Attached files
| file | filename |
|---|---|
| EX-32.1 - CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANE - SMITH MIDLAND CORP | smid-12312019x10kex32.htm |
| EX-31.2 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - SMITH MIDLAND CORP | smid-12312019x10kex312.htm |
| EX-31.1 - CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF - SMITH MIDLAND CORP | smid-12312019x10kex311.htm |
| EX-23.1 - CONSENTS OF EXPERTS AND COUNSEL - SMITH MIDLAND CORP | smid-12312019x10kex231.htm |
| EX-10.12 - LINE OF CREDIT AGREEMENT - SMITH MIDLAND CORP | commerciallineofcreditagr.htm |
| EX-10.11 - EQUIPMENT LINE COMMITMENT LETTER - SMITH MIDLAND CORP | equipmentlinecommitmentle.htm |
| EX-10.10 - LINE OF CREDIT COMMITMENT LETTER - SMITH MIDLAND CORP | lineofcreditcommitmentlet.htm |
UNITED
STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
FORM
10-K
☒
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 For the Fiscal Year
Ended December 31,
2019
or
☐
Transition Report Pursuant to
Section 13 or 15(d) of the Securities Exchange Act of
1934
Commission File Number
1-13752
Smith-Midland
Corporation
(Exact Name of
Registrant as Specified in its Charter)
|
Delaware
|
54-1727060
|
|
(State or Other
Jurisdiction of Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
P.O.
Box 300, 5119 Catlett Road
Midland,
Virginia 22728
(Address of Principal Executive Offices, Zip
Code)
Registrant's telephone number,
including area code: (540) 439-3266
Securities Registered Under Section 12(b) of
the Act:
|
Title of
each class
|
Trading
Symbol
|
Name of exchange
on which registered
|
|
Common
Stock, $0.01 par value per share
|
SMID
|
OTCQX
|
Securities Registered Pursuant to Section 12(g)
of the Act: None
Indicate by check mark
if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.Yes ☐ No
☒
Indicate by check mark
if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.Yes ☐ No
☒
Indicate by check mark
whether the registrant: (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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
☒ No ☐
Indicate by check mark
whether the registrant has submitted electronically every
Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit such files).Yes ☒ No
☐
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the
definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting
company”, and "emerging growth company" in Rule 12b-2 of the
Exchange Act.
|
Large accelerated
filer
|
☐
|
Accelerated
filer
|
☐
|
Non-accelerated filer
|
☐
|
Smaller
reporting company
|
☒
|
Emerging
growth company
|
☐
|
Indicate by check
mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).Yes ☐ No
☒
The aggregate market
value of the shares of the voting and non-voting common equity held
by non-affiliates computed by reference to the average bid and
asked price of such common equity as of June 30, 2019 (the last
business day of the Company’s most recently completed second
fiscal quarter) was $30,748,256. For the sole purpose of making
this calculation, the term “non-affiliate” has been
interpreted to exclude directors, officers, and holders of 10% or
more of the Company’s common stock.
1
As of March 5,
2020, the Company had outstanding 5,164,685 shares of Common Stock,
$.01 par value per share, net of treasury shares.
Documents
Incorporated By Reference
None
2
FORWARD-LOOKING
STATEMENTS
This Annual Report and
related documents include “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. Forward-looking statements involve known and unknown
risks, uncertainties and other factors which could cause the
Company’s actual results, performance (financial or
operating) or achievements expressed or implied by such forward
looking statements not to occur or be realized. Such forward
looking statements generally are based upon the Company’s
best estimates of future results, performance or achievement, based
upon current conditions and the most recent results of operations.
Forward-looking statements may be identified by the use of
forward-looking terminology such as “may,”
“will,” “expect,” “believe,”
“estimate,” “anticipate,”
“continue,” or similar terms, variations of those terms
or the negative of those terms. Potential risks and uncertainties
include, among other things, such factors as:
•
Although uncertain at this time, the
coronavirus outbreak may ultimately significantly affect the
Company's financial condition, liquidity, and future results of
operations,
•
while the Company reported net income
for the years ended December 31, 2019 and 2018, there are no
assurances the Company can remain profitable in future
periods,
•
our debt level increased in 2019 and
2018, and our ability to satisfy the same cannot be
assured,
•
the continued availability of
financing in the amounts, at the times, and on the terms required,
to support our future business and capital projects,
•
while
we have expended significant funds in recent years to increase
manufacturing capacity, there is no assurance that we will achieve
significantly greater sales,
•
the extent to which we are successful
in developing, acquiring, licensing or securing patents for
proprietary products,
•
changes in economic conditions
specific to any one or more of our markets (including the
availability of public funds and grants for
construction),
•
changes in general economic
conditions in the Company's primary service areas,
•
adverse weather which inhibits the
demand for our products,
•
our compliance with governmental
regulations,
•
the outcome of future litigation, if
any,
•
on material construction projects,
our ability to produce and install product that conforms to
contract specifications and in a time frame that meets the contract
requirements,
•
the cyclical nature of the
construction industry,
•
our exposure to increased interest
expense payments should interest rates change, and
•
the other factors and information
disclosed and discussed in other sections of this
report.
Investors and
shareholders should carefully consider such risks, uncertainties
and other information, disclosures and discussions which contain
cautionary statements identifying important factors that could
cause actual results to differ materially from those provided in
the forward-looking statements. We undertake no obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or
otherwise.
3
PART I
Item
1 Business
General
Smith-Midland
Corporation (the "Company") invents, develops, manufactures,
markets, leases, licenses, sells, and installs a broad array of
precast concrete products for use primarily in the construction,
highway, utilities and farming industries through its six
wholly-owned subsidiaries. The Company's precast, licensing and
barrier rental customers are primarily general contractors and
federal, state, and local transportation authorities located in the
Mid-Atlantic, Northeastern, Midwestern and Southeastern regions of
the United States. The Company's operating strategy has involved
producing innovative and proprietary products, including
SlenderWall®, a patent pending, lightweight, energy efficient
concrete and steel exterior wall panel for use in building
construction; J-J Hooks® Highway Safety Barrier, a patented,
positive-connected highway safety barrier; SoftSound™, a
proprietary sound absorptive finish used on the face of sound
barriers to absorb some of the traffic noise; Sierra Wall™, a
patented sound barrier primarily for roadside use; Easi-Set®
and Easi-Span® patented transportable concrete buildings; and
Beach Prisms™ erosion mitigating modules. In addition,
the Company's precast subsidiaries produce farm products such as
cattleguards and water and feed troughs as well as custom order
precast concrete products with various architectural surfaces, as
well as generic highway sound barriers, retaining walls and utility
vaults.
The Company was
incorporated in Delaware on August 2, 1994. Prior to a corporate
reorganization completed in October 1994, the Company conducted its
business primarily through Smith-Midland Virginia, which was
incorporated in 1960 as Smith Cattleguard Company, a Virginia
corporation, and which subsequently changed its name to
Smith-Midland Corporation in 1985. The Company’s principal
offices are located at 5119 Catlett Road, Midland, Virginia 22728
and its telephone number is 540-439-3266. As used in this report,
unless the context otherwise requires, the term the
“Company” refers to Smith-Midland Corporation and its
subsidiaries. The Company’s wholly owned subsidiaries consist
of Smith-Midland Corporation, a Virginia corporation;
Smith-Carolina Corporation, a North Carolina corporation;
Smith-Columbia Corporation, a South Carolina corporation, Easi-Set
Industries Worldwide, Inc., a Virginia corporation; Concrete Safety
Systems, Inc., a Virginia corporation; and Midland Advertising and
Design, Inc., a Virginia corporation doing business as Midland
Advertising + Design.
Market
The Company's precast
concrete products market and barrier rental market primarily
consists of general contractors performing public and private
construction contracts, including the construction of commercial
buildings, public and private roads and highways, and airports,
municipal utilities, and federal, state, and local transportation
authorities, primarily located in the Mid-Atlantic, Northeastern,
Midwestern and Southeastern states. Due to the lightweight
characteristics of the SlenderWall® exterior cladding system,
the Company has expanded its competitive services outside of the
Mid-Atlantic states. The Company's licensing subsidiary licenses
its proprietary products to precast concrete manufacturers
nationwide and internationally in Canada, Belgium, New Zealand,
Australia, Mexico, Trinidad, Spain, and Chile.
The precast concrete
products market is affected by the cyclical nature of the
construction industry. In addition, the demand for construction
varies depending upon weather conditions, the availability of
financing at reasonable interest rates, overall fluctuations in the
national and regional economies, past overbuilding, labor relations
in the construction industry, and the availability of material and
energy supplies. A substantial portion of the Company's business is
derived from local, state, and federal building projects, which are
further dependent upon budgets and, in some cases, voter-approved
bonds.
Products
The Company's precast
concrete products are cast in manufacturing facilities and
delivered to a site for installation, as contrasted to ready-mix
concrete, which is produced offsite in a “batch
plant,”and delivered with a concrete mixer truck where it is
mixed and delivered to a construction site to be poured and set at
the site. Precast concrete products are used primarily as parts of
buildings or highway structures, and may be used architecturally,
as in a decorative wall of a building. Structural uses include
building walls, frames, floors, or roofs. The Company
currently manufactures and sells a wide variety of products for use
in the construction, transportation and utility
industries.
4
SlenderWall® Lightweight
Construction Panels
The SlenderWall®
system is a patent pending prefabricated, energy-efficient,
lightweight exterior cladding system that is offered as a
cost-effective alternative to the traditional cladding used for the
exterior walls of buildings. The Company's SlenderWall® system
combines the essential components of a wall system into a single
panel ready for interior dry wall mounting upon installation. The
base components of each SlenderWall® panel consists of a
galvanized stud frame with an exterior surface of approximately
two-inch thick, steel reinforced, high-density, precast concrete
(with integral water repellent), a thermal break, and various
architectural surfaces. The exterior architectural concrete facing
is attached to the interior steel frame by use of coated stainless
steel fasteners that position the exterior concrete away from the
steel frame to provide improved thermal performance.
SlenderWall® panels
are approximately one-third the weight of traditional precast
concrete walls of equivalent size, permanence and durability, and
are also significantly improved as to permanence and
durability. The lighter weight translates into reduced
construction costs resulting from less onerous structural and
foundation requirements as well as lower shipping costs. Additional
savings result from reduced installation time, ease of erection,
and the use of smaller cranes for installation. Closed-cell foam
insulation and windows can be plant-installed further reducing cost
and construction schedules.
The Company custom
designs, manufactures, installs, and licenses the SlenderWall®
exterior cladding system. The exterior of the SlenderWall®
system can be produced in a variety of attractive architectural
finishes, such as concrete, exposed stone, granite or thin brick
and can be integrated with other cladding materials.
Sierra
Wall™
The Sierra Wall™
("Sierra Wall") combines the strength and durability of precast
concrete with a variety of finishes to provide an effective and
attractive sound and sight barrier for use alongside highways
around residential, industrial, and commercial properties. With
additional reinforcement, Sierra Wall can also be used as a
retaining wall to retain earth in both highway and residential
construction. Sierra Wall is typically constructed of four-inch
thick, steel-reinforced concrete panels with an integral column
creating a tongue and groove connection system. This tongue
and groove connection system and its foundation connection make
Sierra Wall easy to install and move if boundaries change or
highways are relocated after the completion of a project. The
patented Sierra Wall II one-piece extended post and panel design
reduces installation time and cost.
The Company custom
designs and manufactures Sierra Wall components to conform to the
specifications provided by the contractor. The width, height,
strength, and exterior finish of each wall varies depending upon
the terrain and application. The Company also produces generic
post and panel design sound barrier wall systems. These
systems are constructed of steel or precast concrete columns (the
Company manufactures the precast or prestressed columns) with
precast concrete panels which slide down into the groove in each
column.
Sierra Wall is used
primarily for highway projects as a noise barrier as well as for
residential purposes, such as privacy walls between homes, security
walls or windbreaks, and for industrial or commercial purposes,
such as to screen and protect shopping centers, industrial
operations, institutions or highways. The variety of available
finishes enables the Company to blend the Sierra Wall with local
architecture, creating an attractive, as well as functional,
barrier.
J-J
Hooks® Highway Safety Barrier
The J-J Hooks®
highway safety barriers (the "J-J Hooks Barriers") are crash-tested
(privately funded), positively connected, safety barriers that the
Company sells, rents, delivers, installs, and licenses for use on
roadways to separate lanes of traffic (in free-standing, bolted, or
pinned installations) in construction work zones or for traffic
control. Barriers are deemed to be positively connected when
the connectors on each end of the barrier sections are interlocked
with one another. J-J Hooks Barriers interlock without the need for
a separate locking device. The primary advantage of a positive
connection is that a barrier with such a connection can withstand
vehicle crashes at higher speeds without separating. The
Federal Highway Administration ("FHWA") requires that states use
only positively connected barriers, which meet NCHRP-350 or MASH
crash test requirements. J-J Hooks Barriers that meet NCHRP-350 and
MASH TL3 requirements are deemed eligible by the FHWA for
federal-aid reimbursement. The Company has been issued patents with
respect to J-J Hooks in the United States, Canada, and other
countries.
5
The Company has received
“design protection” in the U.S for the “end
taper” on each end of the barrier sections. The United States
has issued a "trade dress" registration for the "end taper" design
feature. Accordingly, in the United States, these features cannot
be legally copied by others.
The proprietary feature
of J-J Hooks Barriers is the design of its positive connection.
Protruding from each end of a J-J Hooks Barrier section is a
fabricated bent steel connector; rolled in toward the end of the
barrier, resembling the letter "J" when viewed from directly
above. The connector protruding from each end of the barrier
is rolled identically so that when one end of a barrier faces the
end of another, the resulting "J-Hook" face each other. To
connect one section of a J-J Hooks Barrier to another, a contractor
merely positions the J-Hook of an elevated section of the barrier
above the J-Hook of a set section and lowers the elevated section
into place. The positive connection is automatically engaged
using the cast-in alignment slot.
The Company believes
that the J-J Hooks Barrier connection design is superior to other
highway safety barriers that were positively connected through the
"eye and pin" technique. Barriers incorporating this technique
have eyes or loops protruding from each end of the barrier, which
must be aligned during the setting process. Once set, a crew
inserts pins or long bolts through the eyes which connects and
bolts the barrier sections together. Compared to this technique,
the J-J Hooks Barriers are easier and faster to install and remove,
require a smaller crew, and eliminates the need for loose hardware
to make the connection.
In March 1999, the FHWA
approved the free-standing J-J Hooks Barrier (tested in accordance
with NCHRP-350 Test Level 3) following successful crash testing in
accordance with National Cooperative Highway Research Program
requirements. In December 2012 the FHWA approved the pinned and
bolted J-J Hooks and in March 2018 approved the free-standing J-J
Hooks. In September 2018 the FHWA approved a 20-foot design
originally tested to NCHRP-350 TL3 requirements and approved by the
FHWA (tested in accordance with MASH Test Level 3) for use on
federally aided highway projects following the successful
completion of crash testing based on criteria from the AASHTO
Manual for Assessing Safety Hardware.
J-J Hooks NCHRP-350
free-standing barrier has been approved for use on state and
federally funded projects by 42 states, plus Washington, D.C. The
Company is in various stages of the application process in
additional states and believes that approval in some of the
states will be granted; however no assurance can be given that
approval will be received from any or all of the remaining states
or that such approval will result in the J-J Hooks Barrier being
used in such states. In addition, J-J Hooks Barrier has been
approved by the appropriate authorities for use in the countries of
Canada (Alberta, Nova Scotia, New Brunswick and Ontario),
Australia, New Zealand, Spain, Portugal, Belgium, Germany and
Chile.
J-J Hooks restrained
(pinned or bolted) barrier successfully passed the MASH TL3 tests
in August of 2012 and received FHWA Eligibility Letters in December
2012. Currently 33 states have approved the MASH restrained barrier
and 28 states have approved the MASH free-standing design as an
alternate to their state standard. In Canada, the provinces of
Alberta and Nova Scotia have approved the MASH tested barrier. The
new J-J Hooks free-standing barrier successfully passed the two
required MASH TL3 tests and in January 2018 and August 2018
received the FHWA federal-aid eligibility letters. The FHWA
Eligibility letters B300 and B307 have been issued as of February
2018 and September 2018, respectively.
Easi-Set
Precast Buildings and Easi-Span®
Expandable
Precast Buildings
Easi-Set Precast
Buildings are transportable, prefabricated, single-story, all
concrete buildings designed to be adaptable to a variety of uses
ranging from housing communications operations, traffic control
systems, mechanical and electrical stations, to inventory or supply
storage, restroom facilities or kiosks. Easi-Set Precast Buildings
and Restrooms are available in a variety of exterior finishes and
in 38 standard sizes, or can be custom sized. The roof and floor of
each Easi-Set Building is manufactured using the Company's second
generation post-tensioned system, which helps seal the buildings
against moisture. As freestanding units, the Easi-Set Buildings
require no poured foundations or footings and can be easily
installed within a few hours. After installation the buildings can
be moved, if desired, and reinstalled in a new location. The
Company has been issued patents in connection with this product in
the United States and Canada.
The Company also
offers Easi-Span® a line of expandable precast concrete
buildings. Easi-Span® incorporates the technology of the
Easi-Set Buildings, but are available in larger sizes and, through
its modular construction, can be combined in varied configurations
to permit expansion capabilities. Since these larger buildings
have less competition from other materials and methods, they
produce higher profit margins. Both the Easi-Span and Easi-Set
Buildings offer lines of fully-outfitted restrooms with over a
dozen standard models.
6
The Company has sold
its Easi-Set® and Easi-Span® Precast Buildings for the
following uses:
●
Communications
Operations — to house fiber optics regenerators,
switching stations and microwave transmission shelters, cellular
phone sites, and cable television repeater stations.
●
Government
Applications — to federal, state and local authorities
for uses such as weather and pollution monitoring stations;
military storage, housing and operations; park vending enclosures;
restrooms; kiosks; traffic control systems; school maintenance and
athletic storage; airport lighting control and transmitter housing;
and law enforcement evidence and ammunition storage.
●
Utilities
Installations — for electrical switching stations and
transformer housing, gas control shelters and valve enclosures,
water and sewage pumping stations, and storage of contaminated
substances or flammable materials which require spill
containment.
●
Commercial and Industrial
Locations — for electrical and mechanical housing,
cemetery maintenance storage, golf course vending enclosures,
mechanical rooms, restrooms, emergency generator shelters, gate
houses, automobile garages, hazardous materials storage, food or
bottle storage, animal shelters, and range houses.
Easi-Set
Utility Vault
The Company produces a
line of precast concrete underground utility vaults ranging in size
from 27 to 1,008 cubic feet. Each Easi-Set utility vault normally
comes with a manhole opening on the top for ingress and egress and
openings around the perimeter, in accordance with the customer's
specifications, to access water and gas pipes, electrical power
lines, telecommunications cables, or other such media of transfer.
The utility vaults may be used to house equipment such as cable,
telephone or traffic signal equipment, and for underground storage.
The Company also manufactures custom-built utility vaults for
special needs.
SoftSound™
Soundwall Panels
SoftSound™
soundwall panels utilize a “wood chip aggregate” sound
absorptive material applied to the face of soundwall panels, which
is used to absorb highway noise. SoftSound™ is a
proprietary product developed and tested by the Company and is
currently approved for use in Virginia, Maryland, seven additional
states, and the provinces of Ontario and Quebec, Canada. Approvals
are still pending in a number of additional states. The
Company introduced this product line into its licensing program and
is in the process of seeking to obtain approvals in all 50 states
and the Canadian Provinces.
Beach
Prisms™ Erosion Control Modules
In 2006, the Company
began production and launched full-scale advertising and
promotional efforts for its product, Beach Prisms™, a
shoreline erosion control product that uses the preferred natural
"soft" approach as opposed to the "hard" approach of seawalls and
jetties, to solve this worldwide problem. This product is
expected to provide a higher margin than many of the
Company’s other product lines. Beach Prisms™ work by
reducing the amount of energy in incoming waves before the waves
reach the shoreline. Waves pass through the specially designed
slots in the triangular 3-4 foot tall by 10 foot long Beach
Prisms™ modules. The success of a Beach Prisms ™
installation is dependent on the prevailing wind in relation to the
shoreline, the tides, the fetch and the availability of sand in the
surf. Beach Prisms™ are primarily for river- and bay-front
property owners who want an alternative to traditional armor stone,
or groins and jetties. The Company received “design
protection” in the United States for the Beach Prisms™
in 2010.
The Company currently
has orders and is also accepting new orders with deposits for the
Beach Prism product, and the Company is working with the states of
Virginia and Maryland to secure approval of each state’s
environmental agency. Each project must apply for approval by the
appropriate state to obtain a permit to install the Beach Prism.
Such approvals are meeting resistance from the environmental
agencies, however, the Company believes approval is forthcoming.
One permit has been received from the State of Maryland. In the
event that approvals are not timely received, these orders may be
cancelled.
7
H2Out™
Secondary Drainage System
H2Out™ is the
first "in the caulk joint" secondary drainage and street level leak
detection product for panelized exterior cladding. A second line of
caulking and drainage strip located behind the exterior line of
caulking exits all water leakage to the exterior of the building
preventing moisture and mold, and hence deterring lawsuits from
tenants and owners of buildings. H2Out™ has been added
as a feature of the SlenderWall® system and is being included
in the product literature, website, and all sales
presentations.
Although the Company
is optimistic about the success of Beach Prisms™ and
H2Out™, there can be no assurance of the commercial
acceptance of these products.
Sources of
Supply
All of the raw materials
necessary for the manufacture of the Company's products are
available from multiple sources. To date, the Company has not
experienced significant delays in obtaining materials and believes
that it will continue to be able to obtain required materials from
a number of suppliers at commercially reasonable
prices.
Licensing
The Company presently
grants licenses through its wholly-owned subsidiary Easi-Set
Industries for the manufacturing and sale rights for certain
proprietary products, such as the J-J Hooks® Barrier,
Easi-Set®/Easi-Span® Precast Buildings,
SlenderWall®, SoftSound™ and Beach Prisms™ as well
as certain non-proprietary products, such as the Company's
cattleguards. Generally, licenses are granted for a point of
manufacture. The Company receives an initial one-time training
and administration license fee varying on the product
licensed. License royalties vary depending upon the product
licensed, but the range is typically 4% to 6% of the net sales of
the licensed product. In addition,
Easi-Set®/Easi-Span® Buildings and SlenderWall®
licensees pay the Company a monthly fee for co-op advertising &
promotional programs. The Company produces and distributes
advertising & promotional materials and promotes the licensed
products through its own advertising subsidiary, Midland
Advertising + Design.
The Company maintains 57
licensing agreements in the United States, 9 in Canada, and 1 each
in Australia, Belgium, Mexico, New Zealand and Trinidad, for a
total of 71 licenses worldwide.
The Company is
continually discussing new license arrangements with potential
precast companies and, although no assurance can be given, expects
to increase its licensing activities.
Marketing and
Sales
The Company uses an
in-house sales force and, to a lesser extent, independent sales
representatives to market its precast concrete products through
trade show attendance, sales presentations, advertisements in trade
publications, and direct mail to end users.
The Company has also
established a cooperative advertising program in which the Company
and its Easi-Set®/Easi-Span® Buildings and
SlenderWall® licensees combine resources to promote certain
precast concrete products. Licensees pay a monthly fee and the
Company pays any additional amounts required to advertise the
products across the country. Although the Company advertises
nationally, the Company's precast subsidiaries marketing efforts
are concentrated within a 450 mile radius from its facilities,
which includes the majority of the eastern United
States.
The Company's precast
product sales and barrier rental sales result primarily from the
submission of estimates or proposals to general contractors who
then include the estimates in their overall bids to various
government agencies and other end users that solicit construction
contracts through a competitive bidding process. In general,
these contractors solicit and obtain their construction contracts
by submitting the most attractive bid to the party desiring the
construction. The Company's role in the bidding process is to
provide estimates to the contractors desiring to include the
Company's products or services in the contractor's bid. If a
contractor who accepts the Company's bid is selected to perform the
construction, the Company provides the agreed upon products or
services. In many instances, the Company provides estimates to
more than one of the contractors bidding on a single
project. The Company also occasionally negotiates with and
sells directly to end-users.
8
Competition
The precast concrete
industry is highly competitive and consists of a few large
companies and many small to mid-size companies, several of which
have substantially greater financial and other resources than the
Company. Nationally, several large companies dominate the
precast concrete market. However, due to the weight and costs
of delivery of precast concrete products, competition in the
industry tends to be limited by geographical location and distance
from the construction site and is fragmented with numerous
manufacturers in a large local area.
The Company believes
that the principal competitive factors for its precast products are
price, durability, ease of use and installation, speed of
manufacture and delivery time, ability to customize, FHWA and state
approval, and customer service. The Company believes that its
plants in Midland, Virginia, Reidsville, North Carolina and
Columbia, South Carolina compete favorably with respect to each of
these factors in the Mid-Atlantic and Southeastern regions of the
United States. Finally, the Company believes it offers a broad
range of products that are very competitive in these
markets.
Intellectual
Property
The Company seeks
to protect our intellectual property rights by relying on federal,
state and common law rights in the United States and other
countries, as well as contractual restrictions. Our intellectual
property assets include patents, patent applications, trade
secrets, trademarks, trade dress, copyrights, operating and
instruction manuals, non-disclosure and other contractual
arrangements.
While the Company
intends to vigorously enforce its patent rights against
infringement by third parties, no assurance can be given that the
patents or the Company's patent rights will be enforceable or
provide the Company with meaningful protection from competitors or
that its patent applications will be allowed. Even if a
competitor's products were to infringe patents held by the Company,
enforcing the patent rights in an enforcement action could be very
costly, and assuming the Company has sufficient resources, would
divert funds and resources that otherwise could be used in the
Company's operations. No assurance can be given that the
Company would be successful in enforcing such rights, that the
Company's products or processes do not infringe the patent or
intellectual property rights of a third party, or that if the
Company is not successful in a suit involving patents or other
intellectual property rights of a third party, that a license for
such technology would be available on commercially reasonable
terms, if at all.
Government
Regulation
The Company frequently
supplies products and services pursuant to agreements with general
contractors who have entered into contracts with federal or state
governmental agencies. The successful completion of the
Company’s obligations under such contracts is often subject
to the satisfactory inspection or approval of such products and
services by a representative of the contracting
agency. Although the Company endeavors to satisfy the
requirements of each such contract to which it is a party, no
assurance can be given that the necessary approval of its products
and services will be granted on a timely basis or at all and that
the Company will receive any payments due to it. Any failure
to obtain such approval and payment may have a material adverse
effect on the Company's business.
The Company's operations
are subject to extensive and stringent governmental regulations
including regulations related to the Occupational Safety and Health
Act (OSHA) and environmental protection. The Company believes
that it is substantially in compliance with all applicable
regulations. The cost of maintaining such compliance is not
considered by the Company to be significant.
9
The Company's employees
in its manufacturing division operate complicated machinery that
may cause substantial injury or death upon malfunction or improper
operation. The Company's manufacturing facilities are subject
to the workplace safety rules and regulations of OSHA. The
Company believes that it is in compliance with the requirements of
OSHA.
During the normal course
of its operations, the Company uses and disposes of materials, such
as solvents and lubricants used in equipment maintenance, that are
classified as hazardous by government agencies that regulate
environmental quality. The Company attempts to minimize the
generation of such waste as much as possible, and to recycle such
waste where possible. Remaining wastes are disposed of in
permitted disposal sites in accordance with applicable
regulations.
In the event that the
Company is unable to comply with the OSHA or environmental
requirements, the Company could be subject to substantial
sanctions, including restrictions on its business operations,
monetary liability and criminal sanctions, any of which could have
a material adverse effect upon the Company's business.
Employees
As of March 5,
2020, the Company had a total of 232 employees, of which 183 are
full-time, 7 are part-time and 42 are temporary workers, with 161
located at the Company's Midland, Virginia facility, 35 are located
at the Company's facility in Reidsville, North Carolina and 36 are
located at the Company's facility in Hopkins, South
Carolina. None of the Company's employees are represented by
labor organizations and the Company is not aware of any activities
seeking such organization. The Company considers its
relationships with its employees to be satisfactory.
Item
1A. Risk
Factors
Not
applicable
Item
1B Unresolved
Staff Comments
Not
applicable
Item
2. Properties
Facilities
The Company operates
three manufacturing facilities. The largest manufacturing
operations facility is a 44,000 square foot manufacturing plant
located on approximately 28 acres of land in Midland, Virginia, of
which the Company owns approximately 25 acres and 3 acres are
leased from Rodney I. Smith, the Company's Chairman of the Board,
at an annual rental rate of $24,000. The manufacturing
facility houses two concrete mixers and one concrete
blender. The plant also includes two environmentally
controlled casting areas, two batch plants, a form fabrication
shop, a welding and metal fabrication facility, a carpentry shop, a
quality control center and a covered steel reinforcing fabrication
area of approximately 8,000 square feet. The Company's Midland
facility also includes a large storage yard for inventory and
stored materials. The Company owns an additional 19 acres in
Midland, Virginia, approximately two miles from the operations
facility, of which 3 acres is developed as a storage yard for the
rental barrier division.
The
Company's second manufacturing facility is located in Reidsville,
North Carolina on 46 acres of owned land and includes a 15,000
square foot manufacturing plant and administrative offices with
additional space for future expansion. This new facility began
production in the fourth quarter 2019 and is expected to double
capacity, as compared to the old facility. The old North Carolina
facility, on ten acres of owned land,
including an 8,000 square foot manufacturing plant with
administrative offices, remained operational during the
construction of the new plant with future use not determined at
this time.
The Company's third
manufacturing facility is located in Hopkins (Columbia), South
Carolina. The facility is located on 39 acres of land and has
approximately 40,000 square feet of production space and
administrative offices. The South Carolina facility gives the
Company sufficient capacity to cover additional territory from the
Atlantic Coast region to the northern part of Florida.
The Company's present
facilities are adequate for its current needs.
10
Item
3. Legal Proceedings
The Company is not
presently involved in any litigation of a material
nature.
Item
4. Mine Safety
Disclosures
Not
applicable
11
PART II
Item 5.
Market for Registrant’s
Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities.
The Company's Common
Stock trades on the OTCQX Markets under the symbol
"SMID".
As of March 5,
2020, there were approximately 200 record holders of the Company's
Common Stock. Management believes there are at least 800 beneficial
owners of the Company's Common Stock.
Dividends
Although the Company
paid a dividend for eight consecutive years, the Company cannot
guarantee the continued payment of dividends due to the internal
need for funds in the development and expansion of its
business. The declaration of dividends in the future will be
at the election of the Board of Directors and will depend upon
earnings, capital requirements and financial position of the
Company, bank loan covenants, general economic conditions, and
other pertinent factors.
Item
6. Selected Financial
Data
Not
applicable.
Item
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion
should be read in conjunction with the Consolidated Financial
Statements of the Company (including the Notes thereto) included
elsewhere in this report. Dollar amounts are in thousands, except
for per share amounts.
The Company generates
revenues primarily from the sale, leasing, licensing, 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™, a patent pending,
lightweight, energy efficient concrete and steel exterior wall
panel for use in building construction; J-J Hooks® Barrier, a
patented positive-connected highway safety barrier; Sierra
Wall™, a patented sound barrier primarily for roadside use;
transportable concrete buildings; and SoftSound™, a highway
sound attenuation system. In addition, the Company produces
utility vaults; farm products such as cattleguards; and custom
order precast concrete products with various architectural
surfaces.
12
As a part of the
construction industry, the Company's sales and net income may vary
greatly from quarter to quarter over a given year. Because of the
cyclical nature of the construction industry, many factors not
under our control, such as weather and project delays, affect the
Company's production schedule, possibly causing a momentary
slowdown in sales and net income. As a result of these factors, the
Company is not always able to earn a profit for each period,
therefore, please read Management's Discussion and Analysis of
Financial Condition and Results of Operations and the accompanying
financial statements with these factors in mind.
