U. S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB Quarterly Report Filed Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarter year ended Commission File Number March 31, 1997 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, Zip Code) (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 12, 1997, 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; 1 March 31, 1997 (Unaudited); and December 31, 1996 (Unaudited) Consolidated Statements of 2 Operations (Unaudited); Three months ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows 3 (Unaudited); Three months ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements (Unaudited) 4 Item 2. Management's Discussion and Analysis of Financial 7 Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings 10 Item 2. Changes in Securities 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 1, Assets 1997 1996 ------ ---------- ---------- Current assets: Cash and cash equivalents $ 396,952 $ 438,079 Accounts receivable: Trade - billed, less allowances for doubtful accounts of $200,465 and $334,062 2,138,248 2,705,325 Trade - unbilled 34,823 113,299 Inventories: Raw materials 446,927 440,225 Finished goods 1,472,208 1,090,815 Prepaid expenses and other assets 51,024 92,383 --------- --------- Total current assets 4,540,182 4,880,126 ---------- ---------- Property and equipment, net 1,466,876 1,380,871 ---------- ---------- Other assets: Cash - restricted 194,617 194,617 Note receivable, officer 658,000 659,000 Other 68,059 80,260 ---------- ---------- Total other assets 920,676 933,877 ---------- ---------- Total Assets $6,927,734 $7,194,874 ========== ========== Liabilities and Stockholders' Equity ------------------------------------ Current liabilities: Current maturities of notes payable $2,092,977 $2,066,253 Accounts payable -- trade 1,466,174 1,439,934 Accrued expenses and other liabilities 588,179 515,479 Customer deposits 170,314 200,623 ---------- ---------- Total current liabilities 4,317,644 4,222,289 Notes payable -- less current maturities 866,904 1,068,124 Notes payable -- related parties 115,598 115,598 ---------- ---------- Total Liabilities 5,300,146 5,406,011 ---------- ---------- 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 3,044,798 and 3,044,798 30,857 30,857 Additional capital 3,450,085 3,450,085 Treasury Stock (102,300) (102,300) Retained earnings (deficit) (1,751,054) (1,589,779) ---------- ---------- Total Stockholders' Equity 1,627,588 1,788,863 ---------- ---------- Total Liabilities and Stockholders' Equity $6,927,734 $7,194,874 ========== ========== The accompanying notes are an integral part of these consolidated inancial statements. 1 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited) Three Months Ended March 31, 1997 1996 ----------- ---------- Revenue 2,080,790 2,106,421 Cost of goods sold 1,553,538 1,751,919 ----------- ---------- Gross profit 527,252 354,502 ----------- ---------- Operating expenses: General and administrative expenses 476,678 731,133 Selling expenses 175,566 150,973 ----------- ---------- Total operating expenses 652,244 882,106 ----------- ---------- Operating income (loss) (124,992) (527,604) ----------- ---------- Other income (expense): Royalties 35,639 57,699 Interest expense (104,014) (108,163) Interest income 1,642 28,110 Other 30,450 (31,616) ----------- ---------- Total other income (expense) (36,283) (53,970) ----------- ---------- Income (loss) before income taxes (161,275) (581,574) ----------- ---------- Income tax expense (benefit) -- -- ----------- ---------- Net income (loss) $ (161,275) $ (581,574) =========== ========== Net income (loss) per share $ (.05) $ ( .19) =========== ========== Weighted average common shares outstanding 3,044,798 3,057,696 =========== ========== 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, 1997 1996 ----------- ----------- Cash flows from operating activities: Cash received from customers $ 2,731,673 $ 2,036,320 Cash paid to suppliers and employees (2,320,931) (2,475,915) Interest paid (104,014) (108,163) Other 32,092 (3,506) ----------- ----------- Net cash provided (absorbed) by operating activities 338,820 (551,264) ----------- ----------- Cash flows from investing activities: Purchases of property and equipment (206,451) (44,065) (Increase) decrease in officer note receivable 1,000 (2,124) ----------- ----------- Net cash absorbed by investing activities (205,451) (46,189) ----------- ----------- Cash flows from financing activities: Proceeds from bank borrowings -- -- Repayments of bank borrowings (174,496) (156,368) Proceeds from issuance of common stock -- 396,333 ----------- ----------- Net cash provided by financing activities (174,496) 239,965 ----------- ----------- Net increase (decrease) in cash (41,127) (357,488) Cash at beginning of period 438,079 938,089 ----------- ----------- Cash at end of period $ 396,952 $ 580,601 =========== =========== Reconciliation of