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
June 30, 2000 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.)
Route 28, 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 August 10, 2000, the Company had outstanding 3,050,798 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 (Unaudited); 3
June 30, 2000 and December 31, 1999
Consolidated Statements of Operations 4
(Unaudited); Three months ended
June 30, 2000 and 1999
Consolidated Statements of Operations 5
(Unaudited); Six months ended
June 30, 2000 and 1999
Consolidated Statements of Cash Flows 6
(Unaudited); Six months ended
June 30, 2000 and 1999
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 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
ASSETS 2000 1999
------ ----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,025,811 $ 374,190
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$280,019 and $323,474 3,847,169 3,557,938
Trade - unbilled (62,642) 123,332
Inventories:
Raw materials 524,554 493,979
Finished goods 1,260,443 1,013,958
Prepaid expenses and other assets 99,438 46,656
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Total current assets 6,694,773 5,610,053
------------ -----------
Property and equipment, net 2,629,420 2,608,145
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Other assets:
Note receivable, officer 638,347 638,347
Other 324,057 317,845
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Total other assets $ 962,404 $ 956,192
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TOTAL ASSETS $10,286,597 $9,174,390
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current maturities of notes payable $ 760,256 $ 228,025
Accounts payable - trade 1,533,002 1,690,853
Accrued expenses and other liabilities 1,592,203 1,324,021
Customer deposits 657,216 172,914
------------ -----------
Total current liabilities 4,542,677 3,415,813
Notes payable - less current maturities 4,277,934 4,350,644
Notes payable - related parties 92,126 96,875
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TOTAL LIABILITIES 8,912,737 7,863,332
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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 3,091,718 and 3,085,718 shares,
outstanding, 3,050,798 and 3,044,798 shares 30,917 30,857
Additional capital 3,453,222 3,450,085
Treasury Stock (102,300) (102,300)
Retained earnings (deficit) (2,007,979) (2,067,584)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 1,373,860 1,311,058
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $10,286,597 $9,174,390
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
2000 1999
------------ ------------
<S> <C> <C>
Revenue $3,780,164 $4,322,912
Cost of goods sold 2,916,570 3,460,733
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Gross profit 863,594 862,179
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Operating expenses:
General and administrative expenses 619,315 533,022
Selling expenses 93,185 120,950
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Total operating expenses 712,500 653,972
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Operating income 151,094 208,207
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Other income (expense):
Royalties 102,404 57,920
Interest expense (140,987) (134,817)
Interest income 21,223 4,541
Other 75,277 43,788
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Total other income (expense) 57,917 (28,568)
----------- ----------
Income (loss) before income taxes 209,011 179,639
Income tax expense (benefit) -- --
----------- ----------
Net income (loss) $ 209,011 $ 179,639
=========== ==========
Basic and diluted earnings per share $ .07 $ .06
=========== ==========
Weighted average common shares outstanding 3,050,798 3,044,798
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------ ------------
<S> <C> <C>
Revenue $6,254,612 $7,781,436
Cost of goods sold 4,830,207 6,196,159
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Gross profit 1,424,405 1,585,277
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Operating expenses:
General and administrative expenses 1,221,409 1,015,180
Selling expenses 190,221 280,725
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Total operating expenses 1,411,630 1,295,905
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Operating income 12,775 289,372
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Other income (expense):
Royalties 182,292 108,489
Interest expense (277,112) (253,389)
Interest income 35,376 24,066
Other 106,276 39,222
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Total other income (expense) 46,832 (81,612)
----------- -----------
Income before income taxes 59,607 207,760
Income tax expense (benefit) -- --
----------- -----------
Net income $ 59,607 $ 207,760
=========== ===========
Basic and diluted earnings per share $ .02 $ .07
=========== ===========
Weighted average common shares outstanding 3,049,578 3,044,798
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 6,817,949 $ 7,358,116
Cash paid to suppliers and employees (6,285,218) (7,019,557)
Interest paid (277,112) (253,389)
Other 141,653 42,512
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Net cash provided (absorbed) by operating activities 397,272 127,682
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (204,013) (403,948)
Decrease (increase) in officer note receivable -- --
Increase in related party receivables -- (3,258)
------------ ------------
Net cash absorbed by investing activities (204,013) (407,206)
------------ ------------
Cash flows from financing activities:
Proceeds from bank borrowings 551,900 75,000
Repayments of bank borrowings-related party (4,749) --
Repayments of bank borrowings (92,379) (38,151)
Proceeds from issuance of common stock, net 3,590 --
------------ ------------
Net cash provided by financing activities 458,362 36,849
------------ ------------
Decrease (increase) in cash - restricted -- 387,462
Net increase (decrease) in cash and cash equivalents 651,621 144,787
Cash and cash equivalents at beginning of period 374,190 207,661
------------ ------------
Cash and cash equivalents at end of period $ 1,025,811 $ 352,448
============ ============
Reconciliation of net income (loss) to net cash
provided (absorbed) by operating activities:
Net income $ 59,607 $ 207,760
Adjustments to reconcile net income to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 184,657 160,467
Increase in other assets (8,527) (162,350)
Decrease (increase) in:
Accounts receivable - billed (289,231) (258,034)
Accounts receivable - unbilled 185,974 (220,933)
Inventories (277,060) 13,308
Prepaid expenses and other assets (52,782) (2,045)
Increase (decrease) in:
Accounts payable trade (157,851) 149,989
Accrued expenses and other liabilities 268,183 292,362
Customer deposits 484,302 (52,842)
------------ ------------
Net cash provided (absorbed) by operating activities $ 397,272 $ 127,682
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
6
<PAGE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2000
(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, 1999.
