U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

                Annual Report pursuant to Section 13 or 15(d) of
                       the Securities Exchange Act of 1934
                   For the Fiscal Year Ended December 31, 1996
                         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.)


5119 Catlett Road
P.O. Box 300, Midland, Virginia                                   22728
-------------------------------                            -------------------- 
(Address of Principal Executive Offices)                        (ZIP Code)
Web Site: http://www.Mvisibilty.com/Smithmid


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


         Securities Registered Under 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 Under 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)





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.   _X_

         The Issuer's revenues for its most recent fiscal year are $11,410,510.

         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 April 14, 1997, was approximately $2,129,872. As of March 21, 1997
the Company had outstanding 3,044,798 shares of Common Stock, $.01 par value per
share.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

                                                        Part of Form 10-KSB
                                                        Annual Report in which
Document                                                Document is Incorporated
--------                                                ------------------------

Definitive Proxy Statement for the Registrant's Annual           Part III 
Meeting of Stockholders for the fiscal year ended  
December 31, 1996, to be filed pursuant to Regulation 14A.



                                       ii






                                     PART I

ITEM 1.  BUSINESS

         GENERAL

         Smith-Midland   Corporation   (the   "Company")   invents,    develops,
manufactures,  markets, leases,  licenses,  sells, and installs a broad array of
precast concrete products for use primarily in the construction,  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
transportable,  prefabricated  concrete  buildings.  In  addition,  the  Company
produces utility vaults,  farm products such as cattleguards,  water troughs and
food  troughs,   and  custom  order  precast  concrete   products  with  various
architectural surfaces.

         The Company  completed an initial public offering ("IPO") of its Common
Stock in  December  1995,  from  which the  Company  received  net  proceeds  of
approximately  $2,600,000. In January 1996, the underwriters of the IPO executed
their  over  allotment  option in full,  from  which  the  Company  received  an
additional $396,000 of net proceeds.

         MARKET

         The  Company's  market  primarily   consists  of  general   contractors
performing public and private construction contracts, including the construction
of  residential  housing;  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 as well as in Puerto Rico,  Canada,
Belgium,  Portugal 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.

         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.


                                       3





         PRODUCTS

         Precast concrete products are cast and set 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(TM)   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(TM)
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(TM)  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(TM)  reduced installation time and
ease of erection, and from the use of smaller cranes for installation.

         The  Company  custom  designs  and  manufactures  each  Slenderwall(TM)
exterior  cladding system.  The exterior of the  Slenderwall(TM)  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(TM)   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 February 28, 1997 the Company has a backlog
for Slenderwall(TM) systems totaling approximately $1,724,000.  The Company also
has  submitted  for  approval  pending  proposals  for more than $14  million of
Slenderwall(TM)  systems,  although no assurance  can be given that any of these
proposals will result in binding purchase orders. The Company believes, although
no assurance can be given, that the Slenderwall(TM)  system has the potential to
generate a greater percentage of the Company's revenues.



                                       4





Easi-Set(R) Sierra Wall

         The  Easi-Set(R)  Sierra Wall (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
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 on to 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(R) in Virginia, a right of first refusal for
any new  proprietary  products  developed  by DuriSol,  and the  Company  pays a
royalty to  DuriSol  equal to $.25 per square  foot of  product  produced  using
DuriSol(R).

         The Sierra Wall is used 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(R) J-J Hooks(TM) Highway Safety Barrier

         The  Easi-Set(R)  J-J  Hooks(TM)   highway  safety  barrier  (the  "J-J
Hooks(TM) Barrier") is a patented, positively connected, safety barrier that the
Company  sells,  rents,  delivers  and  installs for use on roadways to separate
lanes of traffic,  either  temporarily for construction  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
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  recommends  that  states use only  positively
connected barriers.



                                       5



         The proprietary  quality of the J-J Hooks(TM)  Barrier is the design of
its positive  connection.  Protruding  from each end of a J-J Hooks(TM)  Barrier
section is a portion of a flat sheet of galvanized  steel,  rolled in toward the
end of the  barrier  (it  resembles  the letter "J" when  viewed  from  directly
above).  The sheet 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(TM)  Barrier to
another,  a contractor  merely  positions the hook of an elevated section of the
barrier  above the hook of a set section and lowers the  elevated  section  into
place. The positive connection is automatically engaged.

         The Company believes that the J-J Hooks(TM)  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(TM)  Barrier is easier and faster to install,  and remove,  requires a
smaller crew, and eliminates the need for loose hardware.

         In November 1990,  the FHWA approved the J-J Hooks(TM)  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(TM) Barrier has also been approved for use in state-funded  projects by 30
states, plus Washington,  D.C. and Puerto Rico. The Company is in various stages
of the application process in the remaining 20 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(TM) Barrier being used in such states. In
addition,  the appropriate  authorities have approved the J-J Hooks(TM)  Barrier
for use in the countries of Spain, Belgium, Chili, and Germany.

         Easi-Set(R) Precast Building and Easi-Span(TM)

         The Easi-Set(R)  Precast Building (the "Easi-Set(R)  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,  and electrical  switching
stations,  to inventory or supply storage,  restroom  facilities or kiosks.  The
Easi-Set(R)  Precast Building is available in a variety of exterior finishes and
in two  standard  sizes or it can be  custom  sized.  The roof and floor of each
Easi-Set(R)  Precast  Building are  manufactured  using the  Company's  patented
post-tensioned  system,  which helps seal the buildings  against  moisture,  and
reduces the  possibility  of water leaking into the interior.  As a freestanding
unit,  the  Easi-Set(R)  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(R) Precast 


                                       6




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(R) Precast Building and Easi-Span(TM)
for the following uses:

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

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

          o  UtilitiesInstallations  -- for  electrical  switching  stations and
             transformer  housing,  gas control  shelters and valve  enclosures,
             water and sewage  pumping  stations,  and  storage of  contaminated
             substances.

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

         Easi-Set(R) 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(R) 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.



                                       7




         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(TM) Barrier, the Easi-Set(R)
Precast Building and the  Slenderwall(TM)  precast exterior  architectural panel
system and certain  non-proprietary  products, such as the Company's cattleguard
products and water troughs 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  $15,000 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(R)  Building  licensees normally pay the Company a flat monthly fee for
"co-op  advertising and promotion program through which the Company produces and
distributes advertising materials and promotes the licensed products.

         The Company  has entered  into 21  licensing  agreements  in the United
States,  two in Canada and has  established one licensee in each of Puerto Rico,
Belgium,  Chile and Spain.  For the  fiscal  year ended  December  31,  1996 the
Company  received  approximately  $239,000 in licensing  fees and royalties from
these agreements,  compared to approximately  $194,000 for the fiscal year ended
December 31, 1995.

         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  continuing  to develop the  licensing
program  for  the  J-J  Hooks(TM)  Barrier  in  Europe  where  the  barrier  has
successfully  completed  crash  testing  requirements  to  meet  the  applicable
European standards.

         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 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 



                                       8





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 that it offers a broad range of products that are
unique and technologically superior to competitive products.

         PATENTS AND PROPRIETARY INFORMATION

         The Company holds U.S.  patents for the J-J  Hooks(TM)  Barrier and the
Easi-Set(R)  Precast  Building,  and has  filed  a  patent  application  for the
Slenderwall(TM)  exterior  cladding  system,  which is pending  in the U.S.  and
Canada, and the J-J Hooks(TM) Barrier, which is pending in the European Economic
Community Market. The earliest of the issued patents considered  material to the
Company's  business  expires in 2009. The Company also owns one U.S.  registered
trademark  and  licenses  the rights to  another:  Easi-Set(R)  and  DuriSol(R),
respectively.  The Company  licenses the technology used in DuriSol(R)  products
pursuant to an agreement that expires on December 31, 1998.

         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 


                                       9





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.  Completion of the Company's  obligations under
such  contracts is often subject to the  satisfactory  inspection or approval of
such  products  and  services by a  representative  of the  contracting  agency.
Although the Company endeavors to satisfy the requirements of each such contract
to which it is a party, no assurance can be given that the necessary approval of
its products  and services  will be granted on a timely basis or at all and that
the  Company  will  receive any  payments  due to it. Any failure to obtain such
approval  and  payment  may have a  material  adverse  effect  on the  Company's
business.

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

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

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

         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.


                                       10




         EMPLOYEES

         As of March 18, 1997, the Company had 137 full-time  employees,  108 of
which are located at the Company's Midland facility, and 29 of which are located
at the Company's  facility  located in Reidsville,  North  Carolina.  Of the 137
employees,  seven are executive  officers or managers,  six are  responsible for
sales and marketing,  102 are in manufacturing,  and fourteen 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 28,000  square foot  manufacturing
plant  on  approximately  17  acres  of  land in  Midland,  Virginia,  of  which
approximately  14 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 an  environmentally  controlled  casting area, two batch plants, a form
fabrication  shop, a welding and metal fabrication  facility,  a carpentry shop,
and a quality control center. In addition, the Company conducts outdoor concrete
pouring and curing  operations.  The Company's  Midland facility also includes a
large storage yard for inventory and stored materials.

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

         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.

         Although the Company believes that its present  facilities are adequate
for its current  needs,  the Company also  believes  that it could  benefit from
increased  plant  capacity at its Midland  property and is  currently  exploring
options to expand its manufacturing facilities.

ITEM 3.  LEGAL PROCEEDINGS

         In late 1995, the Company filed four separate  informal claims totaling
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 


                                       11






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.  All amounts due to each party are  currently in dispute.
The Company has considered the counterclaims in estimating the recoverability of
its claims and certain  trade  accounts  receivable  at December 31,  1996.  See
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations."

         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  fiscal  year  ended  December  31,  1996,  through  the
solicitation of proxies or otherwise.


                                       12





                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         Since  December 13, 1995 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 under the symbol "SMC".
As of April 7, 1997, there were approximately 35 record holders of the Company's
Common Stock.  Management believes there are approximately 663 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
                                                          ----           ---
1995
Fourth Quarter (from December 13, 1995)                  $5 3/8         $31/2

1996
First Quarter                                            $6 17/32       $4 19/32
Second Quarter                                           $6 5/8         $5 1/4
Third Quarter                                            $6 5/8         $3 1/8
Fourth Quarter                                           $3 5/8         $1

1997
First Quarter                                            $2 1/8         $1
Second Quarter (through April 14, 1997)                  $1 3/8         $  7/8

DIVIDENDS

         The  Company  has not paid  dividends  on its  Common  Stock  since its
inception and has no intention of paying  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 the earnings,  capital  requirements and financial position of the Company,
general economic  conditions and other pertinent factors.  The Company's current
loan  agreement  with Riggs Bank,  N.A.  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




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  primarily for
the  construction,  utility  and farming  industries.  The  Company's  operating
strategy has involved producing innovative and proprietary  products,  including
Slenderwall(TM) panels, 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, positively-connected highway safety barrier;
Sierra Wall, a sound barrier primarily for roadside use; and Easi-Set(R) Precast
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.

         RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 1996 ("FISCAL 1996") COMPARED TO
         THE YEAR ENDED DECEMBER 31, 1995 ("FISCAL 1995")

         For  Fiscal  1996,  the  Company  had total  revenue  of  approximately
$11,411,000  compared to total revenue of  approximately  $11,158,000 for Fiscal
1995, an increase of approximately  $253,000,  or 2%. Total revenue from product
sales increased from  approximately  $9,561,000 in Fiscal 1995 to  approximately
$10,147,000  in Fiscal 1996, an increase of  approximately  $586,000 or 6%. This
increase was primarily attributable to increased construction activity. Shipping
and   installation   revenue   decreased   from   approximately   $1,597,000  to
approximately  $1,264,000,  a decrease of  approximately  $333,000 or 21%.  This
decrease was principally due to a lower level of  installation  services,  which
were primarily offered as a convenience to customers to increase product sales.

         Royalty  income  increased  by  approximately   $45,000  or  23%,  from
approximately  $194,000  for Fiscal 1995 to  approximately  $239,000  for Fiscal
1996.  The increase was primarily a result of an increase in royalty fees earned
on production of the J-J Hooks(TM) Barrier.

         Total  cost  of  goods  sold  for  Fiscal  1996  totaled  approximately
$8,525,000,  representing a decrease of approximately $497,000, or 6%, from cost
of goods sold of  approximately  $9,022,000 for Fiscal 1995. Total cost of goods
sold as a percentage  of total  revenue  decreased  from  approximately  81% for
Fiscal 1995 to approximately 75% for Fiscal 1996,  primarily as a result of more
significant  costs incurred in Fiscal 1995, for contract  disputes for which the
Company  has filed  formal  claims  with the State of  Maryland  (the  "Maryland
Claims").


                                       14





The Company's general and  administrative  expenses increased from approximately
$2,060,000  in  Fiscal  1995  to   approximately   $2,356,000  in  Fiscal  1996,
representing  an increase of  approximately  $296,000,  or 14%. The increase was
primarily  the  result of  increased  payroll  expenses  and  professional  fees
associated with becoming a publicly traded company in December, 1995, staff time
and  professional  fees incurred in connection with filing the Maryland  Claims,
increased expenditures related to the licensing activities conducted by Easi-Set
Industries,  Inc.,  and  increased  costs  related  to the  introduction  of the
Slenderwall(TM)  systems. Selling expenses increased from approximately $608,000
in Fiscal  1995 to  approximately  $672,000  for Fiscal  1996,  an  increase  of
approximately  $64,000,  or 11%.  The  increase  in  selling  expenses  resulted
primarily  from  an  increase  in the  Company's  marketing  of  Slenderwall(TM)
systems.

         The  Company's  operations  for  Fiscal  1996  resulted  in a  loss  of
approximately  $298,000,  or $.10 per share,  representing a decrease in loss of
approximately  $1,231,000  when  compared  to a net  loss  for  Fiscal  1995  of
approximately  $1,529,000,  or a loss of $.82 per share. The Company's decreased
loss was primarily  attributed to an improved gross profit from operations,  the
non-recurrence  of  unamortized  debt issue  costs,  a decrease  in federal  tax
withholding  penalties,  and  decreased  interest  expense,  offset  somewhat by
increased general and administrative expenses and increased selling expenses.

         Interest expense decreased from approximately $587,000 for Fiscal 1995,
to approximately $469,000 for Fiscal 1996, a decrease of approximately $118,000,
or 20%.  This  decrease in interest  expense was primarily due to a reduction in
both the weighted  average  interest  rates paid to lenders and the average debt
outstanding during Fiscal 1996 when compared to Fiscal 1995.

