Washington, D.C. 20549
5119 Catlett Road, P.O. Box 300
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying notes are an integral part of the condensed consolidated financial statements.
The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, and with the instructions to Form 10-Q and Article 10 and Regulation S-X. Accordingly, we have condensed or omitted certain information and footnote disclosures that are included in our annual financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, summary of significant accounting policies, and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2018. The condensed consolidated December 31, 2018 balance sheet was derived from the audited financial statements included in the Form 10-K. Dollar amounts in the footnotes are stated in thousands, except for per share data.
In the opinion of management, these condensed consolidated financial statements reflect all adjustments (which consist of normal, recurring adjustments) necessary for a fair presentation of the financial position and results of operations and cash flows for the periods presented. The results disclosed in the condensed consolidated statements of operations are not necessarily indicative of the results to be expected in any future periods.
Fair Value Measurement. In August 2018, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement (Topic 820).” Among other modifications, the standard removes the requirements to disclose: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process for Level 3 FV measurements. The standard will require public entities to disclose: (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 FV measurements held at the end of the reporting period; and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 FV measurements. The additional disclosure requirements should be applied prospectively for the most recent interim or annual period presented in the fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. The amendments in this standard are effective for fiscal years ending after December 15, 2019. Early adoption is permitted, and an entity may adopt the removed or modified disclosures and delay the adoption of new disclosures until the effective date. We have not completed our assessment of the standard but we do not expect the adoption to have a material impact on the Company's consolidated financial position, results of operations and cash flows.
Recently Adopted Accounting Pronouncements
Leases. In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model for leases. The most significant changes include the clarification of the definition of a lease, the requirement for lessees to recognize for all leases a right-of-use asset and a lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. Expenses are recognized in the consolidated statement of income in a manner similar to current accounting guidance. Lessor accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective January 1, 2019, using the transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with an initial term of 12 months or less off the consolidated balance sheet. We have finalized our evaluation of the impacts that the adoption of this accounting guidance on the consolidated financial statements and haveinitially recorded approximately $400 of right-of-use assets, included in property and equipment, and liabilities recognized in our consolidated balance sheet, amortized over the expected lives of the leases upon adoption.
Comprehensive Income. In February 2018, the FASB issued ASU No. 2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220).” This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of 2017. This standard was effective for interim and annual reporting periods beginning after December 15, 2018. We did not exercise the option to make this reclassification.
Revenue Recognition
Product Sales - Over Time
Under Topic 606, the Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services provided. Revenue associated with contracts with customers is recognized over time as the Company's performance creates or enhances customer controlled assets or creates or enhances an asset with no alternative use, which the Company has an enforceable right to receive compensation as defined under the contract for performance completed. To determine the amount of revenue to recognize over time, the Company recognizes revenue over the contract terms based on the output method. The Company applied the "as-invoiced" practical expedient as the amount of consideration the Company has the right to invoice corresponds directly with the value of the Company's performance to date.
As the output method is driven by units produced, the Company recognizes revenues based on the value transferred to the customer relative to the remaining value to be transferred. The Company also matches the costs associated with the units produced. If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined and the amount of the loss updated in subsequent reporting periods. Revenue recognition also includes an amount related to a contract asset or contract liability. If the recognized revenue is greater than the amount billed to the customer, a contract asset is recorded in accounts'Accounts receivable - unbilled.unbilled". Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded in customer deposits."Customer deposits". Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and therefore, profit and revenue recognition.
A portion of the work the Company performs requires financial assurances in the form of performance and payment bonds or letters of credit at the time of execution of the contract. Some contracts include retention provisions of up to 10% which are generally withheld from each progress payment as retainage until the contract work has been completed and approved.
Product Sales - Point in Time
For certain product sales that do not meet the over time criteria, under Topic 606 the Company recognizes revenue when the product has been shipped to the destination in accordance with the terms outlined in the contract where a present obligation to pay exists as they havethe customer has gained physical possessioncontrol of the product.
Accounts Receivable and Contract Balances
The timing of when we bill our customers is generally dependent upon billing terms, milestone billings based on the completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings, are reported on our Condensed Consolidated Balance Sheets as "Accounts receivable - unbilled". Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimateestimated earnings recognized to date, are reported on our Condensed Consolidated Balance Sheets as customer deposits"Customer deposits" (i.e. contract liabilities).
Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable. At March 31,September 30, 2019 and December 31, 2018, accounts receivable included contract retentions of approximately $1,389$1,833 and $1,704, respectively.
Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain reserves for specifically-identified potential uncollectible receivables. At March 31,September 30, 2019 and December 31, 2018, our allowances for doubtful accounts were $228$329 and $214, respectively.
Sale to Customer with a Buy-Back Guarantee
The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back product at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company receives payment in full as the product is produced, we are requiredGAAP requires these transactions to accountbe accounted for these transactions as operating leases. The amount of sale proceeds equal to the buy-back obligation, included in "Deferred buy-back lease obligation" in the liabilities section of the consolidated balance sheet, is deferred until the buy-back is exercised or expired. The remaining sale proceeds are deferred in the same account and recognized on a straight-line basis over the usage period, such usage period commencing on delivery to the job-site and ending at the time the buy-back is exercised or expired. The Company capitalizes the cost of the product on the consolidated balance sheet shown in "Deferred buy-back lease asset, net", and depreciates the value, less residual value, to cost of leasing revenue in "Cost of goods sold" over the estimated useful life of the asset.
