UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q 
 
☑
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2019March 31, 2020
 
☐
 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to ________
 
Commission File Number 1-13752
 
Smith-Midland Corporation
(Exact name of Registrant as specified in its charter)
 
Delaware
54-1727060
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 
5119 Catlett Road, P.O. Box 300
Midland, VA 22728
(Address, zip code of principal executive offices)
 
(540)  439-3266
(Registrant’s telephone number, including area code)
 
 

Securities registered pursuant to Section 12(b) of the Act:

 Title of each class
 Trading Symbol
 Name of each exchange on which registered
 Common Stock, $0.01 par value per share
 SMID OTCQX

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑ No ☐
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑ No ☐
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer ☐Accelerated filer ☐
Non-accelerated filer ☐Smaller reporting company ☑
Emerging growth company ☐  
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☑
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value, outstanding as of August 2, 2019: 5,134,492May 1, 2020: 5,183,991 shares, net of treasury shares
 



 
SMITH-MIDLAND CORPORATION 
Form 10-Q Index  
 
PART I.  FINANCIAL INFORMATION
Page
Item 1. Financial Statements
  3 
 
Condensed Consolidated Balance Sheets June 30, 2019 (Unaudited) and December 31, 2018
  3 
 
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended June 30, 2019 and June 30, 2018
  5 
 
Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended June 30, 2019 and June 30, 2018
    6
Condensed Consolidated Statements of Operations (Unaudited) for the six months ended June 30, 2019 and June 30, 2018
7

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the six months ended June 30, 2019 and June 30, 2018
8
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the six months ended June 30, 2019 and June 30, 2018
  96 

Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2019 and June 30, 2018
  107 
 
Notes to Condensed Consolidated Financial Statements (Unaudited)
  118 
 
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
  1814 
 
Item 3. Quantitative and Qualitative Disclosures About Market Risk
  2521 
 
Item 4. Controls and Procedures
  2521 
 
PART II. OTHER INFORMATION
 
Item 1. Legal Proceedings
  2622 
 
Item 1A. Risk Factors
  2622 
 
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  2622 
 
Item 3. Defaults Upon Senior Securities
  2622 
 
Item 4. Mine Safety Disclosures
  2723 
 
Item 5. Other Information
  2723 
 
Item 6. Exhibits
  2723 
 
Signatures
  2824 
 

2

 
PARTPART I — FINANCIAL INFORMATION
 
ITEM 1.    Financial Statements
 
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data) 
 
ASSETS
 
June 30,
2019
(Unaudited)
 
 
December 31,
2018
 
 
March 31,
2020
(Unaudited)
 
 
December 31,
2019
 
Current assets
 
 
 
 
 
 
Cash
 $1,641
 $1,946 
 $2,198 
 $1,364 
Investment securities, available-for-sale, at fair value
  1,156
  1,107 
  1,162 
  1,176 
Accounts receivable, net
    
    
Trade - billed (less allowance for doubtful accounts of $270 and $214), including contract retentions
 11,085
  12,281 
Trade - billed (less allowance for doubtful accounts of $350 and $333), including contract retentions
  9,444 
  12,723 
Trade - unbilled
 267
  1,313 
  956 
  310 
Inventories, net
    
    
Raw materials
 499
  1,005 
  597 
  488 
Finished goods (less reserves of $39)
  2,504
  2,555 
Finished goods
  1,574 
  1,754 
Prepaid expenses and other assets
 553
  480 
  708 
  784 
Refundable income taxes
 210
  909 
  464 
  432 
    
    
Total current assets
  17,915
  21,596 
  17,103 
  19,031 
    
    
Property and equipment, net
  15,894
  14,102 
  17,998 
  17,735 
    
    
Deferred buy-back lease asset, net
  5,376
  5,304 
  4,861 
  5,042 
    
    
Other assets
  313
  367 
  337 
  307 
    
    
Total assets
 $39,498
 $41,369 
 $40,299 
 $42,115 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 

3

 
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED BALANCEBALANCE SHEETS
(in thousands, except share and per share data)
  
LIABILITIES AND STOCKHOLDERS' EQUITY
 
June 30,
2019
(Unaudited)
 
 
December 31,
2018
 
 
March 31,
2020
(Unaudited)
 
 
December 31,
2019
 
Current liabilities
 
 
 
 
 
 
Accounts payable - trade
 $2,560
 $4,212 
 $2,669 
 $3,180 
Accrued expenses and other liabilities
 184
  610 
  94 
  125 
Deferred revenue
  1,418
  1,112
 
  1,744 
  1,891 
Accrued compensation
 822
  1,556 
  761 
  1,075 
Dividend payable
  — 
  281 
  — 
  282 
Line-of-credit construction draw
  1,500 
  1,000 
Deferred buy-back lease obligation
 889
 
  720 
  1,037 
  966 
Operating lease liabilities
  107
  —
 
  81 
Current maturities of notes payable
  740
  711 
  847 
  925 
Customer deposits
 1,241
  1,658 
  492 
  1,077 
    
    
Total current liabilities
 9,461
  11,860
 
  7,725 
  9,602 
    
    
Deferred revenue
 610
 
  570
 
  117 
  241 
Deferred buy-back lease obligation
 5,738
 
  5,873
 
  4,853 
  5,183 
Operating lease liabilities
  252
 
  —
 
  275 
  296 
Notes payable - less current maturities
  2,468
  2,792 
  4,660 
  4,086 
Deferred tax liability
  1,339
  1,427 
  1,902 
  1,886 
    
    
Total liabilities
  19,868
  22,522 
  19,532 
  21,294 
    
    
    
Stockholders’ equity
    
    
Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding
  — 
  — 
Common stock, $.01 par value; authorized 8,000,000 shares; 5,225,245 and 5,223,245 issued and 5,134,492 and 5,112,825 outstanding, respectively
  52
 
  51 
Common stock, $.01 par value; authorized 8,000,000 shares; 5,224,911 and 5,224,911 issued and 5,183,991 and 5,164,324 outstanding, respectively
  52 
Additional paid-in capital
  6,126
  5,973 
  6,242 
Treasury stock, at cost, 40,920 shares
  (102)
  (102)
Accumulated other comprehensive loss
  (12)
  (37)
Other
  (26)
  (10)
Retained earnings
  13,566
  12,962 
  14,601 
  14,639 
    
    
Total stockholders' equity
  19,630
 
  18,847 
  20,767 
  20,821 
    
    
Total liabilities and stockholders' equity
 $39,498
 
 $41,369 
 $40,299 
 $42,115 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 

4

 
SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Three Months Ended June 30,
 
 
       Three Months Ended March 30,
 
 
2019
 
 
2018
 
 
2020
 
 
  2019
 
Revenue
 
 
 
 
 
 
Product sales
 $7,327
 
 $6,943
 
 $6,852 
 $7,503 
Barrier rentals
  582
 
  340
 
  742 
  573 
Royalty income
  429
 
  506
 
  268 
  306 
Shipping and installation revenue
  2,514
  2,044
 
  1,963 
  1,807 
    
    
Total revenue
  10,852
 
  9,833
 
  9,825 
  10,189 
    
    
Cost of goods sold
  8,696
 
  6,857
 
  8,225 
  7,967 
    
    
Gross profit
  2,156
 
  2,976
 
  1,600 
  2,222 
    
    
Operating expenses
    
    
General and administrative expenses
  1,143
 
  1,452
 
  1,051 
  1,208 
Selling expenses
  640
 
  613
 
  591 
  567 
    
    
Total operating expenses
  1,783
 
  2,065
 
  1,642 
  1,775 
    
    
Operating income
  373
 
  911 
Operating income (loss)
  (42)
  447 
    
    
Other income (expense)
    
    
Interest expense
  (40)
  (44)
  (56)
  (44)
Interest income
  11 
  9
 
  9 
  11 
Gain on sale of assets
  10
 
  31
 
Other income
 5
  9
 
Gain (loss) on sale of assets
  36 
  2 
Other income (expense)
  4 
  14 
    
    
Total other income (expense)
  (14)
  5 
  (7)
  (17)
    
    
Income before income tax expense
  359
 
  916 
Income (loss) before income tax expense (benefit)
  (49)
  430 
    
    
Income tax expense
  86
 
  225
 
Income tax expense (benefit)
  (11)
  99 
    
    
Net income
 $273
 
 $691 
Net income (loss)
 $(38)
 $331 
    
    
Basic and diluted earnings per share
 $0.05
 
 $0.14
 
Basic earnings (loss) per share
 $(0.01)
 $0.06 
    
    
Weighted average number of common shares outstanding:
    
    
Basic
  5,134 
  5,080
 
  5,183 
  5,134 
Diluted
  5,143
 
  5,104 
  5,183 
  5,142 
 
The accompanying notes are an integral part of the condensed consolidated financial statements.
 

5

SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)

 
 
Three Months Ended June 30,
 
 
 
2019
 
 
2018
 
Net income
 $273
 $691
  Other comprehensive income, net of tax:
    
    
    Net unrealized holding gain (1)
  10
 1
 
    
    
      Comprehensive income
 $283
 $692
 
    
    

(1) Unrealized gains on available-for-sale securities are shown net of income tax expense of $3 and $1 for June 30, 2019 and 2018, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.


6

SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
Revenue
 
 
 
 
 
 
Product sales
 $14,831
 $14,396
Barrier rentals
 1,163
 649
Royalty income
 735
 727
Shipping and installation revenue
 4,312
 3,186
 
    
    
Total revenue
 21,041
 18,958
 
    
    
Cost of goods sold
 16,663
 14,391
 
    
    
Gross profit
 4,378
 4,567
 
    
    
Operating expenses
    
    
General and administrative expenses
 2,350
 2,919
Selling expenses
 1,207
 
 1,290
 
    
    
Total operating expenses
 3,557
 4,209
 
    
    
Operating income
 821
 358
 
    
    
Other income (expense)
    
    
Interest expense
  (85)
  (90)
Interest income
 21 
  19
Gain on sale of assets
 12 
 55
Other income
 20
 18 
 
    
    
Total other income (expense)
  (32)
 2
 
    
    
Income before income tax expense
 789
 360
 
    
    
Income tax expense
 185
 90
 
    
    
Net income
 $604
 $270
 
    
    
Basic and diluted earnings per share
 $0.12
 $0.05
 
    
    
Weighted average number of common shares outstanding:
    
    
Basic
  5,134 
  5,076
Diluted
  5,141
  5,101
The accompanying notes are an integral part of the condensed consolidated financial statements.



SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(in thousands)

 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
Net income
 $604
 $270
  Other comprehensive income (loss), net of tax:
    
    
    Net unrealized holding gain (loss) (1)
 25
 
  (13)
 
    
    
      Comprehensive income
 $629
 
 $257
 
    
    

(1) Unrealized gains (losses) on available-for-sale securities are shown net of income tax expense (benefit) of $8 and $(4) for June 30, 2019 and 2018, respectively.

The accompanying notes are an integral part of the condensed consolidated financial statements.

SMITH-MIDLAND CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS'STOCKHOLDERS' EQUITY
(Unaudited)
(in thousands)
 

 
 Common Stock
 
 
 Additional Paid-in Capital
 
 
 Treasury Stock
 
 
 Accumulated Other Comprehensive Loss
 
 
 Retained Earnings
 
 
 Total
 
Balance, December 31, 2018
 $51
 
 $5,973 
 $(102)
 $(37)
 $12,962 
 $18,847 
Net unrealized holding gain
  — 
  — 
  — 
 25
  — 
 25
Vesting of restricted stock
 1
 153
  — 
  — 
  — 
 154
Net income
  — 
  — 
  — 
  — 
 604
 604
Balance, June 30, 2019
 $52
 $6,126
 $(102)
 $(12)
 $13,566
 $19,630

 
 Common Stock
 
 
 Additional Paid-in Capital
 
 
 Treasury Stock
 
 
 Other
 
 
 Retained Earnings
 
 
 Total
 
Balance at December 31, 2019
 $52 
 $6,242 
 $(102)
 $(10)
 $14,639 
 $20,821 
Other
  — 
  — 
  — 
  (16)
  — 
  (16)
Vesting of restricted stock
  — 
  — 
  — 
  — 
  — 
  — 
Net income (loss)
  — 
  — 
  — 
  — 
  (38)
  (38)
Balance at March 31, 2020
  52 
  6,242 
  (102)
  (26)
  14,601 
  20,767 
 
 
 

 
 Common Stock
 
 
 Additional Paid-in Capital
 
 
 Treasury Stock
 
 
Other
 
 
 Retained Earnings
 
 
 Total
 
Balance at December 31, 2018
 $51 
 $5,973 
 $(102)
 $(37)
 $12,962 
 $18,847 
Other
  — 
  — 
  — 
  15 
  — 
  15 
Vesting of restricted stock
  — 
  84 
  — 
  — 
  — 
  84 
Net income (loss)
  — 
  — 
  — 
  — 
  331 
  331 
Balance at March 31, 2019 
  51 
  6,057 
  (102)
  (22)
  13,293 
  19,277 


 
 
 Common Stock
 
 
 Additional Paid-in Capital
 
 
 Treasury Stock
 
 
 Accumulated Other Comprehensive Loss
 
 
 Retained Earnings
 
 
 Total
 
Balance, December 31, 2017
 $51
 
 $5,719 
 $(102)
 $(19)
 $11,556 
 $17,205 
Net unrealized holding loss
  — 
  —
  — 
  (13)
  — 
  (13)
Proceeds from options exercised
  — 
 12
  — 
  — 
  — 
 12
Vesting of restricted stock
  — 
  186
  — 
  — 
  — 
  186
Net income
  — 
  —
  — 
  — 
 270
 270
Balance, June 30, 2018
 $51 
 $5,917
 $(102)
 $(32)
 $11,826
 $17,660

The accompanying notes are an integral part of the condensed consolidated financial statements.
 

6
 
SMITH-MIDLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTSSTATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
 
 
Six Months Ended June 30,
 
 
Three Months Ended March 31,
 
 
2019
 
 
2018
 
 
2020
 
 
2019
 
Cash flows from operating activities:
 
 
 
 
 
 
Net income
 $604
 
 $270 
Adjustments to reconcile net income to net cash provided by operating activities:
    
Net income (loss)
 $(38)
 $331 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
    
Depreciation and amortization
  873
 
  504
 
  572 
  426 
Gain on sale of assets
  (12)
  (55)
  (36)
  (2)
Allowance for doubtful accounts
  56
 
  3
 
  17 
  15 
Stock compensation
  154
 
  186
 
  — 
  84 
Deferred taxes
  (90
)
  (3)
  16 
  3 
(Increase) decrease in
    
    
Accounts receivable - billed
  1,141
 
  (2,298)
  3,262 
  2,727 
Accounts receivable - unbilled
  1,046
 
  (1,021)
  (646)
  750 
Inventories
  557
 
  424
 
  71 
  514 
Prepaid expenses and other assets
  (41
)
  45 
  41 
  514 
Refundable income taxes
  697
 
