SMITH MIDLAND CORP - Annual Report: 2008 (Form 10-K)
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, 2008
Commission
File Number 1-13752
SMITH-MIDLAND
CORPORATION
(Name
of Registrant as Specified in its Charter)
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Delaware
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54-1727060
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(State
or Other Jurisdiction of
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(I.R.S.
Employer Identification No.)
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Incorporation
or Organization)
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P.O.
Box 300, 5119 Catlett Road
Midland,
Virginia 22728
(Address
of Principal Executive Offices, Zip Code)
(540)
439-3266
(Registrant's
Telephone Number, Including Area Code)
Securities
Registered Under Section 12(b) of the Exchange
Act: None
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Securities
Registered Pursuant to Section 12(g) of the Exchange
Act:
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Common Stock, $.01 par
value per share
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(Title
of Class)
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Preferred Stock
Purchase Rights
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(Title
of Class)
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Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes o No
x
Indicate by check mark if the issuer is
not required to file reports pursuant to Section 13 or 15(d) of the Exchange
Act. Yes o No
x
Indicate by check mark whether the
issuer: (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 x No o
Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (check one)
| Large Accelerated Filer o | Accelerated filer o |
| Non-accelerated Filer o | Smaller reporting company x |
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes o No
x
The aggregate market value of the
shares of the voting and non-voting common equity held by non-affiliates
computed by reference to the price at which common equity was last sold, or the
average bid and asked price of such common equity, as of June 30, 2008 (the last
business day of the Company’s most recently completed second fiscal quarter) was
$3,798,869. 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.
As of February 28, 2009, the Company
had outstanding 4,629,962 shares of Common Stock, $.01 par value per share, net
of treasury shares.
Documents Incorporated By
Reference
None
FORWARD-LOOKING
STATEMENTS
This
Annual Report and related documents include “forward-looking statements” within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. 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:
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our
high level of indebtedness and ability to satisfy the
same,
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Our
revenues and net income decreased in 2008 as compared to 2007, due in part
to current economic conditions,
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the
continued availability of financing in the amounts, at the times, and on
the terms required, to support our future business and capital
projects,
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the
extent to which we are successful in developing, acquiring, licensing or
securing patents for proprietary
products,
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changes
in economic conditions specific to any one or more of our markets
(including the availability of public funds and grants for
construction),
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changes
in general economic conditions, such as the expected weakening in
construction activity in 2009in the Company’s primary service
area,
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adverse
weather which inhibits the demand for our
products,
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our
compliance with governmental
regulations,
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the
outcome of future litigation,
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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 ,
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the
cyclical nature of the construction
industry,
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our
exposure to increased interest expense payments should interest rates
change
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the
board of directors, which is composed of four members, has only one
outside, independent director,
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the
Company does not have a separate audit committee; the board of
directors functions in that role,
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the
Company’s board of directors does not have a member that qualifies as an
audit committee financial expert as defined in the
regulations,
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the
Company has experienced a high degree of employee turnover,
and
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the
other factors and information disclosed and discussed in other sections of
this report.
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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.
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PART
I
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Item
1.
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Business
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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, utilities and farming industries. The Company's
customers are primarily general contractors and federal, state, and local
transportation authorities located in the Mid-Atlantic, Northeastern, and
Midwestern regions of the United States. The Company's operating strategy has
involved producing innovative and proprietary products, including Slenderwall™,
a patented, 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; Sierra Wall™, a sound barrier
primarily for roadside use; and Easi-Set™ transportable concrete buildings, also
patented. In addition, the Company produces custom order precast concrete
products with various architectural surfaces, as well as generic highway sound
barriers, utility vaults, and farm products such as cattleguards and water and
feed troughs.
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; Easi-Set Industries, Inc., a Virginia corporation;
Concrete Safety Systems, Inc., a Virginia corporation; and Midland Advertising
and Design, Inc., a Virginia corporation doing business as Ad
Ventures.
Market
The
Company's 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, and Midwestern states. Due to the
lightweight characteristics of the Slenderwall™ exterior cladding system, the
Company has expanded its competitive service area into the Midwestern and
Southeastern states. The Company also licenses its proprietary products to
precast concrete manufacturers nationwide and internationally in Canada,
Belgium, New Zealand, Australia, Mexico, 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 many cases, voter-approved bonds.
Products
Precast
concrete products are cast at a manufacturing facility and delivered to a site
for installation, as contrasted to ready-mix concrete, which is produced in a
“batch plant,” put into a mixer truck where it is mixed thoroughly 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, or structurally. 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.
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Easi-Set
Slenderwall™ Lightweight
Construction Panels
Each
Slenderwall™ system is a prefabricated, energy-efficient, lightweight exterior
cladding system that is offered as a cost-effective alternative to the
traditional, piecemeal construction of the exterior walls of buildings. The
Company's Slenderwall system combines the essential components of a wall system
into a single unit ready for interior dry wall mounting immediately upon
installation. The base design of each Slenderwall™ panel consists of a
galvanized or stainless steel stud frame with an exterior sheath of
approximately two-inch thick, steel-reinforced, high-density, precast concrete,
with various available architectural surfaces. The exterior concrete sheath is
attached to the interior frame by strategically placed epoxy coated steel
connectors that suspend the exterior concrete approximately one-half inch away
from the steel frame.
Slenderwall™
panels are approximately one-third the weight of traditional structural 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 and ease of erection
and from the use of smaller cranes for installation.
The
Company custom designs and manufactures each 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.
Easi-Set
Sierra Wall™
The
Easi-Set Sierra Wall™ (the "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 around residential, industrial, and
commercial properties and alongside highways. With additional reinforcement, the
Sierra Wall™ can also be used as a retaining wall to retain earth in both
highway and residential construction. The 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 makes the Sierra Wall™ easy to install and move if boundaries
change or highways are relocated after the completion of a project.
The
Company custom designs and manufactures each Sierra Wall™ to conform to the
specifications provided by the contractor. The width, height, strength, and
exterior finish of each wall vary depending on the terrain and
application. The Company also produces post and panel design sound
barrier wall systems. These systems are constructed of steel or
precast concrete columns (the Company manufactures the precast columns) with
precast concrete panels which slide down into the groove in each
column.
The
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.
Easi-Set J-J Hooks® Highway
Safety Barrier
The
Easi-Set J-J Hooks® highway safety barrier (the "J-J Hooks Barrier") is a
crash-tested and patented, positively connected, safety barrier that the Company
sells, rents, delivers, installs and licenses for use on roadways to separate
lanes of traffic, either temporarily for construction work zone purposes or
permanently 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. The J-J Hooks Barriers interlock without the use of 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 (the "FHWA") requires that states
use only positively connected barriers, which meet NCHRP-350 test level 3 crash
test requirements. J-J Hooks Barrier meets the requirements and is NCHRP-350
approved. The Company filed for a new (June 6, 2007) patent which contains a
modified and improved J-J Hooks connection system. It describes a taller Hook
coupled with deflection limitation blocks which improves the J-J Hooks
connection performance.
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The
proprietary feature of the J-J Hooks Barrier 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 (it
resembles 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 "hooks" face each
other. To connect one section of a J-J Hooks Barrier to another, a contractor
merely positions the hook of an elevated section of the barrier above the hook
of a set section and lowers the elevated section into place. The positive
connection is automatically engaged.
The Company believes that the J-J Hooks
Barrier connection design is superior to those of earlier highway safety
barriers that were positively connected through the "eye and pin" technique.
Barriers incorporating this technique have eyes or rings protruding from each
end of the barrier, which must be aligned during the setting process. Once set,
a crew inserts pins through the eyes and bolts the barrier sections together.
Compared to this technique, the J-J Hooks Barrier is easier and faster to
install and remove, requires a smaller crew, and eliminates the need for loose
hardware to make the connection.
In
November 1990, the FHWA approved the J-J Hooks Barrier for use on federally
aided highway projects following the successful completion of crash testing
based on criteria from the National Cooperative Highway Research Program. The
J-J Hooks Barrier has also been approved for use in state funded projects by 39
states, plus Washington, D.C. and Puerto Rico. The Company is in various stages
of the application process in 11 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, the J-J
Hooks Barrier has been approved by the appropriate authorities for use in the
countries of Canada, Australia, New Zealand, Spain, Portugal, Belgium, Germany
and Chile.
Easi-Set
Precast Building and Easi-Span™ Expandable
Precast Building
The
Easi-Set Precast Building is a transportable, prefabricated, single-story, all
concrete building 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. The Easi-Set Precast Building is available in a variety of exterior
finishes and in five standard sizes, or it can be custom sized. The roof and
floor of each Easi-Set Precast Building are manufactured using the Company's
patented post-tensioned system, which helps seal the buildings against moisture.
As a freestanding unit, the Easi-Set Precast Building requires no poured
foundations or footings and can be easily installed within a few hours. After
installation the building can be moved, if desired, and reinstalled in a new
location.
The
Company also offers Easi-Span™, a line of expandable precast all concrete
buildings. Easi-Span™ is identical to and incorporates the technology of the
Easi-Set Precast Building, but is available in larger sizes and, through its
modular construction, can be combined in varied configurations to permit
expansion capabilities.
The
Company has sold its Easi-Set and Easi-Span™ Precast Buildings for the following
uses:
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Communications
Operations -- to house fiber optics regenerators, switching
stations and microwave transmission shelters, cellular phone sites, and
cable television repeater stations.
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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; rest rooms; kiosks; traffic control systems;
school maintenance and athletic storage; airport lighting control and
transmitter housing; and law enforcement evidence and ammunition
storage.
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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.
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Commercial and Industrial
Locations -- for electrical and mechanical housing, cemetery
maintenance storage, golf course vending enclosures, mechanical rooms,
rest rooms, emergency generator shelters, gate houses, automobile garages,
hazardous materials storage, food or bottle storage, animal shelters, and
range houses.
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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.
Beach Prisms™ Erosion
Control modules
In 2006,
the Company began production and launched full-scale advertising and promotional
efforts for its newest 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™. 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 for river- and bay-front property owners who want an
alternative to traditional armor stone, or groins and jetties.
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. Such approval is taking longer than expected, but approval is
anticipated.
H2Out™ Secondary Drainage
System
In 2006,
the Company completed research and development and a patent application was
submitted to the US Patent Office for H2Out™, 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 distribution rights of certain proprietary
products, such as the J-J Hooks Barrier, Easi-Set™ and
Easi-Span™ Precast Buildings, Slenderwall™,
SoftSound™ and Beach Prisms™ as well
as certain non-proprietary products, such as the Company's cattleguards, and
water and feed troughs. Generally, licenses are granted for a point
of manufacture. The Company receives an initial one-time license
administration and training fee ranging from approximately $25,000 to
$60,000. License royalties vary depending upon the product licensed,
but the range is typically from 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 flat monthly fee for co-op advertising and
promotional programs. The Company produces and distributes
advertising and promotional materials and promotes the licensed products through
its own advertising subsidiary, Ad Ventures.
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The
Company has entered into 45 licensing agreements in the United States; has
established five licensees in Canada; one each in Belgium, New Zealand and
Mexico with sub-licensees in Canada and Australia, for a total of 56 licensees
worldwide.
The
Company is currently negotiating several new license arrangements and, although
no assurance can be given, expects to increase its licensing activities.
Additional licensees were added in 2008 with initial licensee fees amounting to
$125,000, which equaled the amount for 2007.
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 flat 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
marketing efforts are concentrated on the region within a 250-mile radius from
its facilities, which includes most of Virginia, Delaware, the District of
Columbia, Maryland, North Carolina, South Carolina, and parts of Pennsylvania,
New York, New Jersey and West Virginia.