In the case the customer does not exercise the buy-back option and retains ownership of the product at the end of the usage period, the guarantee buyback liability and any deferred revenue balances related to the product are settled to revenue, and the net book value of the asset is expensed to cost of leasing revenue. If the customer exercises the buy-back guarantee option, the Company purchases the product back in the amount equal to the buyback guarantee, we settle any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and we reclassify the net book value of the product on the consolidated balance sheet to "Inventories" or "Property and equipment, net" depending on the intended use at the time. The revenue is being recognized in accordance with Topic 840,842, Leases.
Barrier Rentals - Leasing Fees
Leasing fees are paid by customers at the beginning of the lease agreementperiod and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income for the duration of the lease, in accordance with Topic 840,842, Leases. Topic 840842 is applied, as Topic 606-10-15-2 provides a scope exception for lease contracts.
Royalty Income
The Company licenses certain products to other precast companies to producemanufacture the Company's products to engineering specifications under the licensing agreements. The agreements are typically for five year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid on a monthly basis. The revenues from licensing agreements are recognized in the month earned, in accordance with Topic 606-10-55-65.
Shipping and Installation
Shipping and installation revenues are recognized as a distinct performance obligation in the period the shipping and installation services are provided to the customer, in accordance with Topic 606.
Disaggregation of Revenue
In the following table, revenue is disaggregated by primary sources of revenue (in thousands):revenue:
| Three Months Ended March 31, | Three Months Ended September 30
| Nine Months Ended September 30 |
| | | | | | | | | | | | | |
| Product Sales: | | | |
| Soundwall Sales | $2,114 | $2,480 | $(366) | (15)% | $1,736
| $2,334
| $(598) | (26)% | $5,790
| $7,339
| $(1,549)
| (21)%
|
| Architectural Panel Sales | — | 213 | (213) | (100)% | 593
| 41
| 552
| 1,346% | 1,018
| 498
| 520
| 104%
|
| SlenderWall Sales | 1,963 | 1,143 | 820 | 72% | 816
| 1,637
| (821)
| (50)% | 3,551
| 4,203
| (652
)
| (16)%
|
| Miscellaneous Wall Sales | 363
| 493 | (130) | (26)% | 474
| 87
| 387
| 445% | 1,243
| 846
| 397
| 47%
|
| Barrier Sales | 1,591 | 2,285 | (694) | (30)% | 1,921
| 1,749
| 172
| 10% | 5,329
| 5,624
| (295)
| (5)%
|
| Easi-Set and Easi-Span Building Sales | 1,034 | 502 | 532 | 106% | 2,468
| 496
| 1,972
| 398% | 4,837
| 1,557
| 3,280
| 211%
|
| Utility Sales | 308 | 214 | 94 | 44% | 471
| 429
| 42
| 10% | 1,228
| 890
| 338
| 38%
|
| 130 | 123 | 7 | 6% | 110
| 55
| 100% | 424
| 267
| 157
| 59%
|
| Total Product Sales | 7,503
| 7,453 | 50
| 1% | 8,589
| 6,828
| 1,761
| 26% | 23,420
| 21,224
| 2,196
| 10%
|
| Barrier Rentals | 573 | 309 | 264 | 85% | 625
| 540
| 85
| 16% | 1,787
| 1,188
| 599
| 50%
|
| Royalty Income | 306 | 221 | 85 | 38% | 427
| 465
| (38)
| (8)% | 1,162
| 1,193
| (31
)
| (3)%
|
Shipping and Installation Revenue | 1,807 | 1,142 | 665 | 58% | 3,568
| 1,711
| 1,857
| 109% | 7,880
| 4,897
| 2,983
| 61%
|
| Total Service Revenue | 2,686
| 1,672 | 1,014
| 61% | 4,620
| 2,716
| 1,904
| 70% | 10,829
| 7,278
| 3,551
| 49%
|
| | | | |
| Total Revenue | $10,189 | $9,125 | $1,064 | 12% | $13,209
| $9,544
| $3,665
| 38% | $34,249
| $28,502
| $5,747
| 20%
|
Warranties
Smith-MidlandThe Company's products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case by case method. Although the Company does incur costs for these types of expense, historically the amount of expense is minimal.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Segment Reporting
Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. The Company currently operates in one operating and reportable business segment for financial reporting purposes.
Reclassifications of Certain Items Included within Comparable Prior Year Periods and Previous Current Year Interim Periods
Certain minor reclassifications have been made to prior year amountsbalances to conform to current year presentation, including separation of current and non-current portion of deferred revenue and deferred buy-back lease obligation.
NOTE 2. – NET INCOME (LOSS) PER SHARE
Basic earnings per common share exclude all common stock equivalents, primarily restricted stock awards, and is computed using the weighted average number of common shares outstanding during the period. The diluted earnings per common share calculation reflects the potential dilutive effect of securities that could share in earnings of the Company. As of March 31,September 30, 2019, there are no outstanding stock options. For periods prior to March 31,September 30, 2019 outstanding options were excluded from the diluted earnings per share calculation when they would have an anti-dilutive effect. Earnings per share are calculated as follows:
| | Three Months Ended September 30, | Nine Months Ended September 30, |
| | | | | |
| Basic income per share | | | | |
| | | | | |
Net income
| $574
| $520
| $1,178
| $790
|
| | | | | |
| Weighted average shares outstanding | 5,134 | 5,080
| 5,134
| 5,078
|
| | | | | |
| Basic income per share | $0.11
| $0.10
| $0.23
| $0.16
|
| | | | | |
| Diluted income per share | | | | |
| | | | | |
Net income
| $574
| $520
| $1,178
| $790
|
| | | | | |
| Weighted average shares outstanding | 5,134 | 5,080
| 5,134
| 5,078
|
| Dilutive effect of stock options and restricted stock | 4
| 19
| 4
| 20
|
| | | | | |
| Total weighted average shares outstanding | 5,138
| 5,099
| 5,138
| 5,098
|
| | | | | |
| Diluted income per share | $0.11
| $0.10
| $0.23
| $0.15
|
| | Three Months Ended March 31, |
| | | |
| Basic income (loss) per share | | |
| | | |
Net income (loss)
| $331 | $(422)
|
| | |
| Weighted average shares outstanding | 5,134 | 5,114 |
| | |
| Basic income (loss) per share | $0.06 | $(0.08)
|
| | |
| Diluted income (loss) per share | | |
| | |
Net income (loss)
| $331 | $(422)
|
| | |
| Weighted average shares outstanding | 5,134 | 5,114 |
| Dilutive effect of stock options and restricted stock | 8 | — |
| | |
| Total weighted average shares outstanding | 5,142 | 5,114 |
| | |
| Diluted income (loss) per share | $0.06 | $(0.08)
|
NOTE 3. – NOTES PAYABLE (dollar amounts in thousands)
The Company has a mortgage note payable to Summit Community Bank (the “Bank”), with a balance of $730$590 as of March 31,September 30, 2019. The note has a maturity date of September 20, 2021 and a fixed interest rate of 3.99% annually with monthly payments of $26 and is secured by principally all of the assets of the Company. Under the terms of the note, the Bank will permit chattel mortgages on purchased equipment not to exceed $250 for any one individual loan so long as the Company is not in default.
The Company has a mortgage note payable to the Bank for the the purchase of the Columbia, South Carolina facility. Such loan is evidenced by a promissory note dated July 19, 2016. The note provides for a 15 year term, a fixed annual interest rate of 5.29%, monthly fixed payments of $11 and a security interest in favor of the Bank in respect ofto the land, building and fixtures purchased with the proceeds of the loan. The balance of the loan at March 31,September 30, 2019 was $1,153.$1,120.
The Company additionally has 13 smaller installment loans with annual interest rates between 2.94% and 5.75%, maturing between 2020 and 2024, with varying balances totaling $1,442.$1,287.
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500.$3,500 excluding the North Carolina and Virginia plant expansions. The Company is in compliance with all covenants pursuant to the loan agreements as of March 31,September 30, 2019.
In addition to the notes payable discussed above, the Company also hashad a $4,000 line of creditline-of-credit with the Bank that had a balance of $1,500 at March 31,September 30, 2019 used to fund the construction of the North Carolina expansion, which will bewas paid in full and converted to long-term debt when the Company closed the financing closes inon October 11, 2019. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and maturesSee Note 5 - Subsequent Event below. Also, on September 18, 2019. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company, (i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On September 18, 2018October 11, 2019 the Company received a Commitment Letter from the Bank to provide a guidance lineline-of-credit in the amount of credit specifically$4,000 and is expecting to purchase business equipment in an amount up to $1,500. The commitment provides forcomplete the purchaserenewal by the end of equipment with minimum advances of $50 for which a note payable will be executed with a term not to exceed five years with an interest rate at the Wall Street Journal prime rate plus ..5% with a floor of 4.49% per annum. The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on September 17, 2019. As of March 31, 2019, the Company had not purchased any equipment pursuant to the $1,500 commitment.
NOTE 4. – STOCK COMPENSATION
The fair value of restricted stock awards is estimated to be the market price of the Company's common stock at the close of the date of grant. Restricted stock activity during the threenine months ended March 31,September 30, 2019 is as follows:
| | | Weighted Average Grant Date Fair Value per Share |
| Balance, December 31, 2018 | 69,500 | $5.19 |
| Granted | 2,000 | 7.43
|
| Vested | (21,667) | (5.63) |
| Forfeited | — | — |
| | | |
| Non-vested, end of period | 49,833 | $5.15 |
Awards are being amortized to expense ratably, on an annual basis, over a three year vesting term, except one grant in January 2019 for 2,000 shares of restricted stock, and one grant in January 2018 for 2,500 shares of restricted stock, which both vested upon grant. There was stock compensation expense of approximately $84$223 for the threenine months ended March 31,September 30, 2019 and $117$256 for the threenine months ended March 31,September 30, 2018. The total unrecognized compensation cost as of March 31,September 30, 2019 related to the non-vested restricted stock is approximately $192.$64.
NOTE 5. – SUBSEQUENT EVENTS
On October 11, 2019, the Company closed on the financing of the North Carolina expansion project with a $2,228 promissory note with the Bank. The loan is collateralized by a first lien position on the North Carolina property, building, and assets. The interest rate per the Promissory Note Rate Conversation Agreement is fixed at 3.64% per annum, with principal and interest payments payable monthly over 120 months in the amount of $22. The loan matures on October 10, 2029. Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500 excluding the North Carolina and Virginia plant expansions.
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This Quarterly Report and related documents include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act 1934. 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:
●
While the Company was profitable for the years ended December 31, 2018 and 2017, and for the first quarterthree quarters of 2019, there are no assurances that the Company can remain profitable in future periods,
●
our debt level increased in 2018 and in the first quarternine months of 2019, and our ability to satisfy the same cannot be assured,
●
the continued availability of financing in the amounts, at the times, and on the terms required, to support our future business and capital projects,
●
the extent to which we are successful in developing, acquiring, licensing or securing patents for proprietary products,
●
changes in economic conditions specific to any one or more of our markets (including the availability of public funds and grants for construction),
●
the highly competitive nature of our industry and our ability to effectively compete,
●
changes in general economic conditions in the Company’s primary service areas,
●
the ability to generate sufficient revenues to justify our expansion of manufacturing facilities,
●
adverse weather, which inhibits the demand for our products,
●
our compliance with governmental regulations,
●
the outcome of future litigation, if any,
●
on material construction projects, our ability to produce and install product that conforms to contract specifications and in a time frame that meets the contract requirements,
●
the cyclical nature of the construction industry,
●
our exposure to increased interest expense payments should interest rates change,
●
the Company’s Board of Directors, which is composed of five members, has two only two outside, independent directors, and
●
the other factors and information disclosed and discussed in other sections of this Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018.
