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
June 30, 2002 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.)
Route 28, P.O. Box 300, Midland, Virginia 22728
-----------------------------------------------
(Address of Principal Executive Offices)
(540) 439-3266
--------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes [X] No [_]
As of August 9, 2002, the Company had outstanding 3,675,242 shares of
Common Stock, $.01 par value per share.
1
SMITH-MIDLAND CORPORATION
INDEX
PAGE NUMBER
-----------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (Unaudited); 3
June 30, 2002 and December 31, 2001
Consolidated Statements of Operations 4
(Unaudited); Three months ended
June 30, 2002 and 2001
Consolidated Statements of Operations 5
(Unaudited); Six months ended
June 30, 2002 and 2001
Consolidated Statements of Cash Flows 6
(Unaudited); Six months ended
June 30, 2002 and 2001
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities and Use of Proceeds 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
2
PART I - Financial Information
Item 1. Financial Statements
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
2002 2001
----------- ------------
Assets
------
Current assets:
Cash and cash equivalents $ 531,927 $ 942,131
Accounts receivable:
Trade - billed, less allowances for doubtful accounts of
$308,086 and $371,895 5,555,987 5,934,359
Trade - unbilled 200,603 458,281
Inventories:
Raw materials 598,953 585,736
Finished goods 1,533,429 1,042,660
Prepaid expenses and other assets 200,986 188,836
----------- -----------
Total current assets 8,621,885 9,152,003
----------- -----------
Property and equipment, net 2,791,601 2,672,665
----------- -----------
Other assets:
Note receivable, officer 546,282 558,282
Claims and accounts receivable 960,254 1,020,183
Other 250,789 237,036
----------- -----------
Total other assets 1,757,325 1,815,501
----------- -----------
Total Assets $13,170,811 $13,640,169
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current maturities of notes payable $ 284,998 $ 604,135
Accounts payable - trade 2,334,194 2,999,367
Accrued expenses and other liabilities 370,493 732,710
Accrued income taxes 243,600 --
Customer deposits 107,133 266,716
----------- -----------
Total current liabilities 3,340,418 4,602,928
Reserves for contract losses 1,021,931 1,025,556
Notes payable - less current maturities 3,920,582 3,998,862
Notes payable - related parties 60,441 68,777
----------- -----------
Total Liabilities 8,343,372 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, 3,685,451 and 3,171,051 shares 36,854 31,710
Additional capital 3,765,737 3,494,854
Treasury Stock, 40,920 Shares (102,300) (102,300)
Retained earnings 1,127,148 519,782
----------- -----------
Total Stockholders' Equity 4,827,439 3,944,046
----------- -----------
Total Liabilities and Stockholders' Equity $13,170,811 $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
June 30,
2002 2001
---------- ----------
Revenue $5,804,612 $6,232,080
Cost of goods sold 4,180,030 4,805,998
---------- ----------
Gross profit 1,624,582 1,426,082
---------- ----------
Operating expenses:
General and administrative expenses 655,100 581,479
Selling expenses 222,927 179,136
---------- ----------
Total operating expenses 878,027 760,615
---------- ----------
Operating income 746,555 665,467
---------- ----------
Other income (expense):
Interest expense (75,872) (121,281)
Interest income 10,409 11,771
Other (39,378) (15,291)
---------- ----------
Total other income (expense) (104,841) (124,801)
---------- ----------
Income before income taxes 641,714 540,666
Income tax expense 243,600 --
---------- ----------
Net income $ 398,114 $ 540,666
========== ==========
Basic earnings per share $ .11 $ .18
========== ==========
Diluted earnings per share $ .09 $ .18
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
4
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Six Months Ended
June 30,
2002 2001
----------- -----------
Revenue $11,212,209 $11,157,595
Cost of goods sold 8,345,993 8,837,845
----------- -----------
Gross profit 2,866,216 2,319,750
----------- -----------
Operating expenses:
General and administrative expenses 1,334,810 1,212,053
Selling expenses 452,616 310,070
----------- -----------
Total operating expenses 1,787,426 1,522,123
----------- -----------
Operating income 1,078,790 797,627
----------- -----------
Other income (expense):
Interest expense (150,526) (255,533)
Interest income 20,738 24,143
Other (70,636) 3,509
----------- -----------
Total other income (expense) (200,424) (227,881)
----------- -----------
Income before income taxes 878,366 569,746
Income tax expense 271,000 --
----------- -----------
Net income $ 607,366 $ 569,746
=========== ===========
Basic earnings per share $ .18 $ .19
=========== ===========
Diluted earnings per share $ .15 $ .19
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
2002 2001
------------ -----------
Cash flows from operating activities:
Cash received from customers $ 11,686,705 $10,374,237
Cash paid to suppliers and employees (11,439,173) (9,950,919)
Income taxes paid, net (27,400) --
Interest paid (150,526) (255,533)
Other (53,523) 27,652
------------ -----------
Net cash provided by operating activities 16,083 195,437
------------ -----------
Cash flows from investing activities:
Purchases of property and equipment (311,568) (171,794)
Proceeds from sale of fixed assets 3,007 --
Repayments on officer note receivable 12,000 --
------------ -----------
Net cash absorbed by investing activities (296,561) (171,794)
------------ -----------
Cash flows from financing activities:
Proceeds from bank borrowings 52,263 198,080
Repayments on borrowings-related party (8,336) (2,097)
Repayments of bank borrowings (449,680) (108,610)
Proceeds from warrants exercised 276,027 19,172
------------ -----------
Net cash provided (absorbed) by
financing activities (129,726) 106,545
------------ -----------
Net increase (decrease) in cash and cash equivalents (410,204) 130,188
Cash and cash equivalents at beginning of period 942,131 218,264
------------ -----------
Cash and cash equivalents at end of period $ 531,927 $ 348,452
============ ===========
Reconciliation of net income to net cash provided
(absorbed) by operating activities:
Net income $ 607,366 $ 569,746
Adjustments to reconcile net income to net cash
provided (absorbed) by operating activities:
Depreciation and amortization 191,597 188,178
Gain on sale of fixed assets (1,972) --
Decrease (increase) in:
Accounts receivable - billed 378,372 (516,811)
Accounts receivable - unbilled 257,678 (116,447)
Inventories (503,986) 393,997
Prepaid expenses and other assets 34,026 (45,098)
Increase (decrease) in:
Accounts payable - trade (665,173) (560,262)
Accrued expenses and other liabilities (362,217) 432,234
Accrued income taxes 243,600 --
Reserve for contract loss (3,625) --
Customer deposits (159,583) (150,100)
------------ -----------
Net cash provided by operating activities $ 16,083 $ 195,437
============ ===========
The accompanying notes are an integral part of these consolidated financial
statements
6
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
June 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 six-month periods ended June
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 six month
periods ending June 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 a provision for
income taxes in the current period at an effective tax rate of 38%.
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
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 the earnings of an entity. Earnings per share was
calculated as follows:
Three Months Ended
June 30,
2002 2001
---------- ----------
Net Income $ 398,114 $ 540,666
========== ==========
Average Shares Outstanding:
For basic earnings per share 3,543,717 3,056,230
Dilutive effect of stock options and warrants 754,000 --
---------- ----------
Average Shares Outstanding for Diluted Earnings per Share 4,297,717 3,056,230
Basic Earning per Share $ .11 $ .18
========== ==========
Diluted Earnings per Share $ .09 $ .18
========== ==========
Six Months Ended
June 30,
2002 2001
---------- ----------
Net Income $ 607,366 $ 569,746
========== ==========
Average Shares Outstanding:
For basic earnings per share 3,400,390 3,053,529
Dilutive effect of stock options and warrants 747,949 --
---------- ----------
Average Shares Outstanding for Diluted Earnings per Share 4,148,339 3,053,529
Basic Earning per Share $ .18 $ .19
========== ==========
Diluted Earnings per Share $ .15 $ .19
========== ==========
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 soundwall
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, and farm products such as cattleguards
and 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 six months ended June 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 June 30, 2002 compared to the three months ended June
30, 2001
For the three months ended June 30, 2002, the Company had total revenue of
$5,804,612 compared to total revenue of $6,232,080 for the three months ended
June 30, 2001, a decrease of $427,468, or 7%. The Company had lower product
sales of $4,836,488 for the three months ended June 30, 2002 compared to
$5,295,363 for the same period in 2001, a decrease of $458,875, or 9%. The
decreases, resulting from the slower economy, occurred in Easi-Set Precast
Buildings, utility products, licensee royalties, and architectural precast
products while Slenderwall(TM) and soundwall enjoyed significant increases.
Shipping and installation revenue increased slightly to $968,124 for the three
months ended June 30, 2002 from $936,717 for the same period in 2001.
Total cost of goods sold for the three months ended June 30, 2002 was
$4,180,030, a decrease
10
of $625,968, or 13%, from $4,805,998 for the three months ended June 30, 2001.
The decrease was the result of the lower sales volume combined with reduced
product production costs and lower shipping and installation expenses. Cost of
goods sold as a percentage of total revenue decreased to 72% for the three
months ended June 30, 2002, from 77% for the three months ended June 30, 2001.
For the three months ended June 30, 2002, the Company's general and
administrative expenses increased $73,621 to $655,100 from $581,479 during the
same period in 2001. The 13% increase was mainly attributable to higher
personnel costs from higher staffing levels and higher salaries, offset by lower
legal fees and personnel recruitment fees.
Selling expenses for the three months ended June 30, 2002 increased
$43,791, or 24%, to $222,927 from $179,136 for the three months ended June 30,
2001, resulting from increased staffing levels and higher advertising costs.
The Company's operating income for the three months ended June 30, 2002 was
$746,555, compared to operating income of $665,467 for the three months ended
June 30, 2001, an increase of $81,088, or 12%. The operating income improved
from the significant reduction in costs of goods sold, but this was partially
offset by higher selling expenses and general and administrative expenses.
Interest expense was $75,872 for the three months ended June 30, 2002
compared to $121,281 for the three months ended June 30, 2001. The decrease of
$45,409, or 37%, was due to lower interest rates and lower average levels of
debt outstanding in the 2002 period.
Other expense was $39,378 for the three months ended June 30, 2002 compared
to $15,291 for the three months ended June 30, 2001, an increase of $24,087. The
increase is attributable to the net effects of an increase in miscellaneous
expenses offset by lower miscellaneous incomes.
Net income was $398,114 for the three months ended June 30, 2002, compared
to net income of $540,666 for the same period in 2001. The Company became
subject to income taxes in the current quarter after exhausting available net
operating loss carryforwards and an accrual of $243,600 was established to
reflect the liability.
Six months ended June 30, 2002 compared to the six months ended June 30, 2001
For the six months ended June 30, 2002, the Company had total revenue of
$11,212,209 compared to total revenue of $11,157,595 for the six months ended
June 30, 2001, a increase of $54,614, or less than 1%. The Company had lower
product sales of $9,454,312 for the six months ended June 30, 2002, compared to
$9,636,637 for the same period in 2001, a decrease of $182,325, or 2%. The
decreases, resulting from the slower economy, occurred in Easi-Set Precast
Buildings, utility products, licensee
11
royalties, and architectural precast products while Slenderwall(TM), barrier,
and soundwall enjoyed significant increases. Shipping and installation revenue
was $1,757,897 for the six months ended June 30, 2002 and $1,520,959 for the
same period in 2001, an increase of $236,938, or 16%. The increase was
attributable to higher overall sales of products requiring installation and
shipping in the 2002 period, as compared to the 2001 period.
Total cost of goods sold for the six months ended June 30, 2002 was
$8,345,993, a decrease of $491,852, or 6%, from $8,837,846 for the six months
ended June 30, 2001. The decrease was the result of lower production costs. Cost
of goods sold, as a percentage of total revenue, decreased to 74% for the six
months ended June 30, 2002, from 79% for the six months ended June 30, 2000 as
the Company incurred lower production costs relative to the product revenue and
improved margins on shipping and installation expenses.
For the six months ended June 30, 2002, the Company's general and
administrative expenses increased $122,757, or 10%, to $1,334,810 from
$1,212,053 for the same period in 2001. The increase was mainly attributable to
higher insurance costs and personnel costs, resulting from higher staffing
levels and higher salaries, offset by lower professional fees and personnel
recruitment fees.
Selling expenses for the six months ended June 30, 2002 increased $142,546,
or 46%, to $452,616 from $310,070 for the six months ended June 30, 2001. The
increase was primarily a result of increased advertising and staffing levels as
the Company sought to increase its sales effort.
The Company's operating income for the six months ended June 30, 2002 was
$1,078,790, compared to operating income of $797,627 for the six months ended
June 30, 2001, an increase of $281,163. The operating income improved due to
the significantly lower cost of goods sold, but this was partially offset by
higher selling and general and administrative expenses.
Interest expense was $150,526 for the six months ended June 30, 2002,
compared to $255,533 for the six months ended June 30, 2001. The decrease of
$105,007, or 41%, was a result of lower interest rates in the current period
combined with lower average levels of debt outstanding.
Other expense was $70,636 for the six months ended June 30, 2002 compared
to other income of $3,509 for the six months ended June 30, 2001, an increase of
$74,145. The increase was a result of lower levels of income from miscellaneous
sources.
Net income was $607,366 for the six months ended June 30, 2002, compared to
a net income of $569,746 for the same period in 2001. The Company became subject
to income taxes in the current period after exhausting available net operating
loss carryforwards and an accrual of $243,600 was established to reflect the
liability.
12
Liquidity and Capital Resources
The Company has financed its capital expenditures, operating requirements
and growth to date primarily with proceeds from operations, bank and other
borrowings, and equity financing. The Company had $4,205,580 of indebtedness at
June 30, 2002, of which $284,998 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 $4,205,581 $284,998 $493,159 $278,345 $3,149,079
Debt to
Related
Parties 60,441 26,502 33,939 - -
Operating
leases 5,870 5,870 - - -
-------------------------------------------------------------------------------------
Total
contractual
cash
obligations $4,271,892 $317,370 $527,098 $278,345 $3,149,079
=====================================================================================
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 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.
Capital spending totaled $311,568 in the six month period ended June 30,
2002, which was an increase of 81% from $171,794 in the comparable period of the
prior year, mainly because of routine equipment replacements. Planned capital
expenditures for 2002 are limited as stated above by the FIB loan agreement. The
Company plans to make additional capital expenditures for routine equipment
replacement in the current fiscal year but has no other significant cash
commitments for capital expenditures planned in 2002.
As of June 30, 2002, the Company had approximately 706,600 publicly traded
warrants exercisable at $.60 per share which expire on August 31, 2002.
As a result of the Company's substantial debt burden, the Company is
especially sensitive to changes in the prevailing interest rates. Fluctuations
in such interest rates may materially and adversely affect the Company's ability
to finance its operations either by increasing the Company's cost to service its
current debt, or by creating a more burdensome refinancing environment, if
interest rates should increase.
The Company's cash flow from operations is affected by production schedules
set by contractors, which generally provide for payment 45 to 75 days after the
products are produced. This payment schedule has resulted in liquidity problems
for the Company because it must bear the cost of production for its products
long before it receives payment. In the event cash flow from operations and
existing credit facilities are not adequate to support operations, the Company
is currently investigating alternative sources of both short-term and long-term
financing, for which there can be no assurance of obtaining.
13
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.
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
As of June 30, 2002 the Company's backlog was approximately $6.5 million
versus a backlog of approximately $8.1 million as of June 30, 2001. As of August
13, 2002, the Company's backlog had decreased to approximately $6.0 million
versus a backlog of $7.3 million for the comparable period in 2001. The majority
of the projects relating to the backlog as of August 13, 2002 are contracted to
be constructed in 2002. The recent drop in the Company's backlog 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.
14
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. The Company received notice from its insurance company on
August 9, 2002 that the case of the Estate of Joy V. Snyder v. Smith Midland
Corp. had been settled without financial impact to the Company.
Item 2. Changes in Securities and Use of Proceeds. None.
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other Information. None.
Item 6. Exhibits and Reports on Form 8-K.
(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.
15
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: August 14, 2002 By: /s/ Rodney I. Smith
--------------------------------------
Rodney I. Smith
Chairman of the Board,
Chief Executive Officer and President
(principal executive officer)
Date: August 14, 2002 By: /s/ Robert E. Albrecht, Jr.
--------------------------------------
Robert E. Albrecht, Jr.
Chief Financial Officer
(principal financial officer)
16