SMITH MIDLAND CORP - Annual Report: 2015 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


x	Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended December 31, 2015


¨	Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

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	(I.R.S. Employer)
Incorporation or Organization)	Identification No.)

P.O. Box 300, 5119 Catlett Road

Midland, Virginia 22728

(Address of Principal Executive Offices, Zip Code)

(540) 439-3266

(Registrant's Telephone Number, Including Area Code)

Securities Registered Under Section 12(b) of the Act: None

Securities Registered Pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value per share

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.Yes o No x

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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).Yes x No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

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



Large Accelerated Filer	o	Accelerated filer	o

Non-accelerated Filer	o	Smaller reporting company	x

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

The aggregate market value of the shares of the voting and non-voting common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of June 30, 2015 (the last business day of the Company’s most recently completed second fiscal quarter) was $8,927,692. For the sole purpose of making this calculation, the term “non-affiliate” has been interpreted to exclude directors, officers and holders of 10% or more of the Company’s common stock.

As of March 4, 2016, the Company had outstanding 4,919,548 shares of Common Stock, $.01 par value per share, net of treasury shares.

Documents Incorporated By Reference

None

FORWARD-LOOKING STATEMENTS

This Annual Report and related documents include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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:


•	no assurance of profitable operations; in this respect, while the Company reported net income for the year ended December 31, 2015, it reported a net loss for the year ended December 31, 2014,


•	while the level of our indebtedness is decreasing, the ability to satisfy the same cannot be assured,


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


•	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,


•	adverse weather which inhibits the demand for our products,


•	our compliance with governmental regulations,


•	the outcome of future litigation,


•	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 four members, has only one outside, independent director, and


•	the other factors and information disclosed and discussed in other sections of this report.

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.

PART I

Item 1 Business

General

Smith-Midland Corporation (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 through its five wholly-owned subsidiaries. The Company's precast and barrier rental customers are primarily general contractors and federal, state, and local transportation authorities located in the Mid-Atlantic, Northeastern, Midwestern and Southeastern regions 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 wall panel for use in building construction; J-J Hooks® Highway Safety Barrier, a patented, positive-connected highway safety barrier; SoftSound™, a proprietary sound absorptive finish used on the face of sound barriers to absorb some of the traffic noise; Sierra Wall™, a sound barrier primarily for roadside use; Easi-Set™ and Easi-Span™ transportable concrete buildings with patented features; and Beach Prisms™ erosion mitigating modules. In addition, the Company's precast subsidiaries produce farm products such as cattleguards and water and feed troughs as well as custom order precast concrete products with various architectural surfaces, as well as generic highway sound barriers, retaining walls and utility vaults.

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’s wholly owned subsidiaries consist of Smith-Midland Corporation, a Virginia corporation; Smith-Carolina Corporation, a North Carolina corporation; Easi-Set Industries, Inc., a Virginia corporation; Concrete Safety Systems, Inc., a Virginia corporation; and Midland Advertising and Design, Inc., a Virginia corporation doing business as Midland Advertising + Design.

Market

The Company's precast and barrier rental market primarily consists of general contractors performing public and private construction contracts, including the construction of commercial buildings, public and private roads and highways, and airports, municipal utilities, and federal, state, and local transportation authorities, primarily located in the Mid-Atlantic, Northeastern, Midwestern and Southeastern states. Due to the lightweight characteristics of the SlenderWall™ exterior cladding system, the Company has expanded its competitive services outside of the Mid-Atlantic states. The Company's licensing subsidiary licenses its proprietary products to precast concrete manufacturers nationwide and internationally in Canada, Belgium, New Zealand, Australia, Mexico, Trinidad, Spain, and Chile.

The precast concrete products market is affected by the cyclical nature of the construction industry. In addition, the demand for construction varies depending upon weather conditions, the availability of financing at reasonable interest rates, overall fluctuations in the national and regional economies, past overbuilding, labor relations in the construction industry, and the availability of material and energy supplies. A substantial portion of the Company's business is derived from local, state, and federal building projects, which are further dependent upon budgets and, in many cases, voter-approved bonds.

Products

The Company's precast concrete products are cast in manufacturing facilities and delivered to a site for installation, as contrasted to ready-mix concrete, which is produced offsite in a “batch plant,”and delivered with a concrete mixer truck where it is mixed and delivered to a construction site to be poured and set at the site. Precast concrete products are used primarily as parts of buildings or highway structures, and may be used architecturally, as in a decorative wall of a building. Structural uses include building walls, frames, floors, or roofs. The Company currently manufactures and sells a wide variety of products for use in the construction, transportation and utility industries.

Easi-Set SlenderWall™ Lightweight Construction Panels

The SlenderWall™ system is a prefabricated, energy-efficient, lightweight exterior cladding system that is offered as a cost-effective alternative to the traditional cladding used for the exterior walls of buildings. The Company's SlenderWall system combines the essential components of a wall system into a single panel ready for interior dry wall mounting immediately upon installation. The base components of each SlenderWall™ panel consists of a galvanized or stainless steel stud frame with an exterior surface of approximately two-inch thick, PVA fiber reinforced, high-density, precast concrete (with integral water repellent) and various architectural surfaces. The exterior architectural concrete facing is attached to the interior steel frame by use of coated stainless steel headed anchors that position the exterior concrete approximately one-half inch away from the steel frame.

SlenderWall™ panels are approximately one-third the weight of traditional precast concrete walls of equivalent size, permanence and durability, and are also significantly improved as to permanence and durability. The lighter weight translates into reduced construction costs resulting from less onerous structural and foundation requirements as well as lower shipping costs. Additional savings result from reduced installation time and ease of erection and from the use of smaller cranes for installation. Closed-cell foam insulation and windows can be plant-installed further reducing cost and construction schedules.

The Company custom designs, manufactures, installs and licenses the SlenderWall™ exterior cladding system. The exterior of the SlenderWall™ system can be produced in a variety of attractive architectural finishes, such as concrete, exposed stone, granite or thin brick.

Easi-Set Sierra Wall™

The Easi-Set Sierra Wall™ ("Sierra Wall") combines the strength and durability of precast concrete with a variety of finishes to provide an effective and attractive sound and sight barrier for use alongside highways around residential, industrial, and commercial properties. With additional reinforcement, Sierra Wall™ can also be used as a retaining wall to retain earth in both highway and residential construction. Sierra Wall™ is typically constructed of four-inch thick, steel-reinforced concrete panels with an integral column creating a tongue and groove connection system. This tongue and groove connection system and its foundation connection make Sierra Wall™ easy to install and move if boundaries change or highways are relocated after the completion of a project. The newly patented Sierra Wall II one-piece extended post and panel design reduces installation time and cost.

The Company custom designs and manufactures Sierra Wall™ components to conform to the specifications provided by the contractor. The width, height, strength, and exterior finish of each wall varies depending upon the terrain and application. The Company also produces generic post and panel design sound barrier wall systems. These systems are constructed of steel or precast concrete columns (the Company manufactures the prestressed columns) with precast concrete panels which slide down into the groove in each column.

Sierra Wall™ is used primarily for highway projects as a noise barrier as well as for residential purposes, such as privacy walls between homes, security walls or windbreaks, and for industrial or commercial purposes, such as to screen and protect shopping centers, industrial operations, institutions or highways. The variety of available finishes enables the Company to blend the Sierra Wall™ with local architecture, creating an attractive, as well as functional, barrier.

Easi-Set J-J Hooks® Highway Safety Barrier

The Easi-Set J-J Hooks® highway safety barriers (the "J-J Hooks Barriers") are crash-tested (privately funded), positively connected, safety barriers that the Company sells, rents, delivers, installs and licenses for use on roadways to separate lanes of traffic, either temporarily (free-standing, bolted, or pinned) for construction work zone purposes or permanently for traffic control. Barriers are deemed to be positively connected when the connectors on each end of the barrier sections are interlocked with one another. J-J Hooks Barriers interlock without the need for a separate locking device. The primary advantage of a positive connection is that a barrier with such a connection can withstand vehicle crashes at higher speeds without separating. The Federal Highway Administration (the "FHWA") requires that states use only positively connected barriers, which meet NCHRP-350 or MASH crash test requirements. J-J Hooks Barriers meet NCHRP-350 and MASH TL3 requirements and are approved by the FHWA. In November 2009, the Company was issued a patent which contains deflection limitation blocks which improve the J-J Hooks connection performance and has a patent pending on the bolt pocket steel reinforcement.

The Company has received “design protection” of the “end taper” on each end of the barrier sections and the “J-Hook” in the United States, Canada, Australia and New Zealand. If successful, these features cannot be copied by others. The United States has issued a "trade dress" registration for the "end taper" design feature.

The proprietary feature of J-J Hooks Barriers is the design of its positive connection. Protruding from each end of a J-J Hooks Barrier section is a fabricated bent steel connector; rolled in toward the end of the barrier, it resembles the letter "J" when viewed from directly above. The connector protruding from each end of the barrier is rolled identically so that when one end of a barrier faces the end of another, the resulting "hooks" face each other. To connect one section of a J-J Hooks Barrier to another, a contractor merely positions the hook of an elevated section of the barrier above the hook of a set section and lowers the elevated section into place. The positive connection is automatically engaged.

The Company believes that the J-J Hooks Barrier connection design is superior to those of earlier highway safety barriers that were positively connected through the "eye and pin" technique. Barriers incorporating this technique have eyes or loops protruding from each end of the barrier, which must be aligned during the setting process. Once set, a crew inserts pins or long bolts through the eyes which connects and bolts the barrier sections together. Compared to this technique, the J-J Hooks Barriers are easier and faster to install and remove, requires a smaller crew, and eliminates the need for loose hardware to make the connection.

In November 1990, the FHWA approved the free-standing J-J Hooks Barrier and in December 2012 the pinned and bolted J-J Hooks for use on federally aided highway projects following the successful completion of crash testing based on criteria from the National Cooperative Highway Research Program and from the Manual for Assessing Safety Hardware.

J-J Hooks free-standing barrier has been approved for use on state and federally funded projects by 42 states, plus Washington, D.C. The Company is in various stages of the application process in additional states and believes that approval in some of the states will be granted; however no assurance can be given that approval will be received from any or all of the remaining states or that such approval will result in the J-J Hooks Barrier being used in such states. In addition, J-J Hooks Barrier has been approved by the appropriate authorities for use in the countries of Canada (Alberta, Nova Scotia, New Brunswick and Ontario), Australia, New Zealand, Spain, Portugal, Belgium, Germany and Chile.

J-J Hooks anchored (pinned or bolted) barrier successfully passed the MASH TL3 tests in August of 2012 and received FHWA Eligibility Letters in December 2012. Currently 21 states have approved the MASH barrier as an alternate to their state standard. In Canada, the province of Alberta has approved the MASH tested barrier.

Easi-Set Precast Building and Easi-Span™ Expandable Precast Building

Easi-Set Precast Buildings are transportable, prefabricated, single-story, all concrete building designed to be adaptable to a variety of uses ranging from housing communications operations, traffic control systems, mechanical and electrical stations, to inventory or supply storage, restroom facilities or kiosks. Easi-Set Precast Buildings are available in a variety of exterior finishes and in many standard sizes, or can be custom sized. The roof and floor of each Easi-Set Building is manufactured using the Company's patented second generation post-tensioned system, which helps seal the buildings against moisture. As freestanding units, the Easi-Set Buildings require no poured foundations or footings and can be easily installed within a few hours. After installation the buildings can be moved, if desired, and reinstalled in a new location.

The Company also offers Easi-Span™, a line of expandable precast concrete buildings. Easi-Span™ incorporates the technology of the Easi-Set Buildings, but are available in larger sizes and, through its modular construction, can be combined in varied configurations to permit expansion capabilities. Since these larger buildings have less competition from other materials and methods, they produce higher profit margins. Both the Easi-Span and Easi-Set Buildings offer lines of fully-outfitted restrooms with over a dozen standard models.

The Company has sold its Easi-Set and Easi-Span™ Precast Buildings for the following uses:



	o	Communications Operations — to house fiber optics regenerators, switching stations and microwave transmission shelters, cellular phone sites, and cable television repeater stations.



	o	Government Applications — to federal, state and local authorities for uses such as weather and pollution monitoring stations; military storage, housing and operations; park vending enclosures; rest rooms; kiosks; traffic control systems; school maintenance and athletic storage; airport lighting control and transmitter housing; and law enforcement evidence and ammunition storage.



	o	Utilities Installations — for electrical switching stations and transformer housing, gas control shelters and valve enclosures, water and sewage pumping stations, and storage of contaminated substances or flammable materials which require spill containment.



	o	Commercial and Industrial Locations — for electrical and mechanical housing, cemetery maintenance storage, golf course vending enclosures, mechanical rooms, rest rooms, emergency generator shelters, gate houses, automobile garages, hazardous materials storage, food or bottle storage, animal shelters, and range houses.

Easi-Set Utility Vault

The Company produces a line of precast concrete underground utility vaults ranging in size from 27 to 1,008 cubic feet. Each Easi-Set utility vault normally comes with a manhole opening on the top for ingress and egress and openings around the perimeter, in accordance with the customer's specifications, to access water and gas pipes, electrical power lines, telecommunications cables, or other such media of transfer. The utility vaults may be used to house equipment such as cable, telephone or traffic signal equipment, and for underground storage. The Company also manufactures custom-built utility vaults for special needs.

SoftSound™ Soundwall Panels

SoftSound™ soundwall panels, recently developed by the Company, utilize a “wood aggregate” sound absorptive material applied to the face of soundwall panels, which is used to absorb highway noise. SoftSound™ is a proprietary product developed and tested by the Company and is currently approved for use in Virginia, Maryland, seven additional states, and the provinces of Ontario and Quebec, Canada. Approvals are pending in a number of additional states. The Company introduced this product line into its licensing program and is in the process of seeking to obtain approvals in all 50 states and the Canadian Provinces.

Beach Prisms™ Erosion Control Modules

In 2006, the Company began production and launched full-scale advertising and promotional efforts for its product, Beach Prisms™, a shoreline erosion control product that uses the preferred natural "soft" approach as opposed to the "hard" approach of seawalls and jetties, to solve this worldwide problem. This product is expected to provide a higher margin than many of the Company’s other product lines. Beach Prisms™ work by reducing the amount of energy in incoming waves before the waves reach the shoreline. Waves pass through the specially designed slots in the triangular 3 - 4 foot tall by 10 foot long Beach Prisms™ modules. The success of a Beach Prisms ™ installation is dependent on the prevailing wind in relation to the shoreline, the tides, the fetch and the availability of sand in the surf. Beach Prisms™ are primarily for river- and bay-front property owners who want an alternative to traditional armor stone, or groins and jetties. The Company applied for “design protection” in the United States for the Beach Prisms™ in 2009 and received that protection in July 2010.

The Company currently has orders and is also accepting new orders with deposits for the Beach Prism product, and the Company is working with the states of Virginia and Maryland to secure approval of each state’s environmental agency. Each project must apply for approval by the appropriate state to obtain a permit to install the Beach Prism. Such approvals are meeting resistance from the environmental agencies, however, the Company believes approval is forthcoming. In the event that approvals are not timely received, psnxinv odxsdz my be cancelled. In 2011, the Company installed its first Beach Prism protection on Virginia's Chesapeake Bay shoreline.

H2Out™ Secondary Drainage System

The Company was issued a patent in February 2010 for H2Out™, the first "in the caulk joint" secondary drainage and street level leak detection product for panelized exterior cladding. A second line of caulking and drainage strip located behind the exterior line of caulking exits all water leakage to the exterior of the building preventing moisture and mold, and hence deterring lawsuits from tenants and owners of buildings. H2Out™ has been added as a feature of the SlenderWall™ system and is being included in the product literature, website, and all sales presentations.

Although the Company is optimistic about the success of Beach Prisms™ and H2Out™, there can be no assurance of the commercial acceptance of these products. The Company has its first commercial project to provide the H2Out secondary drainage system on the recladding of an existing building using the SlenderWall panel system.

Sources of Supply

All of the raw materials necessary for the manufacture of the Company's products are available from multiple sources. To date, the Company has not experienced significant delays in obtaining materials and believes that it will continue to be able to obtain required materials from a number of suppliers at commercially reasonable prices.

Licensing

The Company presently grants licenses through its wholly-owned subsidiary Easi-Set Industries for the manufacturing and distribution rights of certain proprietary products, such as the J-J Hooks® Barrier, Easi-Set™ and Easi-Span™ Precast Buildings, SlenderWall™, SoftSound™ and Beach Prisms™ as well as certain non-proprietary products, such as the Company's cattleguards, and water and feed troughs. Generally, licenses are granted for a point of manufacture. The Company receives an initial one-time administration and training license fee ranging from approximately $25,000 to $60,000. License royalties vary depending upon the product licensed, but the range is typically 4% to 6% of the net sales of the licensed product. In addition, Easi-Set™/Easi-Span™ buildings and SlenderWall™ licensees pay the Company a monthly fee for co-op advertising and promotional programs. The Company produces and distributes advertising and promotional materials and promotes the licensed products through its own advertising subsidiary, Midland Advertising + Design.

The Company has entered into 50 licensing agreements in the United States, eight in Canada, two in Mexico and one each in Belgium, New Zealand, Australia and Trinidad, for a total of 64 licensees worldwide. The Company sold one new building licensee during 2015 and added a second plant to an existing licensee.

The Company is currently negotiating several new license arrangements and, although no assurance can be given, expects to increase its licensing activities.

Marketing and Sales

The Company's precast subsidiaries use an in-house sales force and, to a lesser extent, independent sales representatives to market its precast concrete products through trade show attendance, sales presentations, advertisements in trade publications, and direct mail to end users.

The Company has also established a cooperative advertising program in which the Company and its Easi-Set™/Easi-Span™ buildings and SlenderWall™ licensees combine resources to promote certain precast concrete products. Licensees pay a monthly fee and the Company pays any additional amounts required to advertise the products across the country. Although the Company advertises nationally, the Company's precast subsidiaries marketing efforts are concentrated on the region within a 250-mile radius from its facilities, which includes most of Virginia, Delaware, the District of Columbia, Maryland, North Carolina, South Carolina, and parts of Pennsylvania, New York, New Jersey and West Virginia.

The Company's precast and barrier rental sales result primarily from the submission of estimates or proposals to general contractors who then include the estimates in their overall bids to various government agencies and other end users that solicit construction contracts through a competitive bidding process. In general, these contractors solicit and obtain their construction contracts by submitting the most attractive bid to the party desiring the construction. The Company's role in the bidding process is to provide estimates to the contractors desiring to include the Company's products or services in the contractor's bid. If a contractor who accepts the Company's bid is selected to perform the construction, the Company provides the agreed upon products or services. In many instances, the Company provides estimates to more than one of the contractors bidding on a single project. The Company also occasionally negotiates with and sells directly to end-users.

Competition

The precast concrete industry is highly competitive and consists of a few large companies and many small to mid-size companies, several of which have substantially greater financial and other resources than the Company. Nationally, several large companies dominate the precast concrete market. However, due to the weight and costs of delivery of precast concrete products, competition in the industry tends to be limited by geographical location and distance from the construction site and is fragmented with numerous manufacturers in a large local area.

The Company believes that the principal competitive factors for its precast products are price, durability, ease of use and installation, speed of manufacture and delivery time, ability to customize, FHWA and state approval, and customer service. The Company believes that its plants in Midland, Virginia and Reidsville, North Carolina compete favorably with

respect to each of these factors in the Mid-Atlantic regions of the United States. Finally, the Company believes it offers a broad range of products that are very competitive in these markets.

Patents and Proprietary Information

The Company currently owns U.S., Canadian, Australian and New Zealand patents for J-J Hooks® highway barrier and U.S. and Canadian patents for Easi-Set™ Precast Building features and for SlenderWall™ exterior cladding system features and a U.S. patent for H2Out™ . In 1997, a European patent for J-J Hooks was allowed and it has been registered in the U.K. and Belgium. Additionally, the Company has “trade dress” applications for J-J Hooks features filed in the U.S., Australia, and New Zealand and “distinguishing guise” applications for J-J Hooks features filed in Canada. A U.S. “trade dress” application for Beach Prisms and the J-J Hooks "end taper" have been issued in the U.S.

The Company owns U.S. registered trademarks for Smith-Midland (logo), Smith Cattleguard (words), Excellence in Precast Concrete (words), Easi-Set (logo & words), Easi-Span (words), Easi-Set Industries (words), J-J Hooks (logo), SlenderWall (logo), Thermaguard (words) and J-J Hooks "V" taper (trade-dress). The J-J Hooks logo is registered in Canada, European Community, Australia, and New Zealand.

While the Company intends to vigorously enforce its patent rights against infringement by third parties, no assurance can be given that the patents or the Company's patent rights will be enforceable or provide the Company with meaningful protection from competitors or that its patent applications will be allowed. During 2012, the Company instituted a lawsuit for the infringement of its intellectual properties by a company producing its J-J Hooks highway barrier without a license. The Company successfully settled this matter by requiring the defendant's acceptance of becoming a licensee and thereby paying royalties on J-J Hooks® highway barrier sales. Even if a competitor's products were to infringe patents held by the Company, enforcing the patent rights in an enforcement action would be very costly, and assuming the Company has sufficient resources, would divert funds and resources that otherwise could be used in the Company's operations. No assurance can be given that the Company would be successful in enforcing such rights, that the Company's products or processes do not infringe the patent or intellectual property rights of a third party, or that if the Company is not successful in a suit involving patents or other intellectual property rights of a third party, that a license for such technology would be available on commercially reasonable terms, if at all.

Government Regulation

The Company frequently supplies products and services pursuant to agreements with general contractors who have entered into contracts with federal or state governmental agencies. The successful completion of the Company’s obligations under such contracts is often subject to the satisfactory inspection or approval of such products and services by a representative of the contracting agency. Although the Company endeavors to satisfy the requirements of each such contract to which it is a party, no assurance can be given that the necessary approval of its products and services will be granted on a timely basis or at all and that the Company will receive any payments due to it. Any failure to obtain such approval and payment may have a material adverse effect on the Company's business.

The Company's operations are subject to extensive and stringent governmental regulations including regulations related to the Occupational Safety and Health Act (OSHA) and environmental protection. The Company believes that it is substantially in compliance with all applicable regulations. The cost of maintaining such compliance is not considered by the Company to be significant.

The Company's employees in its manufacturing division operate complicated machinery that may cause substantial injury or death upon malfunction or improper operation. The Company's manufacturing facilities are subject to the workplace safety rules and regulations of OSHA. The Company believes that it is in compliance with the requirements of OSHA.

During the normal course of its operations, the Company uses and disposes of materials, such as solvents and lubricants used in equipment maintenance, that are classified as hazardous by government agencies that regulate environmental quality. The Company attempts to minimize the generation of such waste as much as possible, and to recycle such waste where possible. Remaining wastes are disposed of in permitted disposal sites in accordance with applicable regulations.

In the event that the Company is unable to comply with the OSHA or environmental requirements, the Company could be subject to substantial sanctions, including restrictions on its business operations, monetary liability and criminal sanctions, any of which could have a material adverse effect upon the Company's business.

Employees

As of March 4, 2016, the Company had a total of 205 employees, of which 167 are full-time, four are part-time and 34 are temporary workers, with 186 located at the Company's Midland, Virginia facility,19 are located at the Company's facility in Reidsville and North Carolina. None of the Company's employees are represented by labor organizations and the Company is not aware of any activities seeking such organization. The Company considers its relationships with its employees to be satisfactory.

Item 1A. Risk Factors

Not applicable

Item 1B Unresolved Staff Comments

Not applicable

Item 2. Properties

Facilities

The Company operates two manufacturing facilities. The primary manufacturing operations are conducted in a 44,000 square foot manufacturing plant located on approximately 22 acres of land in Midland, Virginia, of which the Company owns approximately 19 acres and three acres are leased from Rodney I. Smith, the Company's Chief Executive Officer, at an annual rental rate of $24,000. The manufacturing facility houses two concrete mixers and one concrete blender. The plant also includes two environmentally controlled casting areas, two batch plants, a form fabrication shop, a welding and metal fabrication facility, a carpentry shop, a quality control center and a recently enlarged and covered steel reinforcing fabrication area of approximately 8,000 square feet. The Company's Midland facility also includes a large storage yard for inventory and stored materials.