The
Company's 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.
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 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
and Reidsville, North Carolina compete favorably with respect to each of these
factors in the Northeast and Mid-Atlantic regions of the United States and also
in the newly added markets in the Midwest and Southeast. Finally, the
Company believes it offers a broad range of products that are very competitive
in these markets.
Patents
and Proprietary Information
The
Company holds U.S. and Canadian patents for the J-J Hooks Barrier and the
Easi-Set™ Precast Building, and a U.S. patent for the Slenderwall™ exterior
cladding system. The European patent for J-J Hooks Barrier was
allowed in December 1997 and has been registered in two European
countries. The earliest of the issued patents considered material to
the Company's business will expire in 2009. The Company also owns
three U.S. registered company name and logo trademarks (Easi-Set™, Smith
Cattleguard®, and Smith-Midland Excellence in Precast Concrete®) and one
Canadian registered trademark (Easi-Set™).
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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 would
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.
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 1, 2009, the Company had 127 full-time and 4 part-time employees, 111 of
which are located at the Company's Midland, Virginia facility, and 16 of which
are located at the Company's facility located in Reidsville, North
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.
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Item
2.
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Property
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Facilities
The
Company operates two manufacturing facilities. The primary
manufacturing operations are conducted in a 44,000 square foot manufacturing
plant on approximately 22 acres of land in Midland, Virginia, of which the
Company owns approximately 19 acres and three acres are leased from Rodney I.
Smith, the Company's President, 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, and a quality control
center. The Company's Midland facility also includes a large storage
yard for inventory and stored materials.
The
Company's second manufacturing facility is located in Reidsville, North Carolina
on ten acres of owned land and includes an 8,000 square foot manufacturing plant
and administrative offices.
The
Company believes that its present facilities are adequate for its current needs
and that they are adequately covered by insurance. Substantially all
of the Company’s facilities and equipment are used as collateral for long-term
notes, which as of December 31, 2008 had a balance of $3.0 million (see
“Liquidity and Capital Resources”).
|
Item
3.
|
Legal
Proceedings
|
The Company is not presently involved
in any litigation of a material nature.
|
Item
4.
|
Submission
of Matters to Vote of Security
Holders.
|
None
- 10
-
PART
II
|
Item
5.
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity
Securities.
|
The
Company's Common Stock trades on the OTC Bulletin Board System under the symbol
"SMID".
As of
February 28, 2009, there were approximately 68 record holders of the Company's
Common Stock. Management believes there are at least 400 beneficial owners of
the Company's Common Stock.
The
following table sets forth the high and low closing prices on the OTC Bulletin
Board System for the Company's Common Stock for the periods
indicated. The prices were obtained from the NASDAQ
website. These market quotations reflect inter-dealer prices, without
retail markup, markdown, or commission.
Dividends
The Company has not paid dividends on
its Common Stock since its inception and may not pay any dividends to its
stockholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, 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, general economic conditions and other pertinent
factors. The Company’s current loan agreement with Greater Atlantic Bank
prohibits the payment of dividends to stockholders without the bank’s prior
written consent, except for dividends paid in shares of the Company’s Common
Stock.
Shareholder
Rights Plan
The Company’s Board of Directors
adopted a Shareholder Rights Plan (the “Plan”) in January 2003. Under the Plan,
preferred stock purchase rights (each, a “Right”) were distributed as a dividend
at the rate of one Right for each share of Common Stock outstanding as of the
close of business on February 11, 2003 and automatically attach to shares issued
thereafter. Each Right entitles the holder to purchase one one-hundredth of a
share of newly created Series A Junior Participating Preferred Stock of the
Company at an exercise price of $8.00 (the “Exercise Price”) per Right. In
general, the Rights will be exercisable if a person or group (“Acquiring
Person”) becomes the beneficial owner of 15% or more of the outstanding Common
Stock of the Company or announces a tender offer for 15% or more of the Common
Stock of the Company. When the Rights become exercisable, a holder, other than
the Acquiring Person, will have the right to receive upon exercise Common Stock
having a value equal to two times the Exercise Price of the Right. If, after the
Rights become exercisable, the Company is acquired in a merger or similar
transaction, each Right will entitle the holder thereof, other than the
Acquiring Person, to purchase, at the Exercise Price, shares of the acquiring
corporation having a value equal to two times the Exercise Price of the Right.
After a person or group becomes an Acquiring Person, but before an Acquiring
Person owns 50% or more of the outstanding Common Stock of the Company, the
Board of Directors of the Company may extinguish the Rights by
- 11
-
exchanging
one share of Common Stock or an equivalent security for each Right, other than
Rights held by the Acquiring Person. The Board of Directors will in general be
entitled to redeem the Rights for $.001 per Right at any time prior to any
person or group becoming an Acquiring Person. The Rights will expire on January
20, 2013.
|
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.
The Company generates revenues
primarily from the sale, shipping, licensing, leasing and installation of
precast concrete products for the construction, utility and farming industries.
The Company's operating strategy has involved producing innovative and
proprietary products, including Slenderwall™, a patented, 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 sound barrier primarily for roadside use; and
transportable concrete buildings. In addition, the Company produces
utility vaults; farm products such as cattleguards, and water and food troughs;
and custom order precast concrete products with various architectural
surfaces.
Overview
The Company experienced a change in the
sales mix of its project-type sales between Slenderwall and soundwall contracts,
while the sale of highway barriers remained constant from 2007 to
2008. Royalty sales and shipping and installation revenue also
declined during the year.
Year ended December 31, 2008 compared
to the year ended December 31, 2007
For the year ended December 31, 2008,
the Company had total revenue of $29,855,779 compared to total revenue of
$31,520,637 for the year ended December 31, 2007, a decrease of $1,644,858, or
5%. Sales include revenues from product sales, royalty income,
barrier rental income, installation and shipping income. Total
product sales were $23,795,851 for the year ended December 31, 2008, compared to
$24,078,395 for the same period in 2007, a decrease of $282,544 or
1%. There were no sales of Slenderwall™ in 2008
compared to sales of $1,856,153 in 2007. Soundwall sales increased by
$3,909,531, or 46%, in 2008 from $4,576,667 in 2007. Easi-Set
building sales decreased by $217,637, or 9%, in 2008 as compared to
2007. Utility product sales decreased $1,800,308 or 67%, in 2008 as
compared to 2007. Barrier sales increased $271,432, or 5% in 2008
from $5,475,100 in 2007. During 2008, because of the slowdown in the
commercial construction industry, Slenderwall™ and other architectural products
decreased in sales, however, highway construction in the areas served by the
Company remained strong. Management expects architectural and barrier
and utility product sales to moderate during 2009, while soundwall sales should
remain stable. The outlook for the construction activity in the
Company’s primary service areas is expected to weaken in 2009; however, the
Company continues to maintain a significant sales backlog for 2009.
Barrier rental revenue increased to
$517,037 for the year ended December 31, 2008 from $488,753 for the year ended
December 31, 2007, an increase of $28,284, or 6%. The increase was
mostly due to increased highway construction activity in the early part of
2008. Shipping and installation revenue was $4,063,202 for the year
ended December 31, 2008 and $5,198,166 for the same period in 2007, a decrease
of $1,134,964, or 22%. The decrease is due primarily to timing and
mix of the Company’s products from year to year. Normal shipping and
installation
- 12
-
activity
is highly cyclical in nature and fluctuates based on our customers’
schedules. Royalty revenue totaled $1,479,689 for the year ended
December 31, 2008, compared to $1,755,323 for the same period in
2007. The decrease of $275,634, or 16%, was due primarily to lower
barrier royalty income. The Company signed four new licensees during
2008.
Highway construction activity remained
strong, while building construction activity moderated in 2008 in the Company’s
primary markets, which was in line with the general economic condition in the
area. The Company’s unfilled order backlog for products increased
during 2008. This was due primarily to the increased demand for
highway barriers and soundwall. The Company’s bid activity remained
high through the end of 2008. The Company’s management expects to
aggressively pursue opportunities to continue to increase the backlog during
2009, although no assurances can be given.
Total cost of goods sold for the year
ended December 31, 2008 was $23,177,596, a decrease of $566,310, or 2%, from
$23,743,906 for the year ended December 31, 2007. Total cost of goods
sold, as a percentage of total revenue, increased to 78% for the year ended
December 31, 2008 from 75% for the year ended December 31, 2007. The
increase in cost of goods sold as a percentage of total revenue was primarily
attributable to the increased cost of steel products, higher fuel costs and
higher fuel cost as a cost of purchased raw materials. In addition,
approximately $426,000 of the costs associated with the settlement of the JPIC
lawsuit are included in cost of goods sold for the year ended December 31,
2008.
For the year ended December 31, 2008,
the Company's general and administrative expenses increased by $39,221, or 1%,
to $3,324,845 from $3,285,593 during the same period in 2007. The
increase in general and administrative expenses primarily resulted from
increased bad debt expense of $165,649 offset by savings in certain other
administrative expenses for the same period in 2007. General and
administrative expense as a percentage of total revenue was 11% for the year
ended December 31, 2008 and 10% for the same period in 2007.
Selling expenses for the year ended
December 31, 2008 increased $450,082, or 23%, to $2,392,766 from $1,942,684 for
the year ended December 31, 2007. The increase was primarily due to
management’s decision to increase the number of sales persons on staff during
the year, in part, to seek to regain market share in the more profitable
Slenderwall™ architectural product line.
The Company had an operating profit for
the year ended December 31, 2008 of $960,572 compared to operating profit of
$2,548,453 for the year ended December 31, 2007, a decrease of
$1,587,881. The decreased operating income was primarily the result
of decreased sales in the amount of $1,664,858 or 5% from the same period ending
December 31, 2007, and increased cost of sales due to raw material price
increases in the first half of the year.
Interest expense was $343,107 for the
year ended December 31, 2008 compared to $430,048 for the year ended December
31, 2007. The decrease of $86,941, or 20%, was due primarily to the
decrease in interest rates.
The Company had an income tax expense
of $268,000 for the year ended December 31, 2008 compared to $876,000 for the
year ended December 31, 2007.
The Company had net income of $420,993
for the year ended December 31, 2008, compared to a net income of $1,252,360 for
the same period in 2007. Basic and diluted net income per share for
2008 was $.09, compared to basic and diluted net income per share of $.27 and
$.26, respectively, for the year ended December 31, 2007 with 4,670,882 basic
and 4,738,001 diluted weighted average shares outstanding in the 2008 period and
4,646,733 basic and 4,793,715 diluted weighted average shares outstanding in the
2007 period.
Liquidity
and Capital Resources
The Company has financed its capital
expenditures and operating requirements in 2008 primarily with proceeds provided
by operating activities and proceeds from long-term borrowings.
The Company has a note payable with
Greater Atlantic Bank (the “Bank”), headquartered in Reston, Virginia with a
balance of $3,003,810 as of December 31, 2008. The note had an
original term of twenty-three years beginning on June 25, 1998 with an interest
rate of .5% above prime, secured by equipment and real estate. The
loan is guaranteed in part by the U.S. Department of Agriculture Rural
Business-Cooperative Service’s loan guarantee. Under the terms of the
note, the Bank will permit chattel mortgages on purchased equipment not
to
- 13
-
exceed
$250,000 for any one individual loan so long as the Company is not in
default. Also, the Company is limited to $600,000 for annual capital
expenditures. At December 31, 2008, the Company was in compliance
with all covenants required pursuant to the loan agreement as
amended.
