smid_10q.htm

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, 2023

☐	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	NASDAQ

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 per share, outstanding as of September 15, 2023: 5,256,413 shares, net of treasury shares

SMITH-MIDLAND CORPORATION

Form 10-Q Index

PART I. FINANCIAL INFORMATION		Page

Item 1.	Financial Statements (Unaudited)		3

	Condensed Consolidated Balance Sheets		3

	Condensed Consolidated Statements of Income (Loss)		5

	Condensed Consolidated Statements of Stockholders' Equity		6

	Condensed Consolidated Statements of Cash Flows		7

	Notes to Condensed Consolidated Financial Statements		8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations		15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		22

Item 4.	Controls and Procedures		22

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings		23

Item 1A.	Risk Factors		23

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		23

Item 3.	Defaults Upon Senior Securities		23

Item 4.	Mine Safety Disclosures		23

Item 5.	Other Information		23

Item 6.	Exhibits		24

	Signatures		25

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PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

ASSETS	June 30, 2023 (Unaudited)		December 31, 2022
Current assets
Cash	$	4,727	$	6,726
Accounts receivable, net
Trade - billed (less allowance for credit losses of approximately $912 and $781, respectively), including contract retentions		16,554		16,223
Trade - unbilled		653		990
Inventories, net
Raw materials		2,396		1,776
Finished goods		2,356		2,042
Prepaid expenses		1,212		706
Refundable income taxes		577		477

Total current assets		28,475		28,940

Property and equipment, net		26,886		25,124

Other assets		356		249

Total assets	$	55,717	$	54,313

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

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(continued)

LIABILITIES AND STOCKHOLDERS' EQUITY	June 30, 2023 (Unaudited)			December 31, 2022
Current liabilities
Accounts payable - trade	$	5,684		$	5,816
Accrued expenses and other liabilities		874			799
Deferred revenue		1,991			2,243
Accrued compensation		792			788
Accrued income taxes		—			146
Operating lease liabilities		51			77
Current maturities of notes payable		629			618
Customer deposits		2,985			737

Total current liabilities		13,006			11,224

Deferred revenue		2,633			2,174
Operating lease liabilities		24			45
Notes payable - less current maturities		5,412			5,730
Deferred tax liability		2,181			2,085

Total liabilities		23,256			21,258

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; 5,345,189 and 5,345,189 issued and 5,256,413 and 5,256,413 outstanding, respectively		53			53
Additional paid-in capital		7,611			7,440
Treasury stock, at cost, 40,920 shares		(102	)		(102	)
Retained earnings		24,899			25,664

Total stockholders' equity		32,461			33,055

Total liabilities and stockholders' equity	$	55,717		$	54,313

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

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Product sales	$	10,702		$	6,788		$	18,944		$	12,638
Barrier rentals		700			1,962			1,819			3,447
Royalty income		594			771			1,005			1,198
Shipping and installation revenue		2,702			3,732			5,772			6,405

Total revenue		14,698			13,253			27,540			23,688

Cost of goods sold		12,912			10,023			23,588			18,810

Gross profit		1,786			3,230			3,952			4,878

Operating expenses
General and administrative expenses		1,884			1,409			3,233			2,568
Selling expenses		883			725			1,645			1,388

Total operating expenses		2,767			2,134			4,878			3,956

Operating income (loss)		(981	)		1,096			(926	)		922

Other income (expense)
Interest expense		(64	)		(71	)		(128	)		(118	)
Interest income		5			3			10			6
Gain on sale of assets		116			27			199			65
Other income		32			162			57			183

Total other income (expense)		89			121			138			136

Income (loss) before income tax expense (benefit)		(892	)		1,217			(788	)		1,058

Income tax expense (benefit)		(110	)		307			(87	)		267

Net income (loss)	$	(782	)	$	910		$	(701	)	$	791

Basic and diluted earnings (loss) per common share	$	(0.15	)	$	0.17		$	(0.13	)	$	0.15

Weighted average number of common shares outstanding:
Basic		5,256			5,230			5,256			5,230
Diluted		5,256			5,266			5,256			5,262

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

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands, except share data)

	Common Stock				Treasury Stock						Additional Paid-in		Retained
	Shares		Amount		Shares			Amount			Capital		Earnings			Total

Balance, December 31, 2022		5,345,189		53		(40,920	)		(102	)		7,440		25,664			33,055

Stock-Based Compensation Expense		—		—		—			—			85		—			85

Adoption of ASU 2016-13		—		—		—			—			—		(63	)		(63	)

Net income (loss)		—		—		—			—			—		80			80

Balance, March 31, 2023		5,345,189	$	53		(40,920	)	$	(102	)	$	7,525	$	25,681		$	33,157

Stock-Based Compensation Expense		—		—		—			—			86		—			86

Net income (loss)		—		—		—			—			—		(782	)		(782	)

Balance, June 30, 2023		5,345,189	$	53		(40,920	)	$	(102	)	$	7,611	$	24,899		$	32,461

Balance, December 31, 2021		5,353,095	$	53		(40,920	)	$	(102	)	$	6,935	$	24,864		$	31,750

Stock-Based Compensation Expense		—		—		—			—			126		—			126

Net income (loss)		—		—		—			—			—		(119	)		(119	)

Balance, March 31, 2022		5,353,095	$	53		(40,920	)	$	(102	)	$	7,061	$	24,745		$	31,757

Stock-Based Compensation Expense		—		—		—			—			126		—			126

Net income (loss)		—		—		—			—			—		910			910

Balance, June 30, 2022		5,353,095	$	53		(40,920	)	$	(102	)	$	7,187	$	25,655		$	32,793

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

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net income (loss)	$	(701	)	$	791
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization		1,176			1,400
(Gain) loss on sale of assets		(199	)		(65	)
Allowance for credit losses		67			45
Stock-based compensation expense		171			253
Deferred taxes		96			—
(Increase) decrease in
Accounts receivable - billed		(462	)		(2,700	)
Accounts receivable - unbilled		337			(121	)
Inventories, net		(934	)		(686	)
Prepaid expenses and other assets		(625	)		61
Refundable income taxes		(100	)		177
Increase (decrease) in
Accounts payable - trade		(132	)		1,661
Accrued expenses and other liabilities		75			364
Deferred revenue		207			(55	)
Accrued compensation		4			(265	)
Accrued income taxes		(146	)		(1,912	)
Deferred buy-back lease obligation		—			(1,617	)
Customer deposits		2,248			(16	)
Net cash provided by (used in) operating activities		1,082			(2,685	)
Cash flows from investing activities:
Purchases of property and equipment		(2,974	)		(1,962	)
Deferred buy-back asset		—			988
Proceeds from the sale of property and equipment		199			65
Net cash provided by (used in) investing activities		(2,775	)		(909	)
Cash flows from financing activities:
Proceeds from long-term borrowings		—			2,805
Repayments of long-term borrowings		(306	)		(278	)
Net cash provided by (used in) financing activities		(306	)		2,527
Net increase (decrease) in cash		(1,999	)		(1,067	)
Cash
Beginning of period		6,726			13,492
End of period	$	4,727		$	12,425

Supplemental Cash Flow Information:
Cash payments for interest	$	128		$	118
Cash payments for income taxes	$	65		$	2,179
Capital expenditures included in accounts payable	$	2,244		$	2,014

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

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SMITH-MIDLAND CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 of Regulation S-X. Accordingly, we have condensed or omitted certain information and footnote disclosures that are included in our annual consolidated 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, 2022. The condensed consolidated December 31, 2022 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 income are not necessarily indicative of the results to be expected in any future periods.

Recently Issued Accounting Pronouncement

The FASB issued ASU No. 2016-13, “Measurement of Credit Losses on Financial Instruments.” This standard replaces the incurred loss impairment methodology with a methodology that reflects estimates of expected credit losses over their contractual life that are recorded at inception based on historical information, current conditions, and reasonable and supportable forecasts. We adopted this standard, and all related amendments, effective January 1, 2023, on a modified retrospective basis. The cumulative effect of the adoption resulted in an increase of $63 in the allowance and a corresponding decrease in retained earnings as of January 1, 2023.

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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 for customized products 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 is updated in subsequent reporting periods. Revenue recognition also includes an amount related to a contract asset or contract liability. If the recognized revenue is greater than the amount billed to the customer, a contract asset is recorded in accounts receivable trade - unbilled. Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded in 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 and the customers have gained control of the product.

Accounts Receivable and Contract Balances

The timing of when we bill our customers is generally dependent upon advance billing terms, milestone billings based on the completion of certain phases of the work, or when services are provided or products are shipped. Projects with performance obligations recognized over time that have costs and estimated earnings recognized to date in excess of cumulative billings are reported on our Condensed Consolidated Balance Sheets as "Accounts receivable trade - unbilled" (contract assets). Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimated earnings recognized to date, are reported on our Condensed Consolidated Balance Sheets as "Customer deposits" (contract liabilities).

Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within “Accounts receivable trade – billed”. On June 30, 2023, and December 31, 2022, accounts receivable included contract retentions of approximately $972 and $932, respectively, which are considered contract assets.

Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain an allowance for estimated expected credit losses. A considerable amount of judgment is required when determining expected credit losses. Estimates of such expected losses are recorded based on historical losses experienced by the Company, current macro- and micro-economic conditions, and expected macro- and micro-economic conditions. Additionally, additional reserves are accumulated when we believe a specific customer may not be able to meet its financial obligations due to deterioration in financial condition or credit rating. Factors relevant to our assessment include our prior collection history with our customers, the related aging of past due balances, projections of credit losses based on historical trends or past events, and forecasts of future economic conditions. On June 30, 2023, and December 31, 2022, the allowance was $912 and $781, respectively.

The change in the allowance for the six months ended June 30, 2023 was as follows:

Balance at December 31, 2022	$	781
Cumulative Effect of Adoption of ASU 2016-13		64
Provision for Expected Credit Losses		67
Balance at June 30, 2023	$	912

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Sale to Customer with a Buy-Back Agreement

The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back barrier at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company received payment in full when the product was produced, we were required to account for these transactions as operating leases. The amount of sale proceeds equal to the buy-back obligation was deferred until the buy-back was executed. The remaining sale proceeds were 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 was executed. The Company capitalized the cost of the product on the Condensed Consolidated Balance Sheet, and depreciated the value, less residual value, to cost of leasing revenue in "Cost of goods sold" over the estimated useful life of the asset. The deferred revenue and deferred costs related to the buy-back agreement were fully amortized as of December 31, 2022 and, therefore, the accounting as described has no impact on the six month period ended June 30, 2023.

Pursuant to an amendment entered into by the Company with the customer on April 13, 2022, the Company agreed to purchase barrier back in the amount equal to the buy-back guarantee. Accordingly, the Company settled any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and reclassified the net book value of the purchased product to "Property and equipment, net". The revenue was recognized in accordance with Topic 842, Leases. See Note 5. Commitments for additional information regarding the amendment.

Barrier Rentals - Lease Income

Leasing fees are paid by customers at the beginning of the lease agreement and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income for the duration of the lease, in accordance with Topic 842, Leases.

Royalty Income

The Company licenses certain products to other precast companies to produce the Company's products to engineering specifications under the licensing agreements. The agreements are typically for five-year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid every month. 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.

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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,
	2023		2022		$ Change			% Change			2023		2022		$ Change			% Change
Soundwall Sales	$	1,678	$	430	$	1,248			290	%	$	2,724	$	1,794	$	930			52	%
Architectural Panel Sales		320		1,347		(1,027	)		(76	)%		729		2,253		(1,524	)		(68	)%
SlenderWall Sales		1,487		51		1,436			2816	%		2,767		1,007		1,760			175	%
Miscellaneous Wall Sales		2,933		637		2,296			360	%		4,138		988		3,150			319	%
Barrier Sales		1,824		2,338		(514	)		(22	)%		4,583		3,252		1,331			41	%
Easi-Set Building Sales		1,442		948		494			52	%		2,450		1,563		887			57	%
Utility Sales		622		666		(44	)		(7	)%		896		1,132		(236	)		(21	)%
Miscellaneous Sales		396		371		25			7	%		657		649		8			1	%
Total Product Sales		10,702		6,788		3,914			58	%		18,944		12,638		6,306			50	%
Barrier Rentals		700		1,962		(1,262	)		(64	)%		1,819		3,447		(1,628	)		(47	)%
Royalty Income		594		771		(177	)		(23	)%		1,005		1,198		(193	)		(16	)%
Shipping and Installation Revenue		2,702		3,732		(1,030	)		(28	)%		5,772		6,405		(633	)		(10	)%
Total Service Revenue		3,996		6,465		(2,469	)		(38	)%		8,596		11,050		(2,454	)		(22	)%

Total Revenue	$	14,698	$	13,253	$	1,445			11	%	$	27,540	$	23,688	$	3,852			16	%

The revenue items: soundwall sales, architectural panel sales, SlenderWall sales, miscellaneous wall sales, miscellaneous 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, and shipping and installation revenue are recognized as revenue at a point in time.

Warranties

Smith-Midland products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case-by-case method. Although the Company does incur costs for warranty claims, historically such amounts are 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.

Fair Value of Financial Instruments

The carrying value for each of the Company’s financial instruments, including cash equivalents, accounts receivable, accounts payable, and accrued expenses, are carried at cost which approximates fair value because of the short-term nature of those instruments and are categorized as Level 1 within the GAAP fair value hierarchy. The estimated fair value of the long-term debt approximates carrying value based on current rates offered to the Company for debt of similar maturities and is categorized as Level 2 liabilities within the GAAP fair value hierarchy.

Concentration of Risk

Historically, various customers have comprised greater than 10% of revenue during a given quarter or year. These customers are typically not the same quarter to quarter or year to year. In the event a customer were to go out of business during a project, it is likely that the owner of the project would assign a new contractor to the job, and the Company would complete its scope of work. Therefore, the Company believes that it does not have a short-term vulnerability of severe impact to operations. The Company has determined that no customer, if lost, would result in a near term severe impact to the Company’s operations.

No customer represented greater than 10% of the Company’s consolidated net accounts receivable position, as of either June 30, 2023 or December 31, 2022. For the three month period ended June 30, 2023, the Company derived approximately 12% and 15% of its revenue from two separate customers. No customer derived more than 10% of the Company’s revenue for the three month period ended June 30, 2022. For the six month period ended June 30, 2023, the Company derived approximately 17% of its revenue from one customer, and derived 13% from a different customer for the six month period ended June 30, 2022.

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.

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2. EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are calculated as follows (in thousands, except earnings per share):

	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
Basic earnings (loss) per common share

Net income (loss)	$	(782	)	$	910	$	(701	)	$	791

Weighted average shares outstanding		5,256			5,230		5,256			5,230

Basic earnings (loss) per common share	$	(0.15	)	$	0.17	$	(0.13	)	$	0.15

Diluted earnings (loss) per common share

Net income (loss)	$	(782	)	$	910	$	(701	)	$	791

Weighted average shares outstanding		5,256			5,230		5,256			5,230
Dilutive effect of restricted stock		—			36		—			32

Total weighted average shares outstanding		5,256			5,266		5,256			5,262

Diluted earnings (loss) per common share	$	(0.15	)	$	0.17	$	(0.13	)	$	0.15

There was no restricted stock excluded from the diluted earnings per share calculation for the three and six month periods ended June 30, 2023 and June 30, 2022.

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3. NOTES PAYABLE

The Company has a mortgage note payable to Summit Community Bank (the “Bank”) for the construction of its North Carolina facility. The note carries a ten-year term at a fixed interest rate of 3.64% annually per the Promissory Note Rate Conversion Agreement, with monthly payments of $22, and is secured by all of the assets of Smith-Carolina and a guarantee by the Company. The loan matures on October 10, 2029. The balance of the note payable on June 30, 2023 was $1,504.

On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank for $2,701. A portion of the funds, $678, was 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 interest rate per the Promissory Note is fixed at 3.99% per annum, with principal and interest payments payable monthly over 120 months for $27. The loan matures on March 27, 2030. The balance of the note payable on June 30, 2023 was $1,940.

On February 10, 2022, the Company completed the financing for its prior acquisition of certain real property in Midland, Virginia totaling approximately 29.8 acres with a note payable to the Bank for $2,805. The loan is collateralized by a first lien position on the related real property. The interest rate is fixed at 4.09% per annum, with principal and interest payments payable monthly over 180 months for $21. The loan matures on February 10, 2037. The balance of the note payable on June 30, 2023 was $2,620.

The Company additionally has two smaller installment loans with annual interest rates of 2.90% and 3.99%, maturing in 2025, with balances totaling $40.

Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $5,000 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, 2023.

In addition to the notes payable discussed above, the Company has a $5,000 line of credit with the Bank with no balance outstanding as of June 30, 2023. The line of credit is evidenced by a commercial revolving promissory note, which carries a variable interest rate of prime, with a floor of 3.50%, and matures on October 1, 2023. 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 $5,000 during the term of the loan and (ii) to obtain bank approval prior to its funding of any acquisition. On October 1, 2022, 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 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 0.50% with a floor of 3.50% per annum. The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on October 1, 2023. As of June 30, 2023, the Company had not purchased any equipment pursuant to the $1,500 commitment.

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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 six months ended June 30, 2023, is as follows:

Performance-

Based

Service-Based

Number of

Shares

Weighted Average Grant Date Fair Value per Share

Non-vested, December 31, 2022

36,254

11,605

47,859

12.70

Granted

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SEC Form 10-Q filed by Smith-Midland Corporation