net income (loss) to net cash provided by operating activities: Net income (loss) $ (161,275) $ (581,574) Adjustments to reconcile net income (loss) to net cash provided (absorbed) by operating activities: Depreciation and amortization 120,446 80,482 Decrease (increase) in other assets 12,201 (15,066) Decrease(increase) in: Accounts receivable - billed 567,077 (298,390) Accounts receivable - unbilled 78,476 (117,770) Inventories (388,095) 15,576 Prepaid expenses and other assets 41,359 41,035 Increase (decrease) in: Accounts payable - trade 26,240 93,168 Accrued expenses and other liabilities 72,700 (57,085) Customer deposits (30,309) 288,360 ----------- ----------- Net cash provided (absorbed) by operating activities $ 338,820 $ (551,264) =========== =========== The accompanying notes are an integral part of these consolidated inancial statements. 3 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) March 31, 1997 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 Company's Annual Report on Form 10-KSB, for the year ended December 31, 1996. In the opinion of management of 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 months ended March 31, 1997 and 1996. 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 accompanying consolidated financial statements include the accounts of Smith-Midland 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 intercompany accounts and transactions have been eliminated in consolidation. Inventories Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. 4 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. Effective January 1, 1993, the Company adopted SFAS 109 "Accounting for Income Taxes." The adoption of SFAS 109 did not have a material effect on the consolidated financial statements as the deferred tax asset related to the Company's net operating loss carryforward has been reserved in its entirety. No provision for income taxes has been made for the three month period ended March 31, 1997, as the Company does not expect to incur income tax expense for fiscal year 1997 and did not incur income tax expense in fiscal year 1996. 5 SMITH-MIDLAND CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) Revenue Recognition The Company primarily recognizes revenue on the sale of its 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 sound wall 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. Income Per Share Income per share is calculated based on net income and the weighted average number of shares of common stock outstanding during the period. Common Stock Offering In December 1995, the Company completed an initial public offering ("IPO") of 1,000,000 shares of common stock, $.01 par value per share (the "Common Stock"), and 1,000,000 Redeemable Common Stock Purchase Warrants (the "Warrants"), at a purchase price of $3.60 per share of Common Stock and Warrant sold together. The Company realized net proceeds from the IPO of approximately $2,618,000. In January 1996, the Company completed an overallotment of an additional 150,000 shares of Common Stock and 150,000 Warrants for net proceeds of approximately $396,000. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations General The Company generates revenues primarily from the sale, shipping, licensing, leasing 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 food troughs, and custom order precast concrete products with various architectural surfaces. The results for the three months ended March 31, 1997 are not necessarily indicative of the results of the Company's operations that may be expected for the year ending December 31, 1997. Results of Operations Three months ended March 31, 1997 compared to the three months ended March 31, 1996 For the three months ended March 31, 1997, the Company had total revenue of approximately $2,081,000 compared to total revenue of approximately $2,106,000 for the three months ended March 31, 1996, a decrease of approximately $25,000. Total product sales were approximately $1,787,000 for the three months ended March 31, 1997, a $104,000 decrease from approximately $1,891,000 for the same period in 1996. Shipping and installation revenue increased from approximately $216,000 for the three months ended March 31, 1996 to approximately $293,000 for the same period in 1997, representing an increase of $77,000, or 36%. The increase was primarily a result of renting barrier product to the Secret Service for security associated with the presidential inauguration. Total cost of goods sold for the three months ended March 31, 1997 decreased by approximately $198,000 to approximately $1,554,000 from approximately $1,752,000 for the three months ended March 31, 1996, representing an 11% decrease. Total cost of goods sold, as a percentage of total revenue, decreased from approximately 83% for the three months ended March 31, 1996 to approximately 75% for the three months ended March 31, 1997. The Company's cost of goods sold