U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended Commission File Number
September 30, 1999 1-13752
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SMITH-MIDLAND CORPORATION
-------------------------
(Exact Name of Small Business
Issuer as Specified in Its Charter)
Delaware 54-1727060
- ------------------------ --------------------------
(State of Incorporation) (I.R.S. Employer I.D. No.)
5119 Catlett Road, P.O. Box 300, Midland, Virginia 22728
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(Address of Principal Executive Offices)
(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 November 12, 1999, the Company had outstanding 3,044,798 shares
of Common Stock, $.01 par value per share.
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SMITH-MIDLAND CORPORATION
INDEX
PART I. FINANCIAL INFORMATION PAGE NUMBER
-----------
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited); 3
September 30, 1999 and December 31, 1998
Consolidated Statements of Operations 4
(Unaudited); Three months ended
September 30, 1999 and 1998
Consolidated Statements of Operations 5
(Unaudited); Nine months ended
September 30, 1999 and 1998
Consolidated Statements of Cash Flows 6
(Unaudited); Nine months ended
September 30, 1999 and 1998
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
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2
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<TABLE>
PART I - Financial Information
Item 1. Financial Statements
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
September 30, December 31,
Assets 1999 1998
------ ----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 556,430 $ 207,661
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$295,222 and $262,056 3,590,352 3,824,012
Trade - unbilled 205,258 199,108
Inventories:
Raw materials 530,061 522,468
Finished goods 1,056,664 989,745
Prepaid expenses and other assets 143,788 116,034
----------- -----------
Total current assets 6,082,553 5,859,028
----------- -----------
Property and equipment, net 2,694,708 2,449,566
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Other assets:
Cash - restricted - - 387,462
Note receivable, officer 645,163 624,387
Other 294,050 246,058
----------- -----------
Total other assets 939,213 1,257,907
----------- -----------
Total Assets $ 9,716,474 $ 9,566,501
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current maturities of notes payable $ 628,959 $ 573,104
Accounts payable - trade 1,899,474 2,177,884
Accrued expenses and other liabilities 1,385,791 1,115,118
Customer deposits 164,724 306,255
------------ -----------
Total current liabilities 4,078,948 4,172,361
Notes payable - less current maturities 3,917,742 4,020,661
Notes payable - related parties 99,179 104,696
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Total Liabilities 8,095,869 8,297,718
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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 3,085,718 shares, outstanding 3,044,798 shares 30,857 30,857
Additional capital 3,450,085 3,450,085
Treasury stock (102,300) (102,300)
Retained earnings (deficit) (1,758,037) (2,109,859)
Total Stockholders' Equity 1,620,605 1,268,783
----------- ----------
Total Liabilities and Stockholders' Equity $ 9,716,474 $ 9,566,501
=========== ==========
The accompanying notes are an integral part of these consolidated financial statements.
