)
------------ ----------
Net cash (absorbed ) by operating activities $ (515,631) $ (106,005)
=========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1996
BASIS OF PRESENTATION
As permitted by the rules of the Securities and Exchange Commission (the
"Commission") applicable to quarterly reports on Form 10-QSB, these notes are
condensed and do not contain all disclosures required by generally accepted
accounting principles. Reference should be made to the consolidated financial
statements and related notes included in the Company's Annual Report on Form
10-KSB, for the year ended December 31, 1995.
In the opinion of management of the Company, the accompanying financial
statements reflect all adjustments which were of a normal recurring nature
necessary for a fair presentation of the Company's results of operations for the
three months and six months ended June 30, 1996 and June 30, 1995.
The results disclosed in the consolidated statements of operations are not
necessarily indicative of the results to be expected for any future periods.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Smith-Midland Corporation and its wholly owned subsidiaries, Smith-Midland
Corporation, a Virginia corporation, Easi-Set Industries, Inc., a Virginia
corporation, Smith-Carolina Corporation, a North Carolina corporation, Concrete
Safety Systems, Inc., a Virginia corporation, and Midland Advertising & Design,
Inc., a Virginia corporation. All significant intercompany accounts and
transactions have been eliminated in consolidation.
INVENTORIES
Inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
PROPERTY AND EQUIPMENT
Property and equipment, net is stated at depreciated cost. Expenditures for
ordinary maintenance and repairs are charged to income as incurred. Costs of
betterments, renewals, and major replacements are capitalized. At the time
properties are retired or otherwise disposed of, the related cost and allowance
for depreciation are eliminated from the accounts and any gain or loss on
disposition is reflected in income.
5
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Depreciation is computed using the straight-line method over the following
estimated useful lives:
Years
Buildings....................................................... 10-33
Trucks and automotive equipment................................. 3-10
Shop machinery and equipment.................................... 3-10
Land improvements............................................... 10-30
Office equipment................................................ 3-10
INCOME TAXES
The provision for income taxes is based on earnings reported in the
financial statements. A deferred income tax asset or liability is determined by
applying currently enacted tax laws and rates to the expected reversal of the
cumulative temporary differences between the carrying value of assets and
liabilities for financial statement and income tax purposes. Deferred income tax
expense is measured by the change in the deferred income tax asset or liability
during the year.
Effective January 1, 1993, the Company adopted SFAS 109 "Accounting for
Income Taxes." The adoption of SFAS 109 did not have a material effect on the
consolidated financial statements as the deferred tax asset related to the
Company's net operating loss carry forward has been reserved in its entirety. No
provision for income taxes has been made for the three month and six month
periods ended June 30, 1996 and 1995 as the Company does not expect to incur
income tax expense for fiscal year 1996 and did not incur income tax expense in
fiscal year 1995.
REVENUE RECOGNITION
The Company primarily recognizes revenue on the sale of its precast
concrete products at shipment date, including revenue derived from any projects
to be completed under short-term contracts. Installation services for precast
concrete products, leasing and royalties are recognized as revenue as they are
earned on an accrual basis. Licensing fees are recognized under the accrual
method unless collectibility is in doubt, in which event revenue is recognized
as cash is received. Certain sales of sound wall and SlenderwallTM concrete
products are recognized upon completion of production and customer site
inspections. Provisions for estimated losses on contracts are made in the period
in which such losses are determined.
6
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ESTIMATES
The preparation of these financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
INCOME PER SHARE
Income per share is calculated based on net income and the weighted average
number of shares of common stock outstanding during the period.
COMMON STOCK OFFERING
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
"Warrants"), at a purchase price of $3.60 per share of Common Stock and 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 Warrants for net proceeds
of approximately $396,000.
7
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 six months ended June 30, 1996 are not necessarily
indicative of the results of the Company's operations that may be expected for
the year ending December 31, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THE THREE MONTHS ENDED JUNE
30, 1995
For the three months ended June 30, 1996, the Company had total revenue of
approximately $3,164,000 compared to total revenue of approximately $3,162,000
for the three months ended June 30, 1995, an increase of approximately $2,000.
Total product sales were approximately $2,820,000 for the three months ended
June 30, 1996, a $261,000 increase from approximately $2,559,000 for the same
period in 1995. Shipping and installation revenue decreased from approximately
$603,000 for the three months ended June 30, 1995 to approximately $344,000 for
the same period in 1996, representing a decrease of $259,000, or 43%. The
decrease was primarily a result of significantly reduced installation revenue,
resulting from a major sound barrier installation job which provided the
majority of the installation revenue during the three months ended June 30,
1995.