  33
 
  (32)
  92 
Increase (decrease) in
    
    
Accounts payable - trade
  (1,653)
  (73)
  (511)
  (1,482)
Accrued expenses and other liabilities
  (426)
  —
 
  (31)
  (25)
Deferred revenue
  345
 
  54
 
  (271)
  182 
Accrued compensation
  (734)
  (543)
  (314)
  (815)
Accrued income taxes payable
  —
 
  80
 
Deferred buy-back lease obligation
  36
 
  3,733
 
  (259)
  258 
Customer deposits
  (417)
  308
 
  (585)
  (1,113)
Net cash provided by operating activities
  2,136
 
  1,647
 
Net cash provided by (used in) operating activities
  1,256 
  2,459 
Cash flows from investing activities:
    
    
Purchases of investment securities available-for-sale
  (16)
  (8)
Purchases of property and equipment
  (1,996)
  (1,057)
  (669)
  (1,049)
Deferred buy-back lease asset
  (361)
  (2,986
)
  — 
  (358)
Proceeds from sale of fixed assets
  7
 
  67
 
  41 
  2 
Net cash used in investing activities
  (2,366)
  (3,992)
Net cash provided by (used in) investing activities
  (636)
  (1,413)
Cash flows from financing activities:
    
    
Proceeds from the line-of-credit construction draw
  500 
  —
 
  — 
  500 
Proceeds from long-term borrowings
  49
 
  350 
  2,701 
  — 
Repayments of long-term borrowings
  (343)
  (312)
  (2,205)
  (178)
Dividends paid on common stock
  (281)
  (256)
  (282)
  (281)
Proceeds from options exercised
  —
 
  12
 
Net cash used in financing activities
  (75)
  (206)
Net decrease in cash
  (305
)
  (2,551)
Net cash provided by (used in) financing activities
  214 
  41 
Net increase (decrease) in cash
  834 
  1,087 
Cash
    
    
Beginning of period
  1,946 
  3,390 
  1,364 
  1,946 
End of period
 $1,641
 
 $839
 
 $2,198 
 $3,033 
    
    
Supplemental Cash Flow information:
    
Non-cash transaction - right of use asset and lease liability upon lease standard adoption
 $— 
 $414 
Cash payments for interest
 $85
 
 $90
 
 $56 
 $44 
Cash payments for income taxes
 $35
 
 $9
 
 $1 
 $— 

The accompanying notes are an integral part of the condensed consolidated financial statements.
 

107

 
SMITH-MIDLAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1. – INTERIM FINANCIAL REPORTING
 
Basis of Presentation
 
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 andof 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, 2018.2019. The condensed consolidated December 31, 20182019 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.
Although the ultimate impact is uncertain at this time, the coronavirus outbreak may significantly affect the Company's financial condition, liquidity, and results of operations. In this respect, the Company has already experienced the following negative impacts on its business: backlog reduction, lower production volumes, employee absence, bidding restrictions within certain key states, and delays in receipt of materials through the Company's supply chain.

Recent Accounting Pronouncements
 
Fair Value Measurement. In August 2018,March 2020, the FASB issued ASU No. 2018-13, “Fair Value (“FV”) Measurement2020-04, “Reference Rate Reform (Topic 820)848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting”.” Among The guidance provides temporary optional expedients and exceptions related to contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate and other interbank offered rates to alternative reference rates. The new guidance allows entities to elect not to apply certain modification accounting requirements, if certain criteria are met, to contracts affected by what the guidance calls reference rate reform. An entity that makes this election would consider changes in reference rates and other contract modifications related to reference rate reform to be events that do not require contract remeasurement at the modification date or reassessment of a previous accounting determination. The ASU notes that changes in contract terms that are made to effect the reference rate reform transition are considered related to the replacement of a reference rate if they are not the result of a business decision that is separate from or in addition to changes to the terms of a contract to effect that transition. The guidance is effective upon issuance and generally can be applied as of March 12, 2020 through December 31, 2022. The Company is currently evaluating the impact of the standard removeson its credit agreement accounted for under Codification topic ASC 470, “Debt”.
In December 2019, the requirementsFASB issued ASU No. 2019-12, “Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes”. The guidance eliminates certain exceptions related to disclose: (i) the amountapproach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period, and the recognition of deferred tax liabilities for outside basis differences related to changes in ownership of equity method investments and reasonsforeign subsidiaries. The guidance also simplifies aspects of accounting for transfers between Level 1franchise taxes and Level 2enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process for Level 3 FV measurements.goodwill. 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, endingand interim periods within those fiscal years, beginning 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.
Measurement of Credit Losses on Financial Instruments. In June 2016, the FASB issued guidance on the measurement of credit losses on certain financial instruments. The guidance introduces a new impairment model known as the current expected credit loss model that will replace the incurred loss impairment methodology currently included under GAAP. This guidance requires entities to present certain investments in debt securities, trade accounts receivable and other financial assets at their net carrying value of the amount expected to be collected on the financial statements. The guidance will be effective for the Company on January 1, 2020, and must be applied on a modified retrospective basis with early adoption permitted. The Company does not intend to early adopt the standard and does not expect the guidancestandard to have a material impacteffect on its consolidated financial condition and results of operations, financial position, cash flows and disclosures.

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 have 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.operations.
 

118

 
 
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 related 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 control 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 (i.e. contract"Customer deposits" (contract liabilities).
 
Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable. At June 30, 2019March 31, 2020 and December 31, 2018,2019, accounts receivable included contract retentions of approximately $1,576$2,152 and $1,704,$2,146, 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 June 30, 2019March 31, 2020 and December 31, 2018,2019, our allowances for doubtful accounts were $270$350 and $214,$333, respectively.
  

129

 
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 buybackguaranteed buy-back liability and any deferred revenue balances related to the product are settled to revenue, and the net book value of the asset is expensed to cost of leasing revenue. If the customer exercises the buy-back guarantee option, the Company purchases the product back in the amount equal to the buybackbuy-back 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 FeesLease Income
 
Leasing fees are paid by customers at the beginning of the lease period 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 manufacture 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.
 

1310

 
Disaggregation of Revenue
 
In the following table, revenue is disaggregated by primary sources of revenue:
 
Revenue by Type
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
Three Months Ended March 31,
 
 
2019
 
 
2018
 
 
Change
 
 
% Change
 
 
 2019
 
 
 2018
 
 
 Change
 
 
%  Change
 
 
2020
 
 
2019
 
 
Change
 
 
% Change
 
Soundwall Sales
 $1,939
 
 $2,525
 
 $(586)
  (23)%
 $4,053
 
 $5,005
 
 $(952)
  (19)%
 $1,887 
 $2,114 
 $(227)
  (11)%
Architectural Panel Sales
  424
 
  245
 
  179 
  73%
  424
 
  457
 
  (33)
  (7)%
  767 
  — 
  767 
  100%
SlenderWall Sales
  772
 
  1,422
 
  (650)
  (46)%
  2,735
 
  2,565
 
  170
 
  7%
  923 
  1,963 
  (1,040)
  (53)%
Miscellaneous Wall Sales
  406
 
  267
 
  139 
  52%
  769
 
  759
 
  10
 
  1%
  903 
  363 
  540 
  149%
Barrier Sales
  1,817
 
  1,590
 
  227 
  14%
  3,408
 
  3,875
 
  (467)
  (12)%
  1,325 
  1,591 
  (266) 
  (17)%
Easi-Set and Easi-Span Building Sales
  1,335
 
  560
 
  775
 
  138%
  2,369
 
  1,062
 
  1,307
 
  123%
  559 
  1,034 
  (475) 
  (46)%
Utility Sales
  449
 
  246
 
  203
 
  83%
  757
 
  460
 
  297
 
  65%
  401 
  308 
  93 
  30%
Miscellaneous Sales
  185
 
  88
 
  97 
  110%
  316
 
  213
 
  103
  47%
  87 
  130 
  (43) 
  (34)%
Total Product Sales
  7,327
 
  6,943 
  384
 
  6%
  14,831
 
  14,396
 
  435
 
  3%
  6,852 
  7,503 
  (651) 
  (9)%
Barrier Rentals
  582
 
  340
 
  242
 
  71%
  1,163
 
  649
 
  514
 
  79%
  742 
  573 
  169 
  29%
Royalty Income
  429
 
  506
 
  (77)
  (15)%
  735
 
  727
 
  8
 
  1%
  268 
  306 
  (38)
  (12)%
Shipping and Installation Revenue
  2,514
 
  2,044
 
  470
 
  23%
  4,312
 
  3,186
 
  1,126
 
  35%
  1,963 
  1,807 
  156 
  9%
Total Service Revenue
  3,525
 
  2,890
 
  635
 
  22%
  6,210
 
  4,562
 
  1,648
 
  36%
  2,973 
  2,686 
  287 
  11%
    
    
Total Revenue
 $10,852
 
 $9,833
 
 $1,019
 
  10%
 $21,041
 
 $18,958
 
 $2,083
 
  11%
 $9,825 
 $10,189 
 $(364) 
  (4)%
 
The revenue items: soundwall sales, architectural sales, SlenderWall sales, miscellaneous wall sales, barrier rentals, and royalty income are recognized as revenue over time. The revenue items: barrier sales, Easi-Set and Easi-Span building sales, utility sales, miscellaneous sales, and shipping and installation revenue are recognized as revenue at the point in time.

Warranties

The 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.
 

1411

 
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 amounts 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 (loss) 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 (loss) per common share calculation reflects the potential dilutive effect of securities that could share in earnings of the Company. As of June 30, 2019,March 31, 2020, there are no outstanding stock options. For periods prior to June 30, 2019March 31, 2020 outstanding options were excluded from the diluted earnings (loss) per share calculation when they would have an anti-dilutive effect. Earnings per share are calculated as follows:
 
 
 
Three Months Ended June 30,
 
 
 
2019
 
 
2018
 
Basic income per share
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 $273
 $691
 
    
    
Weighted average shares outstanding
  5,134 
  5,080
 
    
    
Basic income per share
 $0.05
 $0.14
 
    
    
Diluted income per share
    
    
 
    
    
Net income
 $273
 $691
 
    
    
  Weighted average shares outstanding
  5,134 
  5,080
    Dilutive effect of stock options and restricted stock
 9
 24
 
    
    
  Total weighted average shares outstanding
  5,143
  5,104 
 
    
    
    Diluted income per share
 $0.05
 $0.14


 
 
Six Months Ended June 30,
 
 
 
2019
 
 
2018
 
Basic income per share
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income
 $604
 $270
 
    
    
Weighted average shares outstanding
  5,134 
  5,076
 
    
    
Basic income per share
 $0.12
 $0.05
 
    
    
Diluted income per share
    
    
 
    
    
Net income
 $604
 $270
 
    
    
  Weighted average shares outstanding
  5,134 
  5,076
    Dilutive effect of stock options and restricted stock
 7
 25
 
    
    
  Total weighted average shares outstanding
  5,141
  5,101
 
    
    
    Diluted income per share
 $0.12
 $0.05

 
 
Three Months Ended March 31,
 
 
 
2020
 
 
2019
 
Basic income (loss) per share
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 $(38)
 $331 
 
    
    
Weighted average shares outstanding
  5,183 
  5,134 
 
    
    
Basic income (loss) per share
 $(0.01)
 $0.06 
 
    
    
Diluted income (loss) per share
    
    
 
    
    
Net income (loss)
 $(38)
 $331 
 
    
    
  Weighted average shares outstanding
  5,183 
  5,134 
  Dilutive effect of stock options and restricted stock
  — 
  8 
 
    
    
  Total weighted average shares outstanding
  5,183 
  5,142 
 
    
    
    Diluted income (loss) per share
 $(0.01)
 $0.06 
 

1612

 
NOTE 3. – NOTES PAYABLE
 
The Company has a mortgage note payable to Summit Community Bank (the “Bank”), with a balance of $661$447 as of June 30, 2019.March 31, 2020. 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 purchaseconstruction of the Columbia, Southit's North Carolina facility. Such loan is evidenced by a promissory note dated July 19, 2016. The note provides forcarries a 15ten year term at a fixed annual interest rate of 5.29%,3.64% annually per the Promissory Note Rate Conversion Agreement, with monthly fixed payments of $11$22, and is secured by all of the assets of Smith-Carolina and a security interest in favor ofguarantee by the Bank in respect to the land, building and fixtures purchased with the proceeds of the loan.Company. The balance of the note payable at March 31, 2020 was $2,150.
On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank in the amount of $2,701. A portion of the funds in the amount of $678 were secured for improvements to an existing five acre parcel for additional storage at the Midland, Virginia plant. The loan is collateralized by a first lien position on the Virginia property, building, and assets. The refinance also released the lien on the Smith-Columbia plant in Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is fixed at June 30, 20193.99% per annum, with principal and interest payments payable monthly over 120 months in the amount of $27. The loan matures on March 27, 2030.The balance of the note payable at March 31, 2020 was $1,137.$2,701.
 
The Company additionally has 146 smaller installment loans with annual interest rates between 2.94%3.99% and 5.75%5.29%, maturing between 2020 and 2024,2025, with varying balances totaling $1,410.$209.
 
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500.$3,500 and must maintain tangible net worth of $10,000. The Company is in compliance with all covenants pursuant to the loan agreements as of June 30, 2019.March 31, 2020.
 
In addition to the notes payable discussed above, the Company also has a $4,000 line of credit with the Bank that had awith no balance outstanding as of $1,500 at June 30, 2019 used to fund the construction of the North Carolina expansion, which will be converted to long-term debt when the financing closes in 2019.March 31, 2020. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on September 18, 2019.October 1, 2020. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company (i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On September 18, 2018 the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment with minimum advances of $50 for which a note payable will be executed with a term not to exceed five years with an interest rate at the Wall Street Journal prime rate plus 0.5% 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 June 30, 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 sixthree months ended June 30, 2019March 31, 2020 is as follows:

 
Number of Shares
 
 
Weighted Average Grant Date Fair Value per Share
 
 
Number of Shares
 
 
Weighted Average Grant Date Fair Value per Share
 
Balance, December 31, 2018
  69,500 
 $5.19 
Balance, December 31, 2019
  19,667 
 $5.45 
Granted
  2,000 
  7.43
 
  — 
Vested
  (21,667)
  (5.63)
  19,667
  5.45
Forfeited
  — 
  — 
    
    
Non-vested, end of period
  49,833 
 $5.15 
  — 
 $— 

Awards are 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 $154less than $1 for the sixthree months ended June 30, 2019March 31, 2020 and $186$84 for the sixthree months ended June 30, 2018. The totalMarch 31, 2019. There is no unrecognized stock compensation cost as of June 30, 2019 related to the non-vested restricted stock is approximately $128.March 31, 2020.
 
NOTE 5. – SUBSEQUENT EVENTS
 
In July 2019,On April 16, 2020, the Company entered into an agreement to purchase used highway safety barrier and crash cushion attenuators, atcompleted a rate below current manufacturing costs, over approximately a one year period. Undernote payable secured under the agreement, title will transferPaycheck Protection Program (the "PPP") to the Bank in the amount of $2,692. The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the "permissible expenses"). The interest rate per the Promissory Note, dated April 16, 2020 and executed by the Company upon physical inspectionin favor of the Bank, is fixed at 1.00% per annum, with principal and acceptance.interest payments starting November 16, 2020, payable monthly over 18 months in the amount of $152. The Company estimatesloan matures on April 16, 2022. The proceeds of the total purchase valueloan must be utilized pursuant to $2.2 million, which can vary based upon actual quantities purchased.the requirements of the PPP, and all or a portion of the loan may be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. For further information, please reference the Company's Form 8-K filed on April 16, 2020.   


13
 
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:
●
Although the ultimate impact is uncertain at this time, the coronavirus outbreak may significantly affect the Company's financial condition, liquidity, and results of operations. In this respect, the Company has already experienced the following negative impacts on its business: backlog reduction, lower production volumes, employee absence, bidding restrictions within certain key states, and delays in receipt of materials through the Company's supply chain,
●
Whilewhile the Company was profitable for the years ended December 31, 20182019 and 2017, and for the first half of 2019,2018, there are no assurances that the Company can remain profitable in future periods,periods; in this connection, the Company incurred a loss for the quarter ended March 31, 2020,
 
●
our debt level increased in 20182019 and in the first sixthree months of 2019,2020, and our ability to satisfy the same cannot be assured,

●
the availability of funding or financing as part of the guaranteed buy-back with a certain customer,
 
●
the continued availability of financing in the amounts, at the times, and on the terms required, to support our future business and capital projects,
●
while we have expended significant funds in recent years to increase manufacturing capacity, there is no assurance that we will achieve significantly greater sales,
 
●
the extent to which we are successful in developing, acquiring, licensing or securing patents for proprietary products,
 
●
changes in economic conditions specific to any one or more of our markets (including the availability of public funds and grants for construction),

●
the highly competitive nature of our industry and our ability to effectively compete,

●
changes in general economic conditions in the Company’sCompany'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,
 
●
our contract backlog,
 
●
on material construction projects, our ability to produce and install product that conforms to contract specifications and in a time frame that meets the contract requirements,
 
●
the cyclical nature of the construction industry,
 
●
our exposure to increased interest expense payments should interest rates change,
and
●
the Company’s Board of Directors, which is composed of five members, has 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, 2018.2019.

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.
 

14
  
OverviewOverview; Potential Effect of COVID-19 Outbreak

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 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.
 
            As a part of the construction industry, the Company's sales and net income may vary greatly from quarter to quarter over a given year. Because of the cyclical nature of the construction industry, many factors not under our control, such as weather and project delays, affect the Company's production schedule, possibly causing momentary slowdowns in sales and net income. As a result of these factors, the Company is not always able to earn a profit for each period, therefore, please read Management's Discussion and Analysis of Financial Condition and Results of Operations and the accompanying financial statements with these factors in mind.
            On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.
           The full impact of the COVID-19 outbreak continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. The Company has already experienced an adverse impact to its business by a reduction in backlog, lower production volumes, employee absence, bidding restrictions within certain key states such as Maryland and North Carolina, and delays in receipt of materials through the Company's supply chain. The Company may be further negatively impacted in the following respects:
                  a) by the potential inability of customers of the Company to pay amounts owed to the Company for products or services already provided should their businesses suffer setbacks; this risk is heightened by the relatively long lag time experienced by the Company in collecting accounts receivable (see "Liquidity and Capital Resources" below);
                  b) by potential supply side issues should our vendors experience hardships, and have to reduce or terminate operations, due to the COVID-19 outbreak, impacting the Company's sourcing of materials;
                  c) by increased adverse effects on our workforce due to contracting or taking care of a relative who has contracted COVID-19, or have been quarantined by a medical professional; in this respect, our workforce has been impacted as of this date with an effect on operations at our Midland, Virginia plant;
                  d) in the event that any of the three states in which we have facilities provide for the quarantine of our manufacturing employees, our production manufacturing will be significantly affected;
                  e) in the event that any of the states in which we sell our products and services may eliminate, cancel, or delay projects due to monetary limitations resulting from the COVID-19 outbreak; in this respect, the Company has already seen a reduction in bidding activity;
                  f) the reduction of state infrastructure budgets due to the reduction in funding through the gas tax, or other funding sources;
                  g) the increase in the overall loan defaults, which in turn impacts the banking sector's ability to fund those types of projects in which the Company's products may be utilized;
                  h) in the event that economic hardships force the Company to default on loan payments, our loans may be called and our ability to borrow under our bank line of credit could cease; and
                  i) as a micro cap public company, with minimal trading volume, we do not have access to the public capital markets as do larger public companies; in this respect, the Company has not raised equity funding through a private placement or underwritten public offering since its inital public offering in 1995.
           Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2020.

               The discussions below, including without limitation with respect to liquidity, are subject to the future effects of the COVID-19 outbreak. In this respect, should the outbreak cause serious economic harm in our areas of operation, our revenue expectations are unlikely to be fulfilled.

15

The Company had (in thousands) a net loss of $38 for the first quarter 2020, compared to net income of $331 for the first quarter 2019 and net income of $273 for the second quarter 2019, resulting in net income of $604 for the six months ended June 30, 2019. The cost of goods sold as a percent of revenue, not including royalties, for the three and six months ended June 30, 2019March 31, 2020 was 83% and 82%86%, respectively, as compared to 74% and 79%81% for the three and six months ended June 30, 2018, respectively.March 31, 2019. The increase in cost of goods sold as a percentage of revenue, not including royalties, for the three and six months ended June 30, 2019,March 31, 2020, compared to the three and six months ended June 30, 2018,March 31, 2019, is mainly due to increased wagesmaintaining wage and the associated labor costs flat selling pricesdespite reduced production volumes. Total revenues for certain products duethe three month period ended March 31, 2020 were $9,825, compared to competitive pricing pressure,$10,189 for the three months ended March 31, 2019. The decrease was mainly from the decrease in SlenderWall sales compared to the same period in 2019. Management continues to assess general and the increase in shipping and installation which typically have lower margins than product sales, as administrative costs, with first quarter 2020 expenses reduced by 13% compared to the first half 2018 costs when there were higher margin jobs.Total sales for the three and six month periods ended June 30, 2019 were $10,852 and $21,041, respectively, compared to $9,833 and $18,958 for the three and six months ended June 30, 2018, respectively. The increase was mainly from the  Easi-Set building sales, and barrier rentals, which were impacted favorably from the deferred buy-back revenue recognition, and 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 is 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 by2019. At the end of 2019. The buy-back option expires when the customer completes the project utilizing the barrier, which is expected to be in 2022. Thus, whereasfirst quarter, the Company will likely have completed its production and delivery/installation obligations in 2019, it will nonetheless continuesuccessfully refinanced existing debt to recognize net profits through 2022. Management expects sales to increase fora lower interest rate, which also released the second half of 2019 as comparedlien on the Columbia, South Carolina facility. Subsequent to the first six monthsquarter end, the Company received a loan under the Paycheck Protection Program in the amount of 2019, although no assurance can be given.$2,692. For further loan information see "Liquidity and Capital Resources".


19

 
Results of Operations (dollar amounts in thousands, except per share data)

Three and six months endedJune 30, 2019 March 31, 2020 compared to the three and six months ended June 30, 2018March 31, 2019   
 
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 six month periods ended June 30, 2019March 31, 2020 and 2018.
2019. As indicated in "Overview; Potential Effect of COVID-19 Outbreak" above, should the COVID-19 outbreak cause serious economic harm in our area of operations, our revenue expectations are unlikely to be fulfilled.
Revenue by Type (Disaggregated Revenue)
 
Three Months Ended June 30
 
 
Six Months Ended June 30
 
 
 
2019
 
 
2018
 
 
Change
 
 
% Change
 
 
 2019
 
 
 2018
 
 
 Change
 
 
%  Change
 
Soundwall Sales
 $1,939
 
 $2,525
 
 $(586)
  (23)%
 $4,053
 
 $5,005
 
 $(952)
  (19)%
Architectural Panel Sales
  424
 
  245
 
  179 
  73%
  424
 
  457
 
  (33)
  (7)%
SlenderWall Sales
  772
 
  1,422
 
  (650)
  (46)%
  2,735
 
  2,565
 
  170
 
  7%
Miscellaneous Wall Sales
  406
 
  267
 
  139 
  52%
  769
 
  759
 
  10
 
  1%
Barrier Sales
  1,817
 
  1,590
 
  227 
  14%
  3,408
 
  3,875
 
  (467)
  (12)%
Easi-Set and Easi-Span Building Sales
  1,335
 
  560
 
  775
 
  138%
  2,369
 
  1,062
 
  1,307
 
  123%
Utility Sales
  449
 
  246
 
  203
 
  83%
  757
 
  460
 
  297
 
  65%
Miscellaneous Sales
  185
 
  88
 
  97 
  110%
  316
 
  213
 
  103
 
  47%
Total Product Sales
  7,327
 
  6,943 
  384
 
  6%
  14,831
 
  14,396
 
  435
 
  3%
Barrier Rentals
  582
 
  340
 
  242
 
  71%
  1,163
 
  649
 
  514
 
  79%
Royalty Income
  429
 
  506
 
  (77)
  (15)%
  735
 
  727
 
  8
 
  1%
Shipping and Installation Revenue
  2,514
 
  2,044
 
  470
 
  23%
  4,312
 
  3,186
 
  1,126
 
  35%
Total Service Revenue
  3,525
 
  2,890
 
  635
 
  22%
  6,210
 
  4,562
 
  1,648
 
  36%
 
    
    
    
    
    
    
    
    
Total Revenue
 $10,852
 
 $9,833
 
 $1,019
 
  10%
 $21,041
 
 $18,958
 
 $2,083
  11%
 

Revenue by Type (Disaggregated Revenue)
 
Three Months Ended March 31,
 
 
 
2020
 
 
2019
 
 
Change
 
 
% Change
 
Soundwall Sales
 $1,887 
 $2,114 
 $(227)
  (11)%
Architectural Sales
  767 
  — 
  767 
  100%
SlenderWall Sales
  923 
  1,963 
  (1,040)
  (53)%
Miscellaneous Wall Sales
  903 
  363 
  540 
  149%
Barrier Sales
  1,325 
  1,591 
  (266)
  (17)%
Easi-Set and Easi-Span Building Sales
  559 
  1,034 
  (475)
  (46)%
Utility Sales
  401 
  308 
  93 
  30%
Miscellaneous Product Sales
  87 
  130 
  (43)
  (34)%
Total Product Sales
  6,852 
  7,503 
  (651)
  (9)%
Barrier Rentals
  742 
  573 
  169 
  29%
Royalty Income
  268 
  306 
  (38)
  (12)%
Shipping and Installation Revenue
  1,963 
  1,807 
  156 
  9%
Total Service Revenue
  2,973 
  2,686 
  287 
  11%
 
    
    
    
    
Total Revenue
 $9,825 
 $10,189 
 $(364)
  (4)%
 
Soundwall Sales - Soundwall sales decreased for the three and six month periodsperiod ended June 30, 2019 whenMarch 31, 2020 compared to the same periodsperiod in 2018.2019. The decrease for the three month period in soundwall sales is mainly attributed to the reduction inof orders associated with soundwall production with lower sales prices at the North Carolina and South Carolina plants in the first halfthree months of 2019. The Virginia plant has increased soundwall production for their largest order ever, which will continue production into 2020. With2020 compared to the current backlog and continued increasesame period in highway work, management expects soundwall sales to trend up for the remainder of the year 2019.

Architectural Panel Sales - Architectural panel sales increased for the three months ended June 30, 2019March 31, 2020 compared to the same period in 2018, and decreased slightly for2019. The Company had one large architectural panel project begin during the six months ended June 30, 2019 comparedfirst quarter 2020, while there was no production in the first quarter 2019. The Company was also recently awarded a large architectural project expected to the same period in 2018.  There will continue to bebegin production during the remainder of 2019, at a low volume that will not be a large portion of revenue. Architectural panel sales continue to be a smaller complimentary product to the Company's high profile proprietary product SlenderWall.third quarter 2020.

SlenderWallTM Sales - SlenderWall panel sales significantly decreased for the three month period ended June 30, 2019 asMarch 31, 2020 compared to the same period in 2018,2019. SlenderWall sales are generated on a project basis, and increasedsuccess is determined by the number and dollar value of projects awarded and produced in any particular period. The decrease for the sixthree month period ended June 30, 2019 asending March 31, 2020 compared to the same period in 2018. The2019, is mainly attributable to the Company finished producingfinishing production of a major SlenderWall project during the first quarter 2019, while only producingas compared to finishing a couple of smaller projects during the secondfirst quarter 2019.of 2020. The Company continues to focus sales initiatives foron SlenderWall, withbut no assurance can be given as to success in this endeavor, particularly in view of the hiring of a new regional sales manager for the proprietary product.COVID-19 outbreak.
 

2016

 
Miscellaneous Wall Sales - Miscellaneous wall sales increased for the three and six month periodsperiod ended June 30, 2019March 31, 2020 compared to the same periodsperiod in 2018.2019 due to the amount of retaining wall projects in production. The Company had very fewwas awarded various miscellaneous wall panel projects duringin the first six monthslater part of 2019, and 2018. With varying market demand, miscellaneous wall sales arewith production expected to remain low for 2019 until selective miscellaneous wall projects are released, which can be highly profitable due to their unique characteristics.continue through the end of 2020.
 
Barrier Sales - Barrier sales increaseddecreased during the three month period ended June 30, 2019March 31, 2020 compared to the same period in 2018,2019. The Company has, and decreased during the six month period ended June 30, 2019 comparedintends to the same period in 2018. Althoughcontinue to, place a greater emphasis on barrier production decreased during the more recent six month period, the Company completed production of its largestrentals versus barrier order ever during the second quarter of 2019. A 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 by the end of 2019.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, it will recognize net profits through 2022. Management expects barrier sales to be lower for 2019 as compared to annual barrier sales for 2018. 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.sales.
 
Easi-Set® and Easi-Span® Building Sales - Building and restroom sales increased significantlydecreased for the three and six month periodsperiod ended June 30, 2019March 31, 2020 compared to the same periodsperiod in 2018. The Company has increased building2019 mainly due to a decrease in production at all three manufacturing facilities. The Company has recently seen competitive pricing pressure in certain buildingthe Reidsville, North Carolina and restroom sales. Thethe Columbia, South Carolina plant started producing a large building order during the second quarter 2019. Management expects there to be an increase during the third quarter of 2019 in building and restroom sales.plants.
 
Utility Sales - Utility and farm products sales increased in the three and six month periodsperiod ended June 30, 2019March 31, 2020 compared to the same periodsperiod in 2018.2019. 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 during the remainder of 2019.
 
Miscellaneous Product Sales - Miscellaneous salesproducts are itemsproducts that are produced or sold that do not meet the criteria defined for other revenue categories. Examples would include precast concrete slabs, waste blocks or small add-on items. Miscellaneous product sales increaseddecreased for the three and six month periodsmonths ended June 30, 2019March 31, 2020 compared to the same period in 2018. Management believes that miscellaneous product sales will remain low for2019. These products are typically small in nature and the remainder of the year.Company focuses it's priorities on larger, more profitable jobs.
 
Barrier Rentals - Barrier rentals increased significantly for the three and six month periodsperiod ended June 30, 2019March 31, 2020 compared to the same periods in 2018. The increase is mainly2019 due to the recognitionhigher quantity of revenue associatedlinear feet rented than the previous year. Barrier rentals were also positively impacted in the first quarter 2020 with the guaranteedrevenue recognition from the deferred buy-back agreement deferral. The Company's corelease obligation. As indicated above, the Company is shifting its focus to barrier rentals compared to barrier sales with the significant increase in the rental fleet also showed an increase forin late 2019. Its success in this endeavor will be affected by the three and six month periods ended June 30, 2019 compared to the same periods in 2018. With the Company expanding the barrier rental services, management believes it has the potential to increase barrier rental revenue for the remainderlevel of 2019, and moving forward as the outlays for infrastructuregovernmental spending on future public highway products, which spending may be adversely effected by federal and state governments continue to increase. As stated above in Barrier Sales, barrier rental revenue will continue to be positively effected for future periodscutbacks resulting from diversion of funds due to the accounting treatment afforded to the guaranteed buy-back agreement with a customer.COVID-19 outbreak.
 
Royalty Income - Royalties decreased for the three month period ended June 30, 2019March 31, 2020 compared to the same period in 2018, and slightly increased2019. Royalties for barriers started off slow in 2020 with the six month period ended June 30, 2019 comparednew transition to the same period in 2018. Royalties for barrier and buildings increased forMASH TL3 standard. The Company is uncertain how the six month period ended June 30, 2019 compared to the same period for 2018. SlenderWall royalties for the six months ended June 30, 2019 lag behind the same period in 2018, as projects can be multi-year initiatives. ManagementCOVID-19 outbreak is impacting each licensee. The Company continues to seek new licenseelicense opportunities to expand product offerings around the world. With steady increases in construction and infrastructure spending, management believes royalty revenue will be higher in 2019 as compared 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 for the three and six month periodsperiod ended June 30, 2019,March 31, 2020, compared to the same periodsperiod in 2018.2019. The increase is mainly derived from shipping andthe installation associated with barrier, barrier rental deliveries, andtwo SlenderWall installation and deliveries, which increased significantly inprojects being erected during the first six months of 2019 compared to the first six months of 2018. The Company continues to expand shipping and installation services through products such as barrier and barrier rentals to help drive top and bottom line performance.
quarter 2020.
 

2117

 
Cost of Goods Sold - Total cost of goods sold, for the three months ended June 30, 2019 increased by $1,839 from the same period in 2018. Total cost of goods sold, as a percentage of total revenue, not including royalties, was 83%86% for the three months ended June 30, 2019,March 31, 2020, an increase from 74%81% for the same period in 2018.2019. Total cost of goods sold for the six months ended June 30, 2019 increased by $2,272 from the same periodThe increase in 2018. Total cost of goods sold as a percentage of total revenue, not including royalties, was 82% for the sixthree months ended June 30, 2019, an increase from 79% for the same period in 2018. The increase is due to increased wages and the associated labor costs, flat selling prices for certain products due to competitive pricing pressure, and the increase in shipping and installation which typically have lower margins than product sales, as March 31, 2020, compared to the first half 2018three months ended March 31, 2019, is mainly due to maintaining wage and labor costs when there were higher margin jobsdespite reduced production volumes.. 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 June 30, 2019March 31, 2020 the Company's general and administrative expenses decreased by $310$157 to $1,143$1,051 from $1,452$1,208 during the same period in 2018, and for the six months ended June 30, 2019 the Company's general and administrative expenses decreased by $569 to $2,350 from $2,919.2019. The decreased general and administrative expenses for the three and six month periodsperiod ended June 30, 2019March 31, 2020 is mainly attributed to athe decrease in non-cashsalaries and wages, and the decrease in stock compensation expense, as compared to the same period in 2018, and a decrease in salaries and associated benefits.2019. General and administrative expense as a percentage of total revenue was 11% and 15%12% for the sixthree months ended June 30,March 31, 2020 and 2019, and 2018, respectively.
 
Selling Expenses - Selling expenses for the three months ended June 30, 2019 slightlyMarch 31, 2020 increased to $640$591 from $613$567 for the same period in 2018. Selling expenses for the six months ended June 30, 2019, slightly decreased to $1,207 from $1,290 for the same period in 2018. As the Company grows, additional selling expenses will be incurred. Management expects selling expenses toreflecting a slight increase in 2019 as compared to 2018.salaries and wages.
 
Operating Income (Loss) - The Company had an operating incomeloss for the three month period ended June 30, 2019March 31, 2020 of $373$42 compared to operating income of $911$447 for the same period in 2018.2019. The decrease in operating income for the three month period ended June 30, 2019March 31, 2020 compared to the same period in 2018, was2019 is mainly due to the reductiondecrease in sales and the decrease in gross profit margins. The Company had operating income for the six month period ended June 30, 2019 of $821 compared to operating income of $358 for the same period in 2018. The increase in operating income is mainly due to increased sales and a reduction in general and administrative costs.margin.
 
Interest Expense - Interest expense was $40$56 and $44 for the three month periodperiods ended June 30,March 31, 2020 and 2019, respectively. At the end of the first quarter 2020, the Company refinanced a significant portion of its existing debt to a lower interest rate. See "Liquidity and 2018, respectively. Interest expense was $85 and $90 for the six month period ended June 30, 2019 and 2018, respectively.Capital Resources". The Company expects interest expense to slightly increase for the full year 2019,2020, as compared to the full year 2018,2019, due to the debt financing on the North Carolina expansion project.project completed in the fourth quarter 2019.
 
Income Tax Expense (Benefit) - The Company had an income tax benefit of $11 with an effective rate of 22% for the three months ended March 31, 2020 compared to income tax expense of $86$99 with an effective rate of 23% for the three months ended June 30, 2019 compared to income tax expense of $225 with an effective rate of 24% for the same period in 2018. The Company had an income tax expense of $185 with an effective rate of 23% for the six months ended June 30, 2019 compared to income tax expense of $90 with an effective tax rate of 25% for the same period in 2018.2019.
 
Net Income (Loss) - The Company had a net incomeloss of $273$38 for the three months ended June 30, 2019,March 31, 2020, compared to net income of $691$331 for the same period in 2018.2019. The basic and diluted incomeloss per share was $0.05$0.01 for the three months ended June 30, 2019,March 31, 2020, and the basic and diluted income per share was $0.14$0.06 for the three months ended June 30, 2018. The Company had net income of $604 for the six months ended June 30, 2019, compared to net income of $270 for the same period in 2018. The basic and diluted income per share was $0.12 for the six months ended June 30, 2019, and the basic and diluted income per share was $0.05 for the six months ended June 30, 2018.March 31, 2019.
 

2218

 
Liquidity and Capital Resources (dollar amounts in thousands)
 
The Company financed its capital expenditures and operating requirements for the first six months               Reference is made to "Overview; Potential Effect of 2019 primarily from cash balances and the line-of-credit construction draws. The Company had $3,208 of debt obligations at June 30, 2019, of which $740 was scheduled to mature within twelve months, along with the line of credit balance of $1,500. During the six months ended June 30, 2019, the Company made repayments of outstanding debtCOVID-19 Outbreak" above in the amountcontext of $343 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 six months ended June 30, 2019.discussion below.
 
