U. S. 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
March 31, 1998 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 May 15, 1998, the Company had outstanding 3,044,798 shares of
Common Stock, $.01 par value per share.
<PAGE>
SMITH-MIDLAND CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
Item 1. Financial Statements
Consolidated Balance Sheets; 1
March 31, 1998 (Unaudited);
and December 31, 1997 (Unaudited)
Consolidated Statements of Operations 2
(Unaudited); Three months ended
March 31, 1998 and 1997
Consolidated Statements of Cash Flows 3
(Unaudited); Three months ended
March 31, 1998 and 1997
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis of Financial 7
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
PART I - Financial Information
Item 1. Financial Statements
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
<S> <C>
March 31, December 31,
Assets 1998 1997
Current assets: ----------- -----------
Cash and cash equivalents $ 353,448 $ 288,310
----------- -----------
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$241,804 and $200,465 2,974,606 3,254,993
Trade - unbilled 729,717 410,158
Inventories:
Raw materials 480,583 486,583
Finished goods 1,233,115 942,427
Prepaid expenses and other assets 178,148 69,801
----------- -----------
Total current assets 5,949,617 5,452,272
----------- -----------
Property and equipment, net 1,527,280 1,531,062
----------- -----------
Other assets:
Cash - restricted 196,977 196,977
Note receivable, officer 632,472 632,472
Other 75,741 79,443
----------- -----------
Total other assets 905,190 908,892
----------- -----------
Total Assets $ 8,382,087 $ 7,892,226
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes payable $2,330,091 $2,199,228
Accounts payable -- trade 2,272,003 1,744,127
Accrued expenses and other liabilities 554,125 570,693
Customer deposits 491,773 450,474
----------- -----------
Total current liabilities 5,647,992 4,964,522
Notes payable -- less current maturities 506,094 759,440
Notes payable -- related parties 112,415 115,598
----------- -----------
Total Liabilities 6,266,501 5,839,560
----------- -----------
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 3,044,798 and 3,044,798 30,857 30,857
Additional capital 3,450,085 3,450,085
Treasury Stock (102,300) (102,300)
Retained earnings (deficit) (1,263,056) (1,325,976)
----------- -----------
Total Stockholders' Equity 2,115,586 2,052,666
----------- -----------
Total Liabilities and Stockholders' Equity $ 8,382,087 $ 7,892,226
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
1
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- -----------
Revenue $ 3,026,660 $ 2,080,790
Cost of goods sold 2,215,063 1,553,538
----------- -----------
Gross profit 811,597 527,252
----------- -----------
Operating expenses:
General and administrative expenses 567,811 476,678
Selling expenses 149,416 175,566
----------- -----------
Total operating expenses 717,227 652,244
----------- -----------
Operating income (loss) 94,370 (124,992)
----------- -----------
Other income (expense):
Royalties 38,451 35,639
Interest expense (94,057) (104,014)
Interest income 11,173 1,642
Other 12,983 30,450
----------- -----------
Total other income (expense) (31,450) (36,283)
Income (loss) before income taxes 62,920 (161,275)
Income tax expense (benefit) -- --
----------- -----------
Net income (loss) $ 62,920 $ (161,275)
=========== ===========
Net income (loss) per share $ .02 $ (.05)
=========== ===========
Weighted average common shares outstanding 3,044,798 3,044,798
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
2
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1998 1997
----------- -----------
Cash flows from operating activities:
Cash received from customers $ 3,067,238 $ 2,731,673
Cash paid to suppliers and employees (2,730,270) (2,320,931)
Interest paid (94,057) (104,014)
Other 24,156 32,092
----------- -----------
Net cash provided (absorbed) by operating activities 267,067 338,820
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (76,263) (206,451)
(Increase) decrease in officer note receivable -- 1,000
----------- -----------
Net cash absorbed by investing activities (76,263) (205,451)
----------- -----------
Cash flows from financing activities:
Proceeds from bank borrowings -- --
Repayments of bank borrowings (125,666) (174,496)
Net cash provided (absorbed) by financing activities (125,666) (174,496)
----------- -----------
Net increase (decrease) in cash and cash equivalents 65,138 (41,127)
Cash and cash equivalents at beginning of period 288,310 438,079
----------- -----------
Cash and cash equivalents at end of period $ 353,448 $ 396,952
=========== ===========
Reconciliation of net income (loss) to net cash provided
(absorbed) by operating activities:
Net income (loss) $ 62,920 $ (161,275)
Adjustments to reconcile net income (loss) to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 80,045 120,446
Decrease (increase) in other assets 3,702 12,201
Decrease (increase) in:
Accounts receivable - billed 280,387 (567,077)
Accounts receivable - unbilled (319,559) 78,476
Inventories (284,688) (388,095)
Prepaid expenses and other assets (108,347) 41,359
Increase (decrease) in:
Accounts payable - trade 527,876 26,240
Accrued expenses and other liabilities (16,568) 72,700
Customer deposits 41,299 (30,309)
----------- -----------
Net cash provided (absorbed) by operating activities $ 267,067 $ 338,820
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
3
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 1998
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 Smith-Midland Corporation's Annual
Report on Form 10-KSB, for the year ended December 31, 1997.
