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Item 9A. Controls and Procedures

2025-05-27 compared with 2024-05-23 · 174 added, 183 removed, 758 unchanged (32% of the section changed)

1 unchanged sentence

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, 2023.

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 the material weaknesses 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, 2023.

Notwithstanding the existence of these material weaknesses, 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”).

Our management, including our principal executive officer and principal financial and accounting officer, conducted an evaluation of the effectiveness of our internal controls over financial reporting, and disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this report.

Based on that evaluation, our principal executive officer and principal financial and accounting officer concluded that, due to the material weaknesses described below, our disclosure controls and procedures were not effective at the reasonable assurance level as of December 31, 2024.

Notwithstanding the existence of these material weaknesses, management believes that the consolidated financial statements in this Form 10-K present, in all material respects, the Company’s financial condition, results of operations, and cash flows for the periods disclosed in conformity with U.S.

Generally Accepted Accounting Principles.

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, 2023, 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 two identified material weaknesses 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.

At December 31, 2023, the following material weaknesses existed:

Allowance for Credit Losses –As previously reported, the Company identified a material weakness related to the review of its allowances that continued to exist as of December 31, 2023.

Specifically, the Company did not design and maintain the adequate management review controls related to the review over the determination of expected credit losses.

Journal Entries –The Company did not design and maintain effective processes and controls to ensure all journal entries are properly reviewed and approved prior to posting to the general ledger.

Additionally, the Company did not maintain proper segregation of duties within its general ledger system as it relates to logical access to post and approve manual journal entries.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act.

Our internal controls over financial reporting is a process designed under the supervision of our principal executive officer and principal financial and accounting officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not detect or prevent misstatements.

Also, projections of any evaluation of the effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As of December 31, 2024, management assessed the effectiveness of our internal controls over financial reporting based on the criteria for effective internal control over financial reporting established in “Internal Control - Integrated Framework”, issued by the Committee of Sponsoring Organizations ("COSO") of the Treadway Commission in 2013.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of December 31, 2024, due to the material weaknesses in our internal control over financial reporting described below.

Material Weaknesses in Internal Control Over Financial Reporting

Management has determined that the Company had the following material weaknesses in its internal control over financial reporting:

Control Environment, Risk Assessment and Monitoring

Management has determined that the Company did not maintain appropriately designed entity-level controls impacting the (1) control environment, (2) risk assessment procedures, (3) control activities, (4) information and communication, and (5) monitoring activities to prevent or detect material misstatements to the financial statements and assess whether the components of internal control were present and functioning properly.

These deficiencies were primarily attributed to (i) turnover of the Chief Financial Officer, (ii) lack of structure and responsibility, insufficient number of qualified resources, and inadequate oversight and accountability over the performance of controls, (iii) ineffective identification and assessment or risks impacting internal control over financial reporting, and (iv) ineffective evaluation and determination as to whether the components of internal control were present and functioning.

Control Activities and Information and Communication

These material weaknesses contributed to the following additional material weaknesses within certain business processes and the information technology environment:

Management did not design, implement, and retain appropriate documentation of formal accounting policies, procedures, and controls across substantially all of the Company’s business processes over:

(i) the financial reporting process, including management review controls over key disclosures and financial statement support schedules, (ii) the monthly financial close process, including journal entries and account reconciliations and (iii) the completeness and accuracy of information used by control owners in the operation of certain controls, to achieve timely, complete, accurate financial accounting, reporting.

The Company did not design and maintain effective processes and controls to ensure all journal entries are properly reviewed and approved prior to posting to the general ledger.

Management did not design and maintain appropriate information technology general controls in the areas of user access, vendor management controls, and segregation of duties related to certain information technology systems that support the Company’s financial reporting process.

As a result of these material weaknesses, the Company’s management has concluded that, as of December 31, 2024 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.

However, after giving full consideration to these material weaknesses, and the additional analyses and other procedures that we performed to ensure that our consolidated financial statements included in this Annual Report on Form 10-K were prepared in accordance with U.S.

GAAP, our management has concluded that our consolidated financial statements present fairly, in all material respects, our financial position, results of operations and cash flows for the periods disclosed in conformity with U.S.

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 non-accelerated filer and 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, 2024.

Remediation Efforts

Management is committed to the remediation of the material weaknesses described above.

To address the material weakness associated with the review of the allowance for credit losses, management has designed and implemented enhanced control activities that includes detailed documentation of matters considered while preparing and reviewing the allowance for credit losses.

While management believes they have effectively designed and implemented an enhanced review control, the material weakness will not be considered remediated until the control operates for a sufficient period of time and management has concluded, through testing, that the control is operating effectively.

To address the material weakness associated with the review and posting of journal entries, management is actively exploring potential functionality available with the Company’s general ledger system, as well as the need for monitoring controls to effectively mitigate the risk.

Management, with oversight from the Audit Committee and Board of Directors, is committed to the remediation of the material weaknesses described above.

The Company has continued to implement measures to improve the internal control structure.

Specifically, the Company has:

Hired a Chief Financial Officer with knowledge and experience in key financial reporting and internal control areas;

Actively pursuing hiring the hiring of additional finance and accounting personnel with adequate knowledge and experience in key financial reporting and internal control areas;

Designing and implementing new entity-level controls (“ELCs”) with greater alignment to the COSO 2013 Internal Controls Framework;

Developing a training program and educating control owners concerning the principles of the Internal Control – Integrated Framework (2013) issued by COSO;

Implementing a risk assessment process by which management identifies risks of misstatement related to all account balances;

Developing internal controls documentation, including comprehensive accounting policies and procedures over financial processes and related disclosures;

Enhancing policies and procedures to retain adequate documentary evidence for certain management review controls over certain business processes including precision of review and evidence of review procedures performed to demonstrate effective operation of such controls;

Engaging outside resources for complex accounting matters and drafting and retaining position papers for all complex, non-recurring transactions;

Developing monitoring activities and protocols that will allow us to timely assess the design and the operating effectiveness of controls over financial reporting and make necessary changes to the design of controls, if any

Segregating key functions within our financial and information technology processes supporting our internal controls over financial reporting;

Reassessing and formalizing the design of certain accounting and information technology policies relating to security and change management controls, including user access reviews, including assessing the need for implementing a more robust information technology system; and

Continuing to enhance and formalize our accounting, business operations, and information technology policies, procedures, and controls to achieve complete, accurate, and timely financial accounting, reporting and disclosures.

Changes in Internal Control over Financial Reporting

13 unchanged sentences

Stephanie Poe

Chief Financial Officer, Secretary, and Treasurer

Former Chief Financial Officer, Secretary, and Treasurer

The following is a brief summary of the background of each Director and executive officer of the Company:

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He has a bachelor’s degree in Business Administration from Bridgewater College.

Smith is the brother of Ashley B.

The Company believes that Mr.

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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 2016.

He is currently President of Sales Services International, Inc., a consulting firm, Chief Sales Officer for IMEX Global Solutions, Inc., a logistics company, since April 2020, and Corporate Development Officer of Palladin Consulting, LLC, a software services company, since May 2024, and is serving as a Fauquier County, Virginia Supervisor for the Cedar Run Magisterial District since 2016.

From 2003 to 2014, Mr.

6 unchanged sentences

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.

Former Chief Financial Officer, Secretary, and Treasurer.

Stephanie Poe served as Chief Financial Officer, Secretary, and Treasurer of the Company from January 2023 to July 17, 2024.

Prior to becoming the Chief Financial Officer, Secretary, and Treasurer, Ms.

16 unchanged sentences

James Russell Bruner is an audit committee financial expert.

Changes To the Procedures by Which Security Holders May Recommend Nominees to the Company’s Board of Directors

On October 25, 2023, the Board adopted Amended and Restated By-laws (“By-laws”), which, among other things:

update and expand the By-laws to comply with the procedure and disclosure requirements applicable to nominations of directors by stockholders under Rule 14a-19 of the Exchange Act, and include changes in response to certain amendments to the General Corporation Law of the State of Delaware;

update and expand the requirements for the provision of background information and representations about stockholder director nominees to the Company including (i) completing a director’s questionnaire for any stockholder director nominee, and (ii) providing a written representation and agreement that such nominee is not and will not become a party to a voting arrangement relating to the Company that has not been disclosed to the Company and is not and will not become a party to any compensation, reimbursement or indemnification agreement in connection with such nominee’s service as a director other than as disclosed to the Company;

update and expand the procedure and requirements for inclusion of stockholder director nominees in the Company’s proxy statement, such as (i) the details to be included in the stockholder notice regarding the stockholder giving notice and any beneficial owner of such stockholder, (ii) the details to be included in the stockholder notice regarding the nominee for director, (iii) a requirement for updating and supplementing the stockholder notice so that the information provided is current and accurate, (iv) inclusion of such other information as the Company or the Board requires, (v) compliance by the stockholder giving notice with all requirements of the Exchange Act, and (vi) a requirement that the stockholder giving notice (or representative thereof) appear at the stockholder meeting;

change the timing for timely notice to stockholders for the annual meeting.