Total cost of goods sold for the three months ended June 30, 1996 decreased
by approximately $16,000 to approximately $2,671,000 from approximately
$2,687,000 for the three months ended June 30, 1995, representing a 1% decrease.
Total cost of goods sold, as a percentage of total revenue, decreased slightly
from approximately 85% for the three months ended June 30, 1995 to approximately
84% for the three months ended June 30, 1996. Although the Company's cost of
goods sold decreased during the three months ended June 30, 1996, cost of goods
sold during that period included approximately $120,000 for repair work and
product remakes performed in an effort to resolve 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 these contracts, the
Company incurred approximately $120,000 in direct costs and overhead during the
8
three months ended June 30, 1996 for repairs and product remakes. Repairs and
product remakes on these contracts were significantly complete as of June 30,
1996. Varying product mix and individual job profitability also affect the cost
of goods sold as a percentage of revenue.
For the three months ended June 30, 1996, the Company's general and
administrative expenses increased by approximately $163,000, or 93% to
approximately $339,000, or 11% of total revenue, from approximately $176,000, or
6% of total revenue, for the three months ended June 30, 1995. The increase was
primarily the result of increased executive and administrative compensation,
increased legal, accounting and other professional fees, increased bad debt
expense, and increased administrative costs associated with being a public
reporting company..
Selling expenses for the three months ended June 30, 1996 increased to
approximately $181,000 from approximately $122,000 for the three months ended
June 30, 1995, an increase of approximately $59,000, or 48%, resulting from an
increase in compensation expense for salespersons and an increase in advertising
and promotion expense, primarily related to the sale of Slenderwall( wall panel
product.
The Company's operating loss for the three months ended June 30, 1996 was
approximately $27,000, compared to operating income of approximately $177,000,
for the three months ended June 30, 1995, a decrease of approximately $204,000.
This decrease in operating income was primarily attributed to decreased
installation income and increased selling expenses and increased general and
administrative expenses during the 1996 period.
Royalty income decreased by approximately $5,000 from approximately $79,000
for the three months ended June 30, 1995 to approximately $74,000 for the same
period in 1996. Although sales by licensees and the resulting royalties paid to
the Company increased during the three months ended June 30, 1996, this increase
was more than offset by past due royalties collected and recognized during the
1995 period. The increased sales by licensees during the 1996 period was
primarily due to increased sales of J-J Hooks(TM) Barriers. Although in the
context of a forward-looking statement of which 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).
However, such increase in royalty income is dependent upon: i) the retention of
the Company's current licensees; ii) satisfactory performance of such licensees;
and iii) the Company's ability to implement and maintain a licensing program for
Slenderwall(TM).
Interest expense was approximately $135,000 for the three months ended June
30, 1996, compared to approximately $156,000 for the three months ended June 30,
1995. This decrease of approximately $21,000, or 13%, was primarily due to a
decreased level of debt outstanding during the 1996 period. Interest income of
approximately $8,000 for the three months ended June 30, 1996 1996 represented a
decrease of approximately $5,000, or 38% over interest income of approximately
$13,000 for the 1995. The decrease in interest income was due primarily to lower
levels of cash available for investment during the 1996 period. The Company
earned other income of approximately $31,000 for the three months ended June 30,
1996, which represented a decrease of approximately $2,000 from other income of
approximately $29,000 for the three months ended June 30, 1995.
9
The Company experienced a net loss for the three months ended June 30, 1996
of approximately $49,000 compared to net income of approximately $142,000 for
the same period in 1995. The decreased in net income of approximately $191,000
was primarily attributed to lower installation income, coupled with increased
selling expenses and increased general and administrative expenses.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1995
For the six months ended June 30, 1996, the Company earned total revenue of
approximately $5,271,000 compared to total revenue of approximately $5,818,000
for the six months ended June 30, 1995, a decrease of approximately $547,000, or
9%. Total product sales decreased from approximately $4,902,000 to approximately
$4,711,000, a decrease of approximately $191,000, or 4%. The decrease in total
product sales was partially attributed to the severe winter weather experienced
in the Mid-Atlantic region during the first two months of 1996 which delivered
record snowfall and affected the Company's production (see "Seasonality and
Inflation"). In addition, revenues for the six months ended June 30, 1996 were
reduced affected by lost production time due to approximately $140,000 in
repairs and product remakes during the six months ended June 30, 1996 in an
effort to resolve the disputes related to the Maryland Claims.