In the opinion of management of Smith-Midland Corporation (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-month periods ended March 31, 1998 and 1997.
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 Company's accompanying consolidated financial statements include the
accounts of Smith-Midland Corporation, a Delaware 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
inter-company accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the 1998 presentation.
Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
4
<PAGE>
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.
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 periods ended March
31, 1998 and 1997, as the Company does not expect to incur income tax expense
for fiscal year 1998 and did not incur income tax expense in fiscal year 1997.
Revenue Recognition
The Company primarily recognizes revenue on the sale of its standard
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 Slenderwall(TM)
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.
5
<PAGE>
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.
Net Income (Loss) Per Share
Net Income (loss) 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.
6
<PAGE>
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 feed troughs, and custom order
precast concrete products with various architectural surfaces.
This Form 10-QSB contains forward-looking statements which involve risks
and uncertainties. The Company's actual results may differ significantly from
the results discussed in the forward-looking statements and the results for the
three months ended March 31, 1998 are not necessarily indicative of the results
for the Company's operations for the year ending December 31, 1998. Factors that
might cause such a difference include, but are not limited to, product demand,
the impact of competitive products and pricing, capacity and supply constraints
or difficulties, general business and economic conditions, the effect of the
Companies accounting policies and other risks detailed in the Company's Annual
Report, Form 10-KSB and other filings with the Securities and Exchange
Commission.
Results of Operations
Three months ended March 31, 1998 compared to the three months ended March
31, 1997
For the three months ended March 31, 1998, the Company had total revenue of
$3,026,660 compared to total revenue of $2,080,790 for the three months ended
March 31, 1997, an increase of $945,870 or 45%. Total product sales were
$2,567,972 for the three months ended March 31, 1998 compared to $1,787,333 for
the same period in 1997, an increase of $780,639 or 44%. The increase resulted
from management's determined effort to keep the sales backlog at a level that
will insure consistent factory utilization and profitability. This effort
coupled, with a strong economy, has resulted in a good first quarter revenue
result for the Company. Shipping and installation revenue was $458,688 for the
three months ended March 31, 1998 and $293,457 for the same period in 1997, an
increase of $165,231, or 56%. The increase is attributable to the increase
in 1998 sales volume over 1997.
7
<PAGE>
Total cost of goods sold for the three months ended March 31, 1998 was
$2,215,063, an increase of $661,525 or 42% from $1,553,538 for the three months
ended March 31, 1997. The increase was primarily the result of increased
revenue. Total cost of goods sold, as a percentage of total revenue, decreased
to 73% for the three months ended March 31, 1998, from 75% for the three months
ended March 31, 1997 primarily due to the economies caused by the increased
volume.
For the three months ended March 31, 1998, the Company's general and
administrative expenses increased $91,133 to $567,811 from $476,678 during the
same period in 1997. The increase was attributed to three different factors.
Approximately $35,000 is attributed to the growth of Easi-Set the
Company's, licensing subsidiary which already licenses many of the company's
patented products world wide and is working toward licensing the
Company's Slenderwall(TM) product. The second factor is an accrual of
approximately $35,000 to recognize the potential liability of a use tax
issue raised as a result of a routine Virginia State sales and use tax audit
which the Company is contesting and is in the processes of an appeal with the
state of Virginia, and hopes to have resolution of the matter by the end of the
third quarter 1998. The balance of this increase is attributed primarily to
increase in personnel wages and costs related to the increases in general
support of operations.
