-----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, DpCP7WPAmtyba/kjYel3iKl986ZgXhIhAeTDQpf8gOkqVdrxZsoFAN/cJVfmyVTE 7FIiO/QPoi3y5kPJtNXSCQ== 0001127264-02-000102.txt : 20020515 0001127264-02-000102.hdr.sgml : 20020515 20020515164633 ACCESSION NUMBER: 0001127264-02-000102 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 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: 1934 Act SEC FILE NUMBER: 001-13752 FILM NUMBER: 02653228 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: RT 28 STREET 2: PO BOX 300 CITY: MIDLAND STATE: VA ZIP: 22728 10QSB 1 sm_10q.txt FIRST QUARTER 2002 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, 2002 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 6, 2002, the Company had outstanding 3,682,451 shares of Common Stock, $.01 par value per share. 1 SMITH-MIDLAND CORPORATION INDEX PART I. FINANCIAL INFORMATION PAGE NUMBER ----------- Item 1. Financial Statements Consolidated Balance Sheets; 3 March 31, 2002 (Unaudited); and December 31, 2001 Consolidated Statements of Operations 4 (Unaudited); Three months ended March 31, 2002 and 2001 Consolidated Statements of Cash Flows 5 (Unaudited); Three months ended March 31, 2002 and 2001 Notes to Consolidated Financial Statements (Unaudited) 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 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 2 PART I - Financial Information Item 1. Financial Statements SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) March 31, December 31, 2002 2001 Assets ------------ ----------- Current assets: Cash and cash equivalents $ 759,845 $ 942,131 Accounts receivable: Trade - billed, less allowances for doubtful accounts of $382,395 and $371,895 5,080,140 5,934,359 Trade - unbilled 488,102 458,281 Inventories: Raw materials 500,834 585,736 Finished goods 1,226,031 1,042,660 Prepaid expenses and other assets 301,192 188,836 ----------- ------------ Total current assets 8,356,144 9,152,003 ----------- ------------ Property and equipment, net 2,748,048 2,672,665 ----------- ------------ Other assets: Note receivable, officer 552,282 558,282 Claims and accounts receivable 960,254 960,254 Other 273,890 296,965 ----------- ------------ Total other assets 1,786,426 1,815,501 ----------- ------------ Total Assets $12,890,618 $ 13,640,169 =========== ============ Liabilities and Stockholders' Equity Current liabilities: Current maturities of notes payable $ 580,340 $ 604,135 Accounts payable -- trade 2,073,673 2,999,367 Accrued expenses and other liabilities 579,830 732,710 Customer deposits 331,633 266,716 ----------- ------------ Total current liabilities 3,565,476 4,602,928 Reserves for contract losses 1,025,556 1,025,556 Notes payable -- less current maturities 3,980,889 3,998,862 Notes payable -- related parties 66,056 68,777 ----------- ------------ Total Liabilities 8,637,977 9,696,123 ----------- ------------ Stockholders' equity: Preferred stock, $.01 par value, authorized 1,000,000 shares, none outstanding -- -- Common stock, $.01 par value, authorized 8,000,000 shares, 3,354,751 and 3,171,051 issued and outstanding 33,547 31,710 Additional capital 3,592,360 3,494,854 Treasury Stock (102,300) (102,300) Retained earnings 729,034 519,782 ----------- ------------ Total Stockholders' Equity 4,252,641 3,944,046 ----------- ------------ Total Liabilities and Stockholders' Equity $12,890,618 $ 13,640,169 =========== ============ The accompanying notes are an integral part of these consolidated financial statements.
3 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, --------- 2002 2001 ---------- ---------- Revenue Product sales and leasing $5,237,859 $4,861,287 Royalties 169,737 166,988 ---------- ---------- Total Revenue 5,407,596 5,028,275 Cost of goods sold 4,165,963 4,031,848 ---------- ---------- Gross profit 1,241,633 996,427 ---------- ---------- Operating expenses: General and administrative expenses 679,710 630,573 Selling expenses 229,689 130,934 ---------- ---------- Total operating expenses 909,399 761,507 ---------- ---------- Operating income 332,234 234,920 ---------- ---------- Other income (expense): Interest expense (74,654) (134,253) Interest income 10,329 12,373 Other, net (31,257) (83,960) ---------- ---------- Total other income (expense) (95,582) (205,840) ---------- ---------- Income before income taxes 236,652 29,080 Income tax expense 27,400 -- ---------- ---------- Net income $ 209,252 $ 29,080 ========== ========== Basic income per share $ .06 $ .01 ========== ========== Diluted earnings per share $ .05 $ .01 ========== ========== The accompanying notes are an integral part of these consolidated financial statements.
4 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Three Months Ended March 31, --------- 2002 2001 ----------- ----------- Cash flows from operating activities: Cash received from customers $ 6,296,911 $5,404,548 Cash paid to suppliers and employees (6,248,457) (5,030,428) Income taxes paid, net (27,400) -- Interest paid (74,654) (134,252) Other (20,928) 31,172 ------------ ---------- Net cash provided (absorbed) by operating activities (74,528) 271,040 ------------ ---------- Cash flows from investing activities: Purchases of property and equipment (168,612) (89,545) (Increase) decrease in officer note receivable 6,000 -- ------------ ---------- Net cash absorbed by investing activities (162,612) (89,545) ------------ ---------- Cash flows from financing activities: Proceeds from borrowings 40,263 48,404 Repayments of borrowings (82,031) (43,803) Repayments on borrowings - related parties, net (2,721) -- Proceeds from warrants exercised 99,343 -- ------------ ---------- Net cash provided by financing activities 54,854 4,601 ------------ ---------- Net increase (decrease) in cash and cash equivalents (182,286) 186,096 Cash and cash equivalents at beginning of period 942,131 218,264 ------------ ---------- Cash and cash equivalents at end of period $ 759,845 $ 404,360 ============= ========== Reconciliation of net income (loss) to net cash provided (absorbed) by operating activities: Net income (loss) $ 209,252 $ 29,080 Adjustments to reconcile net income (loss) to net cash provided (absorbed) by operating activities: Depreciation and amortization 93,229 94,433 Decrease (increase) in: Accounts receivable - billed 854,219 604,026 Accounts receivable - unbilled (29,821) (104,994) Inventories (98,469) (106,704) Prepaid expenses and other assets (89,281) (39,636) Increase (decrease) in: Accounts payable - trade (925,694) (321,884) Accrued expenses and other liabilities (152,880) 136,719 Customer deposits 64,917 (20,000) ------------ ---------- Net cash provided (absorbed) by operating activities $ (74,528) $ 271,040 ============ ========== The accompanying notes are an integral part of these consolidated financial statements.
5 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) March 31, 2002 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, 2001. 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, 2002 and 2001. 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 2002 presentation. Inventories Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. 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. 6 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 federal income taxes was made for the three-month period ended March 31, 2002 or 2001 due to the availability of net operating loss carryforwards. As of December 31, 2001 the Company has approximately $275,000 in net operating loss carryforwards which the Company believes will be fully absorbed in the current year. At that time, a provision for federal income taxes will be established. 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. 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 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. Earnings per share was calculated as follows: Three Months Ended March 31, --------- 2002 2001 ---------- ---------- Net income $ 209,252 $ 29,080 ========== ========== Average Shares Outstanding For basic earnings per share 3,255,471 3,050,798 Dilutive effect of stock options and warrants 875,458 -- ---------- ---------- Average Shares Outstanding for diluted earnings per share 4,130,929 3,050,798 ========== ========== Basic income per share $ .06 $ .01 ========== ========== Diluted earnings per share $ .05 $ .01 ========== ==========
7 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 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. 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, 2002 are not necessarily indicative of the results for the Company's operations for the year ending December 31, 2002. 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. Results of Operations Three months ended March 31, 2002 compared to the three months ended March 31, 2001 For the three months ended March 31, 2002, the Company had total revenue of $5,407,596 compared to total revenue of $5,028,275 for the three months ended March 31, 2001, an increase of $379,321 or 8%. Total product sales were $4,448,087 for the three months ended March 31, 2002 compared to $4,277,046 for the same period in 2001, an increase of $171,041 or 4%. The sales mix changed with barrier, soundwall, and SlenderwallTM registering significant sales increases but architectural, utility and building sales showing significant decreases. Shipping and installation revenue was $789,772 for the three months ended March 31, 2002 and $584,241 for the same period in 2001, an increase of $205,531, or 35%, resulting primarily from higher revenues for product installation on major contracts. Royalties increased to $169,737 in the current quarter from $166,988 in the three months ended March 31, 2001. The increase of $2,749, or 2%, was due to increased barrier royalties based on increased sales activity by the Company's licensees in the 2002 period as compared to the 2001 period. Total cost of goods sold for the three months ended March 31, 2002 was $4,165,963, an increase of $134,115, or 3%, from $4,031,848 for the three months ended March 31, 2001. The increase was a result of the increased volume as total cost of goods sold, as a percentage of total revenue, decreased to 77% for the three months ended March 31, 2002, from 80% for the three months ended March 31, 2001. The cost of products sold averaged 73% in the first quarter of 2002 versus 75% for the first quarter of 2001, which earlier quarter included an addition to the reserve for contract losses of $69,000. The cost of shipping and installation exceeded shipping and installation revenue in the three months ending March 31, 2002 by $115,108 versus a loss of $220,869 for the quarter ending March 31, 2001. The lower loss was a result of the higher installation revenues. For the three months ended March 31, 2002 the Company's general and administrative expenses increased $49,137, or 8%, to $679,710 from $630,573 during the same period in 2001. The majority of the increase was attributed to higher salary expenses in the quarter ending March 31, 2002 . 