To be timely, a stockholder’s notice shall be delivered to the Company not earlier than the one hundred and twentieth (120th) day and not later than the ninetieth (90th) day prior to the first anniversary of the preceding year’s annual meeting;

provided, however, that in the event that no annual meeting was held in the previous year or the date of the annual meeting is more than thirty (30) days before or more than sixty (60) days after such anniversary date, notice by the stockholder must be delivered not earlier the one hundred and twentieth (120th) day prior to the date of such annual meeting and not later than the later of the ninetieth (90th) day prior to the date of such annual meeting or if the public announcement of the date of such annual meeting is less than one hundred (100) days prior to the date of such annual meeting, the tenth (10th) day following the date on which the public announcement of the date of such annual meeting is first made by the Company.

Executive Compensation

3 unchanged sentences

Stephanie Poe

Chief Financial Officer, Secretary, and Treasurer (4)

Former Chief Financial Officer, Secretary, and Treasurer (4)(5)

(1) Represents salaries paid in 2024 and 2023 for services provided by each named executive officer serving in the capacity listed.

1 unchanged sentence

(3) “All Other Compensation” includes Company matching contributions to the 401(k) plan in the amounts of $13,234 and $11,982 for the years 2024 and 2023, respectively.

”All Other Compensation” includes Company matching contributions to the 401(k) plan in the amounts of $6,292 for the year 2023.

(4) “All Other Compensation” includes Company matching contributions to the 401(k) plan in the amounts of $5,103 and $6,292 for the years 2024 and 2023, respectively.

Poe resigned on July 17, 2024.

Outstanding Equity Awards At Fiscal Year-End

11 unchanged sentences

Stephanie Poe (1)

Poe resigned on July 17, 2024.

Compensation of Directors

Effective for 2024, all non-executive officer Directors receive, per annum, $40,000 in cash compensation and $15,000 in stock compensation for their services as Directors.

Effective for 2024, all non-executive officer Directors were to receive, per annum, $40,000 in cash compensation and $15,000 in stock compensation for their services as Directors.

During 2024, all such cash compensation was paid.

In February 2025, in lieu of the $15,000 in stock compensation due for 2024, the independent directors were paid $15,000 in cash, which is not reflected in the table below.

The Company does not pay any additional compensation to directors who are members of 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.

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No additional compensation paid related to his position as a director.

No compensation paid to Ms.

Van de Water as she was appointed as a director after 2023 meetings were held.

As stated above, in lieu of a stock award intended for 2024, a cash payment of $15,000 was paid in February 2025 to each independent director.

Employment Contracts and Termination of Employment and Change in Control Arrangements.

31 unchanged sentences

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 January 8, 2024, with Stephanie Poe, the Company’s Chief Financial Officer, Secretary and Treasurer.

The Severance Agreement provides that, in the event of departure of Ms.

Poe, upon Ms.

Poe’s last day of employment with the Company (the “Termination Date”), Ms.

Poe shall receive her accrued but unpaid Base Pay and vacation along with reimbursement for valid business expenses and any vested Employee Benefits, regardless of whether Ms.

Poe signs a release of claims against the Company (a “Release”).

In addition, if Ms.

Poe sustains a Qualifying Termination (the Company terminates Ms.

Poe without Cause or Ms.

Poe leaves the Company for Good Reason (generally, for material diminution in Ms.

Poe’s Base Pay, or position, authority, duties or responsibilities, relocation of Ms.

Poe’s principal place of business to a location more than 30 miles from Ms.

Poe’s principal place of business or material breach by the Company of the Severance Agreement)) and executes and delivers a Release to the Company, the Company shall provide Ms.

Poe with cash payments equal to one year of Base Pay, payable in substantially equal monthly installments over the twelve (12) month period following the Termination Date.

For a twelve (12) month period, the Company shall also continue to provide Ms.

Poe with Employee Benefits that are reasonably equivalent (and at the same cost to Ms.

Poe) to the Employee Benefits provided to Ms.

Poe immediately prior to the Termination Date and Ms.

Poe shall be entitled to receive a single lump sum cash payment equal to the average of her prior three (3) year annual cash bonuses.

In addition, if Ms.

Poe’s Qualifying Termination occurs within 24 months following a Change in Control, as of the effective date of the Release, all of Ms.

Poe’s (i) outstanding and unvested stock options shall become fully vested and exercisable and (ii) outstanding and unvested time-based restricted stock units shall become fully vested.

Poe is also subject to non-competition and non-solicitation restrictions during her employment with the Company and for a period of one year after the Termination Date.

The Company has an agreement with its former Chief Executive Officer and former Chairman of the Board, Rodney I.

2 unchanged sentences

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.

Payment of the royalty continues for as long as the Company is using the inventions underlying the unexpired patents.

Smith is currently being compensated with respect to royalty payments in accordance with the agreement.

Compensation Committee Interlocks and Insider Participation

No member of the Compensation Committee is an officer or employee of the Company or has or had at any time any relationship with the Company that requires disclosure under Item 404 of Regulation S-K, except that Wesley A.

Taylor, who resigned from the Board of Directors in 2023, was Vice President of Administration of the Company from 1989 until January 2017.

No member of the Compensation Committee is an officer or employee of the Company or has or had at any time any relationship with the Company that requires disclosure under Item 404 of Regulation S-K.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of April 29, 2024, 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.

The following table sets forth, as of May 3, 2025, 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

Owned (1) (3)

James Russell Bruner (1)

1 unchanged sentence

Richard Gerhardt (1)

Stephanie Poe (2)

Thompson Davis & Co., Inc.

1 unchanged sentence

* Less than 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.

(1) The address for each of Messrs.

1 unchanged sentence

Smith, James Russell Bruner, Matthew I.

Smith, Richard Gerhardt, and Mss.

Read Van de Water and Stephanie Poe is c/o Smith-Midland Corporation, P.O.

Smith, Richard Gerhardt, and Ms.

Read Van de Water is c/o Smith-Midland Corporation, P.O.

Box 300, 5119 Catlett Road, Midland, Virginia 22728.

(2) Pursuant to the rules and regulations of the Securities and Exchange Commission, shares of Common Stock that an individual or group has a right to acquire within 60 days pursuant to the exercise of options or warrants are deemed to be outstanding for the purposes of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

(3) Ashley B.

Smith and Matthew I.

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(4) Address of holder is 9030 Stony Point Pkwy, Ste 100, Richmond, VA 23235.

Based on the Form 13-D filed with the Securities and Exchange Commission on March 7, 2024 by Thompson Davis & Co., Inc.

Based on the Form 13-D filed with the Securities and Exchange Commission on December 6, 2024 by Thompson Davis & Co., Inc.

EQUITY COMPENSATION PLAN INFORMATION

1 unchanged sentence

Plan Category

(a) Number of securities to be issued upon exercise of outstanding options, warrants

(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

(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

9 unchanged sentences

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.

In response to Item 402(x)(1) of Regulation S-K, the Company does not currently have any program, plan or obligation that requires it to grant equity awards on specific dates.

The Compensation Committee does not have a practice or policy of granting equity awards in anticipation of the release of material non-public information and the Company does not time the release of material non-public information in coordination with grants of equity awards in a manner that intentionally benefits our named executive officers.

Certain Relationships and Related Transactions, and Director Independence

7 unchanged sentences

Principal Accountant Fees and Services

On August 23, 2023, the Audit Committee (the “Audit Committee”) of the Board of Directors of the Company, approved the engagement of BDO USA, P.C.

On June 11, 2024, the Audit Committee (the “Audit Committee”) of the Board of Directors of the Company, approved the engagement of BDO USA, P.C.

(“BDO”) as the Company’s independent registered public accounting firm for the Company’s fiscal year ending December 31, 2024.

The aggregate fees billed for each of the past two fiscal years for professional services rendered by BDO USA, P.C.;

Richmond, VA, the principal accountant for the audit of the Company for the year ended December 31, 2023 and FORVIS, LLP;

Richmond, VA, the principal accountant for the audit of the Company for the year ended December 31, 2022;

Richmond, VA, the principal accountant for the audit of the Company for the year ended December 31, 2024 and 2023;

for assurance and related services related to the audit;

4 unchanged sentences

Such policies and procedures do not include the delegation of the responsibilities of the Audit Committee to management.

All of the services provided by BDO and FORVIS described below (in thousands) for 2023 and 2022, respectively, were pre-approved by the Audit Committee.

All of the services provided by BDO described below (in thousands) for 2024 and 2023, respectively, were pre-approved by the Audit Committee.

Audit-Related Fees

6 unchanged sentences

33-89312) declared effective by the Commission on December 13, 1995).