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.
Overview
The Company invents, develops, manufactures, markets, leases, licenses, sells, and installs a broad array of precast concrete products for use primarily in the construction, highway, utilities and farming industries. The Company's customers are primarily general contractors and federal, state, and local transportation authorities located in the Mid-Atlantic, Northeastern, Midwestern regions and parts of the Southeastern region 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 insulated wall panel for use in building construction; J-J Hooks® Highway Safety Barrier, a 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.
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 had (in thousands) net income of $331 for the first quarter 2019, compared to a net lossincome of $422$273 for the firstsecond quarter 2018.2019, and net income of $574 for the third quarter 2019, resulting in net income of $1,178 for the nine months ended September 30, 2019. The cost of goods sold as a percent of revenue, not including royalties, for the three and nine months ended March 31,September 30, 2019 was 81%83% and 82%, respectively, as compared to 85%77% and 79% for the three and nine months ended March 31, 2018.September 30, 2018, respectively. The decreaseincrease in cost of goods sold as a percentage of revenue, not including royalties, for the first quarter ofthree and nine months ended September 30, 2019, compared to the first quarter ofthree and nine months ended September 30, 2018, is mainly due to the increase in SlenderWallshipping and installation which typically have lower margins than product sales and barrier rentals which tend. In addition, the Company continues to have higher margins than commodity productscompetitive pricing pressure along with increased wage and services.labor costs. Total sales for the three and nine month periodperiods ended March 31,September 30, 2019 were $10,189$13,209 and $34,249, respectively, compared to $9,125$9,544 and $28,502 for the same period in 2018.three and nine months ended September 30, 2018, respectively. The increase was mainly from SlenderWall and Easi-Set building sales, and barrier rentals, which were impacted favorably from the deferred buy-back revenue recognition, and the significant increase in shipping and installation revenue. With respect to the barrier customer contract described in Note 1 ("Sale to Customer with a Buy-Back Guarantee"), although barrier product sales from this contract are not being recognized, the Company has begunis recognizing barrier rental revenue which will continue through the life of the customer's project. Accordingly, once all product is delivered to this customer, the Company will nonetheless continue to recognize the net profits from this project until the buy-back option is either exercised or expired. Delivery of product commenced in the second quarter of 2018 and is expected to be completed duringby the third quartermiddle of 2019.2020. The buy-back option expires when the customer completes the project utilizing the barrier, which is expected to be in 2022. Thus, whereas the Company will likely have completed its production and delivery/installation obligations in 2019,2020, it will nonetheless continue to recognize net profits through 2022. Management expects total sales and margins to increase for the remainder ofyear 2019 as compared to the first quarter 2019,surpass 2018 annual sales, although no assurance can be given.
Results of Operations (dollar amounts in thousands, except per share data)
Three and nine months ended September March 31,30, 2019 compared to the three and nine months ended March 31,September 30, 2018
Sales include revenues fromRevenue includes product sales, barrier rentals, royalty income, and shipping and installation revenues. Product sales are further divided into soundwall, architectural and SlenderWall™ panels, miscellaneous wall panels, highway barrier, Easi-Set® and Easi-Span® buildings, utility products, and miscellaneous precast products. The following table summarizes the sales by product type and comparison for the three and nine month periodperiods ended March 31,September 30, 2019 and 2018.
Revenue by Type (Disaggregated Revenue)
| | Three Months Ended September 30
| Nine Months Ended September 30 |
| | | | | | | | | | | | | |
| Product Sales: | | | |
| Soundwall Sales | $2,114 | $2,480 | $(366) | (15)% | $1,736
| $2,334
| $(598) | (26)% | $5,790
| $7,339
| $(1,549)
| (21)%
|
| Architectural Panel Sales | — | 213 | (213) | (100)% | 593
| 41
| 552
| 1,346% | 1,018
| 498
| 520
| 104%
|
| SlenderWall Sales | 1,963 | 1,143 | 820 | 72% | 816
| 1,637
| (821)
| (50)% | 3,551
| 4,203
| (652
)
| (16)%
|
| Miscellaneous Wall Sales | 363
| 493 | (130) | (26)% | 474
| 87
| 387
| 445% | 1,243
| 846
| 397
| 47%
|
| Barrier Sales | 1,591 | 2,285 | (694) | (30)% | 1,921
| 1,749
| 172
| 10% | 5,329
| 5,624
| (295)
| (5)%
|
| Easi-Set and Easi-Span Building Sales | 1,034 | 502 | 532 | 106% | 2,468
| 496
| 1,972
| 398% | 4,837
| 1,557
| 3,280
| 211%
|
| Utility Sales | 308 | 214 | 94 | 44% | 471
| 429
| 42
| 10% | 1,228
| 890
| 338
| 38%
|
| 130 | 123 | 7 | 6% | 110
| 55
| 100% | 424
| 267
| 157
| 59%
|
| Total Product Sales | 7,503
| 7,453 | 50
| 1% | 8,589
| 6,828
| 1,761
| 26% | 23,420
| 21,224
| 2,196
| 10%
|
| Barrier Rentals | 573 | 309 | 264 | 85% | 625
| 540
| 85
| 16% | 1,787
| 1,188
| 599
| 50%
|
| Royalty Income | 306 | 221 | 85 | 38% | 427
| 465
| (38)
| (8)% | 1,162
| 1,193
| (31
)
| (3)%
|
Shipping and Installation Revenue | 1,807 | 1,142 | 665 | 58% | 3,568
| 1,711
| 1,857
| 109% | 7,880
| 4,897
| 2,983
| 61%
|
| Total Service Revenue | 2,686
| 1,672 | 1,014
| 61% | 4,620
| 2,716
| 1,904
| 70% | 10,829
| 7,278
| 3,551
| 49%
|
| | | | |
| Total Revenue | $10,189 | $9,125 | $1,064 | 12% | $13,209
| $9,544
| $3,665
| 38% | $34,249
| $28,502
| $5,747
| 20%
|
Soundwall Sales - Soundwall sales decreased for the three and nine month periodperiods ended March 31,September 30, 2019 when compared to the same periodperiods in 2018. The decrease for the three and nine month period in soundwall sales is mainly attributed to the reduction inof orders associated with soundwall production at the North Carolina and South Carolina plantplants in the first quarter 2019.three and nine months of 2019 compared to the same periods in 2018. The Virginia plant has increasedcontinues to have strong soundwall production, for their largest order ever, which willis expected to continue production into 2020. North Carolina soundwall production continues to be strong in 2019. With the current backlog and continued increase in highway work, managementManagement expects soundwall sales to trend up forremain similar to the remainderfirst three quarters of 2019 during the year 2019.fourth quarter 2019, although no assurance can be given.
