SMITH MIDLAND CORP Management Discussion and Analysis of Financial Position and Results of Operations (Form 10-Q)

Forward-looking statements

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

? Although the final impact is uncertain at this time, the resurgence of

the coronavirus epidemic may significantly affect the finances of the Company

the situation, liquidity and results of operations. In this regard, the Company

had already suffered the following negative impacts on its business:

reduction in the order book in 2020 compared to 2019, decrease in production volumes,

employee absences and bidding restrictions in some key states. The

The company continues to experience delays in receiving materials through

    its supply chain.




?   while the Company had net income for the three and nine months ended

September 30, 2021 and 2020 and for the years ended December 31, 2020 and

2019, there can be no assurance that the Company will be able to remain profitable in

future periods; in connection with this risk, the Company suffered a loss for the

    quarter ended March 31, 2020,

? our level of debt increased in 2020, and our ability to meet it cannot

    be assured,

? our ability to collect accounts receivable may be affected by the

    coronavirus outbreak,

? the continued availability of funding in the amounts, times and

the conditions required to support our future business and investment projects,

?   while we have expended significant funds in recent years to increase

manufacturing and rental capacity, there can be no assurance that we will achieve

    significantly greater revenues,

? the extent to which we are successful in developing, acquiring, licensing or

    securing patents for proprietary products,

? changes in economic conditions specific to one or more of our markets

(including the availability of public funds and subsidies for construction),

? changes in general economic conditions in our main service areas,

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

? our compliance with government regulations,

? potential decreases in our order book from one year to the next,

? our ability to produce and install products on building materials projects

in accordance with the contract specifications and within a timeframe in accordance with

    contract requirements,

? the cyclical nature of the construction sector,

? our exposure to increased interest payments if interest rates

    change, and

? other factors and information disclosed and discussed in other sections

of this report and in our annual report on Form 10-K for the fiscal year

    ended December 31, 2020.

Investors and shareholders should carefully consider these 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 forward-looking statements. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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Overview; Potential effect of the COVID-19 epidemic

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



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

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



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

in
exposure globally.

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



a) by the potential inability of customers of the Company to pay amounts owed to
the Company for products or services already provided should their businesses
suffer setbacks; this risk is heightened by the relatively long lag time
experienced by the Company in collecting accounts receivable (see "Liquidity and
Capital Resources" below);

b) by potential supply side issues should our vendors experience hardships, and
have to reduce or terminate operations, due to the COVID-19 outbreak, impacting
the Company's sourcing of materials;

c) by increased adverse effects on our workforce due to contracting or taking
care of a relative who has contracted COVID-19, or have been quarantined by a
medical professional; in this respect, our workforce had previously been
impacted as of this date with an effect on operations at all locations, but this
impact has substantially diminished as of the filing date, but no assurance can
be provided as to future impacts, particularly in view of new coronavirus
outbreaks;

d) in the event that any of the three states in which we have facilities provide
for the quarantine of our manufacturing employees, our production manufacturing
will be significantly affected;

e) in the event that any of the states in which we sell our products and services could eliminate, cancel or delay projects due to monetary limitations resulting from the COVID-19 outbreak; in this regard, the Company had previously noted a reduction in tendering activity;

f) reduction in state infrastructure budgets due to reduced funding through gasoline tax or other sources of funding;

g) the increase in the total number of defaults, which in turn has an impact on the ability of the banking sector to finance projects in which the Company’s products can be used; and

h) in the event that economic hardships force the Company to default on loan
payments, our loans may be called and our ability to borrow under our bank

line
of credit could cease;



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


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




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The Company had (in thousands) net income of $2,867 for the first quarter 2021,
net income of $985 for the second quarter 2021, and net income of $3,694 for the
third quarter 2021, resulting in net income of $7,546 for the nine months ended
September 30, 2021. Profitability for the three and nine months ended September
30, 2021 was positively impacted by the forgiveness of the PPP loan (described
below in Liquidity and Capital Resources) in the amount of $2,692. The cost of
goods sold as a percent of revenue, not including royalties, for the three and
nine months ended September 30, 2021 was 80% and 73%, respectively, as compared
to 72% and 79% for the three and nine months ended September 30, 2020. The
increase in cost of goods sold as a percentage of revenue, not including
royalties, for the three months ended September 30, 2021, compared to the three
months ended September 30, 2020, is due in part to impacts of COVID-19 at the
Virginia plant which reduced production volumes and increased labor costs. In
addition, during the third quarter 2020, there were one-time special barrier
projects, which typically have slightly higher margins due to risk and
complexity, which improved the margin compared to the third quarter 2021. The
decrease in cost of goods sold as a percentage of revenue, not including
royalties, for the nine months ended September 30, 2021, compared to the nine
months ended September 30, 2020, is mainly due to the increase in barrier rental
revenues, which typically have higher margins than product sales, and the
increase in short-term special barrier rental projects, which carry slightly
higher margins due to the complexity and risk of the projects. Total revenues
for the three and nine month periods ended September 30, 2021 were $13,100 and
$40,625, compared to $12,515 and $32,789 for the three and nine month periods
ended September 30, 2020. The increase for the more recent nine month period was
mainly from the barrier rentals, which included multiple short-term special
barrier rental projects and, to a lesser extent, a continued increase in linear
feet rented over the prior year of the core rental fleet. Future barrier rental
revenues are not expected to continue to trend at the same rate as in the first
quarter of 2021 due to the nature and frequency of the short-term special
barrier projects, although the Company anticipates continued growth of core
rental revenues.



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

Three and nine months completed September 30, 2021 compared to the three and nine months ended September 30, 2020

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

Revenue by
Type
(Disaggregated
Revenue)                  Three Months Ended September 30                  

Nine months ended September 30

                   2021         2020        Change       % Change         2021         2020        Change      % Change
Soundwall
Sales            $  2,407     $  1,736     $    671             39 %    $  6,496     $  5,824     $    672            12 %
Architectural
Panel Sales           406          696         (290 )          (42 )%      3,843        2,229        1,614            72 %
SlenderWall
Sales               1,027           26        1,001          3,850 %       1,247          949          298            31 %
Miscellaneous
Wall Sales            520          963         (443 )           46 )%      1,804        2,994       (1,190 )         (40 )%
Barrier Sales       1,022        1,679         (657 )          (39 )%     

3,578        3,949         (371 )          (9 )%
Easi-Set and
Easi-Span
Building Sales        676          643           33              5 %       2,278        1,971          307            16 %
Utility Sales         891          254          637            251 %       1,628        1,043          585            56 %
Miscellaneous
Sales                 256          488         (232 )          (48 )%        994        1,077          (83 )          (8 )%
Total Product

Sales               7,205        6,485          720             11 %      21,868       20,036        1,832             9 %
Barrier
Rentals             1,708        3,171       (1,463 )          (46 )%      8,667        4,820        3,847            80 %

Royalty Income        676          484          192             40 %       1,788        1,165          623            53 %
Shipping and
Installation
Revenue             3,511        2,375        1,136             48 %       8,302        6,768        1,534            23 %
Total Service
Revenue             5,895        6,030         (135 )           (2 )%     18,757       12,753        6,004            47 %

Total Revenue    $ 13,100     $ 12,515     $    586              5 %    $ 40,625     $ 32,789     $  7,836            24 %

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



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



Architectural Sales - Architectural sales decreased for the three months ended
September 30, 2021 compared to the same period in 2020, and significantly
increased for the nine months ended September 30, 2021 compared to the same
period in 2020. The Company was awarded a large architectural project which
began production the fourth quarter 2020 and continued production during the
first and second quarters 2021. With the large architectural project finishing
up in the second quarter 2021, a decrease occurred in the third quarter 2021,
but an overall increase was experienced for the nine month period ended
September 30, 2021 compared to the same period in 2020. Architectural sales are
expected to decrease in the last quarter of 2021, as compared to the last
quarter of 2020, with a projected shift to more SlenderWall sales.



SlenderWall Sales - SlenderWall sales increased for the three and nine month
periods ended September 30, 2021 as compared to the same periods in 2020. The
Company was recently awarded a large SlenderWall project which began production
at the end of the second quarter 2021. The Company continues to focus sales
initiatives on SlenderWall with multiple bids awaiting awards, but no assurance
can be given as to success of this endeavor.




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Miscellaneous Wall Sales - Miscellaneous wall sales decreased for the three and
nine month periods ended September 30, 2021 compared to the same periods in 2020
due to the decreased amount of retaining wall projects in production.
Miscellaneous wall sales are expected to trend similar to the third quarter 2021
during the fourth quarter 2021, although no assurance can be provided.



