SMITH MIDLAND CORP
10QSB, 1996-08-19
CONCRETE PRODUCTS, EXCEPT BLOCK & BRICK
Previous: AMERICAN TECHNOLOGY CORP /DE/, 8-K, 1996-08-19
Next: FOAMEX JPS AUTOMOTIVE L P, 10-Q, 1996-08-19





                       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
- --------------------------                                ----------------------


                            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)



         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
                                                                                    --------         -----------
       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>
 [an error occurred while processing this directive]

© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission