-----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, EszipoUPqQacjsUxl2WFwG9PWTGitvPkIrpRMy1DJy787975ml9EiJyyFZkviyrw AqvCNk5WQBckmwkRbN7RKQ== 0000916641-99-000899.txt : 19991117 0000916641-99-000899.hdr.sgml : 19991117 ACCESSION NUMBER: 0000916641-99-000899 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99755269 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 THIRD QUARTER REPORT U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended Commission File Number September 30, 1999 1-13752 ------------------ ------- SMITH-MIDLAND CORPORATION ------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Delaware 54-1727060 - ------------------------ -------------------------- (State of Incorporation) (I.R.S. Employer I.D. No.) 5119 Catlett Road, P.O. Box 300, Midland, Virginia 22728 -------------------------------------------------------- (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 November 12, 1999, the Company had outstanding 3,044,798 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 (Unaudited); 3 September 30, 1999 and December 31, 1998 Consolidated Statements of Operations 4 (Unaudited); Three months ended September 30, 1999 and 1998 Consolidated Statements of Operations 5 (Unaudited); Nine months ended September 30, 1999 and 1998 Consolidated Statements of Cash Flows 6 (Unaudited); Nine months ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements (Unaudited) 7 Item 2. Management's Discussion and Analysis of Financial 10 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 16 Item 2. Changes in Securities and Use of Proceeds 16 Item 3. Defaults Upon Senior Securities 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information 17 Item 6. Exhibits and Reports on Form 8-K 17 Signatures 18
2 PART I - Financial Information Item 1. Financial Statements SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)
September 30, December 31, Assets 1999 1998 ------ ----------- ----------- Current assets: Cash and cash equivalents $ 556,430 $ 207,661 Accounts receivable: Trade - billed, less allowances for doubtful accounts of $295,222 and $262,056 3,590,352 3,824,012 Trade - unbilled 205,258 199,108 Inventories: Raw materials 530,061 522,468 Finished goods 1,056,664 989,745 Prepaid expenses and other assets 143,788 116,034 ----------- ----------- Total current assets 6,082,553 5,859,028 ----------- ----------- Property and equipment, net 2,694,708 2,449,566 ----------- ----------- Other assets: Cash - restricted - - 387,462 Note receivable, officer 645,163 624,387 Other 294,050 246,058 ----------- ----------- Total other assets 939,213 1,257,907 ----------- ----------- Total Assets $ 9,716,474 $ 9,566,501 =========== =========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Current maturities of notes payable $ 628,959 $ 573,104 Accounts payable - trade 1,899,474 2,177,884 Accrued expenses and other liabilities 1,385,791 1,115,118 Customer deposits 164,724 306,255 ------------ ----------- Total current liabilities 4,078,948 4,172,361 Notes payable - less current maturities 3,917,742 4,020,661 Notes payable - related parties 99,179 104,696 ----------- ----------- Total Liabilities 8,095,869 8,297,718 ----------- ----------- Stockholders' equity: Preferred stock, $.01 par value; authorized 1,000,000 shares, none outstanding -- -- Common stock, $.01 par value; authorized 8,000,000 shares, issued 3,085,718 shares, outstanding 3,044,798 shares 30,857 30,857 Additional capital 3,450,085 3,450,085 Treasury stock (102,300) (102,300) Retained earnings (deficit) (1,758,037) (2,109,859) Total Stockholders' Equity 1,620,605 1,268,783 ----------- ---------- Total Liabilities and Stockholders' Equity $ 9,716,474 $ 9,566,501 =========== ========== The accompanying notes are an integral part of these consolidated financial statements.
3 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
Three Months Ended September 30, 1999 1998 ----------- ----------- Revenue $ 3,690,595 $ 3,968,174 Cost of goods sold 2,748,836 2,880,029 ----------- ----------- Gross profit 941,759 1,088,145 ----------- ----------- Operating expenses: General and administrative expenses 540,131 663,181 Selling expenses 126,855 176,490 ----------- ----------- Total operating expenses 666,986 839,671 ----------- ----------- Operating income 274,773 248,474 ----------- ----------- Other income (expense): Royalties 76,960 78,691 Interest expense (154,597) (135,056) Interest income 28,565 27,504 Other (81,638) (54,871) ----------- ----------- Total other income (expense) (130,710) (83,732) ----------- ----------- Income (loss) before income taxes 144,063 164,742 Income tax expense (benefit) -- -- ----------- ----------- Net income (loss) $ 144,063 $ 164,742 =========== =========== Basic and diluted earnings per share $ .05 $ .05 =========== =========== Weighted average common shares outstanding 3,044,798 3,044,798 =========== =========== The accompanying notes are an integral part of these consolidated financial statements.
4 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
Nine Months Ended September 30, 1999 1998 ----------- ----------- Revenue $ 11,472,031 $ 10,552,785 Cost of goods sold 8,944,995 7,928,331 ------------ ------------ Gross profit 2,527,036 2,624,454 ------------ ------------ Operating expenses: General and administrative expenses 1,555,311 1,631,230 Selling expenses 407,580 497,774 ------------ ------------ Total operating expenses 1,962,891 2,129,004 ------------ ------------ Operating income 564,145 495,450 ------------ ------------ Other income (expense): Royalties 185,449 141,136 Interest expense (407,986) (429,420) Interest income 52,631 54,502 Other (42,416) (50,940) ------------ ------------ Total other income (expense) (212,322) (284,722) ------------ ------------ Income before income taxes 351,823 210,728 Income tax expense (benefit) -- -- ------------ ------------ Net income $ 351,823 $ 210,728 ============ ============ Basic and diluted earnings per share $ .12 $ .07 ============ ============ Weighted average common shares outstanding 3,044,798 3,044,798 ============ ============ The accompanying notes are an integral part of these consolidated financial statements.
5 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, 1999 1998 ------------ ------------ Cash flows from operating activities: Cash received from customers $ 11,743,459 $ 10,346,641 Cash paid to suppliers and employees (10,797,333) (10,367,663) Interest paid (407,986) (429,420) Other (28,569) (20,314) ------------ ------------ Net cash provided (absorbed) by operating activities 509,571 (470,756) ------------ ------------ Cash flows from investing activities: Purchases of property and equipment (495,683) (707,156) Decrease (increase) in officer note receivable -- -- Decrease (increase) in notes payable - related parties (5,517) (10,912) ------------ ------------ Net cash absorbed by investing activities (501,200) (718,068) ------------ ------------ Cash flows from financing activities: Proceeds from borrowings 105,969 4,094,392 Repayments of borrowings (153,033) (2,487,371) ------------ ------------ Net cash provided (absorbed) by financing activities (47,064) 1,607,021 ------------ ------------ Decrease (increase) in cash - restricted 387,462 (418,289) ------------ ------------ Net increase (decrease) in cash and cash equivalents 348,769 (92) Cash and cash equivalents at beginning of period 207,661 288,310 ------------ ------------ Cash and cash equivalents at end of period $ 556,430 $ 288,218 ============ ============ Reconciliation of net income (loss) to net cash provided (absorbed) by operating activities: Net income $ 351,823 $ 210,728 Adjustments to reconcile net income to net cash provided (absorbed) by operating activities: Depreciation and amortization 250,541 239,471 Increase in other assets (68,769) (163,529) Decrease (increase) in: Accounts receivable - billed 233,660 (356,240) Accounts receivable - unbilled (6,150) 32,017 Inventories (74,512) (103,991) Prepaid expenses and other assets (27,754) (30,354) Increase (decrease) in: Accounts payable - trade (278,410) (40,512) Accrued expenses and other liabilities (235,289) 96,317 Accrued expenses and other liabilities 270,673 (235,289) Customer deposits (141,531) (23,057) ------------ ------------ Net cash provided (absorbed) by operating activities $ 509,571 $ (470,756) ============ ============ The accompanying notes are an integral part of these consolidated financial statement
6 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1999 (Unaudited) Basis of Presentation As permitted by the rules of the Securities and Exchange Commission applicable to quarterly reports on Form 10-QSB, these notes are condensed and do not contain all disclosures required by generally accepted accounting principles. Reference should be made to the consolidated financial statements and related notes included in the Smith-Midland Corporation's Annual Report on Form 10-KSB for the year ended December 31, 1998. In the opinion of the management of Smith-Midland Corporation (the "Company"), the accompanying financial statements reflect all adjustments of a normal recurring nature which were necessary for a fair presentation of the Company's results of operations for the three- and nine-month periods ended September 30, 1999 and 1998. The results disclosed in the consolidated statements of operations are not necessarily indicative of the results to be expected for any future periods. Principles of Consolidation The Company's accompanying consolidated financial statements include the accounts of Smith-Midland Corporation, a Delaware corporation, and its wholly owned subsidiaries: Smith-Midland Corporation, a Virginia corporation; Easi-Set Industries, Inc., a Virginia corporation; Smith-Carolina Corporation, a North Carolina corporation; Concrete Safety Systems, Inc., a Virginia corporation; and Midland Advertising & Design, Inc., a Virginia corporation. All significant inter-company accounts and transactions have been eliminated in consolidation. Reclassifications Certain reclassifications have been made to the prior years' consolidated financial statements to conform to the 1999 presentation. Inventories Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. 7 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Property and Equipment Property and equipment, net is stated at depreciated cost. Expenditures for ordinary maintenance and repairs are charged to income as incurred. Costs of betterments, renewals, and major replacements are capitalized. At the time properties are retired or otherwise disposed of, the related cost and allowance for depreciation are eliminated from the accounts and any gain or loss on disposition is reflected in income. Depreciation is computed using the straight-line method over the following estimated useful lives: Years ----- Buildings...................................................... 10-33 Trucks and automotive equipment................................ 3-10 Shop machinery and equipment................................... 3-10 Land improvements.............................................. 10-30 Office equipment............................................... 3-10 Income Taxes The provision for income taxes is based on earnings reported in the financial statements. A deferred income tax asset or liability is determined by applying currently enacted tax laws and rates to the expected reversal of the cumulative temporary differences between the carrying value of assets and liabilities for financial statement and income tax purposes. Deferred income tax expense is measured by the change in the deferred income tax asset or liability during the year. No provision for income taxes has been made for the three- and nine-month periods ended September 30, 1999 and 1998, as the Company does not expect to incur federal income tax expense for 1999 and did not incur federal income tax expense during 1998. Revenue Recognition The Company primarily recognizes revenue on the sale of its standard precast concrete products at shipment date, including revenue derived from any projects to be completed under short-term contracts. Installation services for precast concrete products, leasing and royalties are recognized as revenue as they are earned on an accrual basis. Licensing fees are recognized under the accrual method unless collectibility is in doubt, in which event revenue is recognized as cash is received. Certain sales of soundwall and Slenderwall(TM) concrete products are recognized upon completion of production and customer site inspections. Provisions for estimated losses on contracts are made in the period in which such losses are determined. 8 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Estimates The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses. Actual results could differ from those estimates. Earnings Per Share Earnings per share is based on the weighted average number of shares of Common Stock and dilutive common stock equivalents outstanding. Basic earnings per share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilutive effect of securities that could share in earnings of an entity. For the three- and nine-month periods ended September 30, 1999 and 1998 there was no material dilutive effect on earnings per share. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company generates revenues primarily from the sale, licensing, leasing, shipping and installation of precast concrete products for the construction, utility and farming industries. The Company's operating strategy has involved producing innovative and proprietary products, including Slenderwall(TM), a patent-pending, lightweight, energy efficient concrete and steel exterior wall panel for use in building construction; J-J Hooks(TM) Highway Safety Barrier, a patented, positive-connected highway safety barrier; Sierra Wall, a sound barrier primarily for roadside use; and transportable concrete buildings. In addition, the Company produces utility vaults, farm products such as cattleguards, and water and feed troughs, and custom order precast concrete products with various architectural surfaces. In 1998, the Company began work on a contract to renovate the Bradley Hall Building at Rutgers University (the "Bradley Hall project"). The Bradley Hall project, which was completed in October 1999, involved the design, production and installation of Slenderwall panels by the Company. While executing the Bradley Hall project, the original structure was found to be not structurally sufficient to support the installation of the Slenderwall panels as originally designed. This led to cost overruns relating to re-design of the panels, production of the panels with additional steel and reinforcing, and installation costs. Management estimates that the cost overruns over the course of the entire project will total approximately $1.55 million and estimates that the total loss on the job before recovery of any claims by the Company will be approximately $1.45 million including approximately $1,088,000 of estimated losses accrued in the fourth quarter of 1998 and approximately $362,000 of estimated losses accrued in the first nine months of 1999. Approximately $83,000 of these losses occurred in the three months ended September 30, 1999. The general contractor has filed claims in 1999 on the Company's behalf, for which notification has been made to the general contractor in the amount of $1.49 million. As of December 31, 1998, $400,000 of the contract claim had been included in sales and accounts receivable. During the quarter ended June 30, 1999, an additional $97,000 of the contract claim was included in sales and accounts receivable. There can be no assurance that the loss will not exceed the $1.45 million estimate or that the Company will be able to collect any of its claim. This Form 10-QSB contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ significantly from the results discussed in the forward-looking statements and the results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results for the Company's operations for the year ending December 31, 1999. Factors that might cause such a difference include, but are not limited to, product demand, the impact of competitive products and pricing, capacity and supply constraints or difficulties, general business and economic conditions, the effect of the Company's accounting policies and other risks detailed in the Company's Annual Report on Form 10-KSB and other filings with the Securities and Exchange Commission. 10 Results of Operations Three months ended September 30, 1999 compared to the three months ended September 30, 1998 For the three months ended September 30, 1999, the Company had total revenue of $3,690,595 compared to total revenue of $3,968,174 for the three months ended September 30, 1998, a decrease of $277,579, or 7%. Total product sales were $3,052,211 for the three months ended September 30, 1999 compared to $3,365,303 for the same period in 1998, a decrease of $313,092, or 9%. The decrease was primarily due to fewer successful Slenderwall(TM) bids resulting in decreased Slenderwall sales during the 1999 period compared to the 1998 period. Shipping and installation revenue was $638,384 for the three months ended September 30, 1999 and $602,871 for the same period in 1998, an increase of $35,513, or 6%. The increase was attributable primarily to higher installation activity during the three-month period in 1999, compared to the same period in 1998. Total cost of goods sold for the three months ended September 30, 1999 was $2,748,836, a decrease of $131,193, or 5%, from $2,880,029 for the three months ended September 30, 1998. Total cost of goods sold, as a percentage of total revenue, increased to 74.5% for the three months ended September 30, 1999, from 72.6% for the three months ended September 30, 1998 primarily due to normal year-to-year variations in the Company's operations and product mix. For the three months ended September 30, 1999, the Company's general and administrative expenses decreased $123,050 to $540,131 from $663,181 during the same period in 1998. The 19% decrease is primarily attributed to a smaller accrual for the allowance for doubtful accounts and lower moving and relocation expenses. Selling expenses for the three months ended September 30, 1999 decreased $49,635, or 28%, to $126,855 from $176,490 for the three months ended September 30, 1998, resulting primarily from decreased engineering fees and reduced salary expenses due to staff vacancies during the 1999 period. The Company's operating income for the three months ended September 30, 1999 was $274,773 compared to operating income of $248,474 for the three months ended September 30, 1998, an increase of $26,299, or 11%. The increased operating income resulted primarily from reduced sales, general and administrative expenses, which was offset to some extent by reduced gross profit margins. Royalty income totaled $76,960 for the three months ended September 30, 1999, compared to $78,691 for the same three months in 1998. The decrease of $1,731, or 2%, was primarily due to a decrease in product sales by the Company's licensees. 