Barrier Sales - Barrier sales decreased during the three and nine month periods
ended September 30, 2021 compared to the same periods in 2020. The main reason
for the decrease is due to reduced barrier production demand in North Carolina
and South Carolina, combined with the increase in the core fleet of barrier
rentals. Aligning with the Company's strategy to shift to barrier rentals versus
barrier sales in the Delaware to Virginia region, barrier sales are expected to
trend lower than previous periods.



Easi-Set® and Easi-Span® Building Sales - Building and restroom sales increased
for the three and nine month periods ended September 30, 2021 compared to the
same periods in 2020 mainly due to increased building sales at all three
manufacturing facilities during the first nine months of 2021 as compared to the
prior year. Building and restroom sales are expected to continue to trend
similar to the third quarter 2021 during the fourth quarter 2021, although

no
assurance can be provided.



Utility Sales - Utility sales increased for the three and nine month periods
ended September 30, 2021 compared to the same periods in 2020. The Company
continues to competitively bid on utility projects to gain market share and has
recently won multiple data center projects increasing the sales volume of dry
utility vaults. Utility sales are expected to increase for the fourth quarter
2021 from the comparable prior year period, although no assurance can be
provided.



Miscellaneous Product Sales - Miscellaneous products are products that are
produced or sold that do not meet the criteria defined for other revenue
categories. Examples would include precast concrete slabs, concrete blocks, or
small add-on items. Miscellaneous product sales decreased for the three month
and nine month periods ended September 30, 2021 compared to the same periods in
2020. The change is mainly attributed to specialty concrete blocks produced at
the North Carolina plant which began in 2020 and significantly decreased during
the third quarter 2021. Miscellaneous product sales are expected to remain lower
during the fourth quarter 2021.



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



Royalty Income - Royalties significantly increased for the three and nine month
periods ended September 30, 2021 compared to the same periods in 2020. The
increase in royalties is mainly due to the increase in barrier royalties during
the first nine months of 2021 compared to the same period in 2020.
Infrastructure spending continues to drive royalties, and the Company
anticipates fourth quarter 2021 royalties to be slightly lower compared to the
first three quarters of the year, although no assurance can be given.



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




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Cost of Goods Sold - Total cost of goods sold as a percent of revenue, not
including royalties, for the three and nine months ended September 30, 2021 was
80% and 73%, respectively, as compared to 72% and 79% for the three and nine
months ended September 30, 2020. The increase in cost of goods sold as a
percentage of revenue, not including royalties, for the three months ended
September 30, 2021, compared to the three months ended September 30, 2020, is
due in part to impacts of COVID-19 at the Virginia plant which reduced
production volumes and increased labor costs. In addition, during the third
quarter 2020, there were one-time special barrier projects, which typically have
slightly higher margins due to risk and complexity, that improved margins
compared to the third quarter 2021. The decrease in cost of goods sold as a
percentage of revenue, not including royalties, for the nine months ended
September 30, 2021, compared to the nine months ended September 30, 2020, is
mainly due to the increase in barrier rental revenues, which typically have
higher margins than product sales, and the increase in short-term special
barrier rental projects, which carry slightly higher margins due to the
complexity and risk of the projects.



General and Administrative Expenses - For the three months ended September 30,
2021 the Company's general and administrative expenses decreased by $56 to
$1,215 from $1,271 during the same period in 2020, and for the nine months ended
September 30, 2021 the Company's general and administrative expenses increased
by $327 to $3,880 from $3,553. The increased general and administrative expenses
for the nine month period ended September 30, 2021 is mainly attributed to stock
compensation and an increase in salaries and wages. General and administrative
expense as a percentage of total revenue was 9% and 10% for the three month
periods ended September 30, 2021 and 2020, respectively, and 10% and 11% for the
nine month periods ended September 30, 2021 and 2020, respectively.



Selling Expenses - Selling expenses for the three months ended September 30,
2021 increased to $719 from $521 for the same period in 2020, and selling
expenses for the nine months ended September 30, 2021 increased to $2,010 from
$1,684 for the same period in 2020. Selling expenses increased during the
periods due to additional sales persons hired and increased marketing expenses.
The Company expects selling expenses to increase in future periods with the plan
for additional sales associates and increased advertising spending aligning with
the strategy to increase SlenderWall sales and barrier rentals.