         Interest  income  increased   approximately   $21,000,   or  45%,  from
approximately  $47,000 in Fiscal 1995 to  approximately  $68,000 in Fiscal 1996.
The increase in interest income was primarily  attributed to interest charged in
Fiscal 1996 on a note receivable due from the President of the Company.

         The Company  incurred  total other  expenses,  net of other income,  of
approximately  $8,000 for Fiscal 1996,  compared to net total other  expenses of
approximately  $154,000  for  Fiscal  1995.  The  decrease  in other  expense of
approximately  $146,000,  or 95%, was due primarily to a significant decrease in
federal tax withholding  penalties incurred by the Company from late payments in
Fiscal 1995.

         In Fiscal  1996,  the  Company  had net income for  federal  income tax
purposes  of  approximately  $9,000.  At  December  31,  1996,  the  Company had
approximately  $1,976,000 of cumulative net operating losses available to offset
taxable income with expiration dates through December 31, 2011. Accordingly,  no
income tax expense or benefit was recorded  for Fiscal 1996.  As a result of the
cumulative net operating loss carryforwards available to the Company, Management
does not expect to incur any income tax expense for fiscal 1997.


                                       15





         LIQUIDITY AND CAPITAL RESOURCES

         The  Company  has   financed   its  capital   expenditures,   operating
requirements  and growth to date primarily  through it's initial public offering
("IPO") and subsequent overallotment, bank and other borrowings, and the sale of
stock to and loans from its principal stockholders.

         For  Fiscal  1996,  cash of  approximately  $429,000  was  absorbed  by
operating  activities.  The  use  of  cash  during  this  period  was  primarily
attributable  to a  decrease  in  trade  payables,  and to fund an  increase  in
inventory  and  accounts  receivable.  In  addition,  the  Company  used cash of
approximately $411,000 for investing activities, primarily to purchase additions
to property and  equipment.  Approximately  $534,000 of cash was provided to the
Company by financing activities, the major source of which was the overallotment
for the IPO and increased bank borrowings.

         In July 1996,  the Company  entered  into a loan  agreement  with Riggs
Bank, N.A.  ("Riggs") to establish a $600,000 line of credit (the "Riggs Line").
The Riggs  Line was  subsequently  increased  to  $800,000  in  September  1996.
Interest  on the Riggs Line  currently  accrues  interest  at Riggs'  prime rate
(9.75% at December 31,  1996) plus 1.5% per annum.  The Riggs Line is secured by
the Company's accounts  receivable and any additional  borrowings by the Company
in excess of $25,000 will require the prior consent of Riggs. As of December 31,
1996, the Company had borrowed all of the funds  available under the Riggs Line.
Of the total proceeds of the Riggs Line,  approximately $660,000 was used by the
Company to pay off other  debt,  and the  remaining  proceeds  of  approximately
$140,000 was used for working capital and general corporate purposes.

         In December 1995, the Company  completed its IPO of 1,000,000 shares of
common  stock,  $.01 par value per share (the  "Common  Stock"),  and  1,000,000
Redeemable  Common Stock Purchase  Warrants (the  "Redeemable  Warrants"),  at a
purchase  price of $3.60 per share of Common Stock and  Redeemable  Warrant sold
together.  The  Company  realized  net  proceeds  from the IPO of  approximately
$2,618,000.  In January  1996,  the Company  completed  an  overallotment  of an
additional  150,000 shares of Common Stock and 150,000  Redeemable  Warrants for
net proceeds of approximately $396,000.

         During Fiscal 1996, the Company's President and Chief Executive Officer
sold 40,920 shares of the Company's Common Stock to the Company in order to fund
payment of accrued  interest and a portion of principal  due on his note payable
to the Company.  The  transaction was valued at the then current market value of
the Company's Common Stock.

         In October 1995, the Company completed a bridge financing consisting of
$500,000  principal amount of subordinated  promissory notes bearing interest at
10% per annum (the "1995 Bridge Notes"). In November 1994, the Company completed
a bridge  financing  consisting  of $325,000  principal  amount of  subordinated
promissory  notes bearing  interest at 10% per annum (the "1994 Bridge  Notes").
For each three dollars and fifty cents  ($3.50) of principal  amount of 1995 and
1994 Bridge Notes, the Company issued one share of Common Stock and one Bridge


                                       16




         Warrant.  Each  Bridge  Warrant  was  automatically  converted  into  a
Redeemable Warrant upon the completion of the IPO. Both of the bridge financings
were repaid from the net proceeds of the IPO.

         The Company had  approximately  $2,066,000 of notes payable at December
31,  1996 due  during the next 12 months.  This  indebtedness  is secured by the
assets of the Company and is  substantially  personally  guaranteed by Rodney I.
Smith, the Company's President.

         As a result of the Company's  substantial  debt burden,  the Company is
especially  sensitive to changes in the prevailing interest rates.  Fluctuations
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,  if
interest rates should  increase.  Management  intends to extend and/or refinance
this debt as it becomes due. The Company is currently negotiating to consolidate
certain debt under more favorable long term conditions, although no assuarnce of
such  consolidation  can be  given.  In  addition,  the  Company  has  agreed in
principal  with the Trustee of the Myers'  Trust  debt,  of which  $718,650  was
outstanding  at December  31, 1996,  to extend the  maturity  dates of the notes
evidencing  such debt from April 15, 1997 to dtaes ranging from July 26, 1997 to
November 26, 1997. 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, 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 did not generate a positive  cash flow from  operations  in
Fiscal 1995 or Fiscal 1996. 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.  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.  Although the Company does not have any current  commitments for
significant capital expenditures,  the Company plans to explore opportunities to
increase  the  Company's  production  capacity,  although no  assurance  of such
expansion can be given.

         The Company has recorded approximately $270,000 in accounts receivable,
or 25% of total  claims  filed  against the State of  Maryland of  approximately
$1,080,000,  which claims relate to providing goods and services to the State of
Maryland.  These  claims are  currently  the subject of  litigation.  See "Legal
Proceedings". The Company cannot determine with any certainty when a ruling will
be made.  It is possible the Company will incur  additional  costs in connection
with this matter.

         SEASONAL FACTORS

         The  Company  performs a portion  of its  concrete  pouring  and curing
processes on uncovered,  outdoor  manufacturing areas. During the winter months,
cold or  adverse  weather  




                                       17




causes a slowdown or cessation of these outdoor production  activities,  thereby
severely reducing the Company's  production capacity.  In addition,  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

         The Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards No. 128,  "Earnings  per Share" ("SFAS 128").  SFAS 128 is
effective  for  financial  statements,  including  interim  periods,  issued for
periods ending after December 15, 1997. SFAS 128 provides a different method for
calculating earnings per share than is currently used in accordance with APB 15,
"Earnings per Share." SFAS 128 provides for the calculation of Basic and Diluted
earnings  per share.  Basic  earnings  per share  includes  no  dilution  and 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,  similar to fully diluted earnings per share.  Management does not
expect the  application of this  pronouncement  to have a material effect on the
financial statements of the Company.

ITEM 7.  FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
         The following financial statements are filed as part of this report:
<S>                                                                                         <C> 
                                                                                             Page
                                                                                             ----

Report of Independent Certified Public Accountants ..........................................F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995 ................................F-3

Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 ..................................................................F-5

Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1996 and 1995 ..................................................................F-6


                                       18





Consolidated Statements of Cash Flows for the years ended December
31, 1996 and 1995  ..........................................................................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


         None.

                                    PART III

         Items 9 to 12 are  incorporated  herein by reference  to the  Company's
definitive  Proxy  Statement  to be  filed  with  the  Securities  and  Exchange
Commission.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS.

         (1)      The following exhibits are filed herewith:

Exhibit
  No.                                                Title
  ---                                                -----

  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
                  September 30, 1996 and are incorporated herein by reference:

Exhibit
  No.                                                Title
  ---                                                -----

  10a             Loan  Agreement by and among Riggs Bank N.A.,  the Company and
                  all of the Company's subsidiaries, dated as of July 22, 1996.

  10b             Promissory  Note from the Company and all of its  subsidiaries
                  to Riggs Bank N.A., dated as of July 22, 1996.

  10c             Amended and Restated  Promissory Note from the Company and all
                  of its  subsidiaries to Riggs Bank N.A., dated as of September
                  1996.

  10d             Promissory Note from Rodney I. Smith to the Company,  dated as
                  of January 2, 1996.


                                       19




         (3)      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.

Exhibit
  No.                                                Title
  ---                                                -----

  10a             License  Agreement  by and between  the  Company and  DuriSol,
                  Inc., dated January 22, 1996.

  10c             Purchase  Agreement by and between the Company and the Federal
                  Aviation Administration, dated September 28, 1995.

  21              List of Subsidiaries of the Company.

         (4)      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.

  10d             Note between the Company and  Fauquier  National  Bank,  dated
                  January 10, 1992.

  10e             Loan Agreement,  as amended, and Guarantee between the Company
                  and Security Bank, dated January 10, 1992.

  10j             Loan  Agreement  between  the  Company  and the State  Bank of
                  Remington, dated July 2, 1993.


                                       20




Exhibit
  No.                                                Title
  ---                                                -----

  10p             One of four identical  Collateral Note and Security Agreements
                  between  the  Company  and  the  Myers  Family  Trusts,  dated
                  February 26, 1993.

  10q             Deed of Trust  between  the  Company  and the  Trustees of the
                  Myers Family Trusts, dated February 26, 1993.

  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.

  10x             Promissory  Note  Issued by Rodney I. Smith to the  Company in
                  January, 1995.

  10y             Form of Financial  Advisory and Investment  Banking  Agreement
                  between the Company,  Network 1 Financial  Securities Inc. and
                  First Hanover Securities, Inc.

 (b)  REPORTS ON FORM 8-K

         The  Company  did not file any  Current  Reports on Form 8-K during the
last quarter of Fiscal 1996.



                                       21




                                   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, 1997                           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.
<TABLE>
<CAPTION>
Name                                   Capacity                             Date
----                                   --------                             ----
<S>                                   <C>                                  <C>    

/s/ Rodney I. Smith                    Chairman of the Board,               April 14, 1997
--------------------------             Chief Executive Officer 
Rodney I. Smith                        and President (principal      
                                       executive officer)            
                                             


/s/ Leonard N. Astfalk                 Vice President of Finance,           April 14, 1997
--------------------------             Chief Financial Officer
Leonard N. Astfalk                     (principal finance and
                                       accounting officer)   
                                       
                                       


/s/  Wesley A. Taylor                  Vice President of                    April 14, 1997
--------------------------             Administration
Wesley A. Taylor                       and Director  
                                       


/s/ Ashley B. Smith                    Vice President of Sales and          April 14, 1997
--------------------------             Marketing    
Ashley B. Smith                        and Director 
                                       


/s/ Andrew Kavounis                    Director                             April 14, 1997
--------------------------
Andrew Kavounis


/s/ Bernard R. Patriacca               Director                             April 14, 1997
--------------------------
Bernard R. Patriacca

</TABLE>

                                       22




                                                        


                                                      


                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Report of Independent Certified Public Accountants ........................  F-2

Consolidated Balance Sheets as of December 31, 1996 and 1995 ..............  F-3

Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995 ................................................  F-5

Consolidated Statements of Stockholders' Equity for the years 
ended December 31, 1996 and 1995 ..........................................  F-6

Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995  ...............................................  F-7

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

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


                                       F-1






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, 1996 and 1995, 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, 1996 and 1995, 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
March 20, 1997



                                       F-2




                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

================================================================================
DECEMBER 31,                                          1996                1995
--------------------------------------------------------------------------------
<S>                                               <C>                <C>

   ASSETS

CURRENT ASSETS
  Cash (Notes 2 and 6)                            $ 438,079          $  938,089
  Accounts receivable (Notes 2 and 6)
    Trade - billed, less allowance for doubtful
      accounts of $334,000 and $231,000           2,705,325           2,559,796
    Trade - unbilled                                113,299             101,873
  Inventories (Note 2)
    Raw materials                                   440,225             482,939
    Finished goods                                1,090,815             743,205
  Prepaid expenses and other assets                  92,383             159,490
--------------------------------------------------------------------------------


Total current assets                              4,880,126           4,985,392
--------------------------------------------------------------------------------


PROPERTY AND EQUIPMENT, NET (Notes 1 and 2)       1,380,871           1,430,286
--------------------------------------------------------------------------------


OTHER ASSETS
  Cash - restricted (Notes 2 and 6)                 194,617                  -
  Note receivable, officer (Notes 3 and 7)          659,000             665,474
  Other                                              80,260              76,103
--------------------------------------------------------------------------------


Total other assets                                  933,877             741,577
--------------------------------------------------------------------------------

                                                 $7,194,874          $7,157,255
--------------------------------------------------------------------------------

</TABLE>


                                       F-3







                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                                     CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

================================================================================
DECEMBER 31,                                           1996                1995
--------------------------------------------------------------------------------
<S>                                               <C>               <C>


   LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
  Current maturities of notes payable (Note 2)    $2,066,253         $1,274,544
  Accounts payable - trade                         1,439,934          1,603,325
  Accrued expenses and other liabilities
  (Note 6)                                           515,479            597,480
  Customer deposits                                  200,623             51,132
--------------------------------------------------------------------------------


Total current liabilities                          4,222,289          3,526,481

NOTES PAYABLE - LESS CURRENT MATURITIES (NOTE 2)   1,068,124          1,720,726

NOTES PAYABLE - RELATED PARTIES (NOTE 3)             115,598            116,753
--------------------------------------------------------------------------------


Total liabilities                                  5,406,011          5,363,960
--------------------------------------------------------------------------------


COMMITMENTS AND CONTINGENCIES (NOTES 5 AND 6)
--------------------------------------------------------------------------------


STOCKHOLDERS' EQUITY (Note 7)
  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 and 2,935,718
    issued, 3,044,798 and 2,935,718 outstanding       30,857             29,357
  Additional capital                               3,450,085          3,055,252
  Retained deficit                                (1,589,779)        (1,291,314)
--------------------------------------------------------------------------------


                                                   1,891,163          1,793,295
Treasury stock, at cost, 40,920 shares (Note 7)     (102,300)               -
--------------------------------------------------------------------------------


Total stockholders' equity                         1,788,863          1,793,295
--------------------------------------------------------------------------------