11 Interest expense was $154,597 for the three months ended September 30, 1999, compared to $135,056 for the three months ended September 30, 1998. The increase of $19,541, or 14%, was primarily due to an increase of nearly $300,000 in the average total debt outstanding during the 1999 period offset, in part, by slightly lower interest rates. Net income was $144,063 for the three months ended September 30, 1999, compared to net income of $164,742 for the same period in 1998. The basic and diluted net income per share for the current three month period was $.05 compared $.05 per share for the three months ended September 30, 1998. Nine months ended September 30, 1999 compared to the nine months ended September 30, 1998 For the nine months ended September 30, 1999, the Company had total revenue of $11,472,031 compared to total revenue of $10,552,785 for the nine months ended September 30, 1998, an increase of $919,246, or 9%. Total product sales were $9,141,418 for the nine months ended September 30, 1999, compared to $9,076,218 for the same period in 1998, an increase of $65,200, or 1%. The increase resulted primarily from increased Slenderwall(TM), architectural, and transportable building sales during the 1999 period, offset to some extent by decreased soundwall product sales. Shipping and installation revenue was $2,330,613 for the nine months ended September 30, 1999 and $1,476,567 for the same period in 1998, an increase of $854,046, or 58%. The increase is attributable to increased installation revenue related to Slenderwall contracts in the 1999 period, as compared to the 1998 period, offset to some extent by lower shipping revenues. Total cost of goods sold for the nine months ended September 30, 1999 was $8,944,995, an increase of $1,016,664, or 13%, from $7,928,331 for the nine months ended September 30, 1998. Total cost of goods sold, as a percentage of total revenue, increased to 78.0% for the nine months ended September 30, 1999, from 75.1% for the nine months ended September 30, 1998 due in part to recognition of $362,000 of Bradley Hall project costs for which only $97,000 of revenues were recorded. For the nine months ended September 30, 1999, the Company's general and administrative expenses decreased $75,919, or 5%, to $1,555,311, from $1,631,230 during the same period in 1998. The decrease was attributed to reduced moving and relocation expenses and a smaller accrual for the allowance for doubtful accounts, offset somewhat by increased legal fees. Selling expenses for the nine months ended September 30, 1999 decreased $90,194, or 18%, to $407,580 from $497,774 for the nine months ended September 30, 1998. The decrease was due to reduced engineering fees and reduced salary expenses due to staff vacancies during the 1999 period as compared to the 1998 period. 12 The Company's operating income for the nine months ended September 30, 1999 was $564,145, compared to operating income of $495,450 for the nine months ended September 30, 1998, an increase of $68,695, or 14%. The improved operating income resulted primarily from the reductions in operating expenses discussed above offset, in part, by a reduction in gross profit. Royalty income totaled $185,449 for the nine months ended September 30, 1999, compared to $141,136 for the same nine months in 1998. The increase of $44,313, or 31%, was largely due to a credit given in 1998 for a reduction in the scope of a licensing contract and the resulting reversal of previously recognized royalty income. Interest expense was $407,986 for the nine months ended September 30, 1999, compared to $429,420 for the nine months ended September 30, 1998. The decrease of $21,434, or 5%, was primarily due to high interest rates, lease buyout amounts and miscellaneous fees which were recognized during the first six months of 1998 and which were associated with the early retirement of approximately 27 notes and capital leases in June 1998 as part of the Company's debt restructuring (see "Liquidity and Capital Resources"). Net income was $351,823 for the nine months ended September 30, 1999, compared to net income of $210,728 for the same period in 1998. Net income per share for the current nine month period was $.12 compared to net income per share of $.07 for the nine months ended September 30, 1998 with the same weighted average number of shares outstanding in both periods. Liquidity and Capital Resources The Company has financed its capital expenditures, operating requirements and growth to date primarily with proceeds from operations, its initial public offering ("IPO") and bank and other borrowings. The Company had $4,645,880 of indebtedness at September 30, 1999, of which $628,959 was scheduled to mature within twelve months. In June 1998, the Company successfully restructured substantially all of its debt into one $4,000,000 note with First International Bank ("FIB"), formerly the First National Bank of New England. The Company closed on this loan on June 25, 1998. The Company obtained a twenty three year term on this note at 1.5% above prime, secured by equipment and real estate. The term of the note improved the Company's