Bylaws (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 31, 2023).

Bylaws (Incorporated by reference to the Company's Annual Report on Form 10-K/A filed with the Securities and Exchange Commission on September 24, 2024).

Specimen Common Stock Certificate (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No.

5 unchanged sentences

Smith (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).

Commitment Letter, dated November 27, 2023, 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 Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2023).

Commercial Line of Credit Agreement and Note, dated October 1, 2023, 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 Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2023).

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).

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).

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).

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).

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).

Commitment Letter, dated November 27, 2023, for the renewal of the equipment line of credit in the amount of $1,500,000 with Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 6, 2023).

Commercial Line of Credit Agreement and Note, dated January 1, 2025, for the renewal of the line of credit in the amount of $5,000,000 with Burke & Herbert Bank & Trust Company, formerly Summit Community Bank.

Commercial Revolving Promissory Note, dated January 1, 2025, issued by the Company to Burke & Herbert Bank & Trust Company.

Commercial Security Agreement, dated January 1, 2025, with Burke & Herbert Bank & Trust Company, formerly Summit Community Bank.

Promissory Note, dated October 11, 2019, in the amount of $2,228,000 issued by the Company to Summit Community Bank (now known as Bank Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2019).

Deed of Trust dated October 11, 2019, related to the Promissory Note dated October 11, 2019 between the Company and Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2019).

Commercial Security Agreement dated October 11, 2019, related to the Promissory Note dated October 11, 2019 between the Company and Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on October 17, 2019).

Promissory Note, dated March 27, 2020, in the amount of $2,701,404 issued by the Company to Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2020).

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).

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).

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, 2022) 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).

Modification and Supplemental Deed of Trust, dated March 27, 2020, between the Company and Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (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).

Modification Deed of Trust, dated March 27, 2020, between the Company and Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2022) 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).

2016 Equity Incentive Plan (Incorporated by reference to the Registration Statement on Form S-8 (No.

7 unchanged sentences

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).

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).

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).

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).

Severance Agreement, dated January 8, 2024, between the Company and Stephanie Poe (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 25, 2024).

Commercial Promissory Note, dated February 10, 2022, in the amount of $2,805,000 issued by the Company to Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022).

Business Loan Agreement, dated February 10, 2022, between Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) 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).

Commercial Real Estate Deed of Trust, dated February 10, 2022, issued by the Company in favor of Summit Community Bank (now known as Burke & Herbert Bank & Trust Company) (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on February 16, 2022).

Company Insider Trading Policy.

1 unchanged sentence

Consent of BDO USA, P.C.

Consent of FORVIS, LLP.

Certification of Chief Executive Officer.

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(Principal Executive Officer)

/s/ Stephanie Poe

Stephanie Poe

Chief Financial Officer

/s/ Ashley B.

Chief Executive Officer and President

(Principal Financial and Accounting Officer)

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and Subsidiaries

Reports of Independent Registered Public Accounting Firms (BDO USA, P.C., Richmond, VA, PCAOB ID#:243 and FORVIS, LLP , Richmond, VA, PCAOB ID#:

Reports of Independent Registered Public Accounting Firms (BDO USA, P.C., Richmond, VA, PCAOB ID#:

Consolidated Financial Statements

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Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheet of Smith-Midland Corporation (the “Company”) as of December 31, 2023, 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, 2023, 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.

We have audited the accompanying consolidated balance sheets of Smith-Midland Corporation (the “Company”) as of December 31, 2024 and 2023, the related consolidated statements of income, stockholders’ equity, and cash flows for each of the years 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, 2024 and 2023, and the results of its operations and its cash flows for the years 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.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

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.

We conducted our audits 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.

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.

Our audits 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 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.

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.

Critical Audit Matter

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(1) relates 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 separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of the 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.

Allowance for Credit Losses of Accounts Receivable – Trade Billed

As described in Note 2 to the consolidated financial statements, the Company recognized an allowance for credit losses of $1.13 million for its consolidated accounts receivable trade - billed as of December 31, 2024.

The Company estimates expected credit losses by analyzing prior collection history with its customers, the related aging of past due balances, historical trends or past events, and forecasts of future economic conditions.

The Company estimates expected credit losses by analyzing prior collection history with its 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.

We identified the estimation of the allowance for credit losses of accounts receivable – trade billed as a critical audit matter.

The principal considerations for our determination are that the allowance for credit losses involves significant judgement in assessing certain inputs and assumptions, including historical experience and current customer specific conditions.