Architectural Panel Sales - Architectural panel sales were zeroincreased for the three and nine months ended March 31,September 30, 2019 compared to $213the same periods in 2018. The Company had two small architectural panel projects in production during the same periodthird quarter 2019, while there was minimal production in 2018. Revenue is expected to remain at a low volume through the remainder of 2019.third quarter 2018. There will be lower arhitectural panel production during the secondfourth quarter of 2019, but this will not be a large portion of revenue.and management expects production to increase during the first quarter 2020. Architectural panel sales continue to be a smaller complimentary product to the Company's high profile proprietary product SlenderWall.
SlenderWallTM - There were significant SlenderWall panel sales decreased for the three and nine month periodperiods ended March 31,September 30, 2019 as compared to the same periodperiods in 2018, with an increase in revenue of $820, or 72%.2018. SlenderWall sales are projected to be slightly lower forgenerated on a project basis, and success is determined by the number and dollar value of projects awarded and produced in any particular period. The Company finished producing a major SlenderWall project during the first quarter 2019, while only producing a couple smaller projects during the second quarter, but theand third quarters 2019. The Company continues to have strong demandfocus sales initiatives for this proprietary product. SlenderWall continues to remain a focus of the Company, with the hiring of a new regional sales manager withfor the main focus on SlenderWall.proprietary product.
Miscellaneous Wall Sales - Miscellaneous wall sales decreasedincreased for the three and nine month periodperiods ended March 31,September 30, 2019 when compared to the same periodperiods in 2018. The Company had very fewhas recently been awarded various miscellaneous wall panel projects during the first three months of 2019 and 2018. With varying market demand, miscellaneouswith production expected to continue into 2020. Management expects miscellaenous wall sales are expected to remain low forincrease in the fourth quarter 2019 until selective miscellaneous wall projects are released, whichwith it still remaining a smaller portion of revenue, although no assurance can be very profitable due to their unique characteristics.given.
Barrier Sales - Barrier sales decreasedincreased during the three month period ended March 31,September 30, 2019 compared to the same periodsperiod in 2018, and decreased during the nine month period ended September 30, 2019 compared to the same period in 2018. Although barrier production has decreased during the more recent nine month period, the Company is completingcompleted production of its largest barrier order ever during the second quarter of 2019. A large portion of barrier production is not being recognized as barrier sales due to the guaranteed buy-back agreement with a customer; instead the Company is recognizing the income as barrier rental revenue over the duration of the project, for which deliveries began in the second quarter of 2018 and are expected to be completed duringby the third quarter 2019.middle of 2020. Accordingly, during and after product delivery to this customer, the Company will recognize the revenue as barrier rental revenue until the buy-back option is either exercised by the customer, or expired, which is expected to be in 2022. Thus, whereas the Company is likely to have completed its production and delivery of all product in 2019,2020, it will recognize net profits through 2022. Management expects barrier sales to be lowerincrease for the fourth quarter 2019 as compared to annual barrier sales for 2018.with a large order recently awarded with production occuring during the fourth quarter of 2019. Beyond 2019, future barrier sales growth is expected with the new MASH TL3 requirements which the Company product line can satisfy, although no assurance can be given.
Easi-Set® and Easi-Span® Building Sales - Building and restroom sales increased significantly for the three and nine month periodperiods ended March 31,September 30, 2019 compared to the same periodperiods in 2018, by $532 or 106%.2018. The Company continues to produce buildings at all three manufacturing facilities.has recently seen competitive pricing pressure in certain building and restroom sales. The Company had a short-term increase in building sales during the third quarter 2019 with a large building and restroom order from the Columbia, South Carolina plant recently received a large building orderthat was produced, shipped, and managementinstalled all during such quarter. Management expects there to be an increase during the second quarter of 2019 in building and restroom sales and also expectsto be lower in the fourth quarter 2019 annual salescompared to match or exceed 2018 annual sales.the third quarter 2019.
Utility Sales - Utility and farm products sales increased in the three and nine month periodperiods ended March 31,September 30, 2019 as compared to the same periodperiods in 2018. Utility products are tied closely with infrastructure spending by federal, state and local governments. The Company continues to bid on utility projects and is competitive on larger quantities, although there are competitors who specialize in lower priced utility products. Management believes utility product sales will remain at the current level or slightly increase duringfor the remainder of 2019.
