SMITH MIDLAND CORP 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures In connection with the preparation of this report, an evaluation was carried out by certain members of the Company’s management, with the participation of the Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”), of the effectiveness of the Company’s disclosure controls and procedures (as defined in Securities and Exchange Commission’s (SEC) Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (“Exchange Act”)) as of December 31, 2022. Disclosure controls and procedures are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including the CEO and the CFO, to allow timely decisions regarding required disclosures. Due to a material weakness in internal control over financial reporting described below, management concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2022. Notwithstanding the existence of this material weakness, management believes that the consolidated financial statements in this annual report filed on Form 10-K present, in all material respects, the Company’s financial condition as reported, in conformity with United States Generally Accepted Accounting Principles (“GAAP”). Management’s Report on Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate. Management has completed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). As a result of this assessment, management has concluded controls were not effective due to an identified material weakness in internal control over financial reporting. A material weakness is a control deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. The Company identified a material weakness in the methodology initially used to estimate the allowance for doubtful accounts related to the fourth quarter 2022. 20 As a result of this material weakness, the Company’s management has concluded that, as of December 31, 2022 the Company’s internal control over financial reporting was not effective based on the criteria in Internal Control – Integrated Framework (2013) issued by the COSO. Management communicated the results of its assessment to the Audit Committee of the Board of Directors. As a “smaller reporting company”, the Company is exempt from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002. As a result, the Company’s independent registered public accounting firm has not audited or issued an attestation report with respect to the effectiveness of our internal control over financial reporting as of December 31, 2022. Remediation Efforts Management is committed to the remediation of the material weakness described above. To address the material weakness associated with the estimation of the allowance for doubtful accounts, management has revised its methodology applied for the fourth quarter. Further, the methodology for calculating the allowance has been further revised in 2023 in consideration of ASU No. 2016-13, “ Measurement of Credit Losses on Financial Instruments. ” Refer to Recently Adopted Accounting Pronouncement in the Financial Statements of the Company set forth herein, for additional information. Changes in Internal Control over Financial Reporting Other than as described above, there were no other changes in the Company’s internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(f) and 15d-15(f) of the Exchange Act during the quarter ended December 31, 2022 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable. 21 PART III Item 10. Directors, Executive Officers and Corporate Governance Certain information with respect to our Directors and executive officers is set forth below. Name Age Director or Executive Officer Since Position Ashley B. Smith 60 1994 Chairman of the Board of Directors, Chief Executive Officer, and President Wesley A. Taylor 75 1994 Director James Russell Bruner 67 2018 Director Richard Gerhardt 56 2016 Director Adam J. Krick 37 2018 Former Chief Financial Officer, Secretary, and Treasurer Stephanie Poe 33 2023 Chief Financial Officer, Secretary, and Treasurer Background The following is a brief summary of the background of each Director and executive officer of the Company: Ashley B. Smith. Chairman of the Board of Directors, Chief Executive Officer, and President. Ashley B. Smith has served as Chairman of the Board of Directors since January 2022, Chief Executive Officer of the Company since May 2018, President of the Company since 2012, and as a Director since 1994. Mr. Smith was Vice President of the Company from 1990 to 2011. He is a past Chairman of the National Precast Concrete Association. Mr. Smith serves on the Board of Trustees of Bridgewater College in Bridgewater, Virginia. Mr. Smith holds a Bachelor of Science degree in Business Administration from Bridgewater College. The Company believes that Mr. Smith’s education, experience in the precast concrete industry and business experience gives him the qualifications and skills necessary to serve in the capacity as a director of the Company. Wesley A. Taylor. Director. Wesley A. Taylor served as Vice President of Administration of the Company from 1989 until January 2017 and has served as a Director since 1994. Mr. Taylor holds a Bachelor of Arts degree from Northwestern State University. The Company believes that Mr. Taylor’s education, business experience and his extensive experience in the precast concrete industry gives him the qualifications and skills necessary to serve in the capacity as a director of the Company. 22 James Russell Bruner. Director. Mr. Bruner has served as a member of the Board of Directors of the Company since December 2018. Mr. Bruner has served as Chairman of Maersk Line, Limited (“Maersk Line”) since November 2016 and was President and Chief Executive Officer of Maersk Line from January 2014 to November 2017. Maersk Line owns and operates a fleet of container and tanker ships that are under the flag of the United States. These ships support military, government and humanitarian missions through the transportation of United States government cargo on an international basis. Maersk Line operates as a subsidiary of A.P. Moller-Maersk A/S, an integrated transport and logistics company headquartered in Copenhagen, Denmark. Mr. Bruner attended Bridgewater College in Virginia. He is a graduate of the University of Michigan Executive Program and Harvard Business School's Advanced Management Program. The Company believes that Mr. Bruner's current and past business-related experience provides him with the knowledge and skills necessary to serve in the capacity as a director of the Company. Richard Gerhardt. Director. Mr. Gerhardt has served as a member of the Board of Directors of the Company since 2016. He is currently President of Sales Services International, Inc., a consulting firm, and Chief Sales Officer for IMEX Global Solutions, Inc., a logistics company, since April 2020, and is serving as a Fauquier County, Virginia Supervisor for the Cedar Run Magisterial District since January 2016. From 2003 to 2014, Mr. Gerhardt served in an escalating succession of positions for three global shipping and logistic companies: DHL Global Mail, ESI Global Logistic and MSI Worldwide. His eight years as President, Chief Operating Officer, and shareholder of MSI Worldwide culminated in its acquisition by Belgian Post. Mr. Gerhardt holds a Bachelor of Arts in Business Administration with a minor in Economics from Washington College in Chestertown, Maryland. The Company believes that Mr. Gerhardt's current and past business-related experience provides him with the knowledge and skills necessary to serve in the capacity as a director of the Company. Adam J. Krick. Former Chief Financial Officer, Secretary, and Treasurer. Adam J. Krick served as Chief Financial Officer of the Company from January 2018 through December 31, 2022. Prior to becoming the Chief Financial Officer, Mr. Krick served as the Accounting Manager for the Company since 2014. Prior to joining the Company, Mr. Krick worked in public accounting focusing on tax and business consulting. Mr. Krick served on the Board of Directors for the Precast/Prestressed Concrete Institute, and as the Vice Chair for the Precast/Prestressed Concrete Institute Mid-Atlantic Chapter. Mr. Krick is a Certified Public Accountant and holds a Bachelor of Business Administration degree in Accounting from James Madison University. Stephanie Poe. Chief Financial Officer, Secretary, and Treasurer. Stephanie Poe has served as Chief Financial Officer, Secretary, and Treasurer of the Company since January 2023. Prior to becoming the Chief Financial Officer, Secretary, and Treasurer, Ms. Poe served as the Controller for the Company since January 2022 and the Accounting Manager for the Company since November 2017. Prior to joining the Company, Ms. Poe worked at Ernst & Young as part of their tax practice. Ms. Poe is a Certified Public Accountant and holds a Bachelor of Science degree in Accounting from Appalachian State University and a Master of Science degree in Accounting from George Mason University. Delinquent Section 16(a) Reports Section 16(a) of the Securities Exchange Act of 1934, as amended, requires executive officers and Directors and persons who beneficially own more than ten percent (10%) of the Company’s Common Stock (“Reporting Persons”) to file initial reports of ownership and subsequent reports when there are changes in ownership with the Securities and Exchange Commission and any national securities exchange on which the Company’s securities are registered. Based solely upon our review of the copies of all Forms 3, 4 and 5 and amendments to these forms that have been filed with the Securities and Exchange Commission, we believe that all Reporting Persons complied on a timely basis with all filing requirements applicable to them with respect to our fiscal year ended December 31, 2022, except that each of Wesley A. Taylor, Richard Gerhardt and Adam J. Krick filed one late Form 4 with respect to shares of the Company’s Common Stock withheld to pay tax on vested restricted stock. Code of Ethics The Company adopted a code of ethics that applies to the Chief Executive Officer, Chief Financial Officer, Accounting Manager and persons performing similar functions. The Board of Directors approved the code of ethics at their meeting on June 3, 2020. A copy may be obtained without charge by requesting one in writing from Secretary, Smith-Midland Corporation, P.O. Box 300, 5119 Catlett Road, Midland, VA 22728. The code of ethics is also posted on the Company's website at www.smithmidland.com on the home page. 23 Audit Committee The Company created an Audit Committee in August 2018. The Audit Committee consists of James Russell Bruner, Richard Gerhardt, and Wesley A. Taylor, the three independent board members. Mr. James Russell Bruner is an audit committee financial expert. Item 11. Executive Compensation The following table sets forth the compensation paid by the Company for services rendered for 2022 and 2021 to the principal executive officer, as well as the other executive officer of the Company (the “named executive officers”): Summary Compensation Table Year Salary ($)(1) Bonus ($)(2) Stock Awards ($) All Other Compensation ($) Total ($) Ashley B. Smith 2022 321,769 155,256 - 12,200 489,225 Chief Executive Officer and President (3)(4) 2021 367,219 91,175 275,446 11,600 745,440 Adam J. Krick 2022 186,865 36,456 - 7,404 230,725 Former Chief Financial Officer (5)(6) 2021 207,273 38,142 134,667 7,108 387,190 (1) Represents salaries paid in 2022 and 2021 for services provided by each named executive officer serving in the capacity listed. (2) Represents amounts paid for annual performance-based bonus related to operations for the prior year. (3) “Stock Awards” for 2021 include 5,000 restricted shares granted in October 2021 pursuant to the Company's 2016 Equity Incentive Plan (the “Equity Plan”), of which 1,667 shares vested in full immediately on the grant date, 1,667 shares vested one year following the grant date, and the remaining 1,666 vest two years following the grant date. “Stock Awards” also include the value of performance-based restricted stock awarded based on the aggregate grant date fair value of the awards. With respect to a restricted stock award granted in April 2021 pursuant to the Equity Plan, we had estimated that the target level of shares would vest over a three-year cycle based on the stock price at date of grant $11.72 per share, as reflected in the fair value above. The amounts in this column do not necessarily correspond to the actual value that will be realized by the named executive officer. The level of award (minimum, target or maximum) and final vesting is based on the Company’s aggregate level of stated parameters over the entirety of the three-year cycle. The value of the common stock shares at the grant dates were $275,446. (4) “All Other Compensation” includes Company matching contributions to the 401(k) plan in the amounts of $12,200 and $11,600 for the years 2022 and 2021, respectively. (5) “Stock Awards” for 2021 include 3,000 restricted shares granted in October 2021 pursuant to the Company’s Equity Plan, of which 1,000 shares vested in full immediately on the grant date, 1,000 shares vested one year following the grant date, and the remaining 1,000 vest two years following the grant date. “Stock Awards” also include the value of performance-based restricted stock awarded based on the aggregate grant date fair value of the awards. With respect to a restricted stock award granted in April 2021 pursuant to the Equity Plan, we had estimated that the target level of shares would vest over a three-year cycle based on the stock price at date of grant $11.72 per share, as reflected in the fair value above. The amounts in this column did not necessarily correspond to the actual value that would be realized by the named executive officer. The level of award (minimum, target or maximum) and final vesting was based on the Company’s aggregate level of stated parameters over the entirety of the three-year cycle. The value of the common stock shares at the grant dates were $135,667. All unvested units were forfeited on December 31, 2022 upon Mr. Krick’s resignation. (6) “All Other Compensation” includes Company matching contributions to the 401(k) plan in the amounts of $7,404 and $7,108 for the years 2022 and 2021, respectively. 24 Outstanding Equity Awards At Fiscal Year-End The following table sets forth information for the named executive officers regarding any common share purchase options, stock awards or equity incentive plan awards that were outstanding as of December 31, 2022. Name Number of Securities Underlying Unexercised Options (#) Exercisable Number of Securities Underlying Unexercised Options (#) Unexercisable Option Exercise Price ($/Sh) Option Expiration Date Number of Shares or Units of Stock that have not Vested (#)(1) Market Value of Shares or Units of Stock that have not Vested ($)(1) Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights that have not Vested (#)(2) Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights that have not Vested (2) Ashley B. Smith — — — — 1,666 34,153 15,870 325,335 Adam J. Krick (3) — — — — — — — — TOTAL — — 1,666 34,153 15,870 325,335 (1) The number of shares and their respective values in this chart reflect the total remaining shares to vest over the three-year retention of employment period based on the stock price at December 31, 2022 of $20.50. (2) With respect to a grant of performance based restricted stock in 2021, the number of shares and their respective values in this chart reflect the total over the three-year performance period pursuant to the Equity Plan based on the stock price at December 31, 2022 of $20.50. The level of award (minimum, target, or maximum) and final vesting is based on the Company’s levels of revenue growth, EBITDA margin, free cash flow, as well as Board discretion and retention of employment. The award was based on the target level. Actual number of shares vested may differ, and the award is spread over the three-year vesting period of the plan, not just one, as implied by the chart. (3) All unvested units were forfeited on December 31, 2022 upon Mr. Krick’s resignation Compensation of Directors All non-executive officer Directors receive $3,000 per meeting as compensation for their services as Directors, with an additional $3,000 annual fee for service as the chair of the Audit Committee and $3,000 annual fee for service as the chair of the Compensation Committee. The Company does not pay any additional compensation to directors who are members of our management or are employed by the Company, but the Company reimburses all directors for out-of-pocket expenses incurred in connection with attending Board and committee meetings or otherwise in their capacity as directors. Fiscal 2022 Director Compensation Name Fees Earned or Paid in Cash ($) Stock Awards ($) Option Awards ($) Non-Equity Incentive Plan Compensation Non- Qualified Deferred Compensation Earnings All Other Compensation Total ($) Ashley B. Smith (1) — — — — — — — Wesley A. Taylor 9,000 — — — — — 9,000 James Russell Bruner 12,000 — — — — — 12,000 Richard Gerhardt 12,000 — — — — — 12,000 (1) All compensation for Ashley B. Smith is reported in Item 11. Executive Compensation. 