                                                  $7,194,874         $7,157,255
--------------------------------------------------------------------------------
</TABLE>



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



                                       F-4




                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

================================================================================
YEAR ENDED DECEMBER 31,                                 1996               1995
--------------------------------------------------------------------------------
<S>                                               <C>               <C>

REVENUE                                           $11,410,510       $11,157,576

COST OF GOODS SOLD                                 8,525,266          9,022,026
--------------------------------------------------------------------------------


Gross profit                                       2,885,244          2,135,550
--------------------------------------------------------------------------------


OPERATING EXPENSES
  General and administrative expenses              2,355,725          2,059,993
  Selling expenses                                   672,430            608,215
--------------------------------------------------------------------------------


Total operating expenses                           3,028,155          2,668,208
--------------------------------------------------------------------------------


Operating loss                                      (142,911)          (532,658)
--------------------------------------------------------------------------------


OTHER INCOME (expense)
  Royalties                                          238,801            194,305
  Interest expense and loan fees                    (468,820)          (587,493)
  Unamortized debt issue costs (Note 2)                  -             (497,185)
  Interest income                                     68,326             47,469
  Gain on disposal of fixed assets                    14,517                -
  Other, net                                          (8,378)          (153,867)
--------------------------------------------------------------------------------

Total other expense                                 (155,554)          (996,771)
--------------------------------------------------------------------------------

NET LOSS                                          $  (298,465)      $(1,529,429)
--------------------------------------------------------------------------------

LOSS PER SHARE                                    $      (.10)    $        (.82)
--------------------------------------------------------------------------------

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING          3,071,595         1,871,430
--------------------------------------------------------------------------------
</TABLE>




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





                                       F-5








                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>

=========================================================================================
                                          Additional     Retained
                                Common      Paid-In       Earnings    Treasury
                                Stock      Capital      ( Deficit )    Stock     Total
-----------------------------------------------------------------------------------------
<S>                             <C>       <C>           <C>          <C>      <C>

BALANCE, December 31, 1994      $17,929   $  91,930     $ 238,115     $   -    $ 347,974

Issuance of promissory notes
  and common stock (Note 7)       1,428     355,722         -             -      357,150

Issuance of 1,000,000 shares
  of common stock and
  warrants (net of expenses
  of $982,400) (Note 7)          10,000   2,607,600         -             -    2,617,600

Net loss                            -          -      (1,529,429)         -   (1,529,429)
-----------------------------------------------------------------------------------------


BALANCE, December 31, 1995       29,357   3,055,252   (1,291,314)         -    1,793,295

Issuance of 150,000 shares
  of common stock and warrants
  (net of expenses of $143,667)
  (Note 7)                        1,500     394,833         -             -      396,333

Purchase of 40,920 shares
  of treasury stock (Note 7)        -         -             -       (102,300)   (102,300)

Net loss                            -         -         (298,465)         -     (298,465)
-----------------------------------------------------------------------------------------

BALANCE, December 31, 1996      $30,857 $3,450,085   $(1,589,779)  $(102,300) $1,788,863
-----------------------------------------------------------------------------------------
</TABLE>



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





                                       F-6






                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

============================================================================================
YEAR ENDED DECEMBER 31,                                          1996              1995
--------------------------------------------------------------------------------------------
<S>                                                          <C>               <C>


CASH FLOWS FROM OPERATING ACTIVITIES
  Cash received from customers                                $ 11,641,847     $ 10,635,928
  Cash paid to suppliers and employees                        (11,634,441)      (11,661,597)
  Interest paid                                                 (453,939)          (590,886)
  Other                                                           17,648             87,907
--------------------------------------------------------------------------------------------


Net cash absorbed by operating activities                       (428,885)        (1,528,648)
--------------------------------------------------------------------------------------------


CASH FLOWS FROM INVESTING ACTIVITIES
  Purchases of property and equipment                           (371,785)          (152,877)
  Proceeds from sale of property and equipment                    14,517                -
  Cash disbursed on officer note receivable                      (53,526)           (59,679)
--------------------------------------------------------------------------------------------


Net cash absorbed by investing activities                       (410,794)          (212,556)
--------------------------------------------------------------------------------------------


CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from borrowings                                     1,543,606          1,035,870
  Repayments of borrowings                                    (1,404,498)        (1,291,712)
  Repayments on borrowings - related
    parties, net                                                  (1,155)            (2,979)
  Proceeds from issuance of common stock, net                    396,333          2,617,600
--------------------------------------------------------------------------------------------

Net cash provided by financing activities                        534,286          2,358,779
--------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH                                 (305,393)           617,575

CASH, beginning of year                                          938,089            320,514
--------------------------------------------------------------------------------------------

CASH, end of year                                             $   632,696       $   938,089
--------------------------------------------------------------------------------------------
</TABLE>


                                                                    continued...
                                       F-7






                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     (CONTINUED)
<TABLE>
<CAPTION>


===========================================================================================
YEAR ENDED DECEMBER 31,                                          1996              1995
-------------------------------------------------------------------------------------------
<S>                                                           <C>             <C>


RECONCILIATION OF NET LOSS TO NET CASH
  ABSORBED BY OPERATING ACTIVITIES

Net loss                                                      $(298,465)       $(1,529,429)
Adjustments to reconcile net loss to net
  cash absorbed by operating activities
    Depreciation and amortization                               421,200            371,672
    Amortization of debt issue costs                                -              497,185
    Interest on officer's note paid with stock                  (42,300)               -
    Gain on disposal of fixed assets                            (14,517)               -
    Decrease (increase) in other assets                          (4,157)           171,134
    (Increase) decrease in
      Accounts receivable - billed                             (145,529)          (422,744)
      Accounts receivable - unbilled                            (11,426)           (11,744)
      Inventories                                              (304,896)            45,834
      Prepaid expenses and other assets                          67,107           (117,157)
    Increase (decrease) in
      Accounts payable - trade                                 (163,392)          (558,406)
      Accrued expenses and other liabilities                    (82,001)           112,167
      Customer deposits                                         149,491            (87,160)
-------------------------------------------------------------------------------------------


Net cash absorbed by operating activities                      (428,885)       $(1,528,648)
-------------------------------------------------------------------------------------------



SUPPLEMENTAL SCHEDULE OF INVESTING AND 
  FINANCING ACTIVITIES
  Common stock issued related to proceeds received
    for promissory notes:
      Long-term debt                                          $    -           $  (357,150)
      Common stock                                                 -                 1,428
      Additional paid-in capital                                   -               355,722
  Treasury stock received in exchange for amount
    due from officer note receivable                          $(102,300)       $      -
-------------------------------------------------------------------------------------------
</TABLE>


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




                                       F-8




                                                       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
CONSOLIDATION           include 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




                                                       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.   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  experiences
                        reduced  revenues  from  December  through  February and
                        realizes the substantial part of its revenues during the
                        other months of the year.


FAIR VALUE              The  estimated  fair  value  of  financial   instruments
OF FINANCIAL            approximate  their  carrying  amounts as of December 31,
INSTRUMENTS             1996 and 1995.  The  estimated  fair  value of long term
                        debt is based on current  rates  offered 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.

LOSS PER SHARE          Loss per share is calculated  using the weighted average
                        number of shares of common stock outstanding  during the
                        period.  Stock options and warranties have been excluded
                        from  the   computation  of  loss  per  share  as  their
                        inclusion would be anti-dilutive.