Miscellaneous Sales - Miscellaneous sales are items sold that do not meet the criteria defined for other revenue categories. Miscellaneous sales slightly increased for the three and nine month periodperiods ended March 31,September 30, 2019 as compared to the same periodperiods in 2018. Management believes that miscellaneous product sales will remain low for the remainder of the year.
Barrier Rentals - Barrier rentals increased significantly for the three and nine month periodperiods ended March 31,September 30, 2019 as compared to the same periodperiods in 2018, in the amount of $264, or 85%.2018. The increase is mainly due to the recognition of revenue associated with the guaranteed buy-back agreement deferral. The Company's core barrier rental fleet also showed an increase for the three monthsand nine month periods ended March 31,September 30, 2019 as compared to the same periodperiods in 2018, with rentals increasing by 24%.2018. With the Company expanding the barrier rental services, management believes it has the potential to increase barrier rental revenue for the remainder of 2019,during 2020 and moving forwardfuture years, as the outlays for infrastructure spending by federal and state governments are expected to continue to increase. As stated above in Barrier Sales, barrier rental revenue will continue to be positively effected for future periods due to the accounting treatment afforded to the guaranteed buy-back agreement with a customer.
Royalty Income - Royalties increasedslightly decreased for the three and nine month periods ended September 30, 2019 compared to the same periods in 2018. Royalties for buildings increased and royalties for barrier remained flat for the nine month period ended March 31,September 30, 2019 as compared to the same period for 2018. SlenderWall royalties for the nine months ended September 30, 2019 lag behind the same period in 2018. The increase over the prior year was mainly attributed to poor weather conditions in the first quarter 2018.2018, as projects can be multi-year initiatives. Management continues to seek new licensee opportunities to expand product offerings around the world. With steady increase incontinued construction and infrastructure spending, management believes 2019 royalty revenue will be higher in 2019 as comparedsimilar to 2018, although no assurance can be given.
Shipping and Installation - Shipping revenue results from shipping our products to the customers' final destination and is recognized when the shipping services take place. Installation activities include installation of our products at the customers’ construction sites. Installation revenue resultsis recognized when attaching architectural and SlenderWall panels to a building, installing an Easi-Set® building at customers' sites or setting any of our other precast products at a site specific to the requirements of the owner. Shipping and installation revenue increased significantly for the three and nine month periodperiods ended March 31,September 30, 2019, compared to the same periodperiods in 2018. The increase is mainly derived from shipping and installation associated with barrier, and barrier rental deliveries, buildings and SlenderWall installation and deliveries, which increased significantly in the first quarternine months of 2019 compared to the first quarternine months of 2018. The Company continues to expand shipping and installation services through products such as barrier and barrier rental to help drive top and bottom line performance.rentals.
Cost of Goods Sold - Total cost of goods sold, as a percentage of total revenue, not including royalties, was 83% for the three months ended March 31,September 30, 2019, increased by $433, or 6%,an increase from 77% for the same period in 2018. Total cost of goods sold, as a percentage of total revenue, not including royalties, was 81%82% for the threenine months ended March 31,September 30, 2019, an decreaseincrease from 85%79% for the same period in 2018. The decreaseincrease is mainly resulted from an due to the increase in barrier rentalsshipping and SlenderWall salesinstallation which tend totypically have higherlower margins than commodityproduct sales. Shipping costs have also been increasing due to the demand and difficulty obtaining subcontracted drivers to haul our products. The cost of goods sold was also impacted by increased wages and the associated labor costs, and flat selling prices for certain products and services.due to competitive pricing pressure. The Company expects labor costs to continue to increase and raw material prices to slightly increase during the remainder of 2019, although it has had slight decreases in steel prices. The Company continues to seek vendor pricing opportunities, and focuses on lean production methods to improve quality, create capacity, and eliminate process waste, while driving value to the customer.
General and Administrative Expenses - For the three months ended March 31,September 30, 2019 the Company's general and administrative expenses decreased by $260, or 22%,$181 to $1,208$1,123 from $1,468$1,305 during the same period in 2018.2018, and for the nine months ended September 30, 2019 the Company's general and administrative expenses decreased by $585 to $3,474 from $4,059. The decreased general and administrative expenses for the three and nine month periodperiods ended March 31,September 30, 2019 is mainly attributed to a decrease in non-cash stock compensation an administrative staffing reduction, as compared to the same periodperiods in 2018, and salaries which decreased due to a portion of 2017 profit sharing paid and expensed during the first quarter 2018. General and administrative expense as a percentage of total revenue was 12%10% and 16%14% for the threenine months ended March 31,September 30, 2019 and 2018, respectively.
Selling Expenses - Selling expenses for the three months ended March 31,September 30, 2019 decreasedincreased to $567$717 from $676$624 for the same period in 2018, or 16%. The decrease was mainly due to a decrease in salaries and commissions paid2018. Selling expenses for the nine months ended September 30, 2019 slightly increased to $1,924 from $1,913 for the same period as compared to the prior year when large jobs were awarded.in 2018. As the Company grows, additional selling expenses will be incurred. Management expects selling expenses to increase infor the year 2019 as compared to 2018.
Operating Income - The Company had operating income for the three month period ended March 31,September 30, 2019 of $447,$753 compared to an operating lossincome of $553$664 for the same period in 2018. The Company had operating income for the nine month period ended September 30, 2019 of $1,573 compared to operating income of $1,023 for the same period in 2018. The increase in operating income for the three and nine month periodperiods ended March 31,September 30, 2019 compared to the same periodperiods in 2018 wasis mainly due to increase profit margins and decreased sales,the reduction in general and administrative costs.expenses.
Interest Expense - Interest expense was $44$43 and $46$44 for the three month periods ended March 31,September 30, 2019 and 2018, respectively. Interest expense was $127 and $135 for the nine month periods ended September 30, 2019 and 2018, respectively. The Company expects interest expense to slightly increase for the full year 2019, as compared to the full year 2018, due to the debt financing on the North Carolina expansion project.
Income Tax Expense - The Company had an income tax expense of $99$179 with an effective rate of 23%24% for the three months ended March 31,September 30, 2019 compared to an income tax benefitexpense of $135$172 with an effective rate of 25% for the same period in 2018. The Company had an income tax expense of $364 with an effective rate of 24% for the nine months ended September 30, 2019 compared to income tax expense of $262 with an effective tax rate of 25% for the same period in 2018.
Net Income - The Company had net income of $331$574 for the three months ended March 31,September 30, 2019, compared to a net lossincome of $422$520 for the same period in 2018. The basic and diluted income per share was $0.06$0.11 for the three months ended March 31,September 30, 2019, and the basic and diluted lossincome per share was $0.08$0.10 for the three months ended March 31,September 30, 2018.
The Company had net income of $1,178 for the nine months ended September 30, 2019, compared to net income of $790 for the same period in 2018. The basic and diluted income per share was $0.23 for the nine months ended September 30, 2019, and the basic and diluted income per share was $0.16 and $0.15, respectively, for the nine months ended September 30, 2018, respectively.
Liquidity and Capital Resources (dollar amounts in thousands)
The Company financed its capital expenditures and operating requirements for the first threenine months of 2019 primarily from cash balances and the line-of-credit construction draws. The Company had $3,325$2,997 of debt obligations at March 31,September 30, 2019, of which $719$733 was scheduled to mature within twelve months, along with the line of credit balance of $1,500. During the threenine months ended March 31,September 30, 2019, the Company made repayments of outstanding debt in the amount of $178.$556 and received $49 in proceeds of borrowings for the financing of a vehicle. The Company had draws on the line of credit of $500 during the threenine months ended March 31,September 30, 2019.
The Company has a mortgage note payable to Summit Community Bank (the “Bank”) with a balance of $730$590 as of March 31,September 30, 2019. The note has a maturity date of September 20, 2021 and a fixed interest rate of 3.99% annually with monthly payments of $26 and is secured by principally all of the assets of the Company. Under the terms of the note, the Bank will permit chattel mortgages on purchased equipment not to exceed $250 for any one individual loan so long as the Company is not in default.
The Company has a mortgage note payable to the Bank for the the purchase of the Columbia, South Carolina facility. Such loan is evidenced by a promissory note, dated July 19, 2016. The note provides for a 15 year term, a fixed annual interest rate of 5.29%, monthly fixed payments of $11 and a security interest in favor of the Bank in respect ofto the land, building and fixtures purchased with the proceeds of the loan. The balance of the loan at March 31,September 30, 2019 was $1,153.$1,120.
The Company additionally has 13 smaller installment loans with annual interest rates between 2.94% and 5.29%, maturing between 2020 and 2024, with varying balances totaling $1,442.$1,287.
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500.$3,500, excluding the deferred buy-back lease asset. The Company is in compliance with all covenants pursuant to the loan agreements.
In addition to the notes payable discussed above, the Company also hashad a $4,000 line of credit with the Bank that had a balance of $1,500 at March 31,September 30, 2019 used to fund the construction of the North Carolina expansion, which will bewas paid in full and converted to long-term debt whenon October 11, 2019. On October 11, 2019, the Company closed on the financing closes in 2019. The line of credit is evidenced bythe North Carolina expansion project with a commercial revolving$2,228 promissory note which carries a variable interest rate of prime and matures on September 18, 2019.with the Bank. The loan is collateralized by a first lien position on the Company's accounts receivableNorth Carolina property, building, and inventoryassets. The interest rate per the Promissory Note Rate Conversion Agreement is fixed at 3.64% per annum, with principal and a second lien positioninterest payments payable monthly over 120 months in the amount of $22. The loan matures on all other business assets. Key provisions ofOctober 10, 2029. Under the line of credit requireloan covenants with the Bank, the Company (i)is limited to obtain bank approval forannual capital expenditures in excess of $3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On September 18, 2018$3,500. Also on October 11, 2019, the Company received a Commitment Letter from the Bank to provide a guidance line of credit specificallyin the amount of $4,000 and is expecting to purchase business equipment in an amount up to $1,500. The commitment provides forcomplete the purchaserenewal by the end of equipment with minimum advances of $50 for which a note payable will be executed with a term not to exceed five years with an interest rate at the Wall Street Journal prime rate plus .5% with a floor of 4.49% per annum. The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on2019.
At September 17, 2019. As of March 31, 2019, the Company had not purchased any equipment pursuant to the $1,500 commitment.
At March 31,30, 2019, the Company had cash totaling $3,033$1,019 and $1,134 of investment securities totaling $1,170, compared to cash totaling $1,946 and $1,107 of investment securities totaling $1,107 at December 31, 2018. Investment securities at March 31,September 30, 2019 consist of shares of USVAX (a Virginia Bond Fund). The increasedecrease in cash is primarily the result of the decrease in accounts receivable at March 31,purchase of capital expenditures for the nine months ended September 30, 2019 as compared to the balance at December 31, 2018.
Capital spending for the threenine months ended March 31,September 30, 2019 totaled $1,049,$3,392, as compared to $860$1,737 for the same period in 2018. The 2019 expenditures were mainly for the North Carolina plant expansion and rental barrier, along with yard and manufacturing equipment. The Company plans to make additional capital purchases of approximately $2,500$1,000 over the remainder of the year, excluding the North Carolina plant expansion.year. The additional 2019 expenditures are expected to be for rental barrier, land improvements, and miscellaneous manufacturing equipment.
The Company received approval from the Bank for the financing of the North Carolina expansion and for additional land expansions at the Virginia manufacturing plant. The expansions are excluded from the capital expenditure limitations in the loan agreements with the Bank. See "North Carolina Plant Expansion" below.
The Company's two mortgage notes payable are financed at fixed rates of interest. This leaves the Company almost impervious to fluctuating interest rates. Increases in such rates will only slightly affect the interest paid by the Company on an annual basis. Approximately 95% of the Company's debt obligations are financed at a fixed interest rate so that each 1% increase in the interest rates of the Company’s outstanding debt will reduce income by approximately $2 annually.
The Company’s cash flow from operations is affected by production schedules set by contractors, which generally provide for payment 35 to 90 days after the products are produced and with some architectural contracts, retainage may be held until the entire project is completed. This payment schedule may result in liquidity problems for the Company because it must bear a portion of the cost of production before it receives payment from its customers. The Company’s average days sales outstanding (DSO), excluding the effect of unbilled revenue, was 9390 days for the threenine months ended March 31,September 30, 2019 compared to 8676 days for the year ended December 31, 2018. The increase in DSO is mainly due to retainage being withheld on multiple large projects. Although no assurances can be given, the Company believes that anticipated cash flow from operations and the availability under the lines of credits will be sufficient to finance the Company’s operations for at least the next 12 months.
The Company’s inventory was $3,047$2,567 at March 31,September 30, 2019 and $3,560 at December 31, 2018, or a decrease of $513.$993. The decrease in inventory is due to sales of finished goods on hand at December 31, 2018 and the decrease in raw materials for use in production during the first quarternine months of 2019. Inventory turnover was 11.3, annualized for the threenine months ended March 31,September 30, 2019, compared to 10.412.3, annualized for the same period in 2018.
Critical Accounting Policies and Estimates
The Company’s critical accounting policies are more fully described in its Summary of Accounting Policies to the Company’s consolidated financial statements on Form 10-K for the year ended December 31, 2018. There have been no changes as of March 31,September 30, 2019.
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 a more significant 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
Raw material costs for the Company, cement, steel, aggregates, and other direct materials used in production have remained flat for the first threenine months of 2019. The Company anticipates raw material prices will increase over the remainder of 2019, although no assurance can be given regarding future pricing.
Sales Backlog
As of May 6,November 1, 2019, the Company’s sales backlog was approximately $31.2$28.5 million, as compared to approximately $38.4$31.0 million at the same time in 2018. The decrease is mainly due to the large orders booked in early 2018 combined with competitive pricing pressure on recent bids. It is estimated that majority of the projects in the sales backlog will be produced within 12 months, with a portion extending several years.
North Carolina Plant Expansion
The Company currently owns 46 acres on which it is insubstantially completed the process of building a 15,000 square foot manufacturing plant with additional space for future expansion in North Carolina. This expansion is estimated to cost $3.3 millionapproximately $3,300 and will provide the Company with the ability to increase production andwhile adding storage capacity. The project will beis funded through bank financing and cash. Management expects completion ofThe initial production in the new facility commenced during the third quarter 2019.2019, with the full manufacturing operations moving from the current facility to the new facility in mid 2020. The current North Carolina facility will remain operational during the construction of the new plant,open and support operations, with future use is not determinedundetermined at this time. There can be no assurance as to the cost, financing,transition timetable, full completion, or success of this project.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
ITEM 4. Controls and Procedures
(a) Disclosure controls and procedures
The Company carried out our evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and 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 this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at March 31,September 30, 2019.
(b) Changes in Internal Control over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the three months ended March 31,September 30, 2019 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
PART II — OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is not presently involved in any litigation of a material nature.
Not required
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
ITEM 3. Defaults Upon Senior Securities
None
ITEM 4. Mine Safety Disclosures
Not applicable
ITEM 5. Other Information
None
Exhibit No. | | Exhibit Description |
| | Contract for Purchase and Sale, dated February 16, 2016, between Nelson Cherry Properties, LLC and Smith-Columbia Corporation (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2016).
|
| | Promissory Note, dated July 19, 2016, in the amount of $1,317,500 issued by the Company to Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2016).
|
| | Commercial Security Agreement, dated July 19, 2016, between the Company, as debtor, and Summit Community Bank, as secured party, related to Company’s note payable in the amount of $1,317,500 with Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2016).
|
| | Commitment Letter, dated September 18,2018, for a line of credit in the of $4,000,000 with Summit Community Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018).
|
| | Commitment Letter, dated September 18,2018, for an equipment line of credit in the amount of $1,500,000 with Summit Community Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018).
|
| | Promissory Note, dated October 6, 2017, for the acquisition of six acres of land purchased in 2016 in the amount of $239,232 with Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2017).
|
| | 2016 Equity Incentive Plan (Incorporated by reference to the Registration Statement on Form S-8 (No. 333-214788) filed on November 23, 2016).
|
| | Code of Professional Conduct (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003).
|
| | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. |
| | Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934. |
| | Certification pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | | XBRL Instance Document. |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
Additional exhibits (10.1-10.7, 14.1) provided due to broken links when included in exhibit list on Form 10-K for the fiscal year ended December 31, 2018.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| |
| | | | | |
| | | SMITH-MIDLAND CORPORATION (Registrant) | |
| | | | | |
| Date: | May 14,November 7, 2019
| By: | /s/ Ashley B. Smith | |
| | | | Ashley B. Smith, Chief Executive Officer | |
| | | | (Principal Executive Officer) | |
| | | | | |
| | | | | |
| Date: | May 14,November 7, 2019
| By: | /s/ Adam J. Krick | |
| | | | Adam J. Krick, Chief Financial Officer | |
| | | | (Principal Financial Officer) | |