The Company's second manufacturing facility is located in Reidsville, North Carolina on ten acres of owned land and includes an 8,000 square foot manufacturing plant and administrative offices.

In the event the Company consummates the purchase of the South Carolina facility, the Company believes that it will have sufficient capacity to cover additional territory in the Atlantic Coast region down to the northern part of Florida. Its present facilities will be adequate for its current needs in its other territory and that they are adequately covered by insurance. Substantially all of the Company’s facilities and equipment (not including the new facility) are used as collateral for a note payable, which note as of December 31, 2015 had a balance of $1,814,825.

Item 3. Legal Proceedings

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

Item 4. Mine Safety Disclosures

Not applicable

PART II


Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

The Company's Common Stock trades on the OTCQX Markets under the symbol "SMID".

As of March 4, 2016, there were approximately 60 record holders of the Company's Common Stock. Management believes there are at least 350 beneficial owners of the Company's Common Stock.

The following table sets forth the high and low closing prices on the OTC Markets for the Company's Common Stock for the periods indicated. The prices were obtained from the NASDAQ website. These market quotations reflect inter-dealer prices, without retail markup, markdown, or commission.



	High		Low
2015
First Quarter	$	2.75	$	2.15
Second Quarter	2.50		2.05
Third Quarter	2.77		2.05
Fourth Quarter	3.59		2.45
2014
First Quarter	$	2.74	$	2.00
Second Quarter	2.38		1.80
Third Quarter	2.10		1.82
Fourth Quarter	2.38		1.95

Dividends

On December 1, 2015, the Company declared a special dividend of $.04 per share of Common Stock for holders of record as of December 18, 2015, which was paid on December 30, 2015. On December 12, 2014, the Company declared a special dividend of $.035 per share of Common Stock for holders of record as of December 17, 2014, which was paid on December 30, 2014. Although the Company paid a dividend for the preceding four years, the Company cannot guarantee the continued payment of dividends due to the internal need for funds in the development and expansion of its business. The declaration of dividends in the future will be at the election of the Board of Directors and will depend upon earnings, capital requirements and financial position of the Company, general economic conditions and other pertinent factors.

Item 6. Selected Financial Data

Not applicable.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the Consolidated Financial Statements of the Company (including the Notes thereto) included elsewhere in this report.

The Company generates revenues primarily from the sale, shipping, licensing, leasing and installation of precast concrete products for the construction, utility and farming industries. The Company's operating strategy has involved producing innovative and proprietary products, including Slenderwall™, a patented, lightweight, energy efficient concrete and steel exterior wall panel for use in building construction; J-J Hooks® Barrier, a positive-connected highway safety barrier; Sierra Wall™, a sound barrier primarily for roadside use; transportable concrete buildings; and SoftSound™, a highway sound attenuation system. In addition, the Company produces utility vaults; farm products such as cattleguards, and water and food troughs; and custom order precast concrete products with various architectural surfaces.

Overview

Overall, the Company’s financial performance improved significantly in 2015 when compared to 2014. The Company had net income in 2015 in the amount of $1,044,304 compared to a net loss of $804,838 for 2014. The improvement came in several areas: 1). 30% increase in revenues or $6.7 million, 2). $2.6 million increase in one our most profitable product lines, barrier rentals, 3). a 7% increase in gross profit as a percentage of revenue. In addition, the Company was able to obtain the contract to rent, set and remove its highway safety barrier during the 2015 visit of the Pope to both Philadelphia, Pennsylvania and Washington, D.C. This contract helped to add additional profit to the net income for the third quarter of the year. During the fourth quarter of 2015, and the first quarter of 2016, the Company received several new contracts for its precast products that will begin production in 2016. The Company has also bid on several soundwall, slenderwall and miscellaneous projects that are scheduled to begin in the second half of 2016 for which the Company will probably receive one or more.

Results of Operations

Year ended December 31, 2015 compared to the year ended December 31, 2014

For the year ended December 31, 2015, the Company had total revenue of $29,204,239 compared to total revenue of $22,470,837 for the year ended December 31, 2014, an increase of $6,733,402, or 30%. Sales include revenues from product sales, royalty income, barrier rental income and shipping and installation income. Product sales are further divided into wall panel sales, which include Soundwall, architectural and Slenderwall™ panels, highway barrier, beach prisms, Easi-Set® and Easi-Span® buildings, utility and farm products and miscellaneous precast products. The following table summarizes the sales by product type and a comparison for the years ended December 31, 2015 and 2014:



Sales By Product Type
	2015		2014		Change			% of Change
Product Sales:
Soundwall Sales	$	3,214,071	$	2,244,477	$	969,594		43.2%
Architectural Panel Sales	2,301,706		1,032,595		1,269,111			122.9%
Slenderwall Sales	3,068,800		1,624,473		1,444,327			88.9%
Miscellaneous Wall Sales	2,469,978		1,607,591		862,387			53.6%
Total Wall Panel Sales	11,054,555		6,509,136		4,545,419			69.8%
Barrier Sales	2,737,274		3,076,680		(339,406		)	(11.0)%
Beach Prisms	25,500		3,825		21,675			566.7%
Easi-Set and Easi-Span Building Sales	2,893,688		3,729,703		(836,015		)	(22.4)%
Utility and Farm Product Sales	2,681,500		1,608,417		1,073,083			66.7%
Miscellaneous Product Sales	516,139		315,615		200,524			63.5%
Total Product Sales	19,908,656		15,243,376		4,665,280			30.6%
Royalties income	1,742,310		1,592,633		149,677			9.4%
Barrier Rentals	3,947,068		1,365,671		2,581,397			189.0%
Shipping and Installation	3,606,205		4,269,157		(662,952		)	(15.5)%
Total Service Revenue	9,295,583		7,227,461		2,068,122			28.6%
Total Sales	$	29,204,239	$	22,470,837	$	6,733,402		30.0%

Wall Panel Sales – Wall panel sales are generally medium to large contracts issued by general contractors for production and delivery of a specific wall panel product for a specific construction project. Changes in the mix of wall panel sales depend on what contracts are in production during the period. Overall wall panel sales increased by 69.8% for year ended December 31, 2015, compared to the same period in 2014. The following describes the changes by wall panel type:

Soundwall sales increased by 43.2% in 2015 over 2014 due primarily to two large contracts started in 2015, and even though 2014 had the same number of contracts in progress as 2015, the total value of these contracts was much smaller. The Company

has six soundwall projects in production as of the first quarter of 2016 and has bid on several more that will commence in the second quarter of 2016 which should allow the Company to exceed the the 2015 production and sales output.

Architectural sales increased by 122.9% in 2015 over 2014 due to a large contract that was started and completed in 2015. Although architectural project bids have increased somewhat over the last year, they are still lagging behind other project type bids and are still bidding at lower gross margins. Management expects Architectural revenue to decrease slightly in 2016 based on contracts currently in hand.

Slenderwall™ sales increased by 88.9% in 2015 when compared to 2014. The Company had only one large Slenderwall™ project in production during 2014, however, the Company had several new Slenderwall™ projects in production during 2015. While the Company has only one large Slenderwall™ project scheduled for production in 2016, we have an additional project for which the contract has not been executed, but the general contractor has specified Slenderwall™ for the cladding. This project is scheduled to start in the fall of 2016. The Company has bid on several additional Slenderwall™ projects that will begin 2016 or 2017 and expects to be awarded one or more of these projects.

Miscellaneous wall sales are mainly retaining walls which are used to hold back earth on sloped land. During the third quarter of 2015, some of the miscellaneous product revenues were reclassified from Miscellaneous Products to Miscellaneous Wall Panels as it was believed to be better classified under the latter product type. The reclassification was made to the 2014 products so a comparison could be made. Miscellaneous wall sales increased significantly in 2015 when compared to 2014, due mainly to a series of related projects awarded to the Company and produced in 2015 at an accelerated production schedule. Miscellaneous projects are difficult to predict from year to year, however, based on current jobs in our backlog and bids outstanding, management believes that production and sales in 2016 will be at or near 2015 levels.

Barrier Sales – Barrier sales are dependent on the number of highway projects active during the period and whether customers are more prone to buy barrier than to rent. In 2015 barrier sales decreased by $339,406 from the previous year. The decrease relates in part to the increase in rental barrier made by our barrier rental segment of the Company. The Company has received two contracts for the production and sale of barrier for highway projects in 2016. While the Company has seen an increase in highway projects being bid, it is difficult to convert bids to actual purchases of barrier as opposed to the rental of highway barrier.

Beach Prisms – The Company made its first sale of beach prisms in 2009 and continued to make minor sales in the following years, including 2014 and 2015. The Company made one sale of beach prisms in 2015 to the Michigan Department of Natural Resources for the stated usage of preventing shore erosion. The Company is still in the process of seeking to acquire the necessary permits from the states of Maryland and Virginia, which has been more difficult than originally estimated. The Company sold $59,000 in Beach Prisms in the state of New Jersey in 2013 to a local governmental entity to assist with the recovery from hurricane Sandy. Several projects have been in the permit phase for several years, and if granted, will result in sales, provided such projects are not canceled due to delays. Future sales of Beach Prisms cannot be accurately predicted because of continued difficulty in obtaining the needed state permits, however, management still believes that beach prisms are a viable product and will continue to push for licensing approval.

Easi-Set® and Easi-Span® Building Sales – The Easi-Set® buildings program now includes Easi-Set®, plant assembled and Easi-Span®, site assembled, and an extensive line of pre-engineered restrooms. Building sales decreased by 22.4% in 2015 compared to 2014. The decrease in sales was primarily due to less sales under our GSA sales contract which ends in July of 2016. The Company continues to expand and improve its proprietary line of restroom buildings for parks, athletic fields and other outdoor venues and is continuing to market these products with a highly visible advertising campaign. Bidding activity for buildings and restrooms was steady in 2015 and management believes that 2016 will see an increase in Easi-Set® buildings and restrooms over 2015.

Utility and Farm Sales – Utility and farm products are mainly underground utility vaults used in infrastructure construction. Utility and farm product sales increased by 66.7% in 2015 compared to 2014. The Company was awarded a large manhole contract to be produced in 2015 and 2016, and continues to believe that sales will continue through 2016 at or slightly above the 2015 level. The recently funded highway projects also require utility vaults for underground placement of utilities and the Company is bidding on these vault projects as well.

Miscellaneous Product Sales – See reclassification note included in miscellaneous wall panels above. Miscellaneous products are products that are produced and sold that do not meet the criteria defined for other revenue categories, examples would include underground steam tunnels, highway slabs or bridge slabs. For 2015, miscellaneous sales increased by 63.5% when compared to 2014. The increase in sales was due to an increase in miscellaneous products bid for 2015 and those awarded for the year.

Royalty Income – Royalty revenues increased by 9.4% in 2015, with barrier and building royalties increasing over those of 2014. The other royalty product lines were up slightly when comparing 2015 to 2014. The Company signed one new building license during 2015 and added an additional plant to an existing licensee. Management is currently in discussions with several precast companies regarding the issuance of new licenses. Based on currently reporting licensees, management believes that royalties will continue on an upward trend in 2016.

Barrier Rentals – Barrier rentals increased by 189% in 2015 when compared to 2014. The increase resulted primarily from two large rental contracts awarded the Company for two short-term barrier rental projects in Washington D.C. and Philadelphia, PA for the month of September 2015. These projects were related to the Papal visit, and this type of special event may not be repeated in 2016. Management believes barrier rentals will be lower in 2016 over that of 2015 due to the revenue of the Papal visit in 2015. The Company continues to pursue its rental barrier expansion plans for its local geographical sales areas and expects its core rental business to increase.

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 site. Installation revenue results when attaching architectural wall panels to a building, installing an Easi-Set® building at a customers' site or setting any of our other precast products at a site specific to the requirements of the owner. Shipping and installation revenue decreased by 15.5% during 2015 when compared to 2014. Several of our larger customers are late in having their stored material products sent to their final destinations followed by their appropriate installation. Currently our storage yard is filled with stored material causing our revenues from shipping and installation to be less in 2015 compared to 2014. 2016 should improve over 2015 as of our current storage of the sold products will begin to ship and install in 2016.