decreased for the three months ended March 31, 1997 due in part to efficiencies of production and the effect of cost cutting measures, such as reduction in overtime pay. 7 For the three months ended March 31, 1997, the Company's general and administrative expenses decreased by approximately $254,000, or 35% to approximately $477,000, or 23% of total revenue, from approximately $731,000, or 35% of total revenue, for the three months ended March 31, 1996. This is primarily the result of decreased personnel cost. Selling expenses for the three months ended March 31, 1997 increased to approximately $176,000 from approximately $151,000 for the three months ended March 31, 1996, an increase of approximately $25,000, or 17%, resulting from an increase in advertising. The Company's operating loss for the three months ended March 31, 1997 was approximately $125,000, compared to operating loss of approximately $528,000, for the three months ended March 31, 1996, a decrease of approximately $403,000. This decrease in operating loss was primarily attributed to the build up of inventory and the result of a cost cutting plan implemented by management to reduce general and administrative expenses. Royalty income decreased by approximately $22,000 from approximately $58,000 for the three months ended March 31, 1996 to approximately $36,000 for the same period in 1997. The decrease was partly attributable to a major contract for the Company's JJ Hook barrier which contract was undertaken by one of the company's licensees during the first quarter of 1996. Interest expense was approximately $104,000 for the three months ended March 31, 1997, compared to approximately $108,000 for the three months ended March 31, 1996. This decrease of approximately $4,000, or 4%, was primarily due to an improved overall rate of interest paid on outstanding debt. Interest income of approximately $2,000 for the three months ended March 31, 1997 represented a decrease of approximately $26,000, or 93% over interest income of approximately $28,000 for the 1996. This is due to the fact that in 1996 we had invested the net proceeds of the IPO that were not available in 1997. The Company earned other income of approximately $30,000 for the three months ended March 31,1997, which represented an increase of approximately $62,000 from other loss of approximately $32,000 for the three months ended March 31, 1996. The Company experienced a net loss for the three months ended March 31, 1997 of approximately $161,000 compared to net loss of approximately $582,000 for the same period in 1996. The decrease in net loss of approximately $421,000 was primarily attributed to the build up of inventory and the result of an extensive cost cutting plan implemented by management to reduce general and administrative expenses. Liquidity and Capital Resources The Company has financed its capital expenditures, operating requirements and growth to date primarily through it's initial public offering ("IPO") and subsequent overallotment, bank and other borrowings, and the sale of stock to and loans from its principal stockholders. 8 The Company had approximately $3,075,000 of indebtedness at March 31, 1997. This indebtedness is generally secured by the assets of the Company and is personally guaranteed by Rodney I. Smith, the Company's President. In the context of a forward-looking statement, management intends to extend or refinance this debt as it becomes due. However, no assurance can be given that the Company will be successful in its efforts to extend or refinance its current indebtedness, or that if it is successful in those efforts, that such extension or refinancing will be on terms favorable to the Company. If the Company is not able to extend or refinance the indebtedness, the Company may be subject to having its assets foreclosed upon by certain lenders. 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. Seasonality and Inflation The Company performs a portion of its concrete pouring and curing processes on uncovered, outdoor manufacturing areas. During the winter months, cold or adverse weather causes a slowdown or cessation of these outdoor production activities, thereby severely reducing the Company's production capacity. In addition, 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 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. None Item 2. Changes in Securities. 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 B. Report of 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 15, 1997 By:/s/ Rodney I. Smith ------------------------------- Rodney I. Smith Chairman of the Board, Chief Executive Officer and President (principal executive officer) Date: May 15, 1997 By:/s/ Leonard N. Astfalk ------------------------------- Leonard N. Astfalk Vice President of Finance, Chief Financial Officer (principal financial officer) 11 Exhibit Index Exhibit No. Title ----------- ----- 27 Financial Data Schedule 12