SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

                                FORM 10-KSB

                  Annual Report under Section 13 or 15(d) of
                     the Securities Exchange Act of 1934
                  For the Fiscal Year Ended December 31, 1998
                      Commission File Number 1-13752



                         SMITH-MIDLAND CORPORATION
               (Name of Small Business Issuer in its Charter)


         Delaware                                        54-1727060
(State or Other Jurisdiction of                       (I.R.S. Employer
Incorporation or Organization)                        Identification No.)

Route 28, P.O. Box 300, Midland, Virginia                  22728
(Address of Principal Executive Offices)                (Zip Code)


                               (540) 439-3266
             (Issuer's Telephone Number, Including Area Code)

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

                                                     Name of Each Exchange on
Title of Each Class                                      Which Registered
-------------------                                  -------------------------
Common Stock, $.01 par value per share                Boston Stock Exchange
Redeemable Common Stock Purchase Warrants             Boston Stock Exchange

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

                 Common Stock, $.01 par value per share
                         (Title of Class)

               Redeemable Common Stock Purchase Warrants
                        (Title of Class)

<PAGE>


        Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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

        Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. ___

        The Issuer's net sales and revenues for its most recent fiscal year were
$14,434,178.

        The aggregate market value of the shares of Common Stock, held by
non-affiliates, based upon the average of the closing bid and asked prices for
such stock on March 26, 1999, was approximately $1,787,808. As of March 26,
1999, the Company had outstanding 3,144,798 shares of Common Stock, $.01 par
value per share.

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                               PART I


                     FORWARD-LOOKING STATEMENTS


        This Annual Report and related documents include "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. 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:

        o      our high level of indebtedness and ability to satisfy the same,
        o      our recent significant loss under a material contract,
        o      our limited recent history of profitable operations and our
               recent significant loss for the three months ended December 31,
               1998, resulting in a loss for the year,
        o      the  continued  availability  of  financing  in the  amounts,  at
               the  times and on the terms
               required, to support our future business and capital projects,
        o      the  extent to which we are  successful  in  developing,
               acquiring,  licensing  or  securing
               patents for proprietary products,
        o      changes  in  economic  conditions  specific  to any one or more
               of our  markets  (such as the availability of public funds and
               grants for construction),
        o      changes in general economic conditions (such as interest rate
               changes),
        o      adverse weather which inhibits the demand for our products,
        o      our compliance with governmental regulations,
        o      the outcome of pending and future litigation,
        o      unforeseen operational difficulties and financial losses due to
               year 2000 computer problems,
        o      the possible delisting of our Common Stock from NASDAQ due to the
               continuing trading of the stock price below $1.00 per share and
               the decrease of our Net Tangible Assets below $2,000,000 and
        o      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.

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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, transportation
and utilities industries. The Company's customers are primarily general
contractors and federal, state and local transportation authorities located in
the Mid-Atlantic and Northeastern regions of the United States. The Company's
operating strategy has involved producing innovative and proprietary products,
including Slenderwall(TM), a patent-pending, lightweight, energy efficient
concrete and steel exterior wall panel for use in building construction; J-J
Hooks(TM) Highway Safety Barrier, a patented, positive-connected highway safety
barrier; Sierra Wall, a sound barrier primarily for roadside use; and
Easi-Set(R) transportable concrete buildings, also patented. In addition, the
Company produces other generic highway sound barriers, utility vaults, farm
products such as cattleguards, and water and feed troughs, and custom order
precast concrete products with various architectural surfaces.

        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 Route 28, 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.


        MARKET

        The Company's market primarily consists of general contractors
performing public and private construction contracts, including the construction
of commercial buildings; public and private roads and highways; airports;
municipal utilities; and federal, state, and local transportation authorities,
primarily located in the Mid-Atlantic and Northeastern states. The Company also
licenses its proprietary products to precast concrete manufacturers nationwide
and in Puerto Rico, Canada, Belgium, and Spain. The Company, in conjunction with
the establishment of its Slenderwall(TM) exterior cladding system, intends to
expand the market in which it currently competes. The Company believes that the
annual market for exterior cladding in the Mid-Atlantic and Northeast region is
approximately $500 million and that the nationwide annual market for exterior
cladding products exceeds $2 billion based upon information obtained by an
independent third party.

        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.
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        .
        PRODUCTS

        Precast concrete products are cast at a manufacturing facility and
delivered to a site for installation, as contrasted to ready-mix concrete, which
is produced in a "batch plant," put into a mixer truck where it is mixed
thoroughly 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, or structurally. 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.

        SLENDERWALL(TM) LIGHTWEIGHT CONSTRUCTION PANELS

        Each Slenderwall(TM) system is a prefabricated, energy-efficient,
lightweight exterior cladding system that is offered as a cost-effective
alternative to the traditional, piecemeal construction of the exterior walls of
buildings. The Company's Slenderwall system combines the essential components of
a wall system into a single unit ready for interior dry wall mounting
immediately upon installation. The base design of each Slenderwall panel
consists of a galvanized or stainless steel stud frame with an exterior sheath
of approximately two-inch thick, steel-reinforced, high-density, precast
concrete, with various available architectural surfaces. The exterior concrete
sheath is attached to the interior frame by strategically placed epoxy coated
steel connectors that suspend the exterior concrete approximately one-half inch
away from the steel frame.

        Slenderwall panels are approximately one-half the weight of brick walls
of equivalent size, permanence and durability. This 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 Slenderwall's reduced installation time and ease of erection, and
from the use of smaller cranes for installation.

        The Company custom designs and manufactures each Slenderwall exterior
cladding system. The exterior of the Slenderwall systems can be produced in a
variety of attractive architectural finishes, such as concrete, exposed stone,
granite or thin brick. Management has received a positive reaction to
Slenderwall systems in the marketplace for use in new construction and
replacement projects because it is a cost-effective, efficient, and attractive
wall system. As of March 26, 1999 the Company has a backlog for Slenderwall
systems totaling approximately $900,000, compared to $2,343,000 at March 25,
1998.

        EASI-SET  SIERRA WALL(TM)

        The Easi-Set Sierra Wall(TM)(the "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 around residential,
industrial, and commercial properties and alongside highways. With additional
reinforcement, the Sierra Wall can also be used as a retaining wall to retain
earth in both highway and residential construction. The Sierra Wall is typically
constructed of four inch thick, steel-reinforced concrete panels that are

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securely joined at an integral column by a tongue and groove connection system.
This tongue and groove connection system makes the Sierra Wall easy to install
and move if boundaries change or highways are relocated after the completion of
a project.

        The Company custom designs and manufactures each Sierra Wall to conform
to the specifications provided by the contractor. The width, height, strength,
and exterior finish of each wall varies depending on the terrain and
application. In addition, the Company offers increased noise abatement benefits
through the use of DuriSol(R), an optional, durable and patented
sound-absorbing, material that can be cast onto the exterior of the Sierra Wall.
In January 1996, the Company entered into a licensing agreement with DuriSol,
Inc. of Ontario, Canada, ("DuriSol") permitting the Company to utilize the
DuriSol(R) sound-absorbing technology until January 20, 1999. Under the
Company's licensing agreement with DuriSol, the Company has an exclusive license
to use DuriSol in Virginia and a right of first refusal for any new proprietary
products developed by DuriSol. The Company pays a royalty to DuriSol equal to
$.25 per square foot of product manufactured using DuriSol. Effective January 1,
1999, this agreement was extended for five years ending December 31, 2003.

        The 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(TM) HIGHWAY SAFETY BARRIER

        The Easi-Set J-J Hooks(TM) highway safety barrier (the "J-J Hooks
Barrier") is a crash tested and patented, positively connected, safety barrier
that the Company sells, rents, delivers, installs and licenses for use on
roadways to separate lanes of traffic, either temporarily 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. The J-J Hooks Barriers interlock without the use
of 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") now
requiress that states use only positively connected barriers which meet NCHRP350
crash test requirements..

        The proprietary feature of the J-J Hooks Barrier 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.

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        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 rings protruding from each end of the barrier, which must
be aligned during the setting process. Once set, a crew inserts pins through the
eyes and bolts the barrier sections together. Compared to this technique, the
J-J Hooks Barrier is 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 J-J Hooks Barrier for use on
federally-aided highway projects following the successful completion of crash
testing based on National Cooperative Highway Research Program criteria. The J-J
Hooks Barrier has also been approved for use in state funded projects by 32
states, plus Washington, D.C. and Puerto Rico. The Company is in various stages
of the application process in 17 states and believes that approval in most 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, the J-J
Hooks Barrier has been approved by the appropriate authorities for use in the
countries of Spain, Belgium, Germany and Chile.

        EASI-SET PRECAST BUILDING AND EASI-SPAN(TM)

        The Easi-Set Precast Building is a transportable, prefabricated,
single-story, concrete utility 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. The Easi-Set Precast Building is available in a variety of
exterior finishes and in five standard sizes, or it can be custom sized. The
roof and floor of each Easi-Set Precast Building are manufactured using the
Company's patented post-tensioned system, which helps seal the buildings against
moisture. As a freestanding unit, the Easi-Set Precast Building requires no
poured foundations or footings and can be easily installed within a few hours.
After installation the building can be moved, if desired, and reinstalled in a
new location.

        The Company recently introduced Easi-Span(TM), a line of expandable
precast concrete buildings. Easi-Span(TM) is identical to and incorporates the
technology of the Easi-Set Precast Building, but is available in larger sizes
and, through its modular construction, can be combined in varied configurations
to permit expansion capabilities.

        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.

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      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, restrooms, 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 36 to 702 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.

        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 it's wholly-owned
subsidiary Easi-Set Industries, for the manufacturing and distribution rights of
certain proprietary products, such as the J-J Hooks Barrier and Easi-Set and
Easi-Span Precast Buildings, and certain non-proprietary products, such as the
Company's cattleguards, and water and feed troughs. Generally, licenses are
granted for defined geographic regions, and depending on the size, character and
location of the territory granted, the Company receives an initial one-time
license acquisition and training fee ranging from approximately $20,000 to
$50,000. License royalties vary depending on the product licensed, but the range
is typically between 4% to 6% of the sales of the licensed product. In addition,
Easi-Set Precast Building licensees normally pay the Company a flat monthly fee
for co-op advertising and promotion programs through which the Company produces
and distributes advertising materials and promotes the licensed products.

        The Company has entered into 25 licensing agreements in the United
States, and has established at least one licensee in each of Puerto Rico,
Canada, Belgium and Spain and sub-licensees in Chile.

                                        8

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        The Company is currently negotiating several new license arrangements
and, although no assurance can be given, expects to increase its licensing
activities. In addition, the Company is developing a licensing program for its
Slenderwall exterior cladding system.


        MARKETING AND SALES

        The Company uses 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 and Easi-Span licensees combine resources to
promote certain precast concrete products. Licensees pay a flat 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
marketing efforts are concentrated on the region within a 250 mile radius from
its facilities, which includes most of Virginia, Delaware, Maryland, North
Carolina, South Carolina, and parts of Pennsylvania, New York, New Jersey and
West Virginia.

        The Company's 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 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, the precast concrete market is dominated by several large companies.
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
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 both Midland,
Virginia and Reidsville, North Carolina compete favorably with respect to each
of these factors in the Northeast and Mid-Atlantic regions of the United States.
Finally, the Company believes it offers a broad range of products that are
unique and technologically superior to competing products.

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        PATENTS AND PROPRIETARY INFORMATION

        The Company holds U.S. and Canadian patents for the J-J Hooks Barrier
and the Easi-Set Precast Building, and a U.S. patent for the Slenderwall
exterior cladding system. The European patent for J-J Hooks Barrier was allowed
in December 1997 and has been registered in eleven European countries. The
earliest of the issued patents considered material to the Company's business
expires in 2001 and a new patent was allowed March 2, 1999 which expires in
2017. The Company also owns three U.S. registered trademarks (Easi-Set with logo
symbol (R), Smith Cattleguard(R), and Smith-Midland Excellence in Precast
Concrete(R)), one Canadian registered trademark (Easi-Set(R)) and licenses the
rights to another (DuriSol(R)). The Company licenses the technology used in
DuriSol(R) products pursuant to an agreement that expires on December 31, 2003.

        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. 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 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.

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        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.

        A Phase I Environmental Site Assessment of the Company's Midland
facility was completed in January, 1997. Only two minor recommendations were
made as a result of the survey. These were addressed and corrected.

        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 26, 1999, the Company had 136 full-time and 5 part-time
employees, 114 of which are located at the Company's Midland facility, and 27 of
which are located at the Company's facility located in Reidsville, North
Carolina. Of the 141 employees, 8 are executive officers or managers, 7 are
responsible for sales and marketing, 114 are in manufacturing, and 12 are
administrative personnel. None of the Company's employees is 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 2. DESCRIPTION OF PROPERTIES

        FACILITIES

        The Company operates two manufacturing facilities. The primary
manufacturing operations are conducted in a 44,000 square foot manufacturing
plant on approximately 22 acres of land in Midland, Virginia, of which
approximately 19 acres are owned by the Company and three acres are leased from
Rodney I. Smith, the Company's President, at an annual rental rate of $6,000.
This area houses two concrete mixers, and one concrete blender. The plant also
includes two evironmentally controlled casting areas two batch plants, a form
fabrication shop, a welding and metal fabrication facility, a carpentry shop,
and a quality control center. The Company's Midland facility also includes a
large storage yard for inventory and stored materials.

        The Company completed a 16,000 square foot manufacturing building on its
Midland property during the first quarter of 1999 and, in view of the additional
capacity, discontinued performing a portion of its concrete pouring and curing
processes on uncovered, outdoor manufacturing areas. Such outdoor processing was
adversely affected by wet or cold weather and bringing these operations under
roof significantly increased production capacity and efficiency.

        In addition, the Company carries out administration, research and
development, sales and marketing, and licensing operations in a 4,500 square

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foot office building located on its Midland property. The Company also owns 19
acres of undeveloped industrial property in Midland, not adjacent to the
manufacturing facility.

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

        The Company believes that its present facilities are adequate for its
current needs. Substantially all of the Company's facilities and equipment were
used as collateral for a $4,000,000 twenty three year note which resulted from a
restructuring of the Company's debt in June 1998 (see Liquidity and Capital
Resources).

ITEM 3.  LEGAL PROCEEDINGS

        In late 1995, the Company filed four separate informal claims with the
Maryland State Contractor Board of Appeals. These claims totaled approximately
$502,000 for damages and costs incurred as a result of specification, policy and
operating changes to contracts primarily instituted by the State of Maryland,
including the then newly issued "Noise Barrier Acceptance Criteria," all of
which were undertaken after the award of the contracts and after unit production
in accordance with the contracts was virtually complete. In 1996, the Company
filed additional claims against the State of Maryland related to the same
contracts in the amount of $578,500 which brought the amount of the total claims
to $1,080,500. In early 1996, the Company received several counterclaims from
the State of Maryland. The Company has considered the counterclaims in
estimating the recoverability of its claims and certain trade accounts
receivable and approximately $270,100 of the total contract claims is included
in trade accounts receivable at December 31, 1998. The Company collected
$185,000 of the outstanding claims during the first quarter of 1999 and expects
to collect the remaining balance during 1999, although there can be no assurance
of such collections. (See footnote six in the accompanying consolidated
financial statements).

        In late 1998 the Company filed suit in the circuit court of Lake County,
Illinois against Trapani Construction Company ("Trapani") & L. J. Sheridan &
Company, as agent for the owner, for the enforcement of a mechanic's lien and
the recovery of approximately $186,500 representing the balance due on a
contract entered into by the Company to manufacture and install Slenderwall
Panels at the Hawthorn Place Medical Center II in Libertyville, Illinois. Work
on that building has been completed, approved and accepted by Trapani and the
owner. Trapani withheld payment on this project because the Company refused to
proceed with a renovation project to reclad Medical Center I, a second building
at the same site which was part of the original contract, without a change order
to cover incremental costs anticipated as a result of alleged inaccurate
specifications supplied by Trapani. The Company believes that there is a high
probability of collection of a major portion of the balance due, but there can
be no assurance in this regard.

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

ITEM 4.  SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

        No matters were submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 1998, through the solicitation of
proxies or otherwise.

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<PAGE>
                                 PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

        The Company's Common Stock has traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") under the symbol "SMID"
and on the Boston Stock Exchange ("BSE") under the symbol "SMC" since December
13, 1995. As of March 26, 1999, there were approximately 65 record holders of
the Company's Common Stock. Management believes there are approximately 500
beneficial owners of the Company's Common Stock.

        The following table sets forth the high and low sale prices for the
Company's Common Stock as reported by NASDAQ for the periods indicated. Such
quotations represent interdealer quotations without adjustment for retail
markups, markdowns or commissions and may not represent actual transactions.


                                                   Sale
                                             High        Low
1997
First Quarter                              $ 2 1/8    $ 15/16
Second Quarter                             $ 1 3/8    $ 11/16
Third Quarter                              $ 1 1/2    $ 9/16
Fourth Quarter                             $ 1 3/6    $ 3/4

1998
First Quarter                              $ 1 11/16  $ 3/4
Second Quarter                             $ 1 11/16  $ 1
Third Quarter                              $ 1 1/4    $ 1 1/16
Fourth Quarter                             $ 1 1/16   $ 5/8


        The Company has recently been notified by NASDAQ that its securities are
currently being reviewed for compliance with the Nasdaq SmallCap Market
eligibility requirements. As of March 26, 1999, the Company was not in
compliance with all current applicable requirements and the Company believes
that it will have difficulty meeting all the current requirements. In
particular, the minimum bid price ($1) requirement and the net asset requirement
(minimum of $2,000,000) are not currently being met. By June 2, 1999, the
Company must either meet such requirements or request a hearing (which will stay
delisting beyond June 2, 1999).

        DIVIDENDS

        The Company has not paid dividends on its Common Stock since its
inception and has no intention of paying any dividends to its stockholders in
the foreseeable future. The Company currently intends to reinvest earnings, if
any, 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. The Company's
current loan agreement with First International Bank prohibits the payment of
dividends to stockholders without the bank's prior written consent, except for
dividends paid in shares of the Company's Common Stock.

                                         13

<PAGE>

ITEM 6.  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.

        GENERAL

        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(TM), a patent-pending, lightweight, energy efficient concrete and
steel exterior wall panel for use in building construction; J-J Hooks(TM)
Highway Safety Barrier, a patented, positive-connected highway safety barrier;
Sierra Wall, a sound barrier primarily for roadside use; and transportable
concrete buildings. 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.

        In 1998, the Company began work on a contract to renovate the Bradley
Hall building at Rutgers University (the "Bradley Hall project"). This project,
which is expected to be completed in mid-1999, involves the design, production,
and installation of Slenderwall panels by the Company. While executing the
Bradley Hall project, the original structure was found to be not structurally
sufficient to support the installation of the Slenderwall panels as originally
designed. This lead to cost overruns relating to re-design of the panels,
production of the panels with additional steel and reinforcing, and installation
costs. Management estimates that the cost overruns over the course of the entire
project will total approximately $1.2 million and estimates that the total loss
on the job before recovery on any claims by the Company will be approximately
$1.0 million, which loss has been accrued in its entirety as of December 31,
1998. In 1999, the Company plans to file claims, for which notification had been
made, in the amount of $1.2 million. As of December 31, 1998, $400,000 of the
contract claim has been included in sales and accounts receivable. There can be
no assurance that the loss will not exceed the $1.1 million estimate or that the
Company will be able to collect any of its claim.

        RESULTS OF OPERATIONS

        YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31,
        1997

        The Company's operations for 1998 resulted in a loss of $(783,883), or
$(0.26) per share, representing a decrease in net income of $(1,047,686) when
compared to net income in 1997 of $263,803, or $0.09 per share.

        For 1998, the Company had total revenue of $14,434,178 compared to total
revenue of $12,004,897 in 1997, an increase of $2,429,281, or 20%. Total product
sales increased 23% to $12,415,252 in 1998, compared to $10,102,121 in 1997.

                                         14
<PAGE>

This increase in product sales is primarily attributed to a change in product
mix to a higher percentage of Slenderwall and other architectural products,
which are higher priced products, and to volume increases. Unit prices have not
changed significantly. Shipping and installation revenue increased to $2,018,926
in 1998 from $1,902,776 in 1997, an increase of $116,150, or 6%, primarily
attributed to an increase in the number and size of installation contracts.

        Royalty revenue increased slightly from $262,257 in 1997 to $264,178 in
1998. The increase was principally attributed to an increase in royalty fees
earned on production of Easi-Set(R) precast buildings.

        Total cost of goods sold for 1998 was $12,015,760 compared to $9,090,998
in 1997, an increase of $2,924,762. Total cost of goods sold as a percentage of
total revenue increased from 76% in 1997 to 83% in 1998. The percentage increase
was primarily attributed to cost overruns on the Bradley Hall project (see
"General" in this Section).

        General and administrative expenses increased $321,428, or 17%, to
$2,236,938 in 1998 from $1,915,510 in 1997. The increase was primarily the
result of an increase in expenses relating to increased costs of hiring and
relocation of staff, professional fees and an increase in the provisions for bad
debts.

        Selling and marketing expenses in 1998 were comparable to 1997. Selling
and marketing expenses totaled $678,871 in 1998 compared with $680,489 in 1997.

        Interest expense and loan fees increased to $541,161 in 1998 from
$372,118 in 1997, an increase of $169,043, or 45%. The increase was primarily
due to two factors related to the Company's debt refinancing in 1998 (see
"Liquidity and Capital Resources"). First, the Company incurred expense as a
result of the early retirement of several capital leases. Second, the Company
increased its total debt outstanding by approximately $1.6 million during 1998.
These two factors were offset, somewhat, by a reduction in the Company's
weighted average interest rate on its debt outstanding.

        As a result of cumulative net operating loss ("NOL") carryforwards of
approximately $2,750,000 available to the Company as of January 1, 1998, no
income tax expense was recorded for 1998. The Company does not expect to incur
income tax expense for 1999 due to the NOL carryforwards.

        LIQUIDITY AND CAPITAL RESOURCES

        The Company has financed its capital expenditures, operating
requirements and growth to date primarily with proceeds from operations, its
initial public offering ("IPO") and bank and other borrowings. The Company had
$4,698,461 of indebtedness at December 31, 1998, of which $573,104 was scheduled
to mature within twelve months.

        In June 1998, the Company successfully restructured substantially all of
its debt into one $4,000,000 note with First International Bank ("FIB"),
formerly the First National Bank of New England, headquartered in Hartford,
Connecticut. The Company closed on this loan on June 25, 1998. The Company
obtained a twenty three year term on this note at 1.5% above prime, secured by
equipment and real estate. The term of the note dramatically improved the
Company's current debt ratio and debt service. Current debt decreased from

                                     15

<PAGE>

$2,199,228 at December 31, 1997 to $573,104 at December 31, 1998. In addition to
paying off existing debt of approximately $3.0 million, the Company received
approximately $832,000 in restricted funds, to be used only for plant expansion
and new equipment. The loan is guaranteed in part by the U.S. Department of
Agriculture Rural Business-Cooperative Service's loan guarantee. Under the terms
of the note, the Company's unfinanced fixed asset expenditures are limited to
$300,000 per year for a five year period. In addition, FIB will permit chattel
mortgages on purchased equipment not to exceed $200,000 on an annual basis so
long as the Company is not in default. The Company was also granted a $500,000
operating line of credit by FIB. This commercial revolving promissory note,
which carries a variable interest rate of 1% above prime and which was
originally scheduled to terminate on May 1, 1999, was recently extended for
sixty days. The Company expects to refinance, extend and/or term the line of
credit upon its extended maturity date.

        At December 31, 1998, the Company had cash totaling $207,661 and
restricted cash balances in the amount of $387,462, compared to total cash of
$288,310 and restricted cash in the amount of $196,977, at December 31, 1997.
During 1998, the Company used $284,756 in cash (net) to fund its operating
activities and $1,229,604 in its investing activities, primarily for the funding
of a 16,000 square foot plant addition (see "Item 2. Description of Properties -
Facilities"). The Company's financing activities provided $1,624,196 primarily
as a result of the refinancing discussed above.

        Capital spending increased to $1,237,689 in 1998, from $524,232 in 1997,
as the Company implemented programs to improve manufacturing efficiencies as
well as overall plant capacity and yard storage capacity. Planned capital
expenditures for 1999 are limited, as stated above, by the FIB loan agreement.
Approximately $387,000 of restricted cash was held at December 31, 1998 for
construction and equipment expenditures. The majority of the restricted funds
were used early in 1999 to complete the new production facility (see "Item 2.
Description of Properties - Facilities"). No other significant cash
committments are expected in 1999.

        As a result of the Company's debt burden, the Company is especially
sensitive to changes in the prevailing interest rates. Increases in such
interest rates may materially and adversely affect the Company's ability to
finance its operations either by increasing the Company's cost to service its
current debt, or by creating a more burdensome refinancing environment.
Management intends to refinance this debt as it becomes due. Although management
has shown the ability to refinance and/or extend its debt in prior years, no
assurance can be given that the Company will be successful in its efforts to
extend or refinance its current indebtedness should that become necessary, or
that if it is successful in those efforts, that such extension or refinancing
will be on terms favorable to the Company. If the Company is not able to extend
or refinance the indebtedness, the Company may be subject to having its assets
foreclosed upon by certain lenders which would have a material adverse effect on
the Company's business.

        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. This payment schedule has resulted in liquidity
problems for the Company because it must bear the cost of production for its
products before it receives payment. In addition, the Company's cash flow has
been significantly effected by the loss on the Bradley Hall project. Although no
assurance can be given, the Company believes that anticipated cash flow from
operations and existing credit facilities will be sufficient to finance the
Company's operations for at least the next 12 months. In the event cash flow
from operations and existing credit facilities are not adequate to support
operations, the Company is currently investigating alternative sources of
short-term financing, for which there can be no assurance of obtaining.

                                          16

<PAGE>

        The Company has formed a team to address the affect of the year 2000 on
the Company's systems and operations. The Company expects that costs incurred in
the preparation for the year 2000 will not have a significant impact on the
Company's cash flow or results of operations. The Company plans to be fully Y2K
compliant by the fourth quarter of 1999.


        SEASONALITY

        The Company services the construction industry primarily in areas of the
United States where construction activity is inhibited by adverse weather during
the winter. As a result, the Company experiences reduced revenues from December
through March and realizes the substantial part of its revenues during the other
months of the year. The Company typically experiences lower profits, or losses,
during the winter months, and 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

        To date, management believes that the Company's operations have not been
materially affected by inflation.


        RECENT ACCOUNTING PRONOUNCEMENTS

        In June 1998, The Financial Accounting Standards Board issued Statement
of financial Accounting Standards No. 133, "Accounting for Derivative
Instruments" ("SFAS 133"). SFAS 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair market value. Presently the Company does not use derivative
instruments either in hedging activities or as investments. Accordingly, the
Company believes that adoption of SFAS 133 will have no impact on its financial
position or results of operations.

                                        17

<PAGE>

ITEM 7.  FINANCIAL STATEMENTS

        The following financial statements are filed as part of this report:

<TABLE>
<CAPTION>


                                                                                Page
<S>                                                                               <C>
Report of Independent Certified Public Accountants............................. F-2

Consolidated Balance Sheets as of December 31, 1998 and 1997................... F-3

Consolidated Statements of Operations for the years ended December 31,
1998 and 1997  .........    ....................................................F-5

Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1998 and 1997..................................................... F-6

Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997   ............................................................... F-7

Summary of Significant Accounting Policies..................................... F-9

Notes to Consolidated Financial Statements .................................... F-12

</TABLE>


ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
              FINANCIAL DISCLOSURE

          Not Applicable.

                                      18

<PAGE>
                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
         COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

<TABLE>
<CAPTION>

                                                             DIRECTOR OR
                                                             EXECUTIVE
NAME                                 AGE                   OFFICER SINCE           POSITION
<S>                                   <C>                       <C>                   <C>
Rodney I. Smith                      60                          1970            Chief Executive Officer, President
                                                                                 And Chairman of the Board of
                                                                                 Directors

Ashley B. Smith                      36                          1994            Vice President of Sales and
                                                                                 Marketing and Director

Wesley A. Taylor                     51                          1994            Vice President of Administration
                                                                                 and Director

Andrew Kavounis                      73                          1995            Director

Theodore D. Pennington               61                          1998            Vice President, Finance and
                                                                                 Chief Financial Officer

</TABLE>

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 AND
PRESIDENT.  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.  Mr.
Smith 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.

ASHLEY B. SMITH.  VICE PRESIDENT OF SALES AND MARKETING AND DIRECTOR.  Ashley B.
Smith has served as Vice  President of Sales and  Marketing of the Company since
1990 and as a Director  since  December  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.

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  December  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.