Cost of Goods Sold – Total cost of goods sold for the year ended December 31, 2015 was $22,093,834, an increase of $3,468,799, or 18.6%, from $18,625,035 for the year ended December 31, 2014. Total cost of goods sold, as a percentage of total revenue decreased to 76% for the year ended December 31, 2015 from 83% for the year ended December 31, 2014. The decrease in the cost of goods sold as a percentage of total revenue was, in part, because of the increase in production and sales for the period while fixed overhead costs remained relatively flat. Raw material costs increased slightly in 2015 over 2014 with very little inflationary pressures for the Company. Steel products, one of our largest purchases, decreased slightly in 2015. In addition, the special barrier rental projects were at slightly higher margins than our normal product sales. Many of our past projects with lower margins from the construction downturn have been both produced and sold prior to and during the first half of 2015, making 2015 slightly more profitable on a job by job comparison than 2014. The Company continues to seek new vendor partnerships to help develop a price advantage for its raw materials as well as a continuous supply of these materials. Management continues to improve its effectiveness through the use of lean manufacturing principals.

General and Administrative Expenses – For the year ended December 31, 2015, the Company's general and administrative expenses increased by $385,678, or 13%, to $3,365,513 from $2,979,835 during the same period in 2014. The increase in general and administrative expenses resulted primarily from an increase in employee costs and an increase in general office expenses. The increase in employee costs resulted from an across the board raise given to all employees in April 2015. General and administrative expense as a percent of total revenue were 12% for the year ended December 31, 2015 and 13% for the year ended December 31, 2014.

Selling Expenses – Selling expenses for the year ended December 31, 2015 decreased by $50,256, or 2%, to $2,168,013 from $2,218,269 for the year ended December 31, 2014. The decrease was due to a decrease in advertising expenses partially offset by an increase in employee costs. The increase in employee costs resulted from an across the board raise given to all employees in April 2015.

Operating Income – The Company had operating income for the year ended December 31, 2015 of $1,668,670 compared to an operating loss of $1,194,936 for the year ended December 31, 2014, an increase of $2,863,606. The increase in operating income was primarily the result of a significant increase in sales and a decrease in the cost of goods sold for year ended December 31, 2015 as a percentage of revenue as discussed above.

Interest Expense – Interest expense was $103,086 for the year ended December 31, 2015 compared to $116,229 for the year ended December 31, 2014. The decrease of $13,143, or 11%, was due primarily to the early payment of a note payable to a bank and lower balances on the remaining notes payable outstanding.

Income Tax Expense – The Company had income tax expense of $557,000 for the year ended December 31, 2015 compared to an income tax benefit of $498,000 for the year ended December 31, 2014. The Company had an effective rate of 35% for the

year ended December 31, 2015 compared to an effective rate of 38% for the same period in 2014. The changes in the tax expense for the periods correlated to the change in pre-tax income.

Net Income – The Company had net income of $1,044,304 for the year ended December 31, 2015, compared to a net loss of 804,838 for the same period in 2014. The basic and diluted income per share for 2015 was $0.21, compared to basic and diluted loss per share of $0.16 for the year ended December 31, 2014. There were 4,895,367 basic and 4,881,548 diluted weighted average shares outstanding in 2015 and 4,881,548 basic and diluted weighted average shares outstanding in the 2014.

Liquidity and Capital Resources

The Company financed its capital expenditures and operating requirements in 2015 with cash flows from operations, cash balances on hand and notes payable to the Bank.

The Company has a note payable to Summit Community Bank (the “Bank”) with a balance of $1,575,951 as of December 31, 2015. The note has a remaining term of approximately eight years and a fixed interest rate of 3.99% annually with monthly payments of $25,642 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 $250,000 for any one individual loan so long as the Company is not in default. Also, the Company is limited to $1,000,000 for annual capital expenditures. At December 31, 2015, the Company was in compliance with all covenants pursuant to the loan agreement as amended except for the payment of cash dividends on December 31, 2014 for which the Company received approval prior to payment and the limit of $1,000,000 for the purchase of capital expenditures, for which the Company received a waiver for the capital expenditures for 2015.

On March 27, 2016, the Company executed an agreement to purchase the land, building and fixtures of a facility located in Hopkins, South Carolina for a purchase price of $1,550,000. The facility is located on 39 acres of land and has approximately 40,000 square feet of production space. The closing of the purchase is subject to certain conditions, including a satisfactory appraisal and an environment study. The purchase will be financed by a new 10 year term facility, pursuant to a commitment letter, with the Company's current bank in the amount of $1,240,000 with the balance being provided from the Company's cash resources. It is anticipated that the Company will make payments of approximately $8,000 per month for principal and interest under the loan. The facility and related assets will serve as collateral for such loan. The Company anticipates that the closing, if it occurs, shall occur in 4-6 weeks. Earlier in 2016 the Company signed a contract to provide $3,500,000 of JJ-Hooks Highway Safety Barrier to a single customer located in North Carolina. It is anticipated, should the purchase of the South Carolina facility be consummated, that the product will be produced primarily from that facility. The contract will be provide a profitable start for the new facility and allow time for advertising and sales plans to be put in place prior to the beginning of the second year after its purchase. Certain purchases of production equipment, vehicles and miscellaneous equipment will be required to be made over the first year of ownership in the approximate amount of $500,000 to be financed under the Company's $1,000,000 equipment line or from the operating cash generated by the new facility.

In addition to the note payable discussed above, the Company also has a $2,000,000 line of credit with the Bank, of which $352,022 was outstanding at December 31, 2015. The amount due under the line is for the purchase of fixed assets that will be converted to a long term note payable in the near future. The line of credit is evidenced by a commercial revolving promissory note which carries a variable interest rate of prime and matures on September 12, 2016. 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 $1,000,000 during the term of the loan; (ii) to obtain bank approval prior to its funding any acquisition and (iii) to obtain bank approval prior to the payment of cash dividends on the Company's common stock. On September 8, 2015 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 $1,000,000. The commitment provides for the purchase of equipment with minimum advances of $50,000 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 .5% with a floor of 4.49% 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 September 7, 2016.

At December 31, 2015, the Company had cash totaling $1,735,621 and $1,041,790 of investment securities available for sale compared to cash totaling $3,572,405 and $1,013,417 of investment securities available for sale at December 31, 2014. During 2015, the Company’s operating activities provided $18,890 due mainly to changes in current asset and current liability accounts during 2015. The significant increase in accounts receivable during 2015 resulted from an increase in sales for 2015 when compared to 2014. In 2015, investing activities used $1,648,877 primarily for the purchase of capital equipment. Financing activities used $206,797 in cash in 2015, which resulted primarily from the repayment of notes payable and the payment of a cash dividend in the amount of $194,345.

Capital spending, including financed additions, increased from $465,826 in 2014 to $1,635,317 in 2015. Capital expenditures in 2015 included spending for vehicles, rental barrier and manufacturing equipment. In 2016, the Company intends to continue to make capital improvements which may include cranes, vehicles, manufacturing equipment and other items as necessary. The Company anticipates capital spending for 2016 to be approximately $1,000,000.

The Company’s cash flow from operations is affected by production schedules set by contractors, which generally provide for payment 45 to 75 days after the products are produced and with some architectural contracts, retainage may be held until the entire project is completed. This payment schedule could result in liquidity problems for the Company because it must bear the cost of production for its products before it receives payment. The Company's days sales outstanding (DSO) in 2015 was 88 days compared to 91 days in 2014. The decrease in the DSO is due primarily to more aggressive collection activities during the year. Although no assurance can be given, the Company believes that anticipated cash flow from operations with adequate project management on jobs will be sufficient to finance the Company’s operations and necessary capital expenditures for at least the next 12 months.

The Company’s inventory at December 31, 2015 was $2,494,284 and at December 31, 2014 was $1,726,544, an increase of $767,740. The annual inventory turns for 2015 and 2014 were 10.0 and 10.8, respectively.

Significant Accounting Policies and Estimates

The Company’s significant accounting policies are more fully described in its Summary of Accounting Policies to the Company’s consolidated financial statements. The preparation of financial statements in conformity with accounting principles generally accepted within the United States of America requires management to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying financial statements and related notes. In preparing these consolidated financial statements, management has made its best estimates and judgments of certain amounts included in the consolidated financial statements, giving due consideration to materiality. The Company does not believe there is a great likelihood that materially different amounts would be reported related to the accounting policies described below, however, application of these accounting policies involves the exercise of judgment and the use of assumptions as to future uncertainties and as a result, actual results could differ from these estimates.

The Company evaluates the adequacy of its allowance for doubtful accounts at the end of each quarter. In performing this evaluation, the Company analyzes the payment history of its significant past due accounts, subsequent cash collections on these accounts and comparative accounts receivable aging statistics. Based on this information, along with other related factors, the Company develops what it considers to be a reasonable estimate of the uncollectible amounts included in accounts receivable. This estimate involves significant judgment by the management of the Company. Actual uncollectible amounts may differ from the Company’s estimate.

The Company recognizes revenue on the sale of its standard precast concrete products at shipment date, including revenue derived from any projects to be completed under short-term contracts. Installation services for precast concrete products, leasing and royalties are recognized as revenue as they are earned on an accrual basis. Licensing fees are recognized under the accrual method unless collectability is in doubt, in which event revenue is recognized as cash is received. Certain sales of Soundwall, Slenderwall, and other architectural concrete products are recognized upon completion of units produced under long-term contracts. When necessary, provisions for estimated losses on these contracts are made in the period in which such losses are determined. Changes in job performance, conditions and contract settlements that affect profit are recognized in the period in which the changes occur. Unbilled trade accounts receivable represents revenue earned on units produced and not yet billed.

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 the substantial 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

Management believes that the Company's operations were not significantly affected by inflation in 2015 and 2014, particularly in the purchases of certain raw materials such as steel and fuel. The Company believes that raw material pricing will see some modest increases in 2016 as the economy continues its recovery, although no assurance can be given regarding future pricing.

Other Comments

As of March 4, 2016 the Company's sales backlog of inventoried products and unbilled construction contracts was approximately $18 million as compared to approximately $12.9 million at approximately the same time in 2015. The increase in the backlog relates to the Company's continued emphasis on its proprietary product, Slenderwall™. A substantial majority of the projects relating to the sales backlog as of March 4, 2016 are scheduled to be shipped during 2016.

The Company also maintains a regularly occurring repeat customer business, which should be considered in addition to the orders in the sales backlog described above. These orders typically have a quick turn around and represent purchases of the Company’s inventoried standard products, such as highway safety barrier, utility and Easi-Set building products. Historically, this regularly occurring segment of our customer base is equal to approximately $5,000,000 to $7,000,000 annually.

The risk exists that recessionary economic conditions may adversely affect the Company more than it has experienced to date. To mitigate these economic and other risks, the Company has a broader product offering than most competitors and has historically been a leader in innovation and new product development in the industry. The Company is continuing this strategy through the development, marketing and sales efforts for its new products. The Company continues it lean efforts for both manufacturing and administrative activities and made great strides in moving forward during 2015.

The Company is continuing its marketing, advertising and promotional efforts for both Beach Prisms™, a shoreline erosion control product that uses the preferred natural "soft" approach as opposed to the "hard" approach of seawalls and jetties, to solve this worldwide problem and H2Out™, the world’s first “in the caulk joint” secondary drainage and street level leak detection product for panelized exterior cladding. While the Company has received a permit to install Beach Prisms™ at a specific site in Virginia, the Company is still in the process of seeking to secure additional site permit approvals in Virginia and the support of the appropriate environmental agencies in neighboring states for its Beach Prisms™. Although the Company is optimistic about the success of Beach Prisms™ and H2Out™, there can be no assurance of the commercial acceptance of these products.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

The following consolidated financial statements, which appear at the back portion of the report, are filed as part of this report:



	Page
Report of Independent Registered Public Accounting Firm	F-3

Consolidated Balance Sheets as of December 31, 2015 and 2014	F-4

Consolidated Statements of Income (loss) for the years ended December 31, 2015 and 2014	F-6

Consolidated Statements of Comprehensive Income (loss) for the years ended December 31, 2015 and 2014	F-7

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2015 and 2014	F-8

Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014	F-9

Summary of Significant Accounting Policies	F-11

Notes to Consolidated Financial Statements	F-16

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

The Chief Executive Officer and Chief Financial Officer of the Company assessed the effectiveness of our internal control over financial reporting based on the framework in “Internal Control – Integrated Framework (1992)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) as of December 31, 2015, and concluded that its controls were effective as of such date.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the Securities and Exchange Commission rules that permit the Company to provide only management’s report in this annual report.