On
January 30, 2020, the World Health Organization (“WHO”)
announced a global health emergency because of a new strain of
coronavirus originating in Wuhan, China (the “COVID-19
outbreak”) and the risks to the international community as
the virus spreads globally beyond its point of origin. In March
2020, the WHO classified the COVID-19 outbreak as a pandemic, based
on the rapid increase in exposure globally.
The
full impact of the COVID-19 outbreak continues to evolve as of the
date of this report. As such, it is uncertain as to the full
magnitude that the pandemic will have on the Company’s
financial condition, liquidity, and future results of operations.
Management is actively monitoring the global situation on its
financial condition, liquidity, operations, suppliers, industry,
and workforce. Given the daily evolution of the COVID-19 outbreak
and the global responses to curb its spread, the Company is not
able to estimate the effects of the COVID-19 outbreak on its
results of operations, financial condition, or liquidity for fiscal
year 2020.
The discussions below, including without limitation with respect to outlooks by product line and liquidity, are subject to the future effects of the COVID-19 outbreak. In this respect, should the outbreak cause serious economic harm in our areas of operation, our revenue expectations are unlikely to be fulfilled.
Overview
Overall, the
Company’s financial performance was higher in 2019 when
compared to 2018. The Company had net income for 2019 in the amount
of $1,959 compared to net income of $1,687 for 2018.
Sales
increased by $6,471 to $46,691 in 2019 from $40,220 in 2018. The
increase in sales is mainly attributed to the significant increase
in Shipping and Installation revenue, which in return unfavorably
impacted gross margins, excluding royalties, with a reduction to
18% in 2019 from 23% in 2018. The Company is currently recognizing
revenue and related costs associated with the 'Sale to Customer
with a Buy-Back Guarantee' as further described under 'Revenue
Recognition' in the 'Summary of Significant Accounting Policies'
section. The Company
completed construction of the new North Carolina plant and began
production at the facility during the fourth quarter of 2019. The
new facility has the ability to double production, as compared to
the previous North Carolina facility, with additional space to
expand in the future. Currently, management expects an increase in
production in North Carolina towards the end of 2020. Also during
2019, the Company entered into an agreement to purchase barrier
previously sold to a customer. This agreement increased the barrier
rental fleet to 250,000 linear feet of barrier, and also added 75
crash cushion attenuators. The expansion of the barrier rental
fleet allows the Company to bid larger projects in the future,
while giving the Company the ability to be a full-service highway
safety supplier. The current backlog of $30.9 million as of March
5, 2020 has grown 8% since the third quarter 2019. Even with the
increase in backlog, production has been lower in the first quarter
of 2020 than expected. Although the Company has experienced a
relatively weak first quarter, management expects 2020 overall will
be another strong financial year for the Company, although no
assurance can be given.
Results of
Operations
Year ended December 31, 2019
compared to the
year ended December 31,
2018
For the year ended
December 31, 2019, the Company had total revenue of $46,691
compared to total revenue of $40,220 for the year ended
December 31, 2018, an increase of $6,471, or 16.1%. Revenue
includes product sales, barrier rentals, royalty income, and
shipping and installation revenues. Product sales are further
divided into soundwall, architectural and SlenderWall™
panels, miscellaneous wall panels, highway barrier,
Easi-Set®/Easi-Span® buildings, utility products, and
miscellaneous precast products. The following table summarizes
the revenue by type and a comparison for the years ended
December 31, 2019 and 2018 (in thousands):
|
Revenue by Type (Disaggregated
Revenue)
|
2019
|
2018
|
Change
|
%
Change
|
|
Product Sales:
|
|
|
|
|
|
Soundwall
Sales
|
$7,736
|
$9,867
|
$(2,131)
|
(21.6)%
|
|
Architectural
Sales
|
1,104
|
876
|
228
|
26.0%
|
|
SlenderWall
Sales
|
5,063
|
5,572
|
(509)
|
(9.1)%
|
|
Miscellaneous Wall
Sales
|
1,685
|
1,760
|
(75)
|
(4.3)%
|
|
Barrier
Sales
|
8,582
|
7,264
|
1,318
|
18.1%
|
|
Easi-Set and Easi-Span
Building Sales
|
5,937
|
2,114
|
3,823
|
180.8%
|
|
Utility
Sales
|
1,608
|
1,232
|
376
|
30.5%
|
|
Miscellaneous
Sales
|
513
|
474
|
39
|
8.2%
|
|
Total Product
Sales
|
32,228
|
29,159
|
3,069
|
10.5%
|
|
Barrier
Rentals
|
2,488
|
1,729
|
759
|
43.9%
|
|
Royalty
Income
|
1,672
|
1,675
|
(3)
|
(0.2)%
|
|
Shipping and
Installation Revenue
|
10,303
|
7,657
|
2,646
|
34.6%
|
|
Total Service
Revenue
|
14,463
|
11,061
|
3,402
|
30.8%
|
|
Total
Revenue
|
$46,691
|
$40,220
|
$6,471
|
16.1%
|
13
Soundwall
Sales – Soundwall panel sales decreased by 21.6% in
2019 compared to 2018 due primarily to the smaller number of
projects in production during 2019 at the North Carolina and South
Carolina facilities as compared to 2018. The Company had slightly
higher soundwall sales out of the Midland, Virginia facility which
is expected to continue through 2020. Soundwall bid projects
continue to be competitive in all regions of the Mid-Atlantic. The
Company expects 2020 soundwall sales to remain flat compared to
2019, although no assurance can be given on future
sales.
Architectural
Sales – Architectural panel sales increased by 26.0%
in 2019 compared to 2018. The Company was awarded one larger
architectural wall panel project to produce during 2019, as well as
two additional architectural wall panel projects that coincided
with SlenderWall production (see the SlenderWall section below).
The Company has recently been awarded a few architectural wall
panel projects that will be in production during 2020. Management
believes that 2020 architectural sales will exceed the 2019 sales
volume, although no assurance can be given.
SlenderWall
Sales – SlenderWall panel sales decreased by 9.1% in
2019 when compared to 2018. The Company had a total of six
SlenderWall projects in production in 2019, with a large
SlenderWall project finishing production during the first quarter.
SlenderWall sales should stay strong in 2020 with the continued
sales efforts. Management believes 2020 SlenderWall production
should be similar to 2019, although no assurance can be
given.
Miscellaneous
Wall Sales – Miscellaneous wall sales can be highly
customized precast concrete products or retaining and lagging
panels that do not fit other product categories. Miscellaneous wall
sales slightly decreased by 4.3% in 2019 when compared to 2018.
Miscellaneous wall projects are difficult to predict from year to
year, however, based on the Company's current backlog of orders and
our bid outlook, management believes that production and sales of
miscellaneous wall products in 2020 will be greater than 2019
levels, although no assurance can be given.
Barrier
Sales – Barrier sales are dependent on the number of
highway projects active during the period and whether customers are
more prone to buy barrier than to rent. The Company received two large orders and
produced the barrier during the fourth quarter 2019 driving barrier
sales ahead of the 2018 level. Barrier production was higher
in 2018 as compared to 2019, but a large portion during 2018 was
not recognized as barrier sales due to the guaranteed buy-back
agreement with a customer; a portion of the 2018 deferred revenue
is recognized in the current year as "Barrier Rentals", with
additional revenue to be recognized in future years as "Barrier
Rentals". As the Company increases the barrier rental fleet, more
projects are expected to be rented instead of sold in the future.
See "Barrier Rentals" below for more detail. Management expects
barrier sales to be lower for 2020 as compared to annual barrier
sales for 2019, although no assurance can be
given.
Easi-Set®
and Easi-Span® Building Sales – The
Easi-Set® Buildings program includes Easi-Set®, plant
assembled and Easi-Span®, site assembled, and an extensive
line of pre-engineered restrooms. Building sales increased
significantly by 180.8% in 2019 as compared to 2018. The Company
produced a large governmental building order out of multiple plants
during the third quarter 2019, which significantly boosted sales
above the prior year. Building sales are expected to be lower in
2020 as compared to 2019, although no assurance can be
given.
Utility
Sales – Utility products are mainly comprised of
underground utility vaults used in infrastructure construction.
Utility product sales increased by 30.5% in 2019 compared to 2018.
The utility market is extremely competitive, with many competitors
who specialize in lower priced utility products. The Company is
much more competitive on larger quantity projects, in which it
targeted and won more jobs during 2019. As the Company continues to
be aggressive in utility sales, 2020 should be similar or greater
than 2019 sales, although no assurance can be given.
14
Miscellaneous
Product Sales – Miscellaneous products are products
that are produced or sold that do not meet the criteria defined for
other revenue categories. Examples would include precast
concrete slabs, waste blocks or small add-on items. For 2019,
miscellaneous product sales increased by 8.2% when compared to
2018. Management expects miscellaneous product sales to be similar
in 2020 as compared to 2019, although no assurance can be given.
These products are typically small in nature and the Company
focuses it's priorities on larger, more profitable
jobs.
Barrier
Rentals – Barrier rentals increased by 43.9% in 2019
when compared to 2018. The increase resulted primarily from the
recognition of revenue under a deferred guaranteed buy-back
agreement with a customer for barrier, which will continue until
the buy-back option is either exercised or expires when the
customer completes its usage of the barrier, which is expected to
be a four year period from the date of delivery. The Company's
standard highway barrier rentals remained strong in 2019 with an
increase of 4% over 2018. Management believes standard highway
barrier rentals will continue to be strong in 2020 with the
increase its barrier rental fleet at the end of 2019. The Company
continues to pursue its rental barrier expansion plans for its
local geographical sales areas and expects its core rental business
to increase, although no assurance can be given.
Royalty
Income – Royalties decreased by 0.2% in 2019 as
compared to 2018. The decrease was a result of lower barrier
royalties, mainly from one significant licensee who did not
generate royalties during 2019, with the license being terminated
in December 2019. In 2019 the Company added a new SlenderWall
salesman to help increase sales nationwide. Management believes
that overall royalties will increase during 2020 as the
construction industry continues to expand, especially in the
infrastructure section of the market, although no assurance can be
given.
Shipping
and Installation – Shipping revenue results from
shipping our products to the customers' final destination and is
recognized when the shipping services take place. Installation
activities include installation of our products at the
customers’ construction site. Installation revenue results
when attaching architectural wall panels to a building, installing
an Easi-Set® building at a customers' site, setting highway
barrier, or setting any of our other precast products at a site
specific to the requirements of the owner. Shipping and
installation revenues increased by 34.6% for 2019 when compared to
2018. The increase was mainly due to the increase of delivery and
installation of Easi-Set buildings and an increase in SlenderWall
installation as compared to 2018. Management believes that shipping
and installation revenues for 2020 will be similar or lower to
2019, although no assurance can be given.
Cost
of Goods Sold – Total cost of goods sold for the year
ended December 31, 2019 was $36,722, an increase of $6,992, or
23.5%, from $29,730 for the year ended December 31,
2018. Total cost of goods sold, as a percentage of total
revenue not including royalties, increased to 82% for the year
ended December 31, 2019 from 77% for the year ended
December 31, 2018. The increase in the cost of goods sold
as a percentage of total revenue was mainly due to the increase in
Shipping & Installation revenues which historically carry lower
margins as compared to product sales. Raw material costs increased
slightly in 2019 over 2018 with some inflationary pressures for the
Company, although steel prices dropped during 2019 as compared to
2018. Raw material prices are expected to remain relatively flat in
2020 as compared to 2019. The Company continues to seek new vendor
partnerships to help develop a price advantage for its raw
materials as well as a continuous supply of these materials and has
changed several vendors due to better supply sources and better
pricing.
General
and Administrative Expenses – For the year ended
December 31, 2019, the Company's general and administrative
expenses decreased by $788, or 13.9%, to $4,887 from $5,675 during
the same period in 2018. The decrease in general and
administrative expenses is mainly attributed to an administrative
staffing reduction, as compared to 2018. General and administrative
expenses are expected to be similar in 2020 as compared to 2019,
although no assurance can be given.
Selling
Expenses – Selling expenses for the year ended
December 31, 2019 decreased by $63, or 2.4%, to $2,536 from
$2,599 for the year ended December 31, 2018. The decrease
was due to a slight decrease in salary and commission expense with
some of the largest sales contracts in Company history awarded in
2018. The Company recently hired a national SlenderWall salesman,
and future expenses are expected to increase with the expected
growth of the product line.
15
Operating
Income – The Company had operating income for the year
ended December 31, 2019 of $2,546 compared to operating income
of $2,216 for the year ended December 31, 2018, an increase of
$330, or 14.9%. The increase in operating income was primarily the
result of the increased sales volume and reduction in general and
administrative expenses in 2019 as compared to 2018.
Interest
Expense – Interest expense was $179 for the year ended
December 31, 2019 compared to $176 for the year ended
December 31, 2018. The increase of $3, or 1.7%, was due
primarily to the financing of the new North Carolina
facility.
Income Tax
Expense – The Company had
income tax expense of $549 for the year ended December 31,
2019 compared to income tax expense of $572 for the year ended
December 31, 2018. The Company had an effective rate of 21.9%
for the year ended December 31, 2019 compared to an effective
rate of 25.3% for the same period in
2018.
Net Income
– The Company had net income of $1,959 for the year ended
December 31, 2019, compared to net income of $1,687 for the
same period in 2018. The basic and diluted income per share
was $0.38 for 2019, compared to basic and diluted income per share
of $0.33 for the year ended December 31, 2018. There were
5,142 basic and 5,147 diluted weighted average shares outstanding
in 2019 and 5,080 basic and 5,096 diluted weighted average shares
outstanding in the 2018.
Liquidity and Capital
Resources
The Company financed its
capital expenditures requirements for 2019 with cash flows from
operations, cash balances on hand and notes payable to a bank. The
Company had $5,011 of debt obligations at December 31, 2019,
of which $925 is scheduled to mature within twelve months. During
the twelve months ended December 31, 2019, the Company made
repayments of outstanding debt in the amount $769 and received
$2,277 in proceeds of borrowings for the financing of the North
Carolina property and a vehicle. The Company had draws on the line
of credit of $500 and had repayments of $1,500 on the line of
credit during the twelve months ended December 31,
2019.
The Company has a note
payable to Summit Community Bank (the “Bank”) with a
balance of $519 as of December 31, 2019. The note has a
remaining term of approximately two years and a fixed interest rate
of 3.99% annually with monthly payments of $26 and is secured by
principally all of the assets of the Company. Under the terms
of the note, the Bank will permit chattel mortgages on purchased
equipment not to exceed $250 for any one individual loan so long as
the Company is not in default. The Company maintains a limit of
$3,500 for annual capital expenditures, excluding acquisitions and
plant expansions. At December 31, 2019, the Company was
in compliance with all covenants pursuant to the loan
agreement.
The Company has a mortgage note payable to the Bank for the
purchase of the Columbia, South Carolina facility. Such loan is
evidenced by a promissory note, dated July 19, 2016. The note
provides for a 15 year term, a fixed annual interest rate of 5.29%,
monthly fixed payments of $11 and a security interest in favor of
the Bank in respect to the land, building and fixtures purchased
with the proceeds of the loan. The balance of the loan at December
31, 2019 was $1,103.
On October 11, 2019, the
Company completed the financing for the construction of it's new
North Carolina facility with a note payable to the Bank in the
amount of $2,228. The note carries a ten year term at a fixed
interest rate of 3.64% annually per the Promissory Note Rate
Conversion Agreement, with monthly payments of $22, and is secured
by all of the assets of Smith-Carolina and a guarantee by the
Company. The balance of the note payable at December 31, 2019
was $2,197.
The Company additionally has 13 smaller installment loans with
annual interest rates between 3.49% and 5.75%, maturing between
2020 and 2024, with varying balances totaling
$1,192.