In addition, the Company identified a material weakness in its review of the estimate of the allowance for credit losses, which impacted the extent of our procedures.

In addition, the Company identified certain material weaknesses which impacted the extent of our procedures.

Auditing these elements involved especially challenging auditor judgment due to the nature and extent of audit effort required to address these matters.

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Richmond, Virginia

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.

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.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ FORVIS, LLP

We served as the Company’s auditor from 2022 to 2023.

Richmond, Virginia

April 17, 2023

Smith-Midland Corporation

and Subsidiaries

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(in thousands, except share data)

Treasury Stock

Balance, December 31, 2022

Adjustment for Adoption of ASU 2016-13

Vesting of restricted stock

Forfeiture of restricted stock

Issuance of restricted stock

Balance, December 31, 2023

Adjustment for Adoption of ASU 2016-13

Vesting of restricted stock

Issuance of restricted stock

Settlement of restricted stock

Balance, December 31, 2024

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(in thousands)

Year Ended December 31,

Reconciliation of net income to net cash provided by (used in) operating activities

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(Gain) loss on sale of fixed assets

Allowance for credit losses and doubtful accounts

Allowance for credit losses

Stock compensation

Settlement of restricted stock

Inventory Reserve

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Accrued income taxes

Deferred buy-back lease obligation, net

Customer deposits

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Purchases of property and equipment

Proceeds from sale of fixed assets

Proceeds from sale of property and equipment

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from long-term borrowings

Repayments of long-term borrowings

Capitalized Loan Costs

Net cash provided by (used in) financing activities

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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 recognizes, when applicable, interest and penalties related to income taxes in other income (expense) section of its consolidated statement of income.

The Company does not have any uncertain tax positions as of December 31, 2024, and believes there will be no material changes in unrecognized tax positions over the next twelve months.

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Revenue recognized in the period from amounts included at the beginning of the period

The Company’s deferred revenue balances (in thousands) related to Topic 606 are as follows:

Year Ended December 31,

Deferred revenue, beginning of the period

Deferred revenue, end of the period

Revenue recognized in the period from amounts included at the beginning of the period

Smith-Midland Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable trade - billed.

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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.

At December 31, 2023 and December 31, 2022, total allowances for credit losses and doubtful accounts were $ 806 and $ 781 , respectively.

At December 31, 2024 and December 31, 2023, total allowances for credit losses were $ 1,130 and $ 806 , respectively.

The rollforward of our allowance for credit losses (in thousands) for the year ended December 31, 2024, was as follows:

Balance at December 31, 2023

Cumulative Effect of Adoption of ASU 2016-13

Collection of Expected Credit Losses

Provision for Expected Credit Losses

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The Company capitalized the cost of the product on the consolidated balance sheet, and depreciated the value, less residual value, to cost of leasing revenue in “Cost of sales” 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 for the year ended December 31, 2023.

The deferred revenue and deferred costs related to the original buy-back agreement were fully amortized as of December 31, 2022.

The final close-out and accounting for the buy-back obligation recognized revenue of $ 679 and $ 0 for the years ended December 31, 2024 and 2023, respectively.

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.

6 unchanged sentences

Revenue is recognized on a straight-line basis each month as lease income for the duration of the lease, in accordance with Topic 842, Leases .

The Company’s deferred revenue balances (in thousands) related to Topic 842, Leases are as follows:

Year Ended December 31,

Deferred revenue, beginning of the period

Deferred revenue, end of the period

Revenue recognized in the period from amounts included at the beginning of the period

Royalty Income

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The Company has determined that no customer, if lost, would result in a near term severe impact to the Company’s operations.

For the year ended December 31, 2023, the Company derived 14 % of its revenue from one customer.

For the year ended December 31, 2024, no customer represented more than 10% of the Company’s revenue.

For the year ended December 31, 2023, the Company derived 14 % of its revenue from one customer.

As of December 31, 2024, two customer’s outstanding receivable balance exceeded 10 % of the total outstanding receivable balance.

As of December 31, 2023, two customers’ outstanding receivable balance each equaled 10 % of the total outstanding receivable balance.

As of December 31, 2022, no customer’s outstanding receivable balance exceeded 10 % of the total outstanding receivable balance.

Sales and Use Taxes

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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.

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 (“CODM”) in deciding how to allocate resources and assess performance.

The Company currently operates in one operating and reportable business segment for financial reporting purposes (the “Precast Concrete Segment”).

The Company’s CODM is the Chief Executive Officer (“CEO”) and President.