The Company has a second note payable
with Greater Atlantic Bank with a current balance of $177,496. The
note bears interest at the 5-year Treasury rate plus 3.25%, and matures on
October 15, 2010, and is collateralized by a second priority lien on all
accounts receivable, inventory and certain other assets of the
Borrower.
The Company also has a $1,500,000 line
of credit with Greater Atlantic Bank of which there was $500,000 outstanding
balance at December 31, 2008. The line matures June 15, 2009, and
bears interest at the prime rate, as published by the Wall Street Journal, and
is collateralized by a second priority lien on all accounts receivable,
inventory, and certain other assets of the Company. The Company
expects to renew this line of credit prior to maturity.
At December 31, 2008, the Company had
cash totaling $1,363,284 compared to cash totaling $282,440 at December 31,
2007. During 2008, the Company’s operating activities provided
$1,662,324 due mainly to the profit in operations and royalty revenues as well
as increases in certain current liabilities accounts during 2008. In
2008, investing activities absorbed $576,862 primarily for the purchase of
equipment. In 2008, financing activities absorbed $4,618 in cash,
which resulted mainly from proceeds from new notes used to purchase new
equipment and the refurbishment of the main production facility and an increase
in borrowings on the Company’s line of credit, offset by payments made on
borrowings.
Capital spending, including financed
additions, decreased from $1,097,821 in 2007, to $825,762 in 2008, for vehicles,
other equipment and rental barriers, plus various improvements in the plant and
the existing infrastructure. In 2009, the Company intends to continue
to make capital improvements including upgrades to its shipping equipment and
batch plants as necessary.
As a result of the Company's debt
burden, the Company is especially sensitive to changes in the prevailing
interest rates. Increases in such interest rates may materially and
adversely affect the Company's ability to finance its operations either by
increasing the Company's cost to service its current debt, or by creating a more
burdensome refinancing environment. Each 1% increase in interest
rates affecting the Company’s outstanding debt will reduce income by
approximately $46,000 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. This
payment schedule has resulted in liquidity problems for the Company because it
must bear the cost of production for its products before it receives
payment. However, with a vigorous collection effort, the Company has
been able to lower the days sales outstanding from 78 days in 2007 to 76 days in
2008. Although no assurance can be given, the Company believes that
anticipated cash flow from operations with adequate project management on jobs
would 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,
2008 was $2,424,224 and at December 31, 2007 was $2,794,306 or a decrease of
$370,082. While the Company was able to decrease its overall
inventory, inventory turns decreased from 9.2 turns for the year ended December
31, 2007 to 8.8 turns for the year ended December, 2008. The decrease
in inventory turns was primarily due to lower production and sales levels for
the period.
Significant
Accounting Policies and Estimates
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 requires management to make estimates and assumptions
in certain circumstances that affect amounts reported in the accompanying
financial statements and related notes. In preparing these financial
statements, management has made its best estimates and judgments of certain
amounts included in the financial statements, giving due consideration to
materiality. The Company does not believe there is a great likelihood
that materially different amounts would be reported related to the accounting
policies described below, however, application of these accounting policies
involves the exercise of judgment and the use of assumptions as to future
uncertainties and as a result, actual results could differ from these
estimates.
- 14
-
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 as they are earned on an accrual
basis. Licensing fees are recognized under the accrual method unless
collectibility is in doubt, in which event revenue is recognized as cash is
received. Certain sales of Soundwall, Slenderwall, and other
architectural concrete products are recognized upon completion of units produced
under long-term contracts. When necessary, provisions for estimated
losses on these contracts are made in the period in which such losses are
determined. Changes in job performance, conditions and contract
settlements that affect profit are recognized in the period in which the changes
occur. Unbilled trade accounts receivable represents revenue earned
on units produced and not yet billed.
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 significantly affected by inflation through the first half of
2008, particularly in the purchases of certain raw materials such as steel and
fuel, which affected the cost of raw materials due to the weight of the
Company’s raw materials used in the production of its precast products. As the economy began to slow down, especially in the
construction industry, in the second half of the 2008, raw material prices began
to moderate.
Other
Comments
As of March 26, 2009 the Company's
sales backlog of inventoried products and unbilled construction contracts was
approximately $9,000,000 as compared to approximately $15,700,000 at
approximately the same time in 2008. In addition, the Company also
has received a letter of intent for a construction project in the amount
$8,600,000 which is scheduled to begin in the summer of 2009. The
contract is in the final review phase and should be executed within the next 30
days. The Company traditionally does not include projects in its
sales backlog calculation until it has received a fully executed contract,
accordingly, the Company has not included the letter of intent in its sales
backlog. The combined sales backlog and letter of intent total
$17,600,000. The majority of the projects relating to the sales
backlog as of March 26, 2009 are scheduled to be shipped during
2009.
The Company also maintains a regularly
occurring repeat customer business, which should be considered in addition to
the orders in the sales backlog described above. These orders
typically have a quick turn around and represent purchases of the Company’s
inventoried standard products, such as highway safety barrier, utility and
Easi-Set building products. Historically, this regularly occurring
segment of our customer base is equal to approximately $6,750,000
annually.
However, the risk still exists that
current economic conditions may not continue and future sales levels of specific
products may be adversely affected. 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 two still emerging products for the
industry:
- 15
-
First, the Company has completed
research and development and a patent application has been submitted to the US
Patent Office for our new H2Out™, the world’s 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 reducing the
risk of lawsuits from tenants and owners of buildings. H2Out is
currently ready for production and implementation and the Company has received
many inquiries for this new innovative product.
Second, the Company has begun
production and launched advertising and promotional efforts for its newest
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 products
lines. Beach Prisms™ are also available for production by all
Easi-Set™ licensees. At this time, the Company is in the process of
securing the approval and support of the appropriate environmental agencies in
neighboring states.
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.
Recent
Accounting Pronouncements
In September 2006, the FASB issued SFAS
157, “Fair Value Measurements.” (SFAS 157). This statement establishes a
framework for measuring fair value in generally accepted accounting principles
(“GAAP”), and expands disclosures about fair value
measurements. While the Statement applies under other accounting
pronouncements that require or permit fair value measurements, it does not
require any new fair value measurements. SFAS 157 defines fair value
as the price that would be received to sell an asset or paid to transfer a
liability (an exit price) in an orderly transaction between market participants
at the measurement date. In addition, the Statement establishes a
fair value hierarchy, which prioritizes the inputs to the valuation techniques
used to measure fair value into three broad levels. Lastly, SFAS 157
requires additional disclosures for each interim and annual period separately
for each major category of assets and liabilities. This Statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years. In
February 2008, FASB Staff Position (FSP)FAS 157-2 was issued, which defers the
effective date of SFAS 157 until January 1, 2009 for nonfinancial assets and
liabilities except those items recognized as disclosed at fair value on an
annual or more frequent basis. The adoption of this Statement has
not, and is not expected to have a material impact on the Company’s financial
statements.
In December 2007, the FASB issued SFAS
141 (R), “Business Combinations”, to create greater consistency in the
accounting and financial reporting of business combinations. SFAS 141
(R) requires a company to recognize the assets acquired, the liabilities
assumed, and any noncontrolling interest in the acquired entity to be measured
at their fair values as of the acquisition date. SFAS 141 (R) also
requires companies to recognize and measure goodwill acquired in a business
combination or a gain from a bargain purchase and how to evaluate the nature and
financial effects of the business combination. SFAS 141 (R) applies
to fiscal years beginning after December 15, 2008 and is adopted
prospectively. Earlier adoption is prohibited. Management
does not expect the adoption of this statement will have a material effect on
the Company’s results of operations or financial position, but it is dependent
on future acquisition activities, if any.
In December 2007, the FASB issued FAS
160, “Noncontrolling Interests in Consolidated Financial Statements – an
Amendment of ARB 51”, to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. SFAS 160 requires the company to clearly identify and
present ownership interests in subsidiaries held by parties other than the
company in the consolidated financial statements within the equity section but
separate from the company’s equity. It also requires the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest be clearly identified and presented on the face of the consolidated
statement of income; changes in ownership interest be accounted for similarly,
as equity transactions; and when a subsidiary is deconsolidated, any retained
noncontrolling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary be measured at fair
value. SFAS160 applies to fiscal years beginning after December 15,
2008. Earlier adoption is prohibited. Management does not
expect the adoption of this Statement will have a material effect on the
Company’s results of operations or financial position.
In March, 2008, the FASB issued FASB
Statement No. 161, Disclosures
about Derivative Instruments and Hedging Activities - an Amendment of FASB
Statement 133. Statement 161 enhances required disclosures
regarding
- 16
-
derivatives
and hedging activities, including enhanced disclosures regarding how: (a) an entity uses derivative
instruments; (b)
derivative instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting
for Derivative Instruments and Hedging Activities; and (c) derivative instruments and
related hedged items affect an entity's financial position, financial
performance, and cash flows. Specifically, Statement 161 requires:
|
|
·
|
Disclosure
of the objectives for using derivative instruments be disclosed in terms
of underlying risk and accounting
designation;
|
|
|
·
|
Disclosure
of the fair values of derivative instruments and their gains and losses in
a tabular format;
|
|
|
·
|
Disclosure
of information about credit-risk-related contingent features;
and
|
|
|
·
|
Cross-reference
from the derivative footnote to other footnotes in which
derivative-related information is
disclosed.
|
|
Item
7A
|
Quantitative
and Qualitative Disclosures about Market
Risk
|
Not
applicable.
- 17
-
|
Financial
Statements and Supplementary Data
|
The
following consolidated financial statements, which appear at the back portion of
the report, are filed as part of this report:
Page
|
Report
of Independent Registered Public Accountants
|
F-3
|
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F-4-5
|
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007
|
F-6
|
|
Consolidated
Statements of Changes in Stockholders' Equity for the years ended
December
31, 2008 and 2007
|
F-7
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
F-8-9
|
|
Summary
of Significant Accounting Policies
|
F-10-13
|
|
Notes
to Consolidated Financial Statements
|
F-14-20
|
|
Item
9.
|
Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure
|
None.
|
Item
9A(T).
|
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 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.
In early
2008, our management conducted an initial phase evaluation of the effectiveness
of our internal control over financial reporting based on the framework in
“Internal Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”). This initial phase
consisted of a top-down approach to risk assessment as provided for by SEC
guidance.
The
Company employed a new CFO on August 13, 2008. After an initial
familiarization period, the testing phase of the internal control system began
in the fourth quarter of 2008. Based on the results of our testing,
management has concluded that the operating effectiveness of our internal
controls over financial reporting as of December 31, 2008, were
effective.
- 18
-
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 temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
managements 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 that evaluation, our principal executive officer
and chief financial officer were able to conclude, that our disclosure controls
and procedures as of the end of the period covered by this report, were
effective.
Changes in Internal Control over
Financial Reporting
During the fourth quarter of 2008, as
more fully described above in this section, the Company was able to complete the
required testing with the assistance of an independent
contractor. While the testing phase resulted in the identification of
certain significant deficiencies, overall the deficiencies did not rise to the
level of a material weakness in our internal control over financial
reporting. The deficiencies related to our internal control over
information technology systems and accounting for the Company’s income tax
provision. During the testing phase, and subsequent to December 31,
2008, the Company’s senior management added controls and strengthened existing
controls to better meet the requirements as defined by
COSO. Accordingly, the Company was able to determine that its
internal controls over financial reporting as of December 31, 2008, were
effective.
|
Item
9B.
|
Other
Information.
|
None.