                                        19

<PAGE>

ANDREW  KAVOUNIS.  DIRECTOR.  Andrew  Kavounis  has served as a Director  of the
Company since December 1995. Mr. Kavounis was President of Core Development Co.,
Inc., a privately held  construction and development  concern from 1991 until he
retired  in 1995.  From  1989 to  1991,  Mr.  Kavounis  was the  Executive  Vice
President of the Leadership Group, a Maryland based builder and developer. Prior
to  that  time,  Mr.  Kavounis  spent  37  years  as an  executive  at  assorted
construction  and  development  companies,  which  included  a  position  as the
National Vice  President of Ryland  Homes,  a privately  held company,  in which
capacity  he was  directly  responsible  for the  construction  of 17,000  homes
annually,  nationwide.  Mr.  Kavounis  received a Bachelor of Science  degree in
Chemical Engineering from Presbyterian  College, a Bachelor of Science degree in
Civil and Mechanical  Engineering from Wofford College, and a Master's degree in
Business Administration from the University of South Carolina.

THEODORE D. PENNINGTON. VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER. Mr.
Pennington has served as Vice President,  Finance and Chief Financial Officer of
the Company since September 1998. Prior to joining the Company,  Mr.  Pennington
was a  financial  consultant  serving  clients  in  the  telecommunications  and
financial  services  industries.  From September 1996 through December 1997, Mr.
Pennington  was Vice  President,  Finance and  Administration,  Chief  Financial
Officer and Secretary for Codon Pharmaceuticals Corporation. Mr. Pennington also
served as Vice President,  Finance and Administration for Cryomedical  Sciences,
Inc.  from 1990  through  1995 and as  Secretary  from 1992  through  1995.  Mr.
Pennington holds a Master of Business  Administration degree in finance from the
University of Hartford, a Master of Business Administration Degree in industrial
management  from the Wharton  School of the  University of  Pennsylvania,  and a
Bachelor of Science Degree in mechanical engineering from Lafayette College


SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) ("Section 16(a)") of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), 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 (the
"Commission") and any national securities exchange on which the Corporation's
securities are registered. Executive officers, Directors and greater than ten
percent (10%) beneficial owners are required by the Commission's regulations to
furnish the Company with copies of all Section 16(a) forms they file.

        Based solely on a review of the copies of such forms furnished to the
Company and written representations from the executive officers and Directors,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, Directors and greater than ten per cent (10%) beneficial
owners were satisfied, except for the Form 3 and Form 4 filings due for the
following transactions, which filings are currently being prepared:

        Form 4 for Andrew Kavounis for the Nov. 5, 1997 grant of non-qualified
        stock options,
        Form 4 for Bernard Patriacca for the Nov. 5, 1997 grant of non-qualified
        stock options,
        Form 4 for Rodney I. Smith for the July 31, 1998 grant of non-qualified
        stock options,

                                             20
<PAGE>


        Form 4 for Rodney I. Smith for the  August 4, 1998 grant of
        non-qualified  stock options,
        Form 4 for Ashley Smith for the November 5, 1997 grant of incentive
        stock options,
        Form 4 for Ashley Smith for the August 4, 1998 grant of incentive stock
        options,
        Form 4 for Wesley A. Taylor for the November 5, 1997 grant of incentive
        stock options,
        Form 4 for Wesley A. Taylor for the August 4, 1998 grant of incentive
        stock options,
        Form 3 for Thomas Deserable due upon appointment as Chief Operating
        Officer of Smith-Midland Virginia and for the August 4, 1998 grant of
        incentive stock options.

ITEM 10.  EXECUTIVE COMPENSATION.

        The following table sets forth the compensation paid by the Company for
services rendered for the last three completed fiscal years to the executive
officers of the Company and its subsidiaries whose cash compensation exceeded
$100,000 during 1998:

<TABLE>
<CAPTION>


--------------------- ------------------------------------- -------------------------------------

                              Annual Compensation                  Long Term Compensation
--------------------- ------------------------------------- -------------------------------------
--------------------- ------------------------------------- ------------------ ------------------

                                                                 Awards             Payouts
--------------------- ------------------------------------- ------------------ ------------------
--------------------- --------- -------- --------- -------- --------- -------- --------- --------

        (a)             (b)       (c)      (d)       (e)      (f)       (g)      (h)       (i)
--------------------- --------- -------- --------- -------- --------- -------- --------- --------
--------------------- --------- -------- --------- -------- --------- -------- --------- --------
                                                                      Securities
                                                    Other             Under-               All
      Name and                                     Annual   Restricted lying              Other
     Principal                                     Compen-   Stock    Options/   LTIP    Compen-
      Position          Year    Salary    Bonus    sation    Awards    SARs    Payouts   sation
                                   $        $         $        $        (#)       $         $
--------------------- --------- -------- --------- -------- --------- -------- --------- --------
--------------------- --------- -------- --------- -------- --------- -------- --------- --------
<S>                     <C>       <C>      <C>      <C>       <C>      <C>        <C>     <C>
  Rodney I. Smith       1998    175,000   54,500      -        -      20,000      -         -
  President, Chief      1997    170,503   81,500      -        -         -        -         -
 Executive Officer      1996    175,000     -         -        -         -        -         -
and Chairman of the
       Board.

--------------------- --------- -------- --------- -------- --------- -------- --------- --------
--------------------- --------- -------- --------- -------- --------- -------- --------- --------

Thomas J. Deserable     1998     45,867     -      65,508(1)   -       2,000      -         -
    Former Chief        1997       -        -         -        -         -        -         -
 Operating Officer,     1996       -        -         -        -         -        -         -
   Smith-Midland
    Corporation
 (Virginia) through
      3/16/99
--------------------- --------- -------- --------- -------- --------- -------- --------- --------

</TABLE>

(1) Mr. Deserable received $65,508 in consulting fees prior to commencing
employment as Chief Operating Officer of Smith-Midland Corporation (Virginia),
the primary subsidiary of the Company.


COMPENSATION OF DIRECTORS

        All non-employee Directors receive $500 per meeting as compensation for
their services as Directors and are reimbursed for expenses incurred in
connection with the performance of their duties. All employee Directors, except
Rodney I Smith, receive $250 per meeting as compensation for their services and
are reimbursed for expenses incurred in connection with the performance of their
duties. Rodney I. Smith receives no compensation as a Director.

                                        21

<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

        The following table summarizes option grants during 1998 to the named
executive officers:

<TABLE>
<CAPTION>
                               Number of             % of Total
                                Securities             Options
                               Underlying            Granted to        Exercise
                                 Options           Employees in         or Base      Expiration
         Name                  Granted (#)           Fiscal Year     Price  ($/Sh)     Date
         ----                  -----------         --------------    -------------   -----------
<S>                               <C>                  <C>              <C>            <C>
Rodney I. Smith...........      20,000                 32.27%            1.00         7/31/06
Thomas J. Deserable......        2,000                  3.23%            1.00         7/31/06

</TABLE>

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES

<TABLE>
<CAPTION>

                                                                Number of
                              Shares                         Shares Underlying             Value of Unexercised
                            Acquired                        Unexercised Options            In-the-Money Options
                              on            Value          at Fiscal Year End (#)         at Fiscal Year-End ($)(1)
                            Exercise      Realized       ------------------------       --------------------------
Name                          (#)            ($)        Exercisable   Unexercisable     Exercisable    Unexercisable
----                       ---------      --------      ---------------------------     ----------------------------
<S>                           <C>           <C>            <C>           <C>              <C>             <C>
Rodney I. Smith........       ---           ---             0            20,000             0              ---
Thomas J. Deserable....       ---           ---             0             2,000             0              ---
--------

</TABLE>

(1) Value is based on the closing sales price of the Company's Common Stock on
December 31, 1998 ($1.00), the last trading day of 1998, less the option
exercise price ($1.00).


EMPLOYMENT AGREEMENT

        The Company has entered into an employment agreement with Mr. Rodney I.
Smith, which provides for an annual base salary of $175,000. The present term of
the agreement continues until December 31, 1999, and is thereafter automatically
renewed for successive one year periods unless Mr. Smith or the Company gives
the other party three months prior written notice of non-renewal. Bonuses and
salary increases may be granted by the Compensation Committee of the Board of
Directors, as it so determines from time to time. Mr. Smith has voluntarily
reduced his annual base salary by 22.5% to $135,625 temporarily, effective March
8, 1999. Mr. Smith also is entitled to receive benefits offered to the Company's
employees generally. If terminated without cause, Mr. Smith is entitled to
receive as severance pay an amount equal to twenty-four (24) months of his base
salary, less taxes, other required withholdings and any amounts owed to the
Company, payable in accordance with the Company's standard payroll procedures.
In addition, the employment agreement precludes Mr. Smith from competing with
the Company during his employment and for at least one year thereafter, and from
disclosing confidential information. The Company is the owner of and the
beneficiary of three key person life insurance policies on Mr. Smith totaling
$1,400,000.

                                   22

<PAGE>


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

        The following table sets forth, as of March 26, 1998, 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) each of the Company's
Directors and Executive Officers, 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.


                               NUMBER OF SHARES
NAME AND ADDRESS OF            PERCENTAGE OF                  PERCENTAGE
BENEFICIAL OWNER(1)            BENEFICALLY OWNED(2)           OF CLASS
-------------------            --------------------           -----------
Rodney I. Smith (3)(4)(5)          843,298                      27.70

Robert M. Rubin (6)                230,000                       7.55

Ashley B. Smith (3)(4)(7)           94,717                       3.11

Wesley A. Taylor (8)                 4,700                          *

Andrew Kavounis  (9)                 2,000                          *

Theodore D. Pennington               1,000                          *

All directors and executive
officers as a group (5 persons)
(2)(3)(4)(5)(6)(7)(8)(9)           945,715                      30.94
----------------------------------
* Less than 1%

(1) The address for each of Messrs. Rodney I. Smith, Ashley B. Smith, Taylor,
    Kavounis, and Pennington is c/o Smith-Midland Corporation, P.O. Box 300,
    5119 Catlett Road, Midland, Virginia 22728. The address for Mr. Rubin is
    6060 Kings Gate Circle, Dealany Beach, Florida 33486.

(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) Rodney I. Smith and Ashley B. Smith are father and son, respectively. Each
    of Rodney I. Smith and Ashley B. Smith disclaims beneficial ownership of the
    other's shares of Common Stock.

