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, 2002 1-13752
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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)
Transitional Small Business Disclosure Format:
Yes No X
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As of November 12, 2002, the Company had outstanding 4,392,028 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, 2002 and December 31, 2001
Consolidated Statements of Operations 4
(Unaudited); Three months ended
September 30, 2002 and 2001
Consolidated Statements of Operations 5
(Unaudited); Nine months ended
September 30, 2002 and 2001
Consolidated Statements of Cash Flows 6
(Unaudited); Nine months ended
September 30, 2002 and 2001
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
Item 3. Controls and Procedures 15
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 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
PART I - Financial Information
Item 1. Financial Statements
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
September 30, December 31,
Assets 2002 2001
------ ----------- -----------
Current assets:
Cash and cash equivalents $1,259,560 $942,131
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$306,420 and $371,895 5,797,125 5,934,359
Trade - Cost in excess of billings 438,264 458,281
Inventories:
Raw materials 471,881 585,736
Finished goods 1,212,895 1,042,660
Prepaid expenses and other assets 284,686 188,836
----------- ------------
Total current assets 9,464,411 9,152,003
----------- -----------
Property and equipment, net 2,973,299 2,672,665
----------- -----------
Other assets:
Note receivable, officer 540,282 558,282
Claims and accounts receivable 960,254 1,020,183
Other 222,903 237,036
----------- -----------
Total other assets 1,723,439 1,815,501
Total Assets $14,161,149 $13,640,169
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of notes payable $285,027 $604,135
Accounts payable - trade 2,296,808 2,999,367
Accrued expenses and other liabilities 622,091 732,710
Accrued income taxes 499,441 --
Customer deposits 107,133 266,716
----------- -----------
Total current liabilities 3,810,050 4,602,928
Reserve for Contract Loss 1,021,931 1,025,556
Notes payable - less current maturities 3,849,857 3,998,862
Notes payable - related parties 53,809 68,777
----------- -----------
Total Liabilities 8,736,097 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,
issued and outstanding 4,432,948 and 3,171,051 shares 44,329 31,710
Additional capital 4,178,649 3,494,854
Treasury stock 40,920 Shares (102,300) (102,300)
Retained earnings 1,304,374 519,782
----------- -----------
Total Stockholders' Equity 5,425,052 3,944,046
----------- -----------
Total Liabilities and Stockholders' Equity $14,161,149 $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
September 30,
2002 2001
---------- ----------
Revenue $6,564,573 $8,465,779
Cost of goods sold 4,935,868 6,293,824
---------- ----------
Gross profit 1,628,705 2,171,955
---------- ----------
Operating expenses:
General and administrative expenses 751,978 656,806
Selling expenses 215,681 238,895
---------- ----------
Total operating expenses 967,659 895,701
---------- ----------
Operating income 661,046 1,276,254
---------- ----------
Other income (expense):
Interest expense (70,835) (110,072)
Interest income 9,679 11,490
Other (22,543) (62,015)
---------- ----------
Total other income (expense) (83,699) (160,597)
---------- ----------
Income before income taxes 577,347 1,115,657
Income tax expense 400,121 --
---------- ----------
Net income $ 177,226 $1,115,657
========== ==========
Basic earnings per share $ .05 $ .36
========== ==========
Diluted earnings per share $ .04 $ .36
========== ==========
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, September 30,
2002 2001
------------- -------------
Revenue $17,776,782 $19,774,255
Cost of goods sold 13,281,862 15,131,645
----------- -----------
Gross profit 4,494,920 4,642,610
----------- -----------
Operating expenses:
General and administrative expenses 2,086,789 1,868,859
Selling expenses 668,297 548,965
----------- -----------
Total operating expenses 2,755,086 2,417,824
----------- -----------
Operating income 1,739,834 2,224,786
----------- -----------
Other income (expense):
Interest expense (221,361) (365,605)
Interest income 30,417 35,633
Other, net (93,177) (209,386)
----------- -----------
Total other income (expense) (284,121) (539,358)
----------- -----------
Income before income taxes 1,455,713 1,685,425
Income tax expense (benefit) 671,121 --
----------- -----------
Net income $ 784,592 $ 1,685,425
=========== ===========
Basic earnings per share $ .22 $ .55
=========== ===========
Diluted earnings per share $ .21 $ .55
=========== ===========
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,
2002 2001
------------ ------------
Cash flows from operating activities:
Cash received from customers $ 17,774,450 $ 15,494,197
Cash paid to suppliers and employees (16,631,229) (14,571,294)
Income taxes paid, net (171,680) --
Interest paid (221,361) (365,605)
Other (66,385) 21,114
------------ ------------
Net cash provided by operating activities 683,795 578,412
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (600,706) (203,186)
Proceeds from sale of fixed assets 3,007
Decrease (increase) in officer note receivable 18,000 --
------------ ------------
Net cash absorbed by investing activities (579,699) (203,186)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings 52,263 213,758
Repayment of borrowings-related party (14,968) (4,724)
Repayments of borrowings (520,376) (173,786)
Proceeds from warrants exercised 696,414 26,308
------------ ------------
Net cash provided by financing activities 213,333 61,556
Net increase in cash and cash equivalents 317,429 436,782
Cash and cash equivalents at beginning of period 942,131 218,264
------------ ------------
Cash and cash equivalents at end of period $ 1,259,560 $ 655,046
============ ============
Reconciliation of net income to net cash provided
by operating activities:
Net income $ 784,592 $ 1,685,425
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 297,065 288,170
Decrease (increase) in:
Accounts receivable - billed 137,234 (2,853,662)
Accounts receivable - unbilled 20,017 (224,282)
Inventories (56,380) 595,543
Prepaid expenses and other assets (21,788) (152,848)
Increase (decrease) in:
Accounts payable - trade (702,559) 839,771
Accrued expenses and other liabilities (110,619) 400,195
Accrued income taxes 499,441 --
Reserve for contract losses (3,625) --
Customer deposits (159,583) 100
------------ ------------
Net cash provided by operating activities $ 683,795 $ 578,412
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
6
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2002
(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, 2001.
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, 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.
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 federal income taxes was made for the three and nine month
periods ending September 30, 2001 due to the availability of net operating loss
carryforwards. As of June 30, 2002, the Company had fully absorbed any remaining
net operating loss carryforwards and accordingly established provisions for
income taxes.
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 collectability is in doubt, in which event revenue is
recognized as cash is received. Certain sales of soundwall, architectural
precast panels 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.
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
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. Earnings per share was
calculated as follows:
Three Months Ended
September 30,
2002 2001
---------- -----------
Net income $ 177,226 $ 1,115,657
========== ===========
Average Shares Outstanding:
For basic earnings per share 3,871,267 3,092,921
Dilutive effect of stock options and warrants 171,925 --
---------- -----------
Average Shares Outstanding for Diluted Earnings per Share 4,043,192 3,092,921
---------- -----------
Basic earnings per share $ .05 $ .36
========== ===========
Diluted earnings per share $ .04 $ .36
========== ===========
Nine Months Ended
September 30,
2002 2001
---------- -----------
Net income $ 784,592 $ 1,685,425
========== ===========
Average Shares Outstanding:
For basic earnings per share 3,559,074 3,066,804
Dilutive effect of stock options and warrants 213,605 --
---------- -----------
Average Shares Outstanding for Diluted Earnings per Share 3,772,679 3,066,804
---------- -----------
Basic earnings per share $ .22 $ .55
========== ===========
Diluted earnings per share $ .21 $ .55
========== ===========
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 SlenderwallTM, a
patent-pending, 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 custom order precast concrete products with
various architectural surfaces, typically used in commercial building
construction, as well as utility vaults, farm products such as cattleguards,
water and feed troughs.
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, 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 September 30, 2002 compared to the three months ended
September 30, 2001
For the three months ended September 30, 2002, the Company had total
revenue of $6,564,573 compared to total revenue of $8,465,779 for the three
months ended September 30, 2001, a decrease of $1,901,206, or 22%. Total product
sales were $5,396,681 for the three months ended September 30, 2002 compared to
$7,416,152 for the same period in 2001, a decrease of $2,019,471, or 27%. The
lower product sales were a result of reduced construction activity in some of
the Company's market areas. The decreases occurred in Easi-Set Precast
Buildings, barrier, licensee royalties,
10
and architectural precast products while soundwall, SlenderwallTM and utility
products enjoyed significant increases. Shipping and installation revenue was
$1,167,892 for the three months ended September 30, 2002 and $1,049,627 for the
same period in 2001, an increase of $118,265, or 11%. The increase was
attributable to higher installation revenue due to an increase in installation
activity primarily on the commercial building products.
Total cost of goods sold for the three months ended September 30, 2002 was
$4,935,868, a decrease of $1,357,956, or 22%, from $6,293,824 for the three
months ended September 30, 2001. The majority of the decrease was due to the
decreased volume. Cost of goods sold as a percentage of total revenue increased
only slightly to 75% for the three months ended September 30, 2002, from 74% for
the three months ended September 30, 2001.
For the three months ended September 30, 2002, the Company's general and
administrative expenses increased $95,172 to $751,978 from $656,806 during the
same period in 2001. The 14% increase is due to higher personnel and personnel
related costs, the majority of which is related to bonus accruals, offset in
part by lower legal and professional fees.
Selling expenses for the three months ended September 30, 2002 decreased
$23,214, or 10%, to $215,681 from $238,895 for the three months ended September
30, 2001, resulting primarily from lower sales commissions due to the decreased
sales volume offset, in part, by higher advertising and professional fees.
The Company's operating income for the three months ended September 30,
2002 was $661,046 compared to operating income of $1,276,254 for the three
months ended September 30, 2001, a decrease of $615,208, or 48%. The decreased
operating income was a result of the lower sales in the current year and the
higher general and administrative expenses, partially offset by the decreased
selling expenses.
Interest expense was $70,835 for the three months ended September 30, 2002,
compared to $110,072 for the three months ended September 30, 2001. The decrease
of $39,237, or 36%, was due to a lower average interest rate during the 2002
period and lower levels of average debt outstanding.
Other expense was $22,543 for the three months ended September 30, 2002
compared to $62,015 for the three months ended September 30, 2001, a decrease of
$39,472. The decrease is attributable to higher levels of miscellaneous income
in the current period.
The net income was $177,226 for the three months ended September 30, 2002,
compared to a net income of $1,115,657 for the same period in 2001. The Company
became subject to income taxes in the current year after exhausting available
net operating loss carryforwards and established an accrual to reflect the tax
liability. The basic and diluted net earnings per share for the current three
month period was $.05 and $.04 compared to basic and diluted net earnings per
share of $.36 for the three months ended September 30, 2001.
11
Nine months ended September 30, 2002 compared to the nine months ended
September 30, 2001
For the nine months ended September 30, 2002, the Company had total revenue
of $17,776,782 compared to total revenue of $19,774,254 for the nine months
ended September 30, 2001, a decrease of $1,997,472, or 10%. Total product sales
were $14,850,993 for the nine months ended September 30, 2002, compared to
$17,203,669 for the same period in 2001, a decrease of $2,352,676, or 14%. The
lower product sales were a result of reduced construction activity in some of
the Company's market areas. The decreases occurred in Easi-Set Precast
Buildings, utility products, licensee royalties, and architectural precast
products while SlenderwallTM, barrier, and soundwall enjoyed significant
increases. Shipping and installation revenue was $2,925,789 for the nine months
ended September 30, 2002 and $2,570,585 for the same period in 2001, an increase
of $355,204, or 14%. The increase is attributable to increased installation
revenue related to soundwall, SlenderwallTM and architectural precast contracts
in the 2002 period, as compared to the 2001 period.
