SMITH MIDLAND CORP — Interim / Quarterly Report 2021

Aug 10, 2021

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒
For the quarterly period ended June 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __ to __

Commission File Number 1-13752

Smith-Midland Corporation
(Exact name of Registrant as specified in its charter)

Delaware	54-1727060
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

5119 Catlett Road , P.O. Box 300

Midland , VA 22728

(Address, zip code of principal executive offices)

( 540 ) 439-3266

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common Stock, $0.01 par value, outstanding as of August 2, 2021: 5,202,158 shares, net of treasury shares

SMITH-MIDLAND CORPORATION

Form 10-Q Index

		Page
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations (Unaudited)	5
	Condensed Consolidated Statements of Stockholders' Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	14
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Controls and Procedures	21
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	22
Item 1A.	Risk Factors	22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22
Item 3.	Defaults Upon Senior Securities	22
Item 4.	Mine Safety Disclosures	22
Item 5.	Other Information	22
Item 6.	Exhibits	23
	Signatures	24

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P ART I — FINANCIAL INFORMATION

I TEM 1. Financial Statements

S MITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	June 30, 2021 (Unaudited)	December 31, 2020
ASSETS
Current assets
Cash	$ 13,194	$ 8,764
Investment securities, available-for-sale, at fair value	1,243	1,228
Accounts receivable, net
Trade - billed (less allowance for doubtful accounts of approximately $400), including contract retentions	11,826	9,798
Trade - unbilled	636	742
Inventories, net
Raw materials	1,295	643
Finished goods	1,448	1,551
Prepaid expenses and other assets	558	615
Total current assets	30,200	23,341
Property and equipment, net	18,612	18,602
Deferred buy-back lease asset, net	3,818	4,237
Other assets	287	319
Total assets	$ 52,917	$ 46,499

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

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SMITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

	June 30, 2021
	(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade	$ 2,944	$	1,866
Accrued expenses and other liabilities	577		875
Deferred revenue	2,617		1,774
Accrued compensation	1,496		1,318
Accrued income taxes	1,045		470
Deferred buy-back lease obligation	1,195		1,203
Operating lease liabilities	87		85
Current portion of PPP loan	2,692		—
Current maturities of notes payable	556		740
Customer deposits	833		569
Total current liabilities	14,042		8,900
Deferred revenue	1,423		600
Deferred buy-back lease obligation	3,196		3,790
Operating lease liabilities	167		211
Notes payable - less current maturities	3,959		4,196
PPP loan - less current portion	—		2,692
Deferred tax liability	2,457		2,461
Total liabilities	25,244		22,850
Stockholders’ equity
Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding	—		—
Common stock, $.01 par value; authorized 8,000,000 shares; 5,326,595 and 5,279,411 issued and 5,202,158 and 5,202,158 outstanding, respectively	53		52
Additional paid-in capital	6,576		6,405
Treasury stock, at cost, 40,920 shares	( 102	)	( 102	)
Retained earnings	21,146		17,294
Total stockholders' equity	27,673		23,649
Total liabilities and stockholders' equity	$ 52,917	$	46,499

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

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S MITH-MIDLAND CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)

	Three Months Ended June 30, — 2021	2020		2021		2020
Revenue
Product sales	$ 7,243	$	6,699	$	14,662	$	13,550
Barrier rentals	1,182		907		6,958		1,650
Royalty income	692		413		1,112		681
Shipping and installation revenue	3,190		2,431		4,791		4,394
Total revenue	12,307		10,450		27,523		20,275
Cost of goods sold	8,993		8,073		18,488		16,297
Gross profit	3,314		2,377		9,035		3,978
Operating expenses
General and administrative expenses	1,340		1,230		2,665		2,282
Selling expenses	696		574		1,291		1,164
Total operating expenses	2,036		1,804		3,956		3,446
Operating income (loss)	1,278		573		5,079		532
Other income (expense)
Interest expense	( 56	)	( 57	)	( 98	)	( 113	)
Interest income	10		9		19		17
Gain on sale of assets	42		30		88		66
Other income	39		16		33		20
Total other income (expense)	35		( 2	)	42		( 10	)
Income (loss) before income tax expense (benefit)	1,313		571		5,121		522
Income tax expense (benefit)	328		130		1,269		119
Net income (loss)	$ 985	$	441	$	3,852	$	403
Basic and diluted earnings (loss) per common share	$ 0.19	$	0.09	$	0.74	$	0.08
Weighted average number of common shares outstanding:
Basic	5,202		5,184		5,202		5,184
Diluted	5,218		5,184		5,214		5,184

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

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S MITH-MIDLAND CORPORATION

C ONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Unaudited)

(in thousands)

	Common Stock	Additional Paid-in Capital	Treasury Stock		Retained Earnings	Total
Balance at December 31, 2020	$ 52	$ 6,405	$ ( 102	)	$ 17,294	$ 23,649
Vesting of restricted stock	—	41	—		—	41
Net income (loss)	—	—	—		2,867	2,867
Balance at March 31, 2021	52	6,446	( 102	)	20,161	26,557
Vesting of restricted stock	1	130	—		—	131
Net income (loss)	—	—	—		985	985
Balance at June 30, 2021	53	6,576	( 102	)	21,146	27,673

Balance at December 31, 2019	Common Stock — $ 52	Additional Paid-in Capital — $ 6,242	Treasury Stock — $ ( 102	)	Retained Earnings — $ 14,629	$	20,821
Vesting of restricted stock	—	—	—		—		—
Net income (loss)	—	—	—		( 38	)	( 38	)
Balance at March 31, 2020	52	6,242	( 102	)	14,591		20,783
Vesting of restricted stock	—	—	—		—		—
Net income (loss)	—	—	—		441		441
Balance at June 30, 2020	52	6,242	( 102	)	15,032		21,224

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

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S MITH-MIDLAND CORPORATION AND SUBSIDIARIES

C ONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Six Months Ended June 30, — 2021	2020
Cash flows from operating activities:
Net income (loss)	$ 3,852	$	403
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization	1,318		1,180
Gain (loss) on sale of assets	( 88	)	( 66	)
Unrealized (gain) loss on investment securities available for sale	( 11	)	( 3	)
Allowance for doubtful accounts	15		68
Stock compensation	172		—
Deferred taxes	( 4	)	3
(Increase) decrease in
Accounts receivable - billed	( 2,043	)	1,898
Accounts receivable - unbilled	106		( 192	)
Inventories	( 549	)	134
Prepaid expenses and other assets	73		( 101	)
Refundable income taxes	—		136
Increase (decrease) in
Accounts payable - trade	1,078		( 62	)
Accrued expenses and other liabilities	( 298	)	186
Deferred revenue	1,666		( 6	)
Accrued compensation	178		( 190	)
Accrued income taxes	575		—
Deferred buy-back lease obligation	( 602	)	( 555	)
Customer deposits	264		( 251	)
Net cash provided by (used in) operating activities	5,702		2,582
Cash flows from investing activities:
Purchases of investment securities available-for-sale	( 13	)	( 15	)
Purchases of property and equipment	( 926	)	( 2,326	)
Proceeds from sale of fixed assets	88		71
Net cash provided by (used in) investing activities	( 851	)	( 2,270	)
Cash flows from financing activities:
Proceeds from long-term borrowings	—		5,426
Repayments of long-term borrowings	( 421	)	( 2,416	)
Dividends paid on common stock	—		( 282	)
Net cash provided by (used in) financing activities	( 421	)	2,728
Net increase (decrease) in cash	4,430		3,040
Cash
Beginning of period	8,764		1,364
End of period	$ 13,194	$	4,404
Supplemental Cash Flow information:
Cash payments for interest	$ 98	$	113
Cash payments for income taxes	$ 713	$	1

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

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SMITH-MIDLAND CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. INTERIM FINANCIAL REPORTING

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, we have condensed or omitted certain information and footnote disclosures that are included in our annual consolidated financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, summary of significant accounting policies, and the related notes included in our Annual Report on Form 10-K for the year ended December 31, 2020. The condensed consolidated December 31, 2020 balance sheet was derived from the audited financial statements included in the Form 10-K. Dollar amounts in the footnotes are stated in thousands, except for per share data.

In the opinion of management, these condensed consolidated financial statements reflect all adjustments (which consist of normal, recurring adjustments) necessary for a fair presentation of the financial position and results of operations and cash flows for the periods presented. The results disclosed in the condensed consolidated statements of operations are not necessarily indicative of the results to be expected in any future periods.

Although the ultimate impact is uncertain at this time, resurgence of the coronavirus outbreak may significantly affect the Company's financial condition, liquidity, and results of operations. In this respect, the Company had previously experienced the following negative impacts on its business: backlog reduction during 2020 from that of 2019, lower production volumes, employee absence, and bidding restrictions within certain key states. The Company is continuing to experience delays in receipt of materials through its supply chain.

Recently Issued Accounting Pronouncement

The FASB issued ASU No. 2016-13, “ Measurement of Credit Losses on Financial Instruments .” This standard replaces the incurred loss impairment methodology 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. The Company is currently evaluating the impact of this standard, including subsequent amendments, on the consolidated financial statements and related disclosures.

Recent accounting pronouncements pending adoption, other than as stated above, are not expected to have a material impact on the Company.

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Revenue Recognition

Product Sales - Over Time

Under Topic 606, the Company recognizes revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration the Company expects to be entitled to in exchange for goods or services provided. Revenue associated with contracts with customers is recognized over time as the Company's performance creates or enhances customer controlled assets or creates or enhances an asset with no alternative use, which the Company has an enforceable right to receive compensation as defined under the contract for performance completed. To determine the amount of revenue to recognize over time, the Company recognizes revenue over the contract terms based on the output method. The Company applied the "as-invoiced" practical expedient as the amount of consideration the Company has the right to invoice corresponds directly with the value of the Company's performance to date.

As the output method is driven by units produced, the Company recognizes revenues based on the value transferred to the customer relative to the remaining value to be transferred. The Company also matches the costs associated with the units produced. If a contract is projected to result in a loss, the entire contract loss is recognized in the period when the loss was first determined and the amount of the loss updated in subsequent reporting periods. Revenue recognition also includes an amount related to a contract asset or contract liability. If the recognized revenue is greater than the amount billed to the customer, a contract related asset is recorded in "Accounts receivable - unbilled". Conversely, if the amount billed to the customer is greater than the recognized revenue, a contract liability is recorded in "Customer deposits". Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and therefore, profit and revenue recognition.

A portion of the work the Company performs requires financial assurances in the form of performance and payment bonds or letters of credit at the time of execution of the contract. Some contracts include retention provisions of up to 10% which are generally withheld from each progress payment as retainage until the contract work has been completed and approved.

Product Sales - Point in Time

For certain product sales that do not meet the over time criteria, under Topic 606 the Company recognizes revenue when the product has been shipped to the destination in accordance with the terms outlined in the contract where a present obligation to pay exists as the customer has gained control of the product.

Accounts Receivable and Contract Balances

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

Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable. At June 30, 2021 and December 31, 2020, accounts receivable included contract retentions of approximately $ 911 and $ 1,709 , respectively.

Our billed and unbilled revenue may be exposed to potential credit risk if our customers should encounter financial difficulties, and we maintain reserves for specifically-identified potential uncollectible receivables. At June 30, 2021 and December 31, 2020, our allowances for doubtful accounts were approximately $ 400 .

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Sale to Customer with a Buy-Back Guarantee

The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back product at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company receives payment in full as the product is produced, GAAP requires these transactions to be accounted for as operating leases. The amount of sale proceeds equal to the buy-back obligation, included in "Deferred buy-back lease obligation" in the liabilities section of the consolidated balance sheet, is deferred until the buy-back is exercised or expired. The remaining sale proceeds are deferred in the same account and recognized on a straight-line basis over the usage period, such usage period commencing on delivery to the job-site and ending at the time the buy-back is exercised or expired. The Company capitalizes the cost of the product on the consolidated balance sheet shown in "Deferred buy-back lease asset, net", and depreciates the value, less residual value, to cost of leasing revenue in "Cost of goods sold" over the estimated useful life of the asset.

In the case the customer does not exercise the buy-back option and retains ownership of the product at the end of the usage period, the guaranteed buy-back liability and any deferred revenue balances related to the product are settled to revenue, and the net book value of the asset is expensed to cost of leasing revenue. If the customer exercises the buy-back guarantee option, the Company purchases the product back in the amount equal to the buy-back guarantee, the Company settles any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and the Company reclassifies the net book value of the product on the consolidated balance sheet to "Inventories" or "Property and equipment, net" depending on the intended use at the time. The revenue is being recognized in accordance with Topic 842, Leases .

Barrier Rentals - Lease Income

Leasing fees are paid by customers at the beginning of the lease period and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income for the duration of the lease, in accordance with Topic 842, Leases . Topic 842 is applied, as Topic 606-10-15-2 provides a scope exception for lease contracts.

Royalty Income

The Company licenses certain products to other precast companies to manufacture the Company's products to engineering specifications under the licensing agreements. The agreements are typically for five year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid on a monthly basis. The revenues from licensing agreements are recognized in the month earned, in accordance with Topic 606-10-55-65.

Shipping and Installation

Shipping and installation revenues are recognized as a distinct performance obligation in the period the shipping and installation services are provided to the customer, in accordance with Topic 606.

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Disaggregation of Revenue

In the following table, revenue is disaggregated by primary sources of revenue:

Revenue by Type	Three Months Ended June 30 — 2021	2020	Change	% Change			Six Months Ended June 30 — 2021	2020	Change	% Change
Soundwall Sales	$ 2,391	$ 2,200	$ 191		9	%	$ 4,090	$ 4,087	$ 3		1	%
Architectural Panel Sales	1,249	766	483		63	%	3,437	1,533	1,904		124	%
SlenderWall Sales	220	—	220		100	%	220	923	( 703	)	( 76	)%
Miscellaneous Wall Sales	781	1,128	( 347	)	( 31	)%	1,284	2,031	( 747	)	(37	)%
Barrier Sales	1,066	945	121		13	%	2,557	2,270	287		13	%
Easi-Set and Easi-Span Building Sales	848	768	80		10	%	1,602	1,328	274		21	%
Utility Sales	469	388	81		21	%	736	789	( 53	)	( 7	)%
Miscellaneous Sales	219	504	( 285	)	( 56	)%	736	589	147		25	%
Total Product Sales	7,243	6,699	544		8	%	14,662	13,550	1,112		8	%
Barrier Rentals	1,182	907	275		30	%	6,958	1,650	5,308		322	%
Royalty Income	692	413	279		68	%	1,112	681	431		63	%
Shipping and Installation Revenue	3,190	2,431	759		31	%	4,791	4,394	397		9	%
Total Service Revenue	5,064	3,751	1,313		35	%	12,861	6,725	6,136		91	%
Total Revenue	$ 12,307	$ 10,450	$ 1,857		18	%	$ 27,523	$ 20,275	$ 7,248		36	%

The revenue items: soundwall sales, architectural panel sales, SlenderWall sales, miscellaneous wall sales, barrier rentals, and royalty income are recognized as revenue over time. The revenue items: barrier sales, Easi-Set and Easi-Span building sales, utility sales, miscellaneous sales, and shipping and installation revenue are recognized as revenue at the point in time.

Warranties

The Company's products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case by case method. Although the Company does incur costs for these types of expense, historically the amount of expense is minimal.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Segment Reporting

Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and assess performance. The Company currently operates in one operating and reportable business segment for financial reporting purposes.

Reclassifications of Certain Items Included within Comparable Prior Year Periods and Previous Current Year Interim Periods

Certain minor reclassifications have been made to prior year amounts to conform to current year presentation.

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2. EARNINGS (LOSS) PER SHARE

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

	Three Months Ended June 30, — 2021	2020	Six Months Ended June 30, — 2021	2020
Basic earnings (loss) per common share
Net income	$ 985	$ 441	$ 3,852	$ 403
Weighted average shares outstanding	5,202	5,184	5,202	5,184
Basic earnings (loss) per common share	$ 0.19	$ 0.09	$ 0.74	$ 0.08
Diluted earnings (loss) per common share
Net income	$ 985	$ 441	$ 3,852	$ 403
Weighted average shares outstanding	5,202	5,184	5,202	5,184
Dilutive effect of stock options and restricted stock	16	—	12	—
Total weighted average shares outstanding	5,218	5,184	5,214	5,184
Diluted earnings (loss) per common share	$ 0.19	$ 0.09	$ 0.74	$ 0.08

There was no restricted stock excluded from the diluted earnings per share calculation for the three and six month periods ended June 30, 2021 and June 30, 2020.

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3. NOTES PAYABLE

The Company has a mortgage note payable to Summit Community Bank (the “Bank”), with a balance of $ 76 as of June 30, 2021. The note has a maturity date of September 20, 2021 and a fixed interest rate of 3.99 % annually with monthly payments of $ 26 and is secured by principally all of the assets of the Company. Under the terms of the note, the Bank will permit chattel mortgages on purchased equipment not to exceed $ 250 for any one individual loan so long as the Company is not in default.

The Company has a mortgage note payable to the Bank for the construction of its North Carolina facility. The note carries a ten year term at a fixed interest rate of 3.64 % annually per the Promissory Note Rate Conversion Agreement, with monthly payments of $ 22 , and is secured by all of the assets of Smith-Carolina and a guarantee by the Company. The loan matures on October 10, 2029 . The balance of the note payable at June 30, 2021 was $ 1,911 .

On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank in the amount of $ 2,701 . A portion of the funds in the amount of $ 678 were secured for improvements to an existing five acre parcel for additional storage at the Midland, Virginia plant. The loan is collateralized by a first lien position on the Virginia property, building, and assets. The refinance also released the lien on the Smith-Columbia plant in Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is fixed at 3.99 % per annum, with principal and interest payments payable monthly over 120 months in the amount of $ 27 . The loan matures on March 27, 2030 . The balance of the note payable at June 30, 2021 was $ 2,421 .