                                      F-10




                                                       Smith-Midland Corporation
                                                                and Subsidiaries

                                      Summary of Significant Accounting Policies
                                                                     (continued)

================================================================================


RECENT ACCOUNTING       Effective January 1, 1996, the Company adopted Statement
PRONOUNCEMENTS          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." The statement
                        requires that long-lived assets and certain identifiable
                        intangibles be reviewed for impairment  whenever  events
                        or changes in circumstances indicate the carrying amount
                        of an asset may not be  recoverable.  Recoverability  of
                        assets to be held and used is measured  by a  comparison
                        of  the   carrying   amount   of  an  asset  to   future
                        undiscounted  net cash flows expected to be generated by
                        the asset. If such assets are considered  impaired,  the
                        impairment to be recognized is measured by the amount by
                        which the carrying  amount of the assets exceed the fair
                        value  of  the  assets.  Assets  to be  disposed  of are
                        reported  at the  lower of the  carrying  amount or fair
                        value less costs to sell. Adoption of this Statement did
                        not have a material  impact on the  Company's  financial
                        position, results of operations, or liquidity.

                        Effective January 1, 1996, the Company adopted Statement
                        of Financial  Accounting  Standards No. 123, "Accounting
                        for  Stock-Based  Compensation"  ("SFAS 123").  SFAS 123
                        allows a  company  the  option of  continuing  to follow
                        existing accounting principles for employee stock option
                        plans  or  to  adopt  the  new   principles  set  forth.
                        Generally, existing accounting principles do not require
                        a company to record  compensation  expense as long as it
                        issues stock options with an exercise price equal to the
                        market  price of the stock at the grant  date;  however,
                        SFAS 123 requires the disclosure of compensation expense
                        regardless of the exercise  price at the grant date. The
                        Company has determined  that no  compensation  should be
                        disclosed for the stock options as the fair market value
                        of the  stock  is  below  the  exercise  price  for  the
                        options,  the stock has not been actively traded and the
                        stock value has declined.

                        The   Financial   Accounting   Standards   Board  issued
                        Statement of  Financial  Accounting  Standards  No. 128,
                        "Earnings per Share" ("SFAS 128"). SFAS 128 is effective
                        for financial  statements,  including  interim  periods,
                        issued for periods ending after December 15, 1997.  SFAS
                        128 provides a different method for calculating earnings
                        per share than is currently used in accordance  with APB
                        15,  "Earnings  per Share."  SFAS 128  provides  for the
                        calculation  of Basic and  Diluted  earnings  per share.
                        Basic  earnings  per share  includes no dilution  and 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,  similar to fully
                        diluted  earnings per share.  Management does not expect
                        the application of this pronouncement to have a material
                        effect on the financial statements of the Company.

RECLASSIFICATIONS       Certain  reclassifications  have  been made to the prior
                        years  consolidated  financial  statements to conform to
                        the 1996 presentation.



                                      F-11









                                                       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,                                            1996              1995
                                --------------------------------------------------------------------------------


<S>                                                                                <C>               <C>       
                                Land and land improvements                         $  349,513        $  349,445
                                Buildings                                             945,805           942,336
                                Machinery and equipment                             4,389,745         4,406,582
                                Rental equipment                                       39,240            39,240
                                Construction in progress                                1,558             8,335
                                --------------------------------------------------------------------------------


                                                                                    5,725,861         5,745,938
                                Less: accumulated depreciation                      4,344,990         4,315,652
                                --------------------------------------------------------------------------------


                                                                                   $1,380,871        $1,430,286
                                --------------------------------------------------------------------------------




2.    NOTES PAYABLE             Notes payable consist of the following:

                                December 31,                                         1996              1995
                                --------------------------------------------------------------------------------


                                Note  payable to Riggs Bank,  maturing  July 22,
                                 1997;  with  monthly   payments  of  $7,000  of
                                 interest  only,  at a rate of prime  plus 1.5%,
                                 11.25% at December 31, 1996;  collateralized by
                                 accounts receivable.                               $800,000        $      -

                                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.                  18,451            29,995

                                Note payable to Faquier  National  Bank maturing
                                 December  1999;  monthly  payments of $4,625 of
                                 principal  and  interest,  at a  rate  of  12%;
                                 collateralized  by a first security interest in
                                 furniture and fixtures and land.                        -             174,999

</TABLE>



                                      F-12








                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================

<TABLE>
<CAPTION>

2.    NOTES PAYABLE
      (CONTINUED)               December 31,                                          1996              1995
                                --------------------------------------------------------------------------------


<S>                                                                                <C>              <C>
                                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%; 11.5%
                                 at December 31, 1996; collateralized by a first
                                 deed of trust on certain land.                     $117,091          $154,248

                                Note payable to Crestar  Bank due on demand with
                                 quarterly  payments of interest  only at a rate
                                 of  8.5%,   collateralized   a  certificate  of
                                 deposit of $210,000.                                    -             180,300

                                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.                  118,049           130,303

                                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.                             225,000               -

                                Note   payable  to  State  Bank  of   Remington,
                                 maturing   January  24,   1998;   with  monthly
                                 payments of $1,200 of principal  and  interest,
                                 at  a  rate  of  6.85%;   collateralized  by  a
                                 certificate of deposit.                             180,300               -

                                Note payable to State Bank of Remington maturing
                                 March 1, 1996; with monthly  payments of $6,314
                                 of principal and interest, at a rate of 10.75%;
                                 collateralized by equipment and vehicles.              -              59,166

                                Note  payable  to Gerard A. Engh,  MD,  maturing
                                 April 30, 1996; with monthly payments of $4,333
                                 of   interest   only   at  a   rate   of   13%;
                                 collateralized by accounts receivable.                 -             400,000

</TABLE>


                                      F-13








                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================

<TABLE>
<CAPTION>

2.    NOTES PAYABLE
      (CONTINUED)               December 31,                                           1996              1995
                                --------------------------------------------------------------------------------
<S>                            <C>                                                 <C>               <C>    

                                Notes  payable  to Myers'  trusts,  each of four
                                 maturing April 15, 1997; with monthly  payments
                                 of $3,241 each of  principal  and interest at a
                                 rate of 10%;  collateralized by a third deed of
                                 trust   on   land,   inventory   and   accounts
                                 receivable.                                        $718,650          $889,183

                                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.                          98,273           113,593

                                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.                         62,383               -

                                Notes payable to Obrey Messick, maturing May 25,
                                 1996;   with   monthly   payments  of  $800  of
                                 principal  and  interest  at  a  rate  of  10%;
                                 collateralized by machinery.                            -              46,851

                                Notes   payable  to  Obrey   Messick,   maturing
                                 December 1, 1997; with monthly payments of $964
                                 of  principal  and  interest  at a rate of 10%;
                                 collateralized by equipment.                            -              20,886

                                Notes payable to Calvin Showalter, maturing June
                                 28, 1997;  with  monthly  payments of $1,268 of
                                 principal  and  interest  at  a  rate  of  10%;
                                 collateralized by equipment.                          8,588            21,115

                                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.                  36,941            51,297


</TABLE>

                                      F-14








                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================

<TABLE>
<CAPTION>

2.    NOTES PAYABLE
      (CONTINUED)               December 31,                                          1996              1995
                                --------------------------------------------------------------------------------


<S>                                                                               <C>                <C>
                                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.                       $ 61,668          $ 79,148