In addition to the notes
payable discussed above, the Company also has a $4,000 line of
credit with the Bank with no balance at December 31, 2019. The
line of credit is evidenced by a commercial revolving promissory
note which carries a variable interest rate of prime and matures on
October 1, 2020. The loan is collateralized by a first lien
position on the Company's accounts receivable and inventory and a
second lien position on all other business assets. Key provisions
of the line of credit require the Company, (i) to obtain bank
approval for capital expenditures in excess of $3,500 during the
term of the loan; and (ii) to obtain bank approval prior to its
funding any acquisition. On October 31, 2019 the Company received a
Commitment Letter from the Bank to provide a guidance line of
credit specifically to purchase business equipment in an amount up
to $1,500. The commitment provides for the purchase of equipment
with minimum advances of $50 for which a note payable will be
executed with a term not to exceed five years with an interest rate
at the Wall Street Journal prime rate plus .5% with a floor of
4.49% per annum. The loan is collateralized by a first lien
position on all equipment purchased under the line. The commitment
for the guidance line of credit matures on October 31,
2020. As of December
31, 2019, the Company had not purchased any equipment pursuant to
the $1,500 commitment.
16
At December 31,
2019, the Company had cash totaling $1,364 and $1,176 of investment
securities available for sale compared to cash totaling $1,946 and
$1,107 of investment securities available for sale at
December 31, 2018. Investment securities at December 31, 2019
consist of shares of USVAX (a Virginia Bond Fund). During 2019, the
Company’s operating activities provided $3,935 of cash due
mainly to the decrease in inventories. In 2019, investing
activities used $4,744 in cash primarily for the North Carolina
expansion and for the purchase of rental barrier and capital
equipment. Financing activities provided $227 in cash in 2019,
resulting primarily from new loan for the North Carolina expansion
and the financing of capital expenditures.
Capital spending,
including financed additions, decreased from $5,234 in 2018 to
$4,513 in 2019. Capital expenditures in 2019 included spending for
the North Carolina expansion, rental barrier, and manufacturing
equipment. In 2020, the Company intends to continue to make
capital improvements which include additional yard expansions in
Virginia, along with the purchase of manufacturing equipment. While
the Company anticipates capital spending for 2020 to be $2,000,
excluding acquisitions and plant expansions (which none are
anticipated at this time), such plans may change if the Company is
adversely effected by the coronavirus outbreak.
The
Company's three mortgage notes payable are financed at fixed rates
of interest. This leaves the Company almost impervious to
fluctuating interest rates. Increases in such rates will only
slightly affect the interest paid by the Company on an annual
basis. Approximately 95% of the Company's debt obligations are
financed at a fixed interest rate so that each 1% increase in
the interest rates of the Company’s outstanding debt will
reduce income by approximately $2
annually.
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 and with some architectural
contracts, retainage may be held until the entire project is
completed. This payment schedule could result in liquidity
problems for the Company because it must bear the cost of
production for its products before it receives payment. The
Company's days sales outstanding (DSO) in 2019 was 89 days compared
to 86 days in 2018. The DSO increased due to the increase in
retainage outstanding on large SlenderWall projects. Although no
assurance can be given, particularly in light of the coronavirus
outbreak, the Company believes that anticipated cash flow from
operations with adequate project management on jobs and the
availability under lines of credit will be sufficient to finance
the Company’s operations and necessary capital expenditures
for at least the next 12 months.
The Company’s
inventory at December 31, 2019 was $2,242 and at
December 31, 2018 was $3,560, a decrease of $1,318. The
annual inventory turns for 2019 and 2018 were 12.1 and 11.9, respectively. The
inventory turns for 2019 have increased due to the Company having
limited inventory, and all major contracts were recognized in
revenue, or as deferred revenue, as produced. Finished goods
inventory decreased for 2019 as compared to 2018 mainly due to
limited standard products produced and held at the end of
2019.
Critical Accounting
Policies
The Company’s
significant accounting policies are more fully described in its
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 of America 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 consolidated financial statements,
management has made its best estimates and judgments of certain
amounts included in the consolidated 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 other related factors, 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 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 over time. Certain sales of Soundwall, Slenderwall, and
other architectural concrete products are recognized over time
because as the Company's performance creates or enhances customer
controlled assets or creates or enhances an asset with no
alternative use, and the Company has an enforceable right to
receive compensation. Over time product contracts are estimated
based on the number of units produced (output method) during the
period multiplied by the unit rate stated in the contract.
As the
output method is driven by units produced, the Company recognizes
revenues based on the value transferred to the customer relative to
the remaining value to be transferred. The Company also matches the
costs associated with the units produced. If a contract is
projected to result in a loss, the entire contract loss is
recognized in the period when the loss was first determined and the
amount of the loss updated in subsequent reporting periods. Revenue
recognition also includes an amount related to a contract asset or
contract liability. If the recognized revenue is greater than the
amount billed to the customer, a contract asset is recorded in
accounts receivable - unbilled. Conversely, if the amount billed to
the customer is greater than the recognized revenue, a contract
liability is recorded in customer deposits on uncompleted
contracts. Changes in the job performance, job conditions and final
contract settlements are factors that influence management’s
assessment of total contract value and therefore, profit and
revenue recognition.
17
Seasonality
The Company services the
construction industry primarily in areas of the United States where
construction activity may be inhibited by adverse weather during
the winter. As a result, the Company may experience reduced
revenues from December through February and realize the substantial
part of its revenues during the other months of the year. The
Company may experience lower profits, or losses, during the winter
months, and as such, must have sufficient working capital to fund
its operations at a reduced level until the spring construction
season. The failure to generate or obtain sufficient working
capital during the winter may have a material adverse effect on the
Company.
Inflation
Management believes that
the Company's operations were not significantly affected by
inflation in 2019 and 2018, particularly in the purchases of
certain raw materials such as cement and steel. The Company
believes that raw material pricing will likely remain flat or
slightly increase in 2020, although no assurance can be given
regarding future pricing.
Backlog
As of March 5, 2020
the Company's sales backlog was approximately $30.9 million as compared to
approximately $31.1 million at approximately the same time in 2019.
It is estimated that most of the projects in the sales backlog will
be produced within 12 months, but a few will be produced through
the year 2021. There has been a slight decrease in the backlog for
2020 when compared to approximately the same time in 2019, but the
Company expects it to increase with continued bidding on large
infrastructure and SlenderWall/architectural projects, although no
assurance can be given.
The risk exists that
recessionary economic conditions may adversely affect the Company
more than it has experienced to date. To mitigate these
economic and other risks, the Company has a broader product
offering than most competitors and has historically been a leader
in innovation and new product development in the industry. The
Company is continuing this strategy through the development,
marketing and sales efforts for its new products. In the event that the coronavirus outbreak works
to adversely affect the Company, the future risks and uncertainty
are unknown.
The Company continues to
evaluate its processes, both production and administrative, and has
streamlined many of these processes through lean activities. During
2019 and 2018, the Company, through lean activities, has begun to
see positive effects in production and office areas. The lean
business philosophy is a long-term, customer focused approach to
eliminating waste and providing value. It is management's intention
to further implement a lean culture throughout the Company to help
reach our goals for 2020. The Company's lean efforts are aimed to
increase quality to the customer, significantly reduce design and
drawing issues, while increasing production capacity and sales
volume. In order to meet these goals, substantial improvements
through lean tools and lean thinking are being implemented company
wide.
18
Item 7A. Quantitative and
Qualitative Disclosures about Market Risk
Not
applicable.
Item 8. Financial Statements
and Supplementary Data
The consolidated
financial statements table of contents, which appears on page F-1,
are filed as part of this report.
Item 9. Changes In and
Disagreements With Accountants on Accounting and Financial
Disclosure
Not
applicable.
Item 9A. Controls and
Procedures
Management’s Report on
Internal Control over Financial Reporting
Management is
responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934, as
amended. Our internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of the financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. This process
includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with
authorizations of our management and directors; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on our consolidated financial
statements.
Because of its inherent
limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any
evaluation of the internal control over financial reporting to
future periods are subject to risk that the internal control may
become inadequate because of changes in conditions, or that the
degree of compliance with policies or procedures may
deteriorate.
The Chief Executive
Officer and Chief Financial Officer of the Company assessed the
effectiveness of our internal control over financial reporting
based on the framework in “Internal Control –
Integrated Framework (2013)” issued by the Committee of
Sponsoring Organizations of the Treadway Commission
(“COSO”) as of December 31, 2019, and concluded
that its controls were effective as of such date.
This annual report does
not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting. Management’s report was not subject to
attestation by the Company’s registered public accounting
firm pursuant to the Securities and Exchange Commission rules that
permit the Company to provide only management’s report in
this annual report.
Disclosure controls and
procedures
We carried out our
evaluation, under the supervision and with the participation of our
management, including our chief executive officer and our chief
financial officer, of the effectiveness of our disclosure controls
and procedures as of the end of the period covered by this report,
pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934, as amended. Based on our evaluation, our
principal executive officer and chief financial officer concluded
that our disclosure controls and procedures as of the end of the
period covered by this report were effective.
19
Changes in Internal Control
over Financial Reporting
There has been no change
in the Company’s internal control over financial reporting
during the quarter ended December 31, 2019 that has materially
affected, or is reasonably likely to materially affect, its
internal control over financial reporting.
Item
9B. Other Information
None.
20
PART III
Item
10. Directors, Executive Officers and
Corporate Governance
Certain information with
respect to our Directors and executive officers is set forth
below.
|
Name
|
|
Age
|
|
Director or
Executive
Officer Since
|
|
Position
|
|
Rodney I.
Smith
|
|
81
|
|
1970
|
|
Chairman of the Board of
Directors
|
|
|
|
|
|
|
|
|
|
Ashley B.
Smith
|
|
57
|
|
1994
|
|
Chief Executive Officer,
President, and Director
|
|
|
|
|
|
|
|
|
|
Wesley A.
Taylor
|
|
72
|
|
1994
|
|
Director
|
|
|
|
|
|
|
|
|
|
James Russell
Bruner
|
|
64
|
|
2018
|
|
Director
|
|
|
|
|
|
|
|
|
|
Richard
Gerhardt
|
|
53
|
|
2016
|
|
Director
|
|
|
|
|
|
|
|
|
|
Adam J.
Krick
|
|
34
|
|
2018
|
|
Chief Financial Officer,
Secretary, and Treasurer
|
Background
The following is a brief
summary of the background of each Director and executive officer of
the Company:
Rodney I.
Smith. Chairman of the Board of
Directors. Rodney I. Smith co-founded the Company in
1960 and became its President and Chief Executive Officer in 1965.
He served as President until 2012 and Chief Executive Officer until
May 2018. He has served on the Board of Directors and has been its
Chairman since 1970. Mr. Smith is the principal developer and
inventor of the Company’s proprietary and patented
products. He is the past President of the National Precast
Concrete Association. Mr. Smith has served on the Board of
Trustees of Bridgewater College in Bridgewater, Virginia since
1986. The Company believes that Mr. Smith’s extensive
experience in the precast concrete products industry and his
knowledge of the marketplace gives him the qualifications and
skills necessary to serve in the capacity as the Chairman of the
Board of Directors.
Ashley B. Smith.
Chief Executive
Officer, President, and Director. Ashley B. Smith has
served as Chief Executive Officer of the Company since May 2018,
President of the Company since 2012, and as a Director since 1994.
Mr. Smith was Vice President of the Company from 1990 to 2011. He
is the immediate past Chairman of the National Precast Concrete
Association. Mr. Smith holds a Bachelor of Science degree in
Business Administration from Bridgewater College. Mr. Ashley
B. Smith is the son of Mr. Rodney I. Smith. The Company
believes that Mr. Smith’s education, experience in the
precast concrete industry and business experience give him the
qualifications and skills necessary to serve in the capacity as a
director.
Wesley A.
Taylor. Director. Wesley
A. Taylor served as Vice President of Administration of the Company
from 1989 until January 2017 and has served as a Director since
1994. Mr. Taylor holds a Bachelor of Arts degree from Northwestern
State University. The Company believes that Mr. Taylor’s
education, business experience and his extensive experience in the
precast concrete industry gives him the qualifications and skills
necessary to serve in the capacity as a director.
21
James Russell Bruner.
Director.
Mr. Bruner has served as a member of the Board of Directors of the
Company since December 2018.
Mr. Bruner has served as Chairman of Maersk Line, Limited
(“Maersk Line”) since November 2016 and was President
and Chief Executive Officer of Maersk Line from January 2014 to
November 2017. Maersk Line owns and operates a fleet of container
and tanker ships that are under the flag of the United States.
These ships support military, government and humanitarian missions
through the transportation of United States government cargo on an
international basis. Through its subsidiaries, Maersk Line owns
and/or operates ships designed to carry wheeled cargo and a fleet
of tankers and maritime support vessels. Maersk Line operates as a
subsidiary of A.P. Moller-Maersk A/S, an integrated transport and
logistics company headquartered in Copenhagen, Denmark. Mr. Bruner
attended Bridgewater College in Virginia. He is a graduate of the
University of Michigan Executive Program and Harvard Business
School's Advanced Management Program. The Company believes
that Mr. Bruner's current and past business-related experience
provides him with the knowledge and skills necessary to serve in
the capacity as a director of the Company.
Richard Gerhardt.
Director.
Mr. Gerhardt has served as a member of the Board of Directors of
the Company since 2016. He currently President of Sales Services
International, Inc., a consulting firm, and Chief Sales Officer for
The Mail Group, a logistics company, since April 2019, and is also
serving as a Fauquier County, Virginia Supervisor for the Cedar Run
Magisterial District since January 2016. Mr. Gerhardt presently
serves on the boards of Path Foundation (formally Fauquier Health
Foundation), Virginia Gold Cup Association and Fauquier Free
Clinic. From 2003 to 2014, Mr. Gerhardt served in an escalating
succession of positions for three global shipping and logistic
companies: DHL Global Mail, ESI Global Logistic and MSI Worldwide.
His eight years as President, Chief Operating Officer, and a
shareholder of MSI Worldwide culminated in its acquisition by
Belgian Post. Mr. Gerhardt holds a Bachelor of Arts in Business
Administration with a minor in Economics from Washington College in
Chestertown, Maryland. The Company believes that Mr. Gerhardt's
current and past business-related experience provides him with the
knowledge and skills necessary to serve in the capacity as a
director of the Company.
Adam J.
Krick. Chief Financial
Officer. Adam J. Krick has served as Chief Financial
Officer of the Company since January 2018. Prior to becoming
the Chief Financial Officer, Mr. Krick served as the Accounting
Manager for the Company since 2014. Prior to joining the Company,
Mr. Krick worked in public accounting focusing on tax and business
consulting. Mr. Krick serves on the board of the OTCQX U.S.
Advisory Council, and he also serves as the Treasurer for
Precast/Prestressed Concrete Institute Mid-Atlantic Chapter. Mr.
Krick is a Certified Public Accountant and holds a Bachelor of
Business Administration degree in Accounting from James Madison
University.
Delinquent Section 16(a)
Reports
Section 16(a)
(“Section 16(a)”) of the Securities Exchange Act of
1934, as amended, requires executive officers and Directors and
persons who beneficially own more than ten percent (10%) of the
Company’s Common Stock to file initial reports of ownership
on Form 3 and reports of changes in ownership on Form 4 with the
Securities and Exchange Commission and any national securities
exchange on which the Corporation’s securities are
registered.
Based solely on a review
of the copies of such forms furnished to the Company, the Company
believes that all Section 16(a) filing requirements applicable to
its executive officers, Directors and greater than ten percent
(10%) beneficial owners were satisfied during
2019.
Code of
Ethics
The Company adopted a
code of ethics that applies to the Chief Executive Officer, Chief
Financial Officer, Accounting Manager and persons performing
similar functions. The Board of Directors approved the code of
ethics at their meeting on December 17, 2003. A copy of the
code of ethics was filed as an exhibit to the Company’s Form
10-KSB for the year ended December 31, 2003, and a copy may be
obtained without charge by requesting one in writing from
Secretary, Smith-Midland Corporation, P.O. Box 300, 5119 Catlett
Road, Midland, VA 22728. The code of ethics is also posted on the
Company's website.