- 19
-
PART
III
|
Item
10.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act
|
Certain
information with respect to our Directors and executive officers is set forth
below.
|
Rodney
I. Smith
|
70
|
1970
|
Chief
Executive Officer, President and
|
|
Chairman
of the Board of Directors
|
|||
|
Ashley
B. Smith
|
46
|
1994
|
Vice
President
|
|
Director
|
|||
|
Wesley
A. Taylor
|
61
|
1994
|
Vice
President of Administration,
|
|
Secretary
and Director
|
|||
|
Andrew
G. Kavounis
|
83
|
1995
|
Director
|
|
William
A. Kenter
|
62
|
2008
|
Chief
Financial Officer
|
|
Steve
Ott
|
42
|
2005
|
Vice
President of Engineering
|
| Smith-Midland - Virginia |
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,
Chief Executive Officer and President. Rodney I. Smith co-founded the
Company in 1960 and became its President and Chief Executive Officer in
1965. 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.
Ashley B.
Smith. Vice
President and Director . Ashley B. Smith has served as Vice President of
the Company since 1990 and as a Director since 1994. 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.
Wesley A.
Taylor. Vice
President of Administration and Director. Wesley
A. Taylor has served as Vice President of Administration of the Company since
1989 and as a Director since 1994, and previously held positions as Controller
and Director of Personnel and Administration. Mr. Taylor holds a
Bachelor of Arts degree from Northwestern State University.
Andrew
Kavounis. Director. Andrew
Kavounis has served as a Director of the Company since December
1995. Mr. Kavounis was President of Core Development Co., Inc., a
privately held construction and development concern, from 1991 until he retired
in 1995. From 1989 to 1991, Mr. Kavounis was the Executive Vice
President of the Leadership Group, a Maryland based builder and
developer. Prior to that time, Mr. Kavounis spent 37 years as an
executive at assorted construction and development companies, which included a
position as the National Vice President of Ryland Homes, a privately held
company, in which capacity he was directly responsible for the construction of
17,000 homes annually, nationwide. Mr. Kavounis received a Bachelor
of Science degree in Chemical Engineering from Presbyterian College, a Bachelor
of Science degree in Civil and Mechanical Engineering from Wofford College, and
a Master’s degree in Business Administration from the University of South
Carolina.
- 20
-
William A.
Kenter. Chief Financial
Officer. Prior to joining the Company, Mr. Kenter was
Controller for the Mount Vernon Printing division of Consolidated Graphics,
Inc., a commercial printing company, from September 2007 to September
2008. Mr. Kenter served as President and CEO of PenGraphix Printing
Solutions, a commercial printing company, from January 2000 to August
2007.
Steve Ott. Vice President of Engineering, Smith
Midland Corp.(Virginia). Mr. Ott joined the Company in October
2005. Prior to joining the Company, Mr. Ott served as Engineering Manager for
the Shockey Precast Group in Fredericksburg, Virginia from June 2001 to October
2005. Mr. Ott worked at Shockey Precast Group’s Winchester plant from 1998 to
2001. From 1991 through 1997 Mr. Ott worked in Belgium for a consulting
structural engineering firm and for a precast concrete manufacturer. From 1988
to 1991 Mr. Ott worked at Brandow and Johnston Structural Engineers in Los
Angeles California. Mr. Ott holds a Bachelor of Science degree in Structural
Engineering from the University of California at San Diego and a Masters of
Business Administration from the University of Mary Washington
|
Section
16(a).
|
Beneficial
Ownership Reporting Compliance
|
Section
16(a) (“Section 16(a)”) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), 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 (the “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 2008, except as follows: William A.
Kenter filed late his Form 3, which form disclosed that Mr. Kenter did not own
any securities of the Company.
Code
of Ethics
The Company adopted a code of ethics
that applies to the Chief Executive Officer, Chief Financial Officer, Controller
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 by requesting
one in writing from Secretary, Smith-Midland Corporation, P.O. Box 300, 5119
Catlett Road, Midland, VA 22728.
Audit
Committee
The Company does not have an Audit
Committee of the Board of Directors; the entire Board of Directors serves the
functions of the Audit Committee. No member of the Board of Directors
qualifies as an “audit committee financial expert”. As a small
company, the Company has not had the resources to recruit a person that so
qualifies.
- 21
-
|
Item
11.
|
Executive
Compensation.
|
The
following table sets forth the compensation paid by the Company for services
rendered for the 2008 and 2007 to the principal executive officer and the
Company’s most highly compensated executive officers (the “named executive
officers”) whose cash compensation exceeded $100,000 during 2008:
Summary
Compensation Table
|
Name
and Principal Position
|
Year
|
Salary
($)(1)
|
Bonus
($)(2)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Compen-sation Plan($)
|
Non-qualified
Deferred Compen-sation Earning ($)
|
All
Other Compen-sation ($)(3)
|
Total ($)
|
|||||||||||||||||||||||||
|
Rodney
I. Smith (3)
|
2008
|
120,154 | 8,420 | — | 32,000 | — | — | 102,137 | 262,711 | |||||||||||||||||||||||||
|
President,
Chief
|
2007
|
99,000 | — | — | 29,000 | — | — | 104,400 | 232,400 | |||||||||||||||||||||||||
|
Executive
Officer
|
|
|||||||||||||||||||||||||||||||||
|
and
Chairman of the
|
||||||||||||||||||||||||||||||||||
|
Board.
|
||||||||||||||||||||||||||||||||||
|
Ashley
B. Smith
|
2008
|
125,955 | 4,723 | — | 11,840 | — | — | 1,261 | 143,779 | |||||||||||||||||||||||||
|
VP
of Sales and
|
2007
|
117,389 | — | — | 10,150 | — | — | 4,923 | 132,462 | |||||||||||||||||||||||||
|
Marketing
and Director
|
||||||||||||||||||||||||||||||||||
|
Wesley
A. Taylor
|
2008
|
120,224 | 4,308 | — | 5,600 | — | — | 1,000 | 131,132 | |||||||||||||||||||||||||
|
VP
of Administration,
|
2007
|
95,200 | — | — | 10,150 | — | — | 4,970 | 110,320 | |||||||||||||||||||||||||
|
Secretary,
Treasurer,
|
||||||||||||||||||||||||||||||||||
|
and
Director
|
||||||||||||||||||||||||||||||||||
(1) Represents
salaries and commissions paid, (unless accrued in prior year) or accrued in 2008
and 2007 for services provided by each named executive officer serving in the
capacity listed.
(2) Represents
amounts paid, (unless accrued in prior year) and accrued in 2008 for annual
performance-based bonuses related to operations in 2008. No annual
performance-based bonuses were approved by the Board of Directors for payment in
2007.
(3) Mr.
Smith was paid $99,000 in 2008 and 2007, which is included in the column titled
“All Other Compensation”, for royalty payments due under his employment contract
with the Company, which is more fully described in the following section titled
“Employment Contracts and Termination of Employment and Change in Control
Arrangements”.
- 22
-
The
following table sets forth information for the named executive officers
regarding any common share purchase options, stock awards or equity incentive
plan awards that were outstanding as of December 31, 2008.
|
Name
|
Number
of Securities Underlying Unexercised Options (#)
Exercisable
|
Number
of Securities Underlying Unexercised Options (#)
Unexercisable
|
Option
Exercise Price ($/Sh)
|
Option
Expiration Date
|
|||||||||
|
Rodney
I. Smith
|
20,000 | — | 0.5625 |
12/28/2009
|
|||||||||
| 20,000 | — | 0.80 |
4/22/2011
|
||||||||||
| 80,000 | — | 0.81 |
5/3/2011
|
||||||||||
| 20,000 | — | 1.39 |
12/25/2011
|
||||||||||
| 20,000 | — | 0.83 |
12/16/2013
|
||||||||||
| 20,000 | — | 2.52 |
9/29/2015
|
||||||||||
| 13,333 | 6,667 | 2.25 |
5/21/2016
|
||||||||||
| 6,667 | 13,333 | 2.15 |
5/21/2017
|
||||||||||
| — | 40,000 | 1.21 |
6/29/2018
|
||||||||||
| 200,000 | 60,000 | ||||||||||||
|
TOTAL
|
|||||||||||||
|
Ashley
B. Smith
|
7,000 | — | 0.5625 |
12/28/2009
|
|||||||||
| 10,000 | — | 0.80 |
4/22/2011
|
||||||||||
| 10,000 | — | 1.39 |
12/25/2011
|
||||||||||
| 10,000 | — | 0.83 |
12/16/2013
|
||||||||||
| 10,000 | — | 2.52 |
9/29/2015
|
||||||||||
| 4,667 | 2,333 | 2.25 |
5/21/2016
|
||||||||||
| 2,333 | 4,667 | 2.15 |
5/21/2017
|
||||||||||
| — | 14,800 | 1.21 |
6/29/2018
|
||||||||||
|
TOTAL
|
54,000 | 21,800 | |||||||||||
|
Wesley
A. Taylor
|
6,667 | — | 0.83 |
12/16/2013
|
|||||||||
| 10,000 | — | 2.52 |
9/29/2015
|
||||||||||
| 4,667 | 2,333 | 2.25 |
5/21/2016
|
||||||||||
| 2,333 | 4,667 | 2.15 |
5/21/2017
|
||||||||||
| — | 7,000 | 1.21 |
6/29/2018
|
||||||||||
|
TOTAL
|
23,667 | 14,000 | |||||||||||
|
TOTAL
|
277,667 | 95,800 | |||||||||||
All stock
options vest on a prorated basis annually over three years from the date of
grant and expire ten years from the date of grant.
- 23
-
All
non-employee Directors receive $1,000 per meeting as compensation for their
services as Directors and are reimbursed for expenses incurred in connection
with the performance of their duties. All employee Directors receive $500 per
meeting as compensation for their services and are reimbursed for expenses
incurred in connection with the performance of their duties.
Director
Compensation Table
|
Name
|
Fees
Earned or Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards ($)(1)
|
Non-Equity
Incentive Plan Compen-sation
|
Non-Qualified
Deferred Compen-sation Earnings
|
All
Other Compen-sation
|
Total
($)
|
|||||||||||||||||||||
|
Rodney
I. Smith
|
1,000 | — | 32,000 | — | — | — | 33,000 | |||||||||||||||||||||
|
Andrew
G. Kavounis (2)
|
2,000 | — | — | — | — | — | 2,000 | |||||||||||||||||||||
|
Ashley
B. Smith
|
1,000 | — | 11,840 | — | — | — | 12,840 | |||||||||||||||||||||
|
Wesley
A. Taylor
|
1,000 | — | 5,600 | — | — | — | 6,600 | |||||||||||||||||||||
|
(1)
|
Option
awards for Messrs. R. Smith, A. Smith and Taylor disclosed in the “Summary
Compensation Table” disclosed above.
|
|
(2)
|
3,000
options were outstanding as of December 31, 2008, of which 3,000 were
exercisable as of December 31,
2008.
|
Employment
Contracts and Termination of Employment and Change in Control
Arrangements.
The
Company entered into a four-year Employment Agreement with Rodney I. Smith, its
current President and Chief Executive Officer, effective as of September 30,
2002. The term of employment automatically renews commencing on the
date one year after the effective date, and on an annual basis thereafter, for
an additional one year, unless earlier terminated or not renewed as provided for
therein. The agreement provides for an annual base salary of $99,000
(“Base Salary”), which will be reviewed at least annually and adjusted from time
to time at the determination of the Board of Directors. It also
provides for an annual royalty fee of $99,000 payable as consideration for Mr.
Smith’s assignment to the Company of all of his rights, title and interest in
and to the Patents (as defined in the agreement). Payment of the
royalty continues only for as long as the Company is using the inventions
underlying the non-expired Patents. Mr. Smith is also entitled to
performance-based bonus as determined by the Board each calendar
year.
Mr.