                                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.                 256,879           311,918

                                Installment   notes   and   capitalized   leases
                                 collateralized by certain machinery,  equipment
                                 and stock maturing at various dates,  primarily
                                 June 1998 and July 2001,  with  interest  rates
                                 primarily at 10% and 11.5%.                         166,077            11,780

                                Unsecured  notes  payable  maturing  at  various
                                 dates,  primarily June 1997 and May 1998,  with
                                 interest rates primarily at 11.5% and 10%.          266,027           320,488


                                                                                   3,134,377          2,995,270
                                Less current maturities                            2,066,253          1,274,544


                                                                                  $1,068,124         $1,720,726
                                --------------------------------------------------------------------------------



                                The Company has a substantial  portion of its debt 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  certain debt as
                                it becomes due in 1997.  Substantially  all notes  payable have been  personally
                                guaranteed by the Company's President and majority stockholder.
</TABLE>




                                      F-15




                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================

2. NOTES PAYABLE       The aggregate  amounts of notes payable maturing in each
   (CONTINUED)         of the next five years are as follows:                  
                                                                            
                        
                        

                               Year Ending December 31,            Amount
                             -----------------------------------------------
                                      1997 .................   $2,066,253
                                      1998 .................      526,746
                                      1999 .................      320,469
                                      2000 .................      194,952
                                      2001 .................       25,957
                             -----------------------------------------------
                                                               $3,134,377
                             -----------------------------------------------

                        Unamortized  debt  issue  costs of  $497,185  ($.27  per
                        share)  represents  additional  interest  cost  from the
                        retirement of the 1994 and 1995  promissory  notes (Note
                        7) and the  related  unamortized  financing  costs.  The
                        funds used to retire the debt  represented  a portion of
                        the  proceeds  from the  closing  of the  December  1995
                        initial public offering.



3.    RELATED PARTY     The Company  currently  leases three and a half acres of
      TRANSACTIONS      its Midland,  Virginia  property from its President,  as
                        additional storage space for the Company's finished work
                        product.  The lease term  expired on December  31, 1995,
                        and  is  continued  on a  month-to-month  basis,  with a
                        minimum annual rent of $6,000.                          
                        
                        
                        

                        Notes payable - related  parties are unsecured,  with no
                        fixed  maturity  date (but no  earlier  than  January 1,
                        1998) and bear interest at 10%. Total  interest  expense
                        on these  notes was  $13,000  and  $19,700 for the years
                        ended December 31, 1996 and 1995, respectively.

                        The Company  held an unsecured  note from its  President
                        and majority  stockholder  with a balance of $192,000 at
                        December 31, 1995.  The note bore  interest at 7%. Total
                        interest  income on this note was  approximately  $3,900
                        and $13,000 for the years  ended  December  31, 1996 and
                        1995, respectively.  Also, the Company held an unsecured
                        non-interest   bearing  note  from  its   President  and
                        majority  stockholder  with a  balance  of  $473,474  at
                        December 31, 1995.  During  1996,  the Company  combined
                        these  notes  into a  single  seven  year  note  bearing
                        interest at 6%. Also, during 1996,  $102,300 of the note
                        was reduced for the Company's  purchase of 40,920 common
                        shares from the stockholder (see Note 7). Total interest
                        income on this note was  approximately  $42,300  for the
                        year ended December 31, 1996.


                                      F-16







                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================


3.    RELATED PARTY     As of December  31,  1996 and 1995,  the Company was the
      TRANSACTIONS      beneficiary of individual life insurance policies on the
      (CONTINUED)       life of the President with a total cash surrender  value
                        of  approximately  $135,000 and $128,000,  respectively.
                        Borrowings of  approximately  $117,500 were  outstanding
                        against the cash  surrender  value at December  31, 1996
                        and 1995.                                               
                                                                                
4. INCOME TAXES         Deferred tax assets (liabilities) are as follows:

<TABLE>
<CAPTION>

                        DECEMBER 31,                                     1996             1995
                        --------------------------------------------------------------------------------

<S>                                                                  <C>               <C>       
                        Depreciation                                 $ (92,900)        $(138,700)
                        Allowance for doubtful accounts                133,600            92,500
                        Vacation accrued                                54,600            35,400
                        Operating loss carryforwards                   790,500           828,300
                        --------------------------------------------------------------------------------

                        Net deferred tax asset                         885,800           817,500
                        Deferred tax asset valuation allowance        (885,800)         (817,500)
                        --------------------------------------------------------------------------------


                                                                     $       -        $        -
                        --------------------------------------------------------------------------------

</TABLE>


                        At December  31,  1996,  the  Company had  approximately
                        $2,062,000    of   cumulative    net   operating    loss
                        carryforwards with expiration dates through December 31,
                        2011.

5.  EMPLOYEE BENEFIT    The Company has a 401(k)  retirement  plan (the  "Plan")
    PLANS               covering  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, 1996 and
                        1995 were $3,750 and $2,080, respectively.              
                        
                        Also,  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, 1996 and 1995.


                                      F-17







                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================


6.    COMMITMENTS       a)    The  Company   leases  certain   equipment   under
      AND                     noncancelable operating leases expiring at various
      CONTINGENCIES           times.  Minimum future  obligations  for operating
                              leases  in  effect  at  December  31,  1996 are as
                              follows:                                          
                       

                                 YEAR ENDING DECEMBER 31,            AMOUNT
                                 -------------------------------------------
                                         1997 ....................   $4,700
                                         1998 ....................    4,700
                                 -------------------------------------------
                                                                     $9,400
                                 -------------------------------------------


                              Total  rent  expense   amounted  to  approximately
                              $12,000 for the years ended  December 31, 1996 and
                              1995.

                        b)    The Company has an employment  agreement  with its
                              President which expires December 31, 1999 pursuant
                              to  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.

                        c)    On August 5,  1994,  the  Board of  Directors  and
                              Stockholders of the Company adopted the 1994 Stock
                              Option  Plan (the "1994  Plan")  which  allows the
                              Company to grant options to  employees,  officers,
                              directors and  consultants  to purchase  shares of
                              the Company's  Common Stock.  The aggregate number
                              of  shares  of  Stock  for  which  options  may be
                              granted shall not exceed 280,000  shares.  Options
                              issued   under   the  1994   Plan  may  be  either
                              "incentive  stock  options"  within the meaning of
                              Section 422A of the United States Internal Revenue
                              Code  of  1986,  as  amended,   or   non-qualified
                              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.




                                      F-18





                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================



6.    COMMITMENTS       The 1994 Plan is administered by  disinterested  members
      AND               (as defined by Section 16b-3 of the Exchange Act) of the
      CONTINGENCIES     Board of Directors.  These disinterested  members of the
      (CONTINUED)       Board  determine  those  individuals  who shall  receive
                        options, the time period during which the options may be
                        partially  or fully  exercised,  the number of shares of
                        Common  Stock that may be  purchased  under each option,
                        and the option price.  The per share  exercise  price of
                        the Common Stock subject to options granted  pursuant to
                        the 1994 Plan may not be less than the fair market value
                        of the Common  Stock on the date the option is  granted,
                        except  that in the  case of a grant to any  person  who
                        owns,  directly  or  indirectly,  at  the  time  of  the
                        granting of an incentive  stock  option,  10% or more of
                        the total combined  voting power of all classes of stock
                        of  the  Company  (a  "10%  Stockholder")  shall  not be
                        eligible to receive any  incentive  stock  options under
                        the 1994 Plan  unless the option  price is at least 110%
                        of the fair market value of the Common Stock  subject to
                        the   option,   determined   on  the   date  of   grant.
                        Non-qualified   options   are   not   subject   to  this
                        limitation.  The Company has granted options to purchase
                        20,000  shares under the 1994 Plan at an exercise  price
                        of $3.60 per share which is equal to the price per share
                        of Common  Stock sold in the  Company's  initial  public
                        offering (Note 7). The options vested upon the effective
                        date  of  the  Company's  initial  public  offering.  No
                        options have been exercised as of December 31, 1996.    
                       
