U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Filed Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended Commission File Number
March 31, 2000 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)
(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, 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; 1
March 31, 2000 (Unaudited);
and December 31, 1999 (Audited)
Consolidated Statements of Operations 2
(Unaudited); Three months ended
March 31, 2000 and 1999
Consolidated Statements of Cash Flows 3
(Unaudited); Three months ended
March 31, 2000 and 1999
Notes to Consolidated Financial Statements (Unaudited) 4
Item 2. Management's Discussion and Analysis or Plan of Operation 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 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>
March 31, December 31,
Assets 2000 1999
----------- -----------
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 719,032 $ 374,190
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$316,127 and $323,474 3,444,092 3,557,938
Trade - unbilled 31,610 123,332
Inventories:
Raw materials 436,098 493,979
Finished goods 1,112,729 1,013,958
Prepaid expenses and other assets 57,135 46,656
----------- -----------
Total current assets 5,800,696 5,610,053
----------- -----------
Property and equipment, net 2,595,030 2,608,145
----------- -----------
Other assets:
Note receivable, officer 638,347 638,347
Other 314,345 317,845
----------- -----------
Total other assets 952,692 956,192
----------- -----------
Total Assets $ 9,348,418 $ 9,174,390
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes payable $ 751,322 $ 228,025
Accounts payable -- trade 1,442,204 1,690,853
Accrued expenses and other liabilities 1,386,102 1,324,021
Customer deposits 211,116 172,914
----------- -----------
Total current liabilities 3,790,744 3,415,813
Notes payable -- less current maturities 4,298,296 4,350,644
Notes payable -- related parties 94,532 96,875
----------- -----------
Total Liabilities 8,183,572 7,863,332
----------- -----------
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 3,050,798 and 3,044,798 30,917 30,857
Additional capital 3,453,222 3,450,085
Treasury Stock (102,300) (102,300)
Retained earnings (deficit) (2,216,993) (2,067,584)
----------- -----------
Total Stockholders' Equity 1,164,846 1,311,058
----------- -----------
Total Liabilities and Stockholders' Equity $ 9,348,418 $ 9,174,390
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE>
<TABLE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
----------- -----------
<S> <C> <C>
Revenue $ 2,474,448 $ 3,458,524
Cost of goods sold 1,913,637 2,735,426
----------- -----------
Gross profit 560,811 723,098
----------- -----------
Operating expenses:
General and administrative expenses 602,094 482,158
Selling expenses 97,037 159,775
----------- -----------
Total operating expenses 699,131 641,933
----------- -----------
Operating income (loss) (138,320) 81,165
----------- -----------
Other income (expense):
Royalties 79,888 50,569
Interest expense (136,125) (118,572)
Interest income 14,153 19,525
Other 30,998 (4,566)
----------- -----------
Total other income (expense) (11,086) (53,044)
----------- -----------
Income (loss) before income taxes (149,406) 28,121
Income tax expense -- --
----------- -----------
Net income $ (149,406) $ 28,121
=========== ===========
Basic and diluted income per share $ (.05) $ .01
=========== ===========
Weighted average common shares outstanding 3,050,798 3,044,798
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
<TABLE>
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
---------
2000 1999
----------- -----------
Cash flows from operating activities:
<S> <C> <C>
Cash received from customers $ 2,798,106 $ 3,465,891
Cash paid to suppliers and employees (2,756,188) (3,460,336)
Interest paid (136,125) (118,572)
Other 45,151 4,571
----------- -----------
Net cash (absorbed) by operating activities (49,056) (108,446)
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment (78,297) (352,855)
(Increase) decrease in officer note receivable -- --
----------- -----------
Net cash absorbed by investing activities (78,297) (352,855)
----------- -----------
Cash flows from financing activities:
Proceeds from bank borrowings 515,211 75,000
Repayments of borrowings - related party (2,343) (3,258)
Repayments of bank borrowings (44,263) (22,430)
Proceeds from issuance of common stock, net 3,590 --
----------- -----------
Net cash provided by financing activities 472,195 49,312
----------- -----------
Decrease in cash - restricted -- 387,462
----------- -----------
Net increase (decrease) in cash and cash equivalents 344,842 (24,527)
Cash and cash equivalents at beginning of period 374,190 207,661
----------- -----------
Cash and cash equivalents at end of period $ 719,032 $ 183,134
=========== ===========
Reconciliation of net income (loss) to net cash provided
(absorbed) by operating activities:
Net income (loss) $ (149,406) $ 28,121
Adjustments to reconcile net income (loss) to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 91,017 79,712
Decrease (increase) in other assets 3,500 (21,664)
Decrease (increase) in:
Accounts receivable - billed 113,846 5,119
Accounts receivable - unbilled 91,722 (48,616)
Inventories (40,890) (136,474)
Prepaid expenses and other assets (10,479) (43,381)
Increase (decrease) in:
Accounts payable - trade (248,649) 74,771
Accrued expenses and other liabilities 62,081 (46,329)
Customer deposits 38,202 215
----------- -----------
Net cash provided (absorbed) by operating activities $ (49,056) $ (108,446)
=========== ===========
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, 2000
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, 1999.
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, 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.
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.
No provision for income taxes has been made for the three-month periods
ended March 31, 2000 and 1999 as the Company does not expect to incur income tax
expense for fiscal year 2000 and did not incur income tax expense in fiscal year
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.
5
<PAGE>
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
Basic income per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted income per share reflects the potential dilutive effect of
securities that could share in earnings of an entity. At March 31, 2000, there
was no material dilutive effect on income per share.