Disclosure controls and procedures

We carried out our evaluation, under the supervision and with the participation of our management, including our chief executive officer and our 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 our evaluation, our principal executive officer and chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were effective.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the quarter ended December 31, 2015 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Certain information with respect to our Directors and executive officers is set forth below.



Name	Age	Director or Executive Officer Since	Position
Rodney I. Smith	77	1970	Chief Executive Officer and Chairman of the Board of Directors

Ashley B. Smith	53	1994	President and Director

Wesley A. Taylor	68	1994	Vice President of Administration and Director

G. E. "Nick" Borst	75	2013	Director

William A. Kenter	69	2008	Chief Financial Officer, Secretary and Treasurer

Background

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

Rodney I. Smith. Chairman of the Board of Directors, Chief Executive Officer. Rodney I. Smith co-founded the Company in 1960 and became its President and Chief Executive Officer in 1965. He has served on the Board of Directors and has been its Chairman since 1970. Mr. Smith is the principal developer and inventor of the Company’s proprietary and patented products. He is the past President of the National Precast Concrete Association. Mr. Smith has served on the Board of Trustees of Bridgewater College in Bridgewater, Virginia since 1986. The Company believes that Mr. Smith’s extensive experience in the precast concrete products industry and his knowledge of the marketplace gives him the qualifications and skills necessary to serve in the capacity as the Chairman of the Board of Directors.

Ashley B. Smith. President and Director. Ashley B. Smith has served as President of the Company since 2012 and as the Vice President of the Company from 1990 to 2011 and as a Director since 1994. Mr. Smith holds a Bachelor of Science degree in Business Administration from Bridgewater College. Mr. Ashley B. Smith is the son of Mr. Rodney I. Smith. The Company believes that Mr. Smith’s education, experience in the precast concrete industry and business experience give him the qualifications and skills necessary to serve in the capacity as a director.

Wesley A. Taylor. Vice President of Administration and Director. Wesley A. Taylor has served as Vice President of Administration of the Company since 1989 and as a Director since 1994, and previously held positions as Controller and Director of Personnel and Administration. Mr. Taylor holds a Bachelor of Arts degree from Northwestern State University. The Company believes that Mr. Taylor’s education, business experience and his extensive experience in the precast concrete industry gives him the qualifications and skills necessary to serve in the capacity as a director.

G. E. (Nick) Borst. Director. G. E. Nick Borst served as an member of the Board of Directors of the Company since 2013. For more than the past five years, Mr. Borst has been engaged in the private practice of law, advising clients in business organization and corporate governance. Prior to entering private practice, Mr. Borst served as a trial attorney and as a federal prosecutor with the government. Mr. Borst previously served as president of the Fauquier County Bar Association and as a three-year treasurer of the Fauquier County Chamber of Commerce. In private law practice, Mr. Borst advised clients on business organization and governance. Mr. Borst is also a co-founder and past president of Hospice of Fauquier County and is co-founder and long-time board member of Verdun Adventure Bound, an organization that provides experiential learning programs to over 2,000 young people a year. The Company believes that Mr. Borst's current and past business-related experience provides him with the knowledge and skills necessary to serve in the capacity as a director of the Company.

William A. Kenter. Chief Financial Officer, Secretary and Treasurer. William A. Kenter has served as Chief Financial Officer of the Company since September 2008. Prior to joining the Company, Mr. Kenter was Controller for the Mount Vernon Printing division of Consolidated Graphics, Inc., a commercial printing company, from September 2007 to September 2008. Mr. Kenter served as President and CEO of PenGraphix Printing Solutions, a commercial printing company, from January 2000 to August 2007.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) (“Section 16(a)”) of the Securities Exchange Act of 1934, as amended, requires executive officers and Directors and persons who beneficially own more than ten percent (10%) of the Company’s Common Stock to file initial reports of ownership on Form 3 and reports of changes in ownership on Form 4 with the Securities and Exchange Commission and any national securities exchange on which the Corporation’s securities are registered.

Based solely on a review of the copies of such forms furnished to the Company, the Company believes that all Section 16(a) filing requirements applicable to its executive officers, Directors and greater than ten percent (10%) beneficial owners were satisfied during 2015, except for one Form 4 (reporting three option exercise transactions and two resulting sale transactions) filed late by Wesley A. Taylor and a Form 3 filed late by G.E. "Nick" Borst.

Code of Ethics

The Company adopted a code of ethics that applies to the Chief Executive Officer, Chief Financial Officer, Accounting Manager and persons performing similar functions. The Board of Directors approved the code of ethics at their meeting on December 17, 2003. A copy of the code of ethics was filed as an exhibit to the Company’s Form 10-KSB for the year ended December 31, 2003, and a copy may be obtained without charge by requesting one in writing from Secretary, Smith-Midland Corporation, P.O. Box 300, 5119 Catlett Road, Midland, VA 22728.

Audit Committee

The Company does not currently have a separately designated standing Audit Committee or a committee performing similar functions. The board of directors as a whole performs the required functions of an audit committee. The Company's board of directors has determined that it does not have an "audit committee financial expert". The Company had a financial expert as a director in 2012 and 2013 and at that time, the Company had a standing Audit Committee. The Company's board of directors is currently seeking an individual who qualifies as a financial expert to add to the current board of directors.

Item 11. Executive Compensation

The following table sets forth the compensation paid by the Company for services rendered for 2015 and 2014 to the principal executive officer and the Company’s two most highly compensated executive officers other than the principal executive officer (the “named executive officers”) as of the end of 2015:

Summary Compensation Table



Name and Principal Position	Year	Salary ($)(1)	Bonus ($)(2)	Stock Awards ($)	Option Awards ($)	Non Eq-uity Incentive Plan Compen-sation ($)	Non qual-ified Deferred Compen-sation Earning ($)	All Other Compen- sation ($)	Total ($)
Rodney I. Smith	2015	119,731	—					102,000	221,731
Chief Executive Officer	2014	108,767	—					102,000	210,767
and Chairman of the Board (3)

Ashley B. Smith	2015	169,258	—					3,000	172,258
President (4)	2014	137,385	1,500					3,000	141,885

William A. Kenter	2015	114,987	—					—	114,987
Chief Financial Officer	2014	108,197	—					—	108,197

(1) Represents salaries paid in 2015 and 2014 for services provided by each named executive officer serving in the capacity listed.

(2) Represents amounts paid for annual performance-based bonus related to operations for the same year.

(3) Mr. Rodney Smith was paid $99,000 in each of 2015 and 2014, which is included in the column titled “All Other Compensation”, for royalty payments due under his employment contract with the Company, which is more fully described in the following section titled “Employment Contracts and Termination of Employment and Change in Control Arrangements”. In addition, Mr. Rodney Smith received director’s compensation in the amount of $3,000 for the years 2015 and 2014.

(4) Mr. Ashley Smith received director’s compensation in the amount of $3,000 for each of the years 2015 and 2014.

Outstanding Equity Awards At Fiscal Year-End

The following table sets forth information for the named executive officers regarding any common share purchase options, stock awards or equity incentive plan awards that were outstanding as of December 31, 2015.



Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Option Exercise Price ($/Sh)	Option Expiration Date
Rodney I. Smith	20,000	—	2.25	5/21/2016
	20,000	—	2.15	5/21/2017
	40,000	—	1.21	6/29/2018
TOTAL	80,000	—
Ashley B. Smith	7,000	—	2.25	5/21/2016
	7,000	—	2.15	5/21/2017
	14,800	—	1.21	6/29/2018
TOTAL	28,800	—
TOTAL	108,800	—

All stock options vest on a prorated basis annually over three years from the date of grant and expire ten years from the date of grant.

Compensation of Directors

All Directors receive $1,000 per meeting as compensation for their services as Directors and are reimbursed for expenses incurred in connection with the performance of their duties.

Fiscal 2015 Director Compensation



Name	Fees Earned or Paid in Cash ($)	Stock Awards ($)	Option Awards ($)	Non-Equity Incentive Plan Compen- sation	Non- Qualified Deferred Compen- sation Earnings	All Other Compen- sation	Total ($)
Rodney I. Smith	3,000	—	—	—	—	—	3,000	(1)
Ashley B. Smith	3,000	—	—	—	—	—	3,000	(1)
Wesley A. Taylor	3,000	—	—	—	—	—	3,000
G. E. "Nick" Borst	3,000	—	—	—	—	—	3,000


(1)	Reflected in Summary Compensation Table above.

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

The Company entered into a four-year Employment Agreement with Rodney I. Smith, its current Chief Executive Officer, effective as of September 30, 2002. The term of employment automatically renews commencing on the date one year after the effective date, and on an annual basis thereafter, for an additional one year, unless earlier terminated or not renewed as provided for therein. The agreement provides for an annual base salary of $99,000 (“Base Salary”), which is reviewed at least annually and adjusted from time to time at the determination of the Board of Directors. It also provides for an annual royalty fee of $99,000 payable as consideration for Mr. Smith’s assignment to the Company of all of his rights, title and interest in and to the Patents (as defined in the agreement). Payment of the royalty continues only for as long as the Company is using the

inventions underlying the Patents. Mr. Smith is also entitled to a performance-based bonus as determined by the Board each calendar year.

Mr. Smith’s employment agreement provides further that if Mr. Smith (i) voluntarily leaves the employ of the Company within six months of his becoming aware of a Change of Control (as defined in the agreement) of the Company, then he shall be entitled to receive a lump sum amount equal to three times the five-year average of his combined total annual compensation, which includes the Base Salary and bonus, less one dollar ($1.00), and certain other unpaid accrued amounts as of the date of his termination, or (ii) is terminated by the Company without Cause (as defined in the agreement) or leaves the Company with Good Reason (as defined in the agreement), Mr. Smith shall be entitled to a lump sum payment equal to three times the combined Base Salary and bonus paid during the immediately preceding calendar year, and such other unpaid accrued amounts. In any of such cases, the Company will provide Mr. Smith with certain Company fringe benefits for two years, subject to certain conditions as provided for in the agreement, and all of Mr. Smith’s unvested options to purchase Company stock shall become fully vested and exercisable on the date of termination. Mr. Smith will be entitled to exercise all such options for three years from the date of termination. The Company will have no further obligations to Mr. Smith, other than with respect to the payment of royalties.

In the event Mr. Smith’s employment by the Company is terminated as a result of Mr. Smith’s (i) death, his estate shall be entitled to a lump sum payment of one times the combined Base Salary and bonus, and certain other accrued and unpaid amounts, or (ii) disability, Mr. Smith shall be entitled to Base Salary and bonus for a period of one year commencing with the date of termination, and all other unpaid accrued amounts.

In the event Mr. Smith’s employment is terminated for cause or Mr. Smith voluntarily leaves the employ of the Company for no reason, Mr. Smith shall be entitled to accrued but unpaid Base Salary and Bonus up to the date of termination, and all other unpaid amounts.

The employment agreement also contains Non-competition and Non-solicitation covenants for one year following Mr. Smith’s termination of employment for any reason.

On December 31, 2008, the board of directors approved an amendment to the Employment Agreement to include changes required to be in compliance with Section 409A, nonqualified deferred compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of March 4, 2016, certain information concerning ownership of the Company’s Common Stock by (i) each person known by the Company to own of record or be the beneficial owner of more than five percent (5%) of the Company’s Common Stock, (ii) named executive officers and Directors, and (iii) all Directors and Executive Officers as a group. Except as otherwise indicated, the stockholders listed in the table have sole voting and investment powers with respect to the shares indicated.



Name and Address of Beneficial Owner	Number of Shares Beneficially Owned (2)	Percentage of Class
Rodney I. Smith (1)(3)(4)(5)	753,398	15.2%

Ashley B. Smith (1)(3)(4)(6)	153,417	3.1%

Wesley A. Taylor (1)	31,750	0.7%

G. E. "Nick" Borst (7)	81,000	1.7%

William A. Kenter (1)	—	—

Henry Investment Trust, L.P. (8)	461,000	9.4%

Wax Asset Management, LLC (9)	953,412	19.5%

All directors and executive officers as a group (5 persons)(2)(10)	1,019,565	20.4%

(1) The address for each of Messrs. Rodney I. Smith, Ashley B. Smith, Wesley A. Taylor and William A. Kenter is c/o Smith-Midland Corporation, P.O. Box 300, 5119 Catlett Road, Midland, Virginia 22728.

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

(3) Ashley B. Smith is the son of Rodney I. Smith. Each of Rodney I. Smith and Ashley B. Smith disclaims beneficial ownership of the other’s shares of Common Stock.

(4) Does not include options to purchase an aggregate of 14,000 shares held by Matthew Smith and Roderick Smith and an aggregate of 86,489 shares of Common Stock held by Matthew Smith and Roderick Smith. Matthew Smith and Roderick Smith are sons of Rodney I. Smith, and brothers of Ashley B. Smith. Also, does not include shares held by Merry Robin Bachetti, sister of Rodney I. Smith and aunt of Ashley B. Smith, for which each of Rodney I. Smith and Ashley B. Smith disclaims beneficial ownership.

(5) Includes 20,000 shares of Common Stock held by Hazel Bowling, former wife of Rodney I. Smith, and mother of Mr. Smith’s children. Mr. Smith disclaims beneficial ownership of the shares held by Hazel Bowling. Includes options to purchase 80,000 shares.

(6) Includes options to purchase 28,800 shares.

(7) Address of holder is P.O. Box 351, Ophelia, VA 22530.

(8) Henry Investment Trust, L.P. is the sole general partner of each of Henry Partners, L.P. and Matthew Partners, L.P. and may be deemed to beneficially own 267,200 shares held by Henry Partners, L.P. and 193,800 shares held by Matthew Partners, L.P. Address of holder is 255 South 17th Street, Suite 2608, Philadelphia, PA 19103.

(9) Address of holder is 45 Prospect Street, Greenwich, CT 06830.

(10) Includes options to purchase 108,800 shares for all directors and executive officers as a group.

EQUITY COMPENSATION PLAN INFORMATION

The following table sets forth certain information as of December 31, 2015, regarding the Company's equity compensation plans.



Plan Category	(a) Number of securities to be issued upon exercise of outstanding options, warrants and rights	(b) Weighted average exercise price of outstanding options, warrants and rights	(c) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)	190,933	1.77	500,000
Equity compensation plans not approved by security holders	—	—	—
Total	190,933	1.77	500,000

(1) A brief description of the Company's 2008 Stock Option Plan is contained in Note 6 of the Notes to Consolidated Financial Statements.

Item 13. Certain Relationships and Related Transactions, and Director Independence

There is one independent director of the Company, Mr. G.E. "Nick" Borst. The test utilized for the determination of independence is that of the New York Stock Exchange.

On an ongoing basis, the Company reviews all “related party transactions” (those transactions that are required to be disclosed by SEC Regulation S-K, Item 404), if any, for potential conflicts of interest and all such transactions must be approved by the Board of Directors. No transactions meet the criteria for disclosure.

Item 14. Principal Accountant Fees and Services

The aggregate fees billed for each of the past two fiscal years for professional services rendered by BDO USA, LLP, the principal accountant for the audit of the Company; for assurance and related services related to the audit; for tax compliance, tax advice, and tax planning; and for all other fees for products and services are shown in the table below.

Audit Fees. Fees charged as audit fees are for the audit of the Company’s annual financial statements and review of financial statements included in the Company’s Forms 10-Q or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

Tax Fees. Tax fees are for professional services rendered by BDO USA, LLP for tax compliance, tax advice, and tax planning.

Audit-Related Fees. Fees paid to BDO USA, LLP for the audit of the Company’s 401(k) benefit plan.

The Company currently does not have a separate standing Audit Committee as it has only one outside board member; the entire board of directors acts as the audit committee. Mr. Borst is considered to be independent when using the definition of the New York Stock Exchange.



	2015		2014
Audit Fees	$	140,440	$	134,800
Tax Fees	25,802		24,754
Audit-Related Fees	9,500		13,650

Total Fees	$	175,742	$	173,204

PART IV

Item 15. Exhibits and Financial Statements Schedules


(1)	The financial statements of the Company are included following Part IV of this Form 10-K.


(2)	Schedules have been omitted since they are either not applicable, not required or the information is included elsewhere herein.


(3)	The following exhibits are filed herewith:



Exhibit
Number		Description

3.1		Certificate of Incorporation, as amended (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995).

3.2		Bylaws of the Company adopted on January 21, 2003 (Incorporated by reference to the Company’s Registration Statement on Form 8-A (No. 000-25964) filed with the Commission on January 24, 2003).

4.1		Specimen Common Stock Certificate (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995).

10.1		Lease Agreement, dated January 1, 1995, between the Company and Rodney I. Smith (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995).

10.2		Collateral Assignment of Letters Patent, dated between the Company and Rodney I. Smith (Incorporated by reference to the Company’s Registration Form SB-2 (No. 33-89312) declared effective by the Commission on December 13, 1995).

10.3		Employment Agreement, dated September 30, 2002, between the Company and Rodney I. Smith. (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2003).

10.4		Amendment No. 1 to Employment Agreement, dated as of December 31, 2008, between the Company and Rodney I. Smith (Incorporated by reference to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).

10.5		2004 Stock Option Plan (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 2004).

10.6		2008 Stock Option Plan (Incorporated by reference to the Company’s Registration Statement on Form S-8 (No. 333-155920) filed on December 4, 2008).

10.7		Promissory Note, dated April 20, 2011 and executed on April 26, 2011, in the amount of $575,000 issued by the Company to Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2011).

10.8		A Credit Line Deed of Trust, dated April 20, 2011 and executed on April 26, 2011, between the Company and Summit Commit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on April 28, 2011).

10.9		Promissory Note, dated September 12, 2013, in the amount of $2,100,000 issued by the Company to Summit Community Bank (Incorporated by reference to the Company's Current Report on Form 8-K filed with the Securities and Exchange Commission on September 18, 2013).




10.10		Promissory Note, dated September 12, 2015, in the amount of $2,000,000 issued by the Company to Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2015).

10.11		Commitment Letter, dated September 8, 2015, related to the Company’s line of credit in the amount of $2,000,000 with Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2015).

10.12		Commercial Loan Application - Summary, dated August 1, 2015, related to the Company’s line of credit in the amount of $2,000,000 with Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2015).

10.13		Commercial Security Agreement, dated September 12, 2015, between the Company, as debtor, and Summit Community Bank, as secured party, related to Company’s line of credit in the amount of $2,000,000 with Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2015).

10.14		Commitment Letter, dated September 8, 2015, related to the Company’s guidance line of credit in the amount of $1,000,000 with Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2015).

10.15		Commercial Loan Application - Summary, dated August 1, 2015, related to the Company’s guidance line of credit in the amount of $1,000,000 with Summit Community Bank (Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 14, 2015).

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).

21.1		List of Subsidiaries of the Company (Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the year ended December 31, 1995).

23.1		Consent of BDO USA, LLP.

31.1		Certification of Chief Executive Officer.

31.2		Certification of Principal Financial Officer.

32.1		Certification pursuant 18 U.S.C. Section 1350 as adapted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		SMITH-MIDLAND CORPORATION

Date:	March 28, 2016	By:	/s/ Rodney I. Smith
			Rodney I. Smith, CEO
			(principal executive officer)


Date:	March 28, 2016	By:	/s/ William A. Kenter
			William A. Kenter, CFO
			(principal financial and accounting officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.



Name	Capacity	Date

/s/ Rodney I. Smith	Director	March 28, 2016
Rodney I. Smith

/s/ Wesley A. Taylor	Director	March 28, 2016
Wesley A. Taylor

/s/ Ashley B. Smith	Director	March 28, 2016
Ashley B. Smith

/s/ G. E. Borst	Director	March 28, 2016
G. E. Borst

Smith-Midland Corporation

and Subsidiaries

Consolidated Financial Statements

Years Ended December 31, 2015 and 2014

Smith-Midland Corporation

and Subsidiaries

Contents




Report of Independent Registered Public Accounting Firm	F-3

Consolidated Financial Statements

Consolidated Balance Sheets	F-4

Consolidated Statements of Income (Loss)	F-6

Consolidated Statements of Comprehensive Income (Loss)	F-7

Consolidated Statements of Stockholders' Equity	F-8

Consolidated Statements of Cash Flows	F-9

Summary of Significant Accounting Policies	F-11

Notes to Consolidated Financial Statements	F-16

F-2

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders

Smith-Midland Corporation

Midland, Virginia

We have audited the accompanying consolidated balance sheets of Smith-Midland Corporation and subsidiaries as of December 31, 2015 and 2014 and the related consolidated statements of income (loss), comprehensive income (loss), stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Smith-Midland Corporation and subsidiaries at December 31, 2015 and 2014, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/s/BDO USA, LLP

Richmond, Virginia

March 28, 2016

F-3

Smith-Midland Corporation

and Subsidiaries

Consolidated Balance Sheets



	December 31,
	2015		2014
ASSETS
Current assets
Cash and cash equivalents	$	1,735,621	$	3,572,405
Investment securities, available-for-sale, at fair value	1,041,790		1,013,417
Accounts receivable, net
Trade - billed, (less allowance for doubtful accounts of $375,919 and $267,985)	6,795,215		4,092,924
Trade - unbilled	197,363		240,635
Inventories, net
Raw materials	724,143		353,089
Finished goods	1,770,141		1,373,455
Prepaid expenses and other assets	194,429		126,047
Refundable income taxes	383,820		722,948
Deferred taxes (Note 4)	665,000		441,000

Total current assets	13,507,522		11,935,920

Property and equipment, net (Note 1)	5,073,867		4,106,611

Other assets	268,721		255,385

Total assets	$	18,850,110	$	16,297,916

See accompanying summary of accounting policies and notes to consolidated financial statements.

F-4

Smith-Midland Corporation

and Subsidiaries

Consolidated Balance Sheets

(continued)



	December 31,
	2015			2014
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable - trade	$	1,743,945		$	1,152,506
Accrued expenses and other liabilities	974,785			539,549
Accrued compensation	449,723			442,651
Current maturities of notes payable (Note 2)	435,717			363,821
Customer deposits	923,943			432,274

Total current liabilities	4,528,113			2,930,801

Notes payable - less current maturities (Note 2)	2,076,675			2,230,364
Deferred tax liability (Note 4)	855,000			663,000

Total liabilities	7,459,788			5,824,165

Commitments and contingencies (Note 8)	—			—

Stockholders’ equity (Note 6)
Preferred stock, $.01 par value; authorized 1,000,000 shares, none outstanding	—			—
Common stock, $.01 par value; authorized 8,000,000 shares; 4,919,548 and 4,881,548 issued and outstanding, respectively	49,195			48,815
Additional paid-in capital	5,110,398			5,041,438
Accumulated other comprehensive loss	(9,357		)	(6,629		)
Retained earnings	6,342,386			5,492,427

	11,492,622			10,576,051
Treasury stock, at cost, 40,920 shares	(102,300		)	(102,300		)

Total stockholders’ equity	11,390,322			10,473,751

Total liabilities and stockholders' equity	$	18,850,110		$	16,297,916

See accompanying summary of accounting policies and notes to consolidated financial statements.

F-5

Smith-Midland Corporation

and Subsidiaries

Consolidated Statements of Income (Loss)



	Year Ended December 31,
	2015			2014
Revenue
Products sales and leasing	$	23,855,724		$	16,609,047
Shipping and installation revenue	3,606,205			4,269,157
Royalties	1,742,310			1,592,633

Total revenue	29,204,239			22,470,837

Cost of goods sold	22,093,834			18,625,035

Gross profit	7,110,405			3,845,802

General and administrative expenses	3,365,513			2,979,835
Selling expenses	2,168,013			2,218,269

Total operating expenses	5,533,526			5,198,104

Gain (loss) on sale of assets	17,381			(174		)
Other income	74,410			157,540

Operating income (loss)	1,668,670			(1,194,936		)

Other income (expense)
Interest expense	(103,086		)	(116,229		)
Interest income	35,720			8,327

Total other expense	(67,366		)	(107,902		)

Income (loss) before income tax expense (benefit)	1,601,304			(1,302,838		)

Income tax expense (benefit) (Note 4)	557,000			(498,000		)

Net income (loss)	$	1,044,304		$	(804,838	)

Basic earnings (loss) per share (Note 9)	$	0.21		$	(0.16	)
Diluted earnings (loss) per share (Note 9)	$	0.21		$	(0.16	)

See accompanying summary of accounting policies and notes to consolidated financial statements.

F-6

Smith-Midland Corporation

and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)



	Year Ended December 31,
	2015			2014
Net income (loss)	$	1,044,304		$	(804,838	)
Other comprehensive loss, net of tax: (1)
Net unrealized holding gain (loss)	(2,728		)	34,385
Comprehensive income (loss)	$	1,041,576		$	(770,453	)

(1) Net unrealized gain (loss) on available for sale securities are shown net of income tax benefit of $2,000 and tax expense of $23,000 for the years ended December 31, 2015 and 2014, respectively.

See accompanying summary of accounting policies and notes to consolidated financial statements.

F-7

Smith-Midland Corporation

and Subsidiaries

Consolidated Statements of Stockholders' Equity



	Common Stock		Additional Paid-in Capital		Accumulated Other Compre-hensive Loss			Retained Earnings			Treasury Stock			Total
Balance, December 31, 2013	$	48,815	$	5,041,438	$	(41,014	)	$	6,471,504		$	(102,300	)	$	11,418,443

Dividends paid on common stock	—		—		—			(174,239		)	—			(174,239		)

Net unrealized holding gain	—		—		34,385			—			—			34,385

Net loss	—		—		—			(804,838		)	—			(804,838		)
Balance, December 31, 2014	48,815		5,041,438		(6,629		)	5,492,427			(102,300		)	10,473,751

Dividends paid on common stock	—		—		—			(194,345		)	—			(194,345		)

Net unrealized holding loss	—		—		(2,728		)	—			—			(2,728		)

Proceeds from options exercised	380		68,960		—			—			—			69,340

Net income	—		—		—			1,044,304			—			1,044,304
Balance, December 31, 2015	$	49,195	$	5,110,398	$	(9,357	)	$	6,342,386		$	(102,300	)	$	11,390,322

See accompanying summary of accounting policies and notes to consolidated financial statements.

F-8

Smith-Midland Corporation

and Subsidiaries

Consolidated Statements of Cash Flows



	Year Ended December 31,
	2015			2014
Reconciliation of net income (loss) to net cash provided by operating activities

Net income (loss)	$	1,044,304		$	(804,838	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
Depreciation and amortization	667,900			636,644
Gain (loss) on sale of fixed assets	(17,381		)	174
Deferred taxes	(32,000		)	67,000
(Increase) decrease in
Accounts receivable - billed	(2,702,291		)	3,203,868
Accounts receivable - unbilled	43,272			(198,776		)
Inventories	(767,740		)	212,934
Refundable income taxes	339,128			(722,948		)
Prepaid expenses and other assets	(81,718		)	164,660
Increase (decrease) in
Accounts payable - trade	591,439			(365,115		)
Accrued expenses and other liabilities	435,236			(388,278		)
Accrued compensation	7,072			38,805
Accrued income taxes payable	—			(302,264		)
Customer deposits	491,669			(115,515		)

Net cash provided by operating activities	$	18,890		$	1,426,351

F-9

Smith-Midland Corporation

and Subsidiaries

Consolidated Statements of Cash Flows

(continued)



	December 31,
	2015			2014
Cash Flows From Investing Activities
Purchases of investment securities available-for-sale	$	(31,575	)	$	(78,453	)
Purchases of property and equipment	(1,635,317		)	(465,826		)
Proceeds from sale of fixed assets	18,015			46,230

Net cash absorbed by investing activities	(1,648,877		)	(498,049		)

Cash Flows From Financing Activities
Borrowings from the line-of-credit	352,022			—
Proceeds from long-term borrowings	97,005			55,159
Repayments of long-term borrowings	(530,820		)	(372,880		)
Dividends paid on common stock	(194,345		)	(174,239		)
Proceeds from options exercised	69,341			—

Net cash absorbed by financing activities	(206,797		)	(491,960		)

Net (decrease) increase in cash and cash equivalents	(1,836,784		)	436,342
Cash and cash equivalents, beginning of year	3,572,405			3,136,063

Cash and cash equivalents, end of year	$	1,735,621		$	3,572,405

Supplemental schedule of non-cash investing activities
Cash Payments for interest	$	103,086		$	116,229
Cash Payments for income taxes	$	679,427		$	48,609

See accompanying summary of accounting policies and notes to consolidated financial statements.

F-10

Smith-Midland Corporation

and Subsidiaries

Summary of Significant Accounting Policies

Nature of Business

Smith-Midland Corporation and its wholly-owned subsidiaries (the “Company”) develop, manufacture, license, sell and install precast concrete products for the construction, transportation and utilities industries in the Mid-Atlantic, Northeastern, Midwestern and Southeastern regions of the United States.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Smith-Midland Corporation and its wholly-owned subsidiaries. The Company’s wholly-owned subsidiaries consist of Smith-Midland Corporation, a Virginia corporation, Smith-Carolina Corporation, a North Carolina corporation, Easi-Set Industries, Inc., a Virginia corporation, Concrete Safety Systems, Inc., a Virginia corporation, and Midland Advertising and Design, Inc., doing business as Midland Advertising + Design, a Virginia corporation. All material intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all unrestricted cash and money market accounts purchased with an original maturity of three months or less as cash and cash equivalents.

Investments

Investments in marketable securities are classified as available-for-sale and are stated at market value with unrealized holding gains and losses excluded from earnings and reported as a separate component of stockholders' equity until realized.

Inventories

Inventories are stated at the lower of cost, using the first-in, first-out (FIFO) method, or market. Inventory reserves were approximately $67,000 and $90,000 at December 31, 2015 and 2014, respectively.

Property and Equipment

Property and equipment is stated at cost. Expenditures for ordinary maintenance and repairs are charged to income as incurred. Costs of betterments, renewals, and major replacements are capitalized. At the time properties are retired or otherwise disposed of, the related cost and allowance for depreciation are eliminated from the accounts and any gain or loss on disposition is reflected in income.

Depreciation is computed using the straight-line method over the following estimated useful lives:



	Years
Buildings		10-33
Trucks and automotive equipment		3-10
Shop machinery and equipment		3-10
Land improvements		10-15
Office equipment		3-10

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

F-11

As of December 31, 2015, the Company has not identified any unrecognized tax positions. The Company files tax returns in the U.S. Federal and various state jurisdictions. The Company recognized, when applicable interest and penalties related to income taxes in other income (expense) in its consolidated statement of income (loss). The Company is no longer subject to U.S. or state tax examinations for the years prior to 2012. The Company does not believe there will be any material changes in unrecognized tax positions over the next twelve months.

Stock Options

Stock based compensation is measured based on the fair value of the award on the date of grant and the corresponding expense is recognized over the period during which an employee is required to provide services in exchange for the award. The fair value of each stock option is estimated using a Black-Scholes option pricing model based on certain assumptions including expected term, risk-free interest rate, stock price volatility and dividend yield. The assumption for expected term is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected term at the grant date. The historical volatility of the Company’s stock is used as the basis for the volatility assumption. See Note 6 of Notes to the Consolidated Financial Statements for additional information related to stock based compensation. There have been no option grants since 2008. Substantially all options become vested and exercisable ratably over a three-year period.

Revenue Recognition

The Company primarily recognizes revenue on the sale of its standard precast concrete products at shipment date, including revenue derived from any projects to be completed under short-term contracts. Installation of the Company’s standard products is typically performed by the customer; however, in some circumstances, the Company will install certain products at the time of delivery and will recognize the installation revenue at that time. The installation activities are usually completed the day of delivery or the following day. In utility building sales, the majority of the buildings are erected on the Company’s site and delivered completely installed.

Leasing fees are paid at the beginning of the lease agreement and are recorded as deferred revenue. The deferred revenue is then recognized each month as lease income.

Royalties are recognized as revenue as they are earned. The Company licenses certain other precast companies to produce its licensed products to our engineering specifications under licensing agreements. The agreements are typically for five year terms and require royalty payments from 4% to 6% which are paid on a monthly basis. The revenue from licensing agreements are recognized in the month earned.

Certain sales of Soundwall, architectural precast panels and Slenderwall™ concrete products revenue is recognized using the percentage-of-completion method for recording revenues on long term contracts under ASC 605-35. The contracts are executed by both parties and clearly stipulate the requirements for progress payments and a schedule of delivery dates. Provisions for estimated losses on contracts are made in the period in which such losses are determined.

Shipping revenues are recognized in the period the shipping services are provided to the customer.

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.

Adjusting Entry

During the third quarter of 2015, the Company made an adjusting journal entry to record $240,000 of accounts receivable and revenue which related to the prior year. The entry was recorded in the current period since the effects of the adjusting journal entry was immaterial to both the prior and current periods.

Shipping and Handling

Amounts billed to customers are recorded in sales and the costs associated with the shipping and handling are recorded as cost of goods sold.

F-12

Sales and Use Taxes

Use taxes on construction materials are reported gross in general and administrative expense.

Risks and Uncertainties

The Company sells products to highway contractors operating under government funded highway programs and other customers and extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is principally dependent on each customer’s financial condition. The Company monitors its exposure to credit losses and maintains allowances for anticipated losses. Management reviews accounts receivable on a weekly basis to determine the probability of collection. Any accounts receivable that are deemed to be uncollectible along with a general reserve, which is calculated based upon the aging category of the receivable, is included in the overall allowance for doubtful accounts. Management believes the allowance for doubtful accounts at December 31, 2015 is adequate. However, actual write-offs may exceed the recorded allowance. Due to inclement weather, the Company may experience reduced revenues from December through February and may realize the substantial part of its revenues during the other months of the year.

Fair Value of Financial Instruments

The carrying value for each of the Company’s financial instruments (consisting of cash and cash equivalents, accounts receivable, accounts payable and short-term line of credit) approximates fair value because of the short-term nature of those instruments. The estimated fair value of the long-term debt approximates carrying value based on current rates offered to the Company for debt of the similar maturities.

Estimates

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

Reclassifications

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

Advertising Costs

The Company expenses all advertising costs as incurred. Advertising expense was approximately $399,000 and $512,000 in 2015 and 2014, respectively.

Earnings Per Share

Earnings (loss) per share are based on the weighted average number of shares of common stock and dilutive common stock equivalents outstanding. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted earnings (loss) per share reflect the potential dilution of securities that could share in earnings (losses) of an entity.

Long-Lived Assets

The Company reviews the carrying values of its long-lived and identifiable intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable based on undiscounted estimated future operating cash flows. When any such impairment exists, the related assets will be written down to fair value. No impairment losses have been recorded through December 31, 2015.

Recent Accounting Pronouncement

The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially

F-13

adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2018.

In February 2016, the FASB updated the guidance within ASC 842, Leases. The update requires lessees to put most leases on their balance sheets while recognizing expenses on their income statements in a manner similar to current GAAP. The guidance also eliminates current real estate-specific provisions for all entities. For lessors, the guidance modifies the classification criteria and the accounting for sales-type and direct financing leases. The new guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Accordingly, the Company expects to adopt the provisions of this new accounting standard at the beginning of 2019, and is currently assessing the impact on its consolidated financial statements.

In November 2015, the FASB issued accounting guidance that requires all deferred tax assets and liabilities, along with any related valuation allowance, to be classified as noncurrent on the Consolidated Statement of Financial Position. Current guidance requires the deferred taxes for each jurisdiction to be presented as a net current asset or liability and net noncurrent asset or liability. As a result of the new guidance, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting deferred tax assets and liabilities within a single jurisdiction. Entities have the option to apply the new guidance prospectively or retrospectively. The new guidance is effective January 1, 2017, with early adoption permitted. The impact of adoption of this ASU by the Company is not expected to be material.

In July 2015, the FASB issued changes to the subsequent measurement of inventory. Currently, an entity is required to measure its inventory at the lower of cost or market, whereby market can be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The changes require that inventory be measured at the lower of cost and net realizable value, thereby eliminating the use of the other two market methodologies. Net realizable value is defined as the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. These changes do not apply to inventories measured using LIFO (last-in, first-out) or the retail inventory method. The new guidance is effective for fiscal years beginning after January 1, 2017. The impact of adoption of this ASU by the Company is not expected to be material.