The Company additionally has 3 smaller installment loans with annual interest rates between 2.90 % and 4.50 %, maturing between 2021 and 2025 , with varying balances totaling $ 107 .

Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $ 3,500 and must maintain tangible net worth of $ 10,000 . The Company is in compliance with all covenants pursuant to the loan agreements as of June 30, 2021.

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, is 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. During the first quarter 2021, the Company estimated the current portion of the balance due based on original loan repayment amounts amortized over the estimated repayment period with a balloon payment due on the maturity date. The loan matures on April 16, 2022 . The proceeds of the loan must be utilized pursuant to the requirements of the PPP, and all or a portion of the loan may be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. On July 9, 2021, the Company received loan forgiveness for the full amount of the loan of $ 2,692 .

Also in addition to the notes payable discussed above, the Company has a $ 4,000 line of credit with the Bank with no balance outstanding as of June 30, 2021. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on October 1, 2021 . The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company (i) to obtain bank approval for capital expenditures in excess of $ 3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On October 21, 2020 the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $ 1,500 . The commitment provides for the purchase of equipment 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 4.00% per annum . The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on October 21, 2021 . As of June 30, 2021, the Company had not purchased any equipment pursuant to the $ 1,500 commitment.

4. STOCK COMPENSATION

The fair value of restricted stock awards is estimated to be the market price of the Company's common stock at the close of the date of grant. Restricted stock activity during the six months ended June 30, 2021 is as follows:

Non-vested, December 31, 2020	—	36,336	36,336	Weighted Average Grant Date Fair Value per Share — $ 8.98
Granted	42,466	4,718	47,184	11.72
Vested	—	—	—	—
Forfeited	—	—	—	—
Non-vested, end of period	42,466	41,054	83,520	$ 10.53

The actual number of 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 for the grant in April 2021. The performance targets have been set for each of the Minimum, Target, and Maximum levels. The actual performance amount achieved is determined by the Compensation Committee and may be adjusted for items determined to be unusual in nature or infrequent in occurrence, at the discretion of the Compensation Committee. 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.

Stock compensation (in thousands) for the three and six month periods ended June 30, 2021 was approximately $ 131 and $ 172 , respectively, based upon the value at the date of grant. Stock compensation for the three and six month periods ended June 30, 2020 was less than $ 1 , based upon the value at the date of grant. There was $ 705 of unrecognized compensation cost related to the non-vested restricted stock as of June 30, 2021.

5. SUBSEQUENT EVENT

On July 9, 2021, the Company received notice from Summit Community Bank (the “Bank”), the lender of the Company’s $ 2,692 Paycheck Protection Program (“PPP”) loan, that the U.S. Small Business Administration (“SBA”) approved the forgiveness of the PPP loan in its entirety, and that the Bank has applied the funds and paid off the principal and interest of the PPP loan in full. Accordingly, the Company expects to record in the quarter ending September 30, 2021 the loan forgiveness as ‘Other income’ on the Condensed Consolidated Statements of Operations.

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report and related documents include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act 1934. Forward-looking statements involve known and unknown risks, uncertainties and other factors which could cause the Company’s actual results, performance (financial or operating), or achievements expressed or implied by such forward looking statements not to occur or be realized. Such forward looking statements generally are based upon the Company’s best estimates of future results, performance or achievement, based upon current conditions and the most recent results of operations. Forward-looking statements may be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “continue,” or similar terms, variations of those terms or the negative of those terms. Potential risks and uncertainties include, among other things, such factors as:

● Although the ultimate impact is uncertain at this time, resurgence of the coronavirus outbreak may significantly affect the Company's financial condition, liquidity, and results of operations. In this respect, the Company had previously experienced the following negative impacts on its business: backlog reduction during 2020 from that in 2019, lower production volumes, employee absence, and bidding restrictions within certain key states. The Company is continuing to experience delays in receipt of materials through its supply chain.

● while the Company had net income for the three and six months ended June 30, 2021 and 2020 and for the years ended December 31, 2020 and 2019, there are no assurances that the Company can remain profitable in future periods; in line with this risk, the Company incurred a loss for the quarter ended March 31, 2020,

● our debt level increased in 2020, and our ability to satisfy the same cannot be assured,

● our ability to collect accounts receivable may be adversely affected by the coronavirus outbreak,

● the continued availability of financing in the amounts, at the times, and on the terms required, to support our future business and capital projects,

● while we have expended significant funds in recent years to increase manufacturing and rental capacity, there is no assurance that we will achieve significantly greater revenues,

● the extent to which we are successful in developing, acquiring, licensing or securing patents for proprietary products,

● changes in economic conditions specific to any one or more of our markets (including the availability of public funds and grants for construction),

● changes in general economic conditions in our primary service areas,

● adverse weather, which inhibits the demand for our products, or the installation or completion of projects,

● our compliance with governmental regulations,

● potential decreases in our year to year contract backlog,

● our ability to produce and install product on material construction projects that conforms to contract specifications and in a time frame that meets the contract requirements,

● the cyclical nature of the construction industry,

● our exposure to increased interest expense payments should interest rates change, and

● the other factors and information disclosed and discussed in other sections of this Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

Investors and shareholders should carefully consider such risks, uncertainties and other information, disclosures and discussions which contain cautionary statements identifying important factors that could cause actual results to differ materially from those provided in the forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview; Potential Effect of the COVID-19 Outbreak

The Company invents, develops, manufactures, markets, leases, licenses, sells, and installs a broad array of precast concrete products and systems for use primarily in the construction, highway, utilities, and farming industries. The Company's customers are primarily general contractors and federal, state, and local transportation authorities located in the Mid-Atlantic, Northeastern, Midwestern regions and parts of the Southeastern region of the United States. The Company's operating strategy has involved producing innovative and proprietary products, including SlenderWall™, a patented, lightweight, energy efficient concrete and steel exterior insulated wall panel for use in building construction; J-J Hooks® Highway Safety Barrier, a positive-connected highway safety barrier; Sierra Wall, a sound barrier primarily for roadside use; and Easi-Set® transportable concrete buildings, also patented. In addition, the Company produces custom order precast concrete products with various architectural surfaces, as well as generic highway sound barriers, utility vaults, and farm products such as cattleguards.

