~~SMITH-MIDLAND CORPORATION~~

~~NOTES~~

SMITH-MIDLAND CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. – INTERIM FINANCIAL REPORTING

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, and with the instructions to Form 10-Q and Article 10 and Regulation S-X. Accordingly, we have condensed or omitted certain information and footnote disclosures that are included in our annual financial statements. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, summary of significant accounting policies, and the related notes included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018. The condensed consolidated December 31, ~~2017~~2018 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.

Recent Accounting Pronouncements

~~On February 25, 2016,~~Fair Value Measurement. In August 2018, the FASB issued ASU No. ~~2016-02,~~ ~~Leases~~ ~~(Topic 842)~~2018-13, “Fair Value (“FV”) Measurement (Topic 820). ~~Adoption~~” Among other modifications, the standard removes the requirements to disclose: (i) the amount of and reasons for transfers between Level 1 and Level 2 of the FV hierarchy; (ii) the policy for timing transfers between levels; and (iii) the valuation process for Level 3 FV measurements. The standard will require public entities to disclose: (a) the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 FV measurements held at the end of the reporting period; and (b) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs, an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 FV measurements. The additional disclosure requirements should be applied prospectively for the most recent interim or annual period presented in the fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented. The amendments in this ~~ASU requires lessees to recognize assets and liabilities for most leases. For public business entities the guidance is~~standard are effective for ~~financial statements issued for annual periods beginning~~fiscal years ending after December 15, ~~2018, and interim periods within those annual periods and early~~2019. Early adoption is ~~permitted. The Company is currently evaluating~~permitted, and an entity may adopt the ~~impact~~removed or modified disclosures and delay the adoption of new disclosures until the effective date. We have not completed our assessment of the standard but we do not expect the adoption to have a material impact on the ~~Company’s~~Company's consolidated financial position, results of operations and cash flows.

Recently Adopted Accounting Pronouncements

~~On May 28, 2014,~~Leases. In 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases (Topic 842).” Topic 842 establishes a new lease accounting model for leases. The most significant changes include the clarification of the definition of a lease, the requirement for lessees to recognize for all leases a right-of-use asset and a lease liability in the consolidated balance sheet, and additional quantitative and qualitative disclosures which are designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. Expenses are recognized in the consolidated statement of income in a manner similar to current accounting guidance. Lessor accounting under the new standard is substantially unchanged. We adopted this standard, and all related amendments thereto, effective January 1, 2019, using the transition approach, which applies the provisions of the new guidance at the effective date without adjusting the comparative periods presented. We have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows us to carry forward the historical accounting relating to lease identification and classification for existing leases upon adoption. We have made an accounting policy election to keep leases with an initial term of 12 months or less off the consolidated balance sheet. We have finalized our evaluation of the impacts that the adoption of this accounting guidance on the consolidated financial statements and have approximately $400 of right-of-use assets, included in property and equipment, and liabilities recognized in our consolidated balance sheet, amortized over the expected lives of the leases upon adoption.

Comprehensive Income. In February 2018, the FASB issued ASU No. ~~2014-09,~~ ~~Revenue from Contracts with Customers~~ ~~(Topic 606)~~2018-02, “Income Statement-Reporting Comprehensive Income (Topic 220). ~~Adoption~~” This standard provides an option to reclassify stranded tax effects within accumulated other comprehensive income (loss) (“AOCI”) to retained earnings due to the U.S. federal corporate income tax rate change in the Tax Cuts and Jobs Act of ~~this ASU requires that an entity recognize the amount of revenue to which it expects to be entitled~~2017. This standard was effective for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in U.S. GAAP when it became effective. The standard allowed for application retrospectively to each prior period presented (full retrospective method) or retrospectively with the cumulative effect recognized as of the date of initial application (modified retrospective method). The Company adopted the new revenue guidance effective January 1, 2018 using the modified retrospective method to all contracts that were not substantially complete at the date of adoption. The adoption of Topic 606interim and annual reporting periods beginning after December 15, 2018. We did not ~~have, and is not expected~~exercise the option to have, a material impact on the timing or amount of revenue recognized as compared to the Company's previous revenue recognition policies. Accordingly, there was no adjustment recorded to beginning retained earnings for the cumulative impact of adoption on January 1, 2018.make this reclassification.

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 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 on uncompleted contracts.~~deposits. Changes in the job performance, job conditions and final contract settlements are factors that influence management’s assessment of total contract value and therefore, profit and revenue recognition.

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

Product Sales - Point in Time

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

Accounts Receivable and Contract Balances

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

Any uncollected billed amounts for our performance obligations recognized over time, including contract retentions, are recorded within accounts receivable. At ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, accounts receivable included contract retentions ~~(in thousands)~~ of approximately ~~$1,596~~$1,389 and ~~$1,065,~~$1,704, 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, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, our allowances for doubtful accounts ~~(in thousands)~~ were ~~$246~~$228 and ~~$208,~~$214, respectively.

~~Effect of Adopting ASC Topic 606~~

As discussed in Recently Adopted Accounting Pronouncements, no adjustment to beginning 2018 retained earnings was recorded as a result of our adoption of Topic 606 due to no changes in the methods and/or timing of our revenue recognition for our uncompleted contracts. Further, the difference in our results of the first three quarters of 2018 between application of the new standard on our contracts and what results would have been if such contracts had been reported using the accounting standards previously in effect, for such contracts, did not change.

Sale to Customer with a Buy-Back Guarantee

The Company entered into a buy-back agreement with one specific customer. Under this agreement, the Company guaranteed to buy-back product at a predetermined price at the end of the long-term project, subject to the condition of the product. Although the Company receives payment in full as the product is produced, we are required to account for these transactions as operating leases. The amount of sale proceeds equal to the buy-back obligation, included in "Deferred buy-back lease obligation" in the liabilities section of the consolidated balance sheet, 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 ~~as a deferred~~shown in "Deferred buy-back lease asset, ~~net,~~net", and depreciates the value, less residual value, to cost of leasing revenue in "Cost of goods sold" over the estimated useful life of the asset.

In the case the customer does not exercise the buy-back option and retains ownership of the product at the end of the usage period, the guarantee ~~buy-back~~buyback 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~~buyback guarantee, we settle any remaining deferred balances, in excess of the buy-back payment, to leasing revenue, and we reclassify the net book value of the product on the consolidated balance sheet to ~~inventory.~~"Inventories" or "Property and equipment, net" depending on the intended use at the time. The revenue is being recognized in accordance with Topic 840, Leases.

Barrier Rentals - Leasing Fees

Leasing fees are paid by customers at the beginning of the lease agreement and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income for the duration of the lease, in accordance with Topic 840, ~~Leases.~~Leases. Topic 840 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 produce the Company's products to engineering specifications under the licensing agreements. The agreements are typically for five year terms and require royalty payments from 4% to 6% of total sales of licensed products, which are paid 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.

Disaggregation of Revenue

In the following table, revenue is disaggregated by primary sources of revenue (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 Change % of Change 2018 2017 Change % of Change
Product Sales:
Soundwall Sales $ 2,334
$ 2,368
$ (34 ) (1)% $ 7,339
$ 5,024
$ 2,315
46%
Architectural Panel Sales 41
551
(510 ) (93)% 498
569
(71 ) (12)%
SlenderWall Sales 1,637
913
724
79% 4,203
912
3,291
361%
Miscellaneous Wall Sales 87
639
(552 ) (86)% 846
2,012
(1,166 ) (58)%
Barrier Sales 1,749
3,615
(1,866 ) (52)% 5,624
9,684
(4,060 ) (42)%
Easi-Set and Easi-Span Building Sales 496
730
(234 ) (32)% 1,557
2,127
(570 ) (27)%
Utility and Farm Product Sales 429
322
107
33% 890
1,129
(239 ) (21)%
Miscellaneous Product Sales 55
157
(102 ) (65)% 267
396
(129 ) (33)%
Total Product Sales 6,828
9,295
(2,467 ) (27)% 21,224
21,853
(629 ) (3)%
Barrier Rentals 540
319
221
69% 1,188
3,145
(1,957 ) (62)%
Royalty Income 465
483
(18 ) (4)% 1,193
1,387
(194 ) (14)%
Shipping and Installation Revenue 1,711
1,384
327
24% 4,897
5,321
(424 ) (8)%
Total Service Revenue 2,716
2,186
530
24% 7,278
9,853
(2,575 ) (26)%

Total Revenue $ 9,544
$ 11,481
$ (1,937 ) (17)% $ 28,502
$ 31,706
$ (3,204 ) (10)%

Revenue by Type	Three Months Ended March 31,
	2019	2018	Change	% of Change
Product Sales:
Soundwall Sales	$2,114	$2,480	$(366)	(15)%
Architectural Panel Sales	—	213	(213)	(100)%
SlenderWall Sales	1,963	1,143	820	72%
Miscellaneous Wall Sales	363	493	(130)	(26)%
Barrier Sales	1,591	2,285	(694)	(30)%
Easi-Set and Easi-Span Building Sales	1,034	502	532	106%
Utility Sales	308	214	94	44%
Miscellaneous Sales	130	123	7	6%
Total Product Sales	7,503	7,453	50	1%
Barrier Rentals	573	309	264	85%
Royalty Income	306	221	85	38%
Shipping and Installation Revenue	1,807	1,142	665	58%
Total Service Revenue	2,686	1,672	1,014	61%

Total Revenue	$10,189	$9,125	$1,064	12%

Warranties

Smith-Midland products are typically sold pursuant to an implicit warranty as to merchantability only. Warranty claims are reviewed and resolved on a case by case method. Although the Company does incur costs for 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 reclassifications of amounts within the Company’s first and second quarter 2018 Form 10-Q filings have been made in this filing to conform to current period presentation. Specifically, during the quarter ended September 30, 2018, the Company determined that the amount related to the Deferred buy-back lease asset as reflected within one line in the operating activities section of the condensed consolidated statement of cash flows for the three and six months ended March 31, 2018 and June 30, 2018, respectively, should have been classified as cash flows used in investing activities. There is no impact to the condensed consolidated statements of operations or condensed consolidated balance sheets. The Company evaluated the effect of this misclassification and concluded it was not material to any of its previously issued condensed consolidated financial statements. Upon revision, cash flows from operating activities for the three and six month periods ended March 31, 2018 and June 30, 2018 will increase by $1,076 and $2,986, respectively to cash and cash equivalents (used in) provided by operating activities of $(427) and $1,647, respectively and cash flows used in investing activities will increase by $1,076 and $2,986, respectively to cash and cash equivalents used in investing activities of $1,906 and $3,992, respectively.

~~Certain~~ minor reclassifications have been made to prior year amounts to conform to current year ~~presentation. Use tax was reclassified to Cost~~presentation, including separation of ~~goods sold from General~~current and ~~administrative expenses on the Condensed Consolidated Statements~~non-current portion of ~~Operations for the three~~deferred revenue and nine months ending September 30, 2018 of $78 and $243, respectively, and $60 and $86 for the three and nine months ended September 30, 2017, respectively. There was no impact to net income for the periods.

deferred buy-back lease obligation.

NOTE 2. – NET INCOME (LOSS) PER SHARE

Basic earnings per common share exclude all common stock equivalents, primarily restricted stock awards, and is computed using the weighted average number of common shares outstanding during the period. The diluted earnings per common share calculation reflects the potential dilutive effect of securities that could share in earnings of the Company. As of ~~September 30, 2018,~~March 31, 2019, there are no outstanding stock options. For periods prior to ~~September 30, 2018~~March 31, 2019 outstanding options were excluded from the diluted earnings per share calculation when they would have an anti-dilutive effect. Earnings per share are calculated as ~~follows (in thousands, except earnings per share):~~follows:

	Three Months Ended March 31,
	2019	2018
Basic income (loss) per share

Net income (loss)	$331	$(422)

Weighted average shares outstanding	5,134	5,114

Basic income (loss) per share	$0.06	$(0.08)

Diluted income (loss) per share

Net income (loss)	$331	$(422)

Weighted average shares outstanding	5,134	5,114
Dilutive effect of stock options and restricted stock	8	—

Total weighted average shares outstanding	5,142	5,114

Diluted income (loss) per share	$0.06	$(0.08)

Three Months Ended
September 30,
2018 2017
Basic income per share

Net income $ 520
$ 748

Weighted average shares outstanding 5,080
5,054

Basic income per share $ 0.10
$ 0.15

Diluted income per share

Net income $ 520
$ 748

  Weighted average shares outstanding 5,080
5,054
    Dilutive effect of stock options and restricted stock 19
45

  Total weighted average shares outstanding 5,099
5,099

    Diluted income per share $ 0.10
$ 0.15

Nine Months Ended
September 30,
2018 2017
Basic income per share

Net income $ 790
$ 2,317

Weighted average shares outstanding 5,078
5,036

Basic income per share $ 0.16
$ 0.46

Diluted income per share

Net income $ 790
$ 2,317

  Weighted average shares outstanding 5,078
5,036
    Dilutive effect of stock options and restricted stock 20
39

  Total weighted average shares outstanding 5,098
5,075

    Diluted income per share $ 0.15
$ 0.46

NOTE 3. – NOTES PAYABLE (dollar amounts in thousands)

The Company has a mortgage note payable to Summit Community Bank (the “Bank”), with a balance of ~~$870~~$730 as of ~~September 30, 2018.~~March 31, 2019. The note has a maturity date of September 20, 2021 and a fixed interest rate of 3.99% annually with monthly payments of $26 and is secured by principally all of the assets of the Company. Under the terms of the note, the Bank will permit chattel mortgages on purchased equipment not to exceed $250 for any one individual loan so long as the Company is not in default.

The Company has a mortgage note payable to the Bank for the the purchase of the Columbia, South Carolina facility. Such loan is evidenced by a promissory note dated July 19, 2016. The note provides for a 15 year term, a fixed annual interest rate of 5.29%, monthly fixed payments of $11 and a security interest in favor of the Bank in respect of the land, building and fixtures purchased with the proceeds of the loan. The balance of the loan at ~~September 30, 2018~~March 31, 2019 was ~~$1,188.~~$1,153.

The Company additionally has 1513 smaller installment loans with annual interest rates between 2.94% and ~~5.29%~~5.75% and varying balances totaling ~~$1,345.~~$1,442.

Under the loan ~~agreement~~covenants with the Bank, the Company is limited to annual capital expenditures of $3,500. The Company is in compliance with all covenants pursuant to the loan ~~agreement~~agreements as of ~~September 30, 2018.~~March 31, 2019.

~~The~~

In addition to the notes payable discussed above, the Company also has a $4,000 line of credit ~~increased from $2,000 previously, secured by accounts receivable and inventory.~~with the Bank that had a balance of $1,500 at March 31, 2019 used to fund the construction of the North Carolina expansion, which will be converted to long-term debt when the financing closes in 2019. The line of credit is evidenced by a commercial revolving promissory note ~~with the Bank,~~ which carries a variable interest rate ~~equal~~of prime and matures on September 18, 2019. The loan is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company, (i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On September 18, 2018 the Company received a Commitment Letter from the Bank to provide a guidance line of credit specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment with minimum advances of $50 for which a note payable will be executed with a term not to exceed five years with an interest rate at the Wall Street ~~Journal's~~Journal prime ~~rate. In addition,~~rate plus ..5% with a floor of 4.49% per annum. The loan is collateralized by a first lien position on all equipment purchased under the ~~Company has a~~line. The commitment ~~from~~for the ~~Bank in the amount of $1,500 for an equipment line of credit. Neither~~guidance line of credit ~~carried a balance at~~matures on September ~~30, 2018. Both lines were recently renewed extending~~17, 2019. As of March 31, 2019, the ~~maturity date on the $4,000 line of credit~~Company had not purchased any equipment pursuant to ~~October 1, 2019 and~~ the $1,500 ~~line of credit to November 28, 2019.~~commitment.

NOTE 4. – STOCK COMPENSATION

In accordance with ASC 718, the Company had no stock option expense for the three and nine months ended September 30, 2018 and September 30, 2017. The Company uses the Black-Scholes option-pricing model to measure the fair value of stock options granted to employees. In 2016, the Company's Board of Directors replaced the 2008 Stock Option Plan with the 2016 Equity Incentive Plan, which does not provide for the issuance of options. Consequently, the Company cannot issue any additional options, if, and until, a new stock option plan is approved by the Board of Directors.

~~The following table summarizes options outstanding at September 30, 2018:~~

Number of Shares Weighted Average Exercise Price
Balance, December 31, 2017 10,333
$ 1.21
Granted —
—
Forfeited —
—
Exercised (10,333 ) (1.21 )

Outstanding options at September 30, 2018 —
$ —

Outstanding exercisable options at September 30, 2018 —
$ —

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 ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 is as follows:

						Number of Shares	Weighted Average Grant Date Fair Value per Share

	Number of Shares		Weighted Average Grant Date Fair Value per Share
Balance, December 31, 2017	125,333		$	5.13
Balance, December 31, 2018						69,500	$5.19
Granted	2,500		7.00			2,000	7.43
Vested	(22,167	)	(5.62		)	(21,667)	(5.63)
Forfeited	(1,333	)	(4.95		)	—

Non-vested, end of period	104,333		$	5.14		49,833	$5.15

●

the outcome of future litigation, if any,

●

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

●

the cyclical nature of the construction industry,

●

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

●

the Company’s Board of Directors, which is composed of five members, has only two outside, independent directors, and

●

the other factors and information disclosed and discussed in other sections of this Report and in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

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.

Overview

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

The Company was incorporated in Delaware on August 2, 1994. Prior to a corporate reorganization completed in October 1994, the Company conducted its business primarily through Smith-Midland Virginia, which was incorporated in 1960 as Smith Cattleguard Company, a Virginia corporation, and which 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.

The Company had (in thousands) net income of $331 for the first quarter 2019 compared to a net loss of ~~$421~~$422 for the first quarter ~~2018, net income of $691 for the second quarter 2018, and net income of $520 for the third quarter 2018, resulting in net income of $790 for the nine months ended September 30,~~ 2018. The cost of goods sold as a percent of revenue, not including royalties, for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 was ~~77% and 79%~~81%, ~~respectively,~~ as compared to ~~75% and 74%~~85% for the three ~~and nine~~ months ended ~~September 30, 2017, respectively.~~March 31, 2018. The ~~increase~~decrease in cost of goods sold as a percentage of revenue, not including royalties, for the ~~third~~first quarter of 2019, compared to the first quarter of 2018, ~~compared~~is due to the ~~third quarter of 2017, is mainly due to a decreased margins at the Columbia, South Carolina plant. The~~ increase in ~~cost of goods sold as a percentage of revenue, not including royalties, for the nine months ended September 30, 2018, compared~~SlenderWall sales and barrier rentals which tend to ~~the same period in 2017, is mainly due to a short-term, high risk special project which occurred in the first quarter 2017 that had~~have higher margins than ~~typical manufacturing.~~commodity products and services. Total sales for the three ~~and nine months~~month period ended ~~September 30, 2018 are lower than~~March 31, 2019 were $10,189 compared to $9,125 for the same period in ~~2017~~2018. The increase was mainly ~~due~~from SlenderWall and Easi-Set building sales, and barrier rentals, which were impacted favorably from the deferred buy-back revenue recognition, and shipping and installation revenue. With respect to the ~~deferred revenue associated~~barrier customer contract described in Note 1 ("Sale to Customer with ~~the guaranteed buy-back agreement for barrier of $5,389. Although the~~a Buy-Back Guarantee"), although barrier product sales from this contract are not ~~currently~~ being recognized, the Company has begun recognizing barrier rental revenue which will continue through the life of the customer's project. Accordingly, once all product is delivered to this customer, the Company will nonetheless continue to recognize the net profits from this project until the buy-back option is either exercised or expired. Delivery of product commenced in the second quarter of 2018 and is expected to be completed byduring the ~~second~~third quarter of 2019. The buy-back option expires when the ~~buyer~~customer completes the project utilizing the barrier, which is expected to be in 2022. Thus, whereas the Company will likely have completed its production and delivery/installation obligations in 2019, it will nonetheless continue to ~~recognize~~recognize net profits through 2022. ~~The current backlog of $31.0 million supports revenues into 2019.~~ Management ~~anticipates continued profit~~expects sales and margins to increase for the remainder of ~~2018,~~2019 as compared to the first quarter 2019, although no assurance can be given.

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

Three ~~and nine~~ months ended ~~September 30, 2018~~ March 31, 2019compared to the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2018

Sales include revenues from product sales, ~~royalty income,~~ barrier ~~rental~~rentals, royalty income, and shipping and installation ~~income.~~revenues. Product sales are further divided into soundwall, architectural and SlenderWall™ panels, miscellaneous wall panels, highway barrier, Easi-Set® and Easi-Span® buildings, utility ~~and farm~~ products, and miscellaneous precast products. The following table summarizes the sales by product type and comparison for the three month period ended March 31, 2019, and ~~nine month periods ended September 30, 2018, and 2017.~~2018.

Revenue by Type (Disaggregated Revenue)
	2019	2018	Change	% of Change
Product Sales:
Soundwall Sales	$2,114	$2,480	$(366)	(15)%
Architectural Panel Sales	—	213	(213)	(100)%
SlenderWall Sales	1,963	1,143	820	72%
Miscellaneous Wall Sales	363	493	(130)	(26)%
Barrier Sales	1,591	2,285	(694)	(30)%
Easi-Set and Easi-Span Building Sales	1,034	502	532	106%
Utility Sales	308	214	94	44%
Miscellaneous Sales	130	123	7	6%
Total Product Sales	7,503	7,453	50	1%
Barrier Rentals	573	309	264	85%
Royalty Income	306	221	85	38%
Shipping and Installation Revenue	1,807	1,142	665	58%
Total Service Revenue	2,686	1,672	1,014	61%

Total Revenue	$10,189	$9,125	$1,064	12%

~~Revenue By Type~~

~~(Disaggregated Revenue)~~

Soundwall Sales - Soundwall sales ~~slightly~~ decreased for the three month period ended ~~September 30, 2018~~March 31, 2019 when compared to the same period in ~~2017. Soundwall sales increased~~2018. The decrease for the ~~nine month period ended September 30, 2018 when compared to the same period in 2017. The increase for the nine~~three month period in soundwall sales is ~~because all three production facilities were producing soundwall projects as compared~~mainly attributed to ~~2017 when~~the reduction in soundwall production ~~started~~at the South Carolina plant in ~~South Carolina. Our newest and~~the first quarter 2019. The Virginia plant has increased soundwall production for their largest order ever, which will continue production into 2020. North Carolina soundwall ~~contract, awarded in April 2018, is expected~~production continues to be ~~produced and delivered over a four year period. This project will help maintain higher soundwall production and sales over the next several years.~~strong in 2019. With the current backlog and continued increase in highway work, management expects soundwall sales to trend up for the remainder of the year ~~and the full year 2018 soundwall sales to surpass the full year 2017 soundwall sales.~~2019.

Architectural Panel Sales - Architectural panel sales ~~decreased~~were zero for the three months ended March 31, 2019, compared to $213 during the ~~three and nine month periods ended September 30, 2018, compared~~same period in 2018. Revenue is expected to ~~the same periods in 2017. Revenue will~~ remain at a low volume through the remainder of ~~2018.~~2019. There will be production during the second quarter 2019, but this will not be a large portion of revenue. Architectural panel sales continue to be ~~production during 2018, as~~a smaller complimentary product to the ~~Company is close to finalizing the contract on a large SlenderWall project, for which architectural panels are a compliment~~Company's high profile proprietary product ~~in the design. With a few orders expected to be received in the near future, architectural production for 2019 is expected to exceed 2018 annual production.~~SlenderWall.

SlenderWall^TM- There were significant SlenderWall panel sales for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in 2018, with an increase in revenue of ~~2017.~~$820, or 72%. SlenderWall sales are projected to ~~continue through~~be slightly lower for the ~~remainder of 2018 as production of a large project is expected~~second quarter, but the Company continues to ~~run through the end of the year 2018 and into 2019. This~~have strong demand for this proprietary ~~product~~product. SlenderWall continues to remain a focus of the ~~sales team,~~Company, with the ~~long-term expectation~~hiring of ~~expanding SlenderWall~~a new regional sales ~~in both~~manager with the ~~Charlotte, North Carolina and Atlanta, Georgia markets to match growth in the Southeast United States.~~main focus on SlenderWall.

Miscellaneous Wall Sales - Miscellaneous wall sales decreased for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018,~~March 31, 2019, when compared to the same ~~periods~~period in ~~2017.~~2018. The Company had very few miscellaneous wall projects during the first three ~~quarters~~months of ~~2018 as compared to the first three quarters of 2017.~~2019 and 2018. With varying market demand, miscellaneous wall sales are expected to ~~trend up in the fourth quarter of 2018 with a recent order received and expected completion by the end of 2018. The Company continues to bid on~~remain low for 2019 until selective miscellaneous wall projects ~~as they~~ are released, ~~as some projects~~which can be very profitable due to their unique characteristics.

Barrier Sales - - Barrier sales decreased during the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018,~~March 31, 2019, compared to the same periods in ~~2017.~~2018. Although barrier production has ~~increased, a~~decreased, the Company is completing production of its largest order ever during the second quarter of 2019. A large portion of production is not being recognized as barrier sales due to the guaranteed buy-back agreement with a customer; instead the Company ~~will recognize~~is recognizing the income as barrier rental revenue over the duration of the project, for which deliveries began in the second quarter of 2018 and are expected to be completed during the ~~first half of~~third quarter 2019.Accordingly, ~~once all~~during and after product ~~is delivered~~delivery to this customer, the Company will ~~nonetheless continue to~~ recognize the revenue as barrier rental revenue until the buy-back option is either exercised or ~~expired.~~expired, which is expected to be in 2022. Thus, whereas the Company is likely to have completed its production and delivery of all product in 2019, it will recognize net profits through 2022. Management expects barrier sales to be lower for ~~2018~~2019 as compared to annual barrier sales for ~~2017 due to~~2018. Beyond 2019 future barrier sales growth is expected with the ~~buy-back guarantee, while periods subsequent to the completion of delivery will~~new MASH TL3 requirements, although no assurance can be ~~favorably effected by the continued recognition of deferred revenues in the category of barrier rentals.~~given.

Easi-Set® and Easi-Span® Building Sales - Building and restroom sales ~~decreased~~increased significantly for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018,~~March 31, 2019, compared to the same ~~periods~~period in ~~2017.~~2018, by $532 or 106%. The Company continues to ~~see an increase in bids in the local markets of~~produce buildings at all three manufacturing facilities. ~~Bids from the~~The Columbia, South Carolina plant ~~have picked up significantly. The Company~~ recently received a large building order and management expects there to be an increase during the ~~fourth~~second quarter of ~~2018~~2019 in building and restroom sales, and also expects ~~2018~~2019 annual sales to match or exceed ~~2017~~2018 annual sales.

Utility ~~and Farm Product~~ Sales - Utility and farm products sales increased in the three month period ended ~~September 30, 2018,~~March 31, 2019, as compared to the same period in ~~2017. Utility and farm products sales decreased in the nine month period ended September 30, 2018, as compared to the same period in 2017.~~2018. Utility products are tied closely with infrastructure spending by federal, state and local governments. ~~With the passage of the federal highway bill,~~The Company continues to bid on utility projects and ~~growth in residential and commercial construction, sales and bids~~is competitive on ~~these products are slowly improving. Although~~larger quantities, although there are competitors who specialize in lower priced utility ~~products, the Company is much more competitive on large contracts.~~products. Management believes utility product sales will remain at the current level or slightly increase during the remainder of ~~2018.~~2019.

Miscellaneous ~~Product~~ Sales - Miscellaneous ~~products~~sales are ~~products produced and~~items sold that do not meet the criteria defined for other revenue categories. Miscellaneous ~~product~~ sales ~~decreased~~slightly increased for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018,~~March 31, 2019, as compared to the same ~~periods~~period in ~~2017.~~2018. Management believes that miscellaneous product sales will ~~decrease~~remain low for the remainder of the year.

Barrier Rentals - Barrier rentals increased significantly for the three month period ended ~~September 30, 2018~~March 31, 2019, as compared to the same period in ~~2017.~~2018, in the amount of $264, or 85%. The increase is mainly due to ~~a focus on providing additional barrier rental services to customers and~~ the recognition of revenue onassociated with the guaranteed buy-back ~~agreement. Barrier rentals decreased significantly~~agreement deferral. The Company's core barrier rental fleet also showed an increase for the ~~nine month period~~three months ended ~~September 30, 2018,~~March 31, 2019, as compared to the same period in ~~2017. The decrease is mainly due to a special project that occurred in the first quarter of 2017. Excluding the special project in 2017, barrier rental sales in the first nine months of~~ 2018, ~~increased when compared to the same period in 2017.~~with rentals increasing by 24%. With the Company expanding the barrier rental services, management believes it has the potential to increase barrier rental revenue for the remainder of ~~2018,~~2019, and moving forward as the outlays for infrastructure spending by federal and state governments continue to increase. As stated above in Barrier Sales, barrier rental revenue will continue to be positively effected for future periods due to the accounting treatment afforded to the guaranteed buy-back agreement with a customer.

Royalty Income - Royalties ~~decreased~~increased for the three ~~and nine~~ month ~~periods~~period ended ~~September 30, 2018~~March 31, 2019 as compared to the same ~~periods~~period in ~~2017.~~2018. The ~~decrease~~increase over the prior year was ~~due to the slow first quarter 2018 for barrier, which was attributable~~mainly attributed to poor weather conditions in the ~~southern states.~~first quarter 2018. Management continues to seek new licensee opportunities to expand product offerings around the world. With steady increase in construction and infrastructure spending, management believes royalty revenue will be ~~strong through the end of~~higher in 2019 as compared to 2018, although no assurance can be given.

Shipping and Installation - Shipping revenue results from shipping our products to the customers' final destination and is recognized when the shipping services take place. Installation activities include installation of our products at the customers’ construction sites. Installation revenue results 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 month period ended ~~September 30, 2018,~~March 31, 2019, compared to the same period in ~~2017.~~2018. The increase is ~~due to~~mainly derived from shipping and installation associated with ~~SlenderWall projects~~barrier and ~~expanded installation services through~~ barrier ~~rentals. Shipping and installation revenue decreased for the nine month period ended September 30, 2018, compared to the same period in 2017. The decrease resulted from minimal installation~~rental deliveries, which increased significantly in the first quarter ~~of 2018, mainly deriving from previously produced SlenderWall projects that were shipped and installed during~~2019 compared to the ~~same period in 2017.~~first quarter 2018. The Company ~~expects~~continues to expand shipping and installation services through ~~additional~~ products such as barrier and barrier ~~rental. Management expects shipping~~rental to help drive top and ~~installation to increase through the end of 2018, although no assurance can be given.~~bottom line performance.

Cost of Goods Sold - Total cost of goods sold for the three months ended ~~September 30, 2018 decreased~~March 31, 2019 increased by ~~$1,352 ,~~$433, or ~~16%~~6%, from the same period in ~~2017.~~2018. Total cost of goods sold, as a percentage of total revenue, not including royalties, was ~~77%~~81% for the three months ended ~~September 30, 2018,~~March 31, 2019, an ~~increase~~decrease from ~~75%~~85% for the same period in ~~2017.~~2018. The decrease mainly resulted from an increase in ~~cost of goods sold as a percentage of revenue, not including royalties, for the third quarter of 2018, compared~~barrier rentals and SlenderWall sales which tend to the same period in 2017, is mainly due to decreased margins at the Columbia, South Carolina plant. Total cost of goods sold for the nine months ended September 30, 2018 decreased by $853 , or 3%, from the same period in 2017. Total cost of goods sold, as a percentage of total revenue, not including royalties, was 79% for the nine months ended June 30, 2018, an increase from 74% for the same period in 2017. The increase in cost of goods sold as a percentage of revenue, not including royalties, for the first nine months of 2018, compared to the same period in 2017, is mainly due to a short-term, high risk special project which occurred in the first quarter 2017 that hadhave higher margins than typical manufacturing. The increase also resulted from design issues on soundwall projects at the Columbia, South Carolina plant, which required the Company to incorporate more steel than estimated in the projectscommodity products and also increased the associated direct labor. The Company has corrected these design issues on future bids, but is still in negotiations to rectify the current contracts through change orders. Use tax associated with SlenderWall sales has also been reclassified to cost of goods sold from general and administrative expenses to better reflect cost allocation.services. The Company expects raw material prices to ~~continue to~~ increase ~~through~~during the remainder of ~~2018.~~2019, although it has had slight decreases in steel prices. The Company continues to seek vendor pricing opportunities, and focuses on lean production methods to improve quality, create capacity, and eliminate process waste, while driving value to the customer.

General and Administrative Expenses - For the three months ended ~~September 30, 2018~~March 31, 2019 the Company's general and administrative expenses decreased by ~~$78,~~$260, or 6%22%, to ~~$1,305~~$1,208 from ~~$1,383~~$1,468 during the same period in ~~2017.~~2018. The decreased general and administrative expenses for the three month period ended ~~September 30, 2018~~March 31, 2019 is mainly attributed to ana decrease in ~~profit sharing accruals~~ non-cash stock compensation as compared to the same period in ~~2017. For the nine months ended September 30,~~ 2018 ~~the Company's general~~, and salaries which decreased due to a portion of 2017 profit sharing paid and ~~administrative expenses increased by $219, or 6%, to $4,059 from $3,840~~expensed during the ~~same period in 2017. The increased general and administrative expenses for the nine month period ended September 30, 2018 is mainly attributed to an increase in salaries and insurance related costs.~~first quarter 2018. General and administrative expense as a percentage of total revenue was ~~14%~~12% and ~~12%~~16% for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ respectively. The percentage increase is due to the deferred revenue not recognized on the buy-back guarantee contract. The total unrecognized compensation cost related to non-vested restricted stock is approximately $316 as of September 30, 2018. Use tax associated with SlenderWall sales has also been reclassified to cost of goods sold from general and administrative expenses to better reflect cost allocation.

Selling Expenses - Selling expenses for the three months ended ~~September 30, 2018 increased~~March 31, 2019 decreased to ~~$624~~$567 from ~~$564~~$676 for the same period in ~~2017,~~2018, or 5%16%. The ~~increase~~decrease was mainly due to an increase in salaries for the period. Selling expenses for the nine months ended September 30, 2018 increased to $1,913 from $1,825 for the same period in 2017, or 11%. The increase in sales expense for the nine month period was mainly related to an increasea decrease in salaries and ~~advertising expenses.~~commissions paid for the period as compared to the prior year when large jobs were awarded. As the Company grows, additional selling expenses will be incurred. Management expects selling expenses to increase in ~~2018~~2019 as compared to ~~2017.~~2018.

Operating Income - The Company had operating income for the three month period ended ~~September 30, 2018~~March 31, 2019 of ~~$664,~~$447, compared to an operating ~~income~~loss of ~~$1,231~~$553 for the same period in ~~2017.~~2018. The ~~decrease~~increase in operating income for the three month period ended ~~September 30, 2018~~March 31, 2019 compared to the same period in ~~2017,~~2018, was ~~primarily~~ due to the deferred revenue on the guaranteed buy-back agreement not being recognized as revenue for the quarter. The Company had operating income for the nine month period ended September 30, 2018 of $1,022, compared to operating income of $3,680 for the same period in 2017. The decrease in operating income for nine month period ended September 30, 2018, compared to the same period in 2017, was primarily due to the deferred revenue on the guaranteed buy-back agreement not being recognized as revenue,increase profit margins and ~~the higher margin special project, which occurred in the first quarter 2017.~~decreased sales, general and administrative costs.

Interest Expense - Interest expense was $44 and $46 for ~~both~~the three month periods ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017. Interest~~respectively. The Company expects interest expense ~~was $135~~to increase for ~~both nine month periods ended September 30,~~the full year 2019, as compared to the full year 2018, ~~and 2017. Although~~due to the ~~Company added two small loans at~~debt financing on the ~~end of the first quarter 2018, larger loan balances continue to be paid down and are towards the end of the loan periods.~~North Carolina expansion project.

Income Tax Expense - The Company had an income tax expense of ~~$172~~$99 with an effective rate of ~~25%~~23% for the three months ended ~~September 30, 2018,~~March 31, 2019, compared to an income tax ~~expense~~benefit of ~~$474~~$135 with an effective rate of ~~39%~~24% for the same period in 2017. The Company had an income tax expense of $262 with an effective rate of 25% for the nine months ended September 30, 2018, compared to income tax expense of $1,323 with an effective rate of 36% for the same period in 2017.The change in tax rate is due to adoption of the Tax Cuts and Jobs Act during December 2017, which lowered the Federal tax rate from 34% to 21% prospectively.2018.

Net Income - The Company had net income of ~~$520~~$331 for the three months ended ~~September 30, 2018,~~March 31, 2019, compared to a net ~~income~~loss of ~~$748~~$422 for the same period in ~~2017.~~2018. The basic and diluted income per share was ~~$0.10~~$0.06 for the three months ended ~~September 30, 2018,~~March 31, 2019, and the basic and diluted ~~income~~loss per share was ~~$0.15~~$0.08 for the three months ended September 30, 2017. The Company had net income of $790 for the nine months ended September 30, 2018, compared to net income of $2,317 for the same period in 2017. The basic and diluted income per share was $0.16 and $0.15 for the nine months ended September 30, 2018, respectively, and the basic and diluted income per share was $0.46 for the nine months ended September 30, 2017.March 31, 2018.

Liquidity and Capital Resources (dollar amounts in thousands)

The Company financed its capital expenditures and operating requirements for the ~~nine~~first three months of ~~2018~~2019 primarily from cash balances and ~~notes payable to a bank.~~the line-of-credit construction draws. The Company had ~~$3,403~~$3,325 of debt obligations at ~~September 30, 2018,~~March 31, 2019, of which ~~$659~~$719 was scheduled to mature within twelve ~~months.~~months, along with the line of credit balance of $1,500. During the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, the Company made repayments of outstanding debt in the amount of ~~$479 and received $350 in proceeds~~$178. The Company had draws on the line of ~~borrowings for~~credit of $500 during the ~~financing of two yard cranes.~~three months ended March 31, 2019.

The Company has a mortgage note payable to Summit Community Bank (the “Bank”) with a balance of ~~$870~~$730 as of ~~September 30, 2018.~~March 31, 2019. The note has a maturity date of September 20, 2021 and a fixed interest rate of 3.99% annually with monthly payments of $26 and is secured by principally all of the assets of the Company. Under the terms of the note, the Bank will permit chattel mortgages on purchased equipment not to exceed $250 for any one individual loan so long as the Company is not in default.

The Company has a mortgage note payable to the Bank for the the purchase of the Columbia, South Carolina facility. Such loan is evidenced by a promissory note, dated July 19, 2016. The note provides for a 15 year term, a fixed annual interest rate of 5.29%, monthly fixed payments of $11 and a security interest in favor of the Bank in respect of the land, building and fixtures purchased with the proceeds of the loan. The balance of the loan at ~~September 30, 2018~~March 31, 2019 was ~~$1,188.~~$1,153.

The Company additionally has 1513 smaller installment loans with annual interest rates between 2.94% and 5.29% and varying balances totaling ~~$1,345.~~$1,442.

Under the loan ~~agreement~~covenants with the Bank, the Company is limited to annual capital expenditures of $3,500. The Company is in compliance with all covenants pursuant to the loan agreements.

~~The~~

In addition to the notes payable discussed above, the Company also has a $4,000 line of credit ~~increased from $2,000 previously, secured~~with the Bank that had a balance of $1,500 at March 31, 2019 used to fund the construction of the North Carolina expansion, which will be converted to long-term debt when the financing closes in 2019. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on September 18, 2019. The loan is collateralized by a first lien position on the Company's accounts receivable and ~~inventory. In addition,~~inventory and a second lien position on all other business assets. Key provisions of the line of credit require the Company, ~~has~~(i) to obtain bank approval for capital expenditures in excess of $3,500 during the term of the loan; and (ii) to obtain bank approval prior to its funding any acquisition. On September 18, 2018 the Company received a ~~commitment~~Commitment Letter from the Bank ~~in the amount of $1,500 for an equipment line of credit. Neither~~to provide a guidance line of credit ~~carried~~specifically to purchase business equipment in an amount up to $1,500. The commitment provides for the purchase of equipment with minimum advances of $50 for which a ~~balance~~note payable will be executed with a term not to exceed five years with an interest rate at ~~September 30, 2018. Both lines were recently renewed extending~~ the ~~maturity date~~Wall Street Journal prime rate plus .5% with a floor of 4.49% per annum. The loan is collateralized by a first lien position on all equipment purchased under the ~~$4,000~~line. The commitment for the guidance line of credit ~~to October 1,~~matures on September 17, 2019. As of March 31, 2019, ~~and~~the Company had not purchased any equipment pursuant to the $1,500 ~~line of credit to November 28, 2019.~~commitment.

At ~~September 30, 2018,~~March 31, 2019, the Company had cash totaling $3,033 and ~~cash equivalents totaling $2,687 and $1,094~~$1,134 of investment securities, compared to cash totaling $1,946 and ~~cash equivalents totaling $3,390 and $1,098~~$1,107 of investment securities at December 31, ~~2017.~~2018. Investment securities at ~~September 30, 2018~~March 31, 2019 consist of shares of USVAX (a Virginia Bond Fund). The ~~decrease~~increase in cash is primarily the result of the ~~increase~~decrease in accounts receivable ~~and a decrease in accounts payable~~ at ~~September 30, 2018~~March 31, 2019 as compared to December 31, 2017, with the increase in accounts receivable due to an increase in retainage on several large projects. The purchase of capital assets and the repayment of notes payable were also factors in the decrease of cash and cash equivalents.2018.

Capital spending for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 totaled ~~$1,737,~~$1,049, as compared to ~~$2,569~~$860 for the same period in ~~2017.~~2018. The ~~2018~~2019 expenditures were mainly for ~~new~~the North Carolina plant expansion along with yard ~~cranes~~ and ~~miscellaneous~~ manufacturing equipment. The Company plans to make additional capital purchases of approximately ~~$1,000~~$2,500 over the remainder of the year, excluding ~~any~~the North Carolina plant ~~expansions.~~expansion. The additional ~~2018~~2019 expenditures are expected to be for rental barrier, land improvements, and miscellaneous manufacturing equipment.

The Company reclassified the Deferred buy-back lease asset under investing activities from operating activities on the condensed consolidated statement of cash flows as it pertains to the accounting treatment under Topic 840 Leases. The Deferred buy-back lease asset is excluded from the capital expenditure limitations in the loan agreements with the Bank.

The Company received approval from the Bank for the financing of the North Carolina expansion and for additional land expansions at the Virginia manufacturing plant. The expansions are excluded from the capital expenditure limitations in the loan agreements with the Bank. ~~Both projects began in the third quarter 2018.~~ See "North Carolina Plant Expansion" below.

The Company's two mortgage notes payable are financed at fixed rates of interest. This leaves the Company almost impervious to fluctuating interest rates. Increases in such rates will only slightly affect the interest paid by the Company on an annual basis. Approximately 95% of the Company's debt obligations are financed at a fixed interest rate so that each 1% increase in the interest rates of the Company’s outstanding debt will reduce income by approximately $2 annually.

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 7693 days for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 compared to 7586 days for the year ended December 31, ~~2017.~~2018. The increase in DSO is mainly due to retainage being withheld on multiple large projects. Although no assurances can be given, the Company believes that anticipated cash flow from operations and the availability under the lines of credits will be sufficient to finance the Company’s operations for at least the next 12 months.

The Company’s inventory was ~~$3,262~~$3,047 at ~~September 30, 2018~~March 31, 2019 and ~~$3,515~~$3,560 at December 31, ~~2017,~~2018, or a decrease of ~~$253.~~$513. The decrease in inventory is due to sales of finished goods on hand at December 31, ~~2017.~~2018 and the decrease in raw materials for use in production during the first quarter 2019. Inventory turnover was ~~12.3,~~11.3, annualized for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared to ~~11.4~~10.4 for the same period in ~~2017.~~2018.

In respect to the treatment of the buy-back agreement with one specific customer, the Statement of Cash Flows for the nine months ended September 30, 2018 treated the change in "Deferred buy-back lease obligation, net" as an addition to cash within "Cash flows from operating activities", whereby the offsetting "Deferred buy-back lease asset" was treated as a reduction of cash within "Cash flows from investing activities", and the depreciation related to the asset is treated as an increase in non-cash "Depreciation and amortization" within "Cash flows from operating activities".

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, ~~2017.~~2018. There have been no changes as of ~~September 30, 2018.~~March 31, 2019.

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 ~~increased~~remained flat for the first ~~nine~~three months of ~~2018. Steel tariffs have impacted pricing, as the demand for steel has also increased.~~2019. The Company anticipates raw material prices will ~~continue to~~ increase over the remainder of ~~2018,~~2019, although no assurance can be given regarding future pricing.

Sales Backlog

As of ~~November 5, 2018,~~May 6, 2019, the Company’s sales backlog was approximately ~~$31.0~~$31.2 million, as compared to approximately ~~$21.7~~$38.4 million at the same time in ~~2017.~~2018. It is estimated that majority of the projects in the sales backlog will be produced within 12 months, with a portion extending several years.

North Carolina Plant Expansion

The Company currently owns 46 acres on which it is in the process of building a 15,000 square foot manufacturing plant with additional space for future ~~expansion.~~expansion in North Carolina. This expansion is estimated to cost $3.3 million and will increase production and storage capacity. The project will be funded through bank ~~financing.~~financing and cash. Management expects completion of the new facility ~~by the end of the first quarter 2019 with manufacturing expected to begin~~ during the ~~second~~third quarter ~~2019 at the new facility.~~2019. The current North Carolina facility will remain operational during the construction of the new plant, and future use is not determined at this time. There can be no assurance as to the cost, financing, timetable, completion, or success of this project.

~~ITEM~~ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable

~~ITEM~~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 ~~September 30, 2018.~~March 31, 2019.

(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 ~~September 30, 2018~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

PART II — OTHER INFORMATION

~~ITEM~~TEM 1. Legal Proceedings

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

~~ITEM~~ITEM 1A. Risk Factors

Not required

~~ITEM~~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

~~ITEM 3. Defaults Upon Senior Securities~~

~~None~~

~~ITEM 4. Mine Safety Disclosures~~

~~Not applicable~~

~~ITEM 5. Other Information~~

~~None~~

~~ITEM~~TEM 6. Exhibits


Exhibit No.		Exhibit Description
~~Exhibit~~ ~~No.~~10.1	~~Exhibit Description~~	Contract for Purchase and Sale, dated February 16, 2016, between Nelson Cherry Properties, LLC and Smith-Columbia Corporation (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 27, 2016).
~~10.1~~ 10.2		Promissory Note, dated July 19, 2016, in the amount of $1,317,500 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 July 27, 2016).
~~Commitment~~10.3		Commercial Security Agreement, dated July 19, 2016, between the Company, as debtor, and Summit Community Bank, as secured party, related to Company’s note payable in the amount of $1,317,500 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 July 27, 2016).
10.4		Commitment Letter, dated September ~~18, 2018,~~18,2018, for a line of credit in the ~~amount~~ of $4,000,000 with Summit Community ~~Bank.~~Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018).
~~10.2~~ 10.5		Commitment Letter, dated September ~~18, 2018,~~18,2018, for an equipment line of credit in the amount of $1,500,000 with Summit Community ~~Bank.~~Bank (Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2018).
~~10.3~~ 10.6	~~Commercial Line of Credit Agreement and~~	Promissory Note, dated October ~~1, 2018,~~6, 2017, for ~~a line~~the acquisition of ~~credit~~six acres of land purchased in 2016 in the amount of ~~$4,000,000~~$239,232 with Summit Community ~~Bank.~~Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on December 8, 2017).
~~10.4~~ 10.7	~~Commercial Security Agreement, dated October 1, 2018, with Summit Community Bank.~~	2016 Equity Incentive Plan (Incorporated by reference to the Registration Statement on Form S-8 (No. 333-214788) filed on November 23, 2016).
~~31.1~~ 14.1		Code of Professional Conduct (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003).
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.

Additional exhibits (10.1-10.7, 14.1) provided due to broken links when included in exhibit list on Form 10-K for the fiscal year ended December 31, 2018.

~~SIGNATURES~~

SIGNATURES

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



		SMITH-MIDLAND CORPORATION (Registrant)

Date:	~~November 13, 2018~~May 14, 2019	By:	/s/ Ashley B. Smith
			Ashley B. Smith, Chief Executive Officer
			(Principal Executive Officer)


Date:	~~November 13, 2018~~May 14, 2019	By:	/s/ Adam J. Krick
			Adam J. Krick, Chief Financial Officer
			(Principal Financial Officer)

Delaware	54-1727060

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

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

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock	SMID	OTCQX




PART I. FINANCIAL INFORMATION		Page

Item 1.		Financial Statements

	~~Condensed Consolidated Balance Sheets, September 30, 2018 (Unaudited) and December 31, 2017~~	43

Condensed Consolidated Balance Sheets, March 31, 2019 (Unaudited) and December 31, 2018		3

Condensed Consolidated Statements of Operations (Unaudited) for the three months ended ~~September 30,~~March 31, 2019 and March 31, 2018		5

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three months ended March 31, 2019 and ~~September 30, 2017~~March 31, 2018		6

	Condensed Consolidated Statements of ~~Comprehensive Income~~Stockholders' Equity (Unaudited) for the three months ended ~~September 30,~~March 31, 2019 and March 31, 2018 ~~and September 30, 2017~~		7

	~~Condensed Consolidated Statements of Operations (Unaudited) for the nine months ended September 30, 2018 and September 30, 2017~~	8

	~~Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the nine months ended September 30, 2018 and September 30, 2017~~	9

	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2019 and March 31, 2018 ~~and September 30, 2017~~		108

	Notes to Condensed Consolidated Financial Statements (Unaudited)		119

Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations	1815

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	2622

Item 4.		Controls and Procedures	2622

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings	2723

Item 1A.		Risk Factors	2723

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds	2723

Item 3.		Defaults Upon Senior Securities	2723

Item 4.		Mine Safety Disclosures	2824

Item 5.		Other Information	2824

Item 6.		Exhibits	2824

	Signatures		2925


ASSETS	September 30, 2018 (Unaudited)		December 31, 2017		March 31, 2019 (Unaudited)	December 31, 2018
Current assets
Cash and cash equivalents	$	2,687	$	3,390
Cash					$3,033	$1,946
Investment securities, available-for-sale, at fair value	1,094		1,098		1,134	1,107
Accounts receivable, net
Trade - billed (less allowance for doubtful accounts of $246 and $208)	10,091		8,967
Trade - billed (less allowance for doubtful accounts of $228 and $214), including contract retentions					9,540	12,281
Trade - unbilled	496		251		564	1,313
Inventories, net
Raw materials	879		819		744	1,005
Finished goods (less reserves of $39)	2,383		2,696		2,303	2,555
Prepaid expenses and other assets	533		452		402	480
Refundable income taxes	1,325		1,359		394	909

Total current assets	19,488		19,032		18,114	21,596

Property and equipment, net	10,876		9,867		15,254	14,102

Deferred buy-back lease asset, net	4,321		—		5,531	5,304

Other assets	255		326		339	367

Total assets	$	34,940	$	29,225	$39,238	$41,369



þ	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~



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


LIABILITIES AND STOCKHOLDERS' EQUITY	September 30, 2018 (Unaudited)			December 31, 2017			March 31, 2019 (Unaudited)	December 31, 2018
Current liabilities
Accounts payable - trade	$	2,385		$	3,059		$2,730	$4,212
Accrued expenses and other liabilities	525			588			585	610
Deferred revenue	1,229			1,144			1,214	1,112
Accrued compensation	822			1,231			741	1,556
Income taxes payable	338			—
Dividend payable	—			256			—	281
Line-of-credit construction draw							1,500	1,000
Deferred buy-back lease obligation							755	720
Operating lease liabilities							110	—
Current maturities of notes payable	659			637			719	711
Customer deposits	1,415			919			544	1,658

Total current liabilities	7,373			7,834			8,898	11,860

Deferred revenue							651	570
Deferred buy-back lease obligation	5,389			—			6,095	5,873
Operating lease liabilities							276	—
Notes payable - less current maturities	2,744			2,896			2,606	2,792
Deferred tax liability	1,194			1,290			1,435	1,427

Total liabilities	16,700			12,020			19,961	22,522

Stockholders’ equity
Preferred stock, $.01 par value; authorized 1,000,000 shares, none issued and outstanding	—			—			—
Common stock, $.01 par value; authorized 8,000,000 shares; 5,225,648 and 5,214,148 issued and 5,080,395 and 5,047,895 outstanding, respectively	52			51
Common stock, $.01 par value; authorized 8,000,000 shares; 5,225,245 and 5,223,245 issued and 5,134,492 and 5,112,825 outstanding, respectively							51	51
Additional paid-in capital	5,986			5,719			6,057	5,973
Treasury stock, at cost, 40,920 shares	(102		)	(102		)	(102)
Accumulated other comprehensive loss	(41		)	(19		)	(22)	(37)
Retained earnings	12,345			11,556			13,293	12,962

Total stockholders' equity	18,240			17,205			19,277	18,847

Total liabilities and stockholders' equity	$	34,940		$	29,225		$39,238	$41,369



	Three Months Ended September 30,
	2018			2017
Revenue
Product sales	$	6,828		$	9,295
Barrier rentals	540			319
Royalty income	465			483
Shipping and installation revenue	1,711			1,384

Total revenue	9,544			11,481

Cost of goods sold	6,951			8,303

Gross profit	2,593			3,178

Operating expenses
General and administrative expenses	1,305			1,383
Selling expenses	624			564

Total operating expenses	1,929			1,947

Operating income	664			1,231

Other income (expense)
Interest expense	(44		)	(44		)
Interest income	10			9
Gain on sale of assets	51			15
Other income	11			11

Total other income (expense)	28			(9		)

Income before income tax expense	692			1,222

Income tax expense	172			474

Net income	$	520		$	748

Basic and diluted earnings per share	$	0.10		$	0.15

Weighted average number of common shares outstanding:
Basic	5,080			5,054
Diluted	5,099			5,099



	Nine Months Ended September 30,
	2018			2017
Revenue
Products sales	$	21,224		$	21,853
Barrier rentals	1,188			3,145
Royalty income	1,193			1,387
Shipping and installation revenue	4,897			5,321

Total revenue	28,502			31,706

Cost of goods sold	21,508			22,361

Gross profit	6,994			9,345

Operating expenses
General and administrative expenses	4,059			3,840
Selling expenses	1,913			1,825

Total operating expenses	5,972			5,665

Operating income	1,022			3,680

Other income (expense)
Interest expense	(135		)	(135		)
Interest income	29			28
Gain on sale of assets	106			32
Other income	30			35

Total other income (expense)	30			(40		)

Income before income tax expense	1,052			3,640

Income tax expense	262			1,323

Net income	$	790		$	2,317

Basic income per share	$	0.16		$	0.46
Diluted income per share	$	0.15		$	0.46

Weighted average number of common shares outstanding:
Basic	5,078			5,036
Diluted	5,098			5,075

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



	Three Months Ended September 30,								Nine Months Ended September 30,
	2018		2017		Change			% of Change	2018		2017		Change			% of Change
Product Sales:
Soundwall Sales	$	2,334	$	2,368	$	(34	)	(1)%	$	7,339	$	5,024	$	2,315		46%
Architectural Panel Sales	41		551		(510		)	(93)%	498		569		(71		)	(12)%
SlenderWall Sales	1,637		913		724			79%	4,203		912		3,291			361%
Miscellaneous Wall Sales	87		639		(552		)	(86)%	846		2,012		(1,166		)	(58)%
Barrier Sales	1,749		3,615		(1,866		)	(52)%	5,624		9,684		(4,060		)	(42)%
Easi-Set and Easi-Span Building Sales	496		730		(234		)	(32)%	1,557		2,127		(570		)	(27)%
Utility and Farm Product Sales	429		322		107			33%	890		1,129		(239		)	(21)%
Miscellaneous Product Sales	55		157		(102		)	(65)%	267		396		(129		)	(33)%
Total Product Sales	6,828		9,295		(2,467		)	(27)%	21,224		21,853		(629		)	(3)%
Barrier Rentals	540		319		221			69%	1,188		3,145		(1,957		)	(62)%
Royalty Income	465		483		(18		)	(4)%	1,193		1,387		(194		)	(14)%
Shipping and Installation Revenue	1,711		1,384		327			24%	4,897		5,321		(424		)	(8)%
Total Service Revenue	2,716		2,186		530			24%	7,278		9,853		(2,575		)	(26)%

Total Revenue	$	9,544	$	11,481	$	(1,937	)	(17)%	$	28,502	$	31,706	$	(3,204	)	(10)%



	Number of Shares		Weighted Average Exercise Price
Balance, December 31, 2017	10,333		$	1.21
Granted	—		—
Forfeited	—		—
Exercised	(10,333	)	(1.21		)

Outstanding options at September 30, 2018	—		$	—

Outstanding exercisable options at September 30, 2018	—		$	—