Getting smaller but not dropping pounds

You can definitely build muscle under a lower calorie diet. If you're getting the correct protein intake and in a healthy calorie zone there's no reason you shouldn't be gaining muscle with regular exercise.

I wouldn't be worrying about the scale at all, if your body looks better that should be all that matters. The scale is affected by water intake, time of day, day of the week, what you ate the night before, the clothes you're wearing, you name it. Instead of worrying about a fickle number worry about how your clothes are fitting, how you feel, how you look - and based off those qualifications it sounds like you're doing an awesome job.

Glad I'm not the only one going through this. I know size is more important than the number on the scale, but if I could just loose a pity pound! Lol I will just keep up the work and see how it turns out.