6
<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation
---------------------------------------------------------
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
patented, 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 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"). 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 March 31, 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 months ended March 31, 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.
7
<PAGE>
Results of Operations
Three months ended March 31, 2000 compared to the three months ended March
31, 1999
For the three months ended March 31, 2000, the Company had total revenue of
$2,474,448 compared to total revenue of $3,458,524 for the three months ended
March 31, 1999, a decrease of $984,076 or 28%. Total product sales were
$2,211,166 for the three months ended March 31, 2000 compared to $2,669,489 for
the same period in 1999, a decrease of $458,323 or 17%. Shipping and
installation revenue was $263,282 for the three months ended March 31, 2000 and
$789,035 for the same period in 1999, a decrease of $525,753, or 67%. The
reduction in revenue for the period ending March 31, 2000 was attributable to a
lower volume of sales in most product categories, as well as a decrease in the
sales of products requiring installation, such as Slenderwall(TM) construction
panels and Easi-Set precast transportable buildings. In addition, in 1999 the
company had a number of larger project contracts, such as Bradley Hall, which it
did not have in 2000.
Total cost of goods sold for the three months ended March 31, 2000 was
$1,913,637, a decrease of $821,789, or 30% from $2,735,426 for the three months
ended March 31, 1999. The decrease was a result of the reduction in revenue.
Total cost of goods sold, as a percentage of total revenue, decreased to 77% for
the three months ended March 31, 2000, from 79% for the three months ended March
31, 1999. The cost of products sold averaged 73% in 2000 compared to 77% in
1999; however this decrease was offset in part by the cost of shipping and
installation services which exceeded shipping and installation revenue in the
2000 period by $40,802, primarily due to the low volume.
For the three months ended March 31, 2000, the Company's general and
administrative expenses increased $119,936, or 25%, to $602,094 from $482,158
during the same period in 1999 The majority of the decrease was attributed to
two factors. The first was higher personnel costs, including fringe benefits and
recruitment expense, and the second was higher insurance costs.
Sales and marketing expenses for the three months ended March 31, 2000
decreased $62,738 to $97,037 from $159,775 for the three months ended March 31,
1999, primarily as a result of reductions in staff with the related reduction in
salaries and fringe benefits.
The Company's operating loss for the three months ended March 31, 2000 was
$(138,320), compared to operating income of $81,165 for the three months ended
March 31, 1999, a decrease of $219,485. The operating income reduction resulted
from a 22% decrease in gross profit combined with a 9% increase in operating
expenses.
Royalty income totaled $79,888 for the three months ended March 31, 2000,
compared to $50,569 for the same three months in 1999. The increase of $29,319,
or 58%, was due to a higher volume of product sales by licensees.
8
<PAGE>
Interest expense was $136,125 for the three months ended March 31, 2000,
compared to $118,572 for the three months ended March 31, 1999. The increase of
$17,553, or 15%, was due to the higher level of total debt at March 31, 2000
compared March 31, 1999 and slightly higher interest rates in the current
quarter.
The net loss was $149,406 for the three months ended March 31, 2000,
compared to net income of $28,121 for the same period in 1999. Net loss per
share for the 2000 three month period was $0.05 compared to net income per share
of $0.01 for the three months ended March 31, 1999.
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating requirements
and growth to date primarily with proceeds from operations, and bank and other
borrowings. The Company had $5,144,150 of indebtedness at March 31, 2000, of
which $751,322 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 July 1,
2000. On December 20, 1999, the Company secured an 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 decreased to $78,297 in the quarter ended March 31, 2000
from $352,855 in the comparable period of the prior year, primarily for the
completion of a 16,000 square foot plant addition to its 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 2000 are limited as stated above by the FIB loan
agreement. No other significant cash commitments for capital expenditures are
planned in 2000.
9
<PAGE>
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. However, as of May 19, 2000, the Company's backlog was approximately
$4.7 million, of which $2.4 million represents firm contracts for
Slenderwall(TM) and architectural pre-cast concrete products, versus a backlog
of $4.8 million and $600,000 in firm contracts for Slenderwall(TM) and
architectual precast concrete products for the comparable period in 1999. The
majority of the projects relating to this backlog as of May 19, 2000 are
contracted to be constructed in 2000.
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 and Use of Proceeds. 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
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 19, 2000 By: /s/ Rodney I. Smith
-----------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: May 19, 2000 By: /s/ Robert E. Albrecht, Jr.
-------------------------------
Robert E. Albrecht, Jr.
Chief Financial Officer
(principal financial and
accounting officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 719,032
<SECURITIES> 0
<RECEIVABLES> 3,475,702
<ALLOWANCES> 316,127
<INVENTORY> 1,548,827
<CURRENT-ASSETS> 5,800,696
<PP&E> 2,595,030
<DEPRECIATION> 91,017
<TOTAL-ASSETS> 9,348,418
<CURRENT-LIABILITIES> 3,790,744
<BONDS> 0
0
0
<COMMON> 30,917
<OTHER-SE> 1,133,929
<TOTAL-LIABILITY-AND-EQUITY> 9,348,418
<SALES> 2,474,448
<TOTAL-REVENUES> 2,599,487
<CGS> 1,913,637
<TOTAL-COSTS> 2,612,768
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 136,125
<INCOME-PRETAX> (149,406)
<INCOME-TAX> 0
<INCOME-CONTINUING> (149,406)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (149,406)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