Total cost of goods sold for the nine months ended September 30, 2002 was
$13,281,862, a decrease of $1,849,783, or 12%, from $15,131,645 for the nine
months ended September 30, 2001. The majority of the decrease was the result of
the lower volume of sales however, total cost of goods sold, as a percentage of
total revenue, also decreased to 75% for the nine months ended September 30,
2002, from 77% for the nine months ended September 30, 2001 as the Company
incurred lower production costs relative to the revenue but higher shipping and
installation expenses.
For the nine months ended September 30, 2002, the Company's general and
administrative expenses increased $217,930, or 12%, to $2,086,789, from
$1,868,859 during the same period in 2001. The increase was primarily attributed
to higher insurance and personnel and personnel related costs, the majority of
which is related to bonus accruals, offset in part by lower legal, professional,
and personnel recruitment fees.
Selling expenses for the nine months ended September 30, 2002 increased
$119,332, or 22%, to $668,297 from $548,965 for the nine months ended September
30, 2001. The increase was due to increased advertising and staffing levels
during the 2002 period as compared to the 2001 period, partially offset by lower
sales commissions and training costs.
The Company's operating income for the nine months ended September 30, 2002
was $1,739,834, compared to operating income of $2,224,785 for the nine months
ended September 30, 2001, a decrease of $484,951, or 22%. The lower operating
income for the current nine month period resulted from the decreased sales
volume experienced in the first three quarters of the fiscal year combined with
higher operating expenses.
Interest expense was $221,361 for the nine months ended September 30,
2002, compared to $365,605 for the nine months ended September 30, 2001. The
decrease of $144,244, or 39%, was due to lower levels of debt outstanding in the
2002 period and lower average interest rates.
12
The net income was $784,592 for the nine months ended September 30, 2002,
compared to a net income of $1,685,425 for the same period in 2001. The Company
became subject to income taxes in the current year after exhausting available
net operating loss carryforwards and established an accrual to reflect the tax
liability. The basic and diluted net earnings per share for the current nine
month period was $.22 and $.21 compared to basic and diluted net earnings per
share of $.55 for the nine months ended September 30, 2001
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating requirements
and growth to date primarily with proceeds from operations, and bank and other
borrowings. The Company had $4,134,884 of indebtedness at September 30, 2002, of
which $285,027 was scheduled to mature within twelve months.
Schedule of Contractual Obligations:
Payments due by period
----------------------------------------------------------------------------------------
Less than
Total 1 year 1-3 years 4-5 years After 5 years
----------------------------------------------------------------------------------------
Long-term
debt and
capital leases $4,134,884 $ 285,027 $456,907 $279,357 $3,113,593
Debt to
Related
Parties 53,809 24,203 29,606 - -
Operating
leases 28,993 27,105 992 896 -
----------------------------------------------------------------------------------------
Total
contractual
cash
obligations $4,217,686 $336,335 $487,505 $280,253 $3,113,593
========================================================================================
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 has been verbally increased by FIB to $1,000,000 with a maturity
of May 2003. 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.
13
Capital spending totaled $600,706 in the nine month period ended September
30, 2002 versus $203,186 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.
For the nine months ended September 30, 2002, the Company received
approximately $696,414 from the exercise of its publicly traded warrents.
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,
collection of claims, and existing credit facilities are not adequate to support
operations, the Company would be required to obtain alternative sources of both
short-term and long-term financing, for which there can be no assurance of
obtaining.
Significant Accounting Policies and Estimates
The Company's significant accounting policies are more fully described in
it's Summary of Accounting Policies to the Company's consolidated financial
statements. The preparation of financial statements in conformity with
accounting principles generally accepted within the United States requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the accompanying financial statements and related
notes. In preparing these financial statements, management has made its best
estimates and judgments of certain amounts included in the financial statements,
giving due consideration to materiality. The Company does not believe there is a
great likelihood that materially different amounts would be reported related to
the accounting policies described below, however, application of these
accounting policies involves the exercise of judgment and the use of assumptions
as to future uncertainties and as a result, actual results could differ from
these estimates.