25 Employment Contracts and Termination of Employment and Change in Control Arrangements. The Company has entered into an employment agreement (the “Employment Agreement”), dated as of November 11, 2020, with Ashley B. Smith pursuant to which Mr. Smith serves as the Chief Executive Officer and President of the Company. The Employment Agreement is for a term of three years commencing on November 11, 2020 (the “Effective Date”) through and including November 10, 2023 (the “Employment Period”), subject to early termination as provided therein. Commencing on the first anniversary of the Effective Date, and on each annual anniversary thereafter (such date and each annual anniversary thereof shall be hereinafter referred to as the “Renewal Date”), unless previously terminated, the Employment Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 180 days prior to the Renewal Date the Company shall give notice to Mr. Smith, or Mr. Smith shall give notice to the Company, that the Employment Period shall not be so extended. The Employment Agreement provides for an initial base salary (“Base Salary”) of $300,000 per year, with an increase of no less than 3% per annum, based on advice provided by a compensation consultant in 2019. Mr. Smith’s Base Salary shall be reviewed annually by the Compensation Committee of the Board of Directors (the “Compensation Committee”) pursuant to its normal performance review policies for senior executives and may be increased but not decreased. Mr. Smith is also entitled to receive an annual bonus incentive payment (the “Incentive Bonus Payment”) as determined by the Compensation Committee in its discretion and, if applicable, in accordance with the terms of any applicable incentive plan of the Company and subject to the achievement of any performance goals established by the Compensation Committee with respect to such fiscal year. Mr. Smith shall also be eligible to participate in long term cash and equity incentive plans and programs applicable to senior officers of the Company. The Employment Agreement further provides that if Mr. Smith is terminated by the Company without Cause or leaves the Company with Good Reason (generally, for material diminution in Mr. Smith’s Base Salary, target Incentive Bonus Payment, or position, authority, duties or responsibilities, relocation of Mr. Smith’s principal place of business to a location more than 30 miles from Mr. Smith’s principal place of business or material breach by the Company of the Employment Agreement), Mr. Smith shall be paid his Base Salary pro-rated through the date of termination, any Incentive Bonus Payment earned for a prior award period but not yet paid, any accrued vacation or paid time off to the extent not paid and unreimbursed business expenses (collectively, the “Accrued Obligations”) and any other amounts or benefits required to be paid or provided or which Mr. Smith is eligible to receive through the date of termination (the “Other Benefits”). In the event such termination occurs within two years following a change of control, Mr. Smith shall also be entitled to a lump sum payment equal to the product of (a) 2.99 multiplied by (b) the sum of Mr. Smith’s Base Salary in effect prior to such termination and the Target Incentive Bonus Payment for the year of termination of employment (or, if higher, or if no Target Incentive Bonus Payment has been established for such year, the Incentive Bonus Payment for the year prior to the date of termination). In the event such termination does not occur within two years following a change of control, Mr. Smith shall be entitled to receive an aggregate amount, payable in equal monthly cash payments over a period of 24 months, equal to the product of (a) 2.0 multiplied by (b) the sum of Mr. Smith’s Base Salary in effect prior to such termination and the Target Incentive Bonus Payment for the year of termination of employment (or, if higher, or if no Target Incentive Bonus Payment has been established for such year, the Incentive Bonus Payment for the year prior to the date of termination). The Company shall also continue to provide Mr. Smith and his dependents with health and other insurance coverage for 24 months following such termination. If Mr. Smith’s employment is terminated for Cause, because Mr. Smith voluntarily resigns without Good Reason or due to the death of Mr. Smith, Mr. Smith, or his estate, as applicable, shall be paid the Accrued Obligations and the Other Benefits. If Mr. Smith’s employment is terminated due to disability, Mr. Smith shall be paid his Base Salary in equal monthly payments for one year commencing on the date of termination, the Target Incentive Bonus Payment for the year of termination of employment (or, if no Target Incentive Bonus Payment has been established for such year, the Incentive Bonus Payment for the year prior to the date of termination), the Accrued Obligations and the Other Benefits. Mr. Smith is also subject to non-competition and non-solicitation restrictions during the Employment Period and for a period of two years thereafter. The Company entered into a Change of Control Severance Agreement dated as of October 20, 2021, with Adam J. Krick, the Company’s former Chief Financial Officer, Secretary and Treasurer. In view of the voluntary resignation of Mr. Krick on Decmeber 31, 2022, no severance payment was due under this agreement Mr. Krick is subject to non-competition and non-solicitation restrictions with the Company and for a period of one year after his resignation date. The Company has an employment agreement with its former Chief Executive Officer and former Chairman of the Board, Rodney I. Smith. Mr. Smith ceased providing services as Chief Executive Officer in May 2018. The agreement provides for an annual royalty fee of $99,000 payable as consideration for his assignment to the Company of all of Mr. Smith’s rights, title and interest in certain patents. Payment of the royalty continues for as long as the Company is using the inventions underlying the patents. Mr. Smith also received compensation from the Company for his services as a Director and Chairman of the Board. Mr. Smith is currently being compensated with respect to royalty payments in accordance with the employment agreement. 26 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth, as of March 13, 2023, certain information concerning ownership of the Company’s Common Stock by (i) each person known by the Company to own of record or be the beneficial owner of more than five percent (5%) of the Company’s Common Stock, (ii) named executive officers and Directors, and (iii) all Directors and Executive Officers as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated. Number of Shares Beneficially Owned (1) (3) Percentage of Class Rodney I. Smith (2)(4) 589,499 11.2 % Ashley B. Smith (2)(4)(5) 195,626 3.7 % Wesley A. Taylor (2)(6) 33,477 * Richard Gerhardt (2)(6) 6,708 * James Russell Bruner (2)(6) 12,171 * Stephanie Poe (2)(7) 828 * Adam J. Krick (2)(8) 9,536 * Thompson Davis & Co., Inc. (9) 966,080 18.4 % All directors and executive officers as a group (5 persons)(10) 248,810 4.7 % * Less than 1%. (1) Table does not include performance-based restricted stock grants under the Company’s 2016 Equity Incentive Plan (performance vesting at end of three years, date of grant April 2021) at minimum, target, or maximum, as the number of restricted shares to be awarded is not determinable at the time of grant and the recipients do not have the right to vote or other elements of beneficial ownership until vesting. (2) The address for each of Messrs. Rodney I. Smith, Ashley B. Smith, Wesley A. Taylor, Richard Gerhardt, James Russell Bruner, and Adam J. Krick and Ms. Stephanie Poe is c/o Smith-Midland Corporation, P.O. Box 300, 5119 Catlett Road, Midland, Virginia 22728. (3) Pursuant to the rules and regulations of the Securities and Exchange Commission, shares of Common Stock that an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purposes of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table. (4) Ashley B. Smith is the son of Rodney I. Smith. Each of Rodney I. Smith and Ashley B. Smith disclaims beneficial ownership of the other’s shares of Common Stock. 27 (5) Includes 1,666 unvested restricted shares granted pursuant to the Equity Plan, subject to a three-year vesting period from the grant date, subject to continued services as an executive officer. (6) Includes 667 unvested restricted shares granted pursuant to the Equity Plan, subject to a three-year vesting period from the grant date, subject to continued services as a director. (7) Includes 166 unvested restricted shares granted pursuant to the Equity Plan, subject to a three-year vesting period from the grant date, subject to continued serves as an executive officer. (8) Mr. Krick resigned from the Company effective December 31, 2022. (9) Address of holder is 15 S. 5th Street, Richmond, VA 23219. Based on the Form 13-F filed with the Securities and Exchange Commission on February 14, 2022 by Thompson Davis & Co., Inc. (10) Includes 3,833 unvested restricted shares granted pursuant to the Company's 2016 Equity Incentive Plan. EQUITY COMPENSATION PLAN INFORMATION The following table sets forth certain information as of December 31, 2022 regarding the Company's equity compensation plans. Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants and rights (b) Weighted average exercise price of outstanding options, warrants and rights (c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))(1) Equity compensation plans approved by security holders — — — Equity compensation plans not approved by security holders (1) — — 93,713 Total — — 93,713 (1) A brief description of the Company's 2016 Equity Incentive Plan (the “Equity Plan”) is contained in Note 6 of the Notes to Consolidated Financial Statements. The Equity Plan has a balance of 93,173 shares of stock unissued and available for award at December 31, 2022. On October 13, 2016 the Company's Board of Directors adopted the Equity Plan. Employees, directors and consultants of the Company are eligible to participate in the Equity Plan. The Equity Plan is administered by the Compensation Committee of the Board of Directors or the full Board during such times as no committee is appointed by the Board or during such times as the Board is acting in lieu of the committee (the "Committee"). The Equity Plan provides for the grant of equity-based compensation in the form of restricted stock, restricted stock units, performance shares, performance cash and other share-based awards. The Committee has the authority to determine the type of award, as well as the amount, terms and conditions of each award, under the Equity Plan subject to the limitations and other provisions of the Equity Plan. An aggregate of 400,000 shares of the Company's common stock, par value $.01 per share, were authorized for issuance under the Equity Plan, subject to adjustment for stock splits, dividends, distributions, recapitalizations and other similar transactions or events, of which amount 93,713 remains available for issuance at December 31, 2022. If any shares subject to an award are forfeited, expire, or otherwise terminate without issuance of such shares, such shares shall, to the extent of such forfeiture, expiration, or termination, again be available for issuance under the Equity Plan. 28 Item 13. Certain Relationships and Related Transactions, and Director Independence There are three independent directors of the Company, Mr. James Russell Bruner, Mr. Richard Gerhardt, and Mr. Welsey A. Taylor. The test utilized by the Company for the determination of independence is that under the NASDAQ listing standards. On an ongoing basis, the Company reviews all “related party transactions” (those transactions that are required to be disclosed by SEC Regulation S-K, Item 404), if any, for potential conflicts of interest and all such transactions must be approved by the Board of Directors. No transactions for the year ended December 31, 2022 meet the criteria for disclosure. Item 14. Principal Accountant Fees and Services On April 4, 2022, the Audit Committee (the “Audit Committee”) of the Board of Directors of the Company, approved the engagement of Dixon Hughes Goodman LLP (“DHG”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2022, and dismissed BDO USA, LLP (“BDO”) as the Company’s independent registered public accounting firm. On June 1, 2022, the Company was informed by DHG, that it merged with BKD, LLP (“BKD”) effective June 1, 2022 in a merger of equals. FORVIS, LLP was the surviving firm. As a result of the merger, DHG effectively ceased being the Company’s independent registered public accounting firm and FORVIS, LLP, as the successor to DHG following the merger, became the Company’s independent registered public accounting firm. The aggregate fees billed for each of the past two fiscal years for professional services rendered by FORVIS, LLP; Richmond, VA; PCAOB Firm ID # 686 , the principal accountant for the audit of the Company for the year ended December 31, 2022, and BDO; Richmond, VA; PCAOB Firm ID #243, the principal accountant for the audit of the Company for the year ended December 31, 2021; for assurance and related services related to the audit; for tax compliance, tax advice, and tax planning; and for all other fees for products and services are shown in the table below (in thousands). Audit Fees. Fees charged as audit fees are for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Forms 10-K and 10-Q’s or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements. The Audit Committee has established pre-approval policies and procedures with respect to the engagement of FORVIS, LLP and BDO USA, LLP and such policies and procedures do not include the delegation of the responsibilities of the Audit Committee to management. 2022 2021 Audit Fees $ 185 $ 248 Tax Fees — — Audit-Related Fees — — All Other Fees — — Total Fees $ 185 $ 248 29 PART IV Item 15. Exhibits and Financial Statement Schedules (1) The financial statements of the Company are included following Part IV of this Form 10-K. (2) Schedules have been omitted since they are either not applicable, not required or the information is included elsewhere herein. (3) The following exhibits are filed herewith: Number Description 3.1 Certificate of Incorporation, as amended (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995). 3.2 Bylaws (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2018). 4.1 Specimen Common Stock Certificate (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995). 10.1 Collateral Assignment of Letters Patent, dated between the Company and Rodney I. Smith (Incorporated by reference to the Company’s Registration Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995). 10.2 Employment Agreement, dated September 30, 2002, between the Company and Rodney I. Smith. (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003). 10.3 Amendment No. 1 to Employment Agreement, dated as of December 31, 2008, between the Company and Rodney I. Smith (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008). 30 10.4 Commitment Letter, dated October 1, 2022, for the renewal of the equipment line of credit in the amount of $1,500,000 with Summit Community Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 3, 2022). 10.5 Commercial Line of Credit Agreement and Note, dated October 1, 2022, for the renewal of the line of credit in the amount of $5,000,000 with Summit Community Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 3, 2022). 10.6 Promissory Note, dated October 11, 2019, in the amount of $2,228,000 issued by the Company to Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2019). 10.7 Commercial Security Agreement, dated October 1, 2018, with Summit Community Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018). 10.8 Deed of Trust dated October 11, 2019, related to the Promissory Note dated October 11, 2019 between the Company and Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2019). 10.9 Commercial Security Agreement dated October 11, 2019, related to the Promissory Note dated October 11, 2019 between the Company and Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2019). 10.10 Promissory Note, dated March 27, 2020, in the amount of $2,701,404 issued by the Company to Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2020). 10.11 Business Loan Agreement related to the Promissory Note dated March 27, 2020 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2020). 10.12 Modification and Supplemental Deed of Trust, dated March 27, 2020, between the Company and Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2020) to the Credit Line Deed of Trust, dated April 20, 2011 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2010). 10.13 Modification Deed of Trust, dated March 27, 2020, between the Company and Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2021) to the Credit Line Deed of Trust, dated September 12, 2013 (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 12, 2013). 10.14 2016 Equity Incentive Plan (Incorporated by reference to the Registration Statement on Form S-8 (No. 333-214788) filed on November 23, 2016). 10.15 Employment Agreement, dated as of November 11, 2020, between the Company and Ashley B. Smith (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on November 17, 2020). 10.16 Smith-Midland Corporation Long-Term Incentive Plan (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on March 15, 2021). 10.17 Purchase and Sale Agreement, dated November 1, 2021, between the Company and Jeffrey A. Leonard, Patricia Ann Leonard and Al-Mara Farm Incorporation (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2021). 10.18 Purchase and Sale Agreement, dated November 1, 2021, between the Company and Rodney I. Smith (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2021). 10.19 Commercial Promissory Note, dated February 10, 2022, in the amount of $2,805,000 issued by the Company to Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022). 10.20 Business Loan Agreement, dated February 10, 2022, between Summit Community Bank and the Company and (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022). 10.21 Commercial Real Estate Deed of Trust, dated February 10, 2022, issued by the Company in favor of Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022). 21.1 List of Subsidiaries of the Company (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1995). 23.1 Consent of FORVIS, LLP 23.2 Consent of BDO USA, LLP. 31.1 Certification of Chief Executive Officer. 31.2 Certification of Principal Financial Officer. 32.1 Certification pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 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. Item 16. Form 10-K Summary None 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SMITH-MIDLAND CORPORATION Date: April 17, 2023 By: /s/ Ashley B. Smith Ashley B. Smith Chief Executive Officer and President (Principal Executive Officer) Date: April 17, 2023 By: /s/ Stephanie Poe Stephanie Poe Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated. Name Capacity Date /s/ Ashley B. Smith Director April 17, 2023 Ashley B. Smith /s/ Wesley A. Taylor Director April 17, 2023 Wesley A. Taylor /s/ James Russell Bruner Director April 17, 2023 James Russell Bruner /s/ Richard Gerhardt Director April 17, 2023 Richard Gerhardt 32 Smith-Midland Corporation and Subsidiaries Consolidated Financial Statements Years Ended December 31, 2022 and 2021 Smith-Midland Corporation and Subsidiaries Contents Reports of Independent Registered Public Accounting Firms ( FORVIS, LLP , Richmond, VA, PCAOB ID#: 686 and BDO USA, LLP, Richmond, VA, PCAOB ID#:243) F-2 Consolidated Financial Statements Consolidated Balance Sheets F-4 Consolidated Statements of Income F-6 Consolidated Statements of Stockholders' Equity F-7 Consolidated Statements of Cash Flows F-8 Summary of Significant Accounting Policies F-10 Notes to Consolidated Financial Statements F-15 F-1 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors Smith-Midland Corporation Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Smith-Midland Corporation (the "Company") as of December 31, 2022, the related consolidated statements of income, stockholders’ equity, and cash flows for year ended December 31, 2022, the summary of significant accounting policies, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the consolidated financial statements that was communicated or required to be communicated to the Audit Committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. F-2 Table of Contents Allowance for Doubtful Accounts As of December 31, 2022, the Company’s allowance for doubtful accounts was approximately $781 thousand. The determination of the allowance for doubtful accounts has been identified by the Company as a critical accounting policy. As further described in the Company’s Summary of Significant Accounting Policies, exposure to losses on receivables, arising from the Company’s operations, are principally dependent on each customer’s financial condition and the Company monitors its exposure to credit losses and maintains allowances for anticipated losses. The Company reviews accounts receivable on a regular basis to determine the probability of collection. In performing its evaluation, the Company analyzes the payment history and its significant past due accounts, subsequent cash collections, comparative accounts receivable aging statistics, and other customer-specific considerations existing and known as of the time of the analysis. Based on this information, along with other related factors, the Company develops an estimate of the uncollectible amounts included in accounts receivable. We identified the Company’s estimate of the allowance for doubtful accounts as a critical audit matter. The principal considerations for that determination were the degree of subjectivity and judgement required to audit management’s estimate, which incorporates historical experience, current economic conditions, and specific customer considerations, such as receivables that are outstanding for longer periods of time as a result of ongoing projects or possible disputes. Also included in our principal considerations for determining this as a critical audit matter was the identified material weakness over management’s methodology of the allowance for doubtful accounts, specifically the consideration over aged receivables outstanding, which impacted the nature, timing, and extent of our audit procedures. The primary procedures we performed to address this critical audit matter included the following: · Obtained an understanding of management’s allowance for doubtful accounts methodology. · Performed a retrospective review of historical write-offs and recalculated the mathematical accuracy of management’s calculation of the allowance for doubtful accounts. · Inspected current and historical financial results, including the aging of accounts receivable in the current year compared to the average historical aging from prior years. · Evaluated the reasonableness of the allowance on specific accounts receivable balances, including those outstanding for longer periods of time as a result of ongoing projects or possible disputes, by testing a sample of collections subsequent to yearend, inspecting customer correspondence, performing inquiries of management and obtaining corroborating evidence. /s/ FORVIS, LLP We have served as the Company’s auditor since 2022. Richmond, Virginia April 17, 2023 F-3 Table of Contents Report of Independent Registered Public Accounting Firm Shareholders and Board of Directors Smith-Midland Corporation Midland, Virginia Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Smith-Midland Corporation and subsidiaries (the “Company”) as of December 31, 2021, the related consolidated statements of income, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. F-4 Table of Contents /s/BDO USA, LLP We served as the Company's auditor from 1996 to April 4, 2022. Richmond, Virginia March 31, 2022 F-5 Table of Contents Smith-Midland Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except share data) December 31, 2022 2021 ASSETS Current assets Cash $ 6,726 $ 13,492 Accounts receivable, net Trade - billed (less allowance for doubtful accounts of $ 781 and $ 437 ), including contract retentions 16,223 10,013 Trade - unbilled 990 439 Inventories, net Raw materials 1,776 1,143 Finished goods 2,042 1,702 Prepaid expenses 706 551 Refundable income taxes 477 411 Total current assets 28,940 27,751 Property and equipment, net 25,124 21,926 Deferred buy-back lease asset, net — 3,390 Other assets 249 208 Total assets $ 54,313 $ 53,275 See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-6 Table of Contents Smith-Midland Corporation and Subsidiaries Consolidated Balance Sheets (in thousands, except share data) (continued) December 31, 2022 2021 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable - trade $ 5,816 $ 2,071 Accrued expenses and other liabilities 799 657 Deferred revenue 2,243 2,454 Accrued compensation 788 1,036 Accrued income tax 146 2,033 Deferred buy-back lease obligation — 3,776 Operating lease liabilities 77 89 Current maturities of notes payable 618 462 Customer deposits 737 1,325 Total current liabilities 11,224 13,903 Deferred revenue 2,174 1,865 Operating lease liabilities 45 122 Notes payable - less current maturities 5,730 3,680 Deferred tax liability 2,085 1,955 Total liabilities 21,258 21,525 Commitments and contingencies - - Stockholders’ equity Preferred stock, $ 0.01 par value; authorized 1,000,000 shares, none issued and outstanding — — Common stock, $ 0.01 par value; authorized 8,000,000 shares; 5,345,189 and 5,353,095 issued and 5,256,413 and 5,229,658 outstanding, respectively 53 53 Additional paid-in capital 7,440 6,935 Treasury stock, at cost, 40,920 shares ( 102 ) ( 102 ) Retained earnings 25,664 24,864 Total stockholders’ equity 33,055 31,750 Total liabilities and stockholders' equity $ 54,313 $ 53,275 See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-7 Table of Contents Smith-Midland Corporation and Subsidiaries Consolidated Statements of Income (in thousands, except per share data) Year Ended December 31, 2022 2021 Revenue Product sales $ 27,821 $ 28,500 Barrier rentals 6,545 9,925 Royalty income 2,498 2,216 Shipping and installation revenue 13,267 10,001 Total revenue 50,131 50,642 Cost of goods sold 40,662 36,222 Gross profit 9,469 14,420 General and administrative expenses 5,551 5,416 Selling expenses 3,064 2,836 Total operating expenses 8,615 