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3
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
September 30,
1999 1998
----------- -----------
<S> <C> <C>
Revenue $ 3,690,595 $ 3,968,174
Cost of goods sold 2,748,836 2,880,029
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Gross profit 941,759 1,088,145
----------- -----------
Operating expenses:
General and administrative expenses 540,131 663,181
Selling expenses 126,855 176,490
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Total operating expenses 666,986 839,671
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Operating income 274,773 248,474
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Other income (expense):
Royalties 76,960 78,691
Interest expense (154,597) (135,056)
Interest income 28,565 27,504
Other (81,638) (54,871)
----------- -----------
Total other income (expense) (130,710) (83,732)
----------- -----------
Income (loss) before income taxes 144,063 164,742
Income tax expense (benefit) -- --
----------- -----------
Net income (loss) $ 144,063 $ 164,742
=========== ===========
Basic and diluted earnings per share $ .05 $ .05
=========== ===========
Weighted average common shares outstanding 3,044,798 3,044,798
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
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4
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
----------- -----------
<S> <C> <C>
Revenue $ 11,472,031 $ 10,552,785
Cost of goods sold 8,944,995 7,928,331
------------ ------------
Gross profit 2,527,036 2,624,454
------------ ------------
Operating expenses:
General and administrative expenses 1,555,311 1,631,230
Selling expenses 407,580 497,774
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Total operating expenses 1,962,891 2,129,004
------------ ------------
Operating income 564,145 495,450
------------ ------------
Other income (expense):
Royalties 185,449 141,136
Interest expense (407,986) (429,420)
Interest income 52,631 54,502
Other (42,416) (50,940)
------------ ------------
Total other income (expense) (212,322) (284,722)
------------ ------------
Income before income taxes 351,823 210,728
Income tax expense (benefit) -- --
------------ ------------
Net income $ 351,823 $ 210,728
============ ============
Basic and diluted earnings per share $ .12 $ .07
============ ============
Weighted average common shares outstanding 3,044,798 3,044,798
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
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5
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1999 1998
------------ ------------
Cash flows from operating activities:
<S> <C> <C>
Cash received from customers $ 11,743,459 $ 10,346,641
Cash paid to suppliers and employees (10,797,333) (10,367,663)
Interest paid (407,986) (429,420)
Other (28,569) (20,314)
------------ ------------
Net cash provided (absorbed) by operating activities 509,571 (470,756)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (495,683) (707,156)
Decrease (increase) in officer note receivable -- --
Decrease (increase) in notes payable - related parties (5,517) (10,912)
------------ ------------
Net cash absorbed by investing activities (501,200) (718,068)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 105,969 4,094,392
Repayments of borrowings (153,033) (2,487,371)
------------ ------------
Net cash provided (absorbed) by financing activities (47,064) 1,607,021
------------ ------------
Decrease (increase) in cash - restricted 387,462 (418,289)
------------ ------------
Net increase (decrease) in cash and cash equivalents 348,769 (92)
Cash and cash equivalents at beginning of period 207,661 288,310
------------ ------------
Cash and cash equivalents at end of period $ 556,430 $ 288,218
============ ============
Reconciliation of net income (loss) to net cash provided
(absorbed) by operating activities:
Net income $ 351,823 $ 210,728
Adjustments to reconcile net income to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 250,541 239,471
Increase in other assets (68,769) (163,529)
Decrease (increase) in:
Accounts receivable - billed 233,660 (356,240)
Accounts receivable - unbilled (6,150) 32,017
Inventories (74,512) (103,991)
Prepaid expenses and other assets (27,754) (30,354)
Increase (decrease) in:
Accounts payable - trade (278,410) (40,512)
Accrued expenses and other liabilities (235,289) 96,317
Accrued expenses and other liabilities 270,673 (235,289)
Customer deposits (141,531) (23,057)
------------ ------------
Net cash provided (absorbed) by operating activities $ 509,571 $ (470,756)
============ ============
The accompanying notes are an integral part of these consolidated financial statement
</TABLE>
6
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SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1999
(Unaudited)
Basis of Presentation
As permitted by the rules of the Securities and Exchange 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, 1998.
In the opinion of the management of Smith-Midland Corporation (the
"Company"), the accompanying financial statements reflect all adjustments of a
normal recurring nature which were necessary for a fair presentation of the
Company's results of operations for the three- and nine-month periods ended
September 30, 1999 and 1998.
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 1999 presentation.
Inventories
Inventories are stated at the lower of cost, using the first-in, first-out
(FIFO) method, or market.
7
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
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.
No provision for income taxes has been made for the three- and nine-month
periods ended September 30, 1999 and 1998, as the Company does not expect to
incur federal income tax expense for 1999 and did not incur federal income tax
expense during 1998.
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 soundwall 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.
8
<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.
Earnings Per Share
Earnings per share is based on the weighted average number of shares of
Common Stock and dilutive common stock equivalents outstanding. Basic earnings
per share is computed by dividing income available to common stockholders by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilutive effect of securities that
could share in earnings of an entity. For the three- and nine-month periods
ended September 30, 1999 and 1998 there was no material dilutive effect on
earnings per share.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
General
The Company generates revenues primarily from the sale, licensing, leasing,
shipping 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.