8 Selling expenses for the three months ended March 31, 2002 increased $98,755 to $229,689 from $130,934 for the three months ended March 31, 2001 an increase of 75%, primarily as a result of increases in salaries due to higher staffing levels, and additional advertising expenses in the quarter ending March 31, 2002, as the Company increased its sales effort. The Company's operating income for the three months ended March 31, 2002 was $332,234, compared to an operating income of $234,920 for the three months ended March 31, 2001, an increase of $97,314, or 41%. The improved operating income resulted from a 25% increase in gross profit reduced by a 19% increase in operating expenses. Interest expense was $74,654 for the three months ended March 31, 2002, compared to $134,253 for the three months ended March 31, 2001. The decrease of $59,599, or 44%, was due to lower levels of average debt outstanding in the quarter ending March 31, 2002 compared to the quarter ending March 31, 2001 and significantly lower average interest rates in the current quarter as most of the Company's debt is tied to the prime interest rate. Other expenses, net fell by $52,703 or 63% for the quarter ending March 31, 2002 to $31,257 from $83,960 for the quarter ending March 31, 2001. The reduction was due to a combination of higher levels of miscellaneous income and lower use tax expenses in the current quarter. Net income was $209,252 for the three months ended March 31, 2002 after $27,400 of income tax expense compared to net income of $29,080 with no income tax expense for the same period in 2001. Basic earnings per share for the 2002 three month period was $0.06 compared to basic earnings per share of $0.01 for the three months ended March 31, 2001. Liquidity and Capital Resources The Company generally finances its capital expenditures, operating requirements and growth with proceeds from operations, and bank and other borrowings. As of March 31, 2002, however, the Company has approximately 1,030,000 publicly traded warrants outstanding. The warrants have an exercise price of $.60 and expire on August 31, 2002. If exercised, the Company will receive approximately $618,000 in cash. The Company had $4,561,229 of indebtedness at March 31, 2002, of which $580,340 was scheduled to mature within twelve months. The Company has a $3,774,011 note with First International Bank ("FIB"), formerly the First National Bank of New England, headquartered in Hartford, Connecticut. The note had an original term of twenty three years beginning June 25, 1998 with an interest rate of 1.5% above prime, secured by equipment and real estate. 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 also has a $500,000 operating line of credit by FIB. This commercial revolving promissory note, which carries a variable interest rate of 1% above prime, has been verbally increased by FIB to $750,000 with a maturity of May 2003. Capital spending increased to $168,612 in the quarter ended March 31, 2002 from $89,545 in the comparable period of the prior year, mainly because of routine equipment replacements. Planned capital expenditures for 2002 are limited as stated above by the FIB loan agreement. The Company plans to make additional capital expenditures for routine equipment replacement in the current fiscal year but has no other significant cash commitments for capital expenditures planned in 2002. 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. 9 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. As of March 31, 2002 the Company's backlog was approximately $7.1 million versus a backlog of approximately $8.5 million as of March 31, 2001. As of May 6, 2002, the Company's backlog had decreased to approximately $6.3 million versus a backlog of $8.3 million for the comparable period in 2001. The majority of the projects relating to the backlog as of May 6, 2002 are contracted to be constructed in 2002. The drop in the Company's backlog from the prior year's level is due to (1) increased production levels at the Company, resulting in a lower degree of deferral in commencing projects, and (2) a decreased level of new sales and projects, in view of the slower economy. In the event the decreased level of new sales and projects continues, future sales revenues could be adversely effected. 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. 10 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, 2001 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. -------------------------------- 11 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 15, 2002 /s/ Rodney I. Smith ------------------------------- Rodney I. Smith Chairman of the Board, Chief Executive Officer and President (principal executive officer) Date: May 15, 2002 /s/ Robert E. Albrecht, Jr. ------------------------------- Robert E. Albrecht, Jr. Chief Financial Officer (principal financial and accounting officer) 12
-----END PRIVACY-ENHANCED MESSAGE-----