8,252 Operating income 854 6,168 Other income (expense) Interest expense ( 260 ) ( 190 ) Interest income 14 35 Gain on sale of assets 109 317 Gain on forgiveness of PPP loan — 2,692 Other income 228 72 Total other income (expense), net 91 2,926 Income before income tax expense 945 9,094 Income tax expense 145 1,524 Net income $ 800 $ 7,570 Basic and diluted earnings per share $ 0.15 $ 1.45 See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-8 Table of Contents Smith-Midland Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity (in thousands, except share data) Common Stock Treasury Stock Additional Paid-in Retained Shares Amount Shares Amount Capital Earnings Total Balance, December 31, 2020 5,279,411 $ 52 ( 40,920 ) $ ( 102 ) $ 6,405 $ 17,294 $ 23,649 Restricted stock issued 73,684 — — — — — — Vesting of restricted stock — 1 — — 530 — 531 Net income — — — — — 7,570 7,570 Balance, December 31, 2021 5,353,095 $ 53 ( 40,920 ) $ ( 102 ) $ 6,935 $ 24,864 $ 31,750 Vesting of restricted stock — — — — 505 — 505 Restricted stock forfeited ( 7,906 ) — — — — — — Net income — — — — — 800 800 Balance, December 31, 2022 5,345,189 $ 53 ( 40,920 ) $ ( 102 ) $ 7,440 $ 25,664 $ 33,055 See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-9 Table of Contents Smith-Midland Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) Year Ended December 31, 2022 2021 Reconciliation of net income to net cash provided by (used in) operating activities Net income (loss) $ 800 $ 7,570 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Depreciation and amortization 2,881 2,671 Gain on forgiveness of PPP loan — ( 2,692 ) (Gain) loss on sale of fixed assets ( 109 ) ( 311 ) (Gain) loss on sale of investment securities — ( 6 ) Allowance for doubtful accounts 344 40 Stock compensation 505 531 Deferred taxes 130 ( 506 ) (Increase) decrease in Accounts receivable - billed ( 6,554 ) ( 255 ) Accounts receivable - unbilled ( 551 ) 302 Inventories ( 973 ) ( 651 ) Prepaid expenses and other assets ( 227 ) 92 Refundable income taxes ( 66 ) ( 411 ) Increase (decrease) in Accounts payable - trade 3,745 205 Accrued expenses and other liabilities 142 ( 219 ) Deferred revenue 98 1,945 Accrued compensation ( 248 ) ( 282 ) Accrued income taxes ( 1,887 ) 1,563 Deferred buy-back lease obligation, net ( 3,776 ) ( 1,216 ) Customer deposits ( 588 ) 756 Net cash provided by (used in) operating activities $ ( 6,334 ) $ 9,126 F-10 Table of Contents Smith-Midland Corporation and Subsidiaries Consolidated Statements of Cash Flows (in thousands) (continued) December 31, 2022 2021 Cash flows from investing activities Purchases of investment securities available-for-sale $ — $ ( 23 ) Sale of investment securities available-for-sale — 1,247 Purchases of property and equipment ( 2,749 ) ( 5,367 ) Proceeds from sale of fixed assets 118 489 Net cash provided by (used in) investing activities ( 2,631 ) ( 3,654 ) Cash flows from financing activities Proceeds from long-term borrowings 2,805 49 Repayments of long-term borrowings ( 581 ) ( 793 ) Capitalized Loan Costs ( 25 ) - Net cash provided by (used in) financing activities 2,199 ( 744 ) Net increase (decrease) in cash ( 6,766 ) 4,728 Cash, beginning of year 13,492 8,764 Cash, end of year $ 6,726 $ 13,492 Supplemental cash flow information: Cash payments for interest $ 260 $ 190 Cash payments for income taxes $ 2,260 $ 917 Non-cash transaction - PPP loan forgiveness $ — $ 2,692 See accompanying summary of significant accounting policies and notes to consolidated financial statements. F-11 Table of Contents Smith-Midland Corporation and Subsidiaries Summary of Significant Accounting Policies Nature of Business Smith-Midland Corporation and its wholly-owned subsidiaries (the “Company”) develop, manufacture, license, sell and install precast concrete products and systems for the construction, transportation and utilities industries in the Mid-Atlantic, Northeastern, Midwestern and Southeastern regions of the United States. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Smith-Midland Corporation and its wholly-owned subsidiaries. The Company’s wholly-owned subsidiaries consist of Smith-Midland Corporation, a Virginia corporation, Smith-Carolina Corporation, a North Carolina corporation, Smith-Columbia Corporation, a South Carolina corporation, Easi-Set Industries, Inc., a Virginia corporation, Concrete Safety Systems, Inc., a Virginia corporation, and Midland Advertising and Design, Inc., doing business as Midland Advertising + Design, a Virginia corporation. All material intercompany accounts and transactions have been eliminated in consolidation. Cash Cash is maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has not experienced any losses related to these balances. Inventories Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or net realizable value. Inventory reserves (in thousands) were approximately $ 88 and $ 74 at December 31, 2022 and 2021, respectively. Property and Equipment Property and equipment is stated at cost. Expenditures for ordinary maintenance and repairs are expensed as incurred. Costs of improvements, renewals, and major replacements are capitalized. At the time properties are retired or otherwise disposed of, the related cost and allowance for depreciation are eliminated from the accounts and any gain or loss on disposition is reflected in income. Depreciation expense is computed using the straight-line method over the following estimated useful lives: Years Buildings and improvements 10 - 40 Trucks and automotive equipment 3 - 10 Shop machinery and equipment 3 - 10 Land improvements 10 - 15 Rental equipment 5 - 10 Office equipment 3 - 10 F-12 Table of Contents Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. The Company files tax returns in the U.S. Federal and various state jurisdictions. The Company recognizes, when applicable, interest and penalties related to income taxes in other income (expense) in its consolidated statement of income. The Company is no longer subject to U.S. or state tax examinations for the years prior to 2019. The Company does not have any uncertain tax positions as of December 31, 2022, and believes there will be no material changes in unrecognized tax positions over the next twelve months. Stock Compensation On October 13, 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan which allows the Company to grant up to 400,000 shares of common stock of the Company to employees, officers, directors and consultants. The grants may be in the form of restricted or performance shares of common stock of the Company. The fair value of each restricted stock grant is estimated to be the sales price of the common stock at the close of business on the day of the grant. Revenue Recognition Product Sales - Over Time Under Topic 606, the Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services provided. Revenue associated with contracts with customers 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 at the time of execution of the contract. Some contracts include retention provisions of up to 10%, which are generally withheld from each progress payment as retainage until the contract work has been completed and approved. F-13 Table of Contents 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 Consolidated Balance Sheets as "Accounts receivable trade - unbilled" (contract assets). Projects with performance obligations recognized over time that have cumulative billings in excess of costs and estimate earnings recognized to date, are reported on our Consolidated Balance Sheets as "Customer deposits" (contract liabilities). For the year ended December 31, 2022, the Company recognized $ 983 of revenue related to contract liabilities reported as of December 31, 2021. Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable trade - billed. At December 31, 2022 and December 31, 2021, accounts receivable included contract retentions (in thousands) of approximately $ 932 and $ 1,139 , respectively, which are considered contract assets. It is expected that substantially all of the outstanding retainage balance outstanding as of December 31, 2022 will be collected within one year. Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain reserves for potentially uncollectible receivables. At December 31, 2022 and December 31, 2021, our allowances for doubtful accounts (in thousands) were $ 781 and $ 437 , respectively. Sale to Customer with a Buy-Back Guarantee - Lease Income The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back 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, included in "Deferred buy-back lease obligation" in the liabilities section of the consolidated balance sheet, 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 consolidated balance sheet shown in "Deferred buy-back lease asset, net", 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. 