In 1998, the Company began work on a contract to renovate the Bradley Hall
Building at Rutgers University (the "Bradley Hall project"). The Bradley Hall
project, which was completed in October 1999, involved the design, production
and installation of Slenderwall panels by the Company. While executing the
Bradley Hall project, the original structure was found to be not structurally
sufficient to support the installation of the Slenderwall panels as originally
designed. This led to cost overruns relating to re-design of the panels,
production of the panels with additional steel and reinforcing, and installation
costs. Management estimates that the cost overruns over the course of the entire
project will total approximately $1.55 million and estimates that the total loss
on the job before recovery of any claims by the Company will be approximately
$1.45 million including approximately $1,088,000 of estimated losses accrued in
the fourth quarter of 1998 and approximately $362,000 of estimated losses
accrued in the first nine months of 1999. Approximately $83,000 of these losses
occurred in the three months ended September 30, 1999. The general contractor
has filed claims in 1999 on the Company's behalf, for which notification has
been made to the general contractor in the amount of $1.49 million. As of
December 31, 1998, $400,000 of the contract claim had been included in sales and
accounts receivable. During the quarter ended June 30, 1999, an additional
$97,000 of the contract claim was included in sales and accounts receivable.
There can be no assurance that the loss will not exceed the $1.45 million
estimate or that the Company will be able to collect any of its claim.
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 and nine months ended September 30, 1999 are not necessarily indicative of
the results for the Company's operations for the year ending December 31, 1999.
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 Company's accounting policies and other risks detailed in the
Company's Annual Report on Form 10-KSB and other filings with the Securities and
Exchange Commission.
10
<PAGE>
Results of Operations
Three months ended September 30, 1999 compared to the three months ended
September 30, 1998
For the three months ended September 30, 1999, the Company had total
revenue of $3,690,595 compared to total revenue of $3,968,174 for the three
months ended September 30, 1998, a decrease of $277,579, or 7%. Total product
sales were $3,052,211 for the three months ended September 30, 1999 compared to
$3,365,303 for the same period in 1998, a decrease of $313,092, or 9%. The
decrease was primarily due to fewer successful Slenderwall(TM) bids resulting in
decreased Slenderwall sales during the 1999 period compared to the 1998 period.
Shipping and installation revenue was $638,384 for the three months ended
September 30, 1999 and $602,871 for the same period in 1998, an increase of
$35,513, or 6%. The increase was attributable primarily to higher installation
activity during the three-month period in 1999, compared to the same period in
1998.
Total cost of goods sold for the three months ended September 30, 1999 was
$2,748,836, a decrease of $131,193, or 5%, from $2,880,029 for the three months
ended September 30, 1998. Total cost of goods sold, as a percentage of total
revenue, increased to 74.5% for the three months ended September 30, 1999, from
72.6% for the three months ended September 30, 1998 primarily due to normal
year-to-year variations in the Company's operations and product mix.
For the three months ended September 30, 1999, the Company's general and
administrative expenses decreased $123,050 to $540,131 from $663,181 during the
same period in 1998. The 19% decrease is primarily attributed to a smaller
accrual for the allowance for doubtful accounts and lower moving and relocation
expenses.
Selling expenses for the three months ended September 30, 1999 decreased
$49,635, or 28%, to $126,855 from $176,490 for the three months ended September
30, 1998, resulting primarily from decreased engineering fees and reduced salary
expenses due to staff vacancies during the 1999 period.
The Company's operating income for the three months ended September 30,
1999 was $274,773 compared to operating income of $248,474 for the three months
ended September 30, 1998, an increase of $26,299, or 11%. The increased
operating income resulted primarily from reduced sales, general and
administrative expenses, which was offset to some extent by reduced gross profit
margins.