current debt ratio and debt service. In addition to paying off current debt of approximately $3.0 million, the Company received approximately $832,000 in restricted funds, to be used only for plant expansion and new equipment. Such funds were fully expended by June 30, 1999. The loan is guaranteed, in part, by the U.S. Department of Agriculture Rural Business-Cooperative Service. Under the terms of the note, the Company's unfinanced fixed asset expenditures are limited to $300,000 per year for a five year period. In addition, FIB will permit chattel mortgages on purchased equipment not to exceed $200,000 on an annual basis so long as the Company is not in default. The Company was also granted a $500,000 operating line of credit by FIB. This commercial revolving promissory note, which carries a variable interest rate of 1% above prime, was recently renewed and is now scheduled to terminate on May 1, 2000. 13 Capital spending totaled $495,683 in the nine-month period ended September 30, 1999, which included $389,421 in restricted funds resulting from the June 1998 FIB debt restructuring. Capital spending decreased 30% from $707,156 in the comparable period of the prior year, which included $242,016 in restricted funds from the June 1998 FIB debt restructuring. The reduction in capital spending in the 1999 period was due to the completion in the first quarter of 1999 of a 16,000 square foot plant addition to the Company's facility in Midland, Virginia. This plant addition was financed primarily with restricted funds received in 1998 as part of the $4,000,000 FIB loan as mentioned above. Planned capital expenditures for 1999 and 2000 are limited as stated above by the FIB loan agreement. The only significant cash commitment for capital expenditures planned for the balance of 1999 and early 2000 is a project to complete construction of an engineering building at a estimated cost of $90,000 which is contingent upon successful completion of additional equity financing or additional debt financing through FIB. As a result of the Company's substantial debt burden, the Company is especially sensitive to changes in the prevailing interest rates. Fluctuations in such interest rates may materially and adversely affect the Company's ability to finance its operations either by increasing the Company's cost to service its current debt, or by creating a more burdensome refinancing environment, if interest rates should increase. The Company's cash flow from operations is affected by production schedules set by contractors, which generally provide for payment 45 to 75 days after the products are produced. This payment schedule has resulted in liquidity problems for the Company because it must bear the cost of production for its products long before it receives payment. In addition the Company's cash flow has been significantly effected by the loss on the Bradley Hall project. Due to the significant costs required to continue the Bradley Hall project and to fund ongoing commitments, the Company entered into a working agreement with the general contractor of the Bradley Hall project to finance certain costs, at cost plus 10%, through completion of the project. During the nine months ended September 30, 1999 and through completion of the project in October 1999, the general contractor for the project assumed responsibility for installation and incurred installation and other expenses in connection with the project totaling $1,155,495, including the 10% surcharge, for which the general contractor invoiced the Company upon completion of the project. The Company had accrued $660,000 of these expenses in the fourth quarter 1998 and recognized an additional $290,000 of these expenses in the nine months ended September 30, 1999. The entire $1,155,495 of installation and other expenses is currently under review and certain expenses are in dispute. The extent to which the Company is responsible for these installation and other costs and the schedule for payment by the Company to the general contractor has not yet been determined. In the event cash flow from operations, collection of claims, and existing credit facilities are not adequate to support operations, the Company is currently investigating alternative sources of both short-term and long-term financing, for which there can be no assurance of obtaining. 14 Other Comments The Company expects that the costs incurred in the preparation for the year 2000 will not have a significant impact on the Company's cash flow or results of operations. The Company is in the process of replacing nearly all of its purchasing, manufacturing, inventory and accounting systems and expects to activate the new systems prior to January 1, 2000. The new systems are expected to improve the accuracy and timeliness of internal reporting and the Company has taken the necessary steps to ensure that all systems are year 2000 compliant. The Company is using standard off-the-shelf software which is year 2000 compliant. The Company is working with key suppliers and customers to ensure that they are taking steps to be year 2000 compliant. However, if the Company and third parties on which it relies are unable to address this issue in a timely manner, it could result in a material financial risk to the Company. In order to assure this does not occur, the Company plans to devote all resources required to resolve any significant year 2000 issues in a timely manner. The Company services the construction industry primarily in areas of the United States where construction activity is inhibited by adverse weather during the winter. As a result, the Company traditionally experiences reduced revenues from December through March and realizes the substantial part of its revenues during the other months of the year. The Company typically experiences lower profits, or losses, during the winter months, and must have sufficient working capital to fund its operations at a reduced level until the spring construction season. Management believes that the Company's operations have not been materially affected by inflation. 15 PART II - Other Information Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. None. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. On September 17, 1999 the Company held its Annual Meeting of Stockholders. The Stockholders voted on and approved the following: 1. The election of the following individuals to serve as directors until the next annual meeting and until their successors are duly elected and qualified: Shares Voted to Name Shares Voted For Withhold Authority Rodney I. Smith 2,473,470 12,100 Ashley B. Smith 2,462,470 23,100 Wesley A. Taylor 2,476,570 9,000 Andrew Kavounis 2,477,570 8,000 Barry R. Schimel 2,477,570 8,000 2. An amendment of the Company's Certificate of Incorporation to affect a one-for-three, one-for-two, three-for-five, two-for-three or three-for-four reverse stock split of the Common Stock of the Company. In this connection, 2,399,437 shares voted for the amendment, 37,765 shares voted against the amendment and 48,368 shares abstained. 3. The ratification and approval of additional financing of the Company through sale of an aggregate of 471,428 shares of Common Stock of the Company to the President of the Company and the Chief Operating Officer of a wholly-owned subsidiary of the Company, at a price of $.70 per share. In this connection, 857,547 shares voted for ratification, 62,860 shares voted against ratification, 127,068 shares abstained and 1,438,095 shares were not voted by brokers. 16 4. The ratification of the selection by the Board of Directors of BDO Seidman LLP as independent auditors for the year ending December 31, 1999. In this connection, 2,458,822 shares voted for ratification, 3,250 shares voted against ratification, and 23,498 shares abstained. Item 5. Other Information. Trading of the publicly held securities of the Company was transferred from the Nasdaq SmallCap Market to the OTC-Bulletin Board in October 1999 because the Company was no longer in compliance with Nasdaq's $1.00 minimum bid price requirement. The Company was also not in compliance with Nasdaq's net tangible asset requirement (minimum of $2,000,000). The Company's securities continue to be listed on the OTC-Bulletin Board. The Stockholders of the Company have approved an amendment of the Company's Certificate of Incorporation to affect a one-for-three, one-for-two, three-for-five, two-for-three or three-for-four reverse stock split of the Common Stock of the Company, but as of the date of this report, the Board of Directors have taken no action in this regard. The reverse stock split was contemplated as a means of retaining the Company's listing on the Nasdaq SmallCap Market. The Stockholders of the Company have ratified and approved additional financing of the Company through sale of an aggregate of 471,428 shares of Common Stock of the Company to the President of the Company and the Chief Operating Officer of a wholly-owned subsidiary of the Company, at a price of $.70 per share, but as of the date of this report, these Officers have taken no action in this regard. The purchase agreements with theses officers was contingent upon the Company maintaining its listing on the Nasdaq SmallCap Market, which condition was not met. Item 6. Exhibits and Reports on Form 8-K. A. The following Exhibit is filed herewith: Exhibit No. Title ----------- ----- 27 Financial Data Schedule B. Report on Form 8-K. None. 17 SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SMITH-MIDLAND CORPORATION Date: November 15, 1999 By: /s/ Rodney I. Smith --------------------------------- Rodney I. Smith Chairman of the Board, Chief Executive Officer and President (principal executive officer) Date: November 15, 1999 By: /s/ Theodore D. Pennington --------------------------------- Theodore D. Pennington Vice President, Finance and Chief Financial Officer (principal financial officer) 18 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 SEP-30-1999 556,430 0 4,090,832 295,222 1,586,725 6,082,553 8,004,432 5,309,724 9,716,474 4,078,948 0 0 0 30,857 1,589,748 9,716,474 11,472,031 11,667,695 8,944,995 10,907,886 0 0 407,986 351,823 0 351,823 0 0 0 351,823 .12 .12
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