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 six-month periods ended June
30, 2000 and 1999.
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 2000 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 six-month
periods ended June 30, 2000 and 1999, as the Company does not expect to incur
income tax expense for 2000 and did not incur income tax expense during 1999.
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 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.
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 (LOSS) PER SHARE
Basic earnings (loss) 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. At June 30, 2000
there was no material dilutive effect on earnings (loss) 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 SlenderwallTM, a
patent-pending, lightweight, energy efficient concrete and steel exterior wall
panel for use in building construction; J-J HooksTM Highway Safety Barrier, a
patented, positive-connected highway safety barrier; Sierra Wall, a soundwall
barrier primarily for roadside use; and transportable concrete buildings. In
addition, the Company produces custom order precast concrete products, with
various architectural surfaces, typically used in commercial building
construction, as well as utility vaults, and farm products such as cattleguards
and water and feed troughs.
In 1998, the Company began work on a contract to renovate the Bradley Hall
building at Rutgers University (the "Bradley Hall project"). This 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 lead 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 to the Company for the project are approximately $1.6
million and estimates that the total loss on the job before recovery on any
claims by the Company is approximately $1.45 million, which has been booked in
its entirety as of December 31, 1999. In 1999, the general contractor filed
claims on the Company's behalf in the amount of $1.1 million. As of June 30,
2000, $497,000 of the contract claim has been included in accounts receivable.
The Company is currently involved in litigation over this matter, and 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. The Company believes that,
based on prior experience in claims settlement, it will ultimately collect the
recorded claim receivable.
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 six months ended June 30, 2000 are not necessarily indicative of the
results for the Company's operations for the year ending December 31, 2000.
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 JUNE 30, 2000 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 2000
For the three months ended June 30, 2000, the Company had total revenue of
$3,780,164 compared to total revenue of $4,322,912 for the three months ended
June 30, 1999, a decrease of $542,748, or 13%. The Company had lower product
sales of $2,843,961 for the three months ended June 30, 2000 compared to
$3,419,718 for the same period in 1999, a decrease of $575,757, or 17%. Sales of
Easi-Set Precast Buildings, Slenderwall and particularly soundwall were lower
for the second three months of 2000 while architectural precast products and
manhole sales increased. Slenderwall sales declined because of the completion of
the Bradley Hall Project in 1999, while the decrease in building and soundwall
sales reflect a shift in the Company's marketing focus toward custom
architectural precast products used in commercial building construction.
Shipping and installation revenue was $936,203 for the three months ended June
30, 2000 and $903,194 for the same period in 1999, an increase of $ 33,009, or
4%. The increase was attributable to higher installation revenue which was
partially offset by lower shipping revenue in the 2000 period compared to the
same period in 1999.
Total cost of goods sold for the three months ended June 30, 2000 was
$2,916,570, a decrease of $544,163, or 16%, from $3,460,733 for the three months
ended June 30, 1999. The decrease was primarily the result of the lower sales
volume and cost of production, offset, in part, by a significant increase in
sales of products requiring installation, and a decrease in the profitability of
shipping services in the 2000 period. Total cost of goods sold was 77% of total
revenue for the three months ended June 30, 2000 versus 80% for the three months
ended June 30, 1999, which earlier period was impacted by higher costs due to
the Bradley Hall Project.