(4) Does not include an aggregate of 98,958 shares of Common Stock held by
    Jeremy Smith, Matthew Smith, and Roderick Smith, sons of Rodney I. Smith,
    and brothers of Ashley B. Smith, and 112,713 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.

                                        23

<PAGE>


(5) Includes the 100,000 shares of Common Stock that have been deposited into an
    irrevocable trust (the "Trust") for the benefit of Hazel Smith, the income
    beneficiary of the Trust and former wife of Rodney I. Smith, and Mr. Smith's
    children. Mr. Smith is the trustee of the Trust and, as such, may vote the
    shares as he deems fit. Includes the 230,000 shares of Common Stock held by
    Mr. Robert M. Rubin which Mr. Smith holds an irrevocable proxy to vote as
    Mr. Smith deems fit, subject to certain limitations. This proxy expires on
    the first to occur of (i) ten years from the date of the proxy or (ii) the
    sale by Mr. Rubin of the shares of Common Stock subject to the proxy. The
    230,000 shares of Common Stock held by Mr. Rubin were accounted for in
    calculating both Mr. Smith's and Mr. Rubin's beneficial ownership.

(6) Mr. Rodney I. Smith holds an irrevocable proxy to vote the 230,000 shares of
    Common Stock held by Mr. Rubin. This proxy expires on the first to occur of
    (i) ten years from the date of the proxy or (ii) the sale by Mr. Rubin of
    the shares of Common Stock subject to the proxy. The 230,000 shares of
    Common Stock held by Mr. Rubin were accounted for in calculating both Mr.
    Smith's and Mr. Rubin's beneficial ownership.

(7) Includes options to purchase 5,100 shares of Common Stock of the C Company
    exercisable at $1.00 per share.

(8) Includes options to purchase 4,700 shares of Common Stock of the Company
    exercisable at $1.00 per share.

(9) Includes options to purchase 2,000 shares of Common Stock of the Company
    exercisable at $1.00 per share.


ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

        At December 31, 1998, the Company owned an unsecured note for
approximately $624,387 receivable from Mr. Rodney I. Smith, the Company's
President and majority shareholder, with a seven year term accruing interest at
a rate of 6% per annum. During 1996, $102,300 of the note was reduced for the
Company's purchase of 40,920 common shares from Mr. Smith. On December 31, 1997,
the terms of the note were changed to call for annual payments of $45,948
beginning on December 31, 1998 and continuing through maturity on December 31,
2002. Total interest income on this note was approximately $37,600 and $39,500
for the years ended December 31, 1998 and 1997, respectively.

                                          24

<PAGE>

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(A)     EXHIBITS.

       (1) The following exhibits are filed herewith:

Exhibit
  No.
-------
 27        Financial Data Schedule


       (2) The following exhibits were filed as part of the Company's Quarterly
           Report on Form 10-QSB for the quarter ended June 30, 1998 and are
           incorporated herein by reference:

Exhibit
  No.                     Title
-------                   -----
  1       First National Bank of New England Loan Agreement

  2       First National Bank of New England Loan Note


     (3)  The following exhibits were filed as part of the Company's Annual
          Report on Form 10-KSB for the year ended December 31, 1997and are
          incorporated herein by reference:.

Exhibit
  No.                     Title
-------                   -----
 10c      Promissory Note from Rodney I. Smith to the Company, dated as of
          December 31, 1997.

     (4)  The following exhibits were filed as part of the Company's Annual
          Report on Form 10-KSB for the year ended December 31, 1995 and
          are incorporated herein by reference.

                                         25

<PAGE>

Exhibit
  No.                     Title
-------                   -----
 10a      License Agreement by and between the Company and DuriSol, Inc.,
          dated January 22, 1996.

 21       List of Subsidiaries of the Company.


     (5)  The following exhibits were filed as part of the Company's Form
          SB-2 Registration Statement (No. 33-89312) declared effective by
          the Commission on December 13, 1995 and are incorporated herein
          by reference:

Exhibit
  No.                     Title
-------                   -----
 3a       Certificate of Incorporation, as amended.

 3b       Bylaws, as amended.

 4b       Specimen Common Stock Certificate.

 4c       Form of Public Warrant Agreement, including Specimen Redeemable Common
          Stock Purchase Warrant.

 4d       Form of Warrant Agreement between the Company, Network 1 Financial
          Securities Inc. and First Hanover Securities, Inc., including Form of
          Underwriter's Warrant Certificate.

10a       Employment Agreement between the Company and Rodney I. Smith.

10r       Lease Agreement between the Company and Rodney I. Smith.

10t       Collateral Assignment of Letters Patent between the Company and Rodney
          I. Smith.

10u       Form of License Agreement between the Company and its Licensee.

10w       1994 Stock Option Plan.

 (B)  REPORTS ON FORM 8-K

          The Company did not file any Current Reports on Form 8-K during the
fourth quarter of 1998.

                                    26

<PAGE>

                              SIGNATURES

        In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

                                          SMITH-MIDLAND CORPORATION


Date:   April 14, 1999              By:  /s/ Rodney I. Smith
                                        --------------------------
                                             Rodney I. Smith, President

        In accordance with the Exchange Act, 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            Chairman of the Board,         April 14, 1999
---------------------          Chief Executive Officer
Rodney I. Smith                and President (principal
                               executive officer)


/s/ Theodore D. Pennington     Vice President, Finance        April 14, 1999
--------------------------     and Chief Financial
Theodore D. Pennington         Officer(principal finance
                               and accounting officer)


/s/ Wes Taylor                 Vice President of              April 14, 1999
---------------                Administration and
Wes Taylor                     Director


/s/ Ashley Smith               Vice President of Sales        April 14, 1999
----------------               and Marketing and Director
Ashley Smith


/s/ Andrew Kavounis            Director                       April 14, 1999
-------------------
Andrew Kavounis

                                        27
<PAGE>
                            Smith-Midland Corporation
                                     and Subsidiaries



                                           Consolidated Financial Statements
                                      Years Ended December 31, 1998 and 1997

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                                                        Contents

    Report of Independent Certified Public Accountants                   F - 2

    Consolidated Financial Statements

      Balance Sheets                                                     F - 3

      Statements of Operations                                           F - 5

      Statements of Stockholders' Equity                                 F - 6

      Statements of Cash Flows                                           F - 7

    Summary of Significant Accounting Policies                           F - 9

    Notes to Financial Statements                                        F - 12

                                      F-1

<PAGE>

Report of Independent Certified Public Accountants


To the Board of Directors
Smith-Midland Corporation
Midland, Virginia

We have audited the  accompanying  consolidated  balance sheets of Smith-Midland
Corporation  and  subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years then ended.  These financial  statements are the responsibility of the
Corporation's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
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, 1998 and 1997, and the results of
their  operations  and their cash  flows for the years then ended in  conformity
with generally accepted accounting principles.


                                                       BDO Seidman, LLP


Richmond, Virginia
April 12, 1999

                                    F-2

<PAGE>

December 31,                                                1998         1997
--------------------------------------------------------------------------------
   Assets (Note 2)

Current assets
  Cash                                                 $  207,661    $  288,310
  Accounts receivable (Note 6)
    Trade - billed, (less allowance for doubtful
      accounts of $262,000 - 1998 and $231,000 - 1997)  3,824,012     3,254,993
    Trade - unbilled                                      199,108       410,158
  Inventories
    Raw materials                                         522,468       486,583
    Finished goods                                        989,745       942,427
  Prepaid expenses and other assets                       116,034        69,801
--------------------------------------------------------------------------------

Total current assets                                    5,859,028     5,452,272
--------------------------------------------------------------------------------

Property and equipment, net (Notes 1 and 2)             2,449,566     1,531,062
--------------------------------------------------------------------------------

Other assets
  Cash - restricted (Notes 2 and 6)                       387,462       196,977
  Note receivable, officer (Note 3)                       624,387       632,472
  Other                                                   246,058        79,443
--------------------------------------------------------------------------------
Total other assets                                      1,257,907       908,892
--------------------------------------------------------------------------------

                                                       $9,566,501    $7,892,226
================================================================================

                                      F-3

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                                   Consolidated Balance Sheets



December 31,                                                1998         1997
--------------------------------------------------------------------------------

   Liabilities and Stockholders' Equity

Current liabilities
  Current maturities of notes payable (Note 2)         $  573,104    $2,199,228
  Accounts payable - trade                              2,177,884     1,744,127
  Accrued expenses and other liabilities (Note 6)       1,115,118       570,693
  Customer deposits                                       306,255       450,474
--------------------------------------------------------------------------------

Total current liabilities                               4,172,361     4,964,522

Notes payable - less current maturities (Note 2)        4,020,661       759,440

Notes payable - related parties (Note 3)                  104,696       115,598
--------------------------------------------------------------------------------

Total liabilities                                       8,297,718     5,839,560
--------------------------------------------------------------------------------

Commitments and contingencies (Notes 5 and 6)
--------------------------------------------------------------------------------

Stockholders' equity
  Preferred stock, $.01 par value; authorized
    1,000,000 shares, none outstanding                        -             -
  Common stock, $.01 par value; authorized
    8,000,000 shares; 3,085,718 issued,
    3,044,798 outstanding                                  30,857        30,857
  Additional capital                                    3,450,085     3,450,085
  Accumulated deficit                                  (2,109,859)   (1,325,976)
--------------------------------------------------------------------------------
                                                        1,371,083     2,154,966
Treasury stock, at cost, 40,920 shares                   (102,300)     (102,300)
--------------------------------------------------------------------------------

Total stockholders' equity                              1,268,783     2,052,666
--------------------------------------------------------------------------------
                                                       $9,566,501    $7,892,226
================================================================================

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


                                      F-4

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                         Consolidated Statements of Operations


Year Ended December 31,                                      1998          1997
--------------------------------------------------------------------------------

Revenue                                               $14,434,178   $12,004,897

Cost of goods sold                                     12,015,760     9,090,998
--------------------------------------------------------------------------------

Gross profit                                            2,418,418     2,913,899
--------------------------------------------------------------------------------

Operating expenses
  General and administrative expenses                   2,236,938     1,915,510
  Selling expenses                                        678,871       680,489
--------------------------------------------------------------------------------

Total operating expenses                                2,915,809     2,595,999
--------------------------------------------------------------------------------

Operating income (loss)                                  (497,391)      317,900
--------------------------------------------------------------------------------

Other income (expense)
  Royalties                                               264,178       262,257
  Interest expense and loan fees                         (541,161)     (372,118)
  Interest income (Note 3)                                 63,616        45,795
  Other, net                                              (73,125)        9,969
--------------------------------------------------------------------------------

Total other income (expense)                             (286,492)      (54,097)
--------------------------------------------------------------------------------

Net income (loss)                                     $  (783,883)  $   263,803
================================================================================

Basic and diluted income (loss) per share             $      (.26)  $       .09
================================================================================

Weighted average common shares outstanding              3,044,798     3,044,798
================================================================================

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


                                      F-5

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                               Consolidated Statements of Stockholders' Equity

<TABLE>
<CAPTION>
                                       Additional
                             Common    Paid-In       Accumulated    Treasury
                             Stock      Capital         Deficit       Stock      Total
-------------------------------------------------------------------------------------------
<S>                          <C>       <C>           <C>            <C>          <C>
Balance, December 31, 1996   $30,857   $3,450,085   $(1,589,779)   $(102,300)   $1,788,863

Net income                        -            -        263,803           -        263,803
-------------------------------------------------------------------------------------------

Balance, December 31, 1997    30,857    3,450,085    (1,325,976)    (102,300)    2,052,666

Net loss                          -            -       (783,883)          -       (783,883)
-------------------------------------------------------------------------------------------

Balance, December 31, 1998   $30,857   $3,450,085   $(2,109,859)   $(102,300)   $1,268,783
===========================================================================================

</TABLE>

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


                                      F-6

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                         Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>


Year Ended December 31,                                         1998              1997
--------------------------------------------------------------------------------------
<S>                                                       <C>              <C>
Cash Flows From Operating Activities
  Cash received from customers                            $14,203,657      $11,670,478
  Cash paid to suppliers and employees                    (13,955,985)     (10,876,160)
  Interest paid                                              (540,695)        (372,118)
  Other                                                         8,267          103,804
--------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating activities         (284,756)         526,004
--------------------------------------------------------------------------------------

Cash Flows From Investing Activities
  Purchases of property and equipment                      (1,237,689)        (524,232)
  Repayments (advances) on officer note receivable              8,085           26,528
--------------------------------------------------------------------------------------

Net cash absorbed by investing activities                  (1,229,604)        (497,704)
--------------------------------------------------------------------------------------

Cash Flows From Financing Activities
  Proceeds from borrowings                                  4,642,275          192,565
  Repayments of borrowings                                 (3,007,177)        (368,274)
  Repayments on borrowings - related
    parties, net                                              (10,902)              -
--------------------------------------------------------------------------------------

Net cash provided (absorbed) by financing activities        1,624,196         (175,709)
--------------------------------------------------------------------------------------

Increase in cash - restricted                                (190,485)          (2,360)
--------------------------------------------------------------------------------------

Net decrease in cash                                          (80,649)        (149,769)

Cash, beginning of year                                       288,310          438,079
--------------------------------------------------------------------------------------

Cash, end of year                                         $   207,661      $   288,310
======================================================================================

</TABLE>

                                                                  continued...

                                      F-7
<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                         Consolidated Statements of Cash Flows
                                                                   (continued)
<TABLE>
<CAPTION>


Year Ended December 31,                                          1998             1997
--------------------------------------------------------------------------------------
<S>                                                        <C>            <C>
Reconciliation of net income (loss) to net cash
  provided (absorbed) by operating activities

Net income (loss)                                         $  (783,883)     $   263,803
Adjustments to reconcile net income (loss) to net
  cash provided (absorbed) by operating activities
    Depreciation and amortization                             319,185          374,041
    (Increase) decrease in
      Accounts receivable - billed                           (569,019)        (549,668)
      Accounts receivable - unbilled                          211,050         (296,859)
      Inventories                                             (83,203)         102,030
      Prepaid expenses and other assets                      (212,848)          23,399
    Increase (decrease) in
      Accounts payable - trade                                433,757          304,193
      Accrued expenses and other liabilities                  544,425           55,214
      Customer deposits                                      (144,220)         249,851
--------------------------------------------------------------------------------------

Net cash provided (absorbed) by operating activities      $  (284,756)     $   526,004
======================================================================================

</TABLE>

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


                                      F-8

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Summary of Significant Accounting Policies


Nature of Business    The Company develops, manufactures,  licenses,  sells  and
                      installs  precast  concrete products for the construction,
                      transportation  and  utilities industries primarily in the
                      Mid-Atlantic region.

Principles of         The accompanying consolidated financial statements include
Consolidation         the accounts of Smith-Midland Corporation and its  wholly-
                      owned  subsidiaries   (the   "Company").   All  material
                      intercompany   accounts  and  transactions  have  been
                      eliminated in consolidation.

Inventories           Inventories  are  stated at the  lower of cost,  using the
                      first-in, first-out (FIFO) method, or market.

Property and          Property  and  equipment  is  stated at cost. Expenditures
Equipment             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          The Company  utilizes  the asset and  liability  method of
                      accounting for income taxes. Under the asset and liability
                      method, 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-9


<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Summary of Significant Accounting Policies
                                                                   (continued)



Revenue Recognition  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
                      collectibility  is in doubt,  in which  event  revenue  is
                      recognized as cash is received.

                      Certain  sales  of  Soundwall  and  Slenderwall   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  which
                      affect  profit are  recognized  in the period in which the
                      changes   occur.   An  amount  equal  to  contract   costs
                      attributable  to  claims  is  included  in  revenues  when
                      realization  is  probable  and the amount can be  reliably
                      estimated.  Unbilled trade accounts receivable  represents
                      revenue earned on units produced and not yet billed.

Risks and             The  Company   sells   products  to  highway   contractors
Uncertainties         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.

                      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            The   estimated   fair  value  of  financial   instruments
of Financial          approximates  their  carrying  amounts as of December  31,
Instruments           1998 and 1997.  The estimated fair value of long term debt
                      is based on current  rates offered to the Company for debt
                      of the same maturities.

Estimates             The preparation of financial statements in conformity with
                      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 financial  statements  and the reported  amounts of
                      revenues and expenses during the reporting period.  Actual
                      results could differ from those estimates.

                                     F-10

<PAGE>
                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Summary of Significant Accounting Policies
                                                                   (continued)



Earnings (Loss)       Earnings per share is based on the weighted average number
per share             of shares  of  common  stock  and  dilutive  common  stock
                      equivalents  outstanding.  Basic  earnings  per  share  is
                      computed   by   dividing   income   available   to  common
                      shareholders  by the  weighted  average  number  of common
                      shares  outstanding for the period.  Diluted  earnings per
                      share reflects the potential  dilution of securities  that
                      could share in  earnings  of an entity.  Basic and diluted
                      earnings  per share are the same in 1998 and 1997  because
                      the impact of dilutive securities is anti-dilutive.

Long-Lived Assets     Effective  January 1, 1996, the Company adopted  Statement
                      of  Financial  Accounting  Standards  No. 121 (SFAS  121),
                      "Accounting  for the  Impairment of Long-Lived  Assets and
                      For  Long-Lived  Assets  to  Be  Disposed  Of."  SFAS  121
                      requires that long-lived assets and certain intangibles to
                      be held and used by an entity be reviewed  for  impairment
                      when events or changes in circumstances  indicate that the
                      carrying amount may not be recoverable.  In addition, SFAS
                      121 requires  long-lived assets and certain intangibles to
                      be  disposed  of to be  reported  at the lower of carrying
                      amount  or fair  value  less  costs to sell.  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. As
                      of  December  31,  1998,  the Company  has  determined  no
                      impairment has occurred.

Recent Accounting     In June 1998,  the Financial  Accounting  Standards  Board
Pronouncements        issued  Statement of Financial  Accounting  Standards  No.
                      133, "Accounting for Derivative Instruments" ("SFAS 133").
                      SFAS 133 is  effective  for all fiscal  quarters of fiscal
                      years  beginning after June 15, 1999. SFAS 133 establishes
                      accounting   and  reporting   standards   for   derivative
                      instruments and for hedging activities.  SFAS 133 requires
                      that an entity  recognize all derivatives as either assets
                      or  liabilities  and  measure  those  instruments  at fair
                      market  value.   Presently,   the  Company  does  not  use
                      derivative  instruments either in hedging activities or as
                      investments.   Accordingly,   the  Company  believes  that
                      adoption of SFAS 133 will have no impact on its  financial
                      position or results of operations.


                                     F-11

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>


1.  Property and      Property and equipment consist of the following:
    Equipment
                      December 31,                                   1998        1997
                      ---------------------------------------------------------------
                      <S>                                      <C>          <C>

                      Land and land improvements               $  568,660  $  435,110
                      Buildings                                 1,012,840     955,386
                      Machinery and equipment                   5,325,917   4,772,713
                      Rental equipment                             39,240      39,240
                      Construction in progress                    562,092      68,612
                      ---------------------------------------------------------------

                                                                7,508,749   6,271,061
                      Less: accumulated depreciation            5,059,183   4,739,999
                      ---------------------------------------------------------------

                                                               $2,449,566  $1,531,062
                      ===============================================================

</TABLE>

                      At December  31,  1998,  the  Company had a  manufacturing
                      plant  and  an  engineering  building  in  progress.   The
                      manufacturing  plant was completed in the first quarter of
                      1999.  The  total  cost  of the  facilities  is  currently
                      estimated to be $738,000.

2. Notes Payable      Notes payable consist of the following:

<TABLE>
<CAPTION>

                      December 31,                                       1998            1997
                      -----------------------------------------------------------------------
                     <S>                                                 <C>          <C>
                      Note payable to Riggs Bank, maturing July 8,
                       1998 with monthly principal payments of
                       $2,000 plus interest, at a rate of prime
                       plus  1.5%,  collateralized  by  accounts
                       receivable.                                     $     -       $935,000

                      Note payable to John Schied, maturing May 21,
                       1998; with monthly payments of $1,169 of
                       principal and interest, at a rate of 10%;
                       collateralized by certain vehicles.                   -          5,699

                      Note payable to First International Bank,
                       formerly First National Bank of New England,
                       maturing June 2021; with monthly payments of
                       $37,087 of principal and interest, at a rate
                       of prime plus 1.5% (9.75% at December 31,
                       1998); collateralized by principally all
                       assets of the Company.                          3,979,245           -

                                     F-12


<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


2.  Notes Payable     December 31,                                       1998            1997
    (continued)       -----------------------------------------------------------------------

                      Note payable to Security Bank maturing July 13,
                       1999; monthly payments of $4,280 of principal
                       and interest, at a rate of prime plus 3%;
                       collateralized by a first deed of trust on
                       certain land.                                   $      -      $ 83,115

                      Note payable to Midland Loan Service maturing
                       March 1, 1999; with varying monthly payments
                       of principal and interest at a rate of 14%;
                       collateralized by plant buildings.                     -       103,918

                      Note payable to State Bank of Remington,
                       maturing December 22, 2000;  with monthly
                       payments of $5,788 of principal and interest,
                       at a rate of 10.75%;  collateralized  by
                       equipment and  vehicles.                               -       180,300

                      Note payable to State Bank of Remington,
                       maturing February 11, 1999; with monthly
                       payments of interest, at a rate of 6.85%;
                       collateralized by a certificate of deposit.            -       185,689

                      Line of credit with First International Bank,
                       maturing May 30, 1999; interest payable
                       monthly at prime plus 1% (8.75% at December
                       31, 1998); secured by accounts receivable
                       and inventory                                     425,000           -


                                     F-13

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)



2.  Notes Payable     December 31,                                       1998            1997
    (continued)       -----------------------------------------------------------------------
                      Notes payable to Myers' trusts, each of four
                       maturing June 26, 1998; with monthly payments
                       of $3,241 each of principal and interest at a
                       rate of 12%;  collateralized by a third deed
                       of trust on land,  inventory and accounts
                       receivable.                                     $   -         $623,252

                      Notes payable to Branch Banking and Trust
                       maturing November 5, 1998; with monthly
                       payments of $2,000 of principal and interest
                       at a rate of 8%; collateralized by accounts
                       receivable, inventory and equipment of
                       Smith-Carolina Corporation.                         -           83,064

                      Note payable to Obrey Messick, maturing May 31,
                       2001; with monthly payments of $1,461 of
                       principal and interest, at a rate of 10%;
                       collateralized by equipment.                        -           50,559

                      Notes payable to Obrey Messick, maturing
                       December 1, 2002; with monthly payments of $582
                       of principal and interest at a rate of 10%;
                       collateralized by equipment.                        -           27,383

                      Notes payable to State Bank of Remington,
                       maturing June 21, 1998; with varying monthly
                       payments of principal and interest at a rate
                       of 9.26%; collateralized by machinery.              -           17,574

                      Notes payable to Orix Leasing, maturing July 2002,
                       with monthly payments of $1,640 of principal
                       and interest at 13%; collateralized by equipment.   -           82,815



                                     F-14

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)



2.  Notes Payable     December 31,                                       1998            1997
    (continued)       -----------------------------------------------------------------------

                      Notes payable to Poland Brothers Farm, maturing
                       August 2009, with monthly payments of $598 of
                       principal and interest at a rate of 10%;
                       collateralized by land.                         $   -     $    49,268

                      Notes payable to United Leasing, maturing June
                       29, 1999, with monthly payments of $2,987 of
                       principal and interest at a rate of 21.7%;
                       collateralized by equipment.                        -          39,974

                      Notes payable to United Leasing, maturing
                       October 4, 2000, with monthly payments of
                       $9,039 of principal and interest at a rate of
                       19.7%; collateralized by equipment, machinery,
                       and a second deed of trust on land.                 -         209,502

                      Installment notes and capitalized leases
                       collateralized by certain machinery and
                       equipment  maturing  at  various dates,
                       primarily August 2001 through October 2003,
                       with interest rates at 7.25% through 8.25%.     169,520       147,227

                      Unsecured note payable due on demand,
                       with interest rate at 14%.                       20,000       134,329
                      ----------------------------------------------------------------------

                                                                     4,593,765     2,958,668
                      Less current maturities                          573,104     2,199,228
                      ----------------------------------------------------------------------

                                                                    $4,020,661   $   759,440
                      ======================================================================

</TABLE>
                                     F-15

<PAGE>
                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


2.  Notes Payable     During 1998, the Company  restructured  substantially  all
    (continued)       its debt with First International Bank (formerly the First
                      National  Bank of New  England).  The  Company  obtained a
                      $4,000,000  twenty-three year term note at prime plus 1.5%
                      and paid off existing  debt at that time of  approximately
                      $3,000,000.  The  remaining  proceeds  are being  used for
                      plant expansion and the purchase of equipment. The loan is
                      guaranteed in part by the U.S.  Department of  Agriculture
                      Rural  Business -  Cooperative  Services.  The Company was
                      also granted a $500,000 operating line of credit. The loan
                      agreement  includes  certain  provisions,  affirmative and
                      negative covenants, including tangible capital and debt to
                      net worth ratio, which were met by the Company at December
                      31, 1998.

                      The $500,000  line of credit is due  contractually  within
                      the next fiscal year.  Management has shown the ability to
                      refinance  and/or  extend  its  debt in prior  years,  and
                      intends to extend and/or refinance this debt as it becomes
                      due in 1999.

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

                                 Year Ending December 31,             Amount
                                 -------------------------------------------

                                         1999                     $  573,104
                                         2000                        103,674
                                         2001                        106,933
                                         2002                         99,662
                                         2003 and thereafter       3,710,392
                                 -------------------------------------------
                                                                  $4,593,765
                                 ===========================================

3.  Related Party     The Company  currently  leases three and one half acres of
    Transactions      its Midland,  Virginia  property from its President,  on a
                      month-to-month  basis, as additional storage space for the
                      Company's finished work product. The lease agreement calls
                      for minimum annual rent of $6,000.

                      Notes  payable - related  parties are  unsecured,  with no
                      fixed  maturity date (but no earlier than January 1, 2000)
                      and bear interest at 10%. Total interest  expense on these
                      notes was $10,500 and $11,500 for the years ended December
                      31, 1998 and 1997, respectively.

                                     F-16


<PAGE>
                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


3. Related Party      The  Company has an  unsecured  note  receivable  from its
   Transactions       President and majority stockholder with a seven- year term
   (continued)        bearing  interest  at 6%.  The  terms of the note call for
                      annual payments of $45,948 beginning on December 31, 1998,
                      and  continuing  through  maturity on December  31,  2002.
                      Total  interest  income  on this  note  was  approximately
                      $37,600 and $39,500 for the years ended  December 31, 1998
                      and 1997, respectively.

                      As of  December  31,  1998 and 1997,  the  Company was the
                      beneficiary of individual  life insurance  policies on the
                      life of the President with a total cash surrender value of
                      approximately   $148,000   and   $139,000,   respectively.
                      Borrowings  of  approximately  $116,724 and $117,514  were
                      outstanding  against the cash surrender  value at December
                      31, 1998 and 1997.

4. Income Taxes       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:

<TABLE>
<CAPTION>

                      Year Ended December 31,                    1998                    1997
                      ------------------------------------------------------------------------------

                                                           Amount    Percent        Amount   Percent
                      ------------------------------------------------------------------------------
                      <S>                                  <C>        <C>           <C>       <C>

                      Income taxes at statutory rate    $(273,000)    (34)%       $ 89,700     34%
                      Increase (decrease) in taxes
                       resulting from:
                       Utilization of net operating loss
                        carryforward                           -        -          (97,800)   (37)
                       Increase in valuation allowance    261,000      30               -       -
                       Other                               12,000       4            8,100      3
                      ------------------------------------------------------------------------------

                                                        $      -        - %       $     -       -%
                      ==============================================================================
</TABLE>

                                     F-17


<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)



4.  Income Taxes      Deferred tax assets (liabilities) are as follows:
    (continued)

<TABLE>
<CAPTION>

                      December 31,                                     1998          1997
                      -------------------------------------------------------------------
                      <S>                                       <C>             <C>
                      Depreciation                              $   (44,600)   $   (4,400)
                      Allowance for doubtful accounts               102,000        92,500
                      Vacation accrued                               41,000        68,300
                      Operating loss carryforwards                1,072,000       753,000
                      -------------------------------------------------------------------

                      Net deferred tax asset                      1,170,400       909,400
                      Deferred tax asset valuation allowance     (1,170,400)     (909,400)
                      -------------------------------------------------------------------

                                                                $         -    $       -
                      ===================================================================

</TABLE>


                      At  December  31,  1998,  the  Company  had  approximately
                      $2,750,000 of cumulative net operating loss  carryforwards
                      with expiration dates through December 31, 2018.

5.  Employee Benefit  The  Company  has a 401(k)  retirement  plan (the  "Plan")
    Plans             substantially  all employees.  Participants may contribute
                      up to 10% of their  compensation  to the Plan. The Company
                      contributes 25% of the participant's  contribution,  up to
                      1%  of  the  participant's  compensation,  as  a  matching
                      contribution.  Total  contributions  for the  years  ended
                      December  31,  1998  and  1997  were  $6,465  and  $3,908,
                      respectively.

                      The Company has a profit  sharing plan which  provides for
                      employee  bonuses  based  upon the  Company's  results  of
                      operations.  No payments  were made during the years ended
                      December 31, 1998 and 1997.

6.  Commitments       a)  The  Company  has an  employment  agreement  with  its
    and               President  which  expires  December  31, 1999  pursuant to
    Contingencies     which he will be paid an annual  salary of  $175,000.  The
                      President is also entitled to receive  benefits offered to
                      the  Company's  other  employees,  and  certain  severance
                      benefits  if  the  Company   terminates   the   employment
                      agreement  without  cause.  In  addition,  the  employment
                      agreement   precludes   the  President   from   disclosing
                      confidential  information  and  from  competing  with  the
                      Company  during  each  year of his  employment  and for at
                      least one year thereafter.

                                     F-18

<PAGE>
                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)



6.  Commitments       b)  On  August  5,  1994,   the  Board  of  Directors  and
    and               Stockholders  of the Company adopted the 1994 Stock Option
    Contingencies     Plan (the "1994  Plan")  which allows the Company to grant
    (continued)       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.  The maximum aggregate number of
                      shares  which  may be  granted  shall not  exceed  280,000
                      shares of the Company's Common Stock.

<TABLE>
<CAPTION>

                                                      Weighted
                                                       Average                              Vested
                                                       Exercise    Available   Options        and
                                                         Price     For Grant  Outstanding  Exercisable
                         -----------------------------------------------------------------------------
                         <S>                             <C>         <C>        <C>          <C>

                          Balance, December 31, 1996    $3.60       260,000    20,000       20,000
                          Granted                        1.00       (37,450)   37,450           -
                          Forfeited                      1.00         3,000    (3,000)          -
                          Vested                           -             -         -        12,483
                          ----------------------------------------------------------------------------
                          Balance, December 31, 1997       -        225,550    54,450       32,483
                          Granted                        1.00       (61,975)   61,975           -
                          Forfeited                      1.00         5,000    (5,000)          -
                          Vested                           -             -         -        12,483
                          ----------------------------------------------------------------------------
                          Balance, December 31, 1998    $1.44       168,575   111,425       44,966
                          ============================================================================
</TABLE>


                                     F-19


<PAGE>
                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


6.  Commitments       In October 1995, the Financial  Accounting Standards Board
    and               issued  Statement of Financial  Accounting  Standards  No.
    Contingencies     123, Accounting for Stock-Based Compensation ("SFAS 123").
    (continued)       SFAS 123 establishes alternative methods of accounting and
                      disclosure   for   employee    stock-based    compensation
                      arrangements. The Company has elected to use the intrinsic
                      value method of  accounting  as  prescribed  by Accounting
                      Principles  Board  Opinion  No. 25,  Accounting  for Stock
                      Issued to  Employees,  and  related  Interpretations,  for
                      stock  options  granted to the Company's  employees.  This
                      method does not result in the  recognition of compensation
                      expense  when  employee  stock  options are granted if the
                      exercise  price of the option  equals or exceeds  the fair
                      market value of the stock at the date of grant.

                      If the provisions of SFAS 123 had been adopted, the effect
                      on 1998  and  1997  earnings  (loss)  would  have  been as
                      follows:

<TABLE>
<CAPTION>

                                                                                1998         1997
                          -----------------------------------------------------------------------
                          <S>                                                <C>           <C>
                          Net earnings (loss):
                            Reported                                       $(783,883)    $263,803
                            Proforma                                        (816,010)     246,021
                          Basic and diluted earnings (loss) per share:
                            Reported                                       $   (0.26)    $   0.09
                            Proforma                                           (0.27)        0.08
</TABLE>

                          For  purposes  of  computing   the  proforma   amounts
                          indicated  above, the fair value of each option on the
                          date of grant is  estimated  using  the  Black-Scholes
                          option  pricing model with the following  assumptions:
                          no  dividend  yield,   expected   volatility  of  50%,
                          risk-free interest rate of 5.27% and expected lives of
                          five to six years.  Substantially  all options become
                          vested and exercisable evenly over a five year period.
                          The weighted average fair value of options granted
                          during the years ended December 31, 1998 and 1997 was
                          $.52 and $.47, respectively.


                                     F-20


<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


6.  Commitments       c) In 1999,  the Company  plans to file claims,  for which
    and               notification has been made to the general  contractor,  in
    Contingencies     the amount of  approximately  $1,200,000  for  damages and
    (continued)       cost  overruns  incurred  as a result of  engineering  and
                      design  flaws on a  project  to  renovate  a  building  at
                      Rutgers University  ("Rutgers").  Specifically,  after the
                      Company  commenced the Rutgers project,  the Company found
                      that  the   original   structure   was  not   structurally
                      sufficient to support the panels as  originally  designed.
                      The  cost  overruns  relate  to  re-designing  of  panels,
                      producing panels with additional  steel and  reinforcement
                      criteria, and erection of the panels to the structure.

                      The contract began in 1998 and has a current expected
                      completion  date of June 15, 1999.  Management  estimates
                      the total loss on the contract, to be approximately
                      $1,100,000, before recognition of additional revenues
                      related to the claim. Approximately $326,000 of the total
                      estimated loss was incurred in 1998. A $764,000 provision
                      for additional loss on the contract was accrued as of
                      December 31, 1998 representing 1999 losses, and is
                      included in "accrued expenses and other liabilities" and
                      "contract costs" in the accompanying financial statements.
                      Due to the significant costs required to continue the
                      project and to fund ongoing  commitments,  the Company
                      entered into a working  agreement with the general
                      contractor to finance certain  costs,   at  cost  plus 10%
                      through the estimated completion date.

                      The  Company  has  hired  an  attorney,  who has  given an
                      opinion that a legal basis exists for the claim, to pursue
                      collection  of  the  claim.   All   conditions  for  claim
                      recognition have been satisfied, and approximately
                      $400,000 of the potential  $1,200,000 contract claim is
                      included in trade  accounts  receivable,  as such amounts
                      are probable (subject  to  negotiations  and  legal
                      proceedings), at December 31, 1998, respectively.  No
                      assurance can be made that  the total loss on the contract
                      will  not  exceed $1,200,000  or  that  any  amount of the
                      claim  can  be collected.

                      d) In late 1995, the Company filed four separate  informal
                      claims  totalling  $502,000 for damages and costs incurred
                      as a result of specification, policy and operating changes
                      to  contracts   primarily   instituted  by  the  state  of
                      Maryland,   including  the  newly  issued  "Noise  Barrier
                      Acceptance  Criteria",  which  occurred after the award of
                      the contracts and after unit production in accordance with
                      the contracts was  virtually  complete.  These claims were
                      increased  to  approximately  $1,081,000  at December  31,
                      1996.


                                     F-21

<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


6.  Commitments       Specifically,  the state of  Maryland  adjusted  its noise
    and               barrier  acceptance  criteria  over a  period  of  several
    Contingencies     months  during 1995 with the latest  version dated October
    (continued)       13, 1995.  According to the  Company,  these  changes were
                      significantly   different  than  contract  provisions  and
                      historical  acceptance  criteria  upon which the jobs were
                      bid and for which the Company was contracted.  The Company
                      incurred significant costs to rework panels and in certain
                      instances  construct  new  panels to  comply  with the new
                      standards.  Additionally, the Company lost production time
                      and revenue on other  contracts due to the time devoted to
                      address the criteria changes. The Company has continued to
                      pursue  collection  on  the  claims  filed  and  hired  an
                      attorney who  specializes  in this area.  According to the
                      Company's  attorney,  there is substantial  likelihood the
                      State Highway  Administration  (SHA) will  compensate  the
                      prime  contractors  for SHA's  improper  actions,  and the
                      Company  will   receive   additional   compensation.   All
                      conditions for claim  recognition has been satisfied,  and
                      approximately  $270,000  of the total  contract  claims is
                      included in trade accounts receivable, as such amounts are
                      probable,  at December  31,  1998.  The  Company  received
                      $185,000  of  these   contract   claims   during  1999  as
                      settlement for all but one claim for which the Company has
                      received, but not accepted, an offer for settlement.

                      e)  The  Company  owed  prior  benefit  plan  participants
                      approximately  $14,000 and  $205,000 at December  31, 1998
                      and  1997,   respectively,   related   to  the   Company's
                      terminated  retirement  plan, which is included in accrued
                      expenses and other liabilities.  At December 31, 1997, the
                      Company  had a  certificate  of deposit  with a balance of
                      approximately  $197,000,  which had also been  pledged  as
                      collateral on a $186,000 loan, to fund the plan obligation
                      with all interest  earned  allocated to the  participants.
                      During  1998,  the Company  redeemed  the  certificate  of
                      deposit  and  paid  the  plan  participants  approximately
                      $191,000 in benefits owed.

                      f) The  Company is self  insured for heath care claims for
                      eligible active  employees.  The Company carries stop loss
                      insurance  which limits the amount for  individual  claims
                      and total claims in any one year.  The Company  provides a
                      liability for estimated claims incurred but not reported.


                                      F-22


<PAGE>

                                                     Smith-Midland Corporation
                                                              and Subsidiaries

                                    Notes to Consolidated Financial Statements
                                                                   (continued)


6.  Commitments and   g) On March 2, 1999,  the  Company  received  notification
    Contingencies     from  the  NASDAQ  SmallCap  Market  ("NASDAQ")  that  the
    (continued)       Company had failed to meet certain  market  criteria,  and
                      may be  subject  to  delisting  if  compliance  cannot  be
                      achieved.  Specifically,  the  Company's  Common Stock had
                      fallen  below the  minimum  standard  of $1.00 per  share.
                      According to NASDAQ, the Company's Common Stock must trade
                      above  $1.00 per share for at least ten  consecutive  days
                      within the 90 day period ended June 2, 1999 to comply
                      with the minimum bid price requirement.



                                     F-23