The Company has a mortgage note payable to Summit Community Bank (the “Bank”), with a balance of $661$447 as of June 30, 2019.March 31, 2020. 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 purchaseconstruction of the Columbia, Southit's North Carolina facility. Such loan is evidenced by a promissory note, dated July 19, 2016. The note provides forcarries a 15ten year term at a fixed annual interest rate of 5.29%,3.64% annually per the Promissory Note Rate Conversion Agreement, with monthly fixed payments of $11$22, has a maturity date of October 10, 2029, and is secured by all of the assets of Smith-Carolina and a security interest in favor ofguarantee by the Bank in respect to the land, building and fixtures purchased with the proceeds of the loan.Company. The balance of the loannote payable at June 30, 2019March 31, 2020 was $1,137.$2,150.
 
               On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank in the amount of $2,701. A portion of the funds in the amount of $678 were secured for improvements to an existing five acre parcel for additional storage at the Midland, Virginia plant. The loan is collateralized by a first lien position on the Virginia property, building, and assets. The refinance also released the lien on the Smith-Columbia plant in Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is fixed at 3.99% per annum, with principal and interest payments payable monthly over 120 months in the amount of $27. The loan matures on March 27, 2030. The balance of the note payable at March 31, 2020 was $2,701.
The Company additionally has 146 smaller installment loans with annual interest rates between 2.94%3.99% and 5.29%, maturing between 2020 and 2024,2025, with varying balances totaling $1,410.$209.
 
Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500 excluding the deferred buy-back lease asset.and must maintain tangible net worth of $10,000. The Company is in compliance with all covenants pursuant to the loan agreements.agreements as of March 31, 2020.
 
In addition to the notes payable discussed above, the Company also has a $4,000 line of credit with the Bank that had awith no balance outstanding as of $1,500 at June 30, 2019 used to fund the construction of the North Carolina expansion, which will be converted to long-term debt when the financing closes in 2019.March 31, 2020. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on September 18, 2019.October 1, 2020. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company, (i) to obtain bank approval for capital expenditures in excess of $3,500 per annum during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition.
               On September 18, 2018April 16, 2020, the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment with minimum advances of $50 for whichcompleted a note payable will be executed with a term notsecured under the Paycheck Protection Program (the "PPP") to exceed five years with anthe Bank in the amount of $2,692. The interest rate per the Promissory Note, dated April 16, 2020 and executed by the Company in favor of the Bank, is fixed at 1.00% per annum, with principal and interest payments starting November 16, 2020, payable monthly over 18 months in the Wall Street Journal prime rate plus 0.5% with a flooramount of 4.49% per annum.$152. 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. AsApril 16, 2022. The proceeds of June 30, 2019, the Company had not purchased any equipmentloan must be utilized pursuant to the $1,500 commitment.requirements of the PPP, and all or a portion of the loan may be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. 
 
At June 30, 2019,March 31, 2020, the Company had cash totaling $1,641$2,198 and investment securities totaling $1,156,$1,162, compared to cash totaling $1,946$1,364 and investment securities totaling $1,107$1,176 at December 31, 2018.2019. Investment securities at June 30, 2019March 31, 2020 consist of shares of USVAX (a Virginia Bond Fund). The decreaseincrease in cash is primarily the result of the purchasecollection of capital expendituresaccounts receivable for the sixthree months ended June 30, 2019March 31, 2020 as compared to the balance at December 31, 2018.2019.
 
Capital spending for the sixthree months ended June 30, 2019March 31, 2020 totaled $1,996,$669, as compared to $1,057$1,049 for the same period in 2018.2019. The 20192020 expenditures were mainly for the North Carolina plantrental barrier, yard expansion along with yardin Midland in which the Company committed to during the fourth quarter 2019, Virginia and manufacturing equipment. The Company planscurrently intends to make additionalfinalize the yard expansion at Midland, Virginia and continue maintenance capital purchases of approximately $2,000expenditures as needed over the remainder of the year, excluding the North Carolina plant expansion. 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.year.
 
The Company's twothree 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%99% 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$1 annually.
 

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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 10096 days for the sixthree months ended June 30, 2019March 31, 2020 compared to 8689 days for the year ended December 31, 2018.2019. The increase in DSO is mainly due to retainage being withheld on multiple large projects.

If actual results regarding the Company's production, sales, and subsequent collections on customer receivables are materially inconsistent with management's expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company's operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could cause defaults and acceleration under it's loan agreements and lose access to the credit facility. Although no assurances can be given, the Company believes that anticipated cash flow from operations and the availability under the lines of creditscredit and the Payment Protection Plan loan received subsequent to the end of the quarter will be sufficient to finance the Company’s operations for at least the next 12 months.As a micro cap public company, with minimal trading volume, the Company does not have access to the public capital markets as do larger public companies; in this respect the Company has not raised equity funding through a private placement or underwriting public offering since its initial public offering in 1995.
 
The Company’s inventory was $3,003$2,171 at June 30, 2019March 31, 2020 and $3,560$2,242 at December 31, 2018,2019, or a decrease of $557.$71. The decrease in inventory is due to salesthe reduction of barrier in finished goods on hand at DecemberMarch 31, 20182020 with the transition to the MASH TL3 standard and the decrease in raw materials for use in production during the first half of 2019.focus shifting from 'Barrier Sales' to 'Barrier Rentals'. Inventory turnover was 10.9,14.8, annualized for the sixthree months ended June 30, 2019,March 31, 2020, compared to 9.812.1, annualized for the same period in 2018.2019.
 
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, 2018.2019. There have been no changes as of June 30, 2019.March 31, 2020.

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 sixthree months of 2019.2020. The Company anticipates raw material prices willmay slightly increase overfor the remainder of 2019,2020, although no assurance can be given regarding future pricing.

Sales Backlog

As of August 2, 2019,May 1, 2020, the Company’s sales backlog was approximately $27.6$26.6 million, as compared to approximately $35.3$31.2 million at the same time in 2018.2019. The decrease is mainly due to the large orders bookedreduction in early 2018 combined with competitive pricing pressure on recent bids.bidding activity in 2020. 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 in 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 $3,300 and will increase production and storage capacity. The project is being funded through bank financing and cash. Management expects completion of the new facility and production to commence during the third quarter 2019. The current North Carolina facility will remain operational during the construction of the new plant, with production continuing during the transition to the new facility. There can be no assurance as to the cost, financing, timetable, completion, or success of this project.
 

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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 June 30, 2019.March 31, 2020.

(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 June 30, 2019March 31, 2020 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.
 

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PARTPART II — OTHER INFORMATION
 
ITEM 1.    Legal Proceedings

The Company is not presently involved in any litigation of a material nature.
 
ITEM 1A.    Risk Factors

Not required
 
ITEM 2.    Unregistered Sales of Equity Securities and Use of Proceeds

None
 
ITEM 3.    Defaults Upon Senior Securities

None
 

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ITEM 4.    Mine Safety Disclosures

 Not applicable
 
ITEM 5.    Other Information

None

 
ITEM 6.    Exhibits
 
 
 
Exhibit No.
 
Exhibit Description
31.1
 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2
 Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1
 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.
 
 

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SIGNATURES

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:August 8, 2019May 14, 2020
By:/s/ Ashley B. Smith 
   Ashley B. Smith, Chief Executive Officer 
   (Principal Executive Officer)  
     
     
Date:August 8, 2019May 14, 2020
By:/s/ Adam J. Krick 
   Adam J. Krick, Chief Financial Officer 
   (Principal Financial Officer)  
  

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