Smith’s employment agreement provides further that if Mr. Smith (i) voluntarily
leaves the employ of the Company within six months of his becoming aware of a
Change of Control (as defined in the agreement) of the Company, then he shall be
entitled to receive a lump sum amount equal to three times the five-year average
of his combined total annual compensation, which includes the Base Salary and
bonus, less one dollar ($1.00), and certain other unpaid accrued amounts as of
the date of his termination, or (ii) is terminated by the Company without Cause
(as defined in the agreement) or leaves the Company with Good Reason (as defined
in the agreement), Mr. Smith shall be entitled to a lump sum payment equal to
three times the combined Base Salary and bonus paid during the immediately
preceding calendar year, and such other unpaid accrued amounts. In any of such
cases, the Company will provide Mr. Smith with certain Company fringe benefits
for two years, subject to certain conditions as provided for in the agreement,
and all of Mr. Smith’s unvested options to purchase Company stock shall become
fully vested and exercisable on the date of termination. Mr. Smith will be
entitled to exercise all such options for three years from the date of
termination. The Company will have no further obligations to Mr. Smith, other
than with respect to the payment of royalties.
In the
event Mr. Smith’s employment by the Company is terminated as a result of Mr.
Smith’s (i) death, his estate shall be entitled to a lump sum payment of one
times the combined Base Salary and bonus, and certain other
- 24
-
accrued
and unpaid amounts, or (ii) disability, Mr. Smith shall be entitled to Base
Salary and bonus for a period of one year commencing with the date of
termination, and all other unpaid accrued amounts. In either of such cases the
outstanding principal balance of the Loan, and any accrued interest thereon,
shall be forgiven in full, and payment shall be made to reimburse for taxes
payable as a result thereof.
In the
event Mr. Smith’s employment is terminated for cause or Mr. Smith voluntarily
leaves the employ of the Company for no reason, Mr. Smith shall be entitled to
accrued but unpaid Base Salary and Bonus up to the date of termination, and all
other unpaid amounts.
The
employment agreement also contains Non-competition and Non-solicitation
covenants for one year following Mr. Smith’s termination of employment for any
reason.
On December 31, 2008, the board of
directors approved an amendment to the Employment Agreement to include changes
required to be in compliance with Section 409A, nonqualified deferred
compensation.
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
The
following table sets forth, as of December 31, 2008, 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 Adress of Beneficial Owner (1)
|
Number
of Shares Beneficially Owned (2)
|
Percentage
of Class
|
||||||
|
Rodney
I. Smith (1)(3)(4)(5)
|
733,398 | 15.2 | % | |||||
|
Ashley
B. Smith (1)(3)(4)(6)
|
143,617 | 3.1 | % | |||||
|
Wesley
A. Taylor (1)(7)
|
38,750 | * | ||||||
|
Andrew
G. Kavounis (1)(8)
|
4,000 | * | ||||||
|
AL
Frank Asset Management, Inc. (9)
|
630,547 | 13.6 | % | |||||
|
All
directors and executive officers
|
||||||||
|
as
a group (5 persons)(2)(10)
|
919,765 | 18.8 | % | |||||
* Less
than 1%
|
(1)
|
The address for each of Messrs.
Rodney I. Smith, Ashley B. Smith, Taylor, and Kavounis 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.
|
- 25
-
|
(4)
|
Does not include options to
purchase 5,000 shares held by Matthew Smith and an aggregate of 86,489
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. Also, does not include
shares held by Merry Robin Bachetti, sister of Rodney I. Smith and aunt of
Ashley B. Smith, for which each of Rodney I. Smith and Ashley B. Smith
disclaims beneficial
ownership.
|
|
(5)
|
Includes 50,000 shares of Common
Stock held by Hazel Bowling, former wife of Rodney I. Smith, and mother of
Mr. Smith’s children. Mr. Smith disclaims beneficial ownership of the
shares held by Hazel Bowling. Includes options to purchase
200,000 shares.
|
|
(6)
|
Includes options to purchase
54,000 shares.
|
|
(7)
|
Includes
options to purchase 13,667 shares.
|
|
Includes options to purchase
4,000 shares.
|
|
Address of holder is 32392 Coast
Highway, Suite 260, Laguna Beach, CA
92651
|
|
(10)
|
Includes options to purchase
271,667 shares for all directors, executive officers as a
group.
|
- 26
-
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted
average exercise price of outstanding options, warrants and
rights
|
Number
of securities remaining available for future issuance under equity
compensation plans
|
|||||||||
|
Equity
compensation plans approved by security holders
|
542,157 | 1.52 | 432,999 | |||||||||
|
Equity
compensation plans not approved by security holders
|
— | — | — | |||||||||
|
Total
|
542,157 | 1.52 | 432,999 | |||||||||
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
|
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 Seidman, 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.
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.
Audit-Related
Fees. There were no audit related fees paid in either of the two most recent
fiscal years.
Tax Fees.
Tax fees are for professional services rendered by BDO Seidman, LLP for tax
compliance, tax advice, and tax planning. These fees related to services for
preparation of taxes for 2007 and the estimated tax payments for both
years.
All Other
Fees. There were no other fees paid to BDO Seidman, LLP for the two most recent
fiscal years.
The
Company does not have an Audit Committee. The Board of Directors has the
responsibility normally assigned to the Audit Committee. The Board of Directors
has not adopted any blanket pre-approval policies and procedures. Instead, the
Board will pre-approve the provision by BDO Seidman, LLP of all audit or
non-audit services.
|
2008
|
2007
|
|||||||
|
Audit
Fees
|
$ | 171,489 | $ | 141,578 | ||||
|
Tax
Fees
|
23,696 | 25,840 | ||||||
|
Total
Fees
|
$ | 195,185 | $ | 167,418 | ||||
- 27
-
PART
IV
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
(1) The
following financial statements of the Company are included in Item
8:
|
(2)
|
The
following exhibits are filed
herewith:
|
Exhibit
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).
|
|
3.2
|
Bylaws
of the Company adopted on January 21, 2003 (Incorporated by reference to
the Company’s Registration Statement on Form 8-A (No. 000-25964) filed
with the Commission on January 24,
2003).
|
|
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).
|
|
Rights
Agreement, dated as of January 21, 2003, between the Company and
Computershare Trust Company, Inc., as rights agent, including the Form of
Certificate of Designations, the Form of Rights Certificate and the
Summary of Rights to Purchase Preferred Shares attached thereto as
Exhibits A, B, and C, respectively (Incorporated by reference to the
Company’s Registration Statement on Form 8-A (No. 000-25964) filed with
the Commission on January 24,
2003).
|
|
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).
|
|
10.3
|
Form
of License Agreement between the Company and its Licensee (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).
|
|
10.4
|
First
National Bank of New England Loan Agreement, assumed by UPS Capital, dated
June 25, 1998 (Incorporated by reference to the Company’s Quarterly Report
on Form 10-QSB for the quarter ended June 30,
1998).
|
|
10.5
|
First
National Bank of New England Loan Note, dated June 25, 1998 (Incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB for the
quarter ended June 30, 1998).
|
|
10.6
|
First
National Bank of New England Commercial Loan Agreement dated December 20,
1999 (Incorporated by reference to the Company’s Annual Report on Form
10-KSB for the year ended December 31,
1999).
|
|
10.7
|
First
National Bank of New England Commercial Term Promissory Note dated
December 20, 1999 (Incorporated by reference to the Company’s Annual
Report on Form 10-KSB for the year ended December 31,
1999).
|
|
10.8
|
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).
|
|
10.9
|
Amendment
No. 1 to Employment Agreement, dated as of December 31, 2008, between the
Company and Rodney I. Smith.
|
|
10.10
|
2004
Stock Option Plan (Incorporated by reference to the Company’s Annual
Report on Form 10-KSB for the year ended December 31,
2004).
|
- 28
-
|
10.11
|
UPS
Capital Business Credit Loan Note dated December 16, 2004 (Incorporated by
reference to the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2004).
|
|
10.12
|
Commercial
Loan Agreement, dated June 15, 2006, by and between Smith- Midland
Corporation, a Virginia corporation and a subsidiary of the Company (the
“Borrower”) and Greater Atlantic Bank (the “Lender”) contemplating a
single advance term loan in the amount of $365,000 and addendum thereto (
Incorporated by reference to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 21,
2006).
|
|
10.13
|
Promissory
Note, dated June 15, 2006, in the amount of $365,000 issued by the
Borrower to the Lender (Incorporated by reference to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
June 21, 2006).
|
|
10.14
|
Commercial
Loan Agreement, dated June 15, 2006, by and between the Borrower and the
Lender contemplating a multiple advance draw loan up to the aggregate
amount of $500,000 and addendum thereto (Incorporated by reference to the
Company’s Current Report on Form 8-K filed with the Securities and
Exchange Commission on June 21,
2006).
|
|
10.15
|
Commercial
Loan Agreement, dated June 15, 2006, by and between the Borrower and the
Lender contemplating a revolving multiple advance draw loan up to the
aggregate amount of $1,500,000 and addendum thereto (Incorporated by
reference to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 21,
2006).
|
|
10.16
|
Promissory
Note, dated June 15, 2006, in the amount of $1,500,000 issued by the
Borrower to the Lender (Incorporated by reference to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
June 21, 2006).
|
|
10.17
|
Security
Agreement, dated June 15, 2006, by and between the Borrower and the Lender
securing the Promissory Note in the amount of $365,000 (Incorporated by
reference to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 21,
2006).
|
|
10.18
|
Security
Agreement, dated June 15, 2006, by and between the Borrower and the Lender
securing any promissory note(s) the Borrower may issue to evidence any
advance(s) under the Commercial Loan Agreement by and between Borrower and
the Lender contemplating a multiple advance draw loan up to the aggregate
amount of $500,000 (Incorporated by reference to the Company’s Current
Report on Form 8-K filed with the Securities and Exchange Commission on
June 21, 2006).
|
|
10.19
|
Security
Agreement, dated June 15, 2006, by and between the Borrower and the Lender
securing the Promissory Note in the amount of $1,500,000 (Incorporated by
reference to the Company’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 21,
2006).
|
|
10.20
|
Form
of Guaranty, dated June 15, 2006, given by the Company and subsidiaries
(except the Borrower) with respect to each of (i) the Promissory Note in
the amount of $365,000; (ii) any promissory note(s) that the Borrower may
issue to evidence any advance(s) under the Commercial Loan Agreement by
and between the Borrower and the Lender contemplating a multiple advance
draw loan up to the aggregate amount of $500,000; and (iii) the Promissory
Note in the amount of $1,500,000 issued by the Borrower to the Lender
(Incorporated by reference to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 21,
2006).
|
|
10.21
|
Omnibus
Modification of Lender Loan Documents Agreement, dated June 15, 2006
(Incorporated by reference to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 21,
2006).
|
|
10.22
|
Omnibus
Modification of UPS Capital Loan Documents Agreement, dated June 15, 2006
(Incorporated by reference to the Company’s Current Report on Form 8-K
filed with the Securities and Exchange Commission on June 21,
2006).
|
|
10.23
|
Commercial
Loan Agreement, dated August 7, 2007, by and between the Borrower and the
Lender contemplating a multiple advance loan up to the aggregate amount of
$700,000 and addendum thereto (incorporated by reference to the Company’s
Quarterly Report on Form 10-QSB for the quarter ended June 30,
2007).
|
|
10.24
|
Commercial
Debt Modification Agreement, dated August 7, 2007, by and between the
Borrower and the Lender to extend the maturity date of the Working Capital
Line of Credit to June 15, 2008,
|
- 29
-
|
|
(incorporated
by reference to the Company’s Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2007).
|
|
10.25
|
Commercial
Security Agreement dated August 7, 2007 by and between the Borrower and
the Lender securing any promissory note(s) the Borrower may issue to
evidence any advance(s) under the Commercial Loan Agreement by and between
Borrower and Lender contemplating a multiple advance draw loan up to the
aggregate amount of $700,000, (incorporated by reference to the Company’s
Quarterly Report on Form 10-QSB for the quarter ended June 30,
2007).
|
|
10.26
|
Form
of Guaranty, dated August 7, 2007 given by the Company and each of its
subsidiaries (except the Borrower) with respect to any promissory note(s)
that the Borrower may issue to evidence any advance(s) under the
Commercial Loan Agreement by and between the Borrower and the Lender
contemplating a multiple advance draw loan up to the aggregate amount of
$700,000 (incorporated by reference to the Company’s Quarterly Report on
Form 10-QSB for the quarter ended June 30,
2007).
|
|
10.27
|
2008
Stock Option Plan (Incorporated by reference to the Company’s Registration
Statement on Form S-8 (No. 333-155920) filed on December 4,
2008).
|
|
14.1
|
Code
of Professional Conduct (Incorporated by reference to the Company’s Annual
Report on Form 10-KSB for the year ended December 31,
2003).
|
|
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).
|
|
23.1
|
Consent
of BDO Seidman, LLP.
|
|
31.1
|
Certification
of Chief Executive Officer.
|
|
31.2
|
Certification
of Principal Financial Officer.
|
|
32.1
|
Certification
pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
|
|
|
|
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Ac 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
31, 2009
By: /s/ Rodney I. Smith
Rodney
I. Smith, President
(principal
executive officer)
Date: March
31, 2009
By: /s/ William A.