Selling expenses for the three months ended March 31, 1998 decreased
($26,150) to $149,416 from $175,566 for the three months ended March 31, 1997
resulting from better management of sales and marketing expenses and a decrease
in that department's wage expense..
The Company's operating income for the three months ended March 31, 1998
was $94,370, compared to an operating loss of ($124,992) for the three months
ended March 31, 1997, an increase of $219,362. The improved operating income
resulted primarily from a 54% increase in gross profit, offset somewhat, by a
10% increase in operating expenses.
Royalty income totaled $38,451 for the three months ended March 31, 1998,
compared to $35,639 for the same three months in 1997. The increase of $2,812,
or 8%, was due to a higher volume of product sales by licensees.
Interest expense was $94,057 for the three months ended March 31, 1998,
compared to $104,014 for the three months ended March 31, 1997. The decrease of
($9,957), or 10%, was primarily due to an improved overall rate of interest paid
on outstanding debt and the retirement of debt.
Net income was $62,920 for the three months ended March 31, 1998, compared
to a loss of ($161,275) for the same period in 1997. Net income per share for
the current three month period was $.02 compared to a net loss per share of
($.05) for the three months ended March 31, 1997.
8
<PAGE>
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating requirements
and growth to date primarily with proceeds from its initial public offering
("IPO") and subsequent over-allotment, bank and other borrowings, and the sale
of stock to and loans from its principal stockholders.
The Company had $2,948,600 of indebtedness at March 31, 1998, of which
$2,330,091 is scheduled to mature within twelve months. Included in the
indebtedness were two notes totaling approximately $1,528,580, secured by assets
of the Company, that matured in July 1997 and were not paid by the Company. For
one, the company has agreed in principle with the Trustee of the Myers' Trust
debt of which $597,580, was outstanding as of March 31, 1998, to extend the due
date to June 26, 1998. The company has also received an extension to July 8,
1998 from Riggs Bank for a note payable, of which $931,000, was outstanding as
of March 31, 1998. The Company currently has a letter of commitment, contingent
upon approval of the U.S. Department of Agriculture Rural Business-Cooperative
Service's loan guarantee, from a bank for the placement of a 23 year commercial
mortgage and equipment loan, the proceeds of which will be used in part, to
repay the company's existing debt to Myers' Trust and Riggs Bank. The letter of
commitment also includes a line-of-credit and a mortgage for plant expansion and
new equipment financing. 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. In the event that the
Company was 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.
Other Comments
The Company has formed a team to address the affect of the year 2000 on
the Company's data processing systems and operations. The Company expects that
the costs incurred in the preparation for the year 2000 will not have a
significant impact on the Company's cash flow or results of operations. The
Company is currently planning to send questionnaires to its suppliers and
customers to ensure that they are taking steps to be year 2000 compliant.
9
<PAGE>
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 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 traditionally 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 springconstruction season.
However, as of the date of this filing, the Company's backlog is approximately
$4.7 million, of which $1.5 million represents firm contracts for
Slenderwall(Tm) and architectural pre-cast concrete products. The majority
of the projects relating to this backlog are contracted to be constructed in
1998.
Management believes that the Company's operations have not been materially
affected by inflation.
10
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None.
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 on Form 8-K. None.
11
<PAGE>
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: May 18, 1998 By: /s/ Rodney I. Smith
-----------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: May 18, 1998 By: /s/ Robert V. McElhinney
----------------------------
Robert V. McElhinney
Vice President of Finance,
Chief Financial Officer
(principal financial officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 353,448
<SECURITIES> 0
<RECEIVABLES> 3,704,323
<ALLOWANCES> 247,804
<INVENTORY> 1,713,698
<CURRENT-ASSETS> 5,949,617
<PP&E> 1,527,280
<DEPRECIATION> 80,045
<TOTAL-ASSETS> 8,382,087
<CURRENT-LIABILITIES> 5,647,992
<BONDS> 0
0
0
<COMMON> 30,857
<OTHER-SE> 2,084,729
<TOTAL-LIABILITY-AND-EQUITY> 8,382,087
<SALES> 3,026,660
<TOTAL-REVENUES> 3,089,267
<CGS> 2,215,063
<TOTAL-COSTS> 2,932,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,057
<INCOME-PRETAX> 62,920
<INCOME-TAX> 0
<INCOME-CONTINUING> 62,920
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,920
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