Royalty income totaled $76,960 for the three months ended September 30,
1999, compared to $78,691 for the same three months in 1998. The decrease of
$1,731, or 2%, was primarily due to a decrease in product sales by the Company's
licensees.
11
<PAGE>
Interest expense was $154,597 for the three months ended September 30,
1999, compared to $135,056 for the three months ended September 30, 1998. The
increase of $19,541, or 14%, was primarily due to an increase of nearly $300,000
in the average total debt outstanding during the 1999 period offset, in part, by
slightly lower interest rates.
Net income was $144,063 for the three months ended September 30, 1999,
compared to net income of $164,742 for the same period in 1998. The basic and
diluted net income per share for the current three month period was $.05
compared $.05 per share for the three months ended September 30, 1998.
Nine months ended September 30, 1999 compared to the nine months ended
September 30, 1998
For the nine months ended September 30, 1999, the Company had total revenue
of $11,472,031 compared to total revenue of $10,552,785 for the nine months
ended September 30, 1998, an increase of $919,246, or 9%. Total product sales
were $9,141,418 for the nine months ended September 30, 1999, compared to
$9,076,218 for the same period in 1998, an increase of $65,200, or 1%. The
increase resulted primarily from increased Slenderwall(TM), architectural, and
transportable building sales during the 1999 period, offset to some extent by
decreased soundwall product sales. Shipping and installation revenue was
$2,330,613 for the nine months ended September 30, 1999 and $1,476,567 for the
same period in 1998, an increase of $854,046, or 58%. The increase is
attributable to increased installation revenue related to Slenderwall contracts
in the 1999 period, as compared to the 1998 period, offset to some extent by
lower shipping revenues.
Total cost of goods sold for the nine months ended September 30, 1999 was
$8,944,995, an increase of $1,016,664, or 13%, from $7,928,331 for the nine
months ended September 30, 1998. Total cost of goods sold, as a percentage of
total revenue, increased to 78.0% for the nine months ended September 30, 1999,
from 75.1% for the nine months ended September 30, 1998 due in part to
recognition of $362,000 of Bradley Hall project costs for which only $97,000 of
revenues were recorded.
For the nine months ended September 30, 1999, the Company's general and
administrative expenses decreased $75,919, or 5%, to $1,555,311, from $1,631,230
during the same period in 1998. The decrease was attributed to reduced moving
and relocation expenses and a smaller accrual for the allowance for doubtful
accounts, offset somewhat by increased legal fees.
Selling expenses for the nine months ended September 30, 1999 decreased
$90,194, or 18%, to $407,580 from $497,774 for the nine months ended September
30, 1998. The decrease was due to reduced engineering fees and reduced salary
expenses due to staff vacancies during the 1999 period as compared to the 1998
period.
12
<PAGE>
The Company's operating income for the nine months ended September 30, 1999
was $564,145, compared to operating income of $495,450 for the nine months ended
September 30, 1998, an increase of $68,695, or 14%. The improved operating
income resulted primarily from the reductions in operating expenses discussed
above offset, in part, by a reduction in gross profit.
Royalty income totaled $185,449 for the nine months ended September 30,
1999, compared to $141,136 for the same nine months in 1998. The increase of
$44,313, or 31%, was largely due to a credit given in 1998 for a reduction in
the scope of a licensing contract and the resulting reversal of previously
recognized royalty income.
Interest expense was $407,986 for the nine months ended September 30,
1999, compared to $429,420 for the nine months ended September 30, 1998. The
decrease of $21,434, or 5%, was primarily due to high interest rates, lease
buyout amounts and miscellaneous fees which were recognized during the first six
months of 1998 and which were associated with the early retirement of
approximately 27 notes and capital leases in June 1998 as part of the Company's
debt restructuring (see "Liquidity and Capital Resources").
Net income was $351,823 for the nine months ended September 30, 1999,
compared to net income of $210,728 for the same period in 1998. Net income per
share for the current nine month period was $.12 compared to net income per
share of $.07 for the nine months ended September 30, 1998 with the same
weighted average number of shares outstanding in both periods.