The Company evaluates the adequacy of its allowance for doubtful
accounts at the end of each quarter. In performing this evaluation, the Company
analyzes the payment history of its significant past due accounts, subsequent
cash collections on these accounts and comparative accounts receivable aging
statistics. Based on this information, along with consideration of the general
strength of the economy, the Company develops what it considers to be a
reasonable estimate of the uncollectible amounts included in accounts
receivable. This estimate involves significant judgment by the management of the
Company. Actual uncollectible amounts may differ from the Company's estimate.
14
The Company estimates inventory markdowns based on customer orders sold
below cost, to be shipped in the following period and on the amount of similar
unsold inventory at period end. The Company analyzes recent sales and gross
margins on unsold inventory in further estimating inventory markdowns. These
specific markdowns are reflected in the cost of sales and the related gross
margins at the conclusion of the appropriate sales period. This estimate
involves significant judgment by the management of the Company. Actual gross
margins on sales of excess inventory may differ from the Company's estimate.
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 spring construction
season.
As of September 30, 2002 the Company's backlog was approximately $4.0
million versus a backlog of approximately $6.4 million as of September 30, 2001.
As of November 12, 2002, the Company's backlog had increased to approximately
$4.8 million versus a backlog of $4.2 million for the comparable date in 2001.
The majority of the projects relating to the backlog as of November 12, 2002 are
contracted to be constructed in 2002. The drop in the Company's backlog from
September 30, 2001 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 economic slow down continues, future sales levels are liable to be
adversely effected.
Management believes that the Company's operations have not been materially
affected by inflation.
Item 3. Controls and Procedures
Our principal executive and financial officers have concluded, based on
their evaluation as of a date within 90 days before the filing of the Form
10-QSB, that our disclosure controls and procedures under Rule 13a-14 of the
Securities Exchange Act of 1934 are effective to ensure that information we are
required to disclose in the reports we file or submit under the Exchange Act is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and include controls and procedures designed to
ensure that information we are required to disclose in such reports is
accumulated and communicated to management, including our principal executive
and financial officers, as appropriate to allow timely decisions regarding
required disclosure.
Subsequent to our evaluation, there were no significant changes in internal
controls or other factors that could significantly affect these internal
controls.
15
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.
---------------------------------------------------
On July 22, 2002 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 3,273,634 11,980
Ashley B. Smith 3,273,634 11,980
Wesley A. Taylor 3,273,634 11,980
Andrew Kavounis 3,273,634 11,980
2. A motion to amend the Smith-Midland Corporation 1994 Stock Option Plan to
increase the number of shares authorized to be issued under the plan by
450,000 shares. In connection with the motion, 1,403,392 shares voted for
the motion, 209,800 shares voted against the motion, 14,665 shares
abstained and 1,657,757 shares were not voted.
3. The ratification of the selection by the Board of Directors of BDO Seidman
LLP as independent auditors for the year ending December 31, 2002. In this
connection, 3,280,964 shares voted for ratification, 3,200 shares voted
against ratification, and 1,450 shares abstained.
Item 5. Other Information. None.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(1) The following exhibits are filed herewith:
Exhibit
No.
---
99.1 Certification pursuant to 18 U.S.C. Section 1350.
99.2 Certification pursuant to 18 U.S.C. Section 1350
16
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 14, 2002 By: /s/ Rodney I. Smith
--------------------------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: November 14, 2002 By: /s/ Robert E. Albrecht, Jr.
--------------------------------------
Robert E. Albrecht, Jr.
Chief Financial Officer
(principal financial officer)
17
CERTIFICATIONS
I, Rodney I. Smith, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Smith-Midland
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 By: /s/ Rodney I. Smith
-------------------------
Rodney I. Smith
Chairman of the Board, Chief
Executive Officer and President
18
I, Robert E. Albrecht, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Smith-Midland
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: November 14, 2002 By: /s/ Robert E. Albrecht, Jr.
--------------------------------
Robert E. Albrecht, Jr.
Chief Financial Officer
19