The Company was incorporated in Delaware on August 2, 1994. Prior to a corporate reorganization completed in October 1994, the Company conducted its business primarily through Smith-Midland Virginia, which was incorporated in 1960 as Smith Cattleguard Company, a Virginia corporation, and subsequently changed its name to Smith-Midland Corporation in 1985. The Company’s principal offices are located at 5119 Catlett Road, Midland, Virginia 22728 and its telephone number is (540) 439-3266. As used in this report, unless the context otherwise requires, the term the “Company” refers to Smith-Midland Corporation and its subsidiaries.

As a part of the construction industry, the Company's sales and net income may vary greatly from quarter to quarter over a given year. Because of the cyclical nature of the construction industry, many factors not under our control, such as weather and project delays, affect the Company's production schedule, possibly causing momentary slowdowns in sales and net income. As a result of these factors, the Company is not always able to earn a profit for each period, therefore, please read Management's Discussion and Analysis of Financial Condition and Results of Operations and the accompanying financial statements with these factors in mind.

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (the “COVID-19 outbreak”) and the risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally.

The full impact of the COVID-19 outbreak, including a recent resurgence in the United States, continues to evolve as of the date of this report. As such, it is uncertain as to the full magnitude that the pandemic will have on the Company’s financial condition, liquidity, and future results of operations. The Company had previously experienced an adverse impact to its business by a reduction in revenues in 2020 from that of 2019, a reduction in backlog during 2020 from that in 2019, lower production volumes, employee absence, and bidding restrictions within certain key states such as Maryland and North Carolina. The Company is continuing to experience delays in receipt of materials through its supply chain. The Company may be further negatively impacted in the following respects:

a)	by the potential inability of customers of the Company to pay amounts owed to the Company for products or services already provided should their businesses suffer setbacks; this risk is heightened by the relatively long lag time experienced by the Company in collecting accounts receivable (see “Liquidity and Capital Resources” below);
b)	by potential supply side issues should our vendors experience hardships, and have to reduce or terminate operations, due to the COVID-19 outbreak, impacting the Company's sourcing of materials;
c)	by increased adverse effects on our workforce due to contracting or taking care of a relative who has contracted COVID-19, or have been quarantined by a medical professional; in this respect, our workforce had previously been impacted as of this date with an effect on operations at all locations, but this impact has substantially diminished as of the filing date, but no assurance can be provided as to future impacts, particularly in view of new coronavirus outbreaks;
d)	in the event that any of the three states in which we have facilities provide for the quarantine of our manufacturing employees, our production manufacturing will be significantly affected;
e)	in the event that any of the states in which we sell our products and services may eliminate, cancel, or delay projects due to monetary limitations resulting from the COVID-19 outbreak; in this respect, the Company had previously seen a reduction in bidding activity;
f)	the reduction of state infrastructure budgets due to the reduction in funding through the gas tax, or other funding sources;
g)	the increase in the overall loan defaults, which in turn impacts the banking sector's ability to fund projects in which the Company's products may be utilized; and
h)	in the event that economic hardships force the Company to default on loan payments, our loans may be called and our ability to borrow under our bank line of credit could cease;

Management is actively monitoring the global situation on its financial condition, liquidity, operations, suppliers, industry, and workforce. Although the Company experienced a loss in the first quarter of 2020 and reduced revenues for the year 2020 as compared to 2019, as well as experiencing factors described above, given the daily evolution of the COVID-19 outbreak and the global responses to curb its spread, the Company is not able to ultimately estimate the effects of the COVID-19 outbreak on its results of operations, financial condition, or liquidity for fiscal year 2021.

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

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The Company had (in thousands) net income of $2,867 for the first quarter 2021 and net income of $985 for the second quarter of 2021, resulting in net income of $3,852 for the six months ended June 30, 2021. The cost of goods sold as a percent of revenue, not including royalties, for the three and six months ended June 30, 2021 was 77% and 70%, respectively, as compared to 80% and 83% for the three and six months ended June 30, 2020. The decrease in cost of goods sold as a percentage of revenue, not including royalties, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, is mainly due to the increase in barrier rental revenues, which typically have higher margins than product sales. The decrease in cost of goods sold as a percentage of revenue, not including royalties, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, is mainly due to the increase in barrier rental revenues, which typically have higher margins than product sales, and short-term special barrier rental projects, which carry slightly higher margins due to the complexity and risk of the projects. Total revenues for the three and six month periods ended June 30, 2021 were $12,307 and $27,523, compared to $10,450 and $20,275 for the three and six month periods ended June 30, 2020. The increase was mainly from the barrier rentals, which included multiple short-term special barrier rental projects in the quarter ended March 31, 2021 and, to a lesser extent, a continued increase in linear feet rented over the prior year of the core rental fleet. Future barrier rental revenues are not expected to continue to trend at the same rate as in the first quarter of 2021 due to the nature and frequency of the short-term special barrier projects.

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

Three and six months ended June 30, 2021 compared to the three and six months ended June 30, 2020

Revenue includes product sales, barrier rentals, royalty income, and shipping and installation revenues. Product sales are further divided into soundwall, architectural and SlenderWall™ panels, miscellaneous wall panels, highway barrier, Easi-Set® and Easi-Span® buildings, utility products, and miscellaneous precast products. The following table summarizes the sales by product type and comparison for the three and six month periods ended June 30, 2021 and 2020. As indicated in "Overview; Potential Effect of COVID-19 Outbreak" above, should a resurgence of the COVID-19 outbreak cause serious economic harm in our area of operations, our revenue expectations are unlikely to be fulfilled.