In April 2015, FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This update requires that debt issuance costs be reported in the balance sheet as a direct deduction from the face amount of the related liability, consistent with the presentation of debt discounts. Further, the update requires the amortization of debt issuance costs to be reported as interest expense. Similarly, debt issuance costs and any discount or premium are considered in the aggregate when determining the effective interest rate on the debt. The new guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. The new guidance must be applied retrospectively. The impact of adoption of this ASU by the Company is not expected to be material.

In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP.

In June 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-12, Compensation - Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. A performance target in a share-based payment that affects vesting and that could be achieved after the requisite service period should be accounted for as a performance condition under Accounting Standards Codification (ASC) 718, Compensation - Stock Compensation. As a result, the target is not reflected in the estimation of the award's grant date fair value. Compensation cost would be recognized over the required service period, if it is probable that the

performance condition will be achieved. The guidance is effective for annual periods beginning after December 15, 2015 and interim periods within those annual periods. Early adoption is permitted. The Company does not expect this ASU to have a material impact on the Company’s consolidated results of operations, financial position and related disclosures.

F-14

F-15

SMITH-MIDLAND CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. - PROPERTY AND EQUIPMENT



Property and equipment consists of the following:
	December 31,
	2015		2014
Land and land improvements	$	677,113	$	580,612
Buildings	4,178,158		4,149,078
Machinery and equipment	7,946,039		7,011,943
Rental equipment	1,505,590		1,092,384

	14,306,900		12,834,017
Less: accumulated depreciation and amortization	9,233,033		8,727,406

	$	5,073,867	$	4,106,611

Depreciation expense and amortization was approximately $668,000 and $637,000 for the years ended December 31, 2015 and 2014, respectively.

F-16

Smith-Midland Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

(continued)

NOTE 2. - NOTES PAYABLE

Notes payable consist of the following:



	December 31,
	2015		2014
Note payable to a Bank, maturing June 2021; with monthly payments of approximately $25,000 of principal and interest fixed at 3.99%; collateralized by principally all assets of the Company.	$	1,575,951	$	1,814,825

Note payable to a Bank, maturing April 2021; with monthly payments of approximately $6,200 of principal and interest at prime at variable rate (5.29% at December 31, 2015); collateralized by certain property of the Company.	344,717		398,964

Installment notes, collateralized by certain machinery and equipment maturing at various dates, primarily through 2016, with interest at 1.0% through 6.7%.	239,702		380,396

The revolving line-of-credit evidenced by a note payable to a Bank, with the maximum amount of $2,000,000, maturing September 12, 2016, with interest only payments and an initial rate of 4.49% adjustable monthly. The line-of-credit is collateralized by a first lien position on the Company's accounts receivable and inventory and a second lien position on all other business assets.	352,022		—

	2,512,392		2,594,185
Less current maturities	435,717		363,821

	$	2,076,675	$	2,230,364

The Company’s note payable, which matures in June 2021, with a balance of $1,575,951 at December 31, 2015, is secured by all of the assets of the Company. The commitment letter provided by the bank dated September 8, 2015 includes certain restrictive covenants, which require the Company to maintain minimum levels of tangible net worth, places limits on annual capital expenditures and the payment of cash dividends. At December 31, 2015, the Company was in compliance with all covenants pursuant to the loan agreement as amended except for the purchase of assets in excess of $1,000,000 for which a waiver by the bank was received.

The aggregate amounts of notes payable maturing in each of the next five years and thereafter are as follows:



Year Ending December 31,

2016	$	435,716
2017	455,177
2018	458,771
2019	433,445
2020	445,905
Thereafter	283,378

	$	2,512,392

F-17

NOTE 3. - RELATED PARTY TRANSACTIONS

The Company currently leases a portion of its Midland, Virginia property from its CEO, on a month-to-month basis, as additional storage space for the Company's finished work product. The lease agreement calls for an annual rent of $24,000. See additional items discussed in Note 8.

NOTE 4. - INCOME TAXES

Income tax expense (benefit) is comprised of the following:



	December 31,
	2015		2014
Federal:
Current	$	394,000	$	(450,000	)
Deferred	14,000		39,000
	408,000		(411,000		)
State:
Current	147,000		(91,000		)
Deferred	2,000		4,000
	149,000		(87,000		)

	$	557,000	$	(498,000	)

The provision for income taxes differs from the amount determined by applying the federal statutory tax rate to pre-tax income as a result of the following:



	December 31,
	2015					2014
Income taxes at statutory rate	$	543,000		34.0	%	$	(445,000	)	34.0	%
Increase (decrease) in taxes resulting from:
State income taxes, net of federal benefit	41,000			2.6	%	(47,000		)	4.5	%
Other	(27,000		)	(1.7	)%	(6,000		)	(2.4	)%

	$	557,000		34.9	%	$	(498,000	)	36.1	%

F-18

Smith-Midland Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

(continued)

Deferred tax assets (liabilities) are as follows:



	December 31,
	2015			2014
Depreciation	$	(855,000	)	$	(663,000	)
Unrealized losses on investments available for sale	6,000			3,000
Allowance for doubtful accounts	147,000			105,000
Vacation accrued	105,000			91,000
Deferred income	302,000			161,000
State NOL carryforward	43,000			—
Other	62,000			81,000

Net deferred tax asset (liability)	(190,000		)	(222,000		)

Current portion, net	665,000			441,000
Long-term portion, net	(855,000		)	(663,000		)

	$	(190,000	)	$	(222,000	)

NOTE 5. - EMPLOYEE BENEFIT PLANS

The Company has a 401(k) retirement plan (the "Plan") covering substantially all employees. Participants may contribute up to 10% of their compensation to the Plan. The Company contributes 50% of the participant's contribution, up to 4% of the participant's compensation, as a matching contribution. Total contributions for the years ended December 31, 2015 and 2014 were approximately $115,000 and $89,000, respectively.

NOTE 6. - STOCK OPTIONS

On September 19, 2008, the Board of Directors and Stockholders of the Company adopted the 2008 Stock Option Plan (the "2008 Plan"), which allows the Company to grant up to 500,000 options to employees, officers, directors and consultants to purchase shares of the Company's Common Stock. Options granted under the plan may be either Incentive Stock Options or Non-Qualified Stock Options. Incentive Stock Options may be granted only to employees of the Company, while Non-qualified options may be issued to non-employee directors, consultants, and others, as well as to employees of the Company. There were no grants of options during the years ended December 31, 2015 or 2014.

Options generally vest over a three year period. The Company recognizes stock option expense over the vesting period. The Company did not record any stock option expense for the years 2015 and 2014 as all of the options were fully vested.

There were 38,000 options exercised for the year ending December 31, 2015 and there were no options exercised in 2014. The intrinsic value of outstanding and exercisable options at December 31, 2015 was approximately $285,000.

The following tables summarize activity under the 2004 Stock Option Plan of the Company and the stock options outstanding at December 31, 2015:

F-19

Smith-Midland Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

(continued)



	Weighted Average Exercise Price			Options Outstanding		Vested and Exercisable
Balance, December 31, 2013	$	1.96		370,599		370,599
Granted	—			—		—
Forfeited	2.42			(55,366	)	(55,366	)
Exercised	—			—		—
Vested	—			—		—

Balance, December 31, 2014	1.96			315,233		315,233
Granted	—			—		—
Forfeited	(2.52		)	(86,300	)	(86,300	)
Exercised	(1.85		)	(38,000	)	(38,000	)
Vested	—			—		—

Balance, December 31, 2015	$	1.77		190,933		190,933

NOTE 7. Fair Value Measurements

The Company applies the guidance that is codified under ASC 820-10 related to assets and liabilities recognized or disclosed in the financial statements at fair value on a recurring basis. ASC 820-10 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. The provisions of ASC 820-10 only apply to the Company’s investment securities, which are carried at fair value.

ASC 820-10 clarifies that fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that is determined based on assumptions that market participants would use in pricing an asset or liability. ASC 820-10 requires valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:



Fair Value Hierarchy	Inputs to Fair Value Methodology
Level 1	Quoted prices in active markets for identical assets or liabilities
Level 2	Quoted prices for similar assets or liabilities; quoted markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the financial instrument; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from, or corroborated by, observable market information
Level 3	Pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption is unobservable or when the estimation of fair value requires significant management judgment

The Company categorizes a financial instrument in the fair value hierarchy based on the lowest level of input that is significant to its fair value measurement.

F-20

Smith-Midland Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

(continued)



	As of December 31, 2015
	Quoted Market Prices in Active Markets (Level 1)		Internal Models with Significant Observable Market Parameters (Level 2)		Internal Models with Significant Unobservable Market Parameters (Level 3)		Total Fair Value Reported in Financial Statements

Mutual Funds	$	1,041,790	$	—	$	—	$	1,041,790



	As of December 31, 2014
	Quoted Market Prices in Active Markets (Level 1)		Internal Models with Significant Observable Market Parameters (Level 2)		Internal Models with Significant Unobservable Market Parameters (Level 3)		Total Fair Value Reported in Financial Statements

Mutual Funds	$	1,013,417	$	—	$	—	$	1,013,417

NOTE 8. - COMMITMENTS AND CONTINGENCIES

The Company has an employment agreement with its current CEO which automatically renews on an annual basis for an additional year, unless earlier terminated or not renewed as provided for therein. The agreement provides for an annual base salary of $99,000 and an annual royalty fee of $99,000 payable as consideration for the CEO’s assignment to the Company of

all of his rights, title and interest in certain patents. Payment of the royalty continues only for as long as the Company is using the inventions underlying the patents. Additionally, if the CEO (i) voluntarily leaves the employ of the Company within six months of his becoming aware of a Change of Control (as defined in the agreement) of the Company, then he shall be entitled to receive a lump sum amount equal to three times the five-year average of his combined total annual compensation, which includes the Base Salary and bonus, less one dollar ($1.00), and certain other unpaid accrued amounts as of the date of his termination, or (ii) is terminated by the Company without Cause (as defined in the agreement) or leaves the Company with Good Reason (as defined in the agreement), the CEO shall be entitled to a lump sum payment equal to three times the

F-21

Smith-Midland Corporation

and Subsidiaries

Notes to Consolidated Financial Statements

(continued)

combined Base Salary and bonus paid during the immediately preceding calendar year, and such other unpaid accrued amounts. In any of such cases, the Company will provide the CEO with certain Company fringe benefits for two years, subject to certain conditions as provided for in the agreement, and all of the CEO’s unvested options, if any, to purchase Company stock shall become fully vested and exercisable on the date of termination. The CEO will be entitled to exercise all such options for three years from the date of termination.

In the event the CEO’s employment by the Company ceases as a result of the CEO’s (i) death, his estate shall be entitled to a lump sum payment of one times the combined Base Salary and bonus, and certain other accrued and unpaid amounts, or (ii) disability, the CEO shall be entitled to Base Salary and bonus for a period of one year commencing with the date of termination, and all other unpaid accrued amounts.

The Company is party to legal proceedings and disputes which may arise in the ordinary course of business. In the opinion of the Company, it is unlikely that liabilities, if any, arising from legal disputes will have a material adverse effect on the consolidated financial position of the Company.

NOTE 9. - EARNINGS (LOSS) PER SHARE

Earnings (loss) per share are calculated as follows:



	December 31,
	2015		2014
Basic earnings (loss) per share

Income (loss) available to common shareholder	$	1,044,304	$	(804,838	)

Weighted average shares outstanding	4,895,367		4,881,548

Basic earnings (loss) per share	$	0.21	$	(0.16	)

Diluted earnings (loss) per share

Income (loss) available to common shareholder	$	1,044,304	$	(804,838	)

Weighted average shares outstanding	4,895,367		4,881,548
Dilutive effect of stock options	51,008		—

Total weighted average shares outstanding	4,946,375		4,881,548

Diluted earnings (loss) per share	$	0.21	$	(0.16	)

Outstanding options excluded from the diluted earnings per share calculation because they would have an anti-dilutive effect were none for the year ended December 31, 2015 and 254,166 for the year ended December 31, 2014.

F-22

F-23