Shipping and installation revenue decreased from approximately $916,000 for
the six months ended June 30, 1995 to $560,000 for the same period in 1996,
representing a decrease of approximately $356,000, or 39%. The decreased
shipping and installation revenue was, primarily a result of significantly
reduced installation revenue, resulting from a major sound barrier installation
job which provided significant installation revenue during the six months ended
June 30, 1995.
Total cost of goods sold was approximately $4,423,000 for the six months
ended June 30, 1996 compared to approximately $4,599,000 for the same period in
1995, representing a decrease of approximately $176,000, or 4%. The decrease in
the Company's cost of goods sold was due primarily to a 4% reduction in net
sales. Cost of goods sold for the six months ended June 30, 1996 included
approximately $210,000 in direct and indirect expenses as a result of repair
work and product remakes performed during that period in an effort to resolve
contract disputes related to the Maryland Claims. Varying product mix and
individual job profitability affects the Company's cost of goods sold.
For the six months ended June 30, 1996, the Company's general and
administrative expenses totaled approximately $1,071,000 compared to
approximately $833,000 for the same period in 1995, representing an increased
ofby approximately $238,000, or 29%. The increase was primarily the result of
increased executive and administrative compensation, increased legal, accounting
and other professional fees, increased bad debt expense, and increased
administrative costs associated with being a public reporting company.
Selling expenses for the six months ended June 30, 1996 increased to
approximately $332,000 from approximately $241,000 for the six months ended June
30, 1995 an increase of approximately 91,000, or 38%, resulting from an increase
in compensation expense for salespersons and increased advertising and promotion
expense, primarily related to the sale of Slenderwall(TM) wall panel product.
10
The Company's operating loss for the six months ended June 30, 1996 was
approximately $554,000, compared to operating income of approximately $145,000,
for the six months ended June 30, 1995, a decrease of approximately $699,000.
This decrease in operating income was primarily attributed to decreased total
revenue, and increased selling expenses and increased general and administrative
expenses.
Royalty income increased by approximately $17,000, or 15%, from
approximately $115,000 for the six months ended June 30, 1995 to approximately
$132,000 for the same period in 1996. The increase was a result of an increased
number of licensees generating increased sales, primarily from the sale by
licensees of J-J Hooks(TM) Barriers. Although in the context of a
forward-looking statement of which 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). However,
such increase in royalty income is dependent upon: i) the retention of the
Company's current licensees; ii) satisfactory performance of such licensees; and
iii) the Company's ability to implement and maintain a licensing program for
Slenderwall(TM).
Interest expense totaled approximately $243,000 for the six months ended
June 30, 1996, compared to approximately $268,000 for the six months ended June
30, 1995. This decrease of approximately $25,000, or 9%, was primarily due to a
decreased level of debt outstanding during the 1996 period. Interest income of
approximately $37,000 for the six months ended June 30, 1996 represented a
$15,000 increase, or 68%, over interest income of approximately $22,000 for the
same period in 1995. The increase in interest income was due primarily to the
investment, during the first quarter of 1996, of proceeds from the Company's
initial public offering (see "Liquidity and Capital Resources"). The Company
incurred total other expenses of approximately $1,000 for the six months ended
June 30, 1996, compared to other expenses of approximately $8,000 for the six
months ended June 30, 1995, a decrease of approximately $7,000, which resulted
primarily from reduced fees and miscellaneous charges.
The Company experienced a net loss for the six months ended June 30, 1996
of approximately $631,000 compared to net income of approximately $8,000 for the
same period in 1995. The decreased net income of approximately is $639,000 was
primarily attributed to lower total revenues, coupled with increased selling
expenses and increased general and administrative expenses.
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 $396,000.
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.
11
In connection with the Maryland Claims, several parties involved in the
related contracts have made informal claims to the Company for charges due to
contract job delays and have withheld payment on approximately $760,000 in
billings from the Company. This increase in accounts receivable has adversely
affected the Company's cash flow and its ability to pay its suppliers on a
timely basis.
For the six months ended June 30, 1996, cash of approximately $516,000 was
absorbed by operating activities. The substantial use of cash during this period
was from an increase of billed and unbilled accounts receivable totaling
approximately of $564,000. The Company used cash of approximately $227,000
during the first six months of 1996 for investing activities, primarily as a
result of the purchase of and additions to property and equipment. During the
first six months of 1996, cash totaling approximately $216,000 was provided by
financing activities, primarily as a result of IPO proceeds of approximately
$396,000, offset somewhat by a net decrease in borrowed money of approximately
$180,000.
The Company had approximately $1,894,000 of indebtedness at June 30, 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. In the context of a forward-looking statement, 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 a result of the Company's substantial debt burden, the Company is
especially sensitive to changes in the prevailing interest rates. 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.
12
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In 1996, Douglas Miller, the Company's former Chief Financial Officer,
filed a request for arbitration under the rules of the American Arbitration
Association ("AAA Rules") seeking damages of approximately $250,000 based upon a
claim of wrongful termination under his employment agreement. The dispute was
presented to an arbitrator who heard the case pursuant to AAA Rules. On July 1,
1996, the arbitrator ruled in favor of Miller and directed the Company to pay
Miller approximately $90,000. On July 15, 1996, the Company reached an agreement
with Miller to settle the claim for $20,000.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
During the period covered by this report, the Company had a personal note in the
amount of $400,000 which was secured by the Company's accounts receivable. The
note matured on April 30, 1996, at which time the Company was unable to satisfy
the note. On July 29, 1996, the Company paid approximately $412,000 in full
satisfaction of the note through a refinancing with another lender.None.
13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On Thursday, June 20, 1996, the Company held its Annual Meeting of
Stockholders (the "Annual Meeting") to vote on the following proposals:
1. To elect five (5) members of the Board of Directors. Nominees for
Director were: Rodney I. Smith; (b) Ashley Smith; (c) Wes Taylor; (d)
Andrew Kavounis; and (e) Bernard R. Patriacca ("Proposal No. 1"); and
2. To ratify the selection of BDO Seidman, LLP as independent auditors
for the Company for the fiscal year ending December 31, 1996
("Proposal No. 2").
Of the 3,085,718 shares of the Company's Common Stock of record as of
April 22, 1996, able to be voted at the Annual Meeting, a total of 2,289,068
shares were voted, or approximately 74% of the Company's issued and outstanding
shares of Common Stock entitled to vote on these matters.
Each of the proposals were adopted, with the vote totals as follows:
Shares Shares Shares Broker
Proposal Voting For Voting Against Abstaining Non-Votes
No. 1
(a) Rodney I. Smith 2,172,828 0 116,240 0
(b) Ashley Smith 2,171,728 0 117,340 0
(c) Wes Taylor 2,132,842 0 156,226 0
(d) Andrew Kavounis 2,132,842 0 156,226 0
(e) Bernard R. Patriacca 2,132,842 0 156,226 0
No. 2 2,271,259 6,366 11,443 0
ITEM 5. OTHER INFORMATION. None.
14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. The following Exhibits are filed herewith:
Exhibit No. Title
----------- -----
27 Financial Data Schedule
B. Report of Form 8-K. None
15
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: August 16, 1996 By:/s/ Rodney I. Smith
----------------------
_____ Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: August 16, 1996 By:/s/ Scott J. Friberg
_____ Scott J. Friberg
Chief Financial Officer
(principal financial officer)
16
EXHIBIT INDEX
Exhibit No. Title
----------- -----
27 Financial Data Schedule
17
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 411,353
<SECURITIES> 0
<RECEIVABLES> 3,225,557
<ALLOWANCES> 272,114
<INVENTORY> 1,092,282
<CURRENT-ASSETS> 4,782,397
<PP&E> 1,475,272
<DEPRECIATION> 89,174
<TOTAL-ASSETS> 7,024,850
<CURRENT-LIABILITIES> 4,429,006
<BONDS> 0
0
0
<COMMON> 30,875
<OTHER-SE> 1,527,721
<TOTAL-LIABILITY-AND-EQUITY> 7,024,850
<SALES> 2,820,483
<TOTAL-REVENUES> 3,164,360
<CGS> 2,360,606
<TOTAL-COSTS> 2,671,034
<OTHER-EXPENSES> 407,523
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 135,279
<INCOME-PRETAX> (49,476)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,476)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,476)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> 0
</TABLE>