For the three months ended June 30, 2000, the Company's general and
administrative expenses increased $86,293 to $619,315 from $533,022 during the
same period in 1999. The 16% increase was mainly attributable to higher
personnel costs, as the Company filled vacant positions, higher personnel
recruitment costs, higher professional fees from the use of consultants, and
higher use taxes due on Company installed product.
Selling expenses for the three months ended June 30, 2000 decreased
$27,765, or 23%, to $93,185 from $120,950 for the three months ended June 30,
1999, resulting from reduced staffing and salary expenses and lower advertising
costs.
The Company's operating income for the three months ended June 30, 2000 was
$151,094, compared to operating income of $208,207 for the three months ended
June 30, 1999, a decrease of $57,113, or 27%. The gross margin remained
relatively constant, but higher general and administrative expenses, which were
partially offset by reduced selling expenses, caused a reduction in overall
operating income.
Royalty income totaled $102,404 for the three months ended June 30, 2000,
compared to $57,920 for the same three months in 1999. The increase of $44,484,
or 77%, was due to increased start-up license fees and increased building and
barrier royalties based on increased sales activity by the Company's licensees
in the 2000 period as compared to the 1999 period.
11
<PAGE>
Interest expense was $140,987 for the three months ended June 30, 2000,
compared to $134,817 for the three months ended June 30, 1999. The increase of
$6,170, or 5%, was primarily due to higher average levels of debt outstanding in
the 2000 period.
Other income was $75,277 for the three months ended June 30, 2000 compared
to $43,788 for the three months ended June 30, 1999, an increase of $31,489. The
increase is attributable to the net effects of increases in barrier rental
income and an increase in income from miscellaneous sources.
The net profit was $209,011 for the three months ended June 30, 2000,
compared to a net profit of $179,639 for the same period in 1999. The basic and
diluted net profit per share for the current three month period was $.07
compared to basic and diluted net profit per share of $.06 for the three months
ended June 30, 1999.
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1999
For the six months ended June 30, 2000, the Company had total revenue of
$6,254,612 compared to total revenue of $7,781,436 for the six months ended June
30, 1999, a decrease of $1,526,824, or 20%. The Company had lower product sales
of $5,055,127 for the six months ended June 30, 2000, compared to $6,089,207 for
the same period in 1999, a decrease of $1,034,080, or 17%. Sales of Easi-Set
Precast Buildings, Slenderwall and particularly soundwall were lower for the
first six months of 2000 while architectural precast products and manhole sales
increased. Slenderwall sales declined because of the completion of the Bradley
Hall Project in 1999, while the decrease in building and soundwall sales reflect
a shift in the Company's marketing focus toward custom architectural precast
products used in commercial building construction. Although the lead time
required to secure and produce contracts for custom architectural precast
products is much greater, the Company's has been able to substantially increase
its work backlog with the new focus. Shipping and installation revenue was
$1,199,485 for the six months ended June 30, 2000 and $1,692,229 for the same
period in 1999, a decrease of $492,744, or 29%. The decrease was attributable to
lower overall sales of products requiring installation and shipping in the 2000
period, as compared to the 1999 period.
Total cost of goods sold for the six months ended June 30, 2000 was
$4,830,207, a decrease of $1,365,952, or 22%, from $6,196,159 for the six months
ended June 30, 1999. The majority of the decrease was the result of the lower
volume of sales. Product costs also decreased in 2000 from the 1999 levels
due to the impact of the higher costs of the Bradley Hall Project in the earlier
period. Total cost of goods sold, as a percentage of total revenue,
decreased to 77% for the six months ended June 30, 2000, from 80% for the six
months ended June 30, 1999 as lower product costs were only partially offset by
higher shipping expenses.
For the six months ended June 30, 2000, the Company's general and
administrative expenses increased $206,229, or 20%, from $1,015,180 for the same
period in 1999. The increase occurred primarily in personnel costs, as the
Company filled vacant positions, and had higher personnel recruitment costs,
higher professional fees from the use of consultants, and higher use taxes
due on Company installed product.
12
<PAGE>
Selling expenses for the six months ended June 30, 2000 decreased $90,504,
or 32%, to $190,221 from $280,725 for the six months ended June 30, 1999. This
decrease was primarily the result of staffing reductions with the decreased
salary and commissions expenses, and a reduction in advertising costs for
the period.