Revenue by Type	Three Months Ended June 30 — 2021	2020	Change	% Change			Six Months Ended June 30 — 2021	2020	Change	% Change
Soundwall Sales	$ 2,391	$ 2,200	$ 191		9	%	$ 4,090	$ 4,087	$ 3		1	%
Architectural Panel Sales	1,249	766	483		63	%	3,437	1,533	1,904		124	%
SlenderWall Sales	220	—	220		100	%	220	923	(703	)	(76	)%
Miscellaneous Wall Sales	781	1,128	(347	)	(31	)%	1,284	2,031	(747	)	(37	)%
Barrier Sales	1,066	945	121		13	%	2,557	2,270	287		13	%
Easi-Set and Easi-Span Building Sales	848	768	80		10	%	1,602	1,328	274		21	%
Utility Sales	469	388	81		21	%	736	789	(53	)	(7	)%
Miscellaneous Sales	219	504	(285	)	(56	)%	736	589	147		25	%
Total Product Sales	7,243	6,699	544		8	%	14,662	13,550	1,112		8	%
Barrier Rentals	1,182	907	275		30	%	6,958	1,650	5,308		322	%
Royalty Income	692	413	279		68	%	1,112	681	431		63	%
Shipping and Installation Revenue	3,190	2,431	759		31	%	4,791	4,394	397		9	%
Total Service Revenue	5,064	3,751	1,313		35	%	12,861	6,725	6,136		91	%
Total Revenue	$ 12,307	$ 10,450	$ 1,857		18	%	$ 27,523	$ 20,275	$ 7,248		36	%

The revenue items: soundwall sales, architectural panel sales, SlenderWall sales, miscellaneous wall sales, barrier rentals, and royalty income are recognized as revenue over time. The revenue items: barrier sales, Easi-Set and Easi-Span building sales, utility sales, miscellaneous sales, and shipping and installation revenue are recognized as revenue at a point in time.

Soundwall Sales - Soundwall sales were slightly higher for the three and six month periods ended June 30, 2021 compared to the same periods in 2020. The increase is mainly due to production at the Virginia plant for the largest soundwall contract in Company history, which was initially awarded during 2018, and for which production is expected through 2021. Soundwall sales are expected to trend slightly lower in the second half of 2021.

Architectural Sales - Architectural sales significantly increased for the three and six months ended June 30, 2021 compared to the same periods in 2020. The Company was awarded a large architectural project which began production the fourth quarter 2020 with significant production during the first and second quarters 2021. Architectural sales are expected to decrease in the second half of 2021, as compared to the first six months of 2021, with the projected shift to more SlenderWall sales.

SlenderWall Sales - SlenderWall sales increased for the three month period ended June 30, 2021 as compared to the same period in 2020. SlenderWall sales significantly decreased for the six month period ended June 30, 2021 compared to the same period in 2020. The Company completed several smaller projects during the first quarter of 2020, and was recently awarded a large SlenderWall project which began production at the end of the second quarter 2021. The Company continues to focus sales initiatives on SlenderWall with multiple bids awaiting awards, but no assurance can be given as to success of this endeavor.

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Miscellaneous Wall Sales - Miscellaneous wall sales decreased significantly for the three and six month periods ended June 30, 2021 compared to the same periods in 2020 due to the decreased amount of retaining wall projects in production. Miscellaneous wall sales are expected to trend at similar levels for the remainder of 2021 as compared to the first six months of the year.

Barrier Sales - Barrier sales increased during the three and six month periods ended June 30, 2021 compared to the same periods in 2020. The main reason for the increase is due to increased barrier sales at the South Carolina plant during the first six months of 2021. Aligning with the Company's strategy to shift to barrier rentals versus barrier sales in the Delaware to Virginia region, barrier sales are expected to trend lower than previous periods.

Easi-Set® and Easi-Span® Building Sales - Building and restroom sales increased for the three and six month periods ended June 30, 2021 compared to the same periods in 2020 mainly due to increased building sales at all three manufacturing facilities during the first half of 2021 as compared to the prior year. Building and restroom sales are expected to continue to trend similar for the remainder of 2021, as compared to the first six months of the year, although no assurance can be provided.

Utility Sales - Utility sales slightly increased for the three month period ended June 30, 2021 compared to the same period in 2020 and sales trended lower for the six month period ended June 30, 2021 compared to the same period in 2020. The Company continues to competitively bid on utility projects to gain market share. Utility sales are expected to slightly increase for the second half of 2021 as compared to the first six months of the year, although no assurance can be provided.

Miscellaneous Product Sales - Miscellaneous products are products that are produced or sold that do not meet the criteria defined for other revenue categories. Examples would include precast concrete slabs, concrete blocks, or small add-on items. Miscellaneous product sales decreased for the three month period ended June 30, 2021 compared to the same period in 2020, and increased for the six month period ended June 30, 2021 compared to the same period in 2020. The change is mainly attributed to specialty concrete blocks produced at the North Carolina plant which began in 2020 and significantly decreased during the second quarter 2021. Miscellaneous product sales are expected to trend lower in the second half of 2021 as compared to the first six months.

Barrier Rentals - Barrier rentals increased significantly for the three and six month periods ended June 30, 2021 compared to the same periods in 2020 due to the higher quantity of linear feet rented than the previous year and, to a greater extent, a few short-term special projects during the first quarter 2021, which carried slightly higher margins due to the complexity and risk of the projects. A substantial portion of the total revenue from these special projects was earned in the first quarter 2021. As indicated above, the Company is shifting its focus to barrier rentals compared to barrier sales with the significant increase in the rental fleet in late 2019, and continued plans to increase the fleet during the remainder of 2021 and upcoming years. Future barrier rental revenues are not expected to continue trending at the same rate as in the first quarter of 2021 due to the nature and frequency of the short-term special barrier projects, however the Company expects increased barrier rentals of the core rental fleet for the remainder of the year and future periods, although no assurance can be given.

Royalty Income - Royalties significantly increased for the three and six month periods ended June 30, 2021 compared to the same periods in 2020. The increase in royalties is mainly due to the increase in barrier royalties during the first half of 2021 compared to the first six months of 2020. Infrastructure spending continues to drive royalties, and the Company anticipates royalties to increase for the second half of 2021 as compared to the first six months of the year, although no assurance can be given.

Shipping and Installation - Shipping revenue results from shipping our products to the customers' final destination and is recognized when the shipping services take place. Installation activities include installation of our products at the customers’ construction sites. Installation revenue is recognized when attaching architectural and SlenderWall panels to a building, installing an Easi-Set® building at customers' sites, or setting any of our other precast products at a site specific to the requirements of the owner. Shipping and installation revenue increased for the three and six month periods ended June 30, 2021, compared to the same periods in 2020. The increase is mainly attributed to the increase in shipping, setting, and offloading associated with barrier rentals during the second quarter of 2021 as compared to the prior year.

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Cost of Goods Sold - Total cost of goods sold as a percent of revenue, not including royalties, for the three and six months ended June 30, 2021 was 77% and 70%, respectively, as compared to 80% and 83% for the three and six months ended June 30, 2020. The decrease in cost of goods sold as a percentage of revenue, not including royalties, for the three months ended June 30, 2021, compared to the three months ended June 30, 2020, is mainly due to the increase in barrier rental revenues, which typically have higher margins than product sales. The decrease in cost of goods sold as a percentage of revenue, not including royalties, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020, is mainly due to the increase in barrier rental revenues, which typically have higher margins than product sales, and short-term special barrier rental projects, which carry slightly higher margins due to the complexity and risk of the projects.

General and Administrative Expenses - For the three months ended June 30, 2021 the Company's general and administrative expenses increased by $110 to $1,340 from $1,230 during the same period in 2020, and for the six months ended June 30, 2021 the Company’s general and administrative expenses increased by $383 to $2,665 from $2,282. The increased general and administrative expenses for the three and six month periods ended June 30, 2021 is mainly attributed to stock compensation and an increase in salaries and wages. General and administrative expense as a percentage of total revenue was 11% and 12% for the three month periods ended June 30, 2021 and 2020, respectively, and 10% and 11% for the six month periods ended June 30, 2021 and 2020, respectively.

Selling Expenses - Selling expenses for the three months ended June 30, 2021 increased to $696 from $574 for the same period in 2020, and selling expenses for the six months ended June 30, 2021 increased to $1,291 from $1,164 for the same period in 2020. The Company expects selling expenses to increase in future periods with the plan for additional sales associates and increased advertising spending aligning with the strategy to increase SlenderWall and barrier rental sales.

Operating Income (Loss) - The Company had operating income for the three month period ended June 30, 2021 of $1,278 compared to operating income of $573 for the same period in 2020. The Company had operating income for the six month period ended June 30, 2021 of $5,079 compared to operating income of $532 for the same period in 2020.The increase in operating income for the three and six month periods ended June 30, 2021 compared to the same periods in 2020, was mainly due to the increase in gross profit associated with the increase in total sales, mainly deriving from royalties and barrier rentals, and to a greater extent, a few short-term special projects during the first quarter 2021. Operating results for the 2020 periods were also adversely affected due to COVID-19 related factors.

Interest Expense - Interest expense was $56 and $57 for the three month periods ended June 30, 2021 and 2020, respectively. Interest expense was $98 and $113 for the six month periods ended June 30, 2021 and 2020, respectively. The Company expects interest expense to continue to decrease for the full year 2021, as compared to the full year 2020 with the refinancing of debt in March 2020 and the expected payoff of long-term notes during 2021.

Income Tax Expense (Benefit) - The Company had income tax expense of $328 with an effective rate of 25% for the three months ended June 30, 2021 compared to income tax expense of $130 with an effective rate of 23% for the same period in 2020. The Company had income tax expense of $1,269 with an effective rate of 25% for the six months ended June 30, 2021 compared to income tax expense of $119 with an effective rate of 23% for the same period in 2020.

Net Income (Loss) - The Company had net income of $985 for the three months ended June 30, 2021, compared to net income of $441 for the same period in 2020. The basic and diluted earnings per share was $0.19 for the three months ended June 30, 2021, and the basic and diluted earnings per share was $0.09 for the three months ended June 30, 2020. The Company had net income of $3,852 for the six months ended June 30, 2021, compared to net income of $403 for the same period in 2020. The basic and diluted earnings per share was $0.74 for the six months ended June 30, 2021, and the basic and diluted earnings per share was $0.08 for the six months ended June 30, 2020. In view of the forgiveness on July 9, 2021 of the Company’s PPP loan of $2,692, the Company expects to record in the quarter ending September 30, 2021 the loan forgiveness as ‘Other income’ on the Condensed Consolidated Statements of Operations.

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Liquidity and Capital Resources (dollar amounts in thousands)

Reference is made to "Overview; Potential Effect of COVID-19 Outbreak" above in the context of the discussion below.

The Company has a mortgage note payable to Summit Community Bank (the “Bank”), with a balance of $76 as of June 30, 2021. The note has a maturity date of September 20, 2021 and a fixed interest rate of 3.99% annually with monthly payments of $26 and is secured by principally all of the assets of the Company. Under the terms of the note, the Bank will permit chattel mortgages on purchased equipment not to exceed $250 for any one individual loan so long as the Company is not in default.

The Company has a mortgage note payable to the Bank for the construction of its North Carolina facility. The note carries a ten year term at a fixed interest rate of 3.64% annually per the Promissory Note Rate Conversion Agreement, with monthly payments of $22, and is secured by all of the assets of Smith-Carolina and a guarantee by the Company. The loan matures on October 10, 2029. The balance of the note payable at June 30, 2021 was $1,911.

On March 27, 2020, the Company completed the refinancing of existing loans with a note payable to the Bank in the amount of $2,701. A portion of the funds in the amount of $678 were secured for improvements to an existing five acre parcel for additional storage at the Midland, Virginia plant. The loan is collateralized by a first lien position on the Virginia property, building, and assets. The refinance also released the lien on the Smith-Columbia plant in Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is fixed at 3.99% per annum, with principal and interest payments payable monthly over 120 months in the amount of $27. The loan matures on March 27, 2030. The balance of the note payable at June 30, 2021 was $2,421.

The Company additionally has 3 smaller installment loans with annual interest rates between 2.90% and 4.50%, maturing between 2021 and 2025, with varying balances totaling $107.

Under the loan covenants with the Bank, the Company is limited to annual capital expenditures of $3,500 and must maintain tangible net worth of $10,000. The Company is in compliance with all covenants pursuant to the loan agreements as of June 30, 2021.

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, is 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. During the first quarter 2021, the Company estimated the current portion of the balance due based on original loan repayment amounts amortized over the estimated repayment period with a balloon payment due on the maturity date. The loan matures on April 16, 2022. The proceeds of the loan must be utilized pursuant to the requirements of the PPP, and all or a portion of the loan may be forgiven in accordance with the PPP applicable rules, regulations, and guidelines. On July 9, 2021, the Company received loan forgiveness for the full amount of the loan of $2,692.

Also in addition to the notes payable discussed above, the Company has a $4,000 line of credit with the Bank with no balance outstanding as of June 30, 2021. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on October 1, 2021. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company (i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On October 21, 2020 the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment 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 4.00% per annum. The loan is collateralized by a first lien position on all equipment purchased under the line. The commitment for the guidance line of credit matures on October 21, 2021. As of June 30, 2021, the Company had not purchased any equipment pursuant to the $1,500 commitment.

At June 30, 2021, the Company had cash totaling $13,194 and investment securities totaling $1,243, compared to cash totaling $8,764 and investment securities totaling $1,228 at December 31, 2020. Investment securities at June 30, 2021 consist of shares of USVAX (a Virginia Bond Fund). The increase in cash is primarily the result of positive operating results during the first six months of 2021.

Capital spending for the six months ended June 30, 2021 totaled $926, as compared to $2,326 for the same period in 2020. The 2021 expenditures were mainly for the purchase of rental barrier and miscellaneous manufacturing equipment. The Company intends to continue capital spending on maintenance capital expenditures as needed over the remainder of the year, which is expected to be approximately $1,000. With the increase in barrier rental bidding and activity, the Company plans to manufacture barrier to increase the rental fleet capacity, which is expected to cost an additional $1,000.

The Company's three mortgage notes payable are financed at fixed rates of interest. This leaves the Company almost impervious to fluctuating interest rates. Increases in such rates will only slightly affect the interest paid by the Company on an annual basis. Approximately 99% of the Company's debt obligations are financed at a fixed interest rate, after consideration of the Promissory Note Rate Conversion Agreement, so that each 1% increase in the interest rates of the Company’s outstanding debt will reduce income by approximately $1 annually, excluding the impact of fair value changes in the Promissory Note Rate Conversion Agreement.

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The Company’s cash flow from operations is affected by production schedules set by contractors, which generally provide for payment 35 to 90 days after the products are produced and with some architectural contracts, retainage may be held until the entire project is completed. This payment schedule may result in liquidity problems for the Company because it must bear a portion of the cost of production before it receives payment from its customers. The Company’s average days sales outstanding (DSO), excluding the effect of unbilled revenue, was 77 days for the six months ended June 30, 2021 compared to 89 days for the year ended December 31, 2020. The decrease in DSO is mainly due to collection of retainage and the collection of multiple large projects occurring in the first quarter 2021.

If actual results regarding the Company's production, sales, and subsequent collections on customer receivables are materially inconsistent with management's expectations, the Company may in the future encounter cash flow and liquidity issues. If the Company's operational performance deteriorates significantly, it may be unable to comply with existing financial covenants, and could cause defaults and acceleration under its loan agreements and lose access to the credit facility. Although no assurances can be given, the Company believes that its current cash resources, anticipated cash flow from operations, and the availability under the line of credit will be sufficient to finance the Company’s operations for at least the next 12 months.

The Company’s inventory was $2,743 at June 30, 2021 and $2,194 at December 31, 2020, or an increase of $549. The increase in inventory is mainly due to the increase of raw materials on-hand compared to the prior year. Inventory turnover was 15.4, annualized for the six months ended June 30, 2021, compared to 11.4, annualized for the same period in 2020.

Critical Accounting Policies and Estimates

The Company’s critical accounting policies are more fully described in its Summary of Accounting Policies to the Company’s consolidated financial statements on Form 10-K for the year ended December 31, 2020. There have been no changes as of June 30, 2021.

Seasonality

The Company services the construction industry primarily in areas of the United States where construction activity may be inhibited by adverse weather during the winter. As a result, the Company may experience reduced revenues from December through February and realize a more significant part of its revenues during the other months of the year. The Company may experience lower profits, or losses, during the winter months, and as such, must have sufficient working capital to fund its operations at a reduced level until the spring construction season. The failure to generate or obtain sufficient working capital during the winter may have a material adverse effect on the Company.

Inflation

Raw material costs for the Company, cement, steel, aggregates, and other direct materials used in production have slightly increased for the first six months of 2021. The Company anticipates raw material prices to slightly increase for the remainder of 2021, although no assurance can be given regarding future pricing.

Sales Backlog

As of August 2, 2021, the Company’s sales backlog was approximately $26.0 million, as compared to approximately $25.6 million at the same time in 2020. It is estimated that majority of the projects in the sales backlog will be produced within 12 months, with a portion extending several years.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

ITEM 4. Controls and Procedures

(a) Disclosure controls and procedures

The Company carried out our evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report, pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective at June 30, 2021.

(b) Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the three months ended June 30, 2021 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1. Legal Proceedings

The Company is not presently involved in any litigation of a material nature.

ITEM 1A. Risk Factors

Not required

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

ITEM 3. Defaults Upon Senior Securities

None

ITEM 4. Mine Safety Disclosures

Not applicable

ITEM 5. Other Information

None

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I TEM 6. Exhibits

Exhibit No.	Exhibit Description
31.1	Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2	Certification of the Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1	Certification pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema Document.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.

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S IGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: August 10, 2021	SMITH-MIDLAND CORPORATION (Registrant) — By:	/s/ Ashley B. Smith
		Ashley B. Smith, Chief Executive Officer
		(Principal Executive Officer)
Date: August 10, 2021	By:	/s/ Adam J. Krick
		Adam J. Krick, Chief Financial Officer
		(Principal Financial Officer)

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