Kenter
William
A. Kenter
(principal
financial and accounting officer)
- 30
-
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
31, 2009
|
||
|
Rodney
I. Smith
|
||||
|
/s/ Wesley A. Taylor
|
Director
|
March
31, 2009
|
||
|
Wesley
A. Taylor
|
||||
|
/s/ Ashley B. Smith
|
Director
|
March
31, 2009
|
||
|
Ashley
B. Smith
|
||||
|
/s/ Andrew G. Kavounis
|
Director
|
March
31, 2009
|
||
|
Andrew
G. Kavounis
|
- 31
-
Smith-Midland
Corporation
and
Subsidiaries
Consolidated
Financial Statements
Years
Ended December 31, 2008 and 2007
Smith-Midland
Corporation
and
Subsidiaries
Contents
|
Report
of Independent Registered Public Accountants
|
F-3
|
|
Consolidated
Financial Statements
|
|
|
Balance
Sheets
|
F-4-5
|
|
Statements
of Operations
|
F-6
|
|
Statements
of Stockholders' Equity
|
F-7
|
|
Statements
of Cash Flows
|
F-8-9
|
|
Summary
of Significant Accounting Policies
|
F-10-13
|
|
Notes
to Consolidated Financial Statements
|
F-14-20
|
F-2
Board of
Directors
Smith-Midland
Corporation
Midland,
Virginia
We have
audited the accompanying consolidated balance sheets of Smith-Midland
Corporation and subsidiaries as of December 31, 2008 and 2007 and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with auditing standards generally accepted in
the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Smith-Midland Corporation
and subsidiaries at December 31, 2008 and 2007, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of
America.
Richmond,
Virginia
March 31,
2009
F-3
Smith-Midland
Corporation
and
Subsidiaries
Consolidated
Balance Sheets
|
December
31,
|
||||||||
|
ASSETS
(Note 2)
|
2008
|
2007
|
||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 1,363,284 | $ | 282,440 | ||||
|
Accounts
receivable
|
||||||||
|
Trade
- billed, (less allowance for doubtful
|
||||||||
|
accounts
of $396,665 and $243,318)
|
5,831,182 | 5,900,684 | ||||||
|
Trade
- unbilled
|
660,165 | 316,059 | ||||||
|
Inventories
|
||||||||
|
Raw
materials
|
851,394 | 825,328 | ||||||
|
Finished
goods
|
1,572,830 | 1,968,978 | ||||||
|
Prepaid
expenses and other assets
|
155,772 | 152,289 | ||||||
|
Prepaid
income taxes (Note 4)
|
258,150 | 322,835 | ||||||
|
Deferred
taxes (Note 4)
|
471,000 | 367,000 | ||||||
|
Total
current assets
|
11,163,777 | 10,135,613 | ||||||
|
Property
and equipment, net (Note 1)
|
4,223,555 | 4,102,181 | ||||||
|
Total
other assets
|
163,735 | 200,090 | ||||||
|
Total
assets
|
$ | 15,551,067 | $ | 14,437,884 | ||||
See
accompanying summary of accounting policies
and notes
to consolidated financial statements.
F-4
Smith-Midland
Corporation
and
Subsidiaries
Consolidated
Balance Sheets
(continued)
|
December
31,
|
||||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
2008
|
2007
|
||||||
|
Current
liabilities
|
||||||||
|
Accounts
payable - trade
|
$ | 2,142,478 | $ | 1,776,594 | ||||
|
Accrued
income taxes payable
|
— | 656,370 | ||||||
|
Accrued
expenses and other liabilities
|
1,074,889 | 587,399 | ||||||
|
Current
maturities of notes payable (Note 2)
|
1,022,476 | 605,376 | ||||||
|
Customer
deposits
|
858,437 | 643,509 | ||||||
|
Total
current liabilities
|
5,098,280 | 4,269,248 | ||||||
|
Notes
payable - less current maturities (Note 2)
|
3,569,321 | 3,991,036 | ||||||
|
Deferred
tax liability (Note 4)
|
317,000 | 175,000 | ||||||
|
Total
liabilities
|
8,984,601 | 8,435,284 | ||||||
|
Commitments
and contingencies (Note 5)
|
||||||||
|
Stockholders’
equity (Note 6)
|
||||||||
|
Preferred
stock, $.01 par value; authorized 1,000,000
|
||||||||
|
shares,
none outstanding
|
— | — | ||||||
|
Common
stock, $.01 par value; authorized 8,000,000
|
||||||||
|
shares;
4,670,882 issued and outstanding
|
46,709 | 46,709 | ||||||
|
Additional
paid-in capital
|
4,701,820 | 4,558,947 | ||||||
|
Retained
earnings
|
1,920,237 | 1,499,244 | ||||||
| 6,668,766 | 6,104,900 | |||||||
|
Treasury
stock, at cost, 40,920 shares
|
(102,300 | ) | (102,300 | ) | ||||
|
Total
stockholders’ equity
|
6,566,466 | 6,002,600 | ||||||
|
Total
liabilities and stockholders' equity
|
$ | 15,551,067 | $ | 14,437,884 | ||||
See
accompanying summary of accounting policies
and notes
to consolidated financial statements.
F-5
Smith-Midland
Corporation
and
Subsidiaries
Consolidated
Statements of Operations
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Revenue
|
||||||||
|
Products
sales and leasing
|
$ | 24,312,888 | $ | 24,567,148 | ||||
|
Shipping
and installation revenue
|
4,063,202 | 5,198,166 | ||||||
|
Royalties
|
1,479,689 | 1,755,323 | ||||||
|
Total
revenue
|
29,855,779 | 31,520,637 | ||||||
|
Cost
of goods sold
|
23,177,596 | 23,743,906 | ||||||
|
Gross
profit
|
6,678,183 | 7,776,731 | ||||||
|
Operating
expenses
|
||||||||
|
General
and administrative expenses
|
3,324,845 | 3,285,593 | ||||||
|
Selling
expenses
|
2,392,766 | 1,942,685 | ||||||
|
Total
operating expenses
|
5,717,611 | 5,228,278 | ||||||
|
Operating
income
|
960,572 | 2,548,453 | ||||||
|
Other
income (expense)
|
||||||||
|
Interest
expense
|
(343,107 | ) | (430,048 | ) | ||||
|
Interest
income
|
28,040 | 22,858 | ||||||
|
Gain
(loss) on sale of assets
|
44,581 | (13,892 | ) | |||||
|
Other,
net
|
(1,093 | ) | 989 | |||||
|
Total
other income (expense)
|
(271,579 | ) | (420,093 | ) | ||||
|
Income
before income tax expense
|
688,993 | 2,128,360 | ||||||
|
Income
tax expense (Note 4)
|
268,000 | 876,000 | ||||||
|
Net
income
|
$ | 420,993 | $ | 1,252,360 | ||||
|
Basic earnings (loss) per
share (Note 8)
|
0.27 | (0.18 | ) | |||||
|
Diluted earnings (loss) per
share (Note 8)
|
0.26 | (0.18 | ) | |||||
See
accompanying summary of accounting policies
and notes
to consolidated financial statements
F-6
and
Subsidiaries
Consolidated
Statements of Stockholders' Equity
|
Common
Stock
|
Additional
Paid-in
Capital
|
Retained
Earnings
|
Treasury
Stock
|
Total
|
||||||||||||||||
|
Balance, December 31,
2006
|
$ | 46,346 | $ | 4,415,363 | $ | 246,884 | $ | (102,300 | ) | $ | 4,606,293 | |||||||||
|
Stock
options exercised
|
363 | 37,691 | — | 38,054 | ||||||||||||||||
|
Stock
option compensation
|
— | 105,893 | — | 105,893 | ||||||||||||||||
|
Net
Income
|
— | — | 1,252,360 | 1,252,360 | ||||||||||||||||
|
Balance, December 31,
2007
|
46,709 | 4,558,947 | 1,499,244 | (102,300 | ) | 6,002,600 | ||||||||||||||
|
Stock
option compensation
|
— | 142,873 | — | — | 142,873 | |||||||||||||||
|
Net
income
|
— | — | 420,993 | — | 420,993 | |||||||||||||||
|
Balance, December 31,
2008
|
$ | 46,709 | $ | 4,701,820 | $ | 1,920,237 | $ | (102,300 | ) | $ | 6,566,466 | |||||||||
See
accompanying summary of accounting policies
and notes
to consolidated financial statements.