Operating Income (Loss) - The Company had operating income for the three month
period ended September 30, 2021 of $1,268 compared to operating income of $2,049
for the same period in 2020. The decrease in operating income for the three
month period ended September 30, 2021 compared to the same period in 2020, was
mainly due to a higher cost of goods sold, not including royalties, as a percent
of revenues for the most recent period. The Company had operating income for the
nine month period ended September 30, 2021 of $6,347 compared to operating
income of $2,581 for the same period in 2020. The increase in operating income
for the nine month period ended September 30, 2021 compared to the same period
in 2020, was mainly due to the increase in gross profit associated with the
increase in total sales, mainly deriving from royalties and barrier rentals.
Operating results for the 2020 periods were also adversely affected due to
COVID-19 related factors.



Interest Expense - Interest expense was $47 and $53 for the three month periods
ended September 30, 2021 and 2020, respectively. Interest expense was $145 and
$166 for the nine month periods ended September 30, 2021 and 2020, respectively.
The Company expects interest expense to continue to decrease for the full year
2021, as compared to the full year 2020 with the refinancing of debt in March
2020 and the payoff of two long-term notes during 2021.



Income Tax Expense (Benefit) - The Company had income tax expense of $442 with
an effective rate of 11% for the three months ended September 30, 2021 compared
to income tax expense of $469 with an effective rate of 23% for the same period
in 2020. The Company had income tax expense of $1,711 with an effective rate of
18% for the nine months ended September 30, 2021 compared to income tax expense
of $588 with an effective rate of 23% for the same period in 2020. The decrease
in the effective tax rate is due to the exclusion of $2,692 from federal taxable
income related to PPP loan forgiveness under section 1106(i) of the CARES Act.



Net Income (Loss) - The Company had net income of $3,694 for the three months
ended September 30, 2021, compared to net income of $1,549 for the same period
in 2020. The basic and diluted earnings per share was $0.71 for the three months
ended September 30, 2021, and the basic and diluted earnings per share was $0.30
for the three months ended September 30, 2020. The Company had net income of
$7,546 for the nine months ended September 30, 2021, compared to net income of
$1,952 for the same period in 2020. The basic and diluted earnings per share was
$1.45 for the nine months ended September 30, 2021, and the basic and diluted
earnings per share was $0.38 for the nine months ended September 30, 2020.
Profitability for the three and nine months ended September 30, 2021 was
positively impacted by the forgiveness of the PPP loan (described below in
Liquidity and Capital Resources) in the amount of $2,692.




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Cash and capital resources (amounts in thousands of dollars)

Reference is made to the “Overview; Potential effect of the COVID-19 outbreak ”above in the context of the discussion below.

The Company has a mortgage note payable to Summit Community Bank (the "Bank")
for the construction of its North Carolina facility. The note carries a ten year
term at a fixed interest rate of 3.64% annually per the Promissory Note Rate
Conversion Agreement, with monthly payments of $22, and is secured by all of the
assets of Smith-Carolina and a guarantee by the Company. The loan matures on
October 10, 2029. The balance of the note payable at September 30, 2021 was
$1,862.



On March 27, 2020, the Company completed the refinancing of existing loans with
a note payable to the Bank in the amount of $2,701. A portion of the funds in
the amount of $678 were secured for improvements to an existing five acre parcel
for additional storage at the Midland, Virginia plant. The loan is
collateralized by a first lien position on the Virginia property, building, and
assets. The refinance also released the lien on the Smith-Columbia plant in
Hopkins, South Carolina (Columbia). The interest rate per the Promissory Note is
fixed at 3.99% per annum, with principal and interest payments payable monthly
over 120 months in the amount of $27. The loan matures on March 27, 2030. The
balance of the note payable at September 30, 2021 was $2,363.

The Company also has 4 smaller installment loans with annual interest rates between 2.90% and 6.84%, maturing between 2021 and 2025, with variable balances totaling 140 $.

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

as
of September 30, 2021.



In addition to the notes payable discussed above, on April 16, 2020, the Company
obtained a loan, evidenced by a promissory note, under the Paycheck Protection
Program (the "PPP") from the Bank in the amount of $2,692. The PPP provides for
loans to qualifying businesses, the proceeds of which may only be used for
payroll costs, rent, utilities, mortgage interest, and interest on other
pre-existing indebtedness. The interest rate per the promissory note, dated
April 16, 2020 and executed by the Company in favor of the Bank, was fixed at
1.00% per annum, with principal and interest payments starting thirty (30) days
after the amount of forgiveness is determined under section 1106 of the CARES
Act. The proceeds of the loan were required to be utilized pursuant to the
requirements of the PPP, and all or a portion of the loan could be forgiven in
accordance with the PPP applicable rules, regulations, and guidelines. On July
9, 2021, the Company received loan forgiveness for the full amount of the loan
of $2,692.



Also in addition to the notes payable discussed above, the Company has a $4,000
line of credit with the Bank with no balance outstanding as of September 30,
2021. The line of credit is evidenced by a commercial revolving promissory note
which carries a variable interest rate of prime and matures on October 1, 2022.
The loan is collateralized by a first lien position on the Company's accounts
receivable and inventory and a second lien position on all other business
assets. Key provisions of the line of credit require the Company (i) to obtain
bank approval for capital expenditures in excess of $3,500 during the term of
the loan; and (ii) to obtain bank approval prior to its funding any acquisition.
On October 21, 2021, the Company received a Commitment Letter from the Bank to
provide a guidance line of credit specifically to purchase business equipment in
an amount up to $1,500. The commitment provides for the purchase of equipment
for which a note payable will be executed with a term not to exceed five years
with an interest rate at the Wall Street Journal prime rate plus 0.50% with a
floor of 3.50% per annum. The loan is collateralized by a first lien position on
all equipment purchased under the line. The commitment for the guidance line of
credit matures on October 21, 2022. As of September 30, 2021, the Company had
not purchased any equipment pursuant to the $1,500 commitment.

TO September 30, 2021, the Company had liquid assets totaling $ 14,995 and investment securities totaling $ 1,243, compared to cash totaling $ 8,764 and investment securities totaling $ 1,228 To December 31, 2020. Investment securities at
September 30, 2021 consist of shares of USVAX (a Virginia Bond Fund). The increase in cash flow is mainly the result of positive operating results in the first nine months of 2021.

Capital spending for the nine months ended September 30, 2021 totaled $1,210, as
compared to $2,501 for the same period in 2020. The 2021 expenditures were
mainly for the purchase of rental barrier, miscellaneous manufacturing
equipment, and a vehicle. The Company intends to continue capital spending on
maintenance capital expenditures as needed over the remainder of the year, which
is expected to be approximately $1,000. With the increase in barrier rental
bidding and activity, the Company plans to purchase used barrier and manufacture
barrier to increase the rental fleet capacity, which is expected to cost an
additional $1,000.



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




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The Company's cash flow from operations is affected by production schedules set
by contractors, which generally provide for payment 35 to 90 days after the
products are produced and with some architectural contracts, retainage may be
held until the entire project is completed. This payment schedule may result in
liquidity problems for the Company because it must bear a portion of the cost of
production before it receives payment from its customers. The Company's average
days sales outstanding (DSO), excluding the effect of unbilled revenue, was 87
days for the nine months ended September 30, 2021 compared to 89 days for the
year ended December 31, 2020. The decrease in DSO is mainly due to collection of
retainage and the collection of amounts due under multiple large projects
occurring in the first quarter 2021.



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



The Company's inventory was $3,196 at September 30, 2021 and $2,194 at December
31, 2020, or an increase of $1,002. The increase in inventory is mainly due to
the increase of raw materials on-hand compared to the prior year due to
strategic measures to purchase certain materials, when available, that may be
more susceptible to supply chain issues. Inventory turnover was 16.3, annualized
for the nine months ended September 30, 2021, compared to 14.9, annualized

for
the same period in 2020.

Critical accounting conventions and estimates

The Company’s critical accounting policies are further described in its Summary of Accounting Policies for the Company’s Consolidated Financial Statements on Form 10-K for the year ended. December 31, 2020. There has been no change since September 30, 2021.

Seasonality



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



Inflation



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



Sales Backlog

As of November 1, 2021, the Company's sales backlog was approximately $28.5
million, as compared to approximately $20.6 million at the same time in 2020. It
is estimated that majority of the projects in the sales backlog will be produced
within 12 months, with a portion extending several years.




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