The precast concrete segment derives revenues from customers by providing products and services to customers.

The accounting policies of the precast concrete segment are the same as those described in the summary of significant accounting policies.

The CODM assesses performance for the precast segment based on consolidated net income as reported on the consolidated statement of income and measures segment assets as total consolidated assets as reported on the consolidated balance sheet.

The CODM uses consolidated net income and consolidated assets to decide how to allocate resources and whether to reinvest profits into the precast concrete segment or into other parts of the entity, such as to pay dividends.

Significant segment expenses provided to the CODM are based on the expense breakout shown on the consolidate statements of income.

The precast concrete segments results are the same as reported on the consolidated income statement and there are no adjustments or reconciling items.

Smith-Midland Corporation

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Fair Value of Financial Instruments

The Company uses a three-level fair value hierarchy that categorizes assets and liabilities measured at fair value based on the observability of the inputs utilized in the valuation.

The fair value hierarchy gives the highest priority to the quoted prices in active markets for identical assets and liabilities and lowest priority to unobservable inputs.

Level 1 – Financial assets and liabilities whose values are based on unadjusted quoted market prices for identical assets and liabilities in an active market that the Company has the ability to access.

Level 2 – Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable for substantially the full term of the asset or liability.

Level 3 – Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.

The carrying value for each of the Company’s financial instruments approximates fair value because of the short-term nature of those instruments.

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Recent Accounting Pronouncements

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..

We adopted this standard, and all related amendments, effective January 1, 2023, on a modified retrospective basis.

In November 2023, the FASB issued ASU 2023-07, Improvements to Reportable Segment Disclosures, to require the disclosure of segment expenses if they are (i) significant to the segment, (ii) regularly provided to the chief operating decision maker (“CODM”), and (iii) included in each reported measure of a segment’s profit or loss.

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This guidance is effective for annual periods beginning after December 15, 2023 and interim periods beginning after December 15, 2024, with early adoption permitted, and is required to be applied retrospectively to all prior periods presented in the financial statements.

The Company is evaluating the impact of the standard on its financial statements and related disclosures.

The Company adopted this standard retrospectively on December 31, 2024.

In December 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-09, Improvements to Income Tax Disclosures.

6 unchanged sentences

Notes to Consolidated Financial Statements

In November 2024, the FASB issued ASU 2024-03, Disaggregation of Income Statement Expenses , requiring additional disclosures about specified categories of expenses included in certain expense captions presented on the face of the income statement.

This standard will be effective for the Company for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, and may be applied either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to all prior periods presented in the financial statements.

The Company is currently evaluating the impact of adopting this guidance on the Company’s consolidated financial statements.

PROPERTY AND EQUIPMENT, NET

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Notes payable consist of the following (in thousands):

Note payable to Summit Community Bank (the “Bank”), maturing February 2037 ;

Note payable to Burke & Herbert Bank & Trust, formally Summit Community Bank (the "Bank"), maturing February 2037 ;

with monthly payments of approximately $ 21 of principal and interest fixed at 4.09 %;

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collateralized by the Company’s property, plant, and buildings.

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 3.99 %.

A revolving line of credit evidenced by promissory note with the Bank, with the available amount of $ 5,000 , maturing October 1, 2024 , which carries a variable interest rate of prime, and a floor of 3.50% and an initial rate of 8.50 % adjustable monthly (8.50% at December 31, 2023).

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.

Installment note, collateralized by certain machinery and equipment maturing in 2025;

with monthly payments of $ 1.1 with an annual interest rate of 2.90%.

A revolving line of credit evidenced by promissory note with the Bank, with the available amount of $ 5,000 with no balance outstanding as of December 31, 2024.

The line of credit is evidenced by a commercial revolving promissory note, which carries a variable interest rate of prime, with a floor of 4.99 %.

The line of credit was renewed on January 1, 2025 and matures January 1, 2026 .

The amount available is based on the lower of the maximum $5,000 or 50 % of eligible cash, inventory, and accounts receivable balances at the financial statement date.

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.

The line of credit is collateralized by a first lien position on the Company's accounts receivable, inventory, and equipment.

A guidance line of credit to purchase business equipment in an amount up to $ 1,500 , maturing October 1, 2024 , with an interest rate of at the Wall Street Journal prime rate plus 0.50% with a floor of 3.50% per annum.

The line of credit is collateralized by a first lien position on all equipment purchased under the line.