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating requirements and
growth to date primarily with proceeds from operations, its initial public
offering ("IPO") and bank and other borrowings. The Company had $4,645,880 of
indebtedness at September 30, 1999, of which $628,959 was scheduled to mature
within twelve months.
In June 1998, the Company successfully restructured substantially all of
its debt into one $4,000,000 note with First International Bank ("FIB"),
formerly the First National Bank of New England. The Company closed on this loan
on June 25, 1998. The Company obtained a twenty three year term on this note at
1.5% above prime, secured by equipment and real estate. The term of the note
improved the Company's current debt ratio and debt service. In addition to
paying off current debt of approximately $3.0 million, the Company received
approximately $832,000 in restricted funds, to be used only for plant expansion
and new equipment. Such funds were fully expended by June 30, 1999. The loan is
guaranteed, in part, by the U.S. Department of Agriculture Rural
Business-Cooperative Service. Under the terms of the note, the Company's
unfinanced fixed asset expenditures are limited to $300,000 per year for a five
year period. In addition, FIB will permit chattel mortgages on purchased
equipment not to exceed $200,000 on an annual basis so long as the Company is
not in default. The Company was also granted a $500,000 operating line of credit
by FIB. This commercial revolving promissory note, which carries a variable
interest rate of 1% above prime, was recently renewed and is now scheduled to
terminate on May 1, 2000.
13
<PAGE>
Capital spending totaled $495,683 in the nine-month period ended September
30, 1999, which included $389,421 in restricted funds resulting from the June
1998 FIB debt restructuring. Capital spending decreased 30% from $707,156 in the
comparable period of the prior year, which included $242,016 in restricted funds
from the June 1998 FIB debt restructuring. The reduction in capital spending in
the 1999 period was due to the completion in the first quarter of 1999 of a
16,000 square foot plant addition to the Company's facility in Midland,
Virginia. This plant addition was financed primarily with restricted funds
received in 1998 as part of the $4,000,000 FIB loan as mentioned above. Planned
capital expenditures for 1999 and 2000 are limited as stated above by the FIB
loan agreement. The only significant cash commitment for capital expenditures
planned for the balance of 1999 and early 2000 is a project to complete
construction of an engineering building at a estimated cost of $90,000 which is
contingent upon successful completion of additional equity financing or
additional debt financing through FIB.
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.
The Company's cash flow from operations is affected by production schedules
set by contractors, which generally provide for payment 45 to 75 days after the
products are produced. This payment schedule has resulted in liquidity problems
for the Company because it must bear the cost of production for its products
long before it receives payment. In addition the Company's cash flow has been
significantly effected by the loss on the Bradley Hall project. Due to the
significant costs required to continue the Bradley Hall project and to fund
ongoing commitments, the Company entered into a working agreement with the
general contractor of the Bradley Hall project to finance certain costs, at cost
plus 10%, through completion of the project. During the nine months ended
September 30, 1999 and through completion of the project in October 1999, the
general contractor for the project assumed responsibility for installation and
incurred installation and other expenses in connection with the project totaling
$1,155,495, including the 10% surcharge, for which the general contractor
invoiced the Company upon completion of the project. The Company had accrued
$660,000 of these expenses in the fourth quarter 1998 and recognized an
additional $290,000 of these expenses in the nine months ended September 30,
1999. The entire $1,155,495 of installation and other expenses is currently
under review and certain expenses are in dispute. The extent to which the
Company is responsible for these installation and other costs and the schedule
for payment by the Company to the general contractor has not yet been
determined. In the event cash flow from operations, collection of claims, and
existing credit facilities are not adequate to support operations, the Company
is currently investigating alternative sources of both short-term and long-term
financing, for which there can be no assurance of obtaining.
14
<PAGE>
Other Comments
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 in the process of replacing nearly all of
its purchasing, manufacturing, inventory and accounting systems and expects to
activate the new systems prior to January 1, 2000. The new systems are expected
to improve the accuracy and timeliness of internal reporting and the Company has
taken the necessary steps to ensure that all systems are year 2000 compliant.
The Company is using standard off-the-shelf software which is year 2000
compliant. The Company is working with key suppliers and customers to ensure
that they are taking steps to be year 2000 compliant. However, if the Company
and third parties on which it relies are unable to address this issue in a
timely manner, it could result in a material financial risk to the Company. In
order to assure this does not occur, the Company plans to devote all resources
required to resolve any significant year 2000 issues in a timely manner.
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 spring construction
season.
Management believes that the Company's operations have not been materially
affected by inflation.
15
<PAGE>
PART II - Other Information
Item 1. Legal Proceedings. None.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders.
On September 17, 1999 the Company held its Annual Meeting of
Stockholders. The Stockholders voted on and approved the
following:
1. The election of the following individuals to serve as
directors until the next annual meeting and until their
successors are duly elected and qualified:
Shares Voted to
Name Shares Voted For Withhold Authority
Rodney I. Smith 2,473,470 12,100
Ashley B. Smith 2,462,470 23,100
Wesley A. Taylor 2,476,570 9,000
Andrew Kavounis 2,477,570 8,000
Barry R. Schimel 2,477,570 8,000
2. An amendment of the Company's Certificate of Incorporation to
affect a one-for-three, one-for-two, three-for-five,
two-for-three or three-for-four reverse stock split of the
Common Stock of the Company. In this connection, 2,399,437
shares voted for the amendment, 37,765 shares voted against
the amendment and 48,368 shares abstained.
3. The ratification and approval of additional financing of the
Company through sale of an aggregate of 471,428 shares of
Common Stock of the Company to the President of the Company
and the Chief Operating Officer of a wholly-owned subsidiary
of the Company, at a price of $.70 per share. In this
connection, 857,547 shares voted for ratification, 62,860
shares voted against ratification, 127,068 shares abstained
and 1,438,095 shares were not voted by brokers.
16
<PAGE>
4. The ratification of the selection by the Board of Directors of
BDO Seidman LLP as independent auditors for the year ending
December 31, 1999. In this connection, 2,458,822 shares voted
for ratification, 3,250 shares voted against ratification, and
23,498 shares abstained.
Item 5. Other Information.
Trading of the publicly held securities of the Company was transferred from
the Nasdaq SmallCap Market to the OTC-Bulletin Board in October 1999 because the
Company was no longer in compliance with Nasdaq's $1.00 minimum bid price
requirement. The Company was also not in compliance with Nasdaq's net tangible
asset requirement (minimum of $2,000,000). The Company's securities continue to
be listed on the OTC-Bulletin Board.
The Stockholders of the Company have approved an amendment of the Company's
Certificate of Incorporation to affect a one-for-three, one-for-two,
three-for-five, two-for-three or three-for-four reverse stock split of the
Common Stock of the Company, but as of the date of this report, the Board of
Directors have taken no action in this regard. The reverse stock split was
contemplated as a means of retaining the Company's listing on the Nasdaq
SmallCap Market.
The Stockholders of the Company have ratified and approved additional
financing of the Company through sale of an aggregate of 471,428 shares of
Common Stock of the Company to the President of the Company and the Chief
Operating Officer of a wholly-owned subsidiary of the Company, at a price of
$.70 per share, but as of the date of this report, these Officers have taken no
action in this regard. The purchase agreements with theses officers was
contingent upon the Company maintaining its listing on the Nasdaq SmallCap
Market, which condition was not met.
Item 6. Exhibits and Reports on Form 8-K.
A. The following Exhibit is filed herewith:
Exhibit No. Title
----------- -----
27 Financial Data Schedule
B. Report on Form 8-K. None.
17
<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: November 15, 1999 By: /s/ Rodney I. Smith
---------------------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: November 15, 1999 By: /s/ Theodore D. Pennington
---------------------------------
Theodore D. Pennington
Vice President, Finance and
Chief Financial Officer
(principal financial officer)
18
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
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