22
Audit
Committee
The Company created an
Audit Committee in August 2018. The Audit Committee consists of
James Russell Bruner and Richard Gerhardt, the two independent
board members. Mr. James Russell Bruner is an audit committee
financial expert.
Item
11. Executive
Compensation
The following table sets
forth the compensation paid by the Company for services rendered
for 2019 and 2018 to the principal executive officer and the
Company’s two most highly compensated executive officers
other than the principal executive officer (the “named
executive officers”):
Summary Compensation
Table
|
Name and Principal
Position
|
Year
|
Salary
($)(1)
|
Bonus
($)(2)
|
Stock
Awards
($)
|
All Other
Compensation
($)
|
Total
($)
|
|
|
|
|
|
|
|
|
|
Ashley B.
Smith
|
2019
|
275,100
|
152,420
|
—
|
—
|
427,520
|
|
Chief Executive Officer
and President (3)(4)
|
2018
|
188,823
|
119,006
|
—
|
3,000
|
310,829
|
|
|
|
|
|
|
|
|
|
Adam J.
Krick
|
2019
|
144,569
|
55,741
|
—
|
—
|
200,310
|
|
Chief Financial
Officer (5)
|
2018
|
134,437
|
20,350
|
17,225
|
3,000
|
175,012
|
(1) Represents salaries paid in 2019
and 2018 for services provided by each named executive officer
serving in the capacity listed.
(2) Represents amounts paid for annual
performance-based bonus related to operations for the prior
year.
(4) Mr.
Ashley B. Smith received director’s compensation in the
amount of $3,000 for the year 2018, as shown in "All Other
Compensation". Later in 2018, the Company ceased paying director
fees to executive officers.
(5) Includes 2,500
restricted shares granted in January 2018 pursuant to the Company's
2016 Equity Incentive Plan, which shares vested in full immediately
on the grant date. The value of the common stock shares at the
grant date was $17,225. Mr. Krick received advisory director's
compensation in the amount of $3,000 for the year 2018, as shown in
"All Other Compensation". Later in 2018, the Company ceased paying
advisory director fees to executive officers.
23
Outstanding Equity Awards At
Fiscal Year-End
The following table
sets forth information for the named executive officers regarding
any common share purchase options, stock awards or equity incentive
plan awards that were outstanding as of December 31,
2019.
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price
($/Sh)
|
Option
Expiration Date
|
Number of Shares or
Units of Stock that have not Vested (#)(1)
|
Market Value of Shares
or Units of Stock that have not Vested ($)
|
Equity Incentive Plan
Awards: Number of Unearned Shares, Units or Other Rights that have
not Vested (#)
|
Equity Incentive Plan
Awards: Market or Payout Value of Unearned Shares, Units or Other
Rights that have not Vested ($)
|
|
Ashley B.
Smith
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Adam J.
Krick
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
TOTAL
|
—
|
—
|
|
|
14,000
|
84,000
|
—
|
—
|
(1) Restricted shares granted vest,
ratably, on an annual basis, over three years from the date of
grant. All shares were granted prior to 2019.
Compensation of
Directors
All non-executive
officer Directors receive $3,000 per meeting as compensation for
their services as Directors, with an additional $3,000 annual fee
for service as the chair of the Audit Committee, $3,000 annual fee
for service as the chair of the Compensation Committee, and $6,000
annual fee for service as the Chairman of the Board.
The Company does
not pay any additional compensation to directors who are members of
our management or are employed by the Company, but the Company
reimburses all directors for out-of-pocket expenses incurred in
connection with attending Board and committee meetings or otherwise
in their capacity as directors.
Fiscal 2019 Director
Compensation
|
Name
|
Fees
Earned
or Paid in
Cash ($)
|
Stock
Awards
($)(2)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
|
Non-
Qualified
Deferred
Compensation
Earnings
|
All Other
Compensation
|
Total ($)
|
|
Rodney I.
Smith
|
15,000
|
—
|
—
|
—
|
—
|
—
|
15,000(1)
|
|
Ashley B.
Smith
|
—
|
—
|
—
|
—
|
—
|
—
|
—
|
|
Wesley A.
Taylor
|
9,000
|
—
|
—
|
—
|
—
|
—
|
9,000
|
|
James Russell
Bruner
|
12,000
|
—
|
—
|
—
|
—
|
—
|
12,000
|
|
Richard
Gerhardt
|
12,000
|
—
|
—
|
—
|
—
|
—
|
12,000
|
(1)
Reflected in Summary Compensation
Table above.
24
Employment Contracts and
Termination of Employment and Change in Control
Arrangements.
The Company has an employment agreement with its
former Chief Executive Officer and current Chairman of the Board,
Rodney I. Smith. While Mr. Smith ceased providing services as Chief
Executive Officer in May 2018, he received his salary, pursuant to
the terms of the agreement, through September 2019. The agreement
also provides for an annual royalty fee of $99,000 payable as
consideration for his assignment to the Company of all of his
rights, title and interest in certain patents. Payment of the
royalty continues for as long as the Company is using the
inventions underlying the patents. Mr. Smith also received
compensation from the Company for his services as a Director and
Chairman of the Board. Mr. Smith is currently being
compensated with respect to royalty payments in accordance with the
employment agreement.
25
Item
12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder
Matters
The following table sets
forth, as of March 5, 2020, certain information concerning
ownership of the Company’s Common Stock by (i) each person
known by the Company to own of record or be the beneficial owner of
more than five percent (5%) of the Company’s Common Stock,
(ii) named executive officers and Directors, and (iii) all
Directors and Executive Officers as a group. Except as
otherwise indicated, the stockholders listed in the table have sole
voting and investment powers with respect to the shares
indicated.
|
Name and Address
of Beneficial Owner
|
Number of Shares
Beneficially
Owned (2)
|
Percentage
of Class
|
|
Rodney I. Smith
(1)(3)(4)
|
684,798
|
13.3%
|
|
|
|
|
|
Ashley B. Smith
(1)(3)(4)
|
176,042
|
3.4%
|
|
|
|
|
|
Wesley A. Taylor
(1)
|
28,667
|
*
|
|
|
|
|
|
Richard Gerhardt
(1)
|
2,000
|
*
|
|
|
|
|
|
James Russell Bruner
(1)
|
6,000
|
*
|
|
|
|
|
|
Adam J. Krick
(1)
|
3,545
|
*
|
|
|
|
|
|
Thompson Davis &
Co., Inc. (5)
|
769,643
|
14.9%
|
|
|
|
|
|
Wax Asset Management,
LLC (6)
|
479,895
|
9.3%
|
|
|
|
|
|
All directors and
executive officers as a group (6 persons)
|
901,152
|
17.4%
|
* Less than
1%.
(1) The address for
each of Messrs. Rodney I. Smith, Ashley B. Smith, Wesley A. Taylor,
Richard Gerhardt, James Russell Bruner, and Adam J. Krick is c/o
Smith-Midland Corporation, P.O. Box 300, 5119 Catlett Road,
Midland, Virginia 22728.
(2) Pursuant to the
rules and regulations of the Securities and Exchange Commission,
shares of Common Stock that an individual or group has a right to
acquire within 60 days pursuant to the exercise of options or
warrants are deemed to be outstanding for the purposes of computing
the percentage ownership of such individual or group, but are not
deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the
table.
(3) Ashley B. Smith
is the son of Rodney I. Smith. Each of Rodney I. Smith and
Ashley B. Smith disclaims beneficial ownership of the other’s
shares of Common Stock.
(4) Does not include
an aggregate of 105,811 shares of Common Stock held by
Matthew Smith and Roderick Smith. Matthew Smith and Roderick
Smith are sons of Rodney I. Smith, and brothers of Ashley B. Smith,
for which each of Rodney I. Smith and Ashley B. Smith disclaims
beneficial ownership.
26
(5)
Address of holder is 15 S. 5th Street, Richmond, VA
23219.
(6)
Address of holder is 44 Cherry Lane, Madison, CT
06443.
EQUITY COMPENSATION PLAN
INFORMATION
The following table
sets forth certain information as of December 31, 2019,
regarding the Company's equity compensation plans.
|
Plan Category
|
(a)
Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights
|
(b)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
|
(c)
Number of
securities
remaining
available for
future issuance
under equity
compensation
plans (excluding
securities reflected in column (a))(1)
|
|
Equity compensation
plans approved by security holders (1)
|
—
|
—
|
—
|
|
Equity compensation
plans not approved by security holders
|
—
|
—
|
224,834
|
|
Total
|
—
|
—
|
224,834
|
(1) A brief description
of the Company's 2016 Equity Incentive Plan is contained in Note 6
of the Notes to Consolidated Financial Statements. The Equity
Incentive Plan has a balance of 224,834 shares of stock unissued
and available for award at December 31, 2019.
On October 13, 2016 the
Company's Board of Directors adopted the Smith-Midland Corporation
2016 Equity Incentive Plan (the "Equity Incentive Plan").
Employees, directors and consultants of the Company are eligible to
participate in the Equity Incentive Plan. The Equity Incentive Plan
is administered by the Compensation Committee of the Board of
Directors or the full Board during such times as no committee is
appointed by the Board or during such times as the Board is acting
in lieu of the committee (the "Committee"). The Equity Incentive
Plan provides for the grant of equity-based compensation in the
form of restricted stock, restricted stock units, performance
shares, performance cash and other share-based awards. The
Committee has the authority to determine the type of award, as well
as the amount, terms and conditions of each award, under the Equity
Incentive Plan subject to the limitations and other provisions of
the Equity Incentive Plan. An aggregate of 400,000 shares of the
Company's common stock, par value $.01 per share, were authorized
for issuance under the Equity Incentive Plan, subject to adjustment
for stock splits, dividends, distributions, recapitalizations and
other similar transactions or events, of which amount 224,834
remains available for issuance. If any shares subject to an award
are forfeited, expire, or otherwise terminate without issuance of
such shares, such shares shall, to the extent of such forfeiture,
expiration, or termination, again be available for issuance under
the Equity Incentive Plan.
27
Item
13. Certain Relationships and Related
Transactions, and Director Independence
There are two
independent directors of the Company, Mr. James Russell Bruner and
Mr. Richard Gerhardt. The test utilized by the Company for the
determination of independence is that under the NASDAQ Marketplace
Rules. In January 2020, Mr. Wesley A. Taylor became independent as
well.
On an ongoing basis, the
Company reviews all “related party transactions” (those
transactions that are required to be disclosed by SEC Regulation
S-K, Item 404), if any, for potential conflicts of interest and all
such transactions must be approved by the Board of Directors. No
transactions meet the criteria for disclosure.
Item
14. Principal Accountant Fees and
Services
The aggregate fees
billed for each of the past two fiscal years for professional
services rendered by BDO USA, LLP, the principal accountant for the
audit of the Company; for assurance and related services related to
the audit; for tax compliance, tax advice, and tax planning; and
for all other fees for products and services are shown in the table
below (in thousands). Fees are reported as billed to the
Company.
Audit Fees. Fees charged
as audit fees are for the audit of the Company’s annual
financial statements and review of financial statements included in
the Company’s Forms 10-Q or services that are normally
provided by the accountant in connection with statutory and
regulatory filings or engagements.
Tax Fees. Tax fees are
for professional services rendered by BDO USA, LLP for tax
compliance, tax advice, and tax planning.
Audit-Related Fees.
Fees paid to BDO USA, LLP for the audit of the Company’s
401(k) benefit plan.
The Audit Committee
has established pre-approval policies and procedures with respect
to the engagement of BDO USA, LLP and such policies and procedures
do not include the delegation of the responsibilities of the Audit
Committee to management.
|
|
2019
|
2018
|
|
Audit Fees
|
$155
|
$168
|
|
Tax Fees
|
30
|
54
|
|
Audit-Related
Fees
|
10
|
10
|
|
|
|
|
|
Total Fees
|
$195
|
$232
|
28
PART IV
Item
15. Exhibits and Financial Statement
Schedules
|
|
|
|
(1)
|
The financial
statements of the Company are included following Part IV of this
Form 10-K.
|
|
|
|
|
(2)
|
Schedules have been
omitted since they are either not applicable, not required or the
information is included elsewhere herein.
|
|
|
|
|
(3)
|
The following
exhibits are filed herewith:
|
|
Number
|
|
Description
|
|
|
|
|
|
3.1
|
|
Certificate of
Incorporation, as amended (Incorporated by reference to the
Company’s Registration Statement on Form SB-2 (No. 33-89312)
declared effective by the Commission on December 13,
1995).
|
|
|
|
|
|
|
Bylaws (Incorporated by reference to the
Company's Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 16, 2018).
|
|
|
|
|
|
|
4.1
|
|
Specimen Common Stock
Certificate (Incorporated by reference to the Company’s
Registration Statement on Form SB-2 (No. 33-89312) declared
effective by the Commission on December 13, 1995).
|
|
|
|
|
|
10.1
|
|
Lease Agreement, dated
January 1, 1995, between the Company and Rodney I. Smith
(Incorporated by reference to the Company’s Registration
Statement on Form SB-2 (No. 33-89312) declared effective by the
Commission on December 13, 1995).
|
|
|
|
|
|
10.2
|
|
Collateral Assignment of
Letters Patent, dated between the Company and Rodney I. Smith
(Incorporated by reference to the Company’s Registration Form
SB-2 (No. 33-89312) declared effective by the Commission on
December 13, 1995).
|
|
|
|
|
|
|
Employment
Agreement, dated September 30, 2002, between the Company and Rodney
I. Smith. (Incorporated by reference to the
Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2003).
|
|
|
|
|
|
|
|
Amendment No. 1 to
Employment Agreement, dated as of December 31, 2008, between the
Company and Rodney I. Smith (Incorporated by reference to the
Company’s Annual Report on Form 10-K for the year ended
December 31, 2008).
|
|
|
|
|
|
|
|
Promissory Note,
dated April 20, 2011 and executed on April 26, 2011, in the amount
of $575,000 issued by the Company to Summit Community Bank
(Incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on April 28,
2011).
|
|
|
|
|
|
|
|
A Credit Line Deed
of Trust, dated April 20, 2011 and executed on April 26, 2011,
between the Company and Summit Community Bank (Incorporated by
reference to the Company's Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 28,
2011).
|
|
|
|
|
|
|
|
Promissory Note, dated September 12, 2013, in the
amount of $2,100,000 issued by the Company to Summit Community Bank
(Incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on September
18, 2013).
|
29
|
|
Promissory
Note, dated July 19, 2016, in the amount of $1,317,500 issued by
the Company to Summit Community Bank (Incorporated by reference to
the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 27, 2016).
|
|
|
|
|
|
|
|
Commercial
Security Agreement, dated July 19, 2016, between the Company, as
debtor, and Summit Community Bank, as secured party, related to
Company’s note payable in the amount of $1,317,500 with
Summit Community Bank (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 27, 2016).
|
|
|
|
|
|
|
|
Commitment
Letter, dated October 8, 2019, for the renewal of the line of
credit in the of $4,000,000 with Summit Community
Bank.
|
|
|
|
|
|
|
|
Commitment
Letter, dated October 31, 2019, for the renewal of the equipment
line of credit in the amount of $1,500,000 with Summit Community
Bank.
|
|
|
|
|
|
|
|
Commercial
Line of Credit Agreement and Note, dated October 1, 2019, for the
renewal of the line of credit in the amount of $4,000,000 with
Summit Community Bank.
|
|
|
|
|
|
|
|
Promissory
Note, dated October 11, 2019, in the amount of $2,228,000 issued by
the Company to Summit Community Bank (Incorporated by reference to
the Company's Current Report on Form 8-K filed with the Securities
and Exchange Commission on October 17, 2019).
|
|
|
|
|
|
|
|
Commercial Security
Agreement, dated October 1, 2018, with Summit Community Bank
(Incorporated by reference to the Company's Quarterly Report on
Form 10-Q for the quarterly period ended September 30,
2018).
|
|
|
|
|
|
|
|
Deed of
Trust dated October 11, 2019, related to the Promissory Note dated
October 11, 2019 between the Company and Summit Community Bank
(Incorporated by reference to the Company's Current Report on Form
8-K filed with the Securities and Exchange Commission on October
17, 2019).
|
|
|
|
|
|
|
|
Commercial
Security Agreement dated October 11, 2019, related to the
Promissory Note dated October 11, 2019 between the Company and
Summit Community Bank (Incorporated by reference to the Company's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 17, 2019).
|
|
|
|
|
|
|
|
Promissory
Note, dated October 6, 2017, for the acquisition of six acres of
land purchased in 2016 in the amount of $239,232 with Summit
Community Bank (Incorporated by reference to the Company's Current
Report on Form 8-K filed with the Securities and Exchange
Commission on December 8, 2017).
|
|
|
|
|
|
|
|
2016
Equity Incentive Plan (Incorporated by reference to the
Registration Statement on Form S-8 (No. 333-214788) filed on
November 23, 2016).
|
|
|
|
|
|
|
|
Code of
Professional Conduct (Incorporated by reference to the
Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2003).
|
|
|
|
|
|
|
21.1
|
|
List of
Subsidiaries of the Company (Incorporated by reference to the
Company’s Annual Report on Form 10-KSB for the year ended
December 31, 1995).
|
|
|
|
|
|
|
Consent
of BDO USA, LLP.
|
|
|
|
|
|
|
|
Certification
of Chief Executive Officer.
|
|
|
|
|
|
|
|
Certification
of Principal Financial Officer.
|
|
|
|
|
|
|
|
Certification
pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document.
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document.
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document.
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document.
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document.
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document.
|
30
SIGNATURES
Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.
|
|
SMITH-MIDLAND
CORPORATION
|
|
|
|
|
|
|
|
|
Date: March 26,
2020
|
By:
|
/s/ Ashley B.
Smith
|
|
|
|
|
Ashley B. Smith
|
|
|
|
|
Chief Executive
Officer and President
|
|
|
|
|
(Principal
Executive Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
Date: March 26,
2020
|
By:
|
/s/ Adam J.
Krick
|
|
|
|
|
Adam J.
Krick
|
|
|
|
|
Chief Financial
Officer
|
|
|
|
|
(Principal
Financial and Accounting Officer)
|
|
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates
indicated.
|
Name
|
|
Capacity
|
|
Date
|
|
|
|
|
|
|
|
/s/ Rodney I.
Smith
|
|
Director
|
|
March 26, 2020
|
|
Rodney I.
Smith
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Ashley B.
Smith
|
|
Director
|
|
March 26,
2020
|
|
Ashley B.
Smith
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Wesley A.
Taylor
|
|
Director
|
|
March 26,
2020
|
|
Wesley A.
Taylor
|
|
|
|
|
|
|
|
|
|
|
|
/s/ James Russell
Bruner
|
|
Director
|
|
March 26,
2020
|
|
James Russell
Bruner
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard
Gerhardt
|
|
Director
|
|
March 26,
2020
|
|
Richard
Gerhardt
|
|
|
|
|
31
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Financial
Statements
Years Ended
December 31,
2019 and 2018
Smith-Midland
Corporation
and
Subsidiaries
Contents
|
Report of Independent
Registered Public Accounting Firm
|
|
|
|
|
|
Consolidated Financial
Statements
|
|
|
|
|
|
Consolidated Balance
Sheets
|
|
|
|
|
|
Consolidated Statements
of Income
|
|
|
|
|
|
Consolidated Statements
of Stockholders' Equity
|
|
|
|
|
|
Consolidated Statements
of Cash Flows
|
|
|
|
|
|
Summary of Significant
Accounting Policies
|
|
|
|
|
|
Notes to Consolidated
Financial Statements
|
F-1
Report of Independent
Registered Public Accounting Firm
Board of Directors
and Stockholders
Smith-Midland
Corporation
Midland,
Virginia
Opinion on the Consolidated
Financial Statements
We have audited the
accompanying consolidated balance sheets of Smith-Midland
Corporation and subsidiaries (the "Company") as of December 31,
2019 and 2018, the related consolidated statements of income,
stockholders’ equity, and cash flows for each of the two
years in the period ended December 31, 2019, and the summary of
significant accounting policies and related notes (collectively
referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial
statements present fairly, in all material respects, the financial
position of Smith-Midland Corporation and subsidiaries at December
31, 2019 and 2018, and the results of their operations and their
cash flows for each of the two years in the period ended December
31, 2019,
in conformity with accounting principles generally accepted in the
United States of America.
Basis for
Opinion
These consolidated
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our
audits. We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our
audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial
statements are free of material misstatement, whether due to error
or fraud. The Company is not required to have, nor were we engaged
to perform, an audit of its internal control over financial
reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not
for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
Our audits included
performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as
well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a
reasonable basis for our opinion.
/s/BDO USA,
LLP
We have served as the
Company's auditor since 1996.
Richmond,
Virginia
March 26,
2020
F-2
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Balance
Sheets
(in thousands, except
share data)
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
ASSETS
|
|
|
|
Current
assets
|
|
|
|
Cash
|
$1,364
|
$1,946
|
|
Investment securities,
available-for-sale, at fair value
|
1,176
|
1,107
|
|
Accounts receivable,
net
|
|
|
|
Trade - billed (less
allowance for doubtful accounts of $333 and $214), including
contract retentions
|
12,723
|
12,281
|
|
Trade -
unbilled
|
310
|
1,313
|
|
Inventories,
net
|
|
|
|
Raw
materials
|
488
|
1,005
|
|
Finished
goods
|
1,754
|
2,555
|
|
Prepaid expenses and
other assets
|
784
|
480
|
|
Refundable income
taxes
|
432
|
909
|
|
|
|
|
|
Total current
assets
|
19,031
|
21,596
|
|
|
|
|
|
Property and equipment,
net
|
17,735
|
14,102
|
|
|
|
|
|
Deferred buy-back lease asset,
net
|
5,042
|
5,304
|
|
|
|
|
|
Other
assets
|
307
|
367
|
|
|
|
|
|
Total
assets
|
$42,115
|
$41,369
|
See accompanying
summary of significant accounting policies and notes to
consolidated financial statements.
F-3
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Balance
Sheets
(in thousands, except
share data)
(continued)
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
Current
liabilities
|
|
|
|
Accounts payable -
trade
|
$3,180
|
$4,212
|
|
Accrued expenses and
other liabilities
|
125
|
610
|
|
Deferred
revenue
|
1,891
|
1,112
|
|
Accrued
compensation
|
1,075
|
1,556
|
|
Dividend
payable
|
282
|
281
|
|
Line-of-credit
construction draw
|
—
|
1,000
|
|
Deferred buy-back lease
obligation
|
966
|
720
|
|
Operating lease
liabilities
|
81
|
—
|
|
Current maturities of
notes payable
|
925
|
711
|
|
Customer
deposits
|
1,077
|
1,658
|
|
|
|
|
|
Total current
liabilities
|
9,602
|
11,860
|
|
|
|
|
|
Deferred
revenue
|
241
|
570
|
|
Deferred buy-back lease
obligation
|
5,183
|
5,873
|
|
Operating lease
liabilities
|
296
|
—
|
|
Notes payable - less
current maturities
|
4,086
|
2,792
|
|
Deferred tax
liability
|
1,886
|
1,427
|
|
|
|
|
|
Total
liabilities
|
21,294
|
22,522
|
|
|
|
|
|
Commitments and
contingencies
|
—
|
—
|
|
|
|
|
|
Stockholders’
equity
|
|
|
|
Preferred stock, $.01
par value; authorized 1,000,000 shares, none issued and
outstanding
|
—
|
—
|
|
Common stock, $.01 par
value; authorized 8,000,000 shares; 5,224,911 and 5,223,245 issued
and 5,164,324 and 5,112,825 outstanding, respectively
|
52
|
51
|
|
Additional paid-in
capital
|
6,242
|
5,973
|
|
Treasury stock, at cost,
40,920 shares
|
(102)
|
(102)
|
|
Other
|
(10)
|
(37)
|
|
Retained
earnings
|
14,639
|
12,962
|
|
|
|
|
|
Total stockholders’
equity
|
20,821
|
18,847
|
|
|
|
|
|
Total liabilities and
stockholders' equity
|
$42,115
|
$41,369
|
See accompanying
summary of significant accounting policies and notes to
consolidated financial statements.
F-4
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Statements of
Income
(in thousands, except
per share data)
|
|
Year Ended December
31,
|
|
|
|
2019
|
2018
|
|
Revenue
|
|
|
|
Product
sales
|
$32,228
|
$29,159
|
|
Barrier
rentals
|
2,488
|
1,729
|
|
Royalty
income
|
1,672
|
1,675
|
|
Shipping and
installation revenue
|
10,303
|
7,657
|
|
|
|
|
|
Total
revenue
|
46,691
|
40,220
|
|
|
|
|
|
Cost of goods
sold
|
36,722
|
29,730
|
|
|
|
|
|
Gross
profit
|
9,969
|
10,490
|
|
|
|
|
|
General and
administrative expenses
|
4,887
|
5,675
|
|
Selling
expenses
|
2,536
|
2,599
|
|
|
|
|
|
Total operating
expenses
|
7,423
|
8,274
|
|
|
|
|
|
Operating
income
|
2,546
|
2,216
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
Interest
expense
|
(179)
|
(176)
|
|
Interest
income
|
40
|
42
|
|
Gain on sale of
assets
|
46
|
126
|
|
Other
income
|
55
|
51
|
|
|
|
|
|
Total other income
(expense)
|
(38)
|
43
|
|
|
|
|
|
Income before income tax
expense
|
2,508
|
2,259
|
|
|
|
|
|
Income tax
expense
|
549
|
572
|
|
|
|
|
|
Net income
|
$1,959
|
$1,687
|
|
|
|
|
|
Basic and diluted earnings per
share
|
$0.38
|
$0.33
|
See accompanying
summary of significant accounting policies and notes to
consolidated financial statements.
F-5
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Statements of
Stockholders' Equity
(in
thousands)
|
|
Common
Stock
|
Additional
Paid-in
Capital
|
Treasury
Stock |
Other
|
Retained
Earnings
|
Total
|
|
|
|
|
|
|
|
|
|
Balance, January 1,
2018
|
$51
|
$5,719
|
$(102)
|
$(19)
|
$11,556
|
$17,205
|
|
|
|
|
|
|
|
|
|
Accrued dividends
payable
|
—
|
—
|
—
|
—
|
(281)
|
(281)
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
—
|
—
|
(18)
|
—
|
(18)
|
|
|
|
|
|
|
|
|
|
Proceeds from options
exercised
|
—
|
12
|
—
|
—
|
—
|
12
|
|
|
|
|
|
|
|
|
|
Vesting of restricted
stock
|
—
|
242
|
—
|
—
|
—
|
242
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
—
|
—
|
—
|
1,687
|
1,687
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2018
|
51
|
5,973
|
(102)
|
(37)
|
12,962
|
18,847
|
|
|
|
|
|
|
|
|
|
Accrued dividends
payable
|
—
|
—
|
—
|
—
|
(282)
|
(282)
|
|
|
|
|
|
|
|
|
|
Other
|
—
|
—
|
—
|
27
|
—
|
27
|
|
|
|
|
|
|
|
|
|
Vesting of restricted
stock
|
1
|
269
|
—
|
—
|
—
|
270
|
|
|
|
|
|
|
|
|
|
Net income
|
—
|
—
|
—
|
—
|
1,959
|
1,959
|
|
|
|
|
|
|
|
|
|
Balance, December 31,
2019
|
$52
|
$6,242
|
$(102)
|
$(10)
|
$14,639
|
$20,821
|
See accompanying
summary of significant accounting policies and notes to
consolidated financial statements.
F-6
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Statements of
Cash Flows
(in
thousands)
|
|
Year
Ended
December
31,
|
|
|
|
2019
|
2018
|
|
Reconciliation of net income
to net cash provided by operating activities
|
|
|
|
|
|
|
|
Net income
|
$1,959
|
$1,687
|
|
Adjustments to reconcile
net income to net cash provided by operating
activities
|
|
|
|
Depreciation and
amortization
|
1,793
|
1,247
|
|
Allowance for doubtful
accounts
|
119
|
6
|
|
Gain on sale of fixed
assets
|
(46)
|
(126)
|
|
Stock
compensation
|
270
|
242
|
|
Deferred
taxes
|
459
|
153
|
|
(Increase) decrease
in
|
|
|
|
Accounts receivable -
billed
|
(561)
|
(3,320)
|
|
Accounts receivable -
unbilled
|
1,003
|
(1,062)
|
|
Inventories
|
1,318
|
(45)
|
|
Refundable income
taxes
|
477
|
450
|
|
Prepaid expenses and
other assets
|
(286)
|
(130)
|
|
Increase (decrease)
in
|
|
|
|
Accounts payable -
trade
|
(1,032)
|
1,153
|
|
Accrued expenses and
other liabilities
|
(485)
|
22
|
|
Deferred
revenue
|
450
|
539
|
|
Accrued
compensation
|
(481)
|
325
|
|
Deferred buy-back lease
obligation, net
|
(444)
|
6,592
|
|
Customer
deposits
|
(581)
|
739
|
|
|
|
|
|
Net cash provided by
operating activities
|
$3,932
|
$8,472
|
F-7
Smith-Midland
Corporation
and
Subsidiaries
Consolidated Statements of
Cash Flows
(in
thousands)
(continued)
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
Cash Flows From Investing
Activities
|
|
|
|
Purchases of investment
securities available-for-sale
|
$(32)
|
$(33)
|
|
Purchases of property
and equipment
|
(4,513)
|
(5,234)
|
|
Deferred buy-back lease
asset
|
(358)
|
(5,507)
|
|
Proceeds from sale of
fixed assets
|
162
|
132
|
|
|
|
|
|
Net cash absorbed by
investing activities
|
(4,741)
|
(10,642)
|
|
|
|
|
|
Cash Flows From Financing
Activities
|
|
|
|
Proceeds from the
line-of-credit construction draw
|
500
|
1,000
|
|
Repayments on the
line-of-credit construction draw
|
(1,500)
|
—
|
|
Proceeds from long-term
borrowings
|
2,277
|
630
|
|
Repayments of long-term
borrowings
|
(769)
|
(660)
|
|
Dividends paid on common
stock
|
(281)
|
(256)
|
|
Proceeds from options
exercised
|
—
|
12
|
|
|
|
|
|
Net cash provided by
financing activities
|
227
|
726
|
|
|
|
|
|
Net decrease in
cash
|
(582)
|
(1,444)
|
|
Cash, beginning of
year
|
1,946
|
3,390
|
|
|
|
|
|
Cash, end of
year
|
$1,364
|
$1,946
|
|
|
|
|
|
Supplemental Cash Flow
information:
|
|
|
|
Non-cash transaction -
dividends payable
|
$282
|
$281
|
|
Non-cash transaction -
right of use asset and lease liability upon lease standard
adoption
|
$414
|
$—
|
|
Cash payments for
interest
|
$179
|
$176
|
|
Cash payments for income
taxes
|
$73
|
$49
|
See accompanying
summary of significant accounting policies and notes to
consolidated financial statements.
F-8
Smith-Midland
Corporation
and
Subsidiaries
Summary of Significant
Accounting Policies
Nature of
Business
Smith-Midland
Corporation and its wholly-owned subsidiaries (the
“Company”) develop, manufacture, license, sell and
install precast concrete products for the construction,
transportation and utilities industries in the Mid-Atlantic,
Northeastern, Midwestern and Southeastern regions of the United
States.
Principles of
Consolidation
The accompanying
consolidated financial statements include the accounts of
Smith-Midland Corporation and its wholly-owned
subsidiaries. The Company’s wholly-owned subsidiaries
consist of Smith-Midland Corporation, a Virginia corporation,
Smith-Carolina Corporation, a North Carolina corporation,
Smith-Columbia Corporation, a South Carolina corporation, Easi-Set
Industries, Inc., a Virginia corporation, Concrete Safety Systems,
Inc., a Virginia corporation, and Midland Advertising and Design,
Inc., doing business as Midland Advertising + Design, a Virginia
corporation. All material intercompany accounts and
transactions have been eliminated in consolidation.
Cash
The Company considers
all unrestricted cash and money market accounts purchased with an
original or remaining maturities of three months or less as
cash.
Investments
Investments in
marketable securities are classified as available-for-sale and are
stated at market value.
Inventories
Inventories are stated
at the lower of cost, using the first-in, first-out (FIFO) method,
or net realizable value. Inventory reserves (in thousands) were
approximately $72 and $65 at December 31, 2019 and 2018,
respectively.
Property and
Equipment
Property and equipment
is stated at cost. Expenditures for ordinary maintenance and
repairs are charged to income as incurred. Costs of improvements,
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 expense is
computed using the straight-line method over the following
estimated useful lives:
|
|
Years
|
|
Buildings
|
10-40
|
|
Trucks and automotive
equipment
|
3-10
|
|
Shop machinery and
equipment
|
3-10
|
|
Land
improvements
|
10-15
|
|
Rental
equipment
|
5-10
|
|
Office
equipment
|
3-10
|
F-9
Income
Taxes
Deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
As of December 31,
2019, the Company has not identified any uncertain tax
positions. The Company files tax returns in the U.S. Federal
and various state jurisdictions. The Company recognizes, when
applicable, interest and penalties related to income taxes in other
income (expense) in its consolidated statement of income. The
Company is no longer subject to U.S. or state tax examinations for
the years prior to 2016. The Company does not have any
uncertain tax positions as of December 31, 2019, and believes there
will be no material changes in unrecognized tax positions over the
next twelve months.
Stock
Compensation
On October 13, 2016, the Board of
Directors of the Company adopted the 2016 Equity Incentive Plan
which allows the Company to grant up to 400,000 shares of common
stock of the Company to employees, officers, directors and
consultants. The grants may be in the form of restricted or
performance shares of common stock of the Company. The fair value
of each restricted stock grant is estimated to be the sales price
of the common stock at the close of business on the day of the
grant.
Revenue
Recognition
Product Sales - Over Time
Under Topic 606,
the Company recognizes revenue to depict the transfer of goods or
services to customers in an amount that reflects the consideration
the Company expects to be entitled to in exchange for goods or
services provided. Revenue associated with contracts with customers
is recognized over time as the Company's performance creates or
enhances customer controlled assets or creates or enhances an asset
with no alternative use, which the Company has an enforceable right
to receive compensation as defined under the contract for
performance completed. To determine the amount of revenue to
recognize over time, the Company recognizes revenue over the
contract terms based on the output method. The Company applied the
"as invoiced" practical expedient as the amount of consideration
the Company has the right to invoice corresponds directly with the
value of the Company's performance to date.
As the output
method is driven by units produced, the Company recognizes revenues
based on the value transferred to the customer relative to the
remaining value to be transferred. The Company also matches the
costs associated with the units produced. If a contract is
projected to result in a loss, the entire contract loss is
recognized in the period when the loss was first determined and the
amount of the loss updated in subsequent reporting periods. Revenue
recognition also includes an amount related to a contract asset or
contract liability. If the recognized revenue is greater than the
amount billed to the customer, a contract asset is recorded in
accounts receivable - unbilled. Conversely, if the amount billed to
the customer is greater than the recognized revenue, a contract
liability is recorded in customer deposits on uncompleted
contracts. Changes in the job performance, job conditions and final
contract settlements are factors that influence management’s
assessment of total contract value and therefore, profit and
revenue recognition.
A portion of the
work the Company performs requires financial assurances in the form
of performance and payment bonds or letters of credit at the time
of execution of the contract. Some contracts include retention
provisions of up to 10% which are generally withheld from each
progress payment as retainage until the contract work has been
completed and approved.
F-10
Product Sales - Point in Time
For certain product
sales that do not meet the over time criteria, under Topic 606 the
Company recognizes revenue when the product has been shipped to the
destination in accordance with the terms outlined in the contract
where a present obligation to pay exists as the customers have
gained physical possession of the product.
Accounts Receivable and Contract Balances
The timing of when
we bill our customers is generally dependent upon advance billing
terms, milestone billings based on the completion of certain phases
of the work, or when services are provided or products are shipped.
Projects with performance obligations recognized over time that
have costs and estimated earnings recognized to date in excess of
cumulative billings, are reported on our Condensed Consolidated
Balance Sheets as "Accounts receivable trade - unbilled" (contract
assets). Projects with performance obligations recognized over time
that have cumulative billings in excess of costs and estimate
earnings recognized to date, are reported on our Condensed
Consolidated Balance Sheets as "Customer deposits" (contract
liabilities).
Any uncollected
billed amounts for our performance obligations recognized over
time, including contract retentions, are recorded within accounts
receivable trade - billed. At December 31, 2019 and December 31,
2018, accounts receivable included contract retentions (in
thousands) of approximately $2,146 and $1,704, respectively, which
are considered contract assets.
Our billed and
unbilled revenue may be exposed to potential credit risk if our
customers should encounter financial difficulties, and we maintain
reserves for specifically-identified potential uncollectible
receivables. At December 31, 2019 and December 31, 2018, our
allowances for doubtful accounts (in thousands) were $333 and $214,
respectively.
Effect of Adopting ASC Topic 606
No adjustment to
beginning 2018 retained earnings was recorded as a result of our
adoption of Topic 606 due to no changes in the timing of our
revenue recognition for our uncompleted contracts at that time.
Further, the difference in our results for 2018 between application
of the new standard on our contracts and what results would have
been if such contracts had been reported using the accounting
standards previously in effect, for such contracts, did not
change.
Sale to Customer with a Buy-Back Guarantee - Lease
Income
The Company entered
into a buy-back agreement with one specific customer. Under this
agreement, the Company guaranteed to buy-back product at a
predetermined price at the end of the long-term project, subject to
the condition of the product. Although the Company receives payment
in full as the product is produced, we are required to account for
these transactions as operating leases. The amount of sale proceeds
equal to the buy-back obligation, included in "Deferred buy-back
lease obligation" in the liabilities section of the consolidated
balance sheet, is deferred until the buy-back is exercised or
expired. The remaining sale proceeds are deferred in the same
account and recognized on a straight-line basis over the usage
period, such usage period commencing on delivery to the job-site
and ending at the time the buy-back is exercised or expired. The
Company capitalizes the cost of the product on the consolidated
balance sheet shown in "Deferred buy-back lease asset, net", and
depreciates the value, less residual value, to cost of leasing
revenue in "Cost of goods sold" over the estimated useful life of
the asset.
In the case the
customer does not exercise the buy-back option and retains
ownership of the product at the end of the usage period, the
guarantee buy-back liability and any deferred revenue balances
related to the product are settled to revenue, and the net book
value of the asset is expensed to cost of leasing revenue. If the
customer exercises the buy-back guarantee option, the Company
purchases the product back in the amount equal to the buy-back
guarantee, the Company settles any remaining deferred balances, in
excess of the buy-back payment, to leasing revenue, and the Company
reclassifies the net book value of the product on the consolidated
balance sheet to "Inventories" or "Property and equipment, net"
depending on the intended use at the time. The revenue is being
recognized in accordance with Topic 842, Leases.
Barrier Rentals - Lease Income
Leasing fees are
paid by customers at the beginning of the lease agreement and are
recorded as deferred revenue. The deferred revenue is then
recognized each month as lease income for the duration of the
lease, in accordance with Topic 842, Leases.
Royalty Income
The Company
licenses certain products to other precast companies to produce the
Company's products to engineering specifications under the
licensing agreements. The agreements are typically for five year
terms and require royalty payments from 4% to 6% of total sales of
licensed products, which are paid on a monthly basis. The revenues
from licensing agreements are recognized in the month earned, in
accordance with Topic 606-10-55-65.
F-11
Shipping and Installation
Shipping and
installation revenues are recognized as a distinct performance
obligation in the period the shipping and installation services are
provided to the customer, in accordance with Topic
606.
Disaggregation of Revenue
In the following
table, revenue is disaggregated by primary sources of revenue (in
thousands):
|
Revenue by Type (Disaggregated
Revenue)
|
2019
|
2018
|
Change
|
%
Change
|
|
Product Sales:
|
|
|
|
|
|
Soundwall
Sales
|
$7,736
|
$9,867
|
$(2,131)
|
(21.6)%
|
|
Architectural
Sales
|
1,104
|
876
|
228
|
26.0%
|
|
SlenderWall
Sales
|
5,063
|
5,572
|
(509)
|
(9.1)%
|
|
Miscellaneous Wall
Sales
|
1,685
|
1,760
|
(75)
|
(4.3)%
|
|
Barrier
Sales
|
8,582
|
7,264
|
1,318
|
18.1%
|
|
Easi-Set and Easi-Span
Building Sales
|
5,937
|
2,114
|
3,823
|
180.8%
|
|
Utility
Sales
|
1,608
|
1,232
|
376
|
30.5%
|
|
Miscellaneous
Sales
|
513
|
474
|
39
|
8.2%
|
|
Total Product
Sales
|
32,228
|
29,159
|
3,069
|
10.5%
|
|
Barrier
Rentals
|
2,488
|
1,729
|
759
|
43.9%
|
|
Royalty
Income
|
1,672
|
1,675
|
(3)
|
(0.2)%
|
|
Shipping and
Installation Revenue
|
10,303
|
7,657
|
2,646
|
34.6%
|
|
Total Service
Revenue
|
14,463
|
11,061
|
3,402
|
30.8%
|
|
Total
Revenue
|
$46,691
|
$40,220
|
$6,471
|
16.1%
|
Smith-Midland products
are typically sold pursuant to an implicit warranty as to
merchantability only. Warranty claims are reviewed and
resolved on a case by case method. Although the Company does
incur costs for these types of expense, historically the amount of
expense is minimal.
The revenue items:
soundwall sales, architectural sales, SlenderWall sales,
miscellaneous wall sales, barrier rentals, and royalty income are
recognized as revenue over time. The revenue items: barrier sales,
Easi-Set and Easi-Span building sales, utility sales, miscellaneous
sales, and shipping and installation revenue are recognized as
revenue at the point in time.
Sales and Use
Taxes
The Company does report
sales taxes as part of revenue and use taxes on construction
materials are reported gross in cost of goods sold.
Segment
Reporting
Operating segments are
defined as components of an enterprise for which separate financial
information is available and evaluated regularly by the chief
operating decision maker, or decision making group, in deciding how
to allocate resources and assess performance. The Company currently
operates in one operating and reportable business segment for
financial reporting purposes.
F-12
Risks and
Uncertainties
As discussed
further in Note 9, on January 30, 2020, the World Health
Organization ("WHO") announced a global health emergency because of
a new strain of coronavirus originating in Wuhan, China (the
"COVID-19 outbreak") and on March 11, 2020, the WHO classified the
COVID-19 outbreak as a pandemic. Management is actively monitoring
the global situation on its financial condition, liquidity,
operations, suppliers, industry, and workforce. Given the daily
evolution of the COVID-19 outbreak and the global responses to curb
its spread, the Company is not able to estimate the effects of the
COVID-19 outbreak on its results of operations, financial
condition, or liquidity for fiscal year 2020.
The Company sells
products to highway contractors operating under government funded
highway programs and other customers and extends credit based on an
evaluation of the customer’s financial condition, generally
without requiring collateral. Exposure to losses on receivables is
principally dependent on each customer’s financial condition.
The Company monitors its exposure to credit losses and maintains
allowances for anticipated losses. Management reviews accounts
receivable on a weekly basis to determine the probability of
collection. In performing this evaluation, the Company analyzes the
payment history and its significant past due accounts, subsequent
cash collections on these accounts and comparative accounts
receivable aging statistics. Based on this information, along with
other related factors, the Company develops what it considers to be
a reasonable estimate of the uncollectible amounts included in
accounts receivable. Management believes the allowance for doubtful
accounts at December 31, 2019 is adequate. However,
actual write-offs may exceed the recorded allowance. Due to
inclement weather, the Company may experience reduced revenue from
December through February and may realize the substantial part of
its revenue during the other months of the year.
Fair Value of Financial
Instruments
The carrying value for
each of the Company’s financial instruments approximates fair
value because of the short-term nature of those instruments. The
estimated fair value of the long-term debt approximates carrying
value based on current rates offered to the Company for debt of the
similar maturities.
Estimates
The preparation of
financial statements in conformity with U.S. generally accepted
accounting (U.S. GAAP) principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those
estimates.
Advertising
Costs
The Company expenses all
advertising costs as incurred. Advertising expense (in thousands)
was approximately $393 and $384 in 2019 and 2018,
respectively.
Earnings Per
Share
Earnings per share are
based on the weighted average number of shares of common stock and
dilutive common stock equivalents outstanding. Basic earnings
per share is computed by dividing income available to common
shareholders by the weighted average number of common shares
outstanding for the period. Diluted earnings per share reflect
the potential dilution of securities that could share in earnings
of the Company.
Long-Lived
Assets
The Company reviews the
carrying values of its long-lived and identifiable intangible
assets for possible impairment whenever events or changes in
circumstances indicate that the carrying amount of assets may not
be recoverable based on undiscounted estimated future operating
cash flows. When any such impairment exists, the related
assets will be written down to fair value. No impairment
losses have been recorded during the two years ended
December 31, 2019.
Recent Accounting
Pronouncement
In
August 2018, the FASB issued ASU No. 2018-13, “Fair Value
(“FV”) Measurement (Topic 820).” Among other
modifications, the standard removes the requirements to disclose:
(i) the amount of and reasons for transfers between Level 1 and
Level 2 of the FV hierarchy; (ii) the policy for timing transfers
between levels; and (iii) the valuation process for Level 3 FV
measurements. The standard will require public entities to
disclose: (a) the changes in unrealized gains and losses for the
period included in other comprehensive income for recurring Level 3
FV measurements held at the end of the reporting period; and (b)
the range and weighted average of significant unobservable inputs
used to develop Level 3 fair value measurements. For certain
unobservable inputs, an entity may disclose other quantitative
information in lieu of the weighted average if the entity
determines that other quantitative information would be a more
reasonable and rational method to reflect the distribution of
unobservable inputs used to develop Level 3 FV measurements. The
additional disclosure requirements should be applied prospectively
for the most recent interim or annual period presented in the
fiscal year of adoption. All other amendments should be applied
retrospectively to all periods presented. The amendments in this
standard are effective for fiscal years ending after December 15,
2019. Early adoption is permitted, and an entity may adopt the
removed or modified disclosures and delay the adoption of new
disclosures until the effective date. We have not completed our
assessment of the standard but we do not expect the adoption to
have a material impact on the Company's consolidated financial
position, results of operations and cash
flows.
Recently Adopted Accounting
Pronouncement
In 2016, the Financial
Accounting Standards Board (“FASB”) issued Accounting
Standards Update (“ASU”) No. 2016-02, “Leases
(Topic 842).” Topic 842 establishes a new lease accounting
model for leases. The most significant changes include the
clarification of the definition of a lease, the requirement for
lessees to recognize for all leases a right-of-use asset and a
lease liability in the consolidated balance sheet, and additional
quantitative and qualitative disclosures which are designed to give
financial statement users information on the amount, timing, and
uncertainty of cash flows arising from leases. Expenses are
recognized in the consolidated statement of income in a manner
similar to current accounting guidance. Lessor accounting under the
new standard is substantially unchanged. We adopted this standard,
and all related amendments thereto, effective January 1, 2019,
using the transition approach, which applies the provisions of the
new guidance at the effective date without adjusting the
comparative periods presented. We have elected the package of
practical expedients permitted under the transition guidance within
the new standard, which among other things, allows us to carry
forward the historical accounting relating to lease identification
and classification for existing leases upon adoption. We have made
an accounting policy election to keep leases with an initial term
of 12 months or less off the consolidated balance
sheet.
In February 2018, the FASB issued ASU
No. 2018-02, “Income Statement-Reporting Comprehensive Income
(Topic 220).” This standard provides an option to reclassify
stranded tax effects within accumulated other comprehensive income
(loss) (“AOCI”) to retained earnings due to the U.S.
federal corporate income tax rate change in the Tax Cuts and Jobs
Act of 2017. This standard was effective for interim and annual
reporting periods beginning after December 15, 2018. We did not
exercise the option to make this
reclassification.
F-13
SMITH-MIDLAND
CORPORATION
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. PROPERTY AND
EQUIPMENT
|
Property and equipment consists of the following
(in thousands):
|
|
|
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
Land and land
improvements
|
$2,688
|
$2,452
|
|
Buildings and
improvements
|
8,962
|
6,949
|
|
Machinery and
equipment
|
13,621
|
12,709
|
|
Rental
equipment
|
5,201
|
3,659
|
|
|
|
|
|
|
30,472
|
25,769
|
|
Less: accumulated
depreciation and amortization
|
(12,737)
|
(11,667)
|
|
|
|
|
|
|
$17,735
|
$14,102
|
Depreciation expense and
amortization (in thousands) was approximately $1,793 and $1,247 for
the years ended December 31, 2019 and 2018,
respectively.
2. NOTES
PAYABLE
Notes payable consist
of the following (in thousands):
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
Note payable to a Bank,
maturing September 2021; with monthly payments of approximately $26
of principal and interest fixed at 3.99%; collateralized by
principally all assets of the Company.
|
$519
|
$799
|
|
|
|
|
|
Note payable to a Bank,
maturing July 2031; with monthly payments of approximately $11 of
principal and interest fixed at 5.29%; collateralized by
principally all assets of Smith-Columbia Corporation and guaranteed
by the Company.
|
1,103
|
1,169
|
|
|
|
|
|
Note payable to a Bank,
maturing April 2021; with monthly payments of approximately $6.2 of
principal and interest at prime at variable rate (5.29% at December
31, 2019 and 2018); collateralized by certain property of the
Company.
|
96
|
163
|
|
|
|
|
|
Note payable to a Bank, maturing October 2029;
with monthly payments of approximately $22 of principal and
interest fixed at 3.64% under a swap agreement; collateralized by
principally all assets of Smith-Carolina Corporation and guaranteed
by the Company.
|
2,197
|
—
|
|
|
|
|
|
Construction loan draw
on-line-of-credit for the North Carolina Expansion, refinanced in
note maturing October 2029.
|
—
|
1,000
|
|
|
|
|
|
Installment notes,
collateralized by certain machinery and equipment maturing at
various dates, primarily through 2021; with monthly payments
varying from $0.3 to $4.1 with annual interest rates between 3.49%
and 5.75%.
|
1,096
|
1,372
|
|
|
|
|
|
A revolving
line-of-credit evidenced by a note payable to a Bank, with the
maximum amount of $4,000, maturing October 1, 2020, with interest
only payments and an initial rate of 4.49% adjustable monthly
(4.75% at December 31, 2019). The line-of-credit is collateralized
by a first lien position on the Company's accounts receivable and
inventory and a second lien position on all other business
assets.
|
—
|
—
|
|
|
|
|
|
|
5,011
|
4,503
|
|
Less current
maturities
|
(925)
|
(1,711)
|
|
|
|
|
|
|
$4,086
|
$2,792
|
F-14
Smith-Midland
Corporation
and
Subsidiaries
Notes to Consolidated
Financial Statements
(continued)
The Company's notes
payable includes
certain restrictive covenants, which require the Company to
maintain minimum levels of tangible net worth, places limits on
annual capital expenditures, and the payment of cash dividends. At
December 31, 2019, the Company was in compliance with all
covenants pursuant to the loan agreements, with the annual capital
expenditures of $3,500, excluding acquisitions and plant
expansions.
The aggregate amounts
of notes payable maturing in each of the next five years and
thereafter are as follows (in thousands):
|
Year Ending December
31,
|
|
|
|
|
|
2020
|
$925
|
|
2021
|
773
|
|
2022
|
484
|
|
2023
|
433
|
|
2024
|
512
|
|
Thereafter
|
1,884
|
|
|
|
|
|
$5,011
|
3. RELATED PARTY
TRANSACTIONS
The Company currently
leases a portion of its Midland, Virginia property from its
Chairman of the Board, on a month-to-month basis, as additional
storage space for the Company's finished work product. The
lease agreement calls for an annual rent of
$24,000.
The Company has an
employment agreement with its former CEO and current Chairman of
the Board, Rodney I. Smith. Mr. Smith received his salary, pursuant
to the terms of the agreement, through September 2019. While Mr.
Smith has ceased providing executive officer services pursuant to
such agreement, the agreement provides for an annual royalty fee of
$99,000 payable as consideration for his assignment to the Company
of all of his rights, title and interest in certain
patents. Payment of the royalty continues for as long as the
Company is using the inventions underlying the patents. Mr. Smith
also received compensation from the Company for his services as a
Director and Chairman of the Board.
F-15
Smith-Midland
Corporation
and
Subsidiaries
Notes to Consolidated
Financial Statements
(continued)
4. INCOME
TAXES
Income tax expense is
comprised of the following (in thousands):
|
|
December
31,
|
|
|
|
2019
|
2018
|
|
Federal:
|
|
|
|
Current
|
$(1)
|
$334
|
|
Deferred
|
440
|
119
|
|
|
439
|
453
|
|
State:
|
|
|
|
Current
|
91
|
85
|
|
Deferred
|
19
|
34
|
|
|
110
|
119
|
|
|
|
|
|
|
$549
|
$572
|
The provision for income
taxes differs from the amount determined by applying the federal
statutory tax rate to pre-tax income as a result of the following
(in thousands):
|
|
December 31,
|
|||
|
|
2019
|
2018
|
||
|
Income taxes at
statutory rate
|
$527
|
21.0%
|
$474
|
21.0%
|
|
Increase (decrease) in
taxes resulting from:
|
|
|
|
|
|
State income taxes, net
of federal benefit
|
81
|
3.2%
|
89
|
4.0%
|
|
Deferred
true-ups
|
(127)
|
(5.1)%
|
58
|
2.6%
|
|
Provision-to-return
|
81
|
3.2%
|
(19)
|
(0.8)%
|
|
Rate
change
|
(42)
|
(1.7)%
|
—
|
—%
|
|
Other
|
29
|
1.3%
|
(30)
|
(1.5%
|
|
|
|
|
|
|
|
|
$549
|
21.9%
|
$572
|
25.3%
|
F-16
Smith-Midland
Corporation
and
Subsidiaries
Notes to Consolidated
Financial Statements
(continued)
Deferred tax assets
(liabilities) are as follows (in thousands):
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
Deferred tax
assets:
|
|
|
|
Net operating loss
carryforwards
|
$21
|
$26
|
|
Allowance for doubtful
accounts
|
81
|
53
|
|
Amortization -
Intangibles
|
4
|
—
|
|
Charitable
contributions
|
43
|
—
|
|
Accrued
liabilities
|
7
|
—
|
|
Accrued
vacation
|
76
|
78
|
|
Deferred buy-back
asset
|
1,776
|
1,645
|
|
Deferred
income
|
304
|
198
|
|
Right-of-use
asset
|
91
|
—
|
|
Other
|
83
|
76
|
|
Gross deferred tax
assets
|
2,486
|
2,076
|
|
|
|
|
|
Deferred tax
liabilities:
|
|
|
|
Retainage
|
(518)
|
(425)
|
|
Deferred buy-back obligation
|
(1,421)
|
(1,324)
|
|
Fixed
assets
|
(2,236)
|
(1,667)
|
|
Prepaids
|
(104)
|
(78)
|
|
Unrealized gain
loss
|
(2)
|
(9)
|
|
Lease
liability
|
(91)
|
—
|
|
Gross
deferred tax liabilities
|
(4,372)
|
(3,503)
|
|
|
|
|
|
Valuation allowance
|
—
|
—
|
|
Net deferred tax
liability
|
$(1,886)
|
$(1,427)
|
As of
December 31, 2019, the Company had approximately $2,490 of state
NOL's available to offset future state taxable income. The state
NOL's begin expiring at various times between 2028 and
2037.
5. EMPLOYEE BENEFIT
PLANS
The Company has a
savings plan that qualifies under Section 401(k) of the Internal
Revenue Code ("IRC"). Participating employees may elect to
contribute a percentage of their salary, subject to certain
limitations. The Company contributes 50% of the participant's
contribution, up to 4% of the participant's compensation, as a
matching contribution. Total match contributions (in
thousands) by the Company for the years ended December 31,
2019 and 2018 were approximately $179 and $148,
respectively.
6. STOCK
COMPENSATION
On September 19, 2008,
the Board of Directors and Stockholders of the Company adopted the
2008 Stock Option Plan (the "2008 Plan") in addition to the 2004
Stock Option Plan, which allowed the Company to grant up to 500,000
options to employees, officers, directors and consultants to
purchase shares of the Company's Common Stock. Options granted
under the 2008 Plan could have been either Incentive Stock Options
or Non-Qualified Stock Options. There have not been any grants
under the 2008 Stock Option Plan since its inception. The Board of
Directors replaced the 2008 Stock Option Plan with the 2016 Equity
Incentive Plan described below.
There were no options
exercised under the 2004 Stock Option Plan for the year ending
December 31, 2019 and there were 10,333 options exercised in
2018. There were no options outstanding and exercisable under
either the 2004 Stock Option Plan or the 2008 Plan at
December 31, 2019.
F-17
Smith-Midland
Corporation
and
Subsidiaries
Notes to Consolidated
Financial Statements
(continued)
The fair value of
restricted stock awards is estimated to be the market price of the
Company's common stock at the close of date of grant. Restricted
stock activity during the years ended December 31, 2018 and
2019 is as follows:
|
|
Number of
Shares
|
Weighted Average Grant
Date Fair Value per Share
|
|
Non-vested, December 31,
2017
|
125,333
|
$5.19
|
|
Granted
|
2,500
|
7.00
|
|
Vested
|
54,333
|
5.27
|
|
Forfeited
|
4,000
|
4.95
|
|
|
|
|
|
Non-vested, December 31,
2018
|
69,500
|
5.19
|
|
Granted
|
2,000
|
7.43
|
|
Vested
|
51,499
|
5.27
|
|
Forfeited
|
334
|
4.95
|
|
|
|
|
|
Non-vested, December 31,
2019
|
19,667
|
$5.45
|
Awards are being amortized to expense ratably, on
a monthly basis, over a three year vesting term, except two grants
that vested immediately. Stock compensation (in thousands) for the
year ended December 31, 2019 was approximately $270, based
upon the value at the date of grant. Stock compensation for the
year ended December 31, 2018 was approximately $242, based
upon the value at the date of grant. There was $1 of unrecognized
compensation cost related to the non-vested restricted stock as of
December 31, 2019.
F-18
Smith-Midland
Corporation
and
Subsidiaries
Notes to Consolidated
Financial Statements
(continued)
.
7. FAIR VALUE
DISCLOSURES
The Company applies
the guidance that is codified under ASC 820-10 related to assets
and liabilities recognized or disclosed in the financial statements
at fair value on a recurring basis. ASC 820-10 defines fair value,
establishes a framework for measuring fair value and expands
disclosures about fair value measurements. The provisions of ASC
820-10 only apply to the Company’s investment securities,
which are carried at fair value.
ASC 820-10 clarifies
that fair value is an exit price, representing the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants based on the
highest and best use of the asset or liability. As such, fair value
is a market-based measurement that is determined based on
assumptions that market participants would use in pricing an asset
or liability. ASC 820-10 requires valuation techniques to measure
fair value that maximize the use of observable inputs and minimize
the use of unobservable inputs. These inputs are prioritized as
follows:
|
Fair Value
Hierarchy
|
Inputs to Fair Value
Methodology
|
|
Level 1
|
Quoted prices in active
markets for identical assets or liabilities
|
|
Level 2
|
Quoted prices for
similar assets or liabilities; quoted markets that are not active;
or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the
financial instrument; inputs other than quoted prices that are
observable for the asset or liability; or inputs that are derived
principally from, or corroborated by, observable market
information
|
|
Level 3
|
Pricing models,
discounted cash flow methodologies or similar techniques and at
least one significant model assumption is unobservable or when the
estimation of fair value requires significant management
judgment
|
The Company
categorizes a financial instrument in the fair value hierarchy
based on the lowest level of input that is significant to its fair
value measurement.
|
|
As of December 31,
2019
|
|||
|
|
Quoted Market Prices in Active Markets
(Level 1) |
Internal Models with Significant Observable
Market Parameters (Level 2) |
Internal Models
with Significant Unobservable Market Parameters (Level 3) |
Total Fair Value
Reported in Financial Statements |
|
|
|
|
|
|
|
Mutual
Funds
|
$1,176
|
$—
|
$—
|
$1,176
|
|
|
As of December 31,
2018
|
|||
|
|
Quoted Market Prices in Active Markets
(Level 1) |
Internal Models with Significant Observable
Market Parameters (Level 2) |
Internal Models
with Significant Unobservable Market Parameters (Level 3) |
Total Fair Value
Reported in
Financial Statements
|
|
|
|
|
|
|
|
Mutual
Funds
|
$1,107
|
$—
|
$—
|
$1,107
|
F-19
Smith-Midland
Corporation
and
Subsidiaries
Notes to Consolidated
Financial Statements
(continued)
8. COMMITMENTS AND
CONTINGENCIES
The Company has an employment agreement with its
former Chief Executive Officer and current Chairman of the Board,
Rodney I. Smith. While Mr. Smith ceased providing services as Chief
Executive Officer of the Company in May 2018, he received his
salary, pursuant to the terms of the agreement, through September
2019. The agreement also provides for an annual royalty fee of
$99,000 payable as consideration for his assignment to the Company
of all of his rights, title and interest in certain
patents. Payment to Mr. Smith of the royalty continues for as
long as the Company is using the inventions underlying the patents.
Mr. Smith also received compensation from the Company for his
services as a Director and Chairman of the
Board.
The Company is party to
legal proceedings and disputes which may arise in the ordinary
course of business. In the opinion of the Company, it is
unlikely that liabilities, if any, arising from legal disputes will
have a material adverse effect on the consolidated financial
position of the Company.
9. SUBSEQUENT
EVENTS
On
January 30, 2020, the World Health Organization (“WHO”)
announced a global health emergency because of a new strain of
coronavirus originating in Wuhan, China (the “COVID-19
outbreak”) and the risks to the international community as
the virus spreads globally beyond its point of origin. In March
2020, the WHO classified the COVID-19 outbreak as a pandemic, based
on the rapid increase in exposure globally.
The
full impact of the COVID-19 outbreak continues to evolve as of the
date of this report. As such, it is uncertain as to the full
magnitude that the pandemic will have on the Company’s
financial condition, liquidity, and future results of operations.
Management is actively monitoring the global situation on its
financial condition, liquidity, operations, suppliers, industry,
and workforce. Given the daily evolution of the COVID-19 outbreak
and the global responses to curb its spread, the Company is not
able to estimate the effects of the COVID-19 outbreak on its
results of operations, financial condition, or liquidity for fiscal
year 2020.
F-20
10. EARNINGS PER
SHARE
Earnings per share are
calculated as follows (in thousands, except earnings per
share):
|
|
December 31,
|
|
|
|
2019
|
2018
|
|
Basic earnings per
share
|
|
|
|
|
|
|
|
Income available to
common shareholder
|
$1,959
|
$1,687
|
|
|
|
|
|
Weighted average shares
outstanding
|
5,142
|
5,080
|
|
|
|
|
|
Basic earnings per
share
|
$0.38
|
$0.33
|
|
|
|
|
|
Diluted earnings per
share
|
|
|
|
|
|
|
|
Income available to
common shareholder
|
$1,959
|
$1,687
|
|
|
|
|
|
Weighted average shares
outstanding
|
5,142
|
5,080
|
|
Dilutive effect of
restricted stock
|
5
|
16
|
|
|
|
|
|
Total weighted average
shares outstanding
|
5,147
|
5,096
|
|
|
|
|
|
Diluted earnings per
share
|
$0.38
|
$0.33
|
There were no options or
restricted stock excluded from the diluted earnings per share
calculation for the years ended December 31, 2019 and
December 31, 2018.
F-21