Total Notes Payable Outstanding

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Notes Payable-less current maturities

The total notes payable balance is offset by debt issuance costs associated with securing the loans summarized above and are amortized straight line over the term of the related loan, which approximates the effective interest rate method.

The total unamortized costs (in thousands) as of December 31, 2023 is $ 60 and $ 68 as of December 31, 2022.

Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of (in thousands) $ 5,000 and must maintain tangible net worth of $ 10,000 .

Smith-Midland Corporation

1 unchanged sentence

Notes to Consolidated Financial Statements

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.

The total unamortized costs (in thousands) as of December 31, 2024 is $ 52 and $ 60 as of December 31, 2023.

On October 1, 2023, 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 provided 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 matured on October 1, 2024 .

As of October 1, 2024, the Company had not purchased any equipment pursuant to the $ 1,500 commitment.

Under the loan covenants, for both the Line of Credit with the Bank, the Company is limited to annual capital expenditures (in thousands) of $ 5,000 and has received a waiver for 2024 from the Bank, and must maintain tangible net worth (in thousands) of $ 25,000 .

At December 31, 2024, the Company was in compliance with all covenants.

4 unchanged sentences

Smith received his salary, pursuant to the terms of the agreement, through September 2021.

Smith has ceased providing executive officer services pursuant to such agreement, the agreement provides for an annual royalty fee of $ 99 thousand 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.

Smith also received compensation from the Company for his services as a Director and Chairman of the Board, until his resignation in January 2022.

Smith has ceased providing executive officer services pursuant to such agreement, the agreement provides for an annual royalty fee (in thousands) 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 unexpired patents.

Smith-Midland Corporation

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Equity Compensation

Right-of-use asset

163(j) interest expense limitation

Lease liability

Gross deferred tax assets

2 unchanged sentences

Amortization - intangibles

Realized gain loss

Lease liability

Right-of-use asset

Gross deferred tax liabilities

4 unchanged sentences

The state NOLs begin expiring at various times between 2028 and 2037.

The Company is no longer subject to U.S.

or state tax examinations for the years prior to 2020.

EMPLOYEE BENEFIT PLANS

9 unchanged sentences

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, 2023 and 2022 is $ 510 and $ 608 , 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.

1 unchanged sentence

Restricted stock activity during the years ended December 31, 2024 is as follows:

Performance-Based

Service-Based

Number of Shares

1 unchanged sentence

Non-vested, December 31, 2023

Settlement of restricted stock

Non-vested, December 31, 2024

In 2021, the Compensation Committee and Board of Directors approved a Long-Term Incentive Plan with respect to the grant of stock pursuant to the 2016 Equity Incentive Plan.

The final equity amount earned is based on continued service through the three-year performance period ending on December 31, 2023, Board discretion, and performance results.

The actual number of performance-based shares of common stock of the Company, if any, earned by the award recipients is determined 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.

As of the date of these financial statements, the final awarded amount has not been determined, however the stock compensation cost was recognized over the requisite performance/service period using the straight-line method and based on the probable number of shares to be awarded

The final equity amount earned was based on continued service through the three-year performance period ending on December 31, 2023, Board discretion, and performance results.

The actual number of performance-based shares of common stock of the Company, if any, earned by the award recipients was determined 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 were set for each of the Minimum, Target, and Maximum levels.

In May 2024, the actual performance amount (in thousands) was determined by the Compensation Committee to be $ 579 .

The stock compensation cost was recognized over the requisite performance/service period using the straight-line method and based on the probable number of shares to be awarded.

During the second quarter of 2024 an additional expense amount (in thousands) of $ 25 was recorded related to the final amount awarded by the Compensation Committee.

Awards are being amortized to expense ratably, based upon the vesting schedule.

9 unchanged sentences

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.

Pursuant to the amendment, the Company agreed to purchase all of the barrier subject to the original buy-back agreement, as well as an additional amount.

The total estimated purchase price is $ 5,000 , representing the barrier, associated loading, freight, and yarding.

The deferred buy-back lease asset and obligation were fully reduced as the Company picked up the original 210,000 linear feet throughout 2022.

The deferred buy-back lease asset and obligation were fully reduced as the Company picked up the original buy-back amount throughout 2022.

As of December 31, 2024, the Company has picked up all barrier related to this purchase agreement and does not expect to incur any additional costs related to this purchase.

For the years ended December 31, 2024 and 2023 the Company recognized additional revenue associated with the buy-back agreement closeout of $ 679 and $ 0 , respectively.

The Company is party to legal proceedings and disputes which may arise in the ordinary course of business.

14 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures