-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DakUatTWr0yJVpDM15UDiD2WeWmIKDx9vSwpxEgN/kWxMsed1LlhGTGztNCiSsHc we9jNjBeinKriP64k/Tf0A== 0001127264-01-500033.txt : 20010522 0001127264-01-500033.hdr.sgml : 20010522 ACCESSION NUMBER: 0001127264-01-500033 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010521 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SMITH MIDLAND CORP CENTRAL INDEX KEY: 0000924719 STANDARD INDUSTRIAL CLASSIFICATION: CONCRETE PRODUCTS, EXCEPT BLOCK & BRICK [3272] IRS NUMBER: 541727060 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: SEC FILE NUMBER: 001-13752 FILM NUMBER: 1644577 BUSINESS ADDRESS: STREET 1: ROUTE 28 STREET 2: P O BOX 300 CITY: MIDLAND STATE: VA ZIP: 22728 BUSINESS PHONE: 5404393266 MAIL ADDRESS: STREET 1: P.O. BOX 300 STREET 2: P.O. BOX 300 CITY: MIDLAND STATE: VA ZIP: 22728 10QSB 1 smithmidq.txt FIRST QUARTER REPORT 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, 2001 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 21, 2001, the Company had outstanding 3,050,798 shares of Common Stock, $.01 par value per share. SMITH-MIDLAND CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NUMBER ----------- Item 1. Financial Statements Consolidated Balance Sheets; 1 March 31, 2001 (Unaudited); and December 31, 2000 (Audited) Consolidated Statements of Operations 2 (Unaudited); Three months ended March 31, 2001 and 2000 Consolidated Statements of Cash Flows 3 (Unaudited); Three months ended March 31, 2001 and 2000 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 10 Item 2. Changes in Securities and Use of Proceeds 10 Item 3. Defaults Upon Senior Securities 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 5. Other Information 10 Item 6. Exhibits and Reports on Form 8-K 10 Signatures 11 PART I - Financial Information Item 1. Financial Statements SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)
March 31, December 31, Assets 2001 2000 ------ ------------ ----------- Current assets: Cash and cash equivalents $ 404,360 $ 218,264 Accounts receivable: Trade - billed, less allowances for doubtful accounts of $269,042 and $258,542. 3,518,092 4,122,118 Trade - unbilled 107,399 2,405 Inventories: Raw materials 664,034 576,995 Finished goods 1,495,048 1,475,383 Prepaid expenses and other assets 109,908 62,811 ----------- ----------- Total current assets 6,298,841 6,457,976 ----------- ----------- Property and equipment, net 2,680,030 2,684,918 ----------- ----------- Other assets: Note receivable, officer 630,700 630,700 Claims and accounts receivable 960,254 960,254 Other 301,913 309,374 ----------- ----------- Total other assets 1,892,867 1,900,328 ----------- ----------- Total Assets $10,871,737 $11,043,222 =========== =========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Current maturities of notes payable $ 527,940 $ 524,305 Accounts payable -- trade 2,160,354 2,482,238 Accrued expenses and other liabilities 415,393 347,674 Customer deposits 396,816 416,816 ----------- ----------- Total current liabilities 3,500,503 3,771,033 Reserves for contract losses 1,064,845 995,845 Notes payable -- less current maturities 4,282,493 4,281,528 Notes payable -- related parties 87,188 87,188 ----------- ----------- Total Liabilities 8,935,029 9,135,594 ----------- ----------- 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 30,917 30,917 Additional capital 3,453,222 3,453,222 Treasury Stock (102,300) (102,300) Retained earnings (deficit) (1,445,131) (1,474,211) ----------- ----------- Total Stockholders' Equity 1,936.708 1,907,628 Total Liabilities and Stockholders' Equity $10,871,737 $11,043,222 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
1 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, 2001 2000 ---------- ---------- Revenue $4,758,528 $2,474,448 Cost of goods sold 4,031,848 1,913,637 ---------- ---------- Gross profit 726,680 560,811 ---------- ---------- Operating expenses: General and administrative expenses 630,573 602,094 Selling expenses 130,934 97,037 ---------- ---------- Total operating expenses 761,507 699,131 ---------- ---------- Operating income (loss) ( 34,827) (138,320) ---------- ---------- Other income (expense): Royalties 166,988 79,888 Interest expense (134,253) (136,125) Interest income 12,373 14,153 Other 18,799 30,998 ---------- ---------- Total other income (expense) 63,907 (11,086) ---------- ---------- Income (loss) before income taxes 29,080 (149,406) Income tax expense -- -- ---------- ---------- Net income $ 29,080 $ (149,406) ========== ========== Basic and diluted income per share $ .01 $ (.05) ========== ========== Weighted average common shares outstanding 3,050,798 3,050,798 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
2 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 2001 2000 ------------ ----------- Cash flows from operating activities: Cash received from customers $ 5,404,548 $ 2,798,106 Cash paid to suppliers and employees (5,030,428) (2,756,188) Interest paid (134,252) (136,125) Other 31,172 45,151 ------------ ----------- Net cash (absorbed) by operating activities 271,040 (49,056) ------------ ----------- Cash flows from investing activities: Purchases of property and equipment (89,545) (78,297) (Increase) decrease in officer note receivable -- -- ------------ ----------- Net cash absorbed by investing activities (89,545) (78,297) ------------ ----------- Cash flows from financing activities: Proceeds from bank borrowings 48,404 515,211 Repayments of borrowings - related party -- (2,343) Repayments of bank borrowings (43,803) (44,263) Proceeds from issuance of common stock, net -- 3,590 ------------ ----------- Net cash provided by financing activities 4,601 472,195 ------------ ----------- Net increase (decrease) in cash and cash equivalents 186,096 344,842 Cash and cash equivalents at beginning of period 218,264 374,190 ------------ ----------- Cash and cash equivalents at end of period $ 404,360 $ 719,032 ============ =========== Reconciliation of net income (loss) to net cash provided (absorbed) by operating activities: Net income (loss) $ 29,080 $ (149,406) Adjustments to reconcile net income (loss) to net cash provided (absorbed) by operating activities: Depreciation and amortization 94,433 91,017 Decrease (increase) in other assets 7,461 3,500 Decrease (increase) in: Accounts receivable - billed 604,026 113,846 Accounts receivable - unbilled (104,994) 91,722 Inventories (106,704) (40,890) Prepaid expenses and other assets (47,097) (10,479) Increase (decrease) in: Accounts payable - trade (321,884) (248,649) Accrued expenses and other liabilities 136,719 62,081 Customer deposits (20,000) 38,202 ------------ ----------- Net cash provided (absorbed) by operating activities $ 271,040 $ (49,056) ============ =========== The accompanying notes are an integral part of these consolidated financial statements.
3 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) March 31, 2001 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, 2000. 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, 2001 and 2000. 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 2001 presentation. Inventories Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. 4 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, 2001 and 2000 as the Company does not expect to incur income tax expense for fiscal year 2001 and did not incur income tax expense in fiscal year 2000. 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 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, 2001, there was no material dilutive effect on income per share. 6 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, 2001 $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 the specific facts and circumstances and 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, 2001 are not necessarily indicative of the results for the Company's operations for the year ending December 31, 2001. 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 Results of Operations Three months ended March 31, 2001 compared to the three months ended March 31, 2000 For the three months ended March 31, 2001, the Company had total revenue of $4,758,528 compared to total revenue of $2,474,448 for the three months ended March 31, 2000, an increase of $2,284,080 or 92%. Total product sales were $4,174,287 for the three months ended March 31, 2001 compared to $2,211,166 for the same period in 2000, an increase of $1,963,121 or 89%. Shipping and installation revenue was $584,241 for the three months ended March 31, 2001 and $263,282 for the same period in 2000, an increase of $320,959, or 122%. The increase in revenue for the period ending March 31, 2001 was attributable to strong demand in the Company's primary markets with increased sales being registered in almost all product categories. Total cost of goods sold for the three months ended March 31, 2001 was $4,031,848, an increase of $2,118,211, or 111% from $1,913,637 for the three months ended March 31, 2000. The increase was a result of the increased volume combined with an increase in the average cost of products sold in the period. Total cost of goods sold, as a percentage of total revenue, increased to 85% for the three months ended March 31, 2001, from 77% for the three months ended March 31, 2000. The cost of products sold averaged 77% in the first quarter of 2001, which included an addition to the reserve for contract losses of $69,000 compared to 73% in the first quarter of 2000, which did not include any additional loss reserves. The cost of shipping and installation services however, exceeded shipping and installation revenue in the 2001 period by $220,869 due primarily to higher costs on SlenderwallTM and architectural project installations. For the three months ended March 31, 2001, the Company's general and administrative expenses increased $28,479, or 5%, to $630,573 from $602,094 during the same period in 2000. The majority of the increase was attributed to higher salary expenses in the quarter ending March 31, 2001. Sales and marketing expenses for the three months ended March 31, 2001 increased $33,897 to $130,934 from $97,037 for the three months ended March 31, 2000 an increase of 35%, primarily as a result of increases in salaries and sales commissions due to the higher volumes and slightly higher expenditures for advertising. The Company's operating loss for the three months ended March 31, 2001 was $(34,827), compared to an operating loss of $(138,320) for the three months ended March 31, 2000, a decrease of $103,493. The improved operating income resulted from a 30% increase in gross profit reduced by a 9% increase in operating expenses. Royalty income totaled $166,988 for the three months ended March 31, 2001, compared to $79,888 for the same three months in 2000. The increase of $87,100, or 109%, was due to a higher volume of product sales by licensees and increased sign-up fees from new licensees. Interest expense was $134,252 for the three months ended March 31, 2001, compared to $136,125 for the three months ended March 31, 2000. The decrease of $1,873, or 1%, was due to slightly lower levels of average debt outstanding in the quarter ending March 31, 2001 compared to the quarter ending March 31, 2000 and slightly lower average interest rates in the current quarter. The net income was $29,080 for the three months ended March 31, 2001 compared to a net loss of $149,406 for the same period in 2000. Net income per share for the 2001 three month period was $0.01 compared to net loss per share of $0.05 for the three months ended March 31, 2000. 8 Liquidity and Capital Resources The Company generally finances its capital expenditures, operating requirements and growth with proceeds from operations, and bank and other borrowings. The Company had $4,897,621 of indebtedness at March 31, 2001, of which $527,940 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 matures in May 2001 however, the Company has agreed with the FIB to extend the line of credit upon its maturity date. 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 increased slightly to $89,545 in the quarter ended March 31, 2001 from $78,297 in the comparable period of the prior year, mainly because of routine equipment replacements. Planned capital expenditures for 2001 are limited as stated above by the FIB loan agreement. No other significant cash commitments for capital expenditures are planned in 2001. 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. Management believes that the Company's operations have not been materially affected by inflation. 9 PART II - Other Information Item 1. Legal Proceedings. Reference is made to Item 3 of the Company's Annual ------------------ Report on Form 10-KSB for the year ended December 31, 2000 for information as to reported legal proceedings. 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. None. -------------------------------- 10 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 21, 2001 By: /s/ Rodney I. Smith ------------------------------------- Rodney I. Smith Chairman of the Board, Chief Executive Officer and President (principal executive officer) Date: May 21, 2001 By: /s/ Robert E. Albrecht, Jr. ------------------------------------- Robert E. Albrecht, Jr. Chief Financial Officer (principal financial and accounting officer) 11 -----END PRIVACY-ENHANCED MESSAGE-----