                    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-19






                                                       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 .
                        Approximately  $270,000 of the total contract  claims is
                        included in trade  accounts  receivable  at December 31,
                        1996 (Note 8).                                          

                    e)  The  company  owes  prior   benefit  plan   participants
                        approximately $211,000 and $257,000 at December 31, 1996
                        and  1995,   respectively,   related  to  the  Company's
                        terminated retirement plan, which is included in accrued
                        expenses  and other  liabilities.  At December 31, 1996,
                        the Company had a certificate  of deposit with a balance
                        of approximately  $195,000,  which has also been pledged
                        as  collateral  on a  $180,300  loan,  to fund  the plan
                        obligation  with all  interest  earned  allocated to the
                        participants.

                    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-20







                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================

7.    STOCKHOLDERS'     In  October  1994,  the  Company   completed  a  Private
      EQUITY            Placement   offering  of  six  and  one  half  units  of
                        securities  to  nonaffiliates   of  the  Company.   Each
                        complete unit consisted of the Company's  eighteen month
                        promissory  note  in the  principal  amount  of  $50,000
                        bearing  interest  at an  annual  rate of 10% due on the
                        earlier  of March  1,  1996 or the  receipt  of at least
                        $2,000,000 in proceeds from a private or public offering
                        of debt  or  equity  securities,  14,286  shares  of the
                        Company's  common stock, and a warrant to purchase up to
                        an  additional  14,286  shares  of  common  stock  at an
                        exercise  price of $5.00  per share for a period of five
                        years,  commencing  on the closing  date of the offering
                        (the  "Bridge  Notes").  The 92,859  shares  issued were
                        assigned  a value  of  $92,859  and the  original  issue
                        discounts  related  to the  promissory  notes were being
                        amortized  over the  life of each  promissory  note.  No
                        value was  assigned  to the  warrants  as the amount was
                        nominal.  The promissory notes were paid upon closing of
                        the  December  1995  initial  public  offering  and  the
                        remaining unamortized discounts were charged to expense.
                                                                                
                                               
                        In  October  1995,  the  Company  entered  into  a  loan
                        agreement (the "Loan  Agreement") with Rodney Smith, the
                        Company's  President and Chairman,  Douglas Miller,  the
                        Company's  Chief Financial  Officer at the time,  Ashley
                        Smith,  a  vice-president  and  director of the Company,
                        East Coast Investment Partners, L.P. ("East Coast"), and
                        Merry Robin Bachetti (collectively, the "Lenders"). Each
                        of  Mr.  Rodney  Smith,  East  Coast  and  Ms.  Bachetti
                        beneficially   owned  more  than  five  percent  of  the
                        Company's issued and outstanding Common Stock. Under the
                        Loan  Agreement,  the  Lenders  loaned  the  Company  an
                        aggregate  of  $126,250  (the  "Loan")  that the Lenders
                        received as net  proceeds  from the sale of Common Stock
                        by the Lenders. The Loan accrued interest at ten percent
                        per  annum and was due and  payable  on the  earlier  of
                        either  (i) April 23,  1997 or (ii) the  receipt  by the
                        Company  of  gross  proceeds  of  at  least   $2,000,000
                        pursuant to any financing. The proceeds of the Loan were
                        used by the  Company to reduce  outstanding  federal and
                        state payroll taxes. The loans were paid upon closing of
                        the December 1995 initial public offering.





                                      F-21







                                                       SMITH-MIDLAND CORPORATION
                                                                AND SUBSIDIARIES

                                      NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                                                     (CONTINUED)

================================================================================


7.    STOCKHOLDERS'     In  October  1995,  the  Company   completed  a  Private
      EQUITY            Placement   offering  of  ten  units  of  securities  to
      (CONTINUED)       nonaffiliates  of the Company (three units of which were
                        closed  in August  1995).  Each  unit  consisted  of the
                        Company's   eighteen  month   promissory   note  in  the
                        principal  amount  of  $50,000  bearing  interest  at an
                        annual  rate of 10% due on the  earlier of  February  7,
                        1997 or the receipt of at least  $2,000,000  in proceeds
                        from a  private  or  public  offering  of debt or equity
                        securities, 14,286 shares of the Company's common stock,
                        and a warrant to  purchase  up to an  additional  14,286
                        shares of common stock at an exercise price of $5.00 per
                        share for a period of five  years.  The  142,860  shares
                        issued  were  assigned  a  value  of  $357,150  and  the
                        original  issue  discounts  (financing  costs)  of equal
                        amount  were  being  amortized  over  the  life  of each
                        promissory  note.  No value was assigned to the warrants
                        as the amount  would be nominal.  The  promissory  notes
                        were paid upon  closing  of the  December  1995  initial
                        public offering and the remaining  unamortized discounts
                        were charged to expense.                                
                        

                        In  December  1995,  the  Company  completed  an initial
                        public  offering  ("IPO") of 1,000,000  shares of common
                        stock,  $.01 par value per share (the  "Common  Stock"),
                        and 1,000,000  Redeemable Common Stock Purchase Warrants
                        (the "Warrants"), at a purchase price of $3.60 per share
                        of Common Stock and Warrant sold  together.  The Company
                        realized  net  proceeds  from  the IPO of  approximately
                        $2,618,000.  In January 1996,  the Company  completed an
                        overallotment of an additional  150,000 shares of Common
                        Stock  and  150,000   Warrants   for  net   proceeds  of
                        approximately  $396,000.  No value was  assigned  to the
                        warrants as the amount would be nominal.

                        In October 1996,  the Company  entered into an agreement
                        with Rodney I. Smith, the Company's President, to accept
                        the Company's common stock in exchange for principal and
                        interest payments due on the President's note payable to
                        the Company. The transaction resulted in the transfer of
                        40,920 shares of common stock, accounted for as treasury
                        stock,  using the cost method, in exchange for a $43,200
                        interest  payment and a $60,000  principal  curtailment.
                        The  shares of common  stock  were  valued at the market
                        value existing at the date of the agreement.

8.    FOURTH QUARTER    For the year ended December 31, 1996, there were no year
      RESULTS           end adjustments material to the fourth quarter results. 
                        
                        
                        In the fourth  quarter  of 1995,  the  Company  recorded
                        adjustments that increased its net loss by approximately
                        $713,000 to reflect writedowns and to adjust inventories
                        to the year end physical count ($148,000), and to adjust
                        the estimate of the allowance for doubtful  accounts and
                        recoverability of claims due to receipt of counterclaims
                        and resulting disputes with customers ($565,000).


                                      F-22



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





                                  EXHIBIT INDEX

Exhibit
Number                          Title
------                          -----

   27                 Financial Data Schedule