F-7
and
Subsidiaries
Consolidated
Statements of Cash Flows
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Reconciliation
of net income to net cash
|
||||||||
|
provided by operating
activities
|
||||||||
|
Net
income
|
$ | 420,993 | $ | 1,252,360 | ||||
|
Adjustments
to reconcile net
|
||||||||
|
income
to net cash provided by operating
|
||||||||
|
activities
|
||||||||
|
Depreciation
and amortization
|
642,805 | 735,218 | ||||||
|
Deferred
taxes
|
38,000 | 62,000 | ||||||
|
Stock
option compensation expense
|
142,873 | 105,893 | ||||||
|
Gain
(loss) on sale of fixed assets
|
(44,581 | ) | 13,892 | |||||
|
(Increase)
decrease in
|
||||||||
|
Accounts
receivable - billed
|
69,502 | (483,209 | ) | |||||
|
Accounts
receivable - unbilled
|
(344,106 | ) | 509,465 | |||||
|
Inventories
|
199,382 | 323,166 | ||||||
|
Prepaid
expenses and other assets
|
60,839 | (42,066 | ) | |||||
|
Prepaid
income taxes
|
64,685 | (69,897 | ) | |||||
|
Increase
(decrease) in
|
||||||||
|
Accounts
payable - trade
|
365,884 | (957,380 | ) | |||||
|
Accrued
expenses and other liabilities
|
487,490 | (1,296,987 | ) | |||||
|
Accrued
income taxes
|
(656,370 | ) | 656,370 | |||||
|
Customer
deposits
|
214,928 | 29,382 | ||||||
|
Net
cash provided by operating activities
|
$ | 1,662,324 | $ | 838,207 | ||||
F-8
Smith-Midland
Corporation
and
Subsidiaries
Consolidated
Statements of Cash Flows
(continued)
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Cash
Flows From Investing Activities
|
||||||||
|
Purchases
of property and equipment
|
$ | (654,740 | ) | $ | (579,571 | ) | ||
|
Proceeds
from sale of fixed assets
|
77,878 | 19,961 | ||||||
|
Net
cash absorbed by investing activities
|
(576,862 | ) | (559,610 | ) | ||||
|
Cash
Flows From Financing Activities
|
||||||||
|
Proceeds
from borrowings on Line of Credit, net
|
500,000 | (50,000 | ) | |||||
|
Proceeds
from long-term borrowings
|
171,022 | 46,126 | ||||||
|
Repayments
of long-term borrowings
|
(675,640 | ) | (513,027 | ) | ||||
|
Proceeds
from options exercised
|
— | 38,054 | ||||||
|
Net
cash absorbed by financing activities
|
(4,618 | ) | (478,847 | ) | ||||
|
Net
increase (decrease) in cash and cash equivalents
|
1,080,844 | (200,250 | ) | |||||
|
Cash and cash
equivalents, beginning of year
|
282,440 | 482,690 | ||||||
|
Cash and cash
equivalents, end of year
|
$ | 1,363,284 | $ | 282,440 | ||||
|
Supplemental
schedule of non-cash investing activities
|
||||||||
|
Noncash
investing and financing – capital lease additions
|
— | 518,250 | ||||||
|
Cash
Payments for interest
|
343,107 | 430,048 | ||||||
|
Cash
Payments for income taxes
|
1,144,424 | 211,733 | ||||||
See
accompanying summary of accounting policies
and notes
to consolidated financial statements.
F-9
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, and Midwestern 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, Easi-Set Industries, Inc., a
Virginia corporation, Concrete Safety Systems, Inc., a Virginia
corporation, Midland Advertising and Design, Inc., doing business as Ad
Ventures, a Virginia corporation. All material intercompany
accounts and transactions have been eliminated in
consolidation.
|
|
Reclassifications
|
Certain
immaterial reclassifications have been made between prior year amounts for
cost of goods sold and general and administrative expenses to conform to
current year presentation.
|
|
Cash
and Cash Equivalents
|
The
Company considers all unrestricted cash and money market accounts
purchased with an original maturity of three months or less as cash and
cash equivalents.
|
|
Inventories
|
Inventories
are stated at the lower of cost, using the first-in, first-out (FIFO)
method, or market.
|
|
Property
and
Equipment
|
Property
and equipment is stated at cost. Expenditures for ordinary maintenance and
repairs are charged to income as incurred. Costs of betterments, renewals,
and major replacements are capitalized. At the time properties are retired
or otherwise disposed of, the related cost and allowance for depreciation
are eliminated from the accounts and any gain or loss on disposition is
reflected in income.
|
|
Depreciation
is computed using the straight-line method over the following estimated
useful lives:
|
|
Years
|
||||
|
Buildings
|
10-33 | |||
|
Trucks
and automotive equipment
|
3-10 | |||
|
Shop
machinery and equipment
|
3-10 | |||
|
Land
improvements
|
10-15 | |||
|
Office
equipment
|
3-10 | |||
|
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.
|
F-10
|
Stock
Options
|
Effective
January 1, 2006, the Company adopted the fair value recognition provisions
of SFAS No. 123(R) (“SFAS 123R”), “Share-Based Payment, ”
using the modified prospective method. SFAS 123R requires stock based
compensation to be measured based on the fair value of the award on the
date of grant and the corresponding expense to be recognized over the
period during which an employee is required to provide services in
exchange for the award. The fair value of each stock option award is
estimated using a Black-Scholes option pricing model based on certain
assumptions including expected term, risk-free interest rate, stock price
volatility, and dividend yield. The assumption for expected term is based
on evaluations of historical and expected future employee exercise
behavior. The risk-free interest rate is based on the U.S. Treasury rates
at the date of grant with maturity dates approximately equal to the
expected term at the grant date. The historical volatility of the
Company’s stock is used as the basis for the volatility assumption. The
Company has never paid cash dividends, and does not currently intend to
pay cash dividends, and thus assumed a 0% dividend yield. The fair value
of restricted stock unit grants is based on the closing share price for
our common stock as quoted on the OTC Bulletin Board Market on the date of
grant. See Note 6 of Notes to the Consolidated Financial Statements for
additional information related to stock based compensation. The
Company granted 127,825 and 92,500 stock options during the years ended
December 31, 2008 and 2007, respectively. The fair value of
each option on the date of grant was estimated using the Black-Scholes
option pricing model with the following assumptions: no dividend yield,
expected volatility of 72% and a risk-free interest rate of 3.34 for 2008
and expected volatility of 73% and a risk-free interest rate of 4.42% for
2007, with expected lives of six years for both 2008 and
2007. The weighted average per share fair value of options
granted during the years ended December 31, 2008 and 2007 were $.80 and
$1.45, respectively. Substantially all options become vested and
exercisable ratably over a three-year period.
|
|
Revenue
Recognition
|
The
Company primarily recognizes revenue on the sale of its standard precast
concrete products at shipment date, including revenue derived from any
projects to be completed under short-term
contracts. Installation of the Company’s standard products is
typically performed by the customer; however, in some circumstances, the
Company will install certain products which are accomplished at the time
of delivery. The installation activities are usually completed
the day of delivery or the following day. In utility building
sales, the majority of the buildings are erected on the Company’s site and
delivered completely installed.
Leasing
fees are paid at the beginning of the lease agreement and recorded to a
deferred revenue account. As the revenue is earned each month
during the contract, the amount earned is recorded as lease income and an
equivalent amount is debited to deferred revenue.
Royalties
are recognized as revenue as they are earned. The Company
licenses certain other precast companies to produce its licensed products
to our engineering specifications under licensing
agreements. The agreements are typically for five year terms
and require royalty payments from 4% to 6% which are paid on a monthly
basis. The revenue from licensing agreements are recognized in
the month earned.
Certain
sales of Soundwall, architectural precast panels and Slenderwall™ concrete
products revenue is recognized using the percentage of completion method
for recording revenues on long term contracts under ARB 45 and SOP
81-1. The contracts are executed by both parties and clearly
stipulate the requirements for progress payments and a schedule of
delivery dates. Provisions for estimated losses on contracts
are made in the period in which such losses are determined.
Shipping
revenues are recognized in the period the shipping services are provided
to the customer.
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
immaterial.
|
F-11
|
Shipping
and Handling
|
Amounts
billed to customers are recorded in sales and the costs associated with
the shipping and handling are recorded as cost of goods
sold.
|
|
Sales
and Use Taxes
|
Use
taxes on construction materials are reported gross in general and
administrative expense.
|
|
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 monthly basis to determine the
probability of collection. Any accounts receivable that are deemed to be
uncollectible along with a general reserve, which is calculated based upon
the aging category of the receivable, is included in the overall allowance
for doubtful accounts. Management believes the allowance for doubtful
accounts at December 31, 2008 is adequate. However, actual write-offs may
exceed the recorded allowance. Due to inclement weather, the
Company may experience reduced revenues from December through February and
may realize the substantial part of its revenues during the other months
of the year.
|
|
|
Fair
Value of
Financial
Instruments
|
The
carrying value for each of the Company’s financial instruments (consisting
of cash, accounts receivable and accounts payable and short-term line of
credit) 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 generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from
those estimates.
|
|
The
Company expenses all advertising costs as incurred. Advertising expense
was approximately $333,000 and $314,000 in 2008 and 2007,
respectively.
|
|
|
Earnings
Per Share
|
Earnings
per share is based on the weighted average number of shares of common
stock and dilutive common stock equivalents outstanding. Basic earnings
per share is computed by dividing income available to common shareholders
by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution of
securities that could share in earnings of an entity.
|
|
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 through December
31, 2008.
|
|
Recent
Accounting
Pronouncements
|
In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” (SFAS
157). This statement establishes a framework for measuring fair value in
generally accepted accounting principles (“GAAP”), and expands disclosures
about fair value measurements. While the Statement applies
under other accounting pronouncements that require or permit fair value
measurements, it does not require any new fair value
measurements. SFAS 157 defines fair value as the price that
would be received to sell an asset or paid to transfer a liability (an
exit price) in an orderly transaction between market participants at the
measurement date. In addition, the Statement establishes a fair
value hierarchy, which prioritizes the inputs to the valuation techniques
used to measure fair value into three broad levels. Lastly,
SFAS 157 requires additional disclosures for each interim and annual
period separately for each major category of assets and
liabilities. This Statement is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and
interim periods within those fiscal years. In February
2008, FASB Staff Position (FSP)FAS 157-2 was issued, which defers the
effective date of SFAS 157 until January 1, 2009 for
nonfinancial assets and liabilities except those items recognized or
disclosed at fair value on an annual or more frequently recurring
basis. The adoption of this Statement has not, and is not
expected to have a material impact on the Company’s financial
statements.
|
F-12
| Recent Accounting
Pronouncements
(continued)
|
In
December 2007, the FASB issued FAS 160, “Noncontrolling Interests in
Consolidated Financial Statements – an Amendment of ARB 51”, to establish
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. SFAS
160 requires the company to clearly identify and present
ownership interests in subsidiaries held by parties other than the company
in the consolidated financial statements within the equity section but
separate from the company’s equity. It also requires the amount
of consolidated net income attributable to the parent and to the
noncontrolling interest be clearly identified and presented on the face of
the consolidated statement of income; changes in ownership interest be
accounted for similarly, as equity transactions; and when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the
former subsidiary and the gain or loss on the deconsolidation of the
subsidiary be measured at fair value. SFAS160 applies to fiscal
years beginning after December 15, 2008. Earlier adoption is
prohibited. Management has not determined the effect, if any,
the adoption of this Statement will have on the Company’s results of
operations or financial position.
|
|
|
In
December 2007, the FASB issued SFAS 141 (R), “Business Combinations”, to
create greater consistency in the accounting and financial reporting of
business combinations. SFAS 141 (R) requires a company to
recognize the assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquired entity to be measured at their
fair values as of the acquisition date. SFAS 141 (R) also
requires companies to recognize and measure goodwill acquired in a
business combination or a gain from a bargain purchase and how to evaluate
the nature and financial effects of the business
combination. SFAS 141 (R) applies to fiscal years beginning
after December 15, 2008 and is adopted prospectively. Earlier
adoption is prohibited. Management does not expect the adoption
of this statement will have a material effect on the Company’s results of
operations or financial position, but it is dependent on future
acquisition activities, if any.
In
March, 2008, the FASB issued FASB Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement
133. Statement 161 enhances required disclosures regarding
derivatives and hedging activities, including enhanced disclosures
regarding how: (a) an entity uses
derivative instruments; (b) derivative
instruments and related hedged items are accounted for under FASB
Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities; and (c) derivative
instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. Specifically, Statement
161 requires:
|
|
·
Disclosure of the
objectives for using derivative instruments be disclosed in terms of
underlying risk and accounting designation;
·
Disclosure of the
fair values of derivative instruments and their gains and losses in a
tabular format;
·
Disclosure of
information about credit-risk-related contingent features;
and
·
Cross-reference from
the derivative footnote to other footnotes in which derivative-related
information is disclosed.
|
F-13
and
Subsidiaries
Notes
to Consolidated Financial Statements
|
1.
|
Property and Equipment
|
|
Property
and equipment consists of the following:
|
||||||||
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
|
||||||||
|
Land
and land improvements
|
$ | 514,601 | $ | 514,601 | ||||
|
Buildings
|
2,826,380 | 2,739,460 | ||||||
|
Machinery
and equipment
|
7,694,488 | 7,189,672 | ||||||
|
Rental
equipment
|
764,710 | 711,368 | ||||||
| 11,800,179 | 11,155,101 | |||||||
|
Less:
accumulated depreciation
|
7,576,624 | 7,052,920 | ||||||
| $ | 4,223,555 | $ | 4,102,181 | |||||
F-14
and
Subsidiaries
Notes
to Consolidated Financial Statements
(continued)
|
2.
|
Notes
Payable
|
Notes
payable consist of the following:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Note
payable to Greater Atlantic Bank, maturing June 2021; with monthly
payments of approximately $36,000 of principal and interest at prime plus
.5% (3.75% at December 31, 2008); collateralized by principally all assets
of the Company.
|
$ | 3,003,810 | $ | 3,168,126 | ||||
|
Note
payable to Greater Atlantic Bank, maturing on October 15, 2010; with
monthly payments of approximately $8,400 of principal and interest at
5-year treasury plus 3.25% (4.8% at December 31, 2008); collateralized by
a second priority lien on Company assets.
|
177,496 | 253,317 | ||||||
|
The
Company also has a $1,500,000 line of credit with Greater Atlantic Bank.
The line matures June 15, 2009 and bears interest at the prime rate (3.25%
at December 31, 2008); collateralized by a second priority lien on all
accounts receivable, inventory, and certain other assets of the
Company.
|
500,000 | 200,000 | ||||||
|
Capital
Lease obligations, for machinery and equipment maturing through 2013, with
interest at 7% through 10%.
|
449,637 | 505,354 | ||||||
|
Installment
notes and capitalized leases, collateralized by certain machinery and
equipment maturing at various dates, primarily through 2013, with interest
at 7.25% through 11.07%.
|
460,854 | 469,615 | ||||||
| 4,591,797 | 4,596,412 | |||||||
|
Less
current maturities
|
1,022,476 | 605,376 | ||||||
| $ | 3,569,321 | $ | 3,991,036 | |||||
F-15
Smith-Midland
Corporation
and
Subsidiaries
Notes
to Consolidated Financial Statements
(continued)
|
2.
|
Notes Payable (continued)
|
The
Company’s note loan, with a balance of $3,003,810 at December 31, 2008, is
guaranteed in part by the U.S. Department of Agriculture Rural Business -
Cooperative Services (USDA). The loan agreement includes certain
restrictive covenants, which require the Company to maintain minimum levels of
tangible net worth and limits on annual capital expenditures. At
December 31, 2008, the Company was in compliance with all covenants pursuant the
loan agreement as amended.
The
aggregate amounts of notes payable including capital leases maturing in each of
the next five years and thereafter are as follows:
|
Year
Ending December 31,
|
||||
|
2009
|
$ | 1,022,476 | ||
|
2010
|
583,776 | |||
|
2011
|
438,855 | |||
|
2012
|
385,350 | |||
|
2013
|
313,781 | |||
|
Thereafter
|
1,847,559 | |||
| $ | 4,591,797 | |||
The
aggregate amounts of capitalized lease payments in each of the next five years
are as follows:
|
Year
ending December 31,
|
||||
|
2009
|
$ | 141,714 | ||
|
2010
|
137,022 | |||
|
2011
|
137,021 | |||
|
2012
|
91,090 | |||
|
2013
|
3,561 | |||
|
Total
payments
|
510,408 | |||
|
Less
amounts representing interest (at approximately 7%)
|
60,771 | |||
| $ | 449,637 | |||
Fixed
assets under capital leases at December 31, 2008 and 2007 were approximately
$507,000 and $510,000, net of accumulated depreciation of approximately $76,000
and $18,000, respectively.
F-16
Smith-Midland
Corporation
and
Subsidiaries
Notes
to Consolidated Financial Statements
(continued)
|
3.
|
Related Party Transactions
|
The
Company currently leases some of its Midland, Virginia property from its
President, 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.
|
4.
|
Income
Taxes
|
Income
tax expense (benefit) is comprised of the following:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Federal:
|
||||||||
|
Current
|
$ | 168,000 | $ | 815,000 | ||||
|
Deferred
|
31,000 | (51,000 | ) | |||||
| 199,000 | 764,000 | |||||||
|
State:
|
||||||||
|
Current
|
62,000 | 123,000 | ||||||
|
Deferred
|
7,000 | (11,000 | ) | |||||
| 69,000 | 112,000 | |||||||
| $ | 268,000 | $ | 876,000 | |||||
|
December
31,
|
||||||||||||||||
|
2008
|
2007
|
|||||||||||||||
|
Income
taxes at statutory rate
|
$ | 234,000 | 34 | % | $ | 724,000 | 34 | % | ||||||||
|
Increase
(decrease) in taxes resulting from:
|
||||||||||||||||
|
State
income taxes,
|
||||||||||||||||
|
net
of federal benefit
|
34,000 | 5 | % | 77,000 | 4 | % | ||||||||||
|
Other
|
— | — | 75,000 | 3 | % | |||||||||||
| $ | 268,000 | 39 | % | $ | 876,000 | 41 | % | |||||||||
F-17
Smith-Midland
Corporation
and
Subsidiaries
Notes
to Consolidated Financial Statements
(continued)
|
4.
|
Income
Taxes (continued)
|
Deferred
tax assets (liabilities) are as follows:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Net
operating loss and AMT carrybacks
|
$ | 63,000 | $ | 66,000 | ||||
|
Depreciation
|
(317,000 | ) | (241,000 | ) | ||||
|
Provision
for doubtful accounts
|
155,000 | 95,000 | ||||||
|
Vacation
accrued
|
77,000 | 84,000 | ||||||
|
Deferred
income
|
108,000 | 120,000 | ||||||
|
Other
|
68,000 | 68,000 | ||||||
|
Net
deferred tax asset
|
154,000 | 192,000 | ||||||
|
Current
portion, net
|
471,000 | 367,000 | ||||||
|
Long-term
portion, net
|
(317,000 | ) | (175,000 | ) | ||||
| $ | 154,000 | $ | 192,000 | |||||
|
Employee Benefit Plans
|
The
Company has a 401(k) retirement plan (the "Plan") covering substantially all
employees. Participants may contribute up to 10% of their
compensation to the Plan. The Company contributes 50% of the
participant's contribution, up to 4% of the participant's compensation, as a
matching contribution. Total contributions for the years ended
December 31, 2008 and 2007 were approximately $65,000 and $51,000,
respectively.
|
6.
|
Stock
Options
|
On
September 9, 2004, the Board of Directors and Stockholders of the Company
adopted the 2004 Stock Option Plan (the "2004 Plan"), which allows 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 plan may be either Incentive Stock Options or Non-Qualified Stock
Options. Incentive Stock Options may be granted only to employees of
the Company, while Non-qualified options may be issued to non-employee
directors, consultants, and others, as well as to employees of the
Company. The Company granted 127,825 stock options during the year
ended December 31, 2008. On September 19, 2008, the Board of
Directors and Stockholders of the Company adopted the 2008 Stock Option Plan
(the "2008 Plan"), which allows the Company to grant up to 500,000 options to
employees, officers, directors and consultants to purchase shares of the
Company's Common Stock. There were no grants of options under the
2008 Plan during the year ended December 31, 2008.
Options
generally vest over a three year period. The Company recorded stock
option expense of $142,873 and $105,893 included in general and administrative
expense for the years ended December 31, 2008 and 2007
respectively. The Company estimates approximately $158,000 of
remaining expense to be recognized over the next three years for options
outstanding at December 31, 2008.
There
were no options exercised in the year ending December 31, 2008. The
intrinsic value for exercisable options exercised for the year ended December
31, 2007 was approximately $41,000. The intrinsic value for
outstanding and exercisable options at December 31, 2008 is approximately
$500.
F-18
Smith-Midland
Corporation
and
Subsidiaries
Notes
to Consolidated Financial Statements
(continued)
The
following tables summarize activity under the stock option plans of the Company
and the stock options outstanding at December 31, 2008:
|
Weighted
Average Exercise Price
|
Options
Outstanding
|
Vested
and Exercisable
|
||||||||||
|
Balance,
December 31, 2006
|
1.49 | 511,424 | 354,149 | |||||||||
|
Granted
|
2.15 | 92,500 | — | |||||||||
|
Forfeited
|
2.25 | (25,500 | ) | (10,500 | ) | |||||||
|
Exercised
|
1.05 | (36,267 | ) | (36,267 | ) | |||||||
|
Vested
|
2.40 | — | 65,231 | |||||||||
|
Balance,
December 31, 2007
|
1.26 | 542,157 | 372,613 | |||||||||
|
Granted
|
1.21 | 127,825 | — | |||||||||
|
Forfeited
|
1.00 | (27,825 | ) | (27,825 | ) | |||||||
|
Exercised
|
— | — | — | |||||||||
|
Vested
|
2.30 | — | 88,211 | |||||||||
|
Balance,
December 31, 2008
|
1.52 | 642,157 | 432,999 | |||||||||
|
7.
|
Commitments and
Contingencies
|
The
Company is party to legal proceedings and disputes which 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.
8. Subsequent
Events
A
settlement agreement (as reported on Form 8-K dated February 19, 2009) between
JPI Construction Services, GP LLC (“JPIC”) and the Company for breaches of a
subcontract between the parties was executed on February 9, 2009. The
Company has steadfastly maintained its position in the matter, however, because
of senior managements’ time required to prepare for trial, the projected legal
fees attributable to the trial and the prolonged period required for the
process, the Company decided it was not in its best interest to continue forward
with a trial. The significant terms of the agreement are as
follows:
|
|
1.
|
The
Company was required to forgive outstanding retainage receivables from
JPIC of approximately $199,000, of which the Company had previously
reserved for in the amount of
$100,000.
|
|
|
2.
|
The
Company was required to make a $426,000 cash payment to JPIC, which has
been made.
|
|
|
3.
|
Both
parties agreed to release each other from any and all other claims arising
out of this dispute.
|
In
addition, each party is required to pay their own attorney’s fees, which for the
Company, was approximately $160,000.
All
amounts described above were accrued and charged to expense as of, and for the
year ended December 31, 2008.
F-19
and
Subsidiaries
Notes
to Consolidated Financial Statements
(continued)
|
9.
|
Earnings
Per Share
|
Earnings
per share is calculated as follows:
|
December
31,
|
||||||||
|
2008
|
2007
|
|||||||
|
Basic
earnings per share
|
||||||||
|
Income
available to common shareholder
|
$ | 420,993 | $ | 1,252,360 | ||||
|
Weighted
average shares outstanding
|
4,670,882 | 4,646,733 | ||||||
|
Basic
earnings per share
|
$ | 0.09 | $ | 0.27 | ||||
|
Diluted
earnings per share
|
||||||||
|
Income
available to common shareholder
|
$ | 420,993 | $ | 1,252,360 | ||||
|
Weighted
average shares outstanding
|
4,670,882 | 4,646,733 | ||||||
|
Dilutive
effect of stock options
|
67,119 | 146,982 | ||||||
|
Total
weighted average shares outstanding
|
4,738,001 | 4,793,715 | ||||||
|
Diluted
earnings per share
|
$ | 0.09 | $ | 0.26 | ||||
Outstanding
options excluded from the diluted earnings per share calculation because they
would have an anti-dilutive effect were 440,491 and 264,166 for the years ended
December 31, 2008 and 2007.
F-20