The Company's operating income for the six months ended June 30, 2000 was
$12,775, compared to operating income of $289,372 for the six months ended June
30, 1999, a decrease of $276,597. The reduction in operating income was due to
the relatively low overall volume of sales combined with the increase in general
and administrative expenses.
Royalty income totaled $182,292 for the six months ended June 30, 2000,
compared to $108,489 for the same six months in 1999. The increase of $73,803
resulted from higher volume of royalty fees earned and licensee start-up fees
from new licensees.
Interest expense was $277,112 for the six months ended June 30, 2000,
compared to $253,389 for the six months ended June 30, 1999. The increase of
$23,723, or 9%, was primarily from higher levels of average debt outstanding
during the 2000 period.
Other income was $106,277 for the six months ended June 30, 2000 compared
to $39,222 for the six months ended June 30, 1999, an increase of $67,055. The
increase is attributable to the net effects of increases in barrier rental
income and an increase in income from miscellaneous sources.
Net income was $59,607 for the six months ended June 30, 2000, compared to
net income of $207,760 for the same period in 1999. The basic and diluted
earnings per share for the current six month period was $.02 compared to $.07
per share for the six months ended June 30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its capital expenditures, operating requirements
and growth to date primarily with proceeds from operations, bank and other
borrowings, and equity financing. The Company had $5,038,190 of indebtedness at
June 30, 2000, of which $760,256 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, headquartered in Hartford,
Connecticut. 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 dramatically improved the
Company's current debt ratio and debt service. The loan is guaranteed in part by
the U.S. Department of Agriculture Rural Business-Cooperative Service's loan
guarantee. 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 extended in May 2000, and now has a maturity date of
September 1, 2000. On December 20, 1999, the Company secured an
13
<PAGE>
additional term loan of $500,000 from FIB. The term loan is payable in monthly
installments over a five year period and carries an interest rate of 1.75% above
prime.
Capital spending totaled $204,013 in the six month period ended June 30,
2000, which was a decrease of 49% from $403,948 in the comparable period of the
prior year, primarily from the completion, in 1999, of a 16,000 square foot
plant addition to the Company's facility in Midland, Virginia. This plant
addition was financed with restricted funds received in 1998 as part of the
$4,000,000 FIB loan as mentioned above. Planned capital expenditures for 2000
are limited as stated above by the FIB loan agreement. No other significant cash
commitments for capital expenditures are planned in 2000.
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 the event cash flow from operations 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.
OTHER COMMENTS
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. As of June 30, 2000 the Company's backlog was approximately $5.5 million
versus a backlog of approximately $2.9 million as of June 30, 1999. As of August
14, 2000, the Company's backlog had increased to approximately $6.6 million
versus a backlog of $2.9 for the comparable period in 1999. The majority of the
projects relating to the backlog as of August 14, 2000 are contracted to be
constructed in 2000.
Management believes that the Company's operations have not been materially
affected by inflation.
14
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
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In June 2000, the Company received notice of a personal injury lawsuit
filed by Kenneth R. Hughes and Braunya P. Hughes in the United States District
Court for the District of Columbia. Mr. Hughes was a road construction worker
engaged in the transportation and relocation of pre-cast concrete barrier to
create temporary concrete walls at road construction sites for a third party
construction company. On or about June 20, 1997, Mr. Hughes suffered injuries
when a barrier section-coupling device apparatus failed. The suit alleges that
the Company sold the section-coupling device to the third party contractor and
was negligent in the design and manufacture of said barrier section-coupling
device. The suit seeks $10,000,000 in compensatory damages and $10,000,000 in
punitive damages.
At this time, Management believes the suit to be without merit however, as
the suit is in the pre- discovery stage, Management is attempting to determine
the facts surrounding the incident.
Reference is made to Item 3 of the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1999 for information as to other reported legal
proceedings.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. NONE.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. NONE
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ITEM 5. OTHER INFORMATION. NONE.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
--------------------------------
A. The following Exhibit is filed herewith:
Exhibit No. Title
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27 Financial Data Schedule
B. Reports on Form 8-K. None.
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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 18, 2000 By: /s/ Rodney I. Smith
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: August 18, 2000 By: /s/ Robert E. Albrecht, Jr.
Robert E. Albrecht, Jr.
Chief Financial Officer
(principal financial officer)
16