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 is being recognized in accordance with Topic 842, Leases . See Note 7. 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. F-14 Table of Contents Shipping and Installation Shipping and installation revenues are recognized as a distinct performance obligation in the period the shipping and installation services are provided to the customer, in accordance with Topic 606. Disaggregation of Revenue In the following table, revenue is disaggregated by primary sources of revenue (in thousands): Revenue by Type (Disaggregated Revenue) 2022 2021 Change % Change Product Sales: Soundwall Sales $ 4,128 $ 8,025 $ ( 3,897 ) ( 49 )% Architectural Sales 4,269 4,932 ( 663 ) ( 13 )% SlenderWall Sales 1,489 1,795 ( 306 ) ( 17 )% Miscellaneous Wall Sales 3,475 2,352 1,123 48 % Barrier Sales 6,717 4,686 2,031 43 % Easi-Set and Easi-Span Building Sales 4,089 3,036 1,053 35 % Utility Sales 2,023 2,468 ( 445 ) ( 18 )% Miscellaneous Sales 1,631 1,206 425 35 % Total Product Sales 27,821 28,500 ( 679 ) ( 2 )% Barrier Rentals 6,545 9,925 ( 3,380 ) ( 34 )% Royalty Income 2,498 2,216 282 13 % Shipping and Installation Revenue 13,267 10,001 3,266 33 % Total Service Revenue 22,310 22,142 168 1 % Total Revenue $ 50,131 $ 50,642 $ ( 511 ) ( 1 )% Smith-Midland products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case by case method. Although the Company does incur costs for warranty claims, historically such amounts are minimal. The revenue items: soundwall sales, architectural 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. 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. The Company views revenue details by jobs, and not by customers. 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. In cases where customers are less than 10% of revenue, the Company assesses if there is a near term severe impact. The Company has determined that no customer, if lost, would result in a near term severe impact to the Company’s operations. Sales and Use Taxes The Company excludes sales taxes as part of revenue, and includes use taxes on construction materials reported in cost of goods sold. Segment Reporting Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. The Company currently operates in one operating and reportable business segment for financial reporting purposes. F-15 Table of Contents Risks and Uncertainties On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the "COVID-19 outbreak") and on March 11, 2020, the WHO classified the COVID-19 outbreak as a pandemic. Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2022. The Company sells products to highway contractors operating under government funded highway programs and other customers and extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure to credit losses and maintains allowances for anticipated losses. Management reviews accounts receivable on a regular basis to determine the probability of collection. In performing this evaluation, the Company analyzes the payment history and its significant past due accounts, subsequent cash collections on these accounts, comparative accounts receivable aging statistics, and other customer-specific considerations existing and known as of the time of the analysis. Based on this information, along with other related factors, the Company develops an estimate of the uncollectible amounts included in accounts receivable. Management believes the allowance for doubtful accounts at December 31, 2022 is adequate. However, actual write-offs may exceed the recorded allowance. Due to inclement weather, the Company may experience reduced revenue from December through February and may realize a substantial part of its revenue during the other months of the year. Fair Value of Financial Instruments The carrying value for each of the Company’s financial instruments except for long-term debt approximates fair value because of the short-term nature of those instruments. The Company's long-term debt has a carrying value of $6,365 based on the fixed rates applicable to the related loans compared to a fair market value of approximately $6,535. Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Advertising Costs The Company expenses all advertising costs as incurred. Advertising expense (in thousands) was approximately $ 421 and $ 459 in 2022 and 2021, respectively. Earnings Per Share Earnings per share are based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic earnings per share is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of the Company. Long-Lived Assets The Company reviews the carrying values of its long-lived assets including identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable based on undiscounted estimated future operating cash flows. When any such impairment exists, the related assets will be written down to fair value. No impairment losses have been recorded during the two years ended December 31, 2022. Recently Adopted Accounting Pronouncement The FASB issued ASU No. 2016-13, “ Measurement of Credit Losses on Financial Instruments .” This standard replaces the incurred loss impairment methodology in current U.S. GAAP 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. The pronouncement is effective for smaller reporting companies for fiscal years beginning after December 15, 2022. We adopted this standard, and all related amendments, effective January 1, 2023, on a modified retrospective basis. We are finalizing our evaluation of the impact that the adoption of this accounting guidance will have on the consolidated financial statements. F-16 Table of Contents SMITH-MIDLAND CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands): December 31, 2022 2021 Land and land improvements $ 7,245 $ 7,105 Buildings and improvements 9,536 9,470 Machinery and equipment 15,139 14,394 Rental equipment 10,264 6,187 42,184 37,156 Less: accumulated depreciation and amortization ( 17,060 ) ( 15,230 ) $ 25,124 $ 21,926 Depreciation expense and amortization (in thousands) was approximately $ 2,892 and $ 2,671 for the years ended December 31, 2022 and 2021, respectively. 2. NOTES PAYABLE Notes payable consist of the following (in thousands): December 31, 2022 2021 Note payable to Summit Community Bank (the "Bank"), maturing February 2037 ; with monthly payments of approximately $ 21 of principal and interest fixed at 4.09 %; net of $24 of deferred loan costs; collateralized by the related real property. $ 2,668 $ — Note payable to the Bank, maturing October 2029; with monthly payments of approximately $22 of principal and interest fixed at 3.64% under a Promissory Notes Rate Conversion Agreement; net of $18 and $21 of deferred loan costs; collateralized by all assets of Smith-Carolina Corporation and guaranteed by the Company. 1,590 1,791 Note payable to the Bank, maturing March 2030 ; with monthly payments of approximately $ 27 of principal and interest fixed at 3.99 %; net of $25 and $29 of deferred loan costs; net of collateralized by the Company’s property, plant, and buildings. 2,039 2,275 Installment notes, collateralized by certain machinery and equipment maturing at various dates; with monthly payments varying from $0.9 to $3.4 with annual interest rates between 2.90 % and 4.50 %. 51 76 A revolving line-of-credit evidenced by promissory note with the Bank, with the available amount of $5,000, maturing October 1, 2023, with interest only payments and an initial rate of 3.50% adjustable monthly (3.50% at December 31, 2022). The amount available is based on the lower of the maximum $ 5,000 or eligible inventory and accounts receivable balances at the financial statement date. The line-of-credit is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. — — Total Notes Payable Outstanding 6,348 4,142 Less current maturities ( 618 ) ( 462 ) $ 5,730 $ 3,680 The total notes payable balance is offset by debt issuance costs associated with securing the loans summarized above and are amortized over the term of the related loan. The total unamortized costs as of December 31, 2022 is $ 68 . In addition to the notes payable discussed above, on April 16, 2020, the Company obtained a loan, evidenced by a promissory note, under the Paycheck Protection Program (the "PPP") from 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 interest rate per the promissory note, dated April 16, 2020 and executed by the Company in favor of the Bank, was fixed at 1.00 % per annum, with principal and interest payments starting thirty (30) days after the amount of forgiveness is determined under section 1106 of the CARES Act. The proceeds of the loan were required to be utilized pursuant to the requirements of the PPP, and all or a portion of the loan could be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. On July 9, 2021, the Company received loan forgiveness for the full amount of the loan of $ 2,692 . F-17 Table of Contents Smith-Midland Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The Company's notes payable includes certain restrictive covenants, which require the Company to maintain minimum levels of tangible net worth, places limits on annual capital expenditures, and limits on the payment of cash dividends. At December 31, 2022, the Company was in compliance with all covenants. The aggregate amounts of notes payable maturing in each of the next five years and thereafter are as follows (in thousands): Year Ending December 31, 2023 $ 618 2024 636 2025 658 2026 671 2027 699 Thereafter 3,066 $ 6,348 3. RELATED PARTY TRANSACTIONS The Company has an employment agreement with its former Chief Executive Officer and Chairman of the Board, Rodney I. Smith. Mr. Smith received his salary, pursuant to the terms of the agreement, through September 2021. While Mr. Smith has ceased providing executive officer services pursuant to such agreement, the agreement provides for an annual royalty fee of $ 99 payable as consideration for his assignment to the Company of all of his rights, title and interest in certain patents. Payment of the royalty continues for as long as the Company is using the inventions underlying the patents. Mr. Smith also received compensation from the Company for his services as a Director and Chairman of the Board, until his resignation in January 2022. F-18 Table of Contents Smith-Midland Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. INCOME TAXES Income tax expense is comprised of the following (in thousands): December 31, 2022 2021 Federal: Current $ ( 63 ) $ 1,574 Deferred 212 ( 382 ) 149 1,192 State: Current 78 456 Deferred ( 82 ) ( 124 ) ( 4 ) 332 $ 145 $ 1,524 The provision for income taxes differs from the amount determined by applying the federal statutory tax rate to pre-tax income as a result of the following (in thousands): December 31, 2022 2021 Income taxes at statutory rate $ 199 21.0 % $ 1,910 21.0 % Increase (decrease) in taxes resulting from: State income taxes, net of federal benefit ( 22 ) ( 2.3 )% 267 2.9 % Stock Compensation ( 11 ) ( 1.2 )% ( 63 ) ( 0.7 )% Deferred true-ups — 0.0 % 17 0.2 % Provision-to-return ( 2 ) ( 0.2 )% 5 0.1 % CARES Act Benefit — — % ( 4 ) ( 0.1 )% PPP Loan Forgiveness — — % ( 565 ) ( 6.2 )% Other ( 19 ) ( 1.9 )% ( 43 ) ( 0.4 )% $ 145 15.4 % $ 1,524 16.8 % F-19 Table of Contents Smith-Midland Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Deferred tax assets (liabilities) are as follows (in thousands): December 31, 2022 2021 Deferred tax assets: Net operating loss carryforwards $ 319 $ 51 Allowance for doubtful accounts 180 109 Accrued vacation 59 61 Deferred buy-back asset — 942 Deferred income 768 774 Right-of-use asset 28 53 Other 118 102 Gross deferred tax assets 1,472 2,092 Deferred tax liabilities: Retainage ( 240 ) ( 284 ) Deferred buy-back obligation — ( 846 ) Fixed assets ( 3,195 ) ( 2,770 ) Prepaid expenses ( 76 ) ( 72 ) Amortization - intangibles ( 14 ) ( 16 ) Realized gain loss ( 4 ) ( 6 ) Lease liability ( 28 ) ( 53 ) Gross deferred tax liabilities ( 3,557 ) ( 4,047 ) Net deferred tax liability $ ( 2,085 ) $ ( 1,955 ) In assessing the need for a valuation allowance, management must determine that there will be sufficient taxable income to realize deferred tax assets. Based upon the historical and anticipated future positive earnings, management has determined that the deferred tax assets are realizable. As of December 31, 2022 and 2021, the Company had approximately $ 2,395 and $ 2,361 , respectively, of state net operating losses (NOLs) available to offset future state taxable income. The state NOLs begin expiring at various times between 2028 and 2037. 5. EMPLOYEE BENEFIT PLANS The Company has a savings plan that qualifies under Section 401(k) of the Internal Revenue Code ("IRC"). Participating employees may elect to contribute a percentage of their salary, subject to certain limitations. The Company contributes 50 % of the participant's contribution, up to 4 % of the participant's compensation, as a matching contribution. Total match contributions (in thousands) by the Company for the years ended December 31, 2022 and 2021 were approximately $ 225 and $ 211 , respectively. F-20 Table of Contents Smith-Midland Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 6. STOCK COMPENSATION On October 13, 2016, the Board of Directors of the Company adopted the 2016 Equity Incentive Plan, which allows the Company to grant up to 400,000 shares of restricted common stock of the Company to employees, officers, directors and consultants. The grants may be in the form of restricted or performance shares of common stock of the Company. The total intrinsic value (in thousands) of the outstanding shares of restricted stock at December 31, 2022 and 2021 is $ 608 and $ 1,027 , respectively. The fair value of restricted stock awards is estimated to be the market price of the Company's common stock at the close of date of grant. The Company assumes no forfeitures as they are granted to key executives and board members. Restricted stock activity during the years ended December 31, 2021 and 2022 is as follows: Number of Shares Weighted Average Grant Date Fair Value per Share Non-vested, December 31, 2020 36,336 $ 8.98 Granted 73,684 13.94 Vested 27,500 11.84 Non-vested, December 31, 2021 82,520 12.45 Vested 26,755 12.01 Forfeited 7,906 12.50 Non-vested, December 31, 2022 47,859 $ 12.70 The actual number of performance-based shares of common stock of the Company, if any, to be earned by the award recipients is determined over a three year performance measurement period based on measures that include Earnings Before Interest Taxes Depreciation and Amortization (“EBITDA”) margin, revenue growth, and free cash flow. The EBITDA margin and revenue growth performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount received is determined by the Compensation Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence. A smaller portion is also earned based on Board discretion and continued service. The stock compensation cost is recognized over the requisite performance/service period using the straight-line method and can be periodically adjusted for the probable number of shares to be awarded. Awards are being amortized to expense ratably, based upon the vesting schedule. Stock compensation (in thousands) for the years ended December 31, 2022 and 2021 were approximately $ 505 and $ 531 , respectively, based upon the value at the date of grant. There was $ 316 of unrecognized compensation cost related to the non-vested restricted stock as of December 31, 2022. F-21 Table of Contents Smith-Midland Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. COMMITMENTS AND CONTINGENCIES On April 13, 2022, the Company and its customer entered into an amendment to the buy-back agreement described in ‘Revenue Recognition-Sale to Customer with a Buy-Back Guarantee - Lease Income’. Pursuant to the amendment, the Company agreed to purchase all of the barrier subject to the buy-back agreement, 210,000 linear feet, as well as approximately an additional 115,000 linear feet. The total estimated purchase price is $ 5,000 , representing the barrier, associated loading, freight, and yarding. In accordance with ASC 842 Leases, a portion of the total $ 5,000 buy-back was previously recorded as a deferred buy-back obligation on the Consolidated Balance Sheets. The deferred buy-back lease asset and obligation are reduced as the Company picks up the original 210,000 linear feet. Costs in excess of the original deferred buy-back obligation will be capitalized for as incurred. The Company is party to legal proceedings and disputes which may arise in the ordinary course of business. In the opinion of the Company, it is unlikely that liabilities, if any, arising from legal disputes will have a material adverse effect on the consolidated financial position of the Company. 8. EARNINGS PER SHARE Earnings per share are calculated as follows (in thousands, except earnings per share): December 31, 2022 2021 Basic earnings per share Income available to common shareholder $ 800 $ 7,570 Weighted average shares outstanding 5,233 5,205 Basic earnings per share $ 0.15 $ 1.45 Diluted earnings per share Income available to common shareholder $ 800 $ 7,570 Weighted average shares outstanding 5,233 5,205 Dilutive effect of restricted stock 20 27 Total weighted average shares outstanding 5,253 5,232 Diluted earnings per share $ 0.15 $ 1.45 There was no restricted stock excluded from the diluted earnings per share calculation for the years